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  5. Q&A of Financial Results for the First Half of the Year Ending March 31, 2008

Q&A of Financial Results for the First Half of the Year Ending March 31, 2008

The following includes questions and answers at the conference for the financial results for the first half of the year ending March 31, 2008.

Precision Equipment Business

Q:Can you comment on the sales units of IC steppers & scanners?
A:

The reason we revised our anticipated sales units for this year downward is due to our decision to focus on profit and avoid excessive price competition for i-line steppers. In addition, we accounted for the impact of reduced logic IC related capital investment in KrF scanners. Moreover, despite a slight decrease in the number of units for next year compared to this year, we see the shift to ArF scanners, including ArF immersion scanners, continuing. As a result, we believe that our sales units will exceed this fiscal year's, and the ratio of sales units of ArF scanners including immersion scanners will comprise more than half of the sales as they did this fiscal year.

Q:What is the outlook for immersion scanners?
A:

The NSR-S610C started shipping in February, 2007 and is now being used to manufacture 43 nm NAND flash memory. While improving throughput is taking longer than anticipated, we have located the cause of the problem and are now working on improvements with the goal of achieving 2,000 wafers/day. With production using immersion scanners moving from NAND flash memory to DRAM and logic ICs, the allowable immersion related defects will become increasingly smaller. Since Nikon's immersion scanner uses a concept that generates zero defects, we feel we are entering an environment where our technology is superior.

Q:What is the status of double patterning development?
A:

We expect that IC device makers will begin employing it in the R&D process in 2008, and we are planning to introduce double patterning scanners during that period. There are several possible double patterning techniques, but regardless of the chosen technique the key is developing greatly improved alignment accuracy.

Q:What is the outlook for LCD scanners and steppers?
A:

The feeling is that LCD panel investment has leveled off this year. But our customers, mostly from Taiwan and Korea, are starting to contact us more frequently, suggesting we can expect a recovery next year. Moreover, we expect that panel size will continue to become larger so we are hard at work developing LCD scanners for 9th and 10th generation glass substrates.

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Imaging Products Business

Q:What is the outlook for the digital camera market?
A:

Nikon's digital SLRs led the market during the first half of the year ending March 2008 in Japan. And they sold in other regions as well. October sales in the US exceeded our forecast, and while we as yet do not see any slowdown in consumer spending due to the subprime mortgage problem, we are paying close attention to how the Christmas selling season is going. Next fiscal year our competitors will develop their marketing to full extent in the digital SLR market, and we expect this will stimulate market growth and contribute to sales.

Q:What is the profit outlook for Imaging Products Business?
A:

Robust digital SLR and interchangeable lens sales are being boosted by the appreciation of the exchange rate. We forecast an operating profit rate of 13.5%, higher than the 10.2% of the previous fiscal year. Currently, we are moving ahead with our manufacturing reform projects with the aim of achieving profit margins and cost efficiencies that rival our competitors.

Q:How are the new digital SLRs, D3 and D300, performing?
A:

They have been extremely well received on the market since their announcement and we receive a great number of orders. In response, we are preparing to increase production of both models.

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