Q1 FY2023 Earnings Release Conference Q&A
Currency fluctuations have the greatest impact. Most Japanese SPE (semiconductor production equipment) manufacturers sell their products in yen, and their share of the total WFE market is about 30%.
Compared to CY2021, the size of the WFE market in US dollar terms in CY2022 will be smaller than originally projected due to the current depreciation of the yen by about 20% since the beginning of the year. The next biggest impact is the risk of postponing the timing of recording sales to CY2023 onwards, mainly due to shortages of some parts and components. In addition, the willingness to purchase products such as smart phones and PCs is temporarily declining. In the last few years, purchasing of replacements of these products has run its course, and the uncertainty about the future of the economy is considered to be psychologically suppressing the willingness to purchase. In addition, regarding customer investment based on these, there is a concern that memory will require a slightly bigger adjustment than logic/foundry.
Considering currency fluctuations, when yen-denominated sales are converted to US dollars, the WFE market will contract by about $5bn. The impact of this currency fluctuation is significant. On the other hand, we have left our financial estimates unchanged, taking into account the fact that there is no change in inquiries from customers at this time and that we have received new orders.
Our customers are considering investment plans in light of various factors such as the macro economy and trends in each country, and we believe it is too early to comment on the outlook for the WFE market in CY2023. However, we believe that the WFE market will continue to grow while making some adjustments as the technological innovation of semiconductors toward the realization of digitalization and a decarbonized society continues, there is no change to the medium- to long-term outlook.
Some customers are considering or have already announced investment adjustments, but at this time we have not received any cancellations.
We took into account the information obtained from discussions with the customers we met at SEMICON West and the exchange rate.
We are making various efforts in the coater/developer, deposition, etch, and cleaning areas, and we expect to continue to outperform the market growth. In CY2022, currency fluctuations may negatively affect TEL's equipment share based on monetary value, but we believe that we can increase our process share, and we have high expectations for the future.
Although we did not directly apply it, developing and manufacturing multiple equipment at a single site has led to the development of various know-how. There are some technologies, such as particle control, that can be used for multiple processes. There are also synergistic effects. Inside the company, the Corporate Innovation Division plays a central role in examining solutions that take into consideration future technological trends, such as packaging, and discussing with customers optimal approaches for the practical application of new technologies such as 3D DRAM.
Considering the current exchange rate, although the fixed costs of the local subsidiary will increase, most of our products are sold in yen, so the impact on sales will be minimal. We have also taken measures to optimize costs, including fixed costs, so we have left our financial estimates unchanged.
So far, there is no impact from the tightening of regulations yet. We believe that if we can maintain our world-leading technological innovation capabilities, we will be able to achieve medium- to long-term growth while minimizing the impact of circumstances of specific countries and regions.
Our plants are extremely busy. With just over a month and a half left in FY2023 Q2, we hope that you will take it as a source of reassurance that we have not changed our full-year financial estimates from the previous quarter. Considering various factors at the moment, it is too early to comment on the outlook for CY2023, but in CY2022, the WFE market is expected to exceed $100bn. In the medium to long term, there is no change in our view that the market will grow in stages with repeated adjustments.
We aim to improve profits in the short, medium and long term at the same time. We continue to invest in the development of critical technologies in this fast-paced industry. In addition to new equipment, business opportunities for field solutions are increasing, providing more opportunities to offer products and services with high added value. We believe that we will be able to improve profits over the short, medium and long term by outperforming market growth by increasing our market share through the acquisition of new PORs*2.
The main factors are the following: concentration of sales of highly profitable products in FY2022 Q1; payment for special bonuses in FY2023 for achieving the targets of the previous Medium-term Management Plan two years ahead of schedule; a slight increase in costs at plants; and an increase in personnel expenses at local subsidiaries due to currency fluctuations.
Employees involved in manufacturing and services are included in the cost of sales, and other employees such as administration and sales are included in SG&A expenses. The ratio is approximately 7:3.
This is due to our company, not due to a change in the customers’ investment plan. Due to the conflicts between Russia and Ukraine from February and the lockdown in China from the end of March, there was a delay in parts procurement and some logistical confusion. As a result, there was a delay of between 2 weeks and 1 month for some shipments, and the delays spanned from Q1 to Q2. Although the majority of the customers affected are overseas, it is not an event that is biased toward a specific region or customer. Although it is necessary to closely monitor the macroeconomy going forward, we have not changed the estimates for the first half of FY2023 because we have confirmed that the sales for these orders will be recorded in Q2. Regarding the amount of money involved, net sales have tended to increase every quarter over the past year, but decreased QoQ due to a temporary adjustment in Q1 of this year. Q2 net sales are planned to rise accordingly, and the difference between Q1 and Q2 corresponds to the amount of money involved.
The mature node has a larger sales ratio.
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.
POR (Process of record): Certification of the adoption of equipment in customers' semiconductor production processes
The above content is a summary of question and answers session.