Rigaku Holdings Corp

First of all, today we have two agenda items. First agenda is the summary of first half of FY2025 consolidated financial results. Second topic is the updates on FY25 earnings forecast and our growth strategy and progress. First, the first agenda. the first half FY25 consolidated financial results. This is the highlights. Compared to the previous year, semiconductor business remains solid and revenues declined 4.7% year-on-year due to a cyclical slowdown of multipurpose analytical instruments and components business, EUV. So therefore, revenues declined minus 4.7% year on year, meaning that 4.7% decline. Adjusted EBITDA and adjusted profit declined. It is slightly delayed in terms of the sales and revenues. So an R&D and commercial infrastructure investment is continued. So therefore, adjusted EBITDA, adjusted profits declined compared to the previous year. So let me explain that further more. In the pipeline, mid- to long-term is quite steady, continue to grow steadily, is plus 15%, 1.5, 15% year-on-year, and mid-term demand remains resilient. However... full-year results of FY25 are expected to be influenced by factors not anticipated at the beginning of the year, such as including the impacts of Trump policy and slowdown in EUB, so that we have confirmed the impact on the full-year results, which we will explain further in detail in the second agenda item. And then, in case of the business unit, in the multi-purpose analytical instruments, It is minus 14% or 14% year-on-year decrease in terms of revenue due to the absence of China's supplementary budget projects last year. And however, there's growth continues in Europe in the first half and Asia and Americas. And if you think of this, all regions except America have performed very well, and that is in the business of the multipurpose analytical instruments. In case of the semiconductor process control equipment, that is the revenue group, positive, 17% year-on-year. And the R&D investment demand remains robust, while there is a delay in memory and large-scale WFE projects, but because of the development investment is quite good, so therefore demand for full year remains steady. So let me now briefly talk about the summary of second quarter FI25 consolidated financial results. For the flat quarterly performance due to delay in mass production investment in semiconductor process control instruments, the components and services will slightly grow, but in total, in the first quarter, sales and the profits is the same as those in the first quarter. So that is a flat. So therefore, in addition to that, in the... So this is a summary of the first half of this consolidated financial results. Revenues increased in semiconductor process control instruments, but offset by declines in other businesses. So total revenue declined minus 4.7% year on year. I mean 4.7% year-on-year decline. So in the adjusted EBITDA, adjusted profit decline, EBITDA is about 20%, 26%. Compared to the previous year, adjusted EBITDA declined, it is now about 20% adjusted EBITDA. Same thing could be said for adjusted profits. So let me explain in each of the segments of business. So in the multipurpose analytical instrument business, revenue declined by 14% year-on-year. However, global strategy or global revenue, so therefore it's continued. So the China that has the supplementary budget was eliminated this year. that is overseas revenue, excluding China, grew plus 7% year on year. Japan, in the last first quarter, the profits has concentrated. So therefore, in the first half, it is a down cycle. However, toward the second half, we plan to recovery progressing toward the second half. So in the full year, we should be able to achieve positive number of growth. In China, revenue declined due to absence of supplemented budget projects last year. This year is about none, but it has a progress. Initial forecast remains on track, so it exceeds the budget. so we can take the upside for the annual basis. So in some area, in power semiconductor equipment business, it was quite strong in FY24, but FY25 was relatively weak. However, In the future, the Chinese market demand in China and further next material, the semiconductor research is quite aggressive, so therefore the SIC demand in China and GN demand in Japan and Europe are going to grow. So even though these 14% decline in the revenues in the multipurpose analytical instrument business, but in its contents, the growth margin itself did improve, plus 1.8 points, But the volume declined, so therefore, due to the leverage, so in total, the growth margin and the profit rate is about 14%. That is almost equal to the FY23 numbers in the multipurpose analytical instrument business.

