• Precision Equipment Business
• Imaging Products Business
• Related Matters

Precision Equipment Business

Q. What is the outlook for the market of IC steppers and scanners?

A. Since summer, the capital expenditures for semiconductor industry have dropped off further. We forecast that the market size of the IC steppers and scanners of this year will decline from the 400 units of our previous forecast to around 300 units, a contraction close to nearly one-half compared to one year ago. Accordingly, we have revised our sales forecast downward. It is extremely unclear when the market will recover, and while the sluggish market will continue into the next first half year, we think it is likely that the market will recover during the second half and start of 2010.

Q. What is the status of new buildings construction aimed at enhancing production capacity?

A. Despite severe market conditions, we are staying the course on the necessary investment for medium- to long-term growth. New buildings construction is on schedule for completion and expected to be operational in early 2010. With the recovery of the immersion scanner market in 2010, we anticipate a market size will be more than 100 units, and aim to claim the majority of that market.

Q. What is the status of double patterning technology?

A. We are scheduled to introduce the immersion scanner for double patterning onto the market in the second half of 2009. The new model that greatly improves the throughput and the overlay accuracy will provide an effective solution for our customers by further refining Nikon's technologies of Local Fill Nozzle and Tandem Stage platform already fine-tuned in the NSR-S609B and NSR-S610C.

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

A. The capital expenditures for LCD panels have turned from last year's drop off to showing signs of recovery, a trend that has been reviewed since September. Accordingly, we have revised its market scope forecast for the current year from 110 to 100 units and have correspondingly reduced our sales forecast by 5 to 65 units. The trends of capital expenditures for next year are unforeseeable at this point, but we can exploit our strength in multi-lens projection optical system as the trend that the LCD panels and the equipments become larger will continue. Therefore we are confident that we will maintain a large market share in the future.

Imaging Products Business

Q. What is the outlook for the sales of digital cameras?

A. Despite concerns about the effects of the business downturn in the first half of this year, the entire product lineup showed robust sales growth compared with last year, with sales performance especially strong in the US and Asia, led by China. Sales in the second half of this year by October had been on track, but the business downturn is certain to have a negative effect on consumer demand from now on and we will closely watch how the Christmas shopping season develops.

Q. What is the profit outlook for the imaging business?

A. We maintain our profit-oriented focus. Though the industry average year on year first-half for 2008, digital SLR camera unit price at shipment showed a decline, we recorded a rise. For compact digital cameras, our ongoing category strategy of shifting to high-value added products has managed in the first half to keep the decline in the unit price at shipment less than the decline for the average unit price of the overall industry. We anticipate a rising yen and increased competition to put even more downward pressure on retail prices and therefore on sales and profits, but we are responding to this by continuing to cultivate a product premium and such cost reduction measures as bolstering productivity and increasing the percentage of local procurement practiced in overseas markets.

Related Matters

Q. What is your company-wide policy in response to the harsh business environment?

A. We think that harsh business conditions will continue from the second half of this year through all of next year. To improve profits, we are executing the following policies and also intend to gain a grasp of the opportunity when the market conditions recover:

• 1.To release appealing products and enhance competitiveness.
• 2.To both aggressively reduce expenses and carefully select and then apply investment from the perspective of the optimal resource allocation for the entire group.
• 3.To aggressively execute cash flow-oriented management by minimizing products in process and so on.
• 4.To enhance manufacturing and cut down cost price through such measures as improving the development process, shortening manufacturing periods, and reorganizing procurement processes and expanding our market share in the emerging countries.