1

Oki Electric Management Strategies

February 7, 2003

Oki Electric Industry Co., Ltd.

http://www.oki.com/

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Table of Contents

1. Consolidated Earning Projections for the FY Ending Mar. 2003

2. The “Third Business Structural Reform Plan”

3. Outline of Businesses3.1 Information Systems3.2 Telecommunications Systems3.3 Electronic Devices

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Consolidated Earning Projections for the FY Ending Mar. 2003

367.4

347.4

345.0

335.0

181.9

113.6

130.0

125.0

144.8

103.2

90.0

85.0

46.1

40.2

55.0

55.0

0 250 500 750

FY endedMar/01

FY endedMar/02

Previousprojections

Currentprojections

Info systems Telecom systemsElectronic devices Others

(Billion yen)

(FY Mar/03)

(FY Mar/03)

(Oct. 31, 02announced)

Consolidated sales to the third party< Sales Projection> Approx. 600 billion yenSlower-than-expected market recovery, Increasing competitionsApprox 20B yen decrease from previously announced 620B yen sales projection

< Operating Income Projection> Gaining profitabilityGaining profitability as previously announced- Electronic devices will achieve operating income for thetotal year.

Negative factor:Reduction in marginal profits due to sales decrease

Positive factors:Reduction in fixed cost and additional cuts in various costsAccelerated conversion of fixed costs to variable costsWeak yen against Euro

< Net Income Projection> Break-evenAs previously announced, excluding write-down loss on marketable securities at the end of March 2003. Sales of assets are proceeding as planned.

Business structure is improved to gain profitability via reforms, though the market recovery is much slower than expected.

Approx. 600.0B yen

620.0B yen

604.5B yen

740.2B yen

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Consolidated Earning Projections by Business Segments

54.235.0

22.023.0

27.032.0

FY Mar/02 FY Mar/03 (proj.)

Enterprise NW

NCC NW

Core NW

103.2 90.0

(announced Oct. 31, 02)

Continued curb in carriers’ investments.

121.0 118.0

114.4 114.0

112.0 113.0

FY Mar/02 FY Mar/03 (proj.)

Printers

Info. systemssolutions

Financial systemssolutions(announced Oct. 31, 02)

347.4 345.0 335.0 billion yen

Favorable sales of low-price color printers.

57.9 70.0

25.029.0

4.0

22.027.08.7

FY Mar/02 FY Mar/03 (proj.)

OpticalcomponentsASDRAMs

System memoriesSystem LSIs,Logics(announced Oct. 31, 02)

113.6 130.0

Info

rmat

ion

Syst

ems

Tel

ecom

Sy

stem

sE

lect

roni

c D

evic

es

Systems for governments and travel industries extend to FY Mar/04. Withdrawal from unprofitable businesses.Financial institutions continue investment suspension. Sales contribution from ATMs for new bank notes.

85.0 billion yenSales reduction due to suspended investments in enterprises. Active inquiries in VoIP-related businesses.

Increased investments in legacy networks

125.0 billion yenContinued deterioration in both domestic and overseas markets. Enlarged operating lossDecrease in sales volume due to focusing on profitability.Favorable sales of P2ROM , etc.

Increased sales in sound generating LSIs and TFT drivers. Decrease in other consumer application LSIs.

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Aug. 20012nd Reform Plan

The “Third Business Structural Reform Plan”

1998 1999 2000 2001 2002 2003 2004 2005

Phoenix 21 Phoenix 21 Sky-HighSept. 1998

1st Reform PlanOct. 2002

“3rd Business Structural Reform Plan”

1. Complete the establishment of business structure flexibly responding to changes in market environment

2. Active investments in businesses with potential growth

Enhance Convergence of Information and Telecom Businesses• Focus on broadband and IP networks• Concentrate resources on financial solution business• Expand new network software and various network service businesses

Focus on system LSI business• Business expansion through alliances

Reform Business Structure• Telecom, Semiconductor, Optical components, Manufacturing Service Company

Implement urgent measures• Headcount reduction acceleration, Asset sales, Conversion of fixed costs to

variable costs

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Progress Status of the “Third Business Reform Plan”

Receive favorable orders for µPLAT. Alliances with Peregrine and THineSystem LSI business

Enhanced IPTPC* deployment, Realized AP@PLAT conceptNW-related software/services

Began support for new bank notes, Smooth promotion of new systems for local banks.Financial solutions business

Actively joining IP telephony projects by mega-carriers, Expand in CTI sales, Alliance with NEC, Expand network service business.

