Q1 FY2019 Earnings Release Conference Q&A

Whereas we announced an outlook for the CY2018 WFE*1 market of 15% YoY growth in April, we have now changed this to a 10 to 15% YoY increase. This is attributed to customers pushing out their investment plans due to a slight delay in progress for miniaturization and higher yields. However, it is not as though demand has declined, and our April forecast for an active WFE market over the medium- to long-term has not changed.
Furthermore, we believe that financial estimates should be changed when necessary but not changed without reason. There are past examples of us making changes when releasing the Q1 financial announcement. Careful examination is not done only semi-annually.

Investment has been pushed out or pulled in for all applications. This was taken into consideration when leaving the financial estimates unchanged.

The chart is not of the WFE market but indicates the forecast composition ratio by application of TEL’s sales. Results are starting to show in areas where we have been focused on such as etch systems and cleaning systems for 3D NAND, and we expect this will contribute to sales.

We do not release quarterly sales forecasts, yet we do not expect the trend in FY2019 to differ greatly from the past.

I would like to refrain from commenting on quarterly forecasts.
From a medium-term perspective, we expect the FPD production equipment market for TFT array process*2 to remain firm throughout CY2018 to CY2020. We will focus on sectors in this market that generate high added value, taking initiatives to enable operating margins to reach 20%.

We have forecast a lower limit of $56B in anticipation that customers will substantially push out their investment plans. Since our close examination for this Financial Announcement was only for CY2018, we have not revised the originally announced forecast for CY2019.
Note that customers have pushed out their investment plans for periods of about three months to half a year. This is mainly due to technological progress such as the yields in leading-edge miniaturization and increased number of layers, and the plans have not disappeared.

The composition ratios for 3D NAND and other non-volatile memories have not changed from April.

Some customers have revised their capital investment plans.

Although I am not in a position to be able to respond on our customer’s technological issues, I have heard that this is a matter of process tuning and the like, and not of having to considerably revise materials and structures. At the present, we think this will take about three months to half a year.

Demand from hyperscale data centers and such is very high in this age of big data centered on IoT. Consequently, there is also demand for technological innovation in areas such as large capacity, high speed, increased reliability and lower power consumption. Few customers can deal with such cutting-edge technological requirements and those that can have a large market share, and they understand the market trends well because they occupy a high share of the market. Since customers formulate their production plans while closely monitoring the market trends, we do not believe there is much need for concern about the possibility of future large changes in the balance of demand and supply.

The focus of future NAND investment will be on 9X generation 3D NAND. While some customers will invest in new buildings, others will convert existing production lines to the 9X generation.
Setting aside emerging market customers in China, major semiconductor manufacturers basically establish their investment plans according to profits, EPS and operating margins. Even if customers adjust the timing of investments by about a quarter so that profit ratios and EPS do not fall when there is a sharp drop in the device price, considering the large growth in the data center market in the age of big data, the need for concern about bit demand appears to have disappeared for the near term.

I would like to refrain from specific cases, but investment could be accelerated if there were faster than anticipated improvement in yields for example. In addition, there could also be a quick response to diversifying semiconductor demand due to IoT.

We do not claim to have a full understanding of the state of other companies, but in general, we think U.S. companies record sales close to the time of shipment. Since shipping volumes probably do not change much from month to month, sales are also likely to be growing in a straight line.
However, in our case, sales are recorded on completion of set-up and testing of equipment, so in many cases, sales are recognized in a lump sum for each production line at a customer’s factory. Since sales recognitions are concentrated in a particular week or month, quarterly sales fluctuate up and down. This is not intentional.