Earnings Call: Q1 2022

Aug 16, 2021

Now it's time for us to start Tokyo Electro's financial announcement for the 1st quarter of Fiscal Year Ended in March 2022. Thank you very much for joining us today despite your busy schedule. I am Yatsuda of IR department acting as a moderator in today's session. Now let me introduce attendees on our side. Mr. Tetsurotsunei, Corporate Director, Chairman of the Board Mr. Toshiki Kawai, Kawaii Representative Director, President and CEO. I am Kawaii. Nice to meet you everybody. Next, Mr. Yoshikawa Director, Executive Vice President and General Manager, Global Business Platform Division Finance Unit. I'm Nonokawa. Nice to meet you. Before starting the presentations, let me explain the flow of today's meeting. First First of all, Mr. Nuno Kawa and Mr. Kawai will make presentations. After that, up until 6 Japan time, we will have the question and answer session is entertaining questions from the audience. This financial announcement uses 2 channels on WebEx providing simultaneous Interpretation between Japanese and English. As we explained in our e mail, we are you funds. Since this is the meeting for institutional investors and analysts, we would appreciate your understanding that we receive questions only from institutional investors and analysts as usual. We will upload audio contents of meeting both in Japanese and English later, but we'll be happy if you also refer to Now Mr. Nonokawa, Corporate Director, Executive Vice President and General Manager, will present the consolidated financial Mr. Nuno Kawa, please. Good afternoon. I am Nuno Kawa of Finance Unit. I would like to present the consolidated financial summary of the first quarter or year ending in March 2022. First of all, I'd like to note that Along with the change of our accounting policy, the revenue recognition standard has been changed from the former completion of startup and testing. The consolidated net sales of the first quarter based on the new revenue recognition standard was 452,000,000,000 yen hitting a record high as the on a quarterly basis. By segment, SP net sales was 4 137,900,000,000 yen also hitting a record high. FBV net sales was 14,000,000,000 yen Gross profit margin was 46.7 percent and operating margin was 31.4%. Due to the net sales growth and segment composition mix, both quarterly based profit margins broke the previous records. This is a graphic representation of the financial summary I talked about. This slide shows the segment information. For SPE, sales was 437,900,000,000 yen and settlement profit margin was 34.9 percent. Due to and the customer mix as well as new PORs contribution to the sales. Profit margin also showed a significant increase. For FAD, the sales was 14,000,000,000 yen and segment profit margin was 11 point 8%. For the composition of net sales in the 1st quarter, The SPE sales accounted for 97%, while the FPD sales accounted for 3%. This slide shows SPE sales by region. Sales in China particularly showed considerable growth. Proportion of sales to countries and local China memory manufacturers increased from the previous quarter. This shows SPE new equipment sales by application. As more and more customers design, manufacture logic devices for themselves and also be subcontracted to manufacture logic devices, namely foundry business. It becomes increasing difficult for us to at a demarcation between logic and logic foundry. Due to this background, we have decided to combined Logic Century and Logic and others together in the disclosure from this fiscal year. In the quarter. From the bottom of the chart, sales to logic manufacturers accounted for 47%. Nonvolatile memory accounted for 34 percent and DRAM accounted for 19%. Sales to both logic and memory manufacturers increased from the previous quarter. This shows field solution sales. In the first quarter, sales amounted to 95,200,000,000 yen mainly due to declining the sales of modifications. Sales declined from the previous quarter, but we you can see steady progress in this field. Next, this shows balance sheet. The total assets were 1,450,800,000,000 yen cash and cash equivalents were 341,700,000,000 yen notes and accounts receivable trade and accounts Assets were 254,000,000,000 yen and inventories were 386,900,000,000 yen. In comparison with the previous quarter, accounts receivables and contract assets grew considerably, while inventories decreased. This is because of application of the new revenue recognition standard. So liabilities and net assets. Liabilities were 378,800,000,000 yen and net assets were 1,072,000,000,000 yen which increased from this quarter due to increase of retained earnings. The equity ratio was 72.9%. This shows the inventory turnover and accounts receivable turnover. Since the continuity has been broken along with the application the new revenue recognition standards. From this quarter, the numbers are shown separately from those of the past in this diagram. The inventory turnover was 92 days. The accounts receivable turnover in November was 60 days. My last slide shows was the cash flow. The cash flow from operating activities was 100 and 11,200,000,000 yen Cash flow from financing activity was minus 65,900,000,000 yen the free cash flow was 95,500,000,000 yen. This Mr. Kawai will present the business environment and financial estimates. Now I would like to talk about our business environment and financial estimates. I am Kawai. I'd like to make a short presentation on this