Broadband/IP network business

Convergence of info and communications businesses

Headcount reduction & fixed cost reduction are in progress as planned. Sold assets (Real estates of Shibaura and Koganei areas)Urgent measures implementation

Support new bank notes, Rise of EMS business, Accelerated headcount reduction as planned

Manufacturing service company

Structural reforms including alliances and some business sales in progress.Optical component business

Decoupled manufacturing from design and development.Restore profitability for operating income.Electronic devices business

Smooth progress. Reorganized companies, shifted resources and enhanced skill business.Telecom business

Business structure reforms

StatusItem

*IPTPC: IP Telephony Promotion Center

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New Office Map

To enhance convergence of information and telecom businesses, integrate engineering and SE divisions at Shibaura and Makuhari toWarabi areaDecaying buildings in Shibaura and Koganei increase maintaining costs.

Sell assets of buildings and estate in Shibaura and Koganei for reorganizing office mapAccelerate convergence of info. & telecom, create new business opportunities, and assure capitals for businessImprove cash flows by liquidating assets

Information systems Engineering / SE Div.

Info. Sales / SE DivTelecom. Sales / SE Div.

Telecom systems Engineering / SE Div.

Converged Info & TelecomEngineering / SE Div.Sales / Admin. Div.

Shibaura area Warabi area Makuhari area

Business Center(Shibaura area)

System Center(Warabi area)

Current

After reorganization

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Information Systems Business Strategies

IT market recovery begins in the 1st half of FY Mar/04, and full recovery is expected in the 2nd half of the FY Mar. 04 and beyond. Demands for replacement or recognition unit exchange for ATMs supporting new bank notes concentrate in during the FY ending Mar. 04.

IT market recovery begins in the 1st half of FY Mar/04, and full recovery is expected in the 2nd half of the FY Mar. 04 and beyond. Demands for replacement or recognition unit exchange for ATMs supporting new bank notes concentrate in during the FY ending Mar. 04.

Market

Financial system solutions thoroughly focus on system replacement of local banks and new bank notes related businesses (Smooth response to ATM replacement/recognition unit exchanges).Information system solutions will increase sales by focusing on systems for travel industry, e-government, and security-related businesses.Printer segment has actively begun color printer business. Increase sales and profitability by introducing new products.

Financial system solutions thoroughly focus on system replacement of local banks and new bank notes related businesses (Smooth response to ATM replacement/recognition unit exchanges).Information system solutions will increase sales by focusing on systems for travel industry, e-government, and security-related businesses.Printer segment has actively begun color printer business. Increase sales and profitability by introducing new products.

Focusing businesses

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Information Systems Business: ATMs Supporting New Bank NotesBusiness for ATMs supporting new bank notes has already started.Further accelerate the business in the FY ending Mar. 04. Replace 2K – 4K units/half year and re-model from 10K – 30K units/half year by the end of 1st half of the FY Mar. 05.Increase resources in manufacturing and for re-modeling

1H FY Mar/04

Oki’s plans

New bank notes

1H FY Mar/052H FY Mar/042H FY Mar/03

Dec. 02Start shipment of

supporting hardware

Approx. 800 units

Approx. 7,000 units

Approx 2,000 units

Approx. 10,000 units

3,000 - 4,000 units

20,000 - 30,000 units

3,000 - 4,000 units

10,000 - 20,000 units

New bank notes are to be issued(During the 1st half)

Introduction of supporting software

Note: Above unit numbers include ATMs, terminals at counters (cashers) and cash management terminals.

Replacement

Re-modeling

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Information Systems Business: Focus on Travel Industries

Expect further sales expansion in the FY ending Mar. 04, through ticket-issuing terminal technologies and strong relations with customers.

Increase market share of ticket-issuing terminalsIntroduce new products to existing and new customers

Expect further sales expansion in the FY ending Mar. 04, through ticket-issuing terminal technologies and strong relations with customers.

Increase market share of ticket-issuing terminalsIntroduce new products to existing and new customers

Promote new products including replacement of ticket-reservation terminals for existing large customers, call centers, and the Internet ticket-reservation sites.Provide solutions for e-airport

Promote new products including replacement of ticket-reservation terminals for existing large customers, call centers, and the Internet ticket-reservation sites.Provide solutions for e-airport

For airlines & travel agencies

Extend applications for “Multiple functioned KIOSK,” and expand sales to new customers including retail industry and longdistance bus companies.

Extend applications for “Multiple functioned KIOSK,” and expand sales to new customers including retail industry and longdistance bus companies.