Next is semiconductor process control instruments, and revenue is up 17% year-on-year. For the revenue, memory is increasing, but mass production we thought was occurring earlier. However, there was some delay in the mass production investment. That's why we are talking about the delay. Having said that, That was offset by some other factors because there is a very brisk demand for R&D area. I will discuss this later, but for the next-gen equipment, for both logic and memory, there is a development going on for metrology. for the next generation. Because of this brisk demand, we are expecting a high growth for the fourth quarter. So on a full year basis, we have a continuously strong demand for this segment. By areas for logic, Continuously, AI semiconductor demand is expanding, and because of this, in Asia and Japan, sales revenues are growing. For memory, it was very small last year, but as you can see from this graph, there is a strong growth, especially in Asia. Both for DRAM and NAND, those are the drivers for the growth in Asia. But for the timing of the mass production, we thought it would be earlier. Therefore, compared with the initial expectation, there is some delay here. By region, there is not so much difference or gap. However, if you look at China last year, Sales composition was 14%. This year, this was going to go down because of legacy and the power semiconductor to be lower than the last year. However, global players, especially in Asia, are resuming their investment in China. Therefore, they supplemented the demand. So the Chinese composition ratio in revenue is 16%. That is higher than we have anticipated. For margin, it is a little bit off the plan. It is down 22-23% is the result for OP margin. There are two reasons for this. First, this has something that happened last year. Last year, second half has a higher margin because of the volume effect. For both R&D and SG&A, there is a higher leverage. So usually, we have a lower margin in the first half and a higher margin in the second half. But if you look at the first half, it was lower than the first half last year because of the product mix and the regional mix. And Asia is growing. And Asia business is mostly indirect distribution through agencies and distributors. So the margin is lower. And also customers in Asian region, the products they are purchasing are older. generation products which is lower margin on top of that there are individual projects in japan which are relatively low margin and the us it was high last year but this year it's slow therefore individual gross margin because of the product mix as well as the regional mix and also the margin mix, it is lower this year. However, if you look at the full year expectation, which is the total of all of the individual projects, at the end of the fiscal year, we are expecting OP margin of 30% for this segment, semiconductor process control instrument business. The third area is components and services. Here, for the first quarter, we talked about this business, the multi-layer mirrors for EUV. The demand for this is declining, and this is the cause of the overall decline on-air by 6%. And excluding EUV impact, the revenue is flat from last year. In terms of the mixed services, revenue is continuing with a 7% growth. So services business, there is a maintenance contract. We are focusing on increasing this and the installation base is expanding. That's why it's up by 7%. However, EUV multi-layer mirrors revenue is down by 700 million. This was a high margin business, so the decline of the volume of this business is hurting the OP margin of the segment. For EUV business, probably in the second half, recovery is not happening yet. Therefore, this is affecting the full-year guidance. and components and other analytic equipment instruments. In Q1, we had a slow start, but in the Q2, we think that we are exceeding the last year's revenue. So it's on the recovery trend. So that's the first half situation for the components and services. So adjusted EBIT waterfall chart is shown on this slide. Several times last year, we showed you this chart. Rigaku waterfall typically expects the gross margin to be positive. And from that, using the proceeds from that, we are investing into R&D and SD&A. That is the normal waterfall chart. However, in the first half of this year, however, as I said, there is the absence of EOB business, and there is a gross margin decline in the semiconductor process control instrument segment. So the gross margin is negative. So the waterfall chart looks a little bit different this year. That's why the total margin is down from 26% to 20% or so. Having said that, because of the situation I talked about, for R&D and other SG&A, we have put a tighter control. For R&D, we delayed the timing of the investments, but through the fiscal year, we will proceed with the plan for the investment into R&D. On the other hand, for other SG&A, we are controlling the pace of increasing human resources, and also for addicts and promotion expenses, we are controlling them and to be at a lower level, and we are reducing the business trip expenses. In total, for the first half, there is a 1.1 billion yen saving in this area. so that we can compensate for the decline in the margin. That was what we did for the first half. Anyways, we have to push up the gross margin. Otherwise, we cannot enjoy the benefit of the higher leverage. So that's why the margin is down for the first half, but we did make efforts so that we can compensate for the decline in margin. That's the messages from this waterfall chart. So that concludes our explanation of the first half consolidated financial results. From here, we will talk about FI 2025 full year update guidance. For the update of financial performance,

For FY25, our recent environment, and also there are some unexpected things happened. So for that, it is due to the Trump U.S. policy, and especially in the investment reframed in the academic area. That is one. The other is the other one.