title. Let me start with the business environment. For the WFE market in calendar year 2021. In our previous financial announcement held in April, we expected the WFE market growth of about 30% on year on year basis. Currently, however, the WFE market is expected to and more significantly due to rapidly growing demand for advanced logic devices and memory devices driven by digital shift in society such as acceleration of investment to data centers. At present, we expect the WFE market will grow by around 40% on year on year basis. For FPD fabrication equipment, TFT, area process market, there is no change In our view that large size panel investment is now in transition period shifting from LCD to OLED, but we have routinized the market environment once again and modified the decline of FPD market from about 30% to about 20%. Then. Next, I will talk about the WFT market outlook by application. The change in our outlook of the whole WFE market growth is attributed to logicfoundry and DRAM. For logicfoundry, we previously expected 30% growth in WFE CapEx, but we have changed it to around 45% increase. For DRAM, the previous outlook of 45% increase in WFE spending has been changed to about 60% growth. For non flatter memory, there have been no changes in our outlook and WFE spending is expected to increase by about 15% on year on year basis. Next, this shows business progress in the first quarter of fiscal year ending in March 2022. As Mr. Nonokawa reported earlier. In the Q1, both net sales and profit renewed our records. We are making steady progress toward achievement of our midterm management plan. For all applications including DRAM, NAND and logic. I think the effort we have made over the past few years to win in fruitful results. For the production, each of our plants is enhancing capacity to address strong demand. The Field Solution business is also making good progress as planned. In addition, we have initiated a corporate initiative named E Compass aiming at fostering partnership and enhancing leadership in the industry in an attempt to focus on the environmental conservation, not only through our products, but also through our entire business activities. I will not talk It's detailed today, but I'd like to have an opportunity to present this initiative someday in the future. Next, I will present the financial estimates for fiscal year ending in March 2022. We have revised the financial estimate upward by reflecting further growth of demand. In fiscal 2022, on full year basis, net sales is revised to 1,850,000,000,000 yen increased by 150 billion. Gross profit will be 824,000,000,000 yen increased by 85,000,000,000 yen Operating income will be 5 108,000,000,000 yen increased by 66,000,000,000 yen and net income will be yen increased by €40,000,000,000 All of them are expected to set new records. The full year profit margins are also expected to hit record high. Specifically, we expect gross profit margin of 44.5%, operating margin of 27.5%. This slide shows the SPE new equipment sales forecast in fiscal 2022. As you can see here, sales in the first half will be 685,000,000,000, 60,000,000,000 yen increase from the previous forecast. Sales in the second half will be 725,000,000,000 yen increased by 90,000,000,000 yen Both of them are expected to be by far more than sales of the first half of fiscal twenty nineteen, 504,300,000,000 yen which set a record at that time as half year sales. Therefore, we project full year SPE new equipment sales of 1,410,000,000,000 yen 46 percent growth on year on year basis. Meanwhile, new equipment sales on calendar year basis will increase by more than 50% year over year, outperforming the WFE market growth rate. The figure on the right hand side shows quarterly breakdowns of the sales forecast in the first half of this fiscal year. This shows R and D expenses and CapEx. Both of them are expected to hit record high in fiscal 20 22. We have revised R and E expenses upward by 5,000,000,000 yen to 100 and 65,000,000,000 yen capital investment remains unchanged at 64,000,000,000 yen and we project depreciation expenses of 43,000,000,000 yen where we accelerate proactive R and D and capital investment to with growing market and diversifying needs for leading edge technologies. Finally, this shows the dividend forecast. Based on the financial estimate of this fiscal year and payout ratio of 50%, we have revised the focus upward. We plan to pay full year dividend per share of 11.89 yen which will be way above the 1,000 yen mark and set the new record. Thank you very much for your question and answer session till 6 o'clock Japan time, where we will receive questions both in Japanese and English, but our attendees are on the Japanese channel. Please allow us to restrict various questions to only in Japanese. When you ask questions in Japanese, please hit raise I will call name of the person who asked question 1 by 1, please check the chat box on WebEx as our secretary will inform you in advance that you will be the next person to ask question. If you have question in English, please use the chat box to send the question in text together with your name and affiliation to to criteria. We will refrain from answering the question if no name or affiliation is given. On the Japanese channel, I will read out the question translated into Japanese and our attendees will answer to your question in Japanese. While On the English channel, it will be simultaneously translated into