I'm Kawakami, Managing Executive Officer and CFO. Thank you for joining us today at Kokusai Electric's earnings call. First, I will explain our second quarter financial results as well as full year earnings forecast. These are disclaimers. I will not dive into details. First, here's an overview of our second quarter financial results. Page four contains the highlights. Specific details will be offered starting from the next page. Page five presents a summary of our consolidated financial results for the second quarter as well as the first half of the fiscal year. In the second quarter, both revenue and profit increased compared to the same period last year and the previous quarter. This was primarily due to an uptick in mainly parts sales and other services revenue that came in slightly higher than projected and landed slightly higher than at the time of the first quarter earnings announcement.
Revenue of JPY 88.6 billion set a new record high for a single quarter, surpassing the previous record set in the first quarter. For the first half of the fiscal year, while revenue and profit both increased year-over-year, the gross profit margin stood at 41.8%, a 0.4 percentage point decrease from the same period last year. However, as the ratio of selling, general and administrative expenses to the revenue, profit margins from adjusted operating income onwards improved. Order intake for the second quarter totaled approximately JPY 167 billion, exceeding the forecast provided at the time of the first quarter earnings announcement by more than JPY 20 billion than projected at the time of the first quarter earnings announcement. The upwards deviation was particularly significant in DRAM and Logic/Foundry products for global markets, as well as services such as component sales.
Second quarter order intake continuing the trend from the first quarter is renewing record highs, and we expect orders to remain at this level in the second half of the fiscal year and beyond as well. Regarding the interim dividend, as announced in the first quarter earnings call, the Board of Directors resolved today to pay JPY 32 per share as announced in our first quarter earnings report, and we have published a notice regarding the distribution of retained earnings. Page six details the factors contributing to the year-over-year changes in revenue and adjusted operating income for the second quarter. Revenue increased 36% year-over-year to JPY 88.6 billion, owing to increased sales of non-China equipment and services. Adjusted operating income rose to JPY 22.5 billion, a 56% increase year-over-year, owing to increase in sales as well as improvement in gross profit margin.
Page seven shows the factors contributing to year-on-year changes for the first half of the fiscal year. Revenue decreased due to lower equipment sales for local Chinese NAND manufacturers, as major manufacturers entered a lull in investment revenue from equipment sales to markets to the non-Chinese market, and service revenue grew, resulting in a 40% year-over-year increase to JPY 164 billion. Regarding equipment sales to manufacturers in non-China markets, while sales to equipment for other applications declined, sales for all major applications saw growth. Equipment sales to local Chinese manufacturers saw a significant decline in NAND-related sales, but sales for DRAM and Logic/Foundry applications grew.
In addition, service revenue grew, driven primarily by component sales. Adjusted operating income increased by 57% year-over-year to JPY 39.8 billion, since sales and other factors increased, contributing significantly to gross profit, increased despite the decline in gross profit margin decline due to changes in the product mix.
Page eight shows quarterly equipment and service sales by application. In both the second quarter and the first half of the fiscal year, service revenue increased alongside equipment sales for DRAM and Logic/Foundry, as well as service revenue increased compared to the same period last year. On the other hand, regarding equipment sales for the NAND sector, major local Chinese NAND manufacturers were in a lull in investment, resulting in a year-over-year decline in both the second quarter and the first half of the fiscal year.
Page nine shows equipment and service sales by application, broken down into sales to global manufacturers and sales to local manufacturers in China. In the second quarter, sales to manufacturers in the non-Chinese market saw increases in both DRAM equipment sales, resulting in a 57% year-over-year increase in total revenue and 2% compared to the previous quarter. In the second quarter, sales to local manufacturers in China saw increases in both DRAM-related and Logic/Foundry equipment, and service sales increased year-over-year and quarter-over-quarter, resulting in an 8% year-over-year increase and 64% compared to the most recent quarter.
Although NAND equipment sales decreased by 69% year-over-year, they increased by approximately 6x higher than the previous quarter, indicating a recovery trend as expected. In addition, due to the rapid expansion of sales to the Chinese domestic market in the second quarter, the proportion of sales to the Chinese domestic market increased to 35%, up from the first quarter. Page 10 shows revenue by destination. In the second quarter, revenue increased year-over-year in all regions. Cumulative revenue for the first half of the fiscal year also increased year-over-year in all regions, and the share of sales to China fell to 34%.
