Q3 FY2021 Earnings Release Conference Q&A

There has been no change in our view that CY2021 and CY2022 will both be Big Years that exceed even CY2020, the biggest year on record. Regarding the growth rates for each year, we will need to conduct more careful examinations.

As we transition into a more data-driven society, the WFE market is moving into the next phase of its growth. Data center investments are expected to recover thanks to the release of high speed CPU, in addition to increased 5G mobile and PC demand, and we believe that is why customer investments are growing more active.

At present, we are seeing comparatively balanced inquiries for both halves of the year. However, this could change based on the timing of strategic investments by customers, and we are currently looking into the matter closely. Now, as for growth rates of investments by application, rates are highest in logic/foundry, followed by DRAM, and then NAND. We anticipate that 60% of total investments will be for logic/foundry, while another 40% will be for memory.

In the last few years, investments from local Chinese customers in the WFE market overall have trended between 15 and 20% of the total. This trend will not change in CY2021.

In addition to an increase in demand for our equipment for mature generations, we can also expect an increase in field solutions sales as this would mean greater demand for our services such as any relocations and modifications necessary to allow customers to reuse existing equipment.
As for automotive semiconductors, since the market is expected to expand as EVs become more widespread, we will further deepen our collaboration with our customers, and expand our business opportunities by providing new added value.

We are currently examining our forecasts for FY2022, so we cannot comment at the moment. The increase rate of our net sales will not necessarily match the growth rate of the WFE market.
We plan to achieve our Medium-term Management Plan by FY2024, the last fiscal year of the plan. Even if the WFE market grows faster than our previous expectations, it does not mean that we can move forward our schedule for achieving our goals. Our plans are proceeding steadily.

This is because some of the sales in Q3 were pulled forward to Q2.
Shipments in Q3 for the sales of Q4 were proceeding smoothly, and business activities have been proceeding as planned in our forecast for FY2021 H2.

We are making proactive growth investments in our future, and record a portion of the expenses associated with evaluations with customers as a cost of sales. As a result, our gross profit margin is somewhat lower than some of our US competitors. Our plan is to improve our gross profit margin by providing products with high added value in order to achieve our Medium-term Management Plan.

Modification sales grew significantly in Q3. However, increases and decreases in modifications sales tend to be transitory, and these sales do not necessarily grow in a stable manner. On the other hand, parts and services sales see stable growth due to increases in installed base and customers’ high fab utilization rates.
As demand for relocations and modifications of equipment for mature generations is expected to expand in the future, we anticipate further growth in the field solutions business.

We do not disclose sales for modifications specifically. Approximately 60% of field solutions sales are in parts and services, while the remaining 40% is in used equipment and modifications. Recently, due to customers’ high fab utilization rate, there have even been instances where the proportion of sales for parts and services exceed 60%.

Field solutions have higher profitability as less research and development expense is required compared to new equipment sales. We plan to achieve even greater profitability by leveraging AI and virtual metrology to provide services with even higher added value.

EUV adoption has increased in foundries starting from the 5nm generation, and will increase even more in the 3nm generation. EUV will enable further scaling of semiconductor devices, thereby increasing the technological difficulty involved in etch and deposition, resulting in continued demands for semiconductor production equipment with high added value. Besides, we hold a 100% market share in mass production EUV coaters/developers. Therefore, further spread of EUV adoption is a positive for our business.