English on the real time basis. For questions widely asked in Japanese, please allow us to limit to one question with one follow-up question. For English questions sent in text, I'm sorry, but we will receive only one question without the follow-up question. If we have extra time towards the end of the meeting, we will receive additional questions. Okay. The first question let's move on to the first question. The first question is by Mr. Yoshida of LSA Securities Japan, Mr. Yoshida, please. Thank you very much. I am Yoshida from CLSA Securities. Can you Yes. Congratulations for your WFE market. I have a question. There is very strong outlook for WFE market. If that is the case, I wonder what happens in next year. It's a bit early to ask this question, but as of today, for 2022 WFE market outlook, do you have any comment on that 2022 WFE market outlook by application if possible. Yes, for that, Let me answer to your question. I'm Kawaii. I'd like to answer to your question. So to answer to your question, So the specific figures, though it's too early for us to say anything about precise, but next year as we are expecting positive growth. That's our outlook for next year 2022. For this fiscal year, 30% growth was expected in the past, but now we revised it upward to 40% growth. This is what I said in my presentation. Already, as I said As I said earlier, digitalization is accelerated and leading edge logic devices are driving market. The server and PC and smart 4 are main drivers. And for server, the high speed CPU, DDR 5, for ECC function is to be mounted, so chip die size will increase by 10%. So DRAM investment will continue. So this trend will continue next year as well. That's how we view. Therefore, the high speed CPU DDR5 investment, also the leading edge all tick area is also highly expected. Also, as Application expense, the commodity logic are also 28 nanometer node or the legacy nodes, investment for those legacy nodes are expected to increase further more in next year. Based on that, Positive growth is also expected next year. Thank you very much. Thank you very much for your answer. My follow-up question is about PORs. So this fiscal year for the Q1, you can see new PORs. You mentioned new PORs. Could you give us some specifics? What Sort of calculation, what sort of system have you got the new PORs and for the future, what sort of area you can see some further growth. What you say is exactly correct? For this fiscal year, 2 years ago and last year, So for high volume production, we have we got the POR for mass production and have the big impact contribution to our performance, the major portion, especially etching, suite process. We've got the BOR for seed process and we can increase process of record BOR little by little In that area, for the patent clubs prevention is another technology. So supercritical dry technology in other ways. So we're also increasing the TOR for high by volume production mine. So those 2, in particular, are the major contributors. So film deposition area as well. So number of processes rather big. So there are large number of processes for deposition and demand for that, for example, big contact film deposition, the silicon film deposition, for example, we get the large amount of PORs. So they are are the major factors for us to grow. Also for etching, There are 3 processes for 3 d NAND and also there are other processes and we are making every effort to promote ourselves and I hope that will lead into the further of growth. So patterning related line up etching system, lithography process, film deposition and in cleaning systems. So there are so many new applications for the future and this is where we try to drive further growth. Thank you very much for your answer. Thank you very much. Thank you very much, Mr. Yoshida. Next question is from Mr. Hirakawa of Bank of America, BofA Securities. March. I am Hiragawa of BOA. I have one question. Now demand is really strong at [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Present. So lead time of your product. So what is the lead time of your product at this moment while the demand is very strong. So no no power will answer to that question. So As for the lead time, so maybe your intention should be our lead time is getting a bit longer because of the That's my guess, I'm sorry. Yes, that's correct. But as far as our company is concerned, there have been no changes in our lead time, lead time remains unchanged just like before. Of course, we have been working very hard to reduce lead time continuously. So we are in on track to further reduce the lead time for each product. We are making every effort for that. On the other hand, So procurement of parts, so we have been taking care of supply chain, including affiliate companies that we We provide our focus and plan to suppliers and supply chain so that we can smoothly procure the components and materials and that contribute a lot for us to maintain the Thank you very much. Thank you very much for your answer. I have one follow-up question. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] I'm sorry. May I say? Mr. Hirokawa, thank you for your question. As Mr. Nanokawa said earlier, so [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] The procurement of components and material must be your concern. And did we answer to your question correctly? Yes, I have actually one follow-up question relevant question. Actually, now we are in August 2021, so I wonder that might be 6 months that Q1. So I wonder lead time might be 6 months. That's my guess. If that's the case, for next year, you already started talking with your customers. