It's time for us to start Tokyo Electron financial announcement for the Q1 of the fiscal year ending March 2020. Thank you very much for joining us despite your very tight schedule. I am Yatsuda of IR Officer, acting as a moderator for today's meeting. First of all, we'd like to introduce attendees on our side. Mr. Tetsuo Tsuneishi, Representative Director, Chairman of the Board. Next, Mr. Toshiki Kawai, Representative Director, President and CEO. Mr. Yoshikazu Nunokawa, Corporate Director, Executive Vice President and General Manager of Finance Division. First of all, we'd like to ask Mr. Nunokawa, Corporate Director, Executive Vice President and General Manager of Finance Division, to present the consolidated financial summary. Mr. Nunokawa, please. Good afternoon, ladies and gentlemen. Thank you very much for joining us despite the very hot weather. I am Nunokawa.
I'd like to make a presentation on consolidated financial summary for the Q1 of this fiscal year. First of all, here you can see the highlights for the Q1 of fiscal year ending March 2020. The financial results of the Q1 show good progress along with the plan for the H1 of this year. We have repurchased 2.9 million shares since May 2019, as of June 30th, 2019. The total share acquisition cost amounted to JPY 43.2 billion, achieving 29% of the plan, a maximum of JPY 150 billion. Next. Here you can see the financial summary. The net sales in the Q1, as you can see over here, JPY 216.4 billion. Gross profit was JPY 89.8 billion. The net sales decreased, but as you can see, the gross profit margin is 41.5%, remaining at the same level as the previous quarters.
The operating income was JPY 42.5 billion. Net income attributable to owners of parent, JPY 31.8 billion. As I said in the previous slide, we are doing well as planned, and we will expect the increase of the sales and income toward the H2 of this year. Now you can see financial performance represented in a graphical manner. As you can see here, sales was declined from the previous quarter, JPY 216.4 billion. However, the green line on the top, gross profit margin, when you look at this, remains at the same level at around 41.5% over the past few quarters. Next slide, please. Now you can see segment information. You can see the sales and segment income as well. On the left, you can see SPE. For this Q1, SPE sales was JPY 198.1 billion, declined from the previous quarter.
In the middle, you can see FPD segment information. Sales was declined from the previous quarter, JPY 18.2 billion. However, when you look at the segment profit margin, which is 19.2%, very high level. This is attributed to increase of inventory of the products, which were shipped but not yet recognized as sales. That is the major reason of high level of the segment profit margin. Next slide, please. Now you can see SPE division sales by region. On the right-hand side, you can see this quarter's results, as you can see over here. In particular, just in the middle of this bar graph, orange-colored portion, Korean portion, the sales drop in Korea was rather conspicuous. This is mainly because of the sales reduction of SPE for memory customers. Next slide, please. Now you can see the new equipment sales by application.
Once again, the top two boxes, the blue color and purple color representing memories. You can see drastic drop of those two portions for memory. The sales decreased drastically. Next slide, please. This shows sales of the field solutions. You look at odd number quarter, the Q1 and Q2, as general trend, the sales in the odd number quarters tend to be lower than the sales of the even number quarters, Q4 and Q2. This Q1 sales is lower than even compared with the Q3 of the last previous year. The sales are fluctuating steadily. There are several reasons. Actually, modification sales was reduced in Japan, Europe, and Korea slightly. That is some of the factors. Parts sales are very solid. Next slide, please. Now you can see balance sheet. On the left, you can see assets.
As you can see over here, the cash and cash equivalent dropped from the previous quarter drastically because of the payment of the dividends and share repurchase. Just in the middle, the light blue portion represents inventories. The inventory increased from the previous quarter. In order to prepare for the sales increase in the Q2, equipment shipment is making good progress. Accordingly, equipment under startup is now increasing. That's the reason why you can see some increase of the inventories here. On the right, you can see liabilities and net assets. You can see a drop in net assets because of the repurchase of our shares. Next slide, please. This shows inventory turnover and accounts receivable turnover. On the right-hand side, JPY 216.4 billion. The upper line, the green line, represents inventory turnover, 116 days, at a high level. This is because of the reduction of sales.