Retails and other markets

Railways companies including JR accelerate automation of ticket issuing. Sales of “Online automated ticket-issuing terminals,”started in the FY Mar. 03, is expected to deploy nation wide.

Railways companies including JR accelerate automation of ticket issuing. Sales of “Online automated ticket-issuing terminals,”started in the FY Mar. 03, is expected to deploy nation wide.

For railways companies

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Information Systems Business: Printers

Introduce low-price high printing speed A4-size color page printers

Low price: $999 (street price, approx. 120,000 yen)High speed: 12ppm (color), 20ppm (black & white)Compact: Smallest and lightest in its class

Promote worldwide color printer and accelerate color printer business

Slower-than-expected penetration of color page printers at enterprises and SOHOs.

Major reasons for not using color printers• Expensive• Slow printing speed• Space limitation

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Telecommunications Systems Business Strategies

Real expansion and rapid market growth in IP telephony services

“050” phone number application started. (Sep/02)Market size: 200B yen in 2002

1 trillion yen in 2007

<Business Direction>Keep position of top vendor in IP telephony infrastructure constructionExpand business through VoIP applicationsExtend profitability through VoIP service businessEnhance partnership

<Sales Expansion in Broadband & IP>Enhance alliances both in domestic and overseas marketDevelop a common platform for the mega-carrier, NCC and enterprise markets

0

25

50

75

100

125

FYMar/00

FYMar/01

FYMar/02

FYMar/03

FYMar/06

Legacy phone NWIP NWBroadband (Optical access, xDSL)

(billion yen)

0

20

40

60

80

100

IP + broadband ratio Legacy phone ratio (% )

Sales ratio of broadband & IP

VoIP-linked applications

IP telephony

IP telephony/VoIP-linked Applications Market Projections

(Number of subscribers)

Oki’s calculation based on data from Fuji Chimera Research Institute and Nomura Research Institute.

(Source: Fuji Chimera)

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Telecom Systems Business: Focus on VoIP Applications

20012001 20022002 20032003 20042004 2005 2005 --

FUSION FUSION (Jan/01)(Jan/01)

　Transmission type IP telephony service　Phone-Phone type IP telephony service

YBB PhoneYBB Phone(Apr/02)(Apr/02)

ASPASP--type type phone modelphone model

IP telephony services

VoIP related technologies

IPv6IPv6

Expansion of services on VoIPRise of IP telephony services

Whenever, wherever, in right formats (ubiquitous)

Net appliance portalsNet appliance portals

New NW New NW communitiescommunities

SecuritySecuritySIPSIP

EntertainmentEntertainmentVoIP related applications and services

Net appliancesNet appliancesEducationEducation

Focus on VoIP applications developmentActive promotion of AP＠PLAT

• High value-added services• Various VoIP environment• Ubiquitous network

VoIP expansion

Expand VoIP applied areas

VoIP application service examples

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Telecom Systems Business: Promotion of CTstage

Customer Contact CenterElectronics maker “A” Enhanced CRM by outbound call center constructionOffice supply “B” Established customer center handling 130,000 kinds of questionsShinkin Bank “C” Integrated telemarketing, auto-calling, and tele-bankingAV maker “D” Established knowledge type CRM by integrated call center

Office CommunicationsOffice document “E” Established voice/data integrated messaging system for 6000 employeesTrading “F” Constructed fax mail system, enabling to send fax from emailR&D Center “G” Send cancer related information to specialists by phone, fax, and the

Internet

Improve carriers ServicesCarrier “H” Enhanced mail receiving function of mobile phone on the Internet

service, “Dot i”

Enhance business promotion to expanding call center/multimedia markets

Made an alliance with Microsoft for “.NET” strategy, and enhanced CTI/IP communications business

Customer Examples

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AllianceVoIP solutions with high voice quality and abundant implementation experiences.CTI solutions enabling to provide delicate supports matching customers requirements

Oki’s strengthsOki’s strengthsSystem integration of large-scale voice networks and voice/data integrated networksBroadband wireless solutions

NEC’s strengthsNEC’s strengths

Alliance in IP telephony system mainly for enterprise network area

Joint operation of the IP Telephony Promotion Center (IPTPC)Joint promotion of the interoperability verification and joint development of interface protocol implementation guideMutual supply of VoIP/CTI-related productsJoint development of IT application platform for IP telephony

Telecom Systems Business: Alliance with NEC

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Electronic Devices Business Strategy

