taking the initiative: strategies for continued growthtitle taking the initiative: strategies for...

Copyright © 2006 Toshiba Corporation. All rights reserved. 1

Taking the Initiative:Strategies for Continued Growth

Atsutoshi NishidaPresident & CEO

Toshiba Corporation

May 11, 2006

３７Copyright © 2005 Toshiba Corporation. All rights reserved. 2

Forward-looking statements

・ This presentation contains forward-looking statements concerning Toshiba’s future plans, strategies and performance.

・ These forward-looking statements are not historical facts, rather they represent assumptions and beliefs based on economic, financial and competitive data currently available.

・ Furthermore, they are subject to a number of risks and uncertainties that, without limitation, relate to economic conditions, worldwide mega-competition in the electronics business, customer demand, foreign currency exchange rates, tax rules, regulations and other factors. Toshiba therefore, wishes to caution that actual results may differ materially from our expectations.


Business Results for Fiscal Year 2005

Business StrategiesBasic Management Policy

Basic Strategies of Mid-term Business Plan

Strategies for Key BusinessesNAND Flash Memory, SED, Nuclear Power, Medical Systems, Storage Devices, PC, AV

Activities to Promote Innovation

Enhancement of CSR Management


FY2005 Results FY2007 Goals(Announced Aug. 2005)

Net Sales 6,343.5b yen 6,600b yenOperating Income

Ratio 3.8% 4.0%

D/E Ratio 92% 100%

ROE 8.6% 10%

FY2005 Results vs. Previous Plan (announced in August 2005)

FY2005 actual results came close to achieving the FY2007 goals announced in August 2005.

The new FY2006 mid-term plan brings previous targets for FY2007 ahead by one year, to FY2006.


Basic Management PolicyRealize Sustained Growth with Profit

Execute proactive management through visions for growth and strategic allocations of resourcesEnsure implementation of mid-term plan and expand market share by enhancing competitiveness

Maximize Multiplier Effect of Innovations

Execute Management with Corporate Social Responsibilities

Enhance global competitiveness through Process InnovationsEstablish foundations for Value Innovations

Comply with laws and regulations in every business activity and evolve as a global group recognized for responding to social andenvironmental concerns


Digital ProductsEnhance digital information

networking and mobile applications

Stable BusinessElectronic Devices

Utilize leading market position, maintain advances

in technologies

Social InfrastructureCultivate business areas

that contribute to society in energy

Growth Business

FY2008

FY2010

Deliver more “Surprise and Sensation”(NAND, Cell, SED and AV products)

Reinforce provision of “Safety and Security”(nuclear power, batteries and security)

Achieve high growth and high profitin every business domain

Secure stable growth, establish stable profitability

Secure high growth, expand high profitability

Reinforce competitiveness, promote renovation

Achieve Sustained Growth with Profitin All Business Domains

Vision for FY2010

Aim for net sales of 9,000b yen and operating income of 540b yen (6%)


CAGR 7% (05-08)

2.7%3.8%

Overseas Sales Ratio:

47% (05) 57% (08)

4.0%

5.0%

Sales growth: CAGR 7% (FY05-08), Operating income ratio: more than 5%Achieve top level of profitability among Japanese electronics manufacturers

Mid-term Plan

Net Sales (¥b) Operating Income (¥b)

0

2,000

4,000

6,000

8,000

0

200

400

600

800

1,000

FY2004 FY2005 FY2006 FY2007 FY2008

5,836.16,343.5 6,600

7,800


FY2005 Result

FY2006 Forecast

FY2008 Plan

CAGRupper FY05-08(lower FY02-05)

Net sales 1,388.1

8.9%

2,536.5Operating

income ratio 0.8% 1.3% 2%

Net sales 1,882.3 1,940 2,160Operating

income ratio 4.1% 3.1% 4%4%

(1%)Social

Infrastructure

Net sales 687.5 710 750 3%(3%)

Electronic Devices

0.4%

Operating income ratio

2,2901,620 18%(3%)

Net sales

9.6%

2,700

10%

3,100

0.7%

Digital Products

1%

7%(7%)

Home Appliances Operating

income ratio

Goals by Business Segment(¥b)


High growth and high profitability (concentrate management resources and improvedevelopment efficiency)

Expand sales and profit, with emphasis on NAND flash

Reinforce competitiveness, promote renovation (reinforceproduct competitiveness, and cost restructuring)Secure profitability in HDD and improve profitability in AVbusiness

Steady growth with stable profitability (develop overseasbusinesses and expand existing business areas)Stable profitability in nuclear power and medicalsystems