As I said earlier, we see the increase of the inventories. These are the two major reasons for that. On the other hand, you can see the lower line graph, accounts receivable turnover has decreased. We are collecting accounts receivable steadily, and we can see some reduction in sales. Those two are the major reasons for the reduction of the accounts receivable turnover. Next slide shows cash flow. This shows cash flow. On the right-hand side, you can see downward bar, orange color bar, which is rather conspicuous, representing cash flow from financing activities, minus JPY 99.9 billion. The payment of dividends, JPY 56.6 billion, and share repurchase of JPY 43.2 billion. Those two are the components. Big downward bar is over here. On the other hand, cash flow from operating activities was JPY 59.4 billion.
Cash flow from investing activities, the creation of fixed asset declined in the Q1 relatively because of that free cash flow was JPY 50.9 billion. Thank you very much. That's all about the financial summary.
Thank you very much for your kind attention. Next, I'd like to ask Mr. Kawai, our CEO, to make a presentation on business environment and financial estimates. Mr. Kawai, please.
Once again, good afternoon. Thank you very much for joining us despite your very busy schedule. I am going to make a presentation on business environment and financial estimates. Business environment. There are no major differences in our outlook, both for SPE and FPD from the previous meeting in April 2019. For the SPE, the capital investment in CY 2019 is expected to decline by 15%-20% on the year-on-year basis.
Although the CapEx for logic and foundry is strong, very much, the CapEx for memory is expected to go through a temporary adjustment due to the softened demand. Now we can see the very good inventory adjustments. Along with the inventory adjustment, memory investment is expected to recover in calendar year 2020. FPD production equipment, although full year capital investment is expected to drop by 30% on the year-on-year basis, we expect the recovery in the H2 of this year. Now you can see the WFE market environment business opportunities by application. Three months ago, the WFE market for logic and foundry was considered to grow by about 25% on year-on-year basis. This time, we have made 10-point upward revision, and it is expected to grow by 35% on year-on-year basis.
For memories, for non-volatile memory and DRAM, both of them, we have made 10-point downward correction from our outlook in April. The WFE market for non-volatile memory is expected to decline by about 60% on year-on-year basis, and WFE market for DRAM is expected to decline by about 40% on year-on-year basis. For this year, memory and logic and foundry composition was above 50% and 50% at the beginning. That's what we thought in the beginning. However, the logic and foundry increased by 10 points and the other half, memory, declined by 10 points. There is no major change when you look at the full year. The capital investment for memory, we think the current, we are now at the bottom. We need to see one more quarter and we will see a new investment plan, maybe after one quarter. That's how we analyze the market situation.
Now you can see the business highlights in the Q1 for fiscal year 2020. The SPE business strategies are implemented as planned. We are winning PORs in focus areas. Etching, as you can see, it's for IoT and automotive areas. For mid-term, long-term plan, we think IoT and automotive is expected to grow just like storage, and demands is increasing in those two areas. In that area, we got a new POR from a customer. That's what happened in etching. For film deposition and cleaning, we won PORs in critical processes for memory. For the film deposition, for 3D NAND, we got one POR. For DRAM, we got two PORs. In total, three PORs are got in the Q1 in ALD business in Korea. For cleaning as well, critical cleaning process, we got the opportunities and we are now making business there.
In other area than three focus area, we won a new order for CELLESTA in the non-volatile memory market. CELLESTA is high value added wafer probe with tester mounted. The field solution business continues to go well. Actually, we are selling 4,000 units per year, and our installed base is growing to 69,000 units. Based on this background, our field solution business continues to go well. The TEL announced a partnership with BRIDG, not-for-profit public-private semiconductor partnership in Florida to develop SPEs and process technologies for automotive and industrial applications, which are expected to grow drastically in the future. We made this announcement in the SEMICON West. This BRIDG is mainly working on 200-millimeter wafer technologies, and this area is expected to grow furthermore.
