Kioxia Hldgs Corp

Thank you so much for joining the Arning School of Kyokusha Holdings Corporation today. For the participants who are joining online, if you are using a nickname to log in, please change it to your name and the name of your affiliation. To change your login name, please log out once. Go back to the registration page on this Zoom webinar where you can change your name and the name of your affiliation and log in again. Thank you for your kind understanding. The session will begin soon. Thank you. Thank you for waiting. We will start earnings call of Kyokusha Holdings Corporation for the first quarter of fiscal year 2026. I am today's facilitator, Nishida, in charge of IR from Corporate Communication Division. With me here are Executive Vice President and Executive Officer, Chief Financial Officer, Yoshihiko Kawamura, and head of corporate communication division, Toshiaki Fujikawa. Let me inform you on the process of today's call. After outlining the disclaimer, Mr. Fujikawa will explain about the overview of the non-market outlook and enhancement of our production capability. After that, Mr. Kawamura will go through the financial results of the first quarter of fiscal year 2026 and the guidance of the second quarter. And that will be followed by the question and answers. The entire session will end at 5 p.m. Please be advised that today's session will be recorded for on-demand viewing later. We would like to start with a disclaimer. Forward-looking statements are prepared based upon our expectations and projections in light of the information currently available to us, which involve various risks and uncertainties. and such risks and uncertainties may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statement included in this material. For more of the disclaimer, please refer to this slide on the screen. Now, let us hand over to Mr. Fujikawa. This is Fujikawa. First, let me talk about the current state of the market. Currently, growth in AI demand is driving the NAND market, with data centers and enterprise applications leading the growth. Notably, agentic AI applications are a key growth driver for NAND demand, impacting even demand for traditional servers. The smartphone market is seeing a decline in shipments of low-priced models, while high-end models are performing steadily. As a result, we anticipate smartphone land of demand to remain flat compared to calendar year 25. The increased storage capacity of high-end models is supporting demand. The PC market is expected to see a decrease in shipments due to rising bond costs, leading to a slight decline in land demand compared to calendar year 25. In light of these market trends, we see AI-driven data center and enterprise demand as sustaining market growth, and we believe that the land market will continue to grow. For calendar year 26, in terms of bid growth, we currently anticipate the Nanda market to grow in the high teens percentage range, in line with how we see our own bid growth for the year. Looking ahead to calendar year 27, we forecast that demand will exceed supply. We will continue to closely monitor market trends and respond appropriately to demand. Next, let us explain about our production capability to support the growing demands in the AI era. We are continuously improving productivity by leveraging big data and AI technologies. Through continuous capital investments, we are transitioning to next-generation products to strengthen our competitiveness. Additionally, our long-term joint venture partnership with Sundisk allows us to leverage economies of scale through ongoing joint development and co-investment. We have a multi-site production system comprising two locations, our Yokkaichi plant and the Kitakami plant, which addresses the increasing demand for land and allows us to achieve stable supply. Both plants excel in terms of business continuity planning. The Yokaichi plant is one of the world's largest flash memory manufacturing bases and serves as a key site equipped with leading-edge R&D. It enables smooth transitions from product development to mass production, and close collaboration between development and manufacturing department facilitates efficient launches while leveraging advanced technologies and know-how. It also houses advanced R&D space for developing next-generation memory, playing a crucial role in future technological innovations. The K2 Fav at our Kitakami plant began operation in September 2025 and began production of the 10th generation Bix flush this year. With the introduction of the latest equipment, the plant achieves high productivity and contributes to further improvements to yield and productivity for products developed and mass-produced at Yokaichi. It also boasts excellent site expandability, positioning it as a key manufacturing base supporting future demand growth. Through the AI-powered productivity improvements, Technology node migration facilitated by continuous capital expenditures, JV partnership, and a multi-site production system. We are steadily expanding our production base to support long-term demand growth. To continue addressing demand growth and investing in next generation technologies, we plan to spend an average of 470 billion yen annually on capital expenditures from fiscal year 26 to fiscal year 28. That concludes my part. Thank you. Next, we will ask Mr. Kawamura to take over for the presentation. I am Kawamura, CFO in charge of finance department. Thank you for squeezing out of your busy time to join our earnings call. Please refer to the screen. Starting with page eight, that lays out our financial highlights. April to June, our first quarter's financial results. Across the board, we achieved record high numbers in both revenue and profit. Let us take you through from the left to right. Left-hand side, revenue, record high. And the revenue increased 1.8 times quarter on quarter. and 1,767,1 billion yen. Next, non-GAAP gross profit, 2.1 times quarter on quarter, 1,405,5 billion yen, 80% of the gross margin, and their net gross margin excluding joint venture related items was 82% and non-GAAP operating profit hitting the record high as well. Quarter on quarter, 2.2 times. 