Q&A of Financial Results for Second Quarter of the Year Ending March 31, 2011

The following includes questions and answers at the conference for the financial results for Second Quarter of the Year Ending March 31, 2011.

• Precision Equipment Business
• Imaging Products Business
• Related Matters

Precision Equipment Business

Q:What can you tell us about the NSR-S620D ArF immersion scanner?

A:

In September, we achieved our target specifications with the NSR-S620D ArF immersion scanner increasing throughput to 180 or more wafers/hour with an overlay accuracy of 2.5nm or lower and are currently working on optimizing the technology to meet the process specifications of a number of manufacturers. By achieving the target specifications and enabling stable operability, we hope to secure further orders. We remain sales ranging around the late 30 units in the next fiscal period.

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

A:

Market demand based on unit sales for next fiscal year is expected to decrease from the current fiscal period, which is expected to account for approx. 110 units. However, demand for small to medium-sized tools for high-definition LCDs such as Smartphones and for Organic Electro-Luminescence panels is on the increase and we anticipate that our sales volumes will also increase on the back of this demand. In response to this rise in demand, we have started construction of a new building at Miyagi Nikon Precision Co., Ltd.

Q:What can you tell us about the development of 1x nm generation tools?

A:

Considering the timeframe needed to resolve issues surrounding the relevant technologies needed for EUVL tools including masks, light sources, and resist materials, we believe that immersion double-patterning will remain the most appropriate technology for 22nm processes for the foreseeable future. We expect that the need for 16nm generation devices or later will get into full swing around 2016 and even at that time, that there will be the possibility to apply the technologies both EUVL and the extension of double-patterning. In regard to the development of EUVL technologies, we are currently focusing on the development of high-NA optics which will support 1x nm generation.

Imaging Products Business

Q:What can you tell us about the digital camera market?

A:

The digital SLR camera market for the first half of this period recorded positive growth in all regions compared to the same period in the previous fiscal year, with Asia, and in particular China, showing significant growth. In the compact digital camera market, sales were up in comparison to the same period the previous year for all regions with the exception of the U.S., and we have continued to increase our market share in this category overall. In line with the growth of the market for the remainder of the year, we have revised the market annual forecast upward to 13 million units, 22 million units and 112 million units for digital SLR cameras, interchangeable lenses and compact digital cameras respectively. In regards to the trend of average prices, with the exception of the very competitive Japanese market, the fall in prices was not as serious as we first anticipated.

Q:How are Imaging Products business earnings?

A:

Carrying on from the 1Q period, although sales for digital SLR cameras, interchangeable lenses and compact digital cameras were up in comparison to the same period in the previous year, unfortunately we were slightly off achieving our sales forecast for digital SLR cameras due to a minor production delays. Despite a slight increase in earnings, we posted a fall in profits due to the effects of the strong yen. We have maintained our current annual sales forecasts for digital SLR cameras, however, have made an upward adjustment for interchangeable lenses and compact digital cameras. Mainly due to factors including a 10 yen increase in Yen-Dollar exchange rates, we have made a downward adjustment of our sales by 15 billion yen and operating income by 2 billion yen for this year period.

Related Matters

Q:What is the outlook for this fiscal year?

A:

We have made an upward adjustment of 10 yen for our forecast US dollar exchange rate to 80 yen against the dollar for the second half of the year. This change to the exchange rate will effect a fall in sales of 25 billion yen and a drop in operating income of 6 billion yen. Although we are making a concerted effort to reduce costs, there is still a degree of uncertainty for the remainder of the fiscal year, and as a result, we have made a downward adjustment of our annual sales by 20 billion yen to 870 billion yen and a downward adjustment of operating income by 4 billion yen to 48 billion yen.

Q:What impact will the change in Dollar and Euro exchange rates have on operating income?

A:

The impact over the last six months of the current second half will be approximately 600 million yen for each yen to the Dollar and approximately 500 million yen for each yen to the Euro. In past years, the impact of changes in Euro exchange rates has had a larger affect on operating income, however more recently, with the ratio of sales in US Dollars in the Precision Equipment business increasing, fluctuations in the US Dollar will begin to have a more significant impact on the group as a whole and the Precision Equipment business will become more susceptible to changes in exchange rates.