Through the partnership with BRIDG, we are going to promote the activities to meet the demands for automotive and industrial applications so that we can set our positioning. We are promoting market penetration in those areas. For FPD, we expect to recognize sales for PICP for Gen 10.5 and inkjet printing system for OLED panels within this fiscal year. Fiscal year 2020 financial estimates. Though the WFE market is in the phase of adjustments in this fiscal year, it continues investment for growth to prepare for a recovery in the next fiscal year. There have been no changes for the financial estimates from the previous meeting. This shows new equipment sales and its breakdown by application in SPE division, the actual for the Q1, and estimates for the Q2 and onward.
The actual sales in the Q1 was in line with our plan, as Mr. Nunokawa said earlier. The majority of new equipment planned to sell in the Q2 have been shipped. There are no changes in our sales forecast, both for the H1 and H2 of this year. As I said earlier, the breakdown by application is changed from announcement of three months ago. For the H2 of this year, the combined sales of both foundry and logic and others are expected to account for about 60%. The sales for DRAM and non-volatile memory will account for about 20% each. I'm very sorry, customers are now optimized to some extent. When we used to use orange and green color very clearly, that may expose the customer's investment plan, I'm afraid to say so.
We have just used the pink color coding rather than the orange and green color coding this time. Really appreciate you understand this change. Next, you can see R&D expenses and CapEx plan. There are no changes from the previous meeting. R&D expenses is JPY 120.0 billion, CapEx JPY 56.0 billion, depreciation is JPY 33.0 billion. We plan to continue upfront investment in an effort to achieve our midterm management plan and to promote further growth. We'd like to talk about dividend forecasts for this year. Dividend per share is JPY 502, remaining unchanged from previous financial announcement if the ongoing share repurchase is not taken into account. We plan to announce the correction of dividend along with the ongoing share repurchase in the financial announcement of the Q2 of this fiscal year. Thank you very much for your kind attention.
Now I'd like to entertain questions from the floor up until 6:30. I'd like you to limit question by one, together with one more follow-up question. Could you identify yourself by your name and affiliations? Today's financial announcement will be uploaded to our website, so it will be highly appreciated if you could speak slowly and clearly. If you have any questions, could you raise your hand, please? Yes, the gentleman in the front row, please.
I am Araki from Nomura Securities. I have a question about the market trend. Actually, the flash investment, which was expected in July to September, has been gone, which is really disappointing. It's not because of you, but we are a little bit disappointed. There are some good news, logic foundry, China, but I think those good news cannot offset the negative story in terms of the size.
You said you have some forecast. Do you have any good news in the Q1? If you may think it's too early to say anything, if you could share your idea with us, really appreciate that.
There are various things. Actually, there are quite a few good news. There are so many potentials in the market. In one word, for logic and foundry is rather strong, and we can expect a lot in the future. Now you can see 5G relevant applications coming out, and investment plan is now getting more concrete. For memories, I have been talking with the top management of different customers in the SEMICON West, and also this week through various meeting with customers. There are something in common among the comments made by top management of the customers, which is we need to wait for another quarter.
There are various factors right now, but we need to wait for another quarter, then we will see some concrete investment plan. I think we can expect what happens after the next quarter.
I have one follow-up question for memory. China, they are making investment a lot, but I don't think that size is rather limited, only 40K or 50K, the size of the investment. Do you include those China investment in your expectation?
I think we have included those China investment for next fiscal year plan, not this year.
Thank you very much for your question. Next question, please. Yes, the gentleman just in the middle, please.
I am Hirakawa from Merrill Lynch Japan Securities. I have one question about field solution. You said field solution business is going well, particular parts sales was very good. That's what you said earlier in your presentation.
