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KAWASAKI MICROELECTRONICS, INC.

Kawasaki Microelectronics (Kawasaki Micro) is a vertically integrated specialist in the application-specific integrated circuits (ASICs) field. Its operations cover from designing to shipping of ASICs. While actively utilizing outsourcing in the stage from the manufacture of wafers to testing, we strive to ensure the highest quality throughout the entire production processes.

 THE FIRST MEDIUM-TERM BUSINESS PLAN

MAIN MEASURES
1.
 
Secure high profitability by strengthening competitiveness and promoting the development of next-generation ASICs
2. Public offering of shares at the earliest possible date
 
CONSOLIDATED FINANCIAL TARGETS
  Billions of yen
  Actual Actual Target* Plan's final target
(Years ended/ending
March 31)
2003 2004 2005 2006
Ordinary income 1.0  4.5  4.5  3.0 
Return on sales (ROS) 2.9%  11.1%  9.6%  5.8% 
* Estimated figures for the year ending March 2005 are those declared as of August 30, 2004.

 REVIEW OF EARNINGS FOR THE YEAR ENDED MARCH 2004
MEETING THE GOALS OF THE PLAN AHEAD OF SCHEDULE
In the fiscal year ended March 2004, sales of ASICs for digital cameras and LCD timing controllers were robust, helping the company's consolidated net sales to rise 18.6% year on year to ¥40.4 billion, consolidated operating income to grow by 4.1 times to ¥4.9 billion, and consolidated ordinary income to expand by 4.5 times to ¥4.5 billion. Ordinary income has already far outpaced the target of ¥3.0 billion for the year ending March 2006 in the First Medium-Term Business Plan.

 FUNDAMENTAL STRATEGY
PROMOTING OUTSOURCING FOR HIGHER PROFITABILITY
Kawasaki Micro is an active outsourcer. Through its strategic alliance with Taiwan foundry UMC Group, Kawasaki Micro outsources the manufacture of design rules measuring less than 0.18 µm which it developed jointly with UMC. In addition, it outsources the manufacture of 0.13 µm products to Taiwan's TSMC. As a result of the growing trend towards deep sub-micron processes in the semiconductor industry, an enormous amount of investment is now required for manufacturing facilities. Outsourcing enables us to reduce our capital investment risk to a minimum, freeing up our management resources for use in investment in intellectual property (IP)* and new technologies, with the aim of maximizing profitability. Currently, Utsunomiya Works is operating at full capacity, and sales of products manufactured by UMC and our other outsourcing suppliers exceed those of products manufactured in Utsunomiya.
  Ahead of the competition, we became involved in outsourcing the manufacture of ASICs, a move which had long been regarded as difficult. As a result, we have built up a high level of expertise in controlling the quality of our outsourcing suppliers, and this is one of our strengths.

* Intellectual Property (IP): Large-scale integration (LSI) design assets, or the functional circuits that make up the LSI, as well as the software that operates on it. In system LSIs, which are a large-scale integration of circuits, a great deal of time is required to design all the circuits. The use of commercially available, high-quality IP in the form of development support tools can help to reduce planning time.

 OUR SPECIALTIES
LARGE MARKET SHARES IN THE FIELDS OF DIGITAL CAMERAS, LCD MONITORS
Our business started with the manufacture of image-processing ASICs and has since expanded to cover other areas. Nevertheless, imaging and processing remain our particular fields of specialty. About 20% of the world's digital cameras use our image-processing engines, and we have a global market share of about 60% for chips that control the timing of data transfer for the LCD monitors of PCs. In addition, our ASICs for office automation equipment and networks are highly regarded throughout the world.

 FUTURE BUSINESS POLICY
As one of the world's leading ASIC manufacturers, we aim to increase our sales of ASICs for digital consumer electronics in Japan and throughout Asia, develop new markets in Europe and the Middle East, further solidify our high-profitability business structure and make public offering of our shares in the near future.