Q2 FY2020 Earnings Release Conference Q&A

While logic investment is robust at present, memory inventory adjustment is proceeding. Investment in high-speed data centers and mobile communication will recover with the new release of CPUs aimed at 5G in the near future, and this is expected to be followed by a recovery in investment in memory. In addition, there is also demand particularly for NAND due to the replacement of HDDs with SSDs, and the possibility of a shortfall in supply in CY2020 has come into view. For DRAM, demand for semiconductor production equipment will likely increase due to new demand and technological requirements aimed at 5G.

We mentioned that “the specifics of new investment plans of memory customers will become visible in the next three months” in the July earnings release conference, and accordingly, inquiries from customers are increasing. Logic will make a large contribution to sales in FY2020, but the investment plans of customers will gradually be finalized for memory as well beginning with 3D NAND followed by DRAM in the near future. Production at our factories has been restrained to match market adjustments until now, but we are preparing to return production to normal levels.

It is still too early to say how much growth there will be compared to CY2019. However, we are preparing to return production in our factories to normal levels as I mentioned earlier, and it is our view that much of the capacity will be filled in January–March of CY2020.

The semiconductor device market is currently valued at USD 468.8 billion, but one forecast is that it will grow to USD 1 trillion by 2030. In addition, it has been said that the number of smartphones will reach 1.534 billion units in 2023 and that 745 million units of these will support 5G, so there will be demand for a variety of devices aimed at 5G moving forward. It is our view that we can expect continued investment.

We have not disclosed our outlook for CY2020. We estimate investment by local Chinese memory manufacturers was a total of USD 2 billion by three companies in CY2018, and is expected to be a total of USD 2 to 3 billion by two companies with one company unable to continue investment in CY2019. We have not changed our view for this year since three months ago.
However, I think the outlook by the other company may include investment by customers in areas other than memory such as logic, logic foundry and power devices.

In CY2020, we can expect investment in mobile Gen 6 OLED for 5G and investment in Gen 10.5. There are business opportunities for TEL in PICP™*2 etch systems and large panels.

There was a pull-forward of sales in non-volatile memory and logic foundry. Sales also exceeded our forecast in the Field Solutions (FS) business.

The fixed costs of inventory yet to complete set-up in Q1 were recognized in Q2 due to the recognition of sales, which led to a decline in the profit margin. Another factor is the product mix. We have not disclosed our outlook for the segment profit margin in the second half of the year.

Memory is currently in the phase of inquiries increasing. We expect sales to gradually increase from the first half of FY2021 for non-volatile memory and from the second half for DRAM.

This is affected by the customer mix, the product mix and also active investment. Depreciation costs related to new buildings will increase in the second half. Research and development expenses have also been increased by 3 billion yen in this revised financial estimates, and more of those are in the second half of the year.
We intend to spend 123 billion yen on research and development expenses this fiscal year, and expect to spend 400 billion yen over three years including this fiscal year.

There is no change to the sales forecast (278 billion yen for the full year) for the FS business.

We will maintain compliance concerning our exports. Also, we do not intend to target business simply because our competitors are unable to export to China as a result of the trade friction between the United States and China, and would like to compete fairly. We will expand business by providing the cutting-edge technology and presenting the value of our company.

Patterning is the key in DRAM. We have a 90% market share in the overall coater/developer market, and have a 100% market share in the coater/developer market for EUV high volume manufacturing. In addition to this, there are great business opportunities because we have equipment for the sequence of all key processes repeated in patterning, namely coat/develop, clean, deposition and etch. Furthermore, there is demand for technology using new materials such as high-k metal gates in order to increase speed of DRAM, and we believe this will also lead to business opportunities.
We are not yet at the stage where we can make a clear statement on the adoption of EUV. Our customers are considering methods from all perspectives such as productivity and differentiation.

We are unable to publicly announce the details at this time due to our relationships with the customer, but one of the silicon deposition processes has been replaced by batch deposition. We have been able to confirm through evaluation that our batch furnaces can be applied to that process as customers place emphasis on footprint and throughput. We expect the number of processes to increase in the future.