Review of Operations

Kawasaki Microelectronics,Inc.

Seeking to be the world's leading application-specific integrated circuit (ASIC) vendor known for originality and reliability, we will embrace challenges in the semiconductor industry as portunities for growth.

Kawasaki Microelectronics, formerly the Large-Scale Integrated Circuit Division of Kawasaki Steel, is involved in the semiconductor business, with an emphasis on ASICs. The integrated approach to ASIC production that its predecessor established in the 1980s has supported growth that places Kawasaki Microelectronics among the world's top ASIC makers.

The Company's high-level technologies and know-how are well regarded in the industry and underscore a solid reputation for reliability as a vendor with comprehensive capabilities, from design and wafer fabrication to assembly, testing and quality assurance.
ASICs are found in a wide range of finished products, including communications equipment, liquid crystal displays (LCDs) and digital cameras. We will continue to refine research capabilities and further expand the market to ensure our place among the top vendors in the world.

Kawasaki Microelectronics Group's First Medium-Term Business Plan
In our First Medium-Term Business Plan, our primary financial target is consolidated ordinary income of ¥3.0 billion by the year ending March 31,2006, which will reinforce the high-profit structure we need to support our goal of a public listing.

Efficient Use of Management Resources Kawasaki Microelectronics maintains a strategic alliance with Taiwan's UMC Group, the second largest foundry in the world, and outsources leading-edge manufacturing processes to this group. By lessening our capital investment burden, we can allocate management resources to other priorities, namely the introduction of leading-edge IP*1 and development of processing technologies. These efforts will lead to new business opportunities and improve profitability.

Market Activities
In Japan, demand for consumer electronics is expected to grow, and we aim to secure a wider share of the market for ICs used in such products as LCDs, liquid-crystal televisions and DVD players. In the area of office automation equipment, we will reinforce cost-competitiveness and strive to implement responses, such as the introduction of IP, that anticipate the needs of clients. We have our corporate eye on the printer market, where demand is poised to soar, and are preparing to enter this market as soon as possible.

Overseas, the operating environment will remain tough, owing to the collapse of the IT bubble in the United States. We will try to circumvent the difficulties, however, by pursuing new markets through, for example, enhanced support systems geared to the globalization efforts of corporate clients, and full-scale entry into European markets.
Our product develoment focus will be trained on the development and mass production of ASICs for drivers used in organic EL*2 displays and ASICs for LCD drivers used in STN*3 panels. We will also work to establish new product categories.

*1 IP (Intellectual Property): Large-scale integration (LSI)-design assets, which are in essence the functional wiring of a circuit and the embedded software that runs the circuit. Designing all the circuitry on system LSIs, which integrate large-scale circuits, from scratch requires a massive amount of time. Design time to completion can be shortened, however, by using excellent IP already on the market as a development support tool.
*2 EL (Electroluminescence): Devices that emit light when voltage is applied. Development of next-generation displays using EL devices is under way around the world, and makers are steadily bringing to market organic EL displays, which use such organic substances as diamine. Compared with existing LCDs, EL displays are thinner, consume less power and enable a clear view of images from any angle.
*3 STN (Super Twisted Nematic): A type of LCD. Three types of LCDs exist: twisted nematic (TN), thin film transistor (TFT) and STN. STN LCDs are made with nematic liquid crystal material and use a display format with striped electrodes arranged in columns and rows to scan pixels sequentially. STN allows makers to produce a larger panel than is possible with TN, and offers more cost-effective production than TFT. STN LCDs are used in a wide assortment of electronic products, including mobile phones.