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Toshiba Unveils Proactive Medium-term Business Plan Covering Fiscal Years 2003 to 2005

7 March, 2003

Tokyo -- Toshiba Corporation today announced a wide-ranging consolidated mid-term business plan for the three fiscal years to the end of March 2006. The plan is designed to complete Toshiba's transition to a dynamic group of companies active in two high growth business domains, digital products and electronic devices, and a social infrastructure domain that generates stable profit. Key objectives of the plan are a stable and strong profit structure that will support Toshiba in generating consolidated operating income of more than 270 billion yen in fiscal year 2005, and improved financial soundness and a D/E ratio of 150% at the end of fiscal year 2005.

The core of the plan, which Toshiba uses to clarify mid- to long-term goals and strategies for Toshiba Group, is a commitment to building: "a highly profitable group of companies, active in both high growth and stable growth businesses." This will be pursued through the enhanced competitiveness achieved with the '01 Action Plan that Toshiba initiated in 2001, and through a series of structural reforms, including a reorganization of in-house companies and transfers of some businesses into group companies, that will be engineered from April 2003 on.

1. The Fundamentals

The timeframe of the plan will see the emergence of truly ubiquitous networks and computing, a shift that will bring dramatic changes to our life environment: in the home, in the office, through to social administration, healthcare and all aspects of daily life. Toshiba expects this transition to be accompanied by growth in demand for products based on mobile and wireless technologies, and for the electronic devices supporting those products.

At the same time, the company sees opportunities for business expansion in social infrastructure. Environmental concerns will become more pronounced, generating demand for environmentally friendly products, infrastructure and services. The emergence of broadband networks will support new services, and an emphasis on overseas markets will help drive business expansion.

In its new plan, Toshiba responds to this market reality by defining three major areas as business domains: digital products and electronic devices, the company's high growth domains; and social infrastructure as a third domain generating stable profits. In line with this business delineation, Toshiba will strengthen the competitiveness of its home appliance business by spinning it off and integrating it with related group companies.


Basic Strategies
In its high growth domains, Toshiba will aim to secure its position among the top three in each product area and to realize a growth rate surpassing the pace of market expansion. In these two domains, the company will target consolidated operating income of 180 billion yen in 2005, with an average annual growth rate of 8%.

In its stable business domain, Toshiba will generate new sources of profit by establishing new businesses, by moving into overseas markets, particularly in Asia, and by reorganizing group companies. Combining this approach with a policy of lean management, Toshiba aims to secure an operating profit of 70 billion yen in fiscal year 2005, even assuming a sales expansion rate as low as 2% per annum.

In all of its businesses, Toshiba will promote enhanced overseas operations, with an emphasis on business in Asia. By the end of fiscal year 2005, Toshiba expects overseas sales to account for 50% of all sales, a 10% increase over fiscal 2002.

2. Enhanced financial soundness
Toshiba is determined to reinforce financial soundness. The company will further extend the Asset Light program initiated under the '01 Action Plan as a means to improve the effectiveness of use of assets. Capital expenditure will be limited to within cash flows, and 400 billion yen of the free cash flow generated within the period of the plan will be channeled to reducing interest-bearing debt. Proactive measures will be taken to strengthen the company's capital base, and an improved D/E ratio of 150% is targeted for the end of fiscal year 2005.
3. Capital Expenditure
Toshiba will invest 204 billion yen in capital expenditures in fiscal year 2002 and envisages investments of 840 billion yen in the three years to March 2006. Three quarters of these investments will be dedicated to high growth areas, including semiconductors.

Enhancing R&D
R&D will continue to drive Toshiba's future, and a key emphasis over the course of the plan will be on development and innovation in "engines of growth." The company will also continue to build for its future, cultivating seed technologies that will sustain growth beyond the new three-year plan.

R&D in semiconductors will be directed to sustaining Toshiba's industry-leading position in new generations of process technology, reinforcing SoC-solution capabilities, and strengthening technologies that enable differentiation from competitors.

In digital products, the focus will be on digital AV and information equipment, including the high-end home servers that will soon become an essential part of every household. Toshiba aims to build a leading position in this new field.

Environmentally friendly equipment and technologies for environmental monitoring will be a key area in R&D related to social infrastructure, alongside development of new businesses, such as next generation plant and equipment and operation and maintenance services.