For memory, utilization is now going down, but you said parts business is going well. I want to understand the reason why the parts business goes well. That's my first question.
There is no particular specific reason for that, but we should say parts business doesn't drop too much. Maybe that's the correct way to describe the situation. When you look at the figures, as presented earlier, when you look at the sales, compared with previous quarter, you can see a slight decrease. This is the rather general trend. The old quarter, Q1, Q3, you can see slight decrease from the previous quarters, second or Q4. When you compare with this quarter, with the Q3 of last fiscal year, there is slight decrease, which is rather unique for this fiscal year. That's what I explained in my presentation.
When you look at the details, let me just repeat the same thing once again. The sales of modification slightly dropped. That was the major reason. The parts sales didn't decrease drastically. That's what I said in my presentation.
If that is the case, the Q2, the parts business or field solution sales as a whole, what sort of expectations do you have? When I look at the market trend, you compare the performance with the Q3 fiscal year. Field solution of the Q1 this year is increased by 10% from the Q1 of last fiscal year. Do you think it can see a good trend in the field solution in the Q2 as well?
I should answer, the field solution business is progressing as planned.
As I said earlier, we ship about 4,000 units every year, so you can see growing install base year by year. Actually, the manufacturing line of the customer is in operation, so you can see the steady increase of the demands for the field solution business.
Next question, please. Yes, the gentleman on the second row, please.
Thank you very much for your presentation. I'm Miyamoto from Mitsubishi UFJ Morgan Stanley Securities. I have a question on investment for memory customers. You said we should wait for another quarter. What will happen after one quarter? Is it getting clear that the investment is decreasing or investment is getting recovered? When the memory vendors said they are going to reduce CapEx drastically in 2020, Tier 1 memory vendors made such kind of announcement. Their comments are a bit different from what you said.
You said after one quarter, you can see something clear. What will become clear? The investment will be decreasing or investment will recover? There are some difference between your comment and the comment made by the Tier 1 memory vendors. Could you just explain that? I just talked about our expectations. When we wait for another three months, then their investment plan become more concrete. That's what I wanted to say. For year 2020, the investment will recover. That means compared with 2019 and 2020, the CapEx for memory is increasing. Although some memory vendors said they want to reduce the CapEx, but we think the memory investment will increase. We think we are in the bottom in the market, so in the future, we will see the increase. Do you think increase in orders or shipment? Are you talking about next year's expectation?
When you say you can see some increase in shipment or orders?
Both of them. We think we are going to see some increase both in shipment and order. When you wait for one quarter, we will see more complete investment plan. Inventory has been decreasing considerably, and after one quarter, you will see more clear trend in inventory. Based on that trend of the inventory reduction, you will see more concrete investment plan.
One more follow-up question. Now you have pink color to combine logic and foundry, so there is no demarcation between the two. Year 2020, what is the direction for the future, foundry and logic? What sort of expectations do you have for logic and foundry? Do you think increasing trend or do you see some plateau situation?
Could you give us some comments, one for logic and one for foundry, please?
Our view on the market, we think both of them, logic and foundry, will be increasing. For NAND, both will increase. For DRAM, gradually towards the H2 of next year. Actually, the investment starts from next year, and we can see the enhanced investment in the H2 of next year for DRAM. NAND, the very similar trend to DRAM is expected. For logic and foundry, very similarly, very solid trend is expected. Again, in the H2 of next year, you can see the considerable increase in investment. Logic and foundry, you can see rather high level. Next year you can see further increase in investment both for logic and foundry. Is that what you said? For this issue, it's a bit too early for us to say something concrete.
When I look at the fluctuation of the investment plan, there should be no major difference.
Thank you very much for your comments.
