1Q FY2017 Earnings Release Conference Q&A

The guidance figure for orders received in the April-June quarter at the time of the announcement of the FY2016 financial results showed a reduction from the January-March quarter; however, the actual figure shows an increase. The FY2017 financial estimates remain unchanged, but isn't there room for an increase during the second half?

For the April-June quarter there were some orders that were brought forward and, therefore, the orders to be received in the July-September quarter are expected to be below the April-June quarter. In terms of the financial forecast for the full year, we left the initial forecast unchanged as there are both pull-in and push-out sales periods for logic miniaturization and 3D NAND.

In the April-June quarter, the ratio of orders received for non-volatile memory to total orders received declined from the January-March quarter. What do you mean by the investment in 3D NAND being firm?

During the January-March quarter, we received many orders in China and South East Asia. However, in the April-June quarter an increase was seen in South Korea. A number of customers are keenly making investments and the non-volatile memory business as a whole is firm. In equipment, we are receiving orders in deposition and cleaning equipment as well as etching equipment.

Orders from Europe and the U.S. showed a reduction. Can we expect the high level that we saw in 2014 in terms of orders from a major logic manufacturer?

I shall refrain from commenting on specific customers but in general server demand is firm.

What is the trend in orders for individual applications for the July-September quarter?

We received an increase in orders in the April-June quarter due to orders for foundries and 3D NAND orders brought forward, so we are currently expecting to see a reduction in those orders in the July-September quarter.

When will the next peak in SPE orders be? Is the cyclical volatility going to gradually disappear?

We are hoping for investments in 3D NAND and logic in the latter half of this year and early next year. There is some volatility but the WFE*1 market on the whole remains firm and we are looking at positive outcomes.

Were the results in the April-June quarter as expected?

The first half forecast was for an operating margin of 14.8%, and the result was 14.9% for June-April, so it was as forecast.

What will happen to the profit margin for each segment in the future?

If the sale of new PICP*2 etching equipment is going to grow for FPD business, we expect further improvement in the profit margin for the segment. For SPE business, we expect the profit margin for the segment to increase. We are making various efforts including the provision of equipment and solutions with high added value such as for patterning, and reducing the manufacturing cost price for equipment, etc.

Some of your competitors are expecting to achieve their highest profit ever this fiscal year. However, your financial forecast is not at the record level. When are you expecting to top your largest profit ever?

According to the financial model for our medium term business plan, sales of 900 billion yen and an operating margin of 25% are expected when the WFE market reaches $37B. The plan is to achieve this within 4 years. So far, we have been improving the gross profit margin from sales, and we will be strengthening the profit structure further and controlling sales administration costs.

What progress have you been making with obtaining the POR*3 from 3D NAND 6X layer onwards?

There has been no major change since the medium term business plan briefing on 7 July. The oxide etching equipment is our particular strength. We are working on gaining the POR for HARC process*4 with highly productive equipment, and have had promising results during customer evaluation processes.

Four NAND manufacturers are investing in 3D NAND. When will the POR be confirmed for the 6X layer and the next generation 9X layer?

For the 6X layer, the July-September quarter this year will be important. We are expecting the 9X layer next year, and we are focusing on obtaining the POR.

Considering the investment in China and 3D NAND, we believe that the business environment at present allows for a longer term view than before. You are currently working on structural changes and personnel movements but what are you planning to change for future growth?

We are always examining business strategies from the perspective of medium- to long term growth. In particular, we are focusing on growth markets, and expanding our equipment lines such as deposition equipment for STT-MRAM*5 and inkjet printing systems for OLED panels, etc. We have built up the structures across our organization to integrate multiple technologies. The number of companies that can take this kind of initiative is limited, so we intend to maximize our strengths.

SEMI said in July that they were expecting the WFE market in CY2017 to grow 10% year-on-year. What are your expectations?

SEMI and Gartner are expecting positive growth year-on-year, and we feel that seems right. High performance smartphones in China and the increased semiconductor content per unit will result in definite growth in demand for logic and 3D NAND. However, we need to pay attention to the impact of the world economy, the financial economy, and UK's exit from the EU.

During your previous briefing, you stated that the WFE market in CY2016 will see a 30% increase in non-volatile memory, 20% reduction in DRAM, and remain flat for the whole of the memory market. Does that view remain the same?

We expect the demand for 3D NAND to increase even further, and we maintain the view that investments in non-volatile memory will increase substantially. The speed of transition from 2D NAND to 3D NAND is exceeding the forecast, mainly for business enterprises. However, we expect there to be some impact on equipment demand depending on the progress of equipment evaluation by memory manufacturers. There will be some demand for high-speed DRAM following the take-up of SSD, so we will need to pay attention to server demand at data centers.

The Kumamoto earthquake-related special losses were 7.8 billion yen - is that all finalized?

We are still estimating losses and there are some that have not yet been confirmed.

WFE (Wafer Fab Equipment): The semiconductor production process can be divided into two sequential sub-processes: front-end (wafer fabrication) and back-end (assembly and test) production. WFE is used in the front-end production process

PICP: Plasma source for producing extremely uniform high-density plasma on substrate

POR (Process of Record): Customer approval to adopt equipment for their semiconductor manufacturing process

HARC (High Aspect Ratio Contact) process: The process of forming deep holes, requiring advanced processing technology

STT-MRAM (Spin Transfer Torque-Magnetoresistive Random Access Memory): Magnetic memory that shows promise for low power consumption

This is a summary of questions and answers.