Tokyo Electron Unsp/Adr

It's time for us to start Tokyo Electric's financial announcement for the first quarter of fiscal year ending March 2026. Thank you very much for joining us today despite your busy schedule. I'm Yatsuda of IR department serving as a moderator for today's session. Let me introduce today's attendees. Toshiki Kawai, Representative Director, President and CEO. I am Kawai. Thank you very much. Next, Hiroshi Kawamoto, Senior Vice President, General Manager, Division Officer of Finance Division. I am Kawamoto. Thank you very much for joining us today. Before starting the presentations, let me explain the flow of today's session. First of all, Kawamoto and Kawai will make presentations. After that, until 6.30 p.m. Japan time, we will have a question and answer session where we entertain questions from the audience. This meeting uses two channels of WebEx for the simultaneous interpretation between Japanese and English. As we explained in our email, you are kindly requested to use apps on PCs or mobile terminals if you plan to ask questions. But if you are not going to ask questions, you can use telephones. Since this conference is intended for institutional investors and analysts, we'd like to appreciate your understanding that we receive questions only from institutional investors and analysts as usual. We will post the audio contents of this conference in Japanese and English on our website within a couple of days. It would be appreciated if you could also visit our website. Now, Mr. Kawamoto will present the consolidated financial summary. Kawamoto-san, please. Good afternoon. I am Kawamoto, Finance Division. I'd like to present the consolidated financial summary of the first quarter of the fiscal year ending March 2026. This slide shows the quarterly financial summary. I will mainly refer to the figures in the blue box. In the first quarter, we generated net sales of 549.5 billion yen, 16.1% decrease from the previous quarter, partially because of temporary post of customers' capital investments. Gross profit was 253.9 billion yen, 18.2% decline from the previous quarter. Gross profit margin was 46.2%, 1.2 percentage point drop quarter over quarter due to the increased ratio of fixed costs along with the decrease of net sales operating income as 144.6 billion yen 21.3 percent drop from the previous quarter operating profit margin was 26.3 percent declined by 1.7 percentage point quarter of a quarter mainly due to the decrease of gross profit margin mentioned before income before income taxes decreased by 17.9% to 151.9 billion yen. Net income attributable to owners or parents was 117.8 billion yen, 17.6% decline from the previous quarter. Capital expenditures in the first quarter were 52.8 billion yen, consisting mainly of the new development building of Tokyo Restaurant Miyagi, whose construction was completed in April. This is a graphic representation of the financial summary shown on the previous slide on the chronological basis for your reference. This slide shows net sales by region. As for composition in the first quarter, proportion of Japan rose by 3.6% to 11.7% quarter over quarter, while proportion of Korea dropped by 6.3% to 16.1% from the previous quarter. Proportion sales in China in the first quarter was 38.6%, remaining below 40% following the previous quarter. This shows SPE new equipment sales by application. In the first quarter, from the bottom of this chart, sales to non-memory customers accounted for 64%, non-volatile memory accounted for 10%, and DRAM accounted for 26%. Sales to non-memory customers were flat from the previous quarter, while proportion of sales to DRAM customers declined by 11 percentage point quarter over quarter, partly because of their intensive spendings in previous quarter. This slide shows the field solution sales. In the first quarter, field solution sales were ¥141.2 billion, growing by ¥2.2 billion quarter-over-quarter. Thanks to high utilization rate, mainly for the advance notice of the customer staff, sales of parts, service and modifications were all strong. This slide shows balance sheet. The total asset was 2 trillion 509.3 billion yen. Cash and cash equivalents were 367.5 billion yen, declining by 128.7 billion yen from the previous quarter, primarily due to dividend payment to shareholders and payment of income taxes. Notes and accounts receivable were 393.2 billion yen, decreasing by 92.3 billion yen quarter over quarter. Inventories were 757.1 billion yen, increasing by 7.9 billion yen from the previous quarter. Investment and other assets were 400.2 billion yen, increasing by 52.5 billion yen from the previous quarter, mainly because of the increased share price. For the liabilities and net assets shown on the right-hand side, liabilities were 636.5 billion yen decreasing by 134.1 billion yen from the previous quarter. This is mainly because of the decrease of income tax payable along with the payment in income taxes as I mentioned earlier. Net assets were 1,872.7 billion yen, rising by 17.5 billion yen quarter over quarter. The equity ratio was 74.0%. This shows cash flow. Cash inflow from operating activities in the first quarter was 74.9 billion yen. The cash outflow from the investment activities was 54.1 billion, mainly due to acquisition of fixed assets. The cash outflow from financing activities was 151.1 billion yen, primarily because of dividend payment. As a result, free cash flow was positive, 20.7 billion yen. This concludes my presentation. Thank you very much for your kind