I am Moriyama from J.P. Morgan Securities Japan. Memory supply-demand situation is improving now. That's what you said in your presentation. I want to understand the reasons why you think memory supply-demand situation is improving. There are several factors, I think. For example, over the time, the inventory will be reducing. That's one of the factors. In addition, on the supply side, if you look at the supply side as well, where now we can see the Japan-Korea trade issues about the export of the semiconductor materials. Also power outage in Yokkaichi factory of Toshiba Memory. Could you just elaborate the reason why you see some improvement in the memory supply demand situation?
In addition to the inventory adjustments, there are drivers, including data center and smartphone. In addition, I should say for technologies, 5G AI-related technologies are also part of the factors, positive factors in the technical area, and data center and smartphones will be the major drivers. On the supply side, as I said earlier, the inventory will be reducing over the time. That's the only reason for that on the supply side. Could you elaborate your question furthermore, please?
In Toshiba Memory, there was power outage, and flash memory supply might be reducing because of that power outage, and also hydrogen fluoride. How the customers, from your viewpoint, how do your customers address the potential shortage of supply of hydrogen fluoride? Do you think that impact the future memory supply and demand? How much impact do those factors have on the market in three months from now?
There are various factors. You talked about several factors. Regardless of those factors, my comment remain unchanged.
Maeda from Credit Suisse Securities Japan. I have a question on the financial estimates. There are no changes on your financial estimates, you have changed the sales mix by application, and I wonder what sort of impact does it have for the gross profit margin? The sales for NAND was reduced by JPY 30 billion, the sales for DRAM was also corrected downward by JPY 20 billion, sales to Logic was increased by JPY 50 billion. For NAND, I think etching system, a lot of etching system is installed for the NAND. That means NAND's business feature high profit margin. Now you have increased a lot for the foundry. Are there any factors to offset that margin?
About your question, by application, I should say. \
Change in sales mix do not have any impact on the gross profit margin. I think that is your question. There's no major impact on gross profit margin. For Logic and Foundry, there is no big difference in the product mix. For Foundry, now you have the high share, including etching system or EUV.
Because the track installed and track profit margin is rather high, there should be no problem. Is that what you mean?
No. By application, there's no major difference. Even if there are any changes in application, that doesn't impact our gross profit margin. What is unique to our company is exposure is remaining unchanged regardless of application. Even if some application increases or some application decreases, that doesn't impact our group's profit margin.
Market share, for example, the etcher investment is reduced, but your share target doesn't change.
Is that what you mean?
The etcher itself, for Logic, our share of etcher is rather high, and Memory investment is rather high. When you just look at the share, our share in etching in Logic is higher.
When you look at the sales plan by product, even if there are some changes in sales mix by device, there is no change in sales mix by product. Is that what you mean?
Y es, that's correct.
I am Aditomi from Point72. During your presentation, you talked about inventories. In the H1 of this year I think this is the positive factors toward the H1 of this year. My question is about the customer advances in the balance sheet. About 35% increased of customer advances are shown in the balance sheet. How can we understand this?
Now we can see the orders increased drastically now, or customer mixes has been drastically changed? This increase in customer advances towards H2 of this year, just like inventories, do you think this increase in customer advances could be translated as a positive factor for the H2 of this year? Which slide are you talking about the balance sheet? I have a question on customer advances in the balance sheet. 35% increase in customer advances in the balance sheet.
Inventory increased from the previous quarter .
No, I don't ask about the inventory. I have a question on the liabilities. Customer advances, JPY 77.3 billion is increased to JPY 104.7 billion. It's not about PowerPoint or slide. It's in the presentation.
Okay, I understand your question. As for our business, so customer advances, as you said, so it depends on timing.
Now we can see increase of customer advances because we got money payment a bit earlier than usual. In our business practices, our company's sales is recognized when after the completion of the startup and testing, but in some cases, we receive money from the customer from that criteria. In such a case, we just handle that money as customer advances. In this particular quarter, we can see some increase in customer advances. That is the major factor. When we ship or deliver our product to overseas countries by boat, the payment term or conditions are very good in the case of the overseas customers. In some cases, we get money during delivery or during startup. That sort of thing sometimes happen.
