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FY2011

- ended March 2012

Strategies for Transforming Toshiba into a Global Leader

- May 24, 2011

Q & A

Q1. NAND flash memory is one of main businesses Toshiba is focusing on. What are your thoughts about the future of this business?
Our NAND flash memory business, which has a global top-level market share, achieved a record high operating income of ¥108.7 billion in FY2010.
   At present, the storage market is progressing toward an era of “information explosion” in which the volume of data being processed will increase exponentially, and the memory market is also expected to greatly expand in the future. Accordingly, we are strengthening our advanced process generation memory products that are market leaders and are accelerating the development of future generations of post-NAND products. In parallel, we will make efficient investments to support the growth of this business that are in line with market trends.
   Looking toward future growth, Toshiba, ahead of other companies, made sample shipments in April 2011 of the world’s smallest and highest density 2-bit-per-cell 64-gigabit chips using 19nm process technology, the finest level yet achieved. We began to mass-produce advanced process generation NAND flash memories at the newly constructed Fab No. 5 at our Yokkaichi Operations in July 2011, and shipments started in August. We are continuing to press forward with further shrinking chip size, and at the same time, we are in the process of basic development of post-NAND memory chips such as BiCS (bit-cost-scalable) and next-next generation 3D memories. We have recently agreed with Hynix Semiconductor Inc. to jointly develop Magnetoresistance Random Access Memory (MRAM), a next-generation memory device which, when used together with NAND flash devices, can provide optimum storage solutions for future mobile devices. Furthermore, we will strive to expand our storage business by developing new high-performance application products that have high-added value. We will enhance the competitiveness of our SSD (solid state drive) storage devices by introducing a series of innovative new enterprise SSDs for servers. We will advance our capabilities in the storage business through integrated development and marketing of SSDs and HDDs. To further maximize synergies in these businesses, we merged our Semiconductor Company and Storage Products Company into a new in-house company in July 2011. By means of all these efforts, we are aiming to achieve net sales of ¥1.1 trillion in NAND flash memories in FY2015.

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Q2. You are determined to make Smart Community-related businesses a new profit base. How do you expect this new business to develop in the coming years?
We will nurture Smart Community-related businesses into a new profit base by vertically integrating our power generation, power transmission, power distribution and Smart Grid businesses in which Toshiba already has a wealth of accumulated experience. For the creation of a Smart Community that offers a total solution for making the urban environment and social infrastructure “smarter and greener,” including energy, water and transportation systems, it is necessary to have such technologies as those for Smart Meters that are key devices for Smart Grids and communication technologies that collect and control data. For this purpose, we recently acquired Landis + Gyr AG, a company that has the leading global position in energy management solutions for utilities. Innovation Network Corporation of Japan, a public-private partnership funded by the Japanese government and private corporations, has become a strategic partner by taking a 40% equity stake in that company. Landis + Gyr has developed its AMI (Advanced Metering Infrastructure) business that is essential for Smart Grids in more than 30 countries around the world and is proud of its world’s No. 1 share in Smart Meters. By utilizing the extensive customer network that this company has developed, we will accelerate the global development of Smart Communities. In addition, by utilizing the abundant social infrastructure business applications Toshiba possesses, we will also promote development into new application fields. Furthermore, I think that for the Smart Community to function organically the integration of our strength in power control technologies with data processing and computing cloud services is essential, and we will go forward with our strategic policy of establishing alliances with leading-edge IT partners. For example, in June, we announced plans to work together with Hewlett-Packard on integrating Smart Community technologies and exploring global business projects in this field.
   By creating comprehensive energy-management systems and maximizing the synergistic effects of integrating technologies, products and services to create new business opportunities, we will further accelerate the global development of Smart Community-related businesses and become a leading global company in this business field. By aggressively promoting our Smart Community business strategies, we are aiming for net sales of ¥900 billion in FY2015.

