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Q&A of Financial Results for the Year Ended March 31, 2004

The following includes answers to a number of questions at the conference as well as some submitted to the Company subsequent to the conference.

Earnings

Q:How did foreign exchange rates affect earnings?
A:

During the period under review, on a consolidated accounting basis, the effect of the changes in the U.S. dollar was negative while that of euro fluctuations was positive in comparison with initial projections. Overall changes in currency rates drove down net sales by approximately ¥6.4 billion; however, the effect on operating income was negligible.
Nikon forecasts a U.S. dollar/yen rate of ¥107 and a euro/yen rate of ¥128 for the current period.

Q:What is the status of interest-bearing liabilities?
A:

They shrunk ¥300 million from the end of the previous period to ¥220.5 billion. Nikon plans to continue shrinking interest-bearing liabilities to ¥210 billion by the end of the current financial accounting period.

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Precision Equipment Business

Q:Please tell us about the turnaround in the Precision Equipment Company¼Å¼Ö operating income in the year ending March 31, 2005.
A:

A rebound in the market, lower costs, and other factors contributed to a return to profitability for the Precision Equipment Company for the first time in three years. We have also received numerous inquiries from strongly interested parties regarding our NSR-S308F, a high numerical aperture (N.A.) ArF system, which we started taking orders for from April. We expect that the strong sales of this product will soon contribute significantly to corporate income. In addition to the LCD stepper business, which is poised to reach new heights, the IC stepper business is expected to return a profit. Although losses making factors have not been fully eliminated in the first quarter of the year ending March 31, 2005, we forecast operating income of approximately ¥9 billion for the whole fiscal year.

Q:How big is the stepper market and what is Nikon' s market share?
A:

The scale of the stepper market for calendar 2004 is expected to be around 500 units worldwide, and is projected to expand between 10% to 20% in 2005. Although we understand and acknowledge the validity of the silicon cycle, we also believe that the cycle will be less predictable than it has been in the past. We believe that we can secure a stable market share of 40% or more for steppers. In calendar 2003, Nikon garnered the top position in the market for ArF steppers with a share of over 50%, for an overall market share of approximately 46%.

Q:Can you tell us about the IC stepper production period in relation to customer orders for them?
A:

Nikon has achieved production of i-line, KrF, and ArF steppers in a six-month work cycle. We do not disclose the number of steppers ordered, but we are foreseeing clearly stepper sales by the end of this year.

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Imaging Products Business

Q:Please say something about the operating income for the Imaging Company.
A:

With regard to compact digital cameras , price competition is expected to continue to heat up. However, Nikon has decided to increase production of D70 digital single-lens reflex camera, which is receiving high acclaim of the market after its March launch. Nikon anticipates sales of the D70 to underpin earnings for the period, and projects operating income of ¥19 billion. We plan to launch nine new compact-type digital camera models targeted for the consumer market in the current period. Although the operating income forecast takes into account the large initial cost incurred in the development of these new products as well as other factors.
In the next financial period, in addition to growth in digital single-lens reflex cameras and interchangeable lenses, sales increases are expected for compact digital cameras. Nikon will strengthen the cost competitiveness of compact digital cameras by increasing the production in China, and a sharp rise in income is projected.

Q:Please discuss the sales breakdown for Nikon' s digital camera operations.
A:

In the period under review, 14% of camera sales were single-lens reflex digital cameras, while 59% were compact-type digital cameras, for a total of 73% of camera sales accounted for by digital cameras. In the current period, single-lens reflex digital cameras are expected to comprise 23% of camera sales while compact-type digital cameras should account for 53%.

Q:Please discuss the size of the digital camera market and Nikon' s market share.
A:

In the year ended March 31, 2004, 48.6 million units were delivered worldwide. On a unit basis, Nikon' s market share is 11%, and on a value basis, its share is 13%. In the year ending March 31, 2005, Nikon hopes to up these figures to 13% and 14%, respectively, of the approximately 62.4 million digital cameras forecast to be sold. Nikon expects the market for interchangeable type digital single-lens reflex cameras to double in this fiscal year, to approximately 2.4 million units. Nikon is seeking to lead the market with a share of 40% or more.

Q:Please discuss the business strategy for digital cameras.
A:

Nikon will increase its market share through the expansion of its lineup of digital cameras, including single-lens reflex models. In addition, Nikon will minimize costs through expanded overseas production and other measures as part of efforts to increase profitability.
In Nikon' s main digital camera factory, completed in the city of Wuxi, China, Nikon already started mass production of compact digital cameras, and in coming years plans to expand annual production to millions of units.