Page 11 shows the quarterly balance sheet trends. Total assets at the end of the second quarter increased by JPY 30.4 billion compared to the end of the fiscal year ended March 2026, driven by an increase in cash and cash equivalents accompanying higher sales, as well as an increase in trade receivables. Other receivables resulting from increased sales rose by JPY 30.4 billion compared to the end of the fiscal year ended March 2026. Total equity increased by JPY 17.9 billion compared to the end of the fiscal year ending March 2026, driven by increase in retained earnings and other items.
Page 12 shows the key financial indicators for the quarterly balance sheet. The equity ratio at the end of the second quarter increased by 0.2 percentage points from the end of the previous quarter to 60.8%. In addition, operating cash flow improved significantly in the second quarter, and net cash increased by JPY 18.6 billion from the end of the previous quarter, reaching JPY 25.2 billion.
Page 13 shows quarterly cash flows. In the second quarter, operating cash inflows significantly exceeded investment cash outflows, resulting in free cash flow of JPY 21.6 billion. Cash flows from financing activities resulted in an outflow of JPY 9.9 billion due to repayment of long-term borrowings and buyback.
Page 14 shows quarterly research and development expenses, CapEx, and depreciation expenses. R&D expenses, capital expenses, and depreciation for the second quarter were in line with plans, and we expect the second half to proceed as planned. R&D expenses for the second quarter totaled JPY 5.3 billion, and the ratio of R&D expenses to revenue stood at 6.0%. R&D expenses for the fiscal year ending March 2027 are projected to increase by about 10% year-over-year, reaching approximately JPY 20 billion.
CapEx for the second quarter totaled JPY 6 billion. We are currently investing a total of JPY 20 billion to construct a demonstration center in Oregon, U.S. As a result, CapEx for the fiscal year ending March 2027 is expected to increase by about 70% compared to the previous fiscal year and is currently projected to total approximately JPY 29 billion. Depreciation expenses for the second quarter totaled JPY 4 billion. This figure is expected to remain at a similar level going forward, and depreciation expenses for the fiscal year ending March 2027 are projected to increase by about 10% compared to the previous fiscal year, reaching approximately JPY 16 billion.
Next, I will explain the full-year earnings forecast for the fiscal year ending March 2027. Page 16 shows the highlights. Specific details will be from the next page and beyond. Please turn to page 17. Results for the second quarter were generally in line with the full-year earnings forecast revised at the time of the first quarter earnings call. Since we expect this trend to continue in the second half of the fiscal year as well, there are no changes to the full-year earnings forecast. Similarly, there are no changes to the dividend forecast.
Page 18 summarizes the factors contributing to changes in the earnings forecast for the fiscal year ending March 2027 compared to the previous fiscal year's results. There are no changes from the earnings forecast revised at the time of the first quarter earnings call. Revenue is expected to increase due to higher equipment sales to customers worldwide, equipment sales to domestic Chinese market, and service revenue, and is projected to increase by 45% compared to the previous fiscal year. Adjusted operating income is projected to rise by 81% year-over-year, driven not only by increased sales, but also by an improvement in the gross profit margin, which was boosted. Gross profit is projected to rise 81% year-over-year.
Page 19 presents a chronological list of sales to global manufacturers and sales to local Chinese manufacturers from the fiscal year ended March 2023 through the fiscal year ending March 2027. There are no changes from the earnings forecast. Sales to global manufacturers are expected to show significant growth compared to the previous fiscal year, and overall sales are projected to increase by 49% compared to the previous fiscal year. For sales to local Chinese manufacturers, while equipment sales for NAND are expected to decline slightly compared to the previous period, equipment sales for DRAM and Logic/Foundry equipment sales are expected to increase, and overall sales are projected to increase to 37% year-on-year.
Page 20 shows equipment and service sales by application in the earnings forecast. There are no changes from the earnings forecast revised at the time of the first quarter earnings call. For the fiscal year ending March 2027, equipment sales are projected to increase 49% year-on-year for NAND, 61% for DRAM, and 65% for Logic/Foundry, while service revenue is expected to rise 22%, indicating significant growth across the board.
That concludes my remarks. Thank you.
I am Tsukada, Representative Director, President, and CEO. I will now discuss our outlook. Page 22 shows our future outlook. In the semiconductor device market, growing AI demand continues to drive strong capital investment by advanced manufacturers. We expect the investment in high-performance devices to increase further. Demand for non-AI applications, including industrial equipment, has been weak, but it is now starting to recover. Over the medium to long term, we will expect the overall semiconductor device market to grow faster than we previously anticipated. At the first quarter announcement, we forecast the 2026 WFE market at around $140 billion, up at least 25% year-on-year. Our view is broadly unchanged, although we now expect the market to be slightly above $140 billion.
