Dear Elpida Shareholders:

In the first half of the business year (Apr-Sep 2011) the DRAM industry saw continued sluggish PC demand and worsening DRAM supply and demand conditions. As a result PC DRAM market prices dropped by around half over this period. Because of these market conditions our first-half sales fell 51% YoY to 159.8 billion yen. Also, a large inventory write-down at the end of the half and rapid yen appreciation led to an operating loss of 48.5 billion yen and a first half net loss of 56.8 billion yen, putting us deep in the red.

Although we are now into the second half, the flood in Thailand and other negative factors are causing the harsh DRAM market environment to persist. In response Elpida has reduced production, including procurement from a foundry partner in Taiwan, in an effort to support product prices. Also, we are shifting from 40 nm to 30nm technology and continuing to shift to future mainstream high-density 4-gigabit products. And we are quickly lowering costs. In December our Hiroshima Plant and our subsidiary in Taiwan, Rexchip Electronics Corporation, will convert about 70% of their combined production to 30nm.

In September we began shipping a 4-gigabit PC DRAM for the Ultrabook^TM* (an ultra-thin notebook PC) and a 4-gigabit mobile DRAM for smartphones. We anticipate that 4-gigabit mobile DRAMs will also be used in tablet PCs. We plan to boost the manufacturing portion of these value-added products in order to meet growth in demand.

Given the current challenging business environment I would like to express my deep appreciation for your continued support and encouragement.

Finally, I wish everyone a safe and happy Holiday Season.

* "Ultrabook" is a trademark of the Intel Corporation used in the United States and other countries.

Sincerely,
Yukio Sakamoto
President & CEO of Elpida

December 2011

Note: The information in this message reflects business conditions prevailing as of December, 2011.