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So the second half of your next year, calendar year, that's my guess. So how Do you see the future of the lead time next year, especially second half of next year? So [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] With the customer, of course, we need to refer to the customers' 5 capital investment map. So we have 2 to 3 year range plan to be shared together. So this is how we promote the negotiation and because So the semiconductor supply shortage, of course, we need to carefully look at the situation of the supply of semiconductor devices. Based on that, we have revised our focus upward. So we incorporated those factors in our revision of focus. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Now we have added some more in our focus. So we have some additional demands while the Conduct to supply is in shortfall. So we need to be carefully look at the situation. So as Mr. Hirakawa said earlier, so we don't Next, it is not true actually. We are discussing also for this year's situation as follows next year situation. Thank you very much for your answer. Mr. Hiragawa, thank you very much for your Next question is from Mr. Nakamura of Goldman Sachs Japan. I am Nakamura. Can you hear me? Yes. Thank you very much. For WFE market has been revised upward by 10%, out Out of which, so 2022, how much are pulling forward from 2022? So that's my question. In addition, At present, DRAM price has been declining in the spot market. For DRAM capital investment for the future, there should be no concern. So could you share your idea [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] With us on that remark please. Thank you very much. So as for your first question, So how much are being pulling forward from next year? So I should say semiconductor device demand is getting increasing. So additional investment. So rather than pulling the investment is being pulled forward from next year, but actually we have additional demand. That's why we have revised the forecast upward. That's how I would like you to understand the meaning or reason for the upward revision. As for DRAM, the price is getting being adjusted. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] That's what you said in your question and the impact of that on our business. As of today, as As far as we are concerned, as I said in my presentation, the DDR5 die Prices increased by 10%. So we have strong inquiries because so we have strong demand increase for demand for high speed CPU. Therefore, DRAM price adjustment does not directly impact customer capital investment plan. That's how I view the situation. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Thank you very much. That was very clear. So in that sense, So there is no so much demand pulled forward from the 2022. So still 2021 2022, you can see continuous increase in the demand. That's how you view the market trend. Yes, that's correct. Thank you very much for your answer. Mr. Nakamura, thank you very much for your all question. Next question is from Mr. Wajaki of Nomura Securities. Thank you very much. The first question, actually my question is quite similar to the other question so far. So adjustment, there are some deceleration in some applications. There is no such story at all. Is that correct understanding? Correct. Yes, there have been no symptoms at all about the deceleration trends. And I have one follow-up question. So it's not concerned about China actually. The first quarter, the huge sales in China. As for China, for example, in the future, So there might be some restriction on export. So Chinese customers try to purchase a lot in advance. So how do you view the trend in the Chinese market? In particular, I don't think Chinese customers are purchasing things ahead, but that is just along with the market growth and Chinese customers are investing along with the market growth. At present, China customers, the market share should be about 25% in WFE market. That should be the market share of Chinese customers, 25% and that trend will not change. And along with the stability market increase, I think China continuously have the share of about 25% in the as well. This is how I view the trends of the China market. So project our issue and some export restriction Rather than those things, because of the semiconductor device demand, they are keeping their investment. Thank you very much. That's all from me. Mr. Wadaki, thank you very much for your question. Next question is from [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Mr. Hasegawa of Mitsubishi FJ Morgan Stanley Securities. I am Hasegawa of Mitsubishi FJ Morgan Stanley Securities. I The first question is about the change in your revenue recognition standard. I want to understand its impact. According to your financial review, the difference between the new standard and old standard is about 139.6 1,000,000,000 yen for sales and 82,900,000,000 yen for operating income. When it comes to fiscal 20 22 full year forecast, to what extent have you incorporated impacts of the change of the revenue recognition standard. This is my first question. Thank you very much. Nuno Kawa will answer to this question. For the Q1, if we applied the old revenue recognition standard, as you said earlier in your