Ultimately, 10% of the total payment is received during the completion of the startup and testing, but 90% is handled as the customer advances. For this particular quarter, we received customer advances rather a lot compared with the other quarters. Thank you very much for your question.
Thank you very much for your presentation. I am Ogawa from Goldman Sachs, Japan. On page 17, you talked about PORs, and I want to understand more details about those PORs. For etching, film deposition, and cleaning, you've got the PORs for each of those three. I want to understand those POR and the timing that those sales are recognized. Could you make some comment on that issue, please?
Next fiscal year, memory investment is expected. That's what I said. For 3D NAND slit processes, for example, and DRAM batch processes for those areas, actually, ALD are used.
ALD is used for both of them, the slit of 3D NAND and DRAM batch process. The POR is linked to the investment plan, and we have no idea yet. The critical processes, the three PORs of ALD, so this is the high value added area, so we expect a lot in this area.
For example, let's assume the wafer starts at above 10K. Based on that assumption, could you make some comment? For etching system, when you win one POR, the sales amount is rather big. For film deposition, you won multiple PORs. Maybe you can give us some relative amount of sales compared with etching system, for example.
I'm sorry. I cannot make any comment as of today.
I am Sega from Morgan Stanley Securities. I have a question on FPD forecast. Could you give us some explanation, please?
The final demand is not so strong, but your forecast for the future is not so bad, and you are expecting some recovery from the H2 of this year. Could you give us the reasons why you have such kind of positive forecast for the future? In the H2 of this year, there are several drivers, including G10.5, mobile, small and medium-sized panels, OLED investment, this kind of investment will be improving or recovering in the H2 of this year.
Thank you very much. Over the past three months, your focus hasn't been changed. Is that correct?
That's correct.
I am Yasui from UBS Securities Japan. I have a question on the upward revision of logic investment. I know that Taiwanese big customer increased their CapEx, but structurally, do you expect a further increase of logic investment?
What sort of factors do you take account when you upward revise your logic investment forecast? For example, in Korea, Korean customer won orders in the leading-edge technology, that's what I heard. In 5G, the design is increasingly complex. AI chip will use convolutional neural network, design is getting more and more complex. The manufacturing process will become more complex. Next year, I wonder logic investment really increases, two to three months. Are there any changes? The demand is rather weak, do you think logic investment or demands will be increasing in the future? You talked about or you mentioned to some key ways. Those, the demand of those items are now increasing. Specifically, 5G-related demand is now emerging. Mobile devices, AI devices. The demands for mobile devices and AI devices are also increasing, which contribute to the investment plan.
Is it correct when I understand there is no change in your outlook of the market?
That's correct. Our outlook of the market hasn't changed.
I have one follow-up question on M&A, merge and acquisition. Applied announced an acquisition, and I heard about some reorganization in Hitachi Group. How do you view M&A? In terms of size. There are also the U.S.-China trade frictions. How do you view the M&A policy?
When it comes to M&A, that's the question I was asked in many places. About the M&A, we do not deny the possibility of merger and acquisition.
If M&A has positive impacts on our stakeholders and shareholders, if it has a positive impacts on the corporate value improvement, and if we can provide some benefits to our tech customers in technology terms, and if we can get the good ROI, then we do not deny the possibility of M&A in those cases. However, there are some other options. We need to make the decision whether M&A is the best solution. In some cases, JDP, joint development project or program, could be better option to make the smoother or speedy developments. We need to make the good decision for each case. In the future, to some extent, when you look at the top four tool vendors, I think top four, top five tool vendors have the high market share. Those top 2 vendors may think about the possibility of the M&A little by little.
When it comes to our viewpoint on M&A, we will think about M&A based on their positive impacts.
