Q&A of Financial Results for the Year Ended March 31, 2006

The following includes questions and answers at the financial results conference.

Earnings and Related Matters

Q:Please discuss your plans for R&D expenditures.: A:
We intend to increase R&D expenditures about ¥10 billion compared with the year ended March 31, 2006. As well as bolstering our product development capabilities in the digital camera market where competition is expected to become increasingly fierce, we will also work to cultivate new businesses and to develop our various areas of elemental technologies.
Q:How do you plan to tackle the issue of write-down and loss on disposals of inventories?: A:
By bolstering marketing and manufacturing competitiveness, and implementing frameworks to accurately ascertain demand and prevent the occurrence of deadstock, we anticipate drastic reductions in the write-down of inventories and loss on disposals of inventories.

Q:Please discuss the profitability of Precision Equipment business for this fiscal year.: A:
Profitability in this business is growing due to advances in simplified design. With the installation of the ArF immersion scanner we are moving into uncharted territories where cutting-edge technology is required. Nevertheless, we will continue to focus on further cost reductions.
Q:What is the outlook for the immersion scanner?: A:
The final adjustment of NSR-S609B (NA 1.07) in the IC device makers, which began shipment in January of this year, is proceeding well. We believe that demonstrating solid results with the S609B will contribute directly to a growth in sales of the next model NSR-S610C (NA1.3), which will begin shipment at the end of this year. We have also been successful in acquiring new customers.
Q:What are your plans for the KrF scanners and i-line steppers in the market?: A:
Our focus is on producing competitive successes based on the accuracy and throughput of the products, rather than price competition which eventually stalemates in the business. We plan to improve our competitive strengths while at the same time pursuing ongoing cost reductions, for example, by incorporating the tandem stage employed in the ArF immersion scanner into KrF scanners and achieving higher throughput.

Q:Please discuss the profitability of Imaging business for this fiscal year.: A:
We anticipate that net sales of Imaging business will be around the same level to the year ended March 31, 2006. Digital SLR cameras and interchangeable lenses, however, are the pillars of profitability in this business and we expect the proportion of sales accounted for by these products to rise. With a view to accomplishing the goals set out in the Medium Term Management Plan we will increase further investments for advertising expenses and R&D expenditures to aim at prevailing in the competitive environment.
Q:What are your forecasts regarding shipments for this period?: A:
We plan to increase the shipment for digital SLR cameras of 30% compared with the year ended March 31, 2006, with the proportion accounted for by high-end and mid-range models expected to rise. With competition in the market for compact digital cameras becoming increasingly fierce we are focusing more on profitability rather than on expanding unit based market share. We anticipate the sales units of compact digital cameras to be almost same as the year ended March 31, 2006.