The other is the EUV multi-layer mirror. After we completed the budgeting, some of the requests from the customers have changed. So because of those two reasons, Well, normally, last year, we did compensate for the losses of EUV, but this year, it was difficult for us to do so. And multi-purpose analytic business in the U.S. is going to see a slowdown. Because of that, we are making a modest revision of the guidance. In total, the actual growth rate, we thought it would be 10% originally, revising it down to 6%. And based on that, we are expecting a decline in margin. So that is something we have reflected in the guidance, specifically for the revenue. expectation from 97.7 billion to 94.1 billion. We are revising down by 3.6 billion because of the two areas, multi-purpose area, which affected the American academic sector market. In the academia, there is an impact of about 30%, so that is 1.9 billion decline in the academia market business. The other positive factors are added, therefore, for the multi-purpose, the negative portion is 1.6 billion. And for semiconductor, we are keeping the expectation unchanged for the full year. So we are continuing with 20% year-on-year growth for the semiconductor business, even after the revision. For components and services, we have reflected the weakness of the EUV multimillionaire business. And as a result, we reduced the guidance by 2 billion yen. So that is one thing. The other is the service business for the U.S. academia because of the reduced spending by the U.S. government. And maintenance contract is kept unchanged. Therefore, this 200 million yen is adjusted. This is because of the impact of the Trump policy. So that is about 2.1 billion. And the rest is the multi-layer mirror business. And the impact on the earnings is to be explained. There was a reduction of revenue by 3.6 billion, so gross margin is down by 2.7 billion. And EUV, MIRA, and US business are high profit business, both of them. So in terms of the marginal profit, there was a 75% GP margin business. that is declined. So the decline is 2.7 billion yen. On the other hand, there are SG&A control put into place. So we put 800 million positive. So in total, adjusted EBITDA of 22.1 billion. This is the updated number. Once again, let me say that this decline, especially for FY25, The business environment has changed, so that is the reason for the change. But the medium to long-term growth potential of RIGACU as well as the strategy is kept unchanged. So there is some weakness in FY25, but towards FY26 and FY27, we are accelerating our growth so that the mid-term plan targets will be achieved. And this is possible, we still believe. That is the basic premise. And based on that premise, we have made an update on the FY 2025 guidance. So for each quarter, please look at this.

So this is the earnings forecast update on a quarterly basis. As you can see with this revenue trend, in the fourth quarter, there should be expected revenue growth in the fourth quarter. As you can see, first and second and third quarter, there's not much change, but in the fourth quarter, expected to grow. Compared to the previous year, basically, the component services and the multi-purpose services instruments, multipurpose instruments, it is also very similar to the fourth quarter growth. This is mainly coming from semiconductor process control instruments, and that is the more demand and seasonality in the fourth quarter. As we mentioned earlier, in the development projects, It is you would install the equipment or instruments. The customer needs to use it for some time and then use it for some time. And then that is why most of the actual earnings or revenue comes out in the fourth quarter. That is why we can expect a big growth in the fourth quarter. And this is updates on each of the business in the multi-purpose analytical instruments. in the U.S., especially among academia in the U.S., has had some negative impact reflecting U.S. policy impact. So therefore, that would be the 41.3 billion yen to 40.4 billion yen in terms of revenue year on year, and then minus 2 percent due to the exchange rate. But this is in terms of growth. It is almost flat. Among them, as you can see, there's no excluding China supplementary budget goes down under the impact of the U.S. academia, but still we maintain the flat because in China's So revenues in the market, excluding China's supplementary budget and slowdown in the U.S., because it is expected to increase. If we exclude them, we should have the revenue increase plus 11% year-on-year growth. So excluding the China supplementary budget and throw down the U.S. market, we can see the revenue, other regions, revenue expected to increase. So there's no 3 billion yen supplementary budget project is not there. It's about the 2 billion yen decline in U.S. academia. Even then, we can bring it to flat level because in other countries and regions, we have quite very steady demand that we have captured. and to have a growth in multipurpose analytical instruments. That is why we can achieve these earnings. And in terms of the growth in the multipurpose, the solutions, especially