Q2 FY2019 Earnings Release Conference Q&A
The main driver in the current WFE market as a whole is memory, but delays are occurring in capex, primarily in memory. Capex is being adjusted as memory companies are improving productivity and trying to strike a balance between supply and demand for CPU and memory. If technical problems in logic devices are solved and scaling progresses, we expect that demand for memory will be generated in line with this.
It is possible that the generally stated view that the market is nearing its bottom and will start recovering in the second half of CY2019 is correct. Because this is related to customer capex, there may be a mismatch in timing of from three months to six months. However, there are about 20 semiconductor capex plans from now until 2020, and preparations for these are moving forward steadily. The current market is in a resting period in preparation for high demand.
Although there are no major changes to the outlook for CY2020 presented in our medium term business plan, we see the market entering an adjustment phase in CY2019. We think it is too early to provide a forecast about the size of the market at this point.
It is possible that the view that the market will begin to recover in about the second half of CY2019 is correct. However, we will refrain from commenting about specific figures for the size of the market because it will depend on various factors such as customer production volumes and the progress of miniaturization of logic devices.
We think concerns about excess supply are strong particularly for NAND, but because there is price elasticity for NAND, customers are probably also adjusting capex flexibly while observing the balance between supply and demand.
Sales of around 275.0 billion yen are expected for full-year FY2019 in the FS business. SPE will be about 265.0 billion yen of this and FPD will be about 10.0 billion yen. Sales in the first half were about 140.0 billion yen, or about 50% of the full-year forecast.
Although demand for new equipment has fallen compared to what we expected at the start of the fiscal year, we expect double-digit year-on-year sales growth, and the installed base will continue to increase in the future as well. We expect the FS business to have steady growth to a certain extent in FY2020 as well.
We will not comment regarding forecasts for free cash flow or cash on hand. However, cash on hand will be decreasing compared with the end of the second quarter.
We will be considering targets for FY2020 later. The construction of new deposition plants in Yamanashi and Tohoku has already been announced as large investments. Responses are needed to miniaturization and new devices, packaging, and new structures and materials. We plan to make appropriate investments in those various business opportunities.
We believe that the market will expand in the medium to long term. Although we would like to realize maximum performance over the short, medium, and long terms, we intend to proceed consistently with necessary investments in the medium to long term.
At this point, no matters have been decided, but we will be responding in a flexible manner. We are briefing suppliers on industry trends and TEL’s policies as necessary. Technical suggestions from them are important both for our company and for our customers. We consider suppliers to be highly important partners and we intend to respect them.
Unfortunately, we are unable to comment on specific standards. We will continue to flexibly consider share repurchases.
We do not rule out the possibility of M&A. It is conceivable as an option when there are advantages for the growth of TEL or for shareholders and customers, and when returns on investment can be obtained. Regarding scale, we do not place a specific ceiling on the amount, and we will make decisions taking into consideration factors such as the level of internal reserves.
Regarding short-term trends, we are continuing to carefully observe what kinds of effects there are. However, in the medium to long term, there is no change in our view that demand for semiconductors will be generated by the enormous increase in data that will accompany IoT, and we have no major concerns. TEL will continue to provide valuable technology and services.
We believe that FPD manufacturers will first complete verification of volume production of OLED panels as a pilot stage with G4.5 substrate, followed by increases in substrate size. Demand for high-resolution panels is high, and inquiries are gradually increasing for TEL’s inkjet printing system.
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
The above content is a summary of question and answers session.