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  5. Q&A of Financial Results for First Half of the Year Ending March 31, 2006

Q&A of Financial Results for First Half of the Year Ending March 31, 2006

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 and Related Matters

Q:How are you strengthening your financial position?
A:

We are working to make more efficient use of our assets, increase our shareholders' equity ratio, and reduce interest-bearing debt. To increase the efficiency of asset usage, we are focusing on improving cash flow by shortening inventory turnover and improving the collection of accounts receivable. We recognize that our shareholders' equity ratio of 32.7%, as of September 30, 2005, is still not sufficient. We also plan to further reduce about ¥187.0 billion interest-bearing debt up to about 2/3 in several years.

Q:How are you revamping your logistics systems?
A:

In the Imaging business, we integrated our domestic logistics centers in August 2005. And in Europe, we are conducting a review of distribution activities, including outsourcing, with an eye to making major improvements. We are also reviewing our methods of shipment from facilities in Thailand and China to other countries. In addition, in the Instruments business, we began to consign the shipping and warehouse business to outsourcing companies for the first step aiming at the overall efficiency improvement of logistics from October 2005.

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Precision Equipment Business

Q:What is your outlook for the second half of the fiscal year in this business?
A:

Since we will incur initial costs for introducing the NSR-S208D, NSR-S308F, and other new products, we anticipate that operating profit will be lower than in the first half of the fiscal year.

Q:Please discuss the outlook for the next fiscal year.
A:

We will incur initial costs in connection with the Large-Plate Exposure Systems FX-81S, which is capable of processing eighth-generation glass sizes for LCDs, but we anticipate that various cost reduction efforts, including shortening lead times, for the NSR-S208D, NSR-S308F, and other major products will contribute significantly to profitability. As a result, we are planning for increases in both sales and operating profit, with the same sales units during this fiscal year.

Q:Could you provide some information on the ArF immersion scanner?
A:

We plan to begin shipments during the current period. We have targeted sales of over 10 units for the next fiscal year. And we expect it will contribute to profitability.

Q:Could you give us some details about the Nikon LCD exposure systems?
A:

Our LCD exposure systems employ the original multi-lens scanning method and promise to result in greater benefits for application of large LCD panel sizes.

Q:What will be the impact of development costs for the most advanced scanners?
A:

We have estimated the market scale for ArF immersion scanners and Extreme Ultra Violet Lithography (EUVL) sources, and, even though we will incur development costs, we will be able to make a profit. In addition, we have completed a substantial portion of the optical projection lens system, where the development costs are largest, over the past two or three years.

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Imaging Business

Q:Could you please discuss the state of the compact digital camera business during the interim period?
A:

Sales performed well especially in the U.S. market. The profitability of the compact digital camera business as a whole has improved significantly.

Q:What is the outlook for the second half of the fiscal year?
A:

We have formulated plans taking into account the impact of the rise in oil prices on the U.S. market, sales promotion activities during the Christmas season, and other factors. We anticipate that operating profit will be lower than in the first half of the fiscal year.

Q:What are the prospects for digital SLR cameras?
A:

Beginning in spring 2006, electric equipment manufacturers are expected to enter this market. This will bring an intensification of competition, and we believe new responses to the changes in the competitive environment will be necessary. However, our goal for market share of 40% on a unit basis remains unchanged.

The digital SLR cameras currently on the market represent the first generation of the shift from film cameras to digital SLRs, and we believe the market of digital SLRs will be about 6 million to 8 million units. Thereafter, we think that we can expand the market by offering new types of digital SLR products. We intend to continue to make investments for this purpose.