1,326,000,000,000 yen. Exceeding 1 trillion yen. Next level. Last year, the entire year, non-GAAP operating profit was 876.2 billion yen. This quarter already exceeded the entire year over the last year. And then the margin was 75%. And then we added The new indicator which is the core free cash flow. I will explain this definition later, but excluding large-sized amount A. But this represents the pure cash generated from operation. Basically, the operating cash flow deducting the net capex Q1Q 3.4 times, hitting a record high 827.2 billion yen. As a result, on the right-hand side, we achieved the net cash position. And then we repaid the senior loan entirely in the first quarter. achieving the net cash position. Next slide, please. This slide lays out the quota on quota and the comparison against the guidance. From the top to the bottom, revenue, non-GAAP operating profit, non-GAAP net income, non-GAAP EBITDA, which is the biggest chunk of the cash flow, and Earning Per Share, Non-Gap and FX. And from the left to the right, fourth quarter results and guidance we announced on May 15th and the results of the first quarter. and the revenue guidance was 1,750,000,000 yen and actual over the first quarter, 1,767,000,000 yen. Q1Q, 76.2% up. Young year, 415.5% increase. And the next, non-GAAP operating profit, the guidance, 1 trillion 300 billion yen, and the results is 1 trillion 326.2 billion yen, margin 75%, Q1Q 121.4% up, Yaoniya 2,833.2% up, astonishing numbers, and non-GAAP net income guidance 870 billion yen. and the actual was 887 billion yen. Margin, 50.2%. Q1Q, 116.4% up. 4 year, 4,692.5%. Again, the astonishing numbers we see here. And as I said earlier, senior loan has been repaid and that's been factored in here. And the non-GAAP EBITDA, Please look up here, results. ¥1,402,000,000, margin 79.3%, quarter on quarter, 107.6%, year on year, 1,022.7%, quite high numbers we recognized. And on the right, Selling price and the gigabyte volume. And then the selling price went up by 70%. Like for like blended ASP, both increased by 70%. And then the quarter on quarter shipment volume also increased with the low single digit. Therefore, they're both contributed to our results. and they're earning a purse share, second from the bottom, by dance. 1,593.15 yen, but actual 1,621.81 yen, and the FX against the guidance of 159 yen, and actual was the 160 yen, that's actual. And then yesterday, according to the news media, and there was some intervention, but this FX has been quite flat for the entire term. And then there are some items which are not included in the guidance. And that is there's some phasing timing of the volume, which has been deferred to the second quarter from the first quarter. And also another point is that the employee's reward. And then we are going to pay the special Compensation to be paid to the employees to reward them And then the allowance for it has been recognized 550 billion yen a year And that will be starting from this fiscal year And also another point is that there is some difference in the accounting system From the non-GAAP to IFAS, there are two items to be added Please go to page 26 in appendix. That is the equity-based compensation, 19.4 billion yen, and some litigation-related, 36.6 billion yen, to be recognized in IFAS from Nongap. Please go to next slide. Page 10 and page 11 shows by application. This is their sales and sales actual by application. On the inside, blue indicates smart devices, red indicates necessity and storage, followed by others. In the middle, you see the revenue per application. Smart device, 525.7 billion yen. Bottom quarter, 55.8% up. increased by 565.1%. Main reasons on the right side, and it's driven by the selling price. Significant increase. Also, the revenue hit the record high in this segment. Red indicates essential storage. Revenue was 1,174.7 billion yen. Porta, 95.7%. Yon-ya, 440.3%. Significant increase. And the reasons are laid out on the right side. The PC segment, which accounts for less than 40% right now of this segment. And then mainly, quote-on-quote, sales went up, driven by the selling price increase. And then the data center enterprise. Relatively speaking, it's increasing in SSD and storage, this time accounting for over 60%, driven by the growing AI server demands. And then the volume hit record high. and driven by the selling price, the revenue also hit the record high. And then the PIX 8 now is exceeding 50% over the entire production right now. And the others, 66.7 billion yen, quarter on quarter, 2.3% up, 44% up. Page 11, please. Still, by application, And then the color legend is the same as the previous slide. Blue, smart devices, and red indicates the necessary storage. Gray shows others from the left. Year 25, quarterly basis. First quarter, second, third quarter, and fourth quarter of fiscal year 25. And the revenue, total 1 trillion, 2.9 billion yen. and 65.2 billion yen coming from the others and the blue 3373 and the red numbers show 6003 and if you go to the first quarter of this fiscal year red increased to 1 trillion 174.7 billion almost double And if you compare that to the right-hand side, that's the yearly results of fiscal year 25. SSD storage was 1,362,600,000 yen. So the first quarter alone is close enough to the entire fiscal year 25's number of SSD storage, which indicates SSD and storage is a driving force of our revenue and profit. And then moving on to page 12, please. This will be cash flow. We are discussing cash flow here.