Toshiba anticipates total R&D expenditure of 1,100 billion yen in the three years to 2005, against 340 billion yen in fiscal 2002. Of that amount, three fourths will be invested in high growth domains.

In a related measure, Toshiba will strengthen intellectual property management and secure competitiveness by retaining know-how on advanced high-tech within Toshiba Group.


Organizational Restructuring


Introduction of business group chief executive officers
Toshiba is determined to enhance management speed and efficiency. Toward this, the company will group in-house companies and group companies together, according to their characteristics: the nature of the business, time constants and growth rates. A corporate executive will supervise each group and assure its optimized management.

More specifically, business group chief executive officers will be assigned to assist the President and CEO in overseeing the digital products business, the electronic devices business, the social infrastructure business, the home appliance business and group company businesses, including the solutions and medical systems businesses. The role of these executives will be to promote enhanced management agility in the group and to assure flexible allocation of resources.


Promotion of spin-offs
Toshiba has undertaken a comprehensive review of its operational framework in order to secure its optimization. As a result of this, the company will reform some in-house businesses and separate others from the parent and integrate them with group companies.

In-house companies that will be spun off fall into one or more of four categories: those whose integration with another group company will boost competitiveness; those that would increase operating effectiveness by becoming completely autonomous; those that would expedite alliances with third parties by becoming completely autonomous; and those whose business and style of operation require adoption of a particular management style.

The first results of this policy will see the Display Devices & Components Company, e-Solutions Company, Medical Systems Company and Home Appliances Company move into new operating structures through integration with group companies.

Strategies for Individual Businesses

Major strategies for each of the business domains and major organizational changes that will assure their implementation are described below.


Digital Products Businesses
Our business is centered on advances in the mobile and wireless solutions businesses, where Toshiba is a recognized innovator. Proactive introduction of advanced products that support and build on ubiquitous networks will assure a leading position in the market.

Mobile Communications Company
Continuous introduction of market-defining, leading-edge products with motion picture capabilities, a particular Toshiba strength, is expected to secure a profitable structure for our mobile phone business and to build a high market share. Market expansion is also expected in Europe and China, markets that Toshiba has recently entered by focusing on high-end models.

Digital Media Network Company
From a position in the vanguard of the shift to ubiquitous networking and all that it offers, Toshiba create new markets and assure growth by delivering competitive technologies and products fusing wireless and broadband technologies.

The Digital Media Network Company will continue timely introduction of new digital AV and PC products, and reinforce its leading position by promoting new businesses in such areas as high-end home servers.

As the leading supplier in the Japanese market for HDD/DVD recorders, the company aims for the number one position in the market for DVD recorders/players in 2005. It also aims to regain the number one share in portable PCs, through the introduction of new wireless, AV media, and fuel cell technologies, and by moves to strengthen marketing and sales and production.

In manufacturing, we will continue our drive to define benchmarks for cost-efficient manufacturing operations. Our new portable PC plant will come on line in Hangzhou, Zhejiang Province, China, this spring, supplementing the capacity of our plant in the Philippines. Operations of our German PC facility in Regensburg will shift to a focus on configuration-to-order service, like our facility in Irvine, California.

Our PC business core facility, Ome Operations in Tokyo, will direct its energies to product and technology R&D and to engineering capabilities that will add to the mass production technologies at our plants serving the global market.

In marketing and sales, there will be a greater emphasis on direct sales, both in Japan and overseas.

The Digital Media Network Company will also take over the e-Solutions Company's cable modem business and business communications systems unit on April 1, 2003, and strengthen them in combination with servers and network operations.


Electronic Devices Businesses


Basic strategies
We will continue to channel resources to electronic devices for such high growth areas as digital consumer products and mobile equipment. An emphasis on the expanding markets of China and Asia and moves to enhance strategic marketing to large accounts is expected to fuel high growth and the profitability of this major business area.

Semiconductor Company
Toshiba will maintain its top-three position in the global semiconductor market by positioning discrete devices, analogue ICs and NAND flash memories as sources of sustained profit, while further expanding its system on silicon solution businesses.

A three-fold strategy of early development and introduction of large capacity devices, utilization of multilevel cell technology, and advances in process technologies ahead of competitors will sustain global leadership in flash memory market share.

In system LSIs, a differentiation strategy will continue to direct our work in high-level devices, including graphic processors. Moves to establish high profitability will include furthering alliances with strategic partners, reinforcing new product development and cultivation of new markets.