question, there is a difference of 139,600,000,000 yen for sales and 82,900,000,000 yen difference for the profit that we reported in our financial review. So if we apply the old previous revenue recognition standard. As you know, our previous standard is based on completion of start up and testing. So there is certain time between the shipment of equipment toward the completion of testing and setup. So based on that Our previous performance, we tried to calculate how many days or how many months required for us to revenue after the shipment of the product. Based on that, we calculated that. What happens to the first half of this year, maybe 2nd year. Actually, the 1st year is a kind of sum of Q1 and Q2. So if we compare the sales based on the new revenue recognition standard and the revenue based on the previous standard when we calculate the difference. So the time from the shipment to the completion of the start up and setting. For that period, the timing of the sales recognition is shifted. In the first quarter, actually the difference was quite big 139,600,000,000 yen but second quarter, I don't think the same level of the difference will occur because there are many other reasons why we have such big difference in the first quarter. But when you look at the first half of this year or full year basis, actually this particular difference we had in the Q1 remain unchanged almost unchanged. So I am Kawaii. I would like to add some more comments. As Mr. Nanokawa said, and he is more expert in this area. So he gave you very specific answer, but I'd like to give you some answer from different angle. By using the new revenue recognition standard, in particular, from this April, May June, so we shipped some products. And the timing of shipment accounts for the large portion. So this if we come up with the first quarter Revenue based on the previous revenue recognition standard. So the February, March early April, we used those product shift in February, March early April because we used to use this completion of setup and testing. So the ship products shipped the product covered the difference between the new and old revenue recognition standard. So what happens when we use the old standard? So about 1 quarter shift between the new revenues recognition standard and old for revenue recognition standard. That's how we I'd like you to understand the difference between the two standards. I hope you understand my additional comments. Actually, I wanted to understand the rough image. So now you are in the transition period between the two revenue recognition standards. So I want to understand how much impact does that have on your fiscal 2022 full year forecast. For example, magnitude of impact should be 100,000,000,000 for the operating income and 150,000,000,000 yen for the Is that the level of impact on your full year forecast? I am Nonoka. Let me answer to your question. So the way we need to understand is from this April, new revenue recognition has been adopted from our budget report. And based on that, we do have the business activity plan based on that or profit plan, in other words. And from the old standard to new standard, but because of that change, the profit is changed by so and so. With that sort of figures are not incorporated. So the size Sales over here, now we have revised our sales upward 1,850,000,000,000 yen and the same thing can be said to the profit. And the same thing can be said to the profit as well. Mr. Hasegawa, thank you very much for your I have one follow-up question if I may. I am sorry. So now upward revision. Thank you very much. So now you have revised your focus upward. So when did you decide this upward revision? Actually, your financial announcement schedule has been shifted a little [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So based on the current situation, I think you politically set today's financial announcement, but compared with April 3 months ago, at which point did you decide to make upward revision having more accurate information. So in April, May, June July, when did you make such decision. So now today is the Financial try to incorporate updated latest information when we made a decision. Actually, The semiconductor demand is really strong and These are have been increasing, which is really obvious. So when you look at the shipment along last year, first compared with last year, about 40% increase in this Q1 this year. And 4th quarter, In the previous quarter, so first quarter this fiscal year increased by 10% in shipment. So semiconductor demand increases and our performance of sales really reflects that. So now we have revised our focus upward. So we try to come up with The decision based on the latest information we discussed a lot within our board members and made a decision to give you this announcement. Thank you very much. Sorry, I spoke too long. Thank you very much, Mr. Hasebawa for your question. Next question is from Mr. Nakanomio from Jefferies. I'm Nakanomio from Jefferies Japan Limited. I have one question. For the gross profit margin, I have some questions. So this first quarter 46.7 percent, very high gross profit margin. In your presentation, the sales increased slightly compared with the 4th quarter and POR new POR have been obtained. So you said POR contribution, How much does that have impact? I'm sorry it's so difficult for you to answer your question. My major Actually, is now you have annual figure, the revised upward, so 