I did mention this earlier, but from this time, we are using the word core cash flow. This is going to be a new disclosure item. And this is going to be a new KPI that we would like to add on. And we will be using this going forward as well. What is this core free cash flow? So investment cash flow includes M&A. And therefore, there's a Taiwanese investment that we made this time around. And this was quite significant. So if we include this, the operational Amina cannot be discussed. Therefore, we wanted to have a separate core cash flow that is excluding this investment. Please look at the left bar chart. For March end of 2026, we have 470.7 billion Japanese yen remaining as cash, and this will be record high. And then, looking at operating cash flow, it is 866.3 billion Japanese yen. And then at the very right, when you look at operating cash flow, This is redundant, but then with ASP increase and data center enterprise SSD, sales increases also affected as well. And looking at big state expansion as well, as a result of that quarter on quarter, it is about three times more, and this is record high as well. And then this time as well for quarter one, the operating cash flow is 866.3 billion Japanese yen, as you can see on the very left-hand side. And then moving on to the right-hand side, which would be the negative 39.2%. So you can see the investment cash flow. How are we calculating this? This is CapEx investment, which is 52.4 billion Japanese yen, which is gross CapEx. And then from here, there is subsidy, which is 12 billion that will be deducted. And then on the very right, there would be the 1.2 billion, which is adjusted. So that would be It is minus 52, and then there is plus of 12 billion. And then therefore, that would be the minus 39.1. And then with this deduction, the core free cash flow is going to be 827.2 billion Japanese yen. And then at the very right, so when it comes to other financial assets, this is going to be the acquisition of equity at Naya, that is a minus 78.2 billion Japanese yen. And then for investment cash flow on the very right, gross capex, as we mentioned before, 52.4 billion, and the investment in Taiwanese naaya is 78.2 billion Japanese yen. And then for the eighth generation, as well as 10th generation VIX flash, equipment investment is starting, and that is also inclusive in this number. And then on the right, which will be financial cash flow. As we mentioned before, the senior loan full repayment of 407.5 billion Japanese yen is priced in. And as a result, on the very right, for fiscal year 26, it is going to be 791.0 billion Japanese yen. Please move to page 13. So this will be surrounding the balance sheet. And when it comes to our equity ratio, this has improved quite significantly. Please look at the very left, and this will be the asset side. And then the left hand will be for fiscal year 25, and then the right will be the end of the first quarter of this fiscal year. And when you look at the assets, what is increased most significant will be the cash flow that we discussed before as well at the very top, cash and cash equivalents. That is 791.0. and then for trade and other receivables. So since business grows and this is going to grow as well and therefore that is also on the ride at 1,151.6 billion and then for inventories. So this is increased by 25.5 billion. So this is with DRAM as a core. We are strategically trying to ramp up our inventory. And therefore, outside of that, there is no significant difference. And then at the very right, there will be the inventory, days of inventory. It is about 100 days or maybe a little less than 100 days. And therefore, it is not that much of a change. And then at the very bottom, when you look at others, and that is the NIA equity acquisition that is inclusive in this number. And with that, The asset is 4,730.5. And then on the very right, at the end of this first quarter, The biggest change, it will be the senior loan full repayment. So that will be second from the top. This will be bonds and borrowing. So this has reduced quite significantly by 400 billion Japanese yen. And then furthermore, when it comes to other liabilities, this is on the rise. So it is 442.9 to 781.4. And so there is quite a bit of profitability that we booked, meaning we need to pay quite a bit of tax. So corporate tax, which has not been paid yet, is also captured here under other liabilities. And then therefore, there is 2,404.5 billion Japanese yen in terms of capital. And then therefore, it is going to be... 51% in terms of our equity ratio. For the second quarter and third quarter, we do believe that there will be more ramp up in the capital. And therefore, from a capital perspective, it will be quite robust. And moving on to the next page, please. This will be surrounding enhancing our financial structure, and I would like to discuss more substance. So this will be the net debt to equity ratio and exactly how that has been evolving. When you look at the chart on the very left to right, On the very left will be last fiscal year quarter one, quarter two, quarter three. And then this fiscal year's quarter one at the very right. The blue area will be the liability and then also capital on the red and equity on the red. So quarter one had more liabilities and the same situation lingers into quarter two. And then coming into quarter three of last fiscal year, the DE ratio goes to 80%. And then there seems to be more of an equity side than the liability side. And then in quarter four, this reversal improves even further and DE ratio goes to 39%. In the first quarter of this year, our capital has been ramping up even further and we have more cash ramp up. And with that, as you can see here, The DE ratio is now a negative 8%. And this is how much improvement we have been able to achieve. So we are