We are presently increasing the optical transceiver production capacity of our existing device factory, Takasago Works (Hitachi City, Ibaraki Prefecture), in order to respond to increased demand for optical transceivers. By July of this year, production capacity will be triple the present level.

The Internet, a low-cost communications resource, has rapidly grown into a new societal infrastructure through the spread of e-commerce and the World Wide Web. With this growth, the demand for high-capacity routers and high-speed optical transmission devices necessary to build high-speed, high-bandwidth optical networks has also increased. This has further led to an increase in the demand for optical transceivers that convert between electrical and optical signals.

Focusing on Small-Form Factor (SFF) products half of their original size, we are bringing to market various optical transceivers (transmission speeds: 156 Mbps, 622 Mbps, 1Gbps, 2.5 Gbps, 10 Gbps; transmission distances: 2 km, 10 km, 40 km, 80 km). These include optical transceivers compliant with Synchronous Optical Network (SONET) and Fibre Channel international communication network specifications, as well as optical transceivers compliant with Gigabit Ethernet specifications. Last autumn, we put in place a manufacturing system that produces 20,000 optical transceiver products per month.

However, because the demand has continued to grow rapidly, we have poured some 3 billion yen into increasing production capacity to meet this demand. By April of this year, we will be able to double our present production capacity; by July we will triple it. This increase in capacity will make us better able to meet market needs. We forecast optical transceiver sales of 15 billion yen for fiscal 2002.

We have also begun construction of a new optical device factory adjacent to our existing Takasago Works factory in response to increasing demand for our optical components (primarily optical transceivers and guided-wave optical components). This new optical device factory will be on the same scale as our existing factory (total floor area: 13,200 square meters over 3 floors), and we plan to complete it by autumn of this year. We forecast that total sales of our optical components for fiscal 2003, will be 35 billion yen. Forecast cost for the construction of this additional factory is 4 billion yen.

This capital investment enables us to put in place a framework that allows us to be a global leader in the timely introduction of products responsive to the rapidly expanding optical communications network market.