Q&A on Third Quarter Results for the Fiscal Year Ending March 2009
Less than 10 billion yen in orders has been withdrawn. There have been few direct cancellations from customers. In most cases, we have decided to treat long-term postponement of delivery as temporary withdrawals of orders.
We expect that for some time orders will remain at about the same level as in the October-December period, at around 40 billion yen. When conditions improve, thanks to inventories clearing up so that capital investment recovers somewhat, then orders in excess of 100 billion yen are likely, but we expect that this will occur no sooner than the second half of the next fiscal year.
In light of current order levels, we expect market conditions to be extremely harsh, and there is a strong likelihood that the market will shrink by 40% or more. Capital investment in 2009 is our greatest concern and we always bring up the issue when talking with our customers'senior executives and various other relevant parties, but the most common response is,"We don' t know yet." And if even our customers don' t know, it is difficult for us to predict what will happen.
DRAM chip manufacturers are currently working toward restructuring. As a result, we believe that there is a significant likelihood that DRAM chips will be the first to recover. With respect to NAND flash memory, there are high expectations for the Solid State Drive (SSD) as a powerful application, but we believe that it will still be some time before orders increase substantially. We believed that there will be a solid market for logic devices, centered on the microprocessing units (MPUs) of major American manufacturers, but this market has declined somewhat under the current economic situation. Still, we believe that there is a strong likelihood that logic devices will recover before NAND flash memory does. The segment for FPD depends on the television market, but we believe that it will remain sluggish for some time.
Many of our customers have indicated that their inventory adjustments will be completed around March or April. Even so, demand will not rise immediately, and as a result the utilization rates will not rise until sometime after that. Views among our customers are mixed, with some believing that demand will recover as early as July, while others think that a recovery will not occur until early autumn or even around the end of the year. So future prospects remain uncertain. Inventories are likely to stabilize soon, however, and if demand is stimulated, the market is likely to respond relatively quickly.
It should also be noted that under the current business environment, our customers have to cut costs even further, with a few of them investing in miniaturization as part of that effort.
We believe that both customers and we will undergo some degree of restructuring and consolidation. Some believe that if the number of semiconductor manufacturers declines, investment will also fall, but we believe that it depends entirely on demand for semiconductors.
It is because our efforts to reduce costs in the second half have been successful.
Last fiscal year, post-sale revenues were 120 billion yen, but this year utilization rates at customer plants have fallen, which has resulted in lower parts sales. We project that revenues for parts and maintenance services will be about 100 billion yen.
We are working on developing a new service business to accommodate the needs of customers who will not purchase new equipment but must continue their plant operations. We are confident that demand for such services exists, but we are confronting the problem of limited budgets at customer plants. We are unable to expand sales adequately at this time, but we believe that this is an area in which sales will grow in the future.
At the end of the October-December period, we recorded 6.7 billion yen as a reserve for those possible losses.
We adopted a rule concerning inventories and recorded a devaluation loss. We review the content of our inventories at the appropriate time, and as a result there will not be any sudden, large-scale devaluation losses.
We are currently preparing our budget with respect to fixed costs for next fiscal year, so we are not able to announce any specific figures today. We believe that the upcoming year will be quite tough, and of course we will take a variety of measures in response. Yet if we push fixed costs down too far we will not have adequate capacity for the next market upturn, which will create a major problem in the future. We need to maintain the capacity that will be necessary at the time of a recovery. And we will make our decisions taking this into account.
The current recession is severe not just for our industry, but for society as a whole, and if we were to conduct any large-scale layoffs of our employees, they would have an extremely difficult time finding new employment. We will make every possible effort to maintain the employment of full-time personnel and use this period of time to retrain all employees in order to strongly put in place the foundation for the next period of growth.
Along with production adjustment, we have been reducing the number of temporary employees in stages for about one year. When we have no other choice but not to renew contracts at the time of expiration or cancel contracts prior to their expiration in unavoidable circumstances, we provide employees with adequate prior notice. In April of last year we had approximately 3,200 temporary employees, but this April it will be about half that number.
We are aware that next fiscal year will be a very difficult one. If we are to avoid a loss, we will have to reduce fixed costs substantially, to a level that would nearly destroy the company. We are aiming to generate a profit the year after next, when sales are expected to recover to a certain extent. We are currently preparing our budgets for next fiscal year, and we are not prepared at this time to release figures concerning the extent of the reduction in fixed costs or how low the break-even point can go.
There has been no change in our position. We are carefully considering various possibilities. When we decide to make an acquisition or to collaborate, it is extremely important that we can anticipate the future development of world-leading products and technologies. Careful consideration is essential for making a proper determination.