multipurpose, especially the expansion of FAB-targeted solutions, For example, in terms of the, to expand hybrid automation combining XRD, Miniflex XPC, and XRD. So these type of product development are being done. And also for the fab, especially in case of the XRF automation models has been promoted where it is aimed at Chinese cement market and by which they don't have that much automation yet so that we can increase expand our growth in the fab targeted solutions in this area in the chinese cement market and then then we can go into that fluorescent technology in terms of the business segment next one semiconductors and electronic components we have the xrt micron tf xrd for fab use And also we have completed the manufacturing capacity expansion for this. So the market is a little bit quiet now, but in the near future, this market of semiconductors and electronic components should grow. So in the meantime, in our products, development to be completed for the fabs and to grow furthermore. for the batteries, the solid state batteries, and also a perovskite photovoltaic cell. Even though we cannot mention the name, but we work the companies and research institute, we are doing very active joint works and joint development works as well, from R&D to the 2A, 2C. with the automatic measurement technologies and automated systems in terms of evaluation in a high-efficiency manner is being expanded. And also, Innovation Academia, we installed five systems at Osaka Metropolitan University's Innovation Academy, smart energy building, so that we have installed five systems to be used by many different companies there in Osaka. So therefore, for batteries, R&D, and also the application development, and also TUATUC area, we can have a very progress so much that we can seize the opportunities for the growth. For the life sciences area, the Synergy-XED, which is electron diffraction, we are expanding market reach through collaboration with pharmaceutical companies. And after the first move to work with academia, now we are expanding market reach through collaboration with the pharmaceutical companies now. not just with Japanese, but also we are developing the collaboration in European market as well to gain these businesses, and that is our target. And also in the bioscience area, new technologies such as electron density topography, and this was given, you can see the shapes of the antigens, And now these new technologies, finally, our new technology, electron density topography, has been first system is delivered to Osaka Metropolitan University. In addition to that, we have global penetration in life science sector, leveraging Boston Hub in the U.S. So both U.S. and in Japan, new technology business has been started in the U.S. and Japan. especially for this growth area that they've been developing. Next, for the semiconductor process control instruments, to be explained by Mr. Ogata, please. Thank you. Let me talk about the update on the process forecast on the performance update on progress of growth strategy, semiconductor process control equipment. That is the... especially you can see the graph in the bottom, is plus 20% year-on-year, no change in revenue forecast. But we have increased R&D demand in advanced logic and foundry, the increase R&D demand. And also the memory also has been growing as well. But in actual plan, memory should grow even more. So in terms of advanced semiconductor methodology, development is exceeding the plan, increasing the confidence for FY2026 and after growth. In the fourth quarter, let me explain the fourth quarter revenue concentration. What are the key factors and what are we addressing? The sales seem to concentrate in fourth quarter. As you can see, the breakdown is on the top part of the chart. If you have the mass production project and development project, the volume has increased in the mass production project. Its volume increases, but from 40% demand project increases to 55%. So it is the mass production project in the total of the non-power device. It is about a 3 billion yen decline is expected in the mass production project. But for the next generation AI logics, So this high-speed next-generation AI logic and HPM DRAM, this is expected to increase. So there will be more development project increase. That is about the increase of the 3.8 billion yen growth or increase. In terms of the development project progress, it will be shifting because it takes more time. It is a new demand and also for the customer's site to be developed. and to be joint development works takes place, and then it's actually recognizing revenue in the fourth quarter. In the fourth quarter sales, as you can see in the bottom chart, a pie chart, 75% of these, those are nearly confirmed revenue, which is about 9.6 billion yen. For the 3.2 billion yen, it is waiting for the final negotiation phase, in going through the final negotiation phase, of 25% of these are. And this opportunity is approximately 2 billion Japanese yen additional revenue, Out of that 25% of deals, we should be able to have these opportunities to add these revenue opportunities. Next page, please.