Digital Products

Social Infrastructure

Electronic Devices

FY2008 Business Breakdown by Key DomainsExpanded Sales and Profit in Electronic Devices, Improved Profitability in Digital Products, and Stable Profit in Social Infrastructure

Operating Income

3.8%

5.0%

FY2005 FY2008

Operating incomeratio


Electronic Devices

Digital Products

- Half of total capex to SemiconductorBusiness

- FAB4 and FAB5 plans for NAND areincluded to reinforce high profitability

- Focus too on new businesses, such asSED

- Increase capex in HDD to reinforce competitiveness

Westinghouse- Promote Business in Strategic

Partnership

ElectronicDevices

Westinghouse

Capex StrategyProactive Management through a Primary Strategic Focus on Electronic Devices

1,132.3

2,040.0

DigitalProductsSocial Infrastructure

16%

61%

71%

3-year-resultsFY03-FY05

3-year-planFY06-FY08

(Bil. Yen)


- Nuclear hydrogen productiontechnology

- Next-generation medical diagnosticimaging technology

- Super high-speed rechargeable battery

200Bil. Yen

- Next generation non-volatile memory- Cell application systems- Small size methanol fuel cells- SED

- Super high density storage- Highly realistic images

Digital Products

Social Infrastructure

Electronic Devices

FY03-FY05 FY06-FY08

1,260.0

1,057.1 Others

ElectronicDevices

DigitalProductsSocialInfrastructureNote: ExcludingWestinghouse

(Bil. Yen)

47%

29%

18% 19%

29%

47%

R&D PlanMaintain R&D to sales ratio of 6% ¥200b increase over three years from FY06


390.0(5.0%)

265.0(4.0%)240.6

(3.8%)

-113.6(-2.1%)

232.1(3.9%)

8.6%9.1%

-100

0

100

200

300

400

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Operating Income(Operating Income Ratio)

ROE

FY08Operating income ratio: more than 5%ROE: more than 10%

(Bil. Yen)

Financial Strength - Improve Profitability


-500

0

500

1,000

1,500

2,000

2,500

FY00-FY02 FY03 FY04 FY05 FY06 FY07 FY08

Free Cash Flow

FY06-FY08 Cumulative Free cash flow is

expected to be in the black

Financial Strength – Cash Flow

CF from operating activities

FY00-FY02CF from operating 874.4CF from investing -650.3Free CF 224.1

CapexOrder basis(3 years)795.2

FY03-FY05CF from operating 1,129.6CF from investing -736.0Free CF 393.6

CapexOrder basis(3 years)1,132.3

Westinghouse

FY06-FY08CF from operating 1,800.0CF from investing -1,700.0Free CF 100.0

CapexOrder basis(3 years)2,040.0

(Bil. Yen)

CF from investing activities

CF from operating (3 years)

CF from investing (3 years)


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY080%

50%

100%

150%

200%

Interest-bearing debt

Total shareholders’ equity

D/E 250%

300%

D/E: 100%

Financial Strength - Shareholders’ equity and Interest-bearing debt(Bil. Yen)

End of FY08D/E Ratio: Within 100%Shareholders’ equity ratio: Over 20%

End of FY08D/E Ratio: Within 100%Shareholders’ equity ratio: Over 20%

Shareholders’equity ratio

21.2%

Shareholders’equity ratio

10.9%


CAGR

18%

(05-

08) Key Policies: Secure high growth and

expand high profit businesses

CAGR 3% (02-05)

FY2002 FY2005 FY2008

Sales Growth

Electronic Devices Business

- Expand NAND business- System LSI, Power devices,

Optoelectronic devices, Reinforce displays

- SED, Cell, Commercialize fuelcells (DMFC) for mobile use


Strong leadership in Advanced Process Technology and Multi Level Cell TechnologyIncreased Production Capacity: Timely and Continuous InvestmentEstablishment and Reinforcement of Business Relations (Cooperation in development and production, Customized solution by customers)

Infrastructure Development for NAND Business Expansion (Support card standardization, Reinforce NAND controller IC and software)

NAND Flash Strategies


'01/04 '02/04 '03/04 '04/04 '05/04 '06/04 '07/04 '08/04

Market P

rice

Digital Still CamerasUsed in Digital Still Camera

USB memoryWide penetration as data storage device for PCs

Mobile audio playersImproved data compression technology and lower NAND prices stimulates markets

Mobile phonesUse in mobile phones with

camera and other applications

CamcordersNAND Flash replaces HDD and DVD, on size and weight advantages

PCs; HDD-replacement;Flash/HDD hybridMarket expansion, thanks to higher density and higher speed