attention. Now, Mr. Kawai will talk about business environment and financial estimates. Tarzan, please. Go ahead. This is Kawai. Once again, thank you very much for joining us today. I will present business environment and financial estimates. As some changes were observed in the business environment, we have revised WFP market outlook and our financial estimates. So let me start. the revisions made and business progress as well. In the first quarter of fiscal 2026, both net sales and profit were almost in line with guidance. Progress of strategic product sales and development evaluation activities toward PO acquisition proceeded smoothly. For film deposition tool hunting a new material, namely low resistant metal, many non-customers are working on evaluation with our batch furnaces. For a series of 3D integration tools, including the Extreme Laser Laptop tool released in December 2024, we are currently having business discussion with advanced logic customers and non-customers. In April, construction of the new development building in Miyagi was completed, in which we will enhance development of Etras, one of our main products. Our financial estimate for the first half of fiscal 2026 remains unchanged. Specifically, we expect net sales of 1 trillion 150 billion yen, operating income of 288 billion yen, and operating profit margin of 25.0%. Calendar 2025, WP market proceeds almost as expected, although there are some shifts in investments. Factoring in impacts of exchange rate fluctuation, the WFP market is expected to grow slightly from the previous year to $115 billion. The outlook of semiconductor remains unchanged. The WFP market in the first half of C by 2026, however, is expected to be affected by changes of customers' investment trends. Specifically, customers now seek for higher productivity through yield enhancement, optimization of supply-demand balance to raise profitability, and shift from proactive to solid investment. Accordingly, we have revised the outlook of WFE market growth in the fiscal year ending March 2026 to negative 5% year-over-year. Changes in each segment are shown in this slide. Along with the downward revision of the fiscal year-based WFP market outlook, we have revised our FY2026 full-year financial estimate to net sales of 2,350,000,000 yen, an operating profit margin of 24.3%. Despite the downward revision, our gross profit is expected to exceed 1 trillion yen for two years in a row. Despite the changes of the WFP market outlook from January to June 2026, there is no change at all in powerful growing trend of the semiconductor demand supported by technology driver of AI server applications. Therefore, we plan to invest 295 billion yen to R&D almost as announced three months ago. This shows the revised SPE new equipment sales forecast. The SPE new equipment sales in the second half of this fiscal year are expected to grow slightly from the first half to 880 billion yen. Here is the breakdown by application. Please note that this revision is attributed mainly to the customer's manufacturing technology enhancement and their investment strategy changes and therefore it does not necessarily link with the semiconductor demand. As I said before, due to the changes in customer's investment trend, we are currently scrutinizing CI2026 WFE market. Having said that, however, there is no change in our outlook of semiconductor market, which keeps expanding driven by the growing demand of cutting-edge semiconductor plant to be released in calendar 2027 for AI servers. AI servers require high computing power to process massive data at high speed. Currently, two of the four nanometer node GPU are used. But in calendar 2027, four of three nanometer node GPU will be used. And in calendar 2027, each GPU will have 500 billion transistors, about 2.5 times more than the current GPU. The number of HPM will also increase. Memory capacity of HPM will increase by about four times. driven by device scaling of each DRAM and increase of number of DRAMs to be stacked. So we are finally shift from the gigabyte to terabyte era. Investment to realize the next generation AI computing platform expected to start growing from the second half of CY2026. With device scaling, advanced packaging, our business opportunities will be expanding more and more. This shows our plan for R&D expenses and capex. In this fiscal year, following the new development building in Miyagi whose construction was completed in April, construction of a new development building in Kumamoto and production and logistics center in Iwate is planned to be completed in this coming fall in Miyagi, we have also started Construction of new production building in June, which adopts next-generation smart manufacturing concept. R&D expenses in fiscal 2026 are expected to be 295 billion yen, as I said before. The plan for capex and depreciation remains unchanged, expected to be 240 billion yen and 86 billion yen respectively. This is my last slide showing the dividend forecast. Reflecting the revised financial estimate for the second half of this fiscal year, full-year dividend per share is expected to ¥485 in this fiscal year. While taking account of state of cash on hand and capital efficiency during this fiscal year, we will flexibly consider implementation of share repurchase. This concludes my presentation. Thank you very much for your kind attention. Now we will have question and answer session till 6.30 p.m. Japan time. You can ask questions either in Japanese or English, but our speakers on the Japanese channel, please allow