I'm Damian Thong from Macquarie Capital Securities. I have one question. The gross profit margin. Your gross profit margin is rather stable, around 40%, you look at the next fiscal year, you expect the increase in your sales and the gross profit margin will be increasing, or do you think gross profit margin remain unchanged? You sell, you got POR for ALD, initial development costs might be generated for this fiscal year. Next year, you can see some improvement in the profitability. Do you have any comment on that?
We made announcement of midterm management plan, we announced we are going to increase gross profit margin. For midterm and long term, we want to increase our gross profit margin.
Specifically, we are going to provide high-value-added products, top line will be increasing in the future when market recovers. Gradually, the gross profit margin will be increasing. The third area is field solution. We are going to achieve the sales of JPY 380 billion in five years to come, if the field solution proportion is increasing, actually, field solution profitability is higher than the corporate average. If field solution proportion increases, we can increase our gross profit margin. The fourth area is FPD. We already achieved FPD operating margin over 20%, therefore, we have revised our midterm management plan to increase the FPD operating margin to 30%. There should be no difference between SPE and FPD in terms of margin.
I am Shimamoto from Okasan Securities. I have a question on memory market. You said memory market is expected to recover in 2020.
In the past, you said that WFE market will recover next year to cancel the negative growth of this year.
At present, how strong the market will recover in 2020? Do you have any idea on that?
There are various factors. At this moment, it is too early for us to say something decisive on the factors. The WFE market might recover to the level of the previous fiscal year, but about the degree of recovery, we want to wait and see what will happen in the market. I have one follow-up question. On page 20, I have a question on logic and foundry. Fiscal year TEL's sales is expected increase by 50% to 60% on year-on-year basis. On calendar year WFE market, in application, it's at 35% for logic and foundry. Your sale is outperforming the market.
Is that just only because of the difference between fiscal year and calendar year, or are there any unique factors to TEL? Could you make some comment on that issue, please?
Our sales outperforms the market growth. The area that we are playing, actually, is outperforming WFE market as a whole. When we have the advanced generations, critical processes will be increasing in proportion. That's the reason why we can outperform market growth.
Thank you very much. I am Ishino from Tokai Tokyo Research Center. Mr. Kawai, you said we are in the bottom right now in various meetings. When you say bottom, what is the major inflection point which make you think we are just in the middle of the bottom? Are there any trend upward, if you can say that?
Not for the shipment, maybe in terms of orders by application. Which application will start recovering first? The logic, including logic and foundry? As far as TEL is concerned, your company is concerned, you are selling various good process tools. When you look at different applications, which application, which equipment do you expect the first recovery area? For example, NAND or DRAM? In the past, but to bottom out in terms of orders, which applications start to bottom out first?
50 to 50 is the ratio of the memory and logic in this fiscal year. That proportion will be changed to 40 to 60. That's what I said in my presentation. First of all, logic and foundry, the demands is rather solid and strong in logic and foundry. Next year, the investment in memory will be increasing.
Now, in the past, we said NAND comes first, then DRAM followed. That's what we said in the past, recently, market situation is changing. Maybe the order between DRAM and NAND, there should be no big difference in sequence between DRAM and NAND. Both DRAM and NAND will start recovering at the same time.
Logic foundry comes first, followed by DRAM and NAND, and there is no time lag between DRAM and NAND recovery. Is that correct?
Yes, that's right.
I have one follow-up question. Field solution.
For field solution, when it comes to the new equipment sales, that is big up and down fluctuation. However, the field solution business remains at the high level, which supports the overall corporate business performance. When you look at the customer needs, field solution, you set the sales target of the field solution is JPY 380 billion.
In which area you can see increasing needs from the customer? You said you are selling 4,000 units per year, in which area do you see the increasing needs in field solution from the customer? Where can you improve the value added to support your business performance, although the market trend is rather sluggish?