in a total cash positive position. Moving on to page 15, please. And this will be the second quarter guidance. So how we disclose the guidance. We used to have a range. However, from the quarter one, we decided to go with just one number. On the very left, we have the quarter one results. And based on this quarter one results, we have been developing the quarter two guidance. On the right will be the quarter on quarter difference from quarter one results as well as quarter two guidance. So revenue results, as I said, was $1,767.1 billion. And we're saying that guidance-wise, it's going to be 2,390.0 billion. And quarter on quarter, it's going to be a 35% plus increase. And for non-GAAP operating profit for the quarter one results, it's 1,326.2 billion. And this is going to be cited as 1,900 billion Japanese yen. And the margin is going to be 79.9%. And quarter on quarter, it will be a 43.3% increase for non-GAAP profit before tax. So this is going to be a new disclosure item. Is the core cash flow, in addition to core cash flow, we decided to disclose non-GAAP profit before tax as well. Traditionally, it was basically operating profit minus non-profit before tax. And we did not really disclose this number. However, you needed to have some assumptions. And therefore, we decided to disclose this number so that it will be a very solid number that you would be able to understand. So this will be non-GAAP profit before tax that we decided to add up as a part of the disclosure. Results was $1,291.5 billion and quarter two guidance we're saying $1,880.0 billion and margin wise net 78.7%. And so increase will be plus 45.6%. And non-GAAP net income. So quarter one results as $887 billion. and guidance is saying 1,280 billion margin at 53.6%. And so increase of 44.3% quarter on quarter, it's a very high number. As a result of that, moving on to the next item, which is non-GAAP earnings per share. If quarter one results, 1,621.81 billion, which is going to be 2,335.70 billion, and it will be a plus 713.89. And then the exchange rate is going to be 162 yen to the dollar. And forex sensitivity across the three months on a quarterly basis, revenue is going to be So it will be 14 billion Japanese yen with one yen change and operating profit will be moving by 13 billion yen. So this is exactly how much I think increase we will see with a weaker yen. And even though it's not described here, when it comes to our net income, there's also R&D investment that we are going to be enhancing and that will be inclusive as well. It is about 200 billion Japanese yen for the full year that we are expecting. And therefore, it will be VIX11 as well as AI inference SSDs. And this is going to be a concentrated investment that we will be making. And therefore, our R&D investments will go in This is going to be exactly how we are continuing to introduce initiatives in order to boost our corporate value. And one will be stock split. The investors. We want to make an environment that will be easier for the investors to invest. And we want more investor base. We want to expand our investor base. And that will be the purpose of the stock split. So it will be a ratio of three to one in terms of our company's common stock split. And this will be on September 30th and effective date will be October 1st. and therefore after JASDAQ, it is going to be approval. It will be a ratio of three to one, and then it will be a share buyback. And this will be a repurchasing program. And the purpose is to improve our capital efficiency and also enhance our shareholder return. And then the total number of shares to be acquired will be 30 million shares. And that will be the maximum that we will be considering. And then this is going to be, Thank you very much. We are hoping to actually purchase from the market from the Tokyo Stock Exchange. So these are two things that we wanted to introduce. Lastly, this will be the summary for today. Please go to page 17. Three things. The first will be, as Fujikawa explained prior to my presentation, surrounding accelerated growth driven by AI demand. And then in the quarter one, when it comes to our revenue, as well as operating profit, we booked something that was record high. So this was exponential. And that growth trend, as we mentioned in the guidance, it will continue into quarter two as well. And for a Jantec AI, with widespread adoption of Jantec AI, the NAND and demand growth will be even more robust. It is just still in the incipient stages, and we do believe that there is more to come. When it comes to our major customers, we will have a long-term agreement that we will be signing in calendar year 28. And most, we would say 50% of our shipment will be covered by LTA if things go well. And this is what we are trying to aim for. and therefore it is a long-term revenue visibility that we are hoping to establish so that we can ensure a deep engagement with the customers. So it's not just going to be selling through marketing when it comes to NAND, it is a very specific product and then customer specification will be very important for us to actually design and also engineer and therefore we hope to create a very friendly relationship with our customers. And in light of the AI demand growth, we are hoping to expand our manufacturing infrastructure and capture expanding AI demand. And this will be investing into Yokaiichi as well as Kitakami, which will be continuing. And the second will be financial strength enabling our future growth investments that I mentioned before as well. For the second and third quarter as well, we do hope that our equity capital will be increasing and therefore we will have an even more robust financial soundness. and then therefore we will have more flexibility as a company in order to enjoy a very strong position and therefore we will be able even