44% for [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] That will be declined from the Q1, but why is it? How did you calculate and ended up with 44%, which is lower than the Q1. Thank you very much for your question. Nonokawa will answer to your question. So the Q1, the gross profit margin 46.7 was actually record high, really good figure we reported. This gross profit margin actually, So in the past, of course, we won the PORs and that PORs started to contribute to our sales. That's one of the reasons. In addition, the sales we have some wider scope for sales. In other words, we should say device mix have the impact on the increase of the gross profit margin, customer mix is another reason. So in first quarter, so those things These device mix, custom mix and other things are over like each other to come up with very high gross profit margin of 46.7%. So now we have these numbers as we confirmed internally. On the other hand, there are some positive factors and several positive Factors come all together in the first quarter. That's another thing we recognize. So that's the reason why when I come up with fiscal full year fiscal year. Unfortunately, the gross profit margin for 4 year basis is lower than 46%. That should reflect our current ability. Thank you very much. I have one follow-up question. Last up until last year. Now you have the new development upfront investment in the RNG. So I think that will happen again in the second half of this year to come up with new process. Is that possible? And that may decrease gross profit margin little bit on the full year basis and that will contribute to sales of the next fiscal year. Is that correct understanding? Are being developed in that area R and D. From the customers, we need to provide the high profit margin product, highly valued by customer. That's our intention in our R and D activities. Therefore, the proportion of that new product, how much that will increase? So along with increasing sales that will contribute to increase of the profit margins, but we cannot expect linear growth. So we need to have some certain time span. But as you said in your question, in the future or second half of this fiscal year, can we expect something? So this is what we expect exactly. So future profit margin enhancement. We are now working on the new product development, new process development. I hope that development activities are going to have positive impact on ourselves. So now you can see slight decrease in the short term basis. That's what I was interested in. So actually R and D expenses are do not have negative impact on the decline of the gross profit margin. Device mix and other factors are more likely to impact on the decline in the full year gross profit margin. Customer, product and device mix, All those things are changing quarterly basis, but now We have the midterm management plan and we have financial model and we are making steady progress toward the model we set for the midterm management plan. And as I we presented in our financial model or mid term management plan, our progress is rather steady. This is how I can answer to your question. Thank you very much for your answer. Thank you very much, Mr. Nakanomio for your question. Next question is from Mr. Isino of Tokai Tokyo Research Center. Thank you very much. I am Nishino. I have a question on WFE. Can you hear me? Yes, we can hear you. WFE outlook now 20%, 30%, well, 45%, 20%, 30%, 45%, so you have revised the forecast upward little continuously. So what is the major tailwind to enhance the market growth? And are there any possibility that 45% will be further revised upward in the future. The possibility of further upward revision toward next year, positive growth is expected Based on the forecast, some customers want their product a bit earlier than the original schedule. So the WFE market might grow furthermore. Now we said 40% So about 10% increase from the previous forecast of 30%, Half of that almost half of that increase more than half of that increase is attributed to the leading edge logic The inquiries for leading edge logic devices accounts for more than half of that incremental portion. So about 15% to 20% are from DRAM and the rest is others. So this is the proportion or composition of that 10% increase from the previous expectation or forecast. Thank you very much. I So EUV lithography, There is a huge orders for the EUV and you can see optimistic future. In European so called power semiconductor Manufacturers' VB ratio is about 2x, which is really incredible in the past. But as for your actual feeling, So demand increases and orders are not, of course, disclosed. So do you have the Stronger impression for the demands or orders, yes, increasing. That's the feeling I have right now and your analysis. We do all carry out the analysis. As I said earlier, and also with the ratio 2% or higher increase, so the Image sensor IC, CMOS image sensor IC, SSD, logic and chips for the Radio Communications for 2020, the Q1 100,000 per per month, 100,000 per month increase based on the 300 millimeter wafer diameter. So that demand really strong. Of course, automotive semiconductors do have strong demand. So that's another area we can So demand has been increasing steadily. This is my Next question is from Mr. Damian Tong from Macquarie I am Damian from Macquarie Capital Securities. Can you hear me? Yes. Your company, NetLogic Foundry and Foundry Others are combined in your The