Q2 FY2023 Earnings Release Conference Q&A

CY2022 investment composition ratio by application is less than 20% for DRAM and NAND, over 30% for leading-edge logic, while the remainder is comprised of mature nodes. Although the logic:memory ratio for CY2023 is difficult to forecast due to inventory adjustments of semiconductor devices, we expect that the ratio will be nearly 6:4 in CY2024, which is close to the current ratio.
While we do not deny peer companies’ forecasts for the growth rate of CY2023, we expect to see a recovery trend from the second half of the year, and we would like to share our views at the Q3 FY2023 financial announcement. As for CY2024, we believe that the size of the market will be clearly larger than that of CY2022.

For now, we would like to refrain from commenting on when we can expect sales to stop decreasing or to recover. At this time, we have revised our financial estimates downward to reflect recent delays in investments by memory customers and the impact of tightened US restrictions against China. These effects will need to be closely monitored going forward. On the other hand, the industry organization SEMI has announced that construction of 67 new fabs and lines is expected to start between CY2022 to CY2025, and TEL is setting our sights on future growth opportunities offered by the further digitalization of society. We expect that memory-oriented investments, which have been slowing down recently, will begin to recover gradually starting in the second half of CY2023, and that CY2024 will be a big year. We need to be ready to take advantage of this opportunity.

For our continuous growth, it is crucial that we continue to provide "Only One, Number One" equipment with optimal timing, so we will not be reducing growth investments. By creating high value-added products and making adjustments to non-growth investment expenses as circumstances may call for, we believe we can simultaneously improve profits in the short, medium, and long terms. With the market expected to gradually recover from the second half of CY2023, we will start preparing for our further growth now since working on it from next fiscal year would be too late.

We collaborate with our suppliers from the R&D stage. For this reason, our plants and many of our suppliers’ factories are in close proximity to each other, and we are working closely with them on a daily basis. Furthermore, at each of our four domestic plants we hold Production Trends Briefings semiannually to share TEL's production plans with our suppliers, and at the end of the year we also explain our current business strategies. We believe that our strength lies in the fact that we have established a strong supply chain network throughout Japan through these initiatives.

As for the adjustment to the second half of FY2023, this was affected by moderate increases to materials prices, plus the impact of product mix. In addition, we continue to focus on R&D investments without making any reductions, and this is also reflected in this adjustment.

Our new equipment sales will grow by approx. +8% on an FY basis, and we also expect to see about +20% growth on a CY basis, exceeding the WFE growth rate.

We believe the split is approx. 50-50. We expect that the second half of this year will be the most heavily affected by tightening restrictions against China by the US. After that, we believe that the impact of the restrictions on the market as a whole will be mitigated by continually strong demand for semiconductors.

The main reasons for the downward adjustment are the tightening of US regulations against China and the adjustment of the memory market. We have also heard that while there will be some adjustment to the logic market, investments will increase again. The most robust area in logic is power devices. In terms of market size, there has been no change to the fact that leading-edge logic remains larger.

We are continuously investing capital in growth, and while it is true that cash generation is not currently keeping up with operating income growth, we expect cash flow to improve in the future as a result of these growth investments.

We did not intend to suggest that the WFE market would grow significantly in Q2 and Q3 of FY2024, but rather that it would recover in stages from Q2 onward. We believe that the 300-layer NAND, 1b DRAM, and 2 nm logic will be driving forces behind this recovery. As future data traffic grows at a CAGR of 26%, memory inventories will decrease. At the same time, memory-oriented investments will begin to recover gradually starting from the middle of next year, and so we expect that CY2024 will be a big year. We are not particularly focused on the detailed timing of the recovery. Rather than being excessively optimistic or pessimistic about the various changes we face, we will capture the major trends in digital society and prepare well for the business opportunities that lie ahead. We also believe it is crucial that we continue to be well prepared against issues facing the supply chain and geopolitical risks. We will be accelerating preparations toward WFE market growth in CY2024.

Our basic stance is that we are not in a position, as a company, to comment on geopolitical matters. However, what we can say is that we have no intention whatsoever of stepping in to fill any gaps left behind by US equipment manufacturers. In addition, it will be difficult for semiconductor manufacturers to continue investments and produce devices while US equipment manufacturers are unable to deliver equipment, and we believe we will need to anticipate that our customers will be changing their investment plans as they will be subject to these regulations.

We have strong expectations for each of these areas, but NAND HARC etch has the biggest market. We believe net sales will increase as investments in 300 layers begin.