Happy New Year!

We headed into the new year with business conditions as difficult as we've ever seen due to the global recession. Like the rest of the crystal device industry, Epson Toyocom is feeling the effects of the recession and, unfortunately, at the end of last October we joined the ranks of companies lowering their financial forecasts. The size of our downward revision, which is ascribed for the most part to changes in the external environment, was average for our industry.
The recession is expected to be somewhat protracted, but this is no time to sit back and wait for the economy to recover. We have to take this as an opportunity to get certain things done. The job of management is to make sure that we are positioned for a jump when the economy starts growing again.

The first thing we have to do is develop families of high added value products.
We have had a lot of success over the past year in developing compact, high-performance crystal devices, which was a goal that I touched on in my New Year's message last year.
For example, at the nation's largest electronics show, CEATEC Japan 2008, we exhibited a working sample of the world's first and smallest 1.6 x 1.2 mm class TCXO (temperature-controlled x'tal oscillator). We are preparing to commercialize this generation of products in about two years, as it took about two years for customers to begin adopting the previous generation of products (the 2.0 x 1.6 mm class) after they were announced.
In addition, we announced a succession of other high added value products that will further contribute to the ongoing miniaturization of mobile digital devices. These include the world's thinnest tuning-fork crystal unit and the world's smallest real-time clock modules.

We also developed SAW (surface acoustic wave) resonators and oscillators that support frequencies up to 2.5 GHz for gigahertz-band clock applications being eyed in the communications and measuring instrument sectors, and we succeeded in developing new sensing devices that employ quartz crystal materials. Our innovative quartz pressure sensors set a previously unthinkable new standard for compactness yet offer world-class accuracy.
Our new products probably will not begin to contribute to the bottom line for another two or three years, as the completion of development is always followed by a period of time during which the products are introduced to and evaluated by prospective customers. So, if we were to react rashly to the recession by reducing R&D investment, we would end up nipping growth in the bud. Development of new products is imperative.

Second, we will make changes that make us more competitive.
When the economy was strong, we expended a great deal of effort and resources on building supply capacity to enable us to keep up with soaring customer demand. Now that we are in a recession we have to be extremely attentive to production adjustments and inventory management. But more than that, we have to use the recession as an opportunity for change.
For example, in addition to providing production capacity, the new factories that were completed last year in Thailand and China (Wuxi) will also allow us to reallocate and consolidate production, thus boosting the rate of offshore production and offering greater production efficiency.
As a leading company, Epson Toyocom will strive to maintain a standard of excellence not only in terms of higher efficiency through the repositioning and consolidation of production sites but also in every other business metric, from quality, cost and delivery (QCD) to the diversification of production site risk.

Third, we have to allocate resources to new segments that promise growth.
Epson Toyocom's business in quartz gyro-sensors is gradually expanding as customers come to realize and appreciate the stability of our quartz crystals and the outstanding performance provided by the unique structural design we use in them. Sensing devices are a new segment that we have been pioneering. We intend to nurture this new quartz sensor segment, along with other sensors, into a new core business. In addition to selling these devices alone, we will also be expanding our sales proposals for high added value modules and systems that include these devices. This will be accompanied by a reallocation of the necessary resources.

Fourth, we will carry out environmentally conscious initiatives.
Last year Seiko Epson, the parent company of Epson Toyocom, established "Environmental Vision 2050," a policy statement to guide the Seiko Epson Group's environmental actions, long-term. In line with this environmental vision, Epson Toyocom feels the need for ・and are already at work developing - measures or indicators that can serve as a guide to the environmental performance of our electronic devices.
For example, we set up an exhibit at CEATEC Japan 2008 that showed reductions in CO₂ emissions across the product life cycle ・from design through manufacture, transport, use and disposal ・as an indicator of how we are mitigating the environmental impacts of our new products. This was a pioneering initiative in the electronic devices industry.
Initiatives of this type are still in their infancy, but we are committed to carrying out environmental programs and reporting our performance in order to live up to our management philosophy of being a "trusted, good company."

Epson Toyocom's mid-term financial targets are net sales of 150 billion yen and an ROS of 15% or better in the 2010 fiscal year. Due to the recession, however, we now expect to be somewhat behind schedule in achieving these targets.
While the outlook for near-term financial results gloomy, the long-term underlying growth prospects for crystal devices remain bright. So, although we will not be hitting our targets as early as projected, we are not changing them, either, as we remain upbeat about the potential of the new businesses we are building around our innovative new crystal devices.
In order to achieve our targets as soon as possible, we have to sow the seeds of growth now so that we are ready when the recovery comes. To use an automotive analogy, we have to keep our machine well-maintained and fueled up so that we are ready to turn the key, step on the accelerator and run full speed ahead as soon as the economy shows a green light. How we spend this downturn will be crucial to how we respond when the economy turns, and I will be in the driver's seat, steering Epson Toyocom in the right direction.

Kaname Miyazawa
President and Representative Director
Epson Toyocom Corporation