TOKYO ELECTRON LIMITED

IR

Q1 FY2021 Earnings Release Conference Q&A

During the June financial estimates briefing, you indicated you were projecting growth in the WFE*1 market for CY2020 of around 10% year-on-year. Given the rumored delays to investments by memory manufacturers that have arisen since then, has this projection changed?

There is no change to our outlook of the growth rate of the WFE market overall, but there have been adjustments on an application to application basis both upward and downward. For DRAM investments, due to deceleration of demand for smartphones and the data center investment cycle, investment momentum of customers has softened, resulting in projections of only slight growth year-on-year. On the other hand, logic/foundry investments are expected to increase compared to the June projection, driven by increases in demand for high performance computing chips, which offsets the reduction in DRAM investments. There are no changes to the NAND investment projections.

We understand that the DRAM investment growth rate for CY2020 has decreased from the June projections, but is this due to reductions in investments from a specific DRAM manufacturer? Furthermore, we believe that, according to the FY2021 financial estimates announced in June, your plan was for sales to outperform the growth of the WFE market through increases in DRAM sales; has there been any change to this plan?

DRAM manufacturers' investment plans for CY2020 have decreased overall. However, in looking toward CY2021, we believe demand will recover due to factors such as the release of new server CPUs, which will increase DRAM investments. There is no change in the plan to outperform growth in the WFE market.

Could you tell us about your outlook for the CY2021 WFE market?

We expect it to be a big year. In addition to the adoption of IoT, AI, and 5G, even greater implementation of information and communications technologies into society will be required due to the spread of COVID-19. As a result, demand for semiconductors will increase, and we can expect further growth in the WFE market as well. Furthermore, with respect to the WFE market growth rate for CY2020, at the start of CY2020 we had originally projected growth of mid to high 10s%, but have revised that projection downward to about 10% at present. We believe that the resulting differential in investments will be made during CY2021.

Could you tell us about WFE market trends in the US? Taking into consideration the rumors of various semiconductor investments, can we expect any growth?

We believe there is a lot of growth potential. We are also aware of the news that new semiconductor fabs will be constructed in the US, and we expect expansion of the US market over the medium to long term.

Could you tell us about the WFE market in China? Q1 sales in China have increased by a factor of 2.7 year-on-year. What changed?

The main factor of the increase in Q1 sales was an increase in memory sales in the market in China. Sales for both Global-tier and Chinese local memory manufacturers increased.
Furthermore, with respect to Chinese local manufacturers, investments primarily came from memory manufacturers in CY2019, but we also expect investments from foundries toward the second half of CY2020, and that our sales will increase accordingly.

I would like to ask you about limits of scalability for semiconductor devices. Are you concerned that semiconductor investments may stagnate due to slowdowns in advancements in scaling, thereby reducing TEL's sales and profitability?

Technological innovation is not limited to scaling, and also includes ongoing advancements in storage capacity, processing speed, energy efficiency and reliability. In order to realize technological innovation through these advancements, TEL provides systems such as mass-production EUV coater/developer, in which we have a 100% market share, as well as etch, deposition and cleaning necessary for leading-edge patterning. And, we will have plenty of opportunities to create value by providing solutions through combinations of these systems. Additionally, thanks to annual shipments of about 4,000 systems, we have been able to realize steady growth of our field solutions business. Our goal is to realize sales growth and profit growth accompanying creation of added value, thereby achieving the Medium-term Management Plan.

I would like to ask about your Q2 sales projections. If we subtract the Q1 results from the financial estimates for the first half of FY2021, Q2 sales are projected to decrease quarter-on-quarter; is there a possibility we will see a better-than-projected performance for Q2?

Sales were especially high for Q1 this fiscal year as we recognized sales of the equipment that slipped forward from the previous quarter due to the effects of COVID-19.
As we need to pay close attention to the effects of COVID-19, we haven't changed the FY2021 financial estimates, but if our business activities proceed smoothly, we may see better-than-projected sales for Q2.

Would it be accurate to say that the reason you did not change FY2021 financial estimates was not due to any holdup in business activities, but because you took risks into consideration?

There are no particular problems at this point. We simply left the financial estimates as-is because we needed to take unforeseen risks into consideration.

When looking at Q1 SPE sales by region, sales in China were high. Does this mean that completion of equipment installation has progressed smoothly in China?

On a region-to-region basis, sales in China and South Korea were high. Completion of equipment installations is progressing smoothly in all regions, not just China.

Could you tell us about trends in your market share of etch for 3D NAND? Will there be any changes to your market share in the future?

TEL has already achieved a significant etch market share in MLC (Multi Level Contact). As for slit etch, we are currently evaluating our equipment with our customers, and may see an increase in our market share in the future.
HARC*2 etch processes require a high etching rate and precise profile controllability, which we believe are great areas to demonstrate our strengths. We are currently working to increase our etch market share in order to achieve our Medium-term Management Plan, and are progressing as planned on this front.

Could the rising tensions between US and China result in an increase in TEL's market share among Chinese customers?

Fair competition is our company’s policy. We have no intention of taking advantage of the fact that our US competitors cannot export to China. We believe we are gaining market share even under this policy.

Intel announced during its earnings conference that it may potentially outsource a portion of its manufacturing. What effect will this have on TEL?

We would like to refrain from making comments about specific companies. There will be no effect on our FY2021 earnings.

Is there any equipment that you cannot ship to China?

We avoid shipping to companies listed on the US Entity List, but outside of that there are no constraints.

Are you concerned that TEL's market share among South Korean customers may decrease due to rising tensions between Japan and Korea?

The most crucial thing for TEL is that we maintain our ability to provide technological innovations and offer equipment that leads the world in performance. As long as we keep that up, our business will not be affected.

WFE (Wafer fab equipment): The semiconductor production process is divided into front-end production, in which circuits are formed on wafers and inspected, and back-end production, in which wafers are cut into chips, assembled and inspected again. Wafer fab equipment refers to the production equipment used in front-end production and in wafer-level packaging production.

HARC (High Aspect Ratio Contact) process: A process for forming deep holes or trenches that requires advanced processing technology

The above content is a summary of question and answers session.