disclosure, next year, growth The data for next year growth, I want to know more. So next year, positive growth is expected for memory and logic, For IDM and Foundry, in other words, the growth speed, What is the difference in terms of the growth rate between memory and device or IDM and foundry? That's my first question. So for next year, yes, I'm sorry, in that sense, the legacy logic legacy nodes, Logic DRAM and leading edge logic devices, they are well balanced in growing Steadily, therefore, growing trend when it comes to growing trend, I'm sorry, I cannot give you correctly answer. So maybe positive growth is expected next year. We are sure and because of the legacy Actually everything contribute a lot. And we do have the investment map, but 28 nanometer legacy node logic will have the big contribution to the WFE market growth more than expected before. I have one additional question. Next year, 2 years from now, so Intel says In Arizona 2024, they are now investing a to set up the factory in Arizona. So year 20222023, that will contribute to your sales in 2 years to come. And you talked Lead time for 2 to 3 year end. So have the Manufacturing system or procurement of the materials and components, so you are prepared for the further demand increase in the future. So Mr. Kawai, you said you have the high confidence. But Intel and Yes. And see those 2 mid term, long term manufacturing capacity enhancement plan that is well the high accuracy. Is that because We are very confident. As I said earlier, so I just talked about next year If we market only and each customer is now working on the construction of new fabs, they are making some announcements. And if We can make some announcement today not because of those plan of the IC vendors to Our focus is based on the market trend, analysis of market trend and investment plan announced by different customers. So these are the basis these are not the basis of our [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So toward the future, for example, new fab of construction that will have the positive impact on our sentiment, but Next year, WFP market does not reflect that sort of plan. We are working based on the inquiries to come up is the forecast for the demand. Mr. Damien Tom, thank you very much for your Mr. Shimamoto of Okasan Securities, DRAM market outlook smartphone and server inventory adjustment, do you feel some [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Concern for the adjustment in inventory, do you have also any idea for the next year DRAM investment? WFE CapEx from DRAM and Feng Shui. So let me answer to your question On behalf of IR, as Mr. Kawai said earlier, DRAM growth is expected next year. As for the first question, the sports .:] We can see that decline in DRAM spot price, but it doesn't have a Negative impact on the customer investment plan. Customer investment is based on the next year capacity. So We don't have any negative information on the trend for DRAM, smartphone and servers. And also DDR5, there will be many applications with high DRAM content in the future. Thank you very much, Mr. Shimamoto for your question. Next question is from to Maekawa of Credit Suisse Securities Japan. I am Nik Maekawa. Thank you very much for your presentations. And my question is is about gross profit margin once again. So for the Q1, by region, your SPE sales by region is China increases. In China, your sales increases, but Taiwan and Korea, your sales in the first quarter declined. So your major to customers actually because of seasonality or timing some decline happened. On the other hand, your sales in China increases. So because of region mix. So how much contribution the region mix have on the increase of the gross Profit margin, according to your plan, 1 point improvement only for gross profit margin on full year basis. So one point improvement, is that because just because of the sales increase? That's my second question. In addition, For the full year sales revision upward, how much China customer sales is incorporated. So I wonder gross profit margin is conservative or not. So that's the intention of my question to understand whether gross profit margin focus is conservative or not? Thank you very much for your question. So the 1st quarter actual performance and we have the gross profit margin by region. We have the sales by region. And based on that information, you ask us a question. Thank you very much for your question. And region, The sales expansion in each region and [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Contribution of sales from different vision. I'm sorry, but I cannot directly answer to that question, but what I can say right now is, so new PORs contributed our Profit, I repeated this several times today. And one of them, So new POR customer Actually, Chinese customers, we do have some PORs got from the Chinese customer that contributed to our profit. In particular, in the first quarter, gross profit margin was rather high. On the other hand, as you pointed out, When you look at each region, Taiwan and Korea, this the increase in ratio is a bit different. The first quarter sales in Taiwan and Korea is fairly good compared with their historical level. So on the full year basis, you asked us. We are not so conservative In our full year forecast, we did have a good result in first quarter. So our actual ability has been increasing. Because of that, we got this good figure in Q1, but we should be calm and