if there is a big downturn we will be able to cope without any issues and that will be a very robust financial standing that we will enjoy and thirdly This is something that I did touch upon as well, which will be continued value creation and corporate value boost driven by our strategic priorities. Basically, we want to be friendly to the capital markets as well. And so we will make growth investments. And so we did mention CapEx that we discussed mainly today. But there are three types of investments. And next will be R&D investments. And that is something that I did mention previously, but it will be in the order of 200 billion Japanese yen. and then also human capital investment as well. That is going to be enhanced as well. And capital efficiency improvement is something that we will constantly work on. And so we want to boost our EPS. And that's something that we are constantly engaging in. And then we want to make sure that we discuss shareholder return as well so that we are going to be a very broad capital market friendly initiative that we do want to execute. And stock split that we mentioned before, That is going to be one, two, three. And the share buyback will also be conducted with 800 billion as a max. We'll do this in a very agile manner. And that will be my presentation. Thank you.

Now, we will move on to the Q&A session. Now, the Head of Finance Division, Akira Menju, will be coming on right now. Mr. Kawamura, Mr. Fujikawa, and Mr. Menju will be taking your questions. If you have a question, please tap the raise hand icon on the Zoom screen. We will appoint you in order. When you are appointed, please unmute yourself to speak up. If you like to ask questions in writing, please use the Q&A feature in Zoom. Feel free to submit them in either Japanese or English. Please allow us to limit the number of questions to two per person. If we have time left before closing, we will take additional questions. Please kindly note that because of the time constraint, we might not be able to take all the questions since we will wrap up the Q&A session at 5 p.m. Please raise your hand if you have any questions. From CLSA, Ms. Yoshida, please unmute yourself to speak up. If you have two questions, please start with the first question followed by the second question. I am Yoshida speaking. Thank you. The congratulations on the good results. And also that we see the stock numbers that are in the second quarter's guidance. So there are big growth effects and ASP. What is the composition of them? Which is a driving force? And what about by application? Because I'm a bit mindful of the seasonality of the smartphones. And also what's your view of your business results for the second half of the year? Thank you for your question. So, numbers by application, I will ask Mr. Menju to take that question. Thank you for your question. Revenue for the second quarter, 2 trillion 390 billion, and a 35% Q1Q is expected. First quarter, Q1Q 76% up, and ASP accounts for 70% as a driver. So significant increase in ASB and this time 35% and the breakdown of it. The biggest driver should be ASB up continuously from the first quarter. It is expected that ASB will continuously grow. And in terms of the volume, first quarter and the low single digit percentage, And the second quarter, it is expected to grow as well. And FX, ¥160 to ¥162. So around 1%. So these are major drivers behind it. When it comes to the buy application, the first quarter, when you look at the volume, low single-digit percent. The data center enterprise has driven the entire business. The data center enterprise, so that we allocated our business volume to that sub-segment. And the second quarter, continuously, the demand will be strong in data center and enterprise, which will drive the volume. And the smart devices as well. There must be some seasonality, but the volume is expected to grow in the second quarter. Thank you. Toward the end of the fiscal year, we have to carefully see how it will play out. But we already presented the second quarter's guidance. But when we look ahead in the third and fourth quarters, our production plan remains intact. And the sales plan, which might be adjusted a little bit, but overall, it will remain unchanged. So the third and fourth quarters, and then we will follow continuously the strong growing demands. And then our financial results will follow, we believe. I would like to confirm one thing regarding the volume. Are you expecting the two-digit growth? Well, we are not disclosing specifically, so it's really hard to take the question, but we can safely say that it is expected to grow. Thank you. My second question is about the shareholders' return. Unlike what you said in the past, you seem to accelerate the timing of the shareholders' return. And instead of the dividend, it seems that you will start with the share buyback, which might be related to the stock split. But what's the background of your decision? And also, if there is any update of your future shareholders' returns policies or initiatives. Yes, we kept talking about dividend. And of course, still we are discussing it because we have ample cash flow. So second half of the year, and we assume that it might be possible for us to... They consider some kind of dividend pay. So still, that's an existing annual discussion on the table. And the share buyback. Right now, as you are familiar with, our share price is fluctuating, and right now it's downward. In order to improve the capital efficiency, it's a good timing for us to adjust the number of shares. So the share buyback will contribute to the better EPS. Inevitably, it will be the shareholders' return as well as dividend. So by coincidence, because of the share price trend, we decided to take the share buyback first. But our policy remains unchanged. Thank you.