'09/04 ‘10/04

1-5GBlevel

2-10GBlevel

16-40GBlevel

NAND Flash Price and Application TransitionCreating New Markets with Reduced Costs


0

500

1,000

1,500

2,000

2,500

3,000

3,500

2004 2005 2006 2007 2008

NAND Flash Market (by value)

（Source: Toshiba, with data from analysts）

(¥b)

Surpass¥2,600bFurther market

growth is expected


300mm

200mm

Strengthen NAND Manufacturing Capability

(300mm equivalent; wafer output average)

~Accelerate Capacity Increases in 300mm wafers~

Strengthen manufacturingFY06 FY08

Approximately doubled

1H/05 2H/05 1H/06 2H/06 2007 2008

miniaturization 70nm generation

50nm generation


Brings superior image quality matching that of a CRT TV to a flat panel TV for the first time, using different principles to achieve superiority over other flat panel technologies

- Detail, natural colors (excellent gray-scale, color reproduction)

- True blacks, tone gradation (high contrast)- No blur during action scenes (high speed response)

Business plans

Features of SED

Development of SED

Present Establish mass production systemJuly 2007 Initial panel mass production

(Hiratsuka)Start with 55-inch panels

4Q/FY07 Launch SED TVs2008 Full scale panel mass production

(Himeji)

Sales Coincide with Beijing Olympics

Launch products at time market starts to grow

Resistant to commoditization


Nuclear Power Business

Sales Growth

Given market expansion and share considerations, business is expected to

expand 3 to 3.5 times

- Substantial business expansion due tosynergies from Westinghouse acquisition

Construction: Promote sales of AP1000 in USA and China

Maintenance: Expand business scale in USA and Europe

Fuel: Expand business scale in USA and Europe

- Increase domestic profits in period before new round of plant construction

Promote unified maintenance and service business

Basic Strategies: High growth, high profit

FY2005 FY2008 FY2015


Westinghouse Acquisition Schedule

Expect To Start New Framework this Autumn

Note: CFIUS: Committee on Foreign Investment in the US

: CFIUS Application completed; approvalpending

: Anti-trust Korea: approved;US: approval pending;EU/Others: Apply in due course

: Acquisition procedures plan completion in 2Q FY06


Medical Systems Business(Toshiba Medical Systems Corporation)

Sales Growth- Revised up from previous plan- Aim for net sales of ¥400b in FY2008

CAGR 5% (05-08)

- Expand total solutions business35% market share in Japan

- Increase overseas sales, mainly in theUS and Europe

51% of overseas sales ratio- Enhance global R&D

Promote network in the U.S.,Europe and Asia

- Maximize clinical valueDifferentiation with highvalue-added products

- Enhance health care IT business

Basic Strategies: Global high growth through technology leadership

FY2006 FY2008FY2005


CAGR 35%

(02-

05)

CAGR 17% (0

5-08)

FY2002 FY2005 FY2008

Sales Growth

Storage Business (HDD)

Basic strategies: Concentrate on 2.5-inches and smaller; No.1 in market

- Ensure competitiveness by continuedcapital expenditure

Raise manufacturing capability 1.7 times (2005 2008)

- Realize high functions and qualityperpendicular data recording,miniaturization/high density higher capacity models

- In addition to PC and peripheral uses,develop new fields, such as in-vehicleand AV equipment, mobile products,etc.


PC Business

Sales Growth

CAGR 5% (02-05)

CAGR 6% (05-08)

FY2002 FY2005 FY2008

Basic strategies:

Promote Differentiated Products

- Create value for customers withcontinuous launch of differentiatedproducts

Qosmio: “convenient,” “easy,”with “clear picture”Easy Guard “anytime,” “anywhere,”and “safe / secure”Promote captive technologieswith eight IP strategies

- Continuous growth in portable marketStrengthen cost competitivenesswith productivity improvementStrengthen quality

- Pursue environmental performanceEnvironmentally conscious PCs


AV Business

Sales Growth

CAGR 5% (02-05)CAGR 6% (05-08)

FY2002 FY2005 FY2008

Basic Strategies: Reinforce competitiveness, promote renovation

- Rapid shift to the next generationDVD (HD DVD)

- Launch SED TV (2H/FY07)- Become a global leader in FPD-TV- Lead the global market with PEP(Personal Entertainment Player)

- Secure profitability throughrestructuring


０６年度

FY2008FY2006

HD DVD Player/Recorder

Portable Media Player

HDD Movie Camera

LCD TV DecommoditizedDecommoditized ProductsProducts

Rapid rampRapid ramp--up of HD DVDup of HD DVD

Differentiation in hardware and Differentiation in hardware and alignment with software and contentsalignment with software and contents