us to take audio questions only in Japanese. If you ask a question in Japanese, please click the raise hand button on Webex. For details, please refer to the instructions attached to the invitation email. I will invite you one by one, our secretariat... We'll contact you in advance, so please check Webex chat box. When asking a question, please, you are kindly requested to unmute your microphone for yourself. When your question is answered by our attendees, please hit the raise hand button again to remove the raise hand signal. For questions in English, please use Webex chat box and give your affiliation, name and question in text and send it to our secretariat. We will refrain from answering questions if your name and affixation are not given. On the Japanese channel, we will translate your English question and I will read it out in Japanese and our speakers will answer in Japanese. On English channel, the question and answer will be simultaneously interpreted into English on a real-time basis. As we would like to take questions from as many participants as possible, we would like to take one question per person. If time allows, we will take additional questions. So the first question, from Yoshida-san from CLSA Securities. I am Yoshida from CLSA Securities. I have a question. 2025, you have revised the WFE market outlook. I want to see some information by application. So now you are now conservative for the first half of 2026. So based on the peripheral situation, I think the advanced foundry and the run might be increasing. So I was a bit surprised. So once again, so first half you said rather weak, but throughout the year for 2026, I think you said double-digit growth. So what happens in the full year? Forecast by application and the full market, please. By application, changes are made for logic inflammatory, the advanced logic inflammatory, Some of the customers have revised their investment plan for Logic Infantry. That's the reason why we have revised our outlook partially. For others, there have been no major changes. However, non-investment gets a bit weaker than expected. However, the non-investment will double. That's what I said before, but the original amount is not so much.

Therefore, the changes in non-investment does not have big impact. This is Kawai.

Let me add some more comments. The customers, now technology is enhanced and they try to review the supply-demand balance when they prepare the investment plan. And also they are shifting from the aggressive, proactive investment to the steady, solid investment to enhance performance. the yield, so there are several aspects. So from the first quarter, we saw there is some upward trend. However, there have been some deceleration in the customer spendings. So this trend, the demand for semiconductor does not decrease. Therefore, you can see recovery sometime in the future. from maybe the first six months next fiscal next calendar year might be some correction period however as i said earlier now new technologies for ai server will be released in the second half of 2027 therefore from the second half of 2026 to the early 2027 we think the customers capex will be increasing That's how we view the market trend. In that sense, I thought double digit growth is expected, but the first half of next year, we'll see some deceleration, but we have a lot of expectation for the increasing trend in the second half of next year, but we are now scrutinizing the situation. But we think the positive growth is expected. So the advanced logic, And logic, the proportion is about 50% to 50% for this year. The next year should be 60% to 40%. That's how we view the proportion. Thank you very much. Let me get some clarification. 2026, calendar year 2026. Although this is positive growth, but you are now revising the figure, scrutinizing figures. Therefore, you will give us more. You said proportion between the advanced and logic. Are you talking about the proportion between the advanced and mature node? This year, 50 to 50, but next year, that proportion will become 60 to 40. That's correct. 2027 we can see new technology for ai server as i said earlier in my presentation that would be a driver that's one thing also now ddr4 and ddr5 price has been reversed because of that there are some corrections in the market ddr5 will become a driver to further grow the WFI market. For HAI technology, NPU will be introduced and die size will be increased by 30% as well. So these are the technology drivers which will have the big impact from late 2026 to the early 2027. So customers' enhancement of technology for production, and they are focusing on profitability. So they do have now healthy growth plan. Because of that, there are some desolation in the investment plan, but by and large, there might be the delay of six months, and that six-month delay has been incorporated. And there have been no changes in device market. I think device market will be growing as expected. Thank you very much. That's very clear. Mr. Yoshida, thank you very much for your question. Next question is from Mr. Wadaki, the Morgan Stanley, UFG Securities, Research Japan. First of all, About the downward revision, I think it's a kind of plateau, so I understand the downward revision. I have a question regarding China. In general, in your company, so companies on entity list will not be conducted at all, or as for you don't sell HR some product, but you are selling other product to the customers, Chinese customers on the entity list. Could you explain the situation, please?