Q1 FY2025 Earnings Release Conference Q&A

Your financial estimates for FY2025 were adjusted upward. Is this adjustment relative to the slight upward adjustment to your CY2024 WFE*¹ outlook? Or is it due to the contribution from the advanced areas that you have been focusing on, that you expect to be the driving force?

The upward adjustment of our financial estimates is due to the impact of both factors. The upward adjustment reflects an acceleration of customers’ investment plans due to market recovery and additional investments in logic/foundry and memory for AI applications. There has been a sharp increase in inquiries for packaging and testing (wafer probers).

Although your CY2025 WFE outlook has not changed significantly from the previous one, has your outlook based on applications and China changed? One of your major U.S. customers says they will reduce their capex plan by 20%. Can we expect sales to continue growing in CY2025 as other customers of advanced logic/foundry increase investment?

In CY2025, we expect a definite increase due to steady investments in DRAM. We anticipate NAND capex to roughly double. In logic/foundry, we expect AI servers, PCs and smartphones to drive capex growth despite changes in some customers' investment plans. We expect industrial applications to continue to adjust. In China, more than 20 emerging chip manufacturers have made investments in recent years, and we expect investments in CY2025 to be lower than in CY2024 as investment activity has run its course.

In terms of sales by application in FY2025, the forecast for logic/foundry has decreased, while DRAM has increased compared to the previous forecast. What are the reasons for this decrease and increase?

Due to low utilization rates in semiconductor fabs for traditional PCs and smartphones, some customers have held back on investment. On the other hand, AI-related investments are increasing significantly due to the emergence of AI servers and AI-enabled PCs and smartphones. DRAM investment is rising accordingly.

The gross profit margin for Q1 FY2025 was high, at 47.6%. You mentioned product mix as one of the reasons. Please share a major contributor.

An increase in the proportion of high value-added products in sales led to an overall improvement in the marginal profit margin.

Why is the gross profit margin estimate for Q2 lower than Q1 and H2 higher than H1 in FY2025?

Sales are expected to be lower in Q2 due to deliveries in China being brought forward to Q1. We have also factored in inventory disposals and strategic sales of old model parts, which contribute to the lower margin compared to Q1. The margin for H2 is expected to be higher than in H1, due to a rise in the proportion of high-margin equipment in sales.

You mentioned that there has been progress in the evaluation of NAND cryogenic etch for mass production. Have there been any changes in the last three months?

Evaluations are progressing steadily, and we have entered the final stage of pushing towards mass production. We have delivered evaluation tools to customers ahead of competitors. The results are good, and we are confident that we can increase our market share. However, we have not yet acquired mass-production POR*². According to customers' plans, pilot investments will begin in CY2025, so we believe we will be able to acquire mass-production POR before long.

With regard to the channel hole process, which you target with your cryogenic etcher, I believe you expected a market size of about $2B by CY2027. Are there any changes to that assumption? A U.S. competitor has announced a similar cryogenic etcher. I believe you have a first-mover advantage, but please explain the competitive advantages of your product.

We believe that the market size may change slightly depending on the number of layers and the number of cryogenic etchers to be adopted, but we expect our cryogenic etchers to be adopted more as the technical difficulty increases. We also have an advantage from an environmental perspective. The global warming potential is reduced by 84% compared to the conventional process because our cryogenic etcher does not use CF gas. In the expanding etching market, the probability of adoption of our cryogenic etcher is increasing.

I understand that the mass-production POR for cryogenic etchers will be decided by the end of CY2024. If there are no comments on the acquisition of mass-production POR at the next financial announcement, would it mean that your market share will not increase at the mass-production timing of CY2026? Furthermore, I believe that your market share will temporarily increase if mass-production POR is acquired, but in view of the competitive environment and switching costs, will it be difficult to increase your share further?

Although the adoption of new equipment will be determined based on the comprehensive judgment of customers, the evaluation of our equipment is progressing well. I cannot say for sure when we will be able to acquire mass-production POR, but we believe we can increase our share by CY2026.

The proportion of sales to China is expected to remain at more than 40% in Q3 FY2025 and to decline to around 30% in Q4. Have inquiries from China been slowing down recently? Please also give us a sense of the levels in FY2025 and FY2026.

The proportion of sales to China will decline in Q2 due to accelerated deliveries in Q1, not significantly different from our assumption from the beginning of the fiscal year. I will refrain from commenting on FY2026 as we have not guided our financial estimates for that year. However, we do expect a decline in capex by Chinese customers. We believe that in the future, the proportion of sales to China will settle at 25% to 30%, which is the previous level.

The Chinese government has announced new subsidies. Has this led to more inquiries?

We are not aware of such trends.

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. WFE 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

FY2025 refers to the financial year ending in March 2025.
FY2026 refers to the financial year ending in March 2026.
The content above is a summary of the question-and-answer session.