Q4 FY2019 Earnings Release Conference Q&A

In logic and foundries, we expect investment in preparation for 5G and the high performance computing (HPC). In memory, we have heard from customers that particularly in non-volatile memory, they may proceed with inventory adjustments around this summer. After that, equipment orders and installations should pick up from the second half of CY2019 due to increasing memory demand driven by factors such as data centers. We hope that the market will move toward a V-shaped recovery beginning in CY2020.

Customers are adjusting their capital investment, and recently we are hearing that they are beginning to reduce their inventories. In the future, if large volumes of data are going to be used at a high speed due to the introduction of 5G, we can expect demand for memory in addition to high-speed CPUs. If demand increases from these factors, then investment will probably be restarted.

The market for logic and foundries continues to be strong, and we hope that there will be strong growth in demand for both DRAM and non-volatile memory.

We assume that there will be some effect due to the gap of three months between the calendar and the fiscal year. In addition, unlike many of our competitors which record sales upon shipment, we record sales when set-up and testing of the systems are completed, and this difference in accounting standards makes comparison difficult.
We believe that sales for conversion investments will become larger.

As can be seen on page 29 of the presentation materials, SPE sales to China were about 200 billion yen in FY2019. This includes not only sales to local Chinese customers but also sales to the China fabs of foreign customers. In FY2020, sales to China will decrease along with the decrease in overall SPE sales, but there is no large difference from other regions in the decrease rate.

We are forecasting that although WFE capex will decrease year-on-year by 15-20%, FS sales will be about 278 billion yen in FY2020, nearly at the same level as in the previous fiscal year.
In the FS business, in addition to used equipment/modification, there is also the parts sales business which accounts for just under half of sales. Against the backdrop of the increase in installed base and the demand for semiconductors for IoT, we can expect stable sales and profit from used equipment/modification and parts.

In addition to customer and product mix, investment to prepare for growth from FY2021 also has an impact on the downturn in gross profit margin in the current FY2020. Examples of this investment include costs for promotional activities for customer evaluations and development costs included in cost of sales for improving system performance. We have also increased capital investment and hired more staff, and the additional related costs will now be reflected through all of FY2020.
Regarding FY2021, following the financial model that we have presented before, at this time we expect that profitability will be improving compared to this fiscal year.

The full year forecast is 221 billion yen, of which 107 billion yen are forecast in the first half, and 114 billion yen in the second half.

We aim to maintain a high share in coaters/developers. In etch systems, in addition to a high share in logic, our share in memory rose last year, and we assume that it will contribute to an increase in sales if memory investment increases. In deposition systems, we are making progress in acquisition of POR*2 for semi-batch systems, and we anticipate customer investment for volume production. In cleaning systems, bevel cleaning applications are expanding for the purpose of improvements in customer yield.
We have placed our efforts into the areas in which we can (i) count on continuous technological innovation, and (ii) utilize our expertise, and that strategy is succeeding well. We are upbeat about CY2020 as well.

TEL’s PICP™*3 technology has been positively evaluated for various generations, not just for G10.5. We will continue to support the preparations that are required for further technological innovation, such as high-definition and flexible displays.

There is demand for small to medium-sized FPD in gaming and e-sports, and we believe that we can expect investments in the medium term as well.