From UPA Securities, Yasui-san, please. Thank you. This is Yasui from UBS. So this is surrounding hyperscaler customers included. We would like to better understand your status with LTA. I think it may be difficult to mention specific customers, but we would like to understand your progress to the extent possible. Thank you. That's number one. I would like to invite Fujikawa to respond. Thank you. In terms of LTA, as Kawamura has introduced before in the presentation, as Kyokusha, There are three reasons why we would like to go for LTA. One, we want to visualize a long-term demand, and we want to have a backdrop to exactly how we actually make growth investments. And the third will be for enterprise and hyperscaler key players. We want to really have a future-looking business and also technological business engagement. So these are the three things that we would like to focus on when we actually engage in our LTA activities. So when it comes to customers as well as conditions, it is very viscope and very customized. And therefore, it's not really standardized across the different customers. And there's NDA as well. So we can't really discuss any details. But at the investor day in June, I do believe that Oota, our president, did make some introductions surrounding this area. We would like to aim for 50% of our total shipment volume. in terms of the percentage of LTA. And there is going to be more LTA engagement that we would like to deepen. So 50% is something that we are trying to establish as a goal. And we are pretty much on track in trying to attain that goal. Thank you. So when it comes to the term, exactly how long would it be when it's five to six years? So what are you aiming for in terms of your LTA length? Allow myself to respond once again, please. Generally speaking, CY27 to 28 is what we are discussing with the customers at the moment. However, most recently, there are further longer term framework that customers are wanting to sign. So these are some voices that we do hear and we are proactively engaging on that front as well. Thank you. And the second question is, around AI inference, how we capture that. So AI inference demand appears to be rising. So we do believe that there could be a tightening that could happen going into next year, but when it comes to AI inference area, how do you see the developments? And most recently, the open source model from China is now starting to become more visible. So the US frontier model and also the two big manufacturers inference AI, Chinese makers. I personally think that it's not that different. Between the US and Chinese model, is there maybe like a change that we will be seeing in the demand market? We would like to invite Fujikawa to respond to that question as well. First, when it comes to AI inference slash memory demand going into the future, As you have lightly pointed out, inference AI is in the incipient stages, as Kawamura had discussed as well. And as Keopsia, inference AI or agentic AI, flash memory demand, we are still in the entrance point of its demand increase. specifically when it comes to agentic AI and also storage dependency is going to be increasing significantly with that the inference server SSD as well as input output per second the very high super high ops SSD that we enjoy that demand is going to be created going forward and then therefore at this moment we do believe that the industry analysts or maybe the research companies are saying that there is a demand data that they are introducing and the inference AI growth SSD demand and flash memory demand exactly how much that is priced in as you have rightly pointed out it is something that we do not know so there is of course upside potential we do believe and then you mentioned China the open source I think more affordable AI model, exactly what that impact could look like. Jevons Paradox is something that is discussed in the industry quite frequently. And as Keoksia, when it comes to AI cost reduction, the system cost reduction, and the specification cost reduction, that means that many more users will be using AI. And therefore, AI's barrier to entry is going to be lower. And therefore, there will be more users that will be able to start using AI, meaning that there will be more data that will be used. and that will be generated. And that is a positive cycle that we do foresee. Thank you.