Commercialization of Large Commercialization of Large Capacity Movie CameraCapacity Movie Camera

- Differentiate large-scale LCD TV (Full HD, network technology)

- Improve recognition of “REGZA” by vigorous investment in advertising

- Execute geographical strategies, raise FPD production capacity and refine rear-projection TV and CRT

- Rapid shift from current DVD business to HD DVD- Vigorous investment in development and advertising

- Bring PMC-integrated devices to market- Launch differentiated products by decomoditization strategy- Expand business opportunities by partnership strategy

- Full-scale launch of HDD movie camera and establish revenue base

Flagship Product Plan in AV Business- Launch SED TV (FY07)- Expand full HD line-up up to

medium size SCD TV- Expand line-up of LCD TVs

integrating IPS (from JV)

- Deliver second-generationmainstream models

- Enrich HD DVD contents

- Close tie-ups with distributors

- Enhance large-capacity and high-resolution

- High definition- Lighter and smaller


Structural Reform in AV Business Structural reform has made progress. Undertake continuous review of reform

1. Reduce inventory assets2. Analyze and improve inferior quality 3. Fully enforce procurement CR to resist price erosion4. Reduce fixed costs5. Examine costs at development stage6. Reduce global logistics costs

Raise level from improvement to innovation with i cube PJs


Process Innovation + Value InnovationCommodity

ProductsDecommoditized

Products

Gain profits through radical change of ways

Grow while offering new value

Value Innovation

Process Innovation ( “i cube” )

Two Innovations to Realize Sustainable Growth


What is i cube?

i cube is a Toshiba Group program that drives systematic advances in innovation. It cultivates new ways of thinking that fuse knowledge derived from all aspects of operations through application of Toshiba's management innovation methodologies.

R&D ProcessInnovation

Marketing Process Innovation

Production Process Innovation


Themes for Promoting i cube

Enhancing Enhancing Competitiveness: 41%Competitiveness: 41%

Developing New Products: 33%Developing New Products: 33%

Overseas Businesses: 19%Overseas Businesses: 19%

New Businesses: 7%New Businesses: 7%


Toshiba Group Slogan

Toshiba is a Global Group Trusted WorldwideBasic Principles of CSR Activities Major Emphases in CSR Activities

CSR Management

Respect stakeholders

Promote technological innovation and create new value

Contribute to a better global environmentContribute to the development of society as a good corporate citizen

1. We prioritize “human life & safety” and “legal compliance” in all business activities.

2. Leading role in environmental activities:Through execution of Environmental Vision2010 and our Fourth Voluntary Plan, wecontribute to a sustainable society.

3. Global Promotion of CSR Activities:We share the universal values of global society and coexist with each regional society as a good corporate citizen.

4. Information Disclosure and Communication:We make full information disclosure and proactive communications, achieving accountability.


Thorough Compliance Policy and Measures in Marketing

We prioritize “human life & safety” and “legal compliance” in all business activities.

Efforts for Strengthening Compliance

Preventative Measures to Avoid Misrepresentation of Test Data


Double overall ecoDouble overall eco--efficiency efficiency (FY2010/FY2000)(FY2010/FY2000)

Factor T – Products 2.2

Factor T – Process1.2

Toshiba Group’s Environmental Vision 2010

Fulfilling responsibilities as a global corporate citizen

Producteco-efficiency

Business processeco-efficiency

Improvement of product value, environmental impact of product throughout its lifecycle

Improvement of sales,environmental impact of entire business process


Promote Voluntary Environmental Plan

(1) Provide environmentally conscious products- Create environmentally conscious products throughout product lifecycle

(2) Abolish specific hazardous chemical substances- Comply with RoHS regulations and expand voluntary adoption of applicable

substances

Enhance product eco-efficiency

(1) Prevent global warming - Achieve business expansion and reduction of CO2 emissions- Reduce CO2 emissions associated with product logistics

(2) Promote effective use of resources- Pursue zero emissions and promote product recycle program

(3) Control chemical substances- Improve production processes and reduce emissions

Implement business process innovation


Net Sales7.8 trillion yen 7% CAGR from FY2005

4% CAGR from FY2002 to FY2005

Operating Income Ratio Over 5% 3.8% in FY2005

ROE Over 10% 8.6% in FY2005

Capital Expenditures

2.04 trillion yen in three years from FY2006 to FY2008; 61% to Electronic Devices

D/E Ratio Below 100% 92% in FY2005

R&D Expenditures

1.26 trillion yen in three years from FY2006 to FY2008; equivalent to 6% of net sales

Goals for Fiscal Year 2008


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