Here on this page, well, in the previous page, you saw the results up to Q4 this year. But this page shows the roadmap for the future for the semiconductor process control instruments. On the left-hand side, you can see advanced measurement needs for next-gen logic and memory advanced packaging. And for each one of them, there is a device roadmap. And I won't go into the details, but for each cutting edge devices, the next generation devices, instrument needs exist. As you can see here for logic, this is the one and so forth. These are the needs for each instrument. In the near future, we can realize that common technologies for both logic and memory First is silicon and silicon germanium multi-layer superlattice. This is to be used for the next logic in the memory, next gen. And X-Tray XD, high resolution XRD equipment. This device is proposed already to semiconductor customers, and this is being tested by the customers at the moment. So this will be generating in the second half this year towards next year for the mast production. And the second one is the Hi-K metal gate ultra-thin film measurement for logic and memory, both of them. This is for ultra-thin film measurement for transistors. The existing model is already in the market, and the next-gen for 1 nm or less is being developed, and mass production is expected in the next fiscal year. So mass production and R&D within customers. Well, before the mass production, the process will be fixed. That will be three years before the mass production. So it's very important for us to develop these equipment before that. And the next one is ultra-thin film analysis for light elements. And the ONIX has been already developed. And this is for the back-end process. We have already sold them. and we have developed a new product for the front end process for the measurement of the outer thin film for light elements. This is what we have developed. Full-fledged adoption will be next year, but performance is already tested and shipment will start in the second half of this year to the customers. Going back to the upward, This is logics and GAA and CFET 3D structure analysis. As you can see here, the low-energy GI sacs is being developed at the moment, and it might take some time, so we are planning mass production for FY27. Going back, for memory, DRAM and high aspect ratio, a shape measurement equipment. This is a X-Tray CD3700. This is what is called a TSAX. A customer is already using this, but the new version or a modified version is being developed. and full-fledged mass production is planned for next year. Below, you can see advanced packages. These needs are for HBM and high-pressure cutting edge package, bumping TSV, hybrid bonding, and so forth. Already, AXI, Advanced X-ray Inspection Equipment, has been already developed. Alpha machine system is being tested. And next year, there will be an evaluation of beta system. And at the bottom, you can see hybrid metrology. This is not a device, but for logic and memory, the structure is becoming more and more complex in the optical method. This will be the methodology. In X-ray, there are some difficulties and challenges, so this is a hybrid model featuring both aspects. This is what we are developing together with the optical partner company. And we start with TSAX and then we will apply this to GI-SAX. That's the timeline you can see on the chart. For those market sizes, Those are the next-gen markets. One nanometer and smaller mass production will require those instruments. In terms of the expected sum in 2030, this is what we are expecting, as you can see, and the market share expectation, is as shown here on this slide. Progress so far was just mentioned. So you can see in concrete terms here, there is a good progress so far. So altogether, if you put them together, together with the existing business for FY20 and going forward, we are trying to achieve a revenue of 100 billion yen. That's all for the semiconductor business. Thank you. Well, we have given you the performance update and the status update for each segment. Next page, please. Here, I want to talk about the share buyback. For RIGAKU, the first priority is growth and growth investment. That is the strategy unchanged from the past, but that the company We believe that the current stock price does not fully recognize our growth potential in the future. Therefore, to send a message to the market and to clarify our perception and also to promote and strengthen our capital policy, we have decided to conduct a share buyback program of a maximum 4 billion yen. So as you can see here, ordinary shares of 6 million shares or 4 billion yen share buyback, either one or the other, will be conducted starting on August 4th. As I said earlier, our priority on growth is unchanged. so this is for the purpose of strengthening our message to the market regarding dividends for the first half of this year this is as planned initially 9.4 yen per share and for the full year 2025 we have kept the full year dividend unchanged that is 18.8 yen per share so based on this adjusted ROE as of the end of this fiscal year, based on the revised guidance, is projected at 16%, which is a quite high level, we believe. but our total capital policy or capital allocation is being controlled, and we are trying to pursue the most appropriate level of ROE based on those. So with that, I would like to move on to the conclusion page. Our mid to long-term outlook is kept unchanged, but for the full year 2025, our guidance was revised downward to reflect the short-term situation of the United States after the Trump administration and the EUV business situation. So the growth was downgraded from 10% to 6% for 2025. However, the semiconductor process control instruments business will continue to pursue 20% growth as initially planned. And for multipurpose analytic instruments business, because of the Chinese government situation and lack of supplemental budget, and also U.S. government Trump policy, except for those two aspects, we are still pursuing two double-digit growth. So you can see that our fundamentals are very strong. And on top of that, we showed you the FY 2030 growth potential and roadmap for the technology. And we have the X-ray business and also the semiconductor business. Beyond our expectation, there is a good progress. Therefore, those are the upside potentials, we believe. So all in all, RIGACU mid-term to long-term growth potential outlook as well as strategy is kept unchanged and we will continue to work on those initiatives so we would like to continue to work hard so that we can achieve the midterm targets and the long-term vision On top of that, 4 billion yen share buyback program will be implemented this year. So with this, I would like to conclude my remarks for the first half results, as well as the growth strategy progress report. Thank you very much for your listening.