Next from Nomura, Miss Virginia. Thank you. I'm Virginia from Nomura. Can you hear me? Thank you. I have a question about the production, which might be overlapping a little bit from the previous lesson. So I wonder how frequently you have interaction with the critical customers. As we talked about earlier, that's an open source model for your customers. Think that this is something they have never anticipated. Such as AI and others. So I wonder if such new demands are emerging. And if there are such new demands coming from customers, do you have the customer access so that you'll be able to get that information of such new demands? Mr. Fujikawa. Yes, in the US, Silicon Valley, Texas, or Shanghai, Shenzhen in China, in each location, we have the talented sales engineers in each location who have the interaction with customers daily basis or a few times a day. They have interaction with customers in each location. Not just the customers and procurement departments, but also they have the deep engagement with the technology department or the customers so that we can detect any change of the project status or the demand change. As you pointed out, Any new technology transformation coming outside of that SOCO? And that might have impact, of course. However, that whenever customers detect such change, then if they change any plan because of that, and then they will be able to gather information from the customers. Thank you. My second question about CAPEX. It seems that you are in a dilemma situation. Because even if you are in a disciplined manner, trying to make the capex in a prudent way, if your competitors are aggressive in making investment, they will steal the pie from you, gaining shares. So if they are aggressive in increasing the capacity, are you trying to follow The competitors, or are you trying to get away from the commodity, commoditization, just like a super high ops you are currently developing to be unique? Well, this is Kamura. I will take a question. We are not pursuing a market share for making investment. As Mr. Fujikawa mentioned earlier, we are leveraging the technology advantage. specifically. Higher sequence speed or better energy efficiency or the higher product quality and that we will make investment in those areas. And in terms of the customer engagement, we are managing it quite well. Because we are not selling commodity products, it requires the high level customization on the engineering and their customer engagement is much stronger in Kyoksha than any other players. So instead of pursuing the quantity, we will pursue the quality and the profitability. That's our focus. And in terms of capex, 450 billion this year and 470 billion yen in three years. But we will be flexible. to be aligned with the market change. And fortunately, we have ample cash flow to cover the capex. Again, that instead of pursuing the quantity, but that we will make sufficient investment in the R&D or some specific facilities to cope with market change. So we are not necessarily following the competitors. and trying to increase the market share by making significant investment. Thank you for a very clear response. Thank you.

From Goldman Sachs, Nakamura-san, please. Thank you. The first question is surrounding your quarterly earnings. So the first quarter as well as the second quarter guidance. For the first quarter, when you come to your shipping volume, it seems like it has been delayed and running into the second quarter. So exactly how large a scale of that pushback? And can you explain the backdrop to that as well? And then when it comes to your outlook for sales in the second quarter, it seems like the biggest revenue increase will be supported by the ASP increase. So when it comes to what percentage of the shipment volume is already fixed in terms of pricing. And how much percentage is still, I think, fluctuating as a price. I would like to invite Manju to respond. For the first quarter volume, it would slip into the second quarter. Originally, at the quarter end, we were supposed to deliver. However, there was a delivery slip. So gigabyte volume-wise, it is not that significant. And then surrounding the second quarter, the volume will be increasing. And exactly how much of the pricing is already set in terms of that question. And so we are currently still negotiating price. So about... Thank you. When it comes to the shipment slip, So maybe it's a mid-single digit increase. So it's a low single digit. So maybe that gap portion is what slipped. I'm not saying all of that gap. However, I think that would be the larger portion. Thank you. The second question is for the CFO, Kawamura-san. Can you give us the backdrop to why you decided to go for a buyback? You did explain. However, this $800 billion, how did you come to that? And then the window is until end of October. So thinking about your liquidity, it seems like a very short period. And it is a pretty large scale buyback that you are going for in a very limited timeframe. So from next year and beyond, how are you observing the business environment? I think that's probably relevant with your decision as well. So when it comes to some research companies in the latter half of the next year, the demand-supply dynamics may be deteriorating. So can you maybe share with us your view as well? This is Kawamura. I would like to respond. Thank you. And as for the backdrop to why we decided on a buyback this time around, as we discussed, In the past couple of weeks, especially in the month, there has been a decline in our stock price. If stock prices decline this much, then this is a great opportunity for us to be improving our EPS and that will be the backdrop. And the second, it will be that looking, when we discuss our earnings number, we do have quite a bit of a cash flow generation that is ramping up. So how do we use this cash flow? So first it will go to CapEx as well as R&D. but then we want to return to employees as well and we want to allocate well and we still have some cash remaining that so therefore we have about 800 billion yen's worth of share buyback that we would be able to go for and these are the two predominant reasons and in terms of the short window we wanted to be very tactical and we wanted to address this very smoothly and that's why we decided to go for this period in the second quarter and beyond as we discussed previously Thank you very much. and then for fiscal year 27 and beyond, in terms of how the demand dynamics will look like. When it comes to our observation for fiscal year 27 as well, we do believe that a very strong situation will continue there for cash flow generation in fiscal year 27 and we will pretty much keep the current plan and it will remain pretty much unchanged. So shareholder return buyback as well as dividend will be discussed. For fiscal year 27, we have no intention of changing our outlook significantly. Thank you.

