1Q FY2012 Earnings Release Conference Q&A

What is the outlook for orders in the July-September period and the October-December period?

We expect orders for semiconductor production equipment (SPE) in the July-September period to fall by 20% from the previous period. For the October to December quarter, at present, orders pushed out from the July-September period are just put in the October-December period and the figures are high. We will examine the situation closely when reviewing the budgets for the second half. With respect to flat-panel display and photovoltaic cell production equipment (FPD/PVE), we expect orders to be approximately 10 billion yen in the July-September period and 20 billion yen in the October-December period.

Financial forecasts were revised downward: where do you see weaker sales, by application or by region?

Investment by logic foundries and DRAM manufacturers is growing weaker.

Why will the profit ratio fall sharply from the first quarter to the second quarter even though sales will increase?

The profit ratio is not stable from quarter to quarter. In the second quarter, the percentage of sales of SPE, which has a higher profit rate, will decline. In addition, expenses will be higher than in the first quarter.

In the current downward revision of financial forecasts, why is the decrease in the profit rate greater than the decline in sales?

The main reason is that the percentage of sales of SPE, which has a higher profit rate, will decline. Also, we will continue to invest in growth fields including R&D and capital investment. There are no concerns that the marginal profit ratio will decline.

Considering that orders backlog for SPE at the end of June were 220.7 billion yen, sales in the second half seem low; have there been any cancellations of previously placed orders?

There have been very few cancellations of orders. The projected sales for the second half are a best guess despite the difficulty in projecting orders in the October-December period and sales in the fourth quarter.

What are your plans concerning SG&A expenses for the first half and the entire year?

SG&A expenses in the first half will be approximately 75 billion yen and are expected to slightly drop in the second half. We will examine fixed cost reductions when we prepare the budgets for the second half while closely monitoring market conditions.

Inventories at the end of June increased to 183 billion yen; what is your plan for inventories?

This increase is due to inventories that are scheduled to be sold in the second quarter. We will adjust production as we head into the second half and inventry level will be getting lower accordingly.

What is the outlook for SPE capex this year?

We expect an increase of about 5% for the calendar year compared to the previous year. For the fiscal year, we expect a slight decrease.

Does this mean that the short term adjustment in the attitudes of semiconductor manufacturers concerning investment in plant and equipment has ended? Is there a risk of a further downturn?

We believe that both upward corrections and downward corrections are possible. It depends largely on the macro economy.

What effect is the rising value of the yen having? In particular, what is its effect on the falling value of the Korean won?

We conduct currency exchange hedges for orders so the impact on financial results is minimal, but we believe that a substantial increase in the value of the yen will place our cost competitiveness under pressure. We believe that it is necessary to take aggressive measures to cut costs further and to raise overseas procurement rates, and directions have been given to that effect. The exchange difference between the Korean won and the Japanese yen is not creating any specific pressure. South Korean competitors already command a large share of the FPD market in Korea, and as a result, new pressures placed on TEL are limited. We have technological superiority in the SPE market, and consequently, we are not subject to immediate effects from exchange rates.

What is your projection of free cash flows for the entire year?

We expect cash flows from operations to be positive 50 billion yen or more and free cash flows to be slightly less than positive 10 billion yen.

What is your stance on dividends in conjunction with the downward revision of the financial results?

There is no change to our fundamental policy concerning the return of earnings to shareholders, and we will continue applying a payout ratio of 35%.

What is your position on share buy-backs? Dividends will be reduced this term, so is there any possibility of a cash out through a flexible share buy-back?

We are constantly considering the best use of our cash. Our industry is expected to undergo rapid growth, so our first priority is investing in growth. At the same time, we also believe that the concept of the total payout ratio that combines dividends and share buy-backs should be addressed as a means of returning earnings to shareholders. We are not necessarily opposed to share buy-backs and will consider it from time to time while monitoring the external environment.

Does your CEO have any comments concerning the downward revision of financial results?

We are currently in an adjustment phase, but we are certain to continue growing over the medium to long term. With respect to the question of when we will return to growth, we believe that there is a possibility of improvement by the end of the year, and our outlook is not particularly pessimistic.