In terms of volume, now you can see the growing install base, and you can see stable demands in the field solution market. The parts sales increases in line with the growing install base. I think you understand that area. The future high value-added area, our strengths are in the area of reliability of our products, product competitive edge, and also world number one service ability capability. These are the strengths of our company.
Now, technologies are getting more and more critical, we need to achieve tool-to-tool matching or chamber-to-chamber matching. That will have a very big importance. We need to improve uptime of equipment, and yield enhancement is another area. Uptime enhancement and yield enhancement are very important, more important than the price of the tool itself, to support the customer to improve their profitability. That's the area that we can focus on in terms of field solution service. In the future, we'll see the AI, artificial intelligence, and we can provide remote field solution services. This is how we can enhance the value added in the field solution services. This kind of advanced field support. July 1st last year, we reorganized our organization to establish Corporate Innovation Division. In this Corporate Innovation Division, we formed digital transformation team.
This is where we further increase the value added by adding new service models. Now 7 nanometer, 7 plus 6 nanometer or 5 nanometer, there are some critical changes.
That sort of critical changes play as the tailwind for the field solution business. Is that correct?
Yes, that's correct.
I am Aiba from Nomura Asset Management. The first question that I have, when I look at this financial announcement, it seems like TEL tried your best to squeeze your gross profit margin of 41.5%, rather high of the gross profit margin. How do you view or evaluate this gross profit margin? If you could further reduce SG&A, that could be better, but now you maintain the 41.5% gross profit margin. What is the reasons why to maintain this high level of profit margin, gross profit margin?
The net sales was declined, but the gross profit margin, as I said earlier, remains unchanged from the Q4 of last fiscal year. We tried our best. One of the reasons why is, on one hand, there is the increase of inventories to prepare for the sales increase in the Q2 of this year. Manufacturing cost and expenses are now turned into the inventories. Honestly speaking, that happens. We do not necessarily squeeze out the gross profit margin. It's a bit different from your understanding. Really appreciate if you understand in this way. SG&A, I hope you could further reduce SG&A as well. That's my second question. The Applied Materials and Kokusai Electric is going to obtain the approvals from the authority about their merger. They are going to seek for the approval.
This question might be very difficult for you to answer. You are the competitor, but for the deposition area, two years or three years to come, the merged company will become your strong competitor. You could take various countermeasures. Could you share your idea with us, please?
What would you like to know specifically?
For example, this is just a layman's view. You might think in that way. ASMI. AM wanted to acquire ASMI, but they could acquire ASMI. That could be one of the options you could take. How do you think about that?
About the Applied Materials announcements. Their announcement will not change our strategies. In principle, as far as our company is concerned, we are going to enhance our technology and process to performance, batch, semi-batch, and single wafer processing. We do have those technologies already.
Rather than think about merger, we should enhance our applications and also enhance the process performance and process tool performance. That's what we are supposed to do. We do have a very good product portfolio. In principle, we are going to follow existing strategies to enhance our technologies to provide high values to our customers.
Thank you very much for your answer. We have a lot of high expectation to you. We want to take one more question, because we are running out of time. No more questions? May I say one thing about your question earlier, you talked about the reduction of SG&A expenses. As our president said many times before, when it comes to development expenses, that is our investment for further growth in the future.
Even if the memory investment is going down, we haven't loosened or reduced our investment in our R&D, because that is part of our strategies. Development, CapEx, and evaluation tools, we haven't reduced our investment in those areas. That is the reason why we didn't reduce SG&A expenses so much. I think that is very important strategies for us for long term and midterm. We are supposed to go through very severe competition in the market. We must not reduce our R&D investment. That's the reason why we just maintain the same level of the SG&A expenses. Although you may think we could reduce SG&A expenses furthermore, of course, even if we suppress some other expenses, but we want to maintain the high level of investment to the R&D for development. I wanted to add this comment finally.
Thank you very much. This concludes today's financial announcement.
Thank you very much for joining us despite your tight schedule. Thank you very much.