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Q3. With regard to Toshiba’s energy-related businesses you are following a strategic policy of strengthening Toshiba’s renewable energy businesses. What is your vision about the future of Toshiba’s energy-related businesses?
With regard to renewable energy, which we have long been concentrating on, our strategic policy is to further accelerate our capabilities and market position in this business field. In addition to providing renewable energy in power generation fields in which Toshiba already possesses an extensive record of experience such as our solar photovoltaic systems with their world-leading efficiency, our top share in mega-solar power generation in Japan, hydroelectric power, in which we have the world’s leading high-head, adjustable-speed pumped-storage technology, and geothermal power generation equipment, in which we have the world’s top market share, we will expand into new energy fields such as solar power and wind power. In the future, by means of our global business development strategies, including the establishment of strategic business alliances, we will further expand and actively move more extensively into wider areas in the renewable energy market. For example, with regard to wind power, we have entered into a strategic business alliance based on our taking a stake in Unison Co., Ltd., a long-established innovative Korean wind power equipment manufacturer. This alliance will help us expand into this business through the co-development and marketing of high-efficiency wind power generators.
   I believe that the importance to society of mainstay power generation systems such as thermal power will not change, and we will continue to work to accelerate the global development of these systems. We have a long record of experience in the thermal power field, both in Japan and overseas, starting with achieving eight consecutive years in the No. 1 position in the share of orders received for steam turbine generators from the North American market. Furthermore, in order to expand this business, we will collaborate with The Babcock & Wilcox Company, which is proud of having the top market share for boilers in North America, and we will work to increase the number of package-supply BTG (boiler, turbine and generator) orders we receive in such countries as India. In combined-cycle power generation as well, together with the U.S. company General Electric, we will supply the world’s leading high-efficiency thermal plants to the global market.
   Furthermore, as worldwide energy demand is still continuing to grow, our nuclear energy business has a target of receiving orders for 39 units by FY2015 and we have set a goal of achieving net sales of ¥1 trillion. However, depending on our customers’ situations and each country’s energy policy trends, there is a possibility that the achievement of this goal may come a couple of years later. We are planning to carry out measures to enhance safety at existing nuclear plants in accordance with the safety standards that will be revised based on the results of analyses currently being conducted by each-related organization. At the same time, we are also developing next-generation nuclear reactors that will be extremely safe.

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Q4. With regard to the Digital Products and Home Appliances business segments, going forward, how will you achieve robust growth and higher profitability?
By offering new enhanced fusion products and services, maximizing synergies through integrating technologies, sharing sales networks and developing products that match regional needs, we are aiming to achieve stronger growth and higher profitability in these segments.
   In the Digital Products business segment, in addition to strong sales of both notebook PCs, which have continuously held the No. 1 market share in Japan, and LCD TVs, which greatly increased in sales mainly in Japan and the ASEAN region, as a result of the continuous strengthening of the profit structure of this segment, particularly through the reduction in fixed costs, this segment continued to be in the black. The boundaries of products such as TVs, PCs and mobile devices are disappearing, and the integration of technologies, components, and products and services that cross over the borders of each category is very desirable.
   To respond to these changes in the business environment, in April 2011, we integrated our visual products and PC businesses by incorporating them into a new in-house company organized on a regional basis with respective business units for Japan, Europe/U.S., emerging economies and China. We will carry out speedy and timely business strategies by developing regionally-matched products, strengthening regional area sales and marketing organizations through maximizing organizational synergies, and delivering to the market innovative products such as battery–backup “Power TVs” as we strive to further improve the profitability of these businesses in the future. We intend to accelerate and streamline our businesses in emerging economy markets through these regionally based organizations and closer collaboration between the Digital Products and Home Appliances business segments.

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Q5. Toshiba’s financial structure has been strengthened. How do you view the relationship between financial soundness and pursuing growth strategies for the future?
Our free cash flow at the end of FY2010 continued at a high level of ¥159.4 billion and the strengthening of our financial base was reflected by the improvement of our debt-to-equity ratio (D/E ratio) to 125%.
   While striving to further strengthen Toshiba Group’s financial base in the coming years, we will aggressively move forward with allocating strategic resources to the businesses we have selected to focus upon so as to achieve stronger growth and higher profitability. With regard to the reserves that stem from the improvement of our D/E ratio, by the end of FY2013 (March 2014), we will secure the funds to accelerate growth by further improving our D/E ratio to 50%, among other measures. I am thinking of utilizing these capital funds for facility investments and M&A in new and growth businesses, as compelling future business opportunities arise. During the next three years, we are planning to invest a total of ¥1,450 billion in capital expenditures and investment & loans, and we will allocate ¥1,100 billion for R&D expenditures. Our strengthened financial structure will enable to us to use a portion of our capital funds to make additional bold future investments. We will further accelerate growth by strategically utilizing ¥700 billion of shiftable funds and our improved assets to make appropriate new investments. In addition, we are targeting a return on investment (ROI) of 20% by the end of FY2013, double that of FY2010.
   With regard to return to shareholders, we seek to continuously increase the annual dividend in line with a consolidated dividend payout ratio of about 30%.

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