Q3 FY2018 Earnings Release Conference Q&A
Q3 results were in line with expectations, with no surprises. Sales estimates for Q4 is quite high, and if sales proceed according to plan, it should be a record quarter for sales. As we only book sales at the time of the completion of set-up and testing, scheduled Q4 sales mainly comprise equipment already shipped during Q3. Provided that there are no major issues with acceptance by client fabs, we think we should be able to achieve our Q4 sales plan.
We provide products with a focus on areas where we anticipate technological innovation as well as market growth. Etch and deposition are areas where we see both the equipment market size and our own market share growing significantly, not just in the short term but also over the longer term. Regarding FY2019 earnings, you can reasonably expect us to significantly outperform the level of market growth.
Provided that customers are generating profits and cash flow, we have no serious concerns. Our customers are in an oligopolistic market, and as they monitor memory prices with the benefit of past experience, we do not expect an excess level of investment that would cause the market to crash. With regard to NAND, it is actually more beneficial for us if prices fall, because the market will widen. As mentioned in the presentation, we see DRAM growing by 30% YoY in CY2018, even after factoring in the recent slowdown in mobile shipment volumes.
The risks for logic foundries should also be limited. The capex forecast mentioned recently by a leading Taiwan foundry manufacturer is also in line with our view. Of course there are also geopolitical risks, but these are not within our control.
Once EUV is introduced, the number of patterning process steps will decrease, to a limited extent. However, some process steps will increase along with miniaturization. Thinking about the sum of these two factors, the etch systems market will expand. Additional functionality is required of coater/developers in order to enhance EUV productivity, so the coater/developers market should also widen.
The etch systems market is growing the most. Regarding our share of etch systems, since last year our share of DRAM has risen, and in NAND we captured POR*2two customers for the word line isolation (slit) etch process. One of these has already started mass production, and the other will contribute to our FY2019 sales. We believe our market share in CY2017 rose by a few percentage points compared with the previous year.
We have not yet looked closely at the outlook for the WFE market in CY2019, but the scale of investment among Chinese customers will increase, and capital spending associated with the introduction of 5G will also get underway. There will be some fluctuations based on customers' investment plans, but we think growth in the WFE market will trend upward toward CY2020.
From late-CY2018, infrastructure investment will take shape ahead of the introduction of 5G, and we envisage huge server demand along with the increase in data traffic. As of CY2017, only 9% of server data storage consists of SSDs, so as the adoption of SSDs in server data storage proceeds in the future, we believe that we can expect stable NAND growth.
Our view is unchanged. Chinese WFE capital spending is likely to be $9B in CY2018 and $12B in CY2019. Within this, investment by new local Chinese semiconductor manufacturers is estimated at $2B in CY2018 and $3B in CY2019, and in terms of the scheduled supply of equipment, there is also no significant change at present. However, there could well be some upside to this.
At present, the supply of wafers is not keeping up with demand, but technological innovation will not stop as a result of this wafer shortage, and customers' investment plans are also unlikely to change significantly.
About two years ago, we set out a ¥250B target level for required cash on hand, and this remains unchanged. Our approach to the use of cash on hand is also unchanged, and we regard M&A as one option for investing in growth, focused on semiconductor production equipment and FPD (flat panel display) production equipment. In terms of the use of surplus funds after investing for growth, we are considering share buybacks flexibly, as before. If we speak about the conditions for this, it will no longer be "flexible," so we would prefer not to comment.
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.