May 31, 2017 Medium-term Management Plan Briefing Q&A

You have revised up your WFE* market outlook in your financial model toward FY2020. What has changed? Is there any risk that it could shrink to below $42B?

The scale of semiconductor demand has changed compared to 2015, when we first established our financial model. Demand for chips used at data centers is growing and we think that the WFE market will not shrink in the next two years.

What accounts for the difference between the $42B and $45B WFE market outlook?

It is based on a $2B difference in memory and a $1B difference in logic.

What is the size of the investment by Chinese manufacturers incorporated into the $45B WFE market outlook?

It is based on the expectation of $3B from new customers, mainly in memory.

Some people are concerned about the short supply of wafers. Will this have an effect on the size of the WFE market, which is the basis of your company’s financial model?

The WFE market $42B-$45B scenarios are based on customers’ investment plans and the inquiries we are receiving. We do not think there will be a decrease in demand for equipment due to wafer supply shortages.

You expect that the FY2020 sales growth rate (versus FY2017) will outpace the WFE market growth rate. Does this mean that you think that your market share of the products will increase, or is this the effect of an increase in the portion of etching system and deposition system within the WFE market?

We expect sales growth to outpace WFE market growth thanks to increased market share for our products and market expansion.

Why has the CY2019 target share for etching system changed from 36% to more than 30%?

This is because investment in 3D NAND, where we expect to increase share in the future, has increased more quickly than expected. We will make market share growth happen by dramatically improving the etch profile and productivity.

Compared to the previous $37B scenario for the WFE market, sales are expected to be higher, but the gross profit margin and operating margin are both expected to be lower in your new $42B scenario. Why is this?

The market has been growing more than expected, and because of this we have boosted investment for growth in order to strengthen our product competitiveness. We are proactively addressing market expansion.

What percentage of sales do etching systems account for in the FY2020 financial model?

We believe they will account for more than 40% of SPE sales and about 80% of FPD sales.

How much of the FY2020 FPD sales forecast do sales of inkjet printing systems represent?

We have not incorporated these sales because they depend on the timing of our customers’ investments for customers' volume production, but we see them as an upside factor.

You have explained that when it comes to investment in 3D NAND with 12X layers, based on the assumption of monthly production capacity of 10,000 wafers, the demand for etching systems is $130M. Supposing that a company builds a 100,000 wafer factory, what is the size of the capital investment in all of the equipment? Additionally, how many new facilities with a production capacity of 100,000 wafers do you think will be built in the future?

As shown in our presentation materials, assuming 100,000 wafers, the etching systems market is $1,300M. We expect customers’ capital investments to be equivalent to the construction of as many as 3-4 new plants each year.

From a similar standpoint, where do you see production capacity and business opportunities in DRAM investments?

When it comes to DRAM, we think that there will be sizable investments in two or three new plants in China. In other regions, we expect demand for equipment used in miniaturization, so it is hard to generalize about the connection between production capacity and investment amounts.

Which 3D NAND stack structure do you think is superior: ONON or OPOP?

Besides the materials, they also have different characteristics due to design, so I cannot generalize. We will respect the strategies adopted by our customers.

What comes after 128 layer 3D NANDs?

We do not know whether either the conventional method of stacking based on a single-column structure or the method of stacking based on division into several columns will be adopted, but we think it is technically possible to stack more than 200 layers.

Your presentation materials say that you captured POR** for the word line isolation (slit) etching process for 9X layer 3D NAND. Was this at a new customer?

After one customer, we captured POR at a second customer.

What kind of productivity improvement do you expect from integrating the mask etching and main etching processes for 3D NAND? Is there any issue in terms of yield?

We foresee a 1.3-1.5x productivity gain. There is no issue in terms of yield; it is already being used in our customers’ volume production.

Your company expects operating income to reach a new all-time high in FY2018. But why have you lagged behind your Japanese competitors in boosting operating income to a new record level?

It is hard to make a simple comparison because the level of record profits is different at other companies.

WFE (Wafer fab equipment): The semiconductor production process can be divided into two sequential sub-processes: front-end (wafer fabrication) and back-end (assembly and test) production. WFE is used in the front-end production process. Front-end production equipment includes equipment for wafer-level packaging.

POR (Process of record): Customer approval to adopt equipment for their semiconductor manufacturing process

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