Please see our medium-term objectives on page 23. No change since the first quarter announcement. With demand growing rapidly, we now expect to reach our medium-term revenue target of JPY 330 billion in FY March 2027, two years ahead of schedule. We aim to achieve an adjusted operating profit margin of at least 30% in FY March 2028.
Please turn to page 24. I will explain our outlook for FY March 2028. In calendar year 2027, we expect the WFE market to continue growing at a double-digit rate, led by investment in high-performance devices for AI. We currently expect growth of at least 30% from 2026, bringing the market to around $190 billion. Against this backdrop, we see our revenue from FY March 2028 growing by around 40% from the previous year. Our goal is to outgrow the WFE market. We have high market shares in advanced batch ALD equipment and single-wafer plasma treatment equipment. This puts us in a stronger position to grow faster than the market. We will now expand production capacity to meet the demand and support our revenue growth.
Please turn to page 25. I will explain three drivers that will help us to reach our medium-term target of an adjusted operating profit margin of at least 30% in FY March 2028. First, we will expand our POR in high-value-added products. We will use our technology strength to win more POR for next-generation devices. We will also seek appropriate value for our advanced high-productivity technologies. This will raise the share of high-value-added products in our sales mix and improve equipment profitability. Second, we will grow by expanding our TAM. As semiconductor devices move to new generations, there will be more opportunities to use our high-value-added products. The POR we have won will increasingly contribute to revenue and profit.
Third, we will expand production and bring our SG&A expense ratio to an appropriate level. Alongside our high-value-added product strategy, higher factory utilization and better production efficiency will improve gross margin. As revenue grows, stronger operating leverage will help us to optimize the SG&A ratio. With these three drivers, we will aim to achieve an adjusted operating profit margin of at least 30% in FY March 2028.
Starting on page 26, we have updated our POR wins by device type. This page covers 3D NAND. Our POR share is already high, so the number of POR will not increase much as device generations advance, but customers are shifting from large batch ALD equipment to mini-batch ALD equipment and upgrading to newer mini-batch models. POR decisions for next-generation devices with 300- 400 layers are almost finalized. The mini-batch share is expected to rise from 50% for devices with 200 layers or fewer to 80% for devices with 400 layers or more. This should make a major contribution to our profit.
Page 27 shows our POR wins in DRAM. As device generations advance, the number of POR positions increase. Customers are also moving to newer models for large batch ALD equipment. Most POR decisions for the next generation D1d devices are finalized, and we have identified POR targets for D0a and later generations. As devices become smaller and more complex, moving toward the D0 generation and vertical channel transistor DRAM, we expect more opportunities for batch ALD and single-wafer plasma treatment equipment. We also expect mini-batch ALD equipment to be adopted in the 3D DRAM generation.
Page 28 updates our POR wins in Logic/Foundry. Investment in 2 nanometer gate all around devices is progressing in FY March 2027. We still expect GAA equipment sales to exceed JPY 20 billion, unchanged from the first quarter forecast. As shown here, we are also winning POR positions for the 1.4 nanometer GAA generation. We have begun proposals aimed at winning POR for the later 0.7 nanometer CFET generation. As devices become smaller, more complex, and more 3D dimensional, we expect more opportunities for mini-batch ALD and single-wafer plasma treatment equipment. This should support further growth in revenue and profit. For advanced packaging, we expect sales of JPY 15 billion in FY March 2027. We expect further customer investment, including expansion to multiple sites. We are also developing equipment for 310 millimeter square panels and will continue proposing solutions for new applications.
Page 29 covers our production system. Our production lead time remains eight months, unchanged from the first quarter announcement. We expect it to stay at this level through the second half. Across our three production sites, average capacity utilization was around 70%-80% in the first half. We expect it to exceed 80% in the second half and rise further next fiscal year. To respond quickly to rapid WFE market growth, we will secure the capacity needed to meet demand. Measures include adding production shifts and expanding clean rooms.
Finally, page 30 summarizes the semiconductor device development roadmap, the business environment, and our key growth catalysts. We expect AI-related investment to exceed significantly across device categories this fiscal year and the next. In NAND, we now see the possibility of renewed investment in capacity expansion alongside investment in new device generations. In DRAM, we expect both types of investment to become even more active. In Logic/Foundry, major device manufacturers are expected to increase CapEx on GAA. In advanced packaging, our film deposition technology should give us competitive advantage and support further revenue growth.
We will work closely with our customers to develop next-generation devices and advanced semiconductor technology. In particular, we will create more opportunities for our batch ALD and single-wafer plasma treatment equipment. Our goal is sustainable revenue growth above the WFE market and consistently high profitability. That concludes our presentation. Thank you for your attention.