We lead the world in deploying 90-nanometer production capabilities, and will continue to do so in the transition to next generation 65-nanometer process technology.

The key target in our discrete business is expanded market share in two key growth markets, China and Korea. Increased assembly in Asia will promote cost competitiveness, while an expansion of our well-differentiated product lines will assure we remain the world No.1 in market share.

LCD Business
The April 2002 establishment of Toshiba Matsushita Display Devices, integrating our LCD business with that of Matsushita Electric Industry, has given us a stronger, more viable LCD business with world-class reach. A primary emphasis on medium and small displays for mobile devices, our market-leading low-temperature polysilicon TFT technology, and a dedication to improved cost competitiveness is aimed at regaining profits in this highly competitive business.

(2) Organizational changes
Following on from recent reorganizations of the LCD and CRT businesses, Toshiba will study separation into Toshiba Group subsidiaries of the electron tubes and devices, materials and components and secondary battery businesses, currently handled by the Display Devices & Components Company, with October 2003 as the target date. Assuming that this reorganization goes ahead, the Display Devices & Components Company will be dissolved; a new Display Devices & Components Control Center will be set up to support Matsushita Toshiba Visual Display Company Ltd., and to pursue the steady reorganization of the other three businesses.

Social Infrastructure Businesses


Basic strategies
A reorganization to maximize management resources will improve the cost structure and secure profitable sources of business. We will actively expand overseas businesses and enter new businesses with the potential to become sources of profit.

Industrial and Power Systems & Services Company
The key strategy of the newly established Industrial and Power Systems & Services Company will be development of overseas business opportunities, particularly in Asia and China. We will pursue provision of new thermal power plants, maintenance of existing plants, and provide electrical systems for locomotives, other industrial systems and components.

Promising business opportunities on the horizon include entry into Japan's power generation business as deregulation proceeds; growing demand for environmentally friendly technologies, increased interest in medium and small power generation systems, such as wind power systems; and opportunities in industrial system management services.

Social Network & Infrastructure Systems Company
The Hardware Solutions Company, a new in-house company to be established on October 1, will promote overseas business in system solutions, centering on hardware for broadcasting, telecommunications and graphic recognition.

e-Solutions businesses
Package-type solution services will be reinforced by consolidating marketing, R&D and engineering, so as to fully exploit potential and make full use of wide-ranging expertise, sophisticated technologies and high-level reliability nurtured through long experience.

Medical Systems business
The goal of becoming a total medical solutions provider, able to deliver timely advanced products and excellent services, will be furthered by establishing a comprehensive global business structure covering planning, R&D, design, manufacturing, sales and marketing and after-sales services.


Organizational changes

1) The Power Systems & Services Company and Social Infrastructure and Systems Company will be merged in the Industrial and Power Systems & Services Company to be set up on April 1, 2003.
2) Another new in-house company, the Social Network & Infrastructure Systems Company, will combine telecommunications and broadcasting systems, railway-related systems, automation and other systems of the e-Solutions Company, and the radio application systems of the Social Infrastructure and Systems Company. Its mission is to enhance integrated solutions for these systems.
3) To reinforce package-type solution businesses, Toshiba will separate the e-Solutions Company's divisions for software solutions businesses from the parent company and integrate them with Toshiba IT Solution Co., Ltd. This will be effected on October 1, 2003.
4) The Medical Systems Company, currently an in-house company, will be spun off as a new group company and integrate Toshiba Medical Systems Co., Ltd., a domestic sales company. The new company will reinforce its business through global integration of product development, manufacturing and sales and technologies. This will be effected on October 1, 2003.

Home Appliances Businesses and Others
Home Appliances Businesses
A new marketing company will be established on October 1, 2003, to reinforce marketing functions for white goods, lighting fixtures and air-conditioners, with the goal of enhancing Toshiba's businesses both in Japan and abroad. The new umbrella company will supervise a new subsidiary that will be established to manufacture white goods, Toshiba Lighting & Technology Corporation, Toshiba Carrier Corporation and Toshiba Batteries Co., Ltd.

Network Service & Content Businesses
The establishment of a Network Services & Contents Control Center will encompass network services, content and media services. The i-Value Creation Company, one of the present 10 in-house companies, will migrate into this organization on April 1, 2003.

Information in the press releases, including product prices and specifications, content of services and contact information, is current on the date of the press announcement,but is subject to change without prior notice.

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