From VOB, Mr. or Ms. Hirakawa, what's your question? Thank you. Can you hear me? Yes. Thank you. I am Hirakawa speaking. My first question. It's kind of a follow-up question from the previous. CY27, and demand continuously will exceed supply. And looking at the demands, consumer segment, enterprise necessity, and the supply, also the Chinese players that will come into the space. So considering such a situation, how do you see supply-demand situation? I will ask Mr. Fujikawa to take that question. As I touched upon while taking the previous questions, according to research companies' demand data, degenerative AI and Swim Lane over the flash coming from the regenerative AI and the agentic AI and that demands are exploding. And the question is that how much we are catching up with it in the entire sector. And then as Mr. Kawamura said earlier, and that we are trying to meet customers' demands in terms of the production and the technology development. So we are ready to accommodate such customer demands. Not just Chinese players, but we have to be mindful of the global competition. And Kyokusha, in that sense, we have multiple locations with customers, including China, and we're offering services to the multiple locations globally. It means that our products are well received, or they're appreciated by the key players globally. As you see the backlog, which shows that how strong AI demands are. And also that we are leveraging the LTA, leveraging our competitiveness. And that says that we believe that we'll be able to maintain our technology leadership position, and then focusing on reliability of our products. And that we will continuously engage with the customers under the umbrella of LTAs, and that we will focus on the investment roadmap So that we'll be able to maintain good position. Thank you. A follow-up question. Regarding data center, demands will increase. Makes sense. But there must be some risks, such as smartphones and consumer segments, which might deteriorate the market. And then how do you see that potential scenario? And then how? Are you going to mitigate such risks coming from those segments? Again, Mr. Fujikawa will take a question. Not just NAND flash, but DRAM and SOC also. Or maybe substrates as well. And BOM cost increases. Therefore, the consumer segments, PC, smartphones segments are affected, especially low-end and mid-end models are affected when you see the shipment volumes, which are affected, obviously. But there is the replacement cycle, which might get longer. Or the QLC NAND, SSD for data center, to replace near-line hard disk. That's an opportunity. So entire market is skewed toward a high-end price, but that transition may be slower than expected. So the question is when the supply demand will be balanced. Nobody sees when. But when the ASB is normalized, it means that it will be able to access such demands which we cannot access yet at this moment. And recently, how people see this situation is that the edge The consumer segment is consuming the AI to process the data through the smartphones and PCs. And many people are discussing that. So I think that things will move toward edge computing. So even in the consumer segment, the demand is expected to grow. So not to the peak out immediately. Some people say that, for your reference, some people say that it's not going to peak out so quickly. Let me add some comments. This is Fujikawa again. Yesterday and today, we have made a press release about for edge AI or the on-device AI. For such use cases, UFS 5.0, new standard for such use cases, which ensure high speed. and then we are continuously developing that interface showing our technology engagement with customers is quite strong so that we'll be able to detect early sign of the demands.

Thank you.

Thank you.

Since it is time, we would like to entertain one last question from Citi Group Securities. Fujiwara-san, please. Thank you. This is Fujiwara from Citigroup Securities. So I also have a question, please. So you are going for buyback, and I think it was addressed as question a couple of times as well. And once again, when it comes to the capital for shareholder return, exactly what is your thinking on that front? And so you have our excess free cash flow that you want to generate. And I do believe that that outlook is looking I think very promising because the payback period is quick. And so maybe that capital could be seeing a shift or a change. From here and on for every quarter, maybe you will be considering a certain level of shareholder return. Can you just learn exactly what your thinking is on this front as well? I myself, Kawamura, would like to respond. Specifically, when it comes to cash flow generation, It's not as if it is front forward. Thank you very much. So the second, third, and fourth quarter cash flow generation is looking very strong. And therefore, it's not as if there is a very big change that we foresee in terms of the capital that we may be able to use. And that's why we're not, it's not as if we're rushing into this. So there's cash flow generation. And basically, as we mentioned before, there are the three types of investments that we will make, CapEx, R&D, and so HR investments. and also we have working capital that we are going to secure and there will be excessive cash flow that we will be able to generate and about 50% of that will be allocated to shareholder return. So that basic thinking remains pretty much unchanged. and therefore there is solid cash flow generation and we would be able to invest within that cash flow and if there is excess cash flow even after that, 50% as a benchmark, we would like to continue to consider our shareholder returns and that will continue our policy and thinking. Thank you. So with that, we would like to conclude the Q&A session. To those that are on live streaming, So if you try to exit, there will be a questionnaire sheet. So this will be very helpful for our future IR activities. So we would very much appreciate your populating the questionnaire. We would like to conclude the March end 2027, I think, earnings call for Kyoxia Holdings. Thank you very much for attending despite your busy schedules.