analyze things objectively. So there is room for further improvement. That's the reason why full year gross profit margin is not so aggressive, the figure I just presented. Thank you very much for your very thorough Sir, in the previous financial announcement, so gross profit margin, everyone was rather Questioning whether gross profit margin is really high. So I wonder your full year gross profit margin might be some conservative. I have one Follow-up question in the second half of this year, you have strong demand, but orders are increasing day by day. That is The actuation of the April to June. But I want if that is the case, I wonder you can see more increase in sales in the second half of this year. When you look back 2 to 3 years, So every quarter, 1st, 2nd, 3rd quarter, I think the sales has been changing a lot, especially second and fourth quarter, maybe because So there are some changes in the sales, but now you have some leveling among the different quarters. Are there any restrictions that you have So much fluctuation in sales. Well, just because of the change to accounting policy or changing revenue recognition standard, there is no kind of factors to fluctuate the sales from quarter to quarter. As for your last bit, are there any restrictions? No, there is no restrictions at all. So the change in revenue recognition standard and the forecast for the second half of this year, there is no Relationship between the new revenue recognition standard and our focus for the second half of the year, so just bottom up peers, right? You have just communicated from the inquiries or demand from the customers. Yes, that's correct. Thank you very much. May I say something? So the gross profit margin you mentioned to your question, thank you very much for your pointing out the issue of gross profit margin little by little. Now the share has been increasing because of the value we are providing to the customer, we have the product for the leading It feels and our strategy has been implementing steadily. So and the marginal profit ratio has been increasing, which reflect the value of our products. And the marginal profit ratio improvement and And share increases along with the value increase and that contribute a lot. And also the reduction of the fixed cost against sales along with the increase in the market growth. As I said in the beginning, we do have strategic products and our strategic products are permeating into the market steadily. So that is each product. We have 4 major business units and product Difference or shipment timing difference might have some impacts, but by and large, we are on track of steady growth. So that's my additional comments. Thank you very much. Thank you very much, Mr. Maika, for your question. We have one more question, although it's time for us to close the session according to plan. So next question, Mr. Yamamoto So for April to June, you have the sales. So now you have the shipment based new revenue recognition standard. So that is the product shift from April 1 to June 30. So the product The shift in March, I don't think that is not recognized as revenue. So is that my understanding, correct? Yes, What you said is correct. Thank you. Yes, please. So let me just add some explanation. In the previous CST completion setup and testing, one point. So at the point of the completion of testing and setup, that's when we recognize revenue. But in the New recognition standard shipment should be the basis to recognize revenue and also after completion of setup and testing and accepted by customer to be delivered to the customer. So the remainder The sales is also recognized. So in that sense, from April through June, we recognized These revenue and products were shifting by the end of March and we also got acceptance. There are account recognized as the sales. As for shipment, What you said is correct. The products which were shipped from April 1st to the end of June, but the products which were shipped in March and that ship recognized also incorporated in the sales this year. For the products shipped by the end of March, sales only from setup Services done in the Q1 were recognized. As for the sales for product themselves, adjustment were done in balance sheet without going through the PL. Okay, I understand. Thank you very much for your answer. Thank you very much, Mr. Yamamoto, for your We do have some more questions, but because of the time, we'd like to close today's financial As for the questions, we are not able to answer today. We will upload the answers to the question and answer page of our website. There are Two information, as we already informed you on our website from this fiscal year, we are going to publish integrated report. In the middle of September, we are going to publish it both in Japanese and English. 2nd piece of information is about non financial information announcement. This year, October 12th Tuesday afternoon, we are going to make we are going to hold IR day where we are talking about mid term, long term growth initiatives. We are going to playing ESG activities, the new technologies, really happy to if you join us in that day. We are going to inform the details a day later. And we are going to make the improvement of our IR activities based on your feedback. So really appreciate to your calculation in filling up the questionnaire survey for this WebEx meeting through WebEx. Thank you very much for your participation despite your very tight schedule.