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Q10

1

Q20

1

Q30

1

Q40

1

Q10

2

Q20

2

Q30

2

Q40

2

Q10

3

Q20

3

Q30

3

Q40

3

Worldwide Electronics System Factory Revenue

Source: iSuppli

Silicon Manufacturing Company Business Strategy

Use in-house fab for proprietary and unique products (SOI/SOS, P2ROM, FeRAM)Expand in-house capacity for high value added products (i.e. W-CSP, advance MCP)Effectively use external capacity for wafer fabrication capacity needs

Silicon Solutions Company Business Strategy

Personal and mobile markets (System LSIs)Short TAT (P2ROM), Tailored to customer needs (ASDRAM)Emphasis on software and IP service businesses

Optical Components Company Business Strategy

Recovery of North American telecom market cannot be expected until the FY ending Mar/05 and beyond. Sell part of the business and form alliances by the end of the FY Mar/03

Semiconductor market　Market recovery is expected in the 2nd half of

CY03

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Electronic Devices Business: Business Structure ReformDecoupled manufacturing from design and development

and Established two in-house companies (Since Oct. 2002)

Business Structure

MarketingﾞSales

Design

AS-LSIBusiness

System LSIBusiness

Unique technologies,Low cost, Short TAT,

Skills for handling small volume and

wide rage products

Unique products,No.1 in niche market,

Established track records and credibility

Software, IPs,Customer satisfaction,

Services

Silicon Solutions Company (SiSC)

Semiconductor Manufacturing Company (SiMC)

AdvancedGSMC

Capacity ProcessProcurementManufacturing AS-LSI

BusinessFoundryBusiness UMC

Additional

ARM

CADVendors

R&DPartners

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Electronic Devices: Emphasis on Ultra Low Power Consumption Technology

First runner in CMOS development

　1990s　

　　

Ultra-low power consumption　1970s　

　2003~Lower power consumption and superior RF characteristicsSOS

Low power consumption　

Expand advantage in ultra-low power technology

Ahead in ultra-low power SOI over competition

Additional differentiation technologies to SOI

Application example ： Solar powered Atomic Timekeeping Watch

Enhance Oki’s Semiconductor business strategy – “Mobile and Personal”

SOI

CMOS

Partnership with Peregrine Semiconductor on SOS (Silicon On Sapphire) Technology

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Electronic Devices Business: Sound Generator LSIs for Mobile Phones

High quality and natural sound by wave table sound source (record original sound of instruments)175 timbresCompliant with standard MIDI File (SMF) and other various formatsUltra-small W-CSP(Wafer-level Chip Size Package) packaging

Establish business base through an alliance with contents providers

Global mobile phone subscribers

Sound Generator LSI ML 2860/2870

Target the GSM market

0

100

200

300

400

500

2000 2001 2002 2003 2004

OthersGSM3GCDMAPDC

(Million)

CDMA (Japan & Korea): Matured market and unique music formatCDMA (China & US): Market is just about to pick up and Standard MIDI File (SMF) format for music

PDC (Japan): Matured market (all handsets equipped with a sound generator chip）and unique music format

GSM (Japan, US, Europe, Korea, China): • Only 7% of handsets installs sound

generator chip• Standard MIDI File (SMF) format is

mainly used.

Focus

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Glossary

* The projections and plans on this material are subject to change depending upon the changes of business environments and other conditions.

P4 ATM Automated Teller MachineNW NetworkVoIP Voice over Internet ProtocolNCC New Common CarrierASDRAM Application Specific Dynamic

Random Access MemoryP2ROM Production Programmed Read Only

Memory TFT Thin Film Transistor

P5 IP Internet ProtocolLSI Large Scale Integrated circuit

P6 EMS Electronic Manufacturing Services CTI Computer Telephony Integration

P7 SE System EngineerP8 IT Information TechnologyP11 SOHO Small Office Home OfficeP12 xDSL x Digital Subscriber Line P13 ASP Application Service Provider

SIP Session Initiation ProtocolIPv6 Internet Protocol Version 6

P14 CRM Customer Relationship Management

P15 SI System IntegrationP16 SOI Silicon on Insulator

SOS Silicon on Sapphire FeRAM Ferroelectric Random Access Memory W-CSP Wafer level Chip Size PackageMCP Multi Chip PackageWP Wafer Process

P17 TAT Turn Around TimeAS-LSI Application Specific LSI CAD Computer Aided Design UMC United Microelectronics Corporation GSMC Grace Semiconductor Manufacturing

CorporationP18 CMOS Complementary Metal-Oxide

Semiconductor P19 GSM Global System for Mobile

Communications 3G 3rd Generation CDMA Code Division Multiple Access PDC Personal Digital Cellular SMF Standard MIDI File