Q3 FY2024 Earnings Release Conference Q&A

Regarding the WFE*¹ forecast, what would the growth rate for FY2025 look like focusing on your TAM*²? SEAJ*³ indicated that SPE*⁴ sales by Japanese manufacturers would increase by 27% YoY in FY2025, but is TEL expecting a similar growth rate?

We will report on our financial estimates for FY2025 at our next earnings briefing, but our perspectives on the market do not differ significantly from the views of the SEAJ. As the WFE market for FY2025 includes investment in March quarter of CY2025, when the market is expected to expand, we anticipate significant growth.

What are your WFE market growth rate forecasts by application in CY2024 and CY2025? Could you also go over the growth rate for China?

The DRAM growth rate in CY2024 is estimated to be around 30% to 40%. Adjustments in NAND investment will continue, and remain largely flat. As recovery in demand for PCs and smartphones is expected in CY2025, we expect that inventory adjustments will proceed and NAND investment will double. Logic/foundry investment will increase slightly in CY2024. AI servers will be the driver, but since customers have relatively low fab utilization rates, we expect that full-scale capital investment will take place in CY2025, and we anticipate double-digit growth then. The ratio for China is approximately 40% of CY2024 WFE overall. Investment is expected to continue in order to improve the self-sufficiency rate of semiconductors in China.

I anticipate that HBM*⁵ will be a driver of DRAM recovery, but what sort of impact do you think HBM will have on investment for frontend equipment? Furthermore, what proportion of the 30% to 40% growth rate in CY2024 will be attributable to HBM?

At TEL, HMB-related figures can be most clearly seen in the sales for bonding equipment. Both HBM and DRAM use the same frontend equipment, and customers allocate their capacities based on the situation, meaning that it would not be appropriate for us to calculate composition ratios and degrees of contribution based on current conditions. We have received over double the inquiries we initially expected with respect to bonders. As for frontend investments, based on recent trends, we anticipate growth from the second half of CY2024 onward when demand for leading-edge DRAM recovers.

You mentioned that logic/foundry mature nodes are quite active, but what will be the ratio for mature nodes within logic/foundry in CY2024? And how do you think things will look in CY2025?

The most recent investment ratio by application is: about 30% for memory, 60% for logic/foundry, and 10% for the remainder.
For CY2024, we expect that around 40% of WFE overall will account for mature node logic/foundry. Our forecast is that leading-edge nodes will increase in CY2025, and that the ratio of mature nodes will be lower than in CY2024.

Your gross profit margin for Q3 FY2024 greatly surpassed your estimate for the second half. Did this have anything to do with China?
And on a net basis, despite increasing sales in Q4, your plans show that the Q4 gross profit margin will decrease. How confident are you on the gross profit margin, and can you go over the outlook for next year?

While China did have an impact on Q3 FY2024, there was also a high proportion of products with strong gross profit margins. Gross profit margin will remain at high level in Q4, but we have factored in some one-time costs such as R&D expenses in cost of goods and inventory disposal.
We will continue to create high value-added products, provide unique, leading-edge equipment, and advance efforts to cut costs. We are also seeing steady progress on POR*⁶ acquisition. We expect that we will be able to continue improving our profit margins as we work to fulfill our Medium-term Management Plan.

Although you estimate a 20% increase in SPE new equipment sales in March quarter compared to the previous quarter, the European and American SPE manufacturers anticipate that sales will decline and concentrate in the second half of CY2024. Do you think that sales for your company in CY2024 will be frontloaded or backloaded?

Like our peers, we expect that our sales will be backloaded in CY2024. However, the reason recent sales trends have differed is due to the impact of the high amount of backlog of the other companies.

You indicated that field solutions Q4 FY2024 sales will increase on a net basis, but what caused you to reach this conclusion, and what are your thoughts on next year?

Generally speaking, parts and services sales will increase as customers' fab utilization rates improve. Although the utilization rates are low now, we expect that they will steadily recover going forward. As production becomes more active, we forecast that modifications sales will increase along with parts and services sales.

On slide 19 titled "Investment for Future Growth", you went over R&D investment, capex, and personnel recruitment. What are the market assumptions and strategies for these items. Additionally, do you anticipate that the capex including R&D to be implemented overseas?

We planned our growth investment for the next 5 years anticipating the development of new products and the expansion of the SAM*⁷. We calculated specific target figures considering what comes after the Medium-term Management Plan. R&D activities need to be conducted close to our overseas customer sites as well as in Japan, so we will need investments there too.

Your personnel plan indicates that you will add 10,000 employees to your current staff of 17,000. Will you be able to secure these hires?

Our recent bout of inquiries from new graduates exceeded 20,000. Including both new graduates and mid-career hires, we will hire 1,000 people domestically and 1,000 people overseas each year. As a leader in this industry, we will support student education, well consider Global, Generation, and Gender, so to speak "3Gs", and put greater emphasis on securing personnel.
For your information, although we plan 10,000 hires over the next 5 years, our staff will also shrink within this span of time including mandatory retirement, so we expect the net increase will be around 6,500.

Will your fixed cost ratio increase due to the increase in personnel?

We anticipate that the semiconductor chip market will double to 1 trillion US dollars in CY2030. If there is no change in our customers' capital intensity*⁸ and our share in the market, our sales should nearly double, so even when fixed costs increase, we estimate that our profit margins will improve. Though the equipment shipment volume will increase as the number of locations increase and factories expand, we are also considering ways to reduce fixed costs by promoting digital transformation and robotics solutions, and implementing operations to reduce incidents.

Could cryogenic etching equipment be implemented to 300-layer 3D NAND? When will you begin recording sales?

Although cryogenic etching equipment could be used for the 300-layer level, we are targeting 400-layer and higher. Contribution to sales is expected to begin in CY2025.

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.

TAM: Total Available Market

SEAJ: Semiconductor Equipment Association of Japan

SPE: Semiconductor Production Equipment

HBM: High Bandwidth Memory

POR: Process of Record

SAM: Served Available Market

Capital Intensity: Ratio of investment volume of semiconductor manufacturing equipment to semiconductor chip sales

FY2024 refers to financial year ending in March 2024.
FY2025 refers to financial year ending in March 2025.
The above content is a summary of question and answers session. An audio recording synched to the slides is available here.