Thank you very much for joining us today despite your very tight schedule. I'd like to start financial announcement of Tokyo Electron. I am Sasagawa from IR Department, acting as the moderator for today's session. Let me introduce the attendees from our side. In the middle, we have Mr. Tetsuo Tsuneishi, Chairman of the Board. Next, Mr. Toshiki Kawai, Representative Director, President, and CEO. Next, Mr. Tetsuro Hori, Representative Director, CFO, Executive Vice President. We'd like to ask Mr. Hori to make a presentation on the consolidated financial summary for the first quarter of this fiscal year. I would like to make a presentation about the consolidated financial summary for first quarter of year ending in March 2018. First slide, please. On this slide, you can see the highlights. There are three highlights, as usual.
The first highlight, on a year-over-year basis, our sales increased by JPY 88.4 billion. This represents 60% increase in sales. The operating income increased by JPY 32.6 billion on a year-over-year basis. This represents 148% increase. The gross profit margin achieved 40% or more, and operating margin exceeded 23%. As you can see, high level of profit margins are maintained. The progress is being made along with the initial plan. Later on, I'll touch upon the detailed FPD segment, the profitability of FPD segment declined. This is just because of this quarter's figure. When you look at full-year profitability, it is expected to improve in line with the plan. These are the three major highlights. Next slide, please. You can see the financial summary. You can see five consecutive quarters' financial summary from the first quarter of last fiscal year.
As you can see over here. You can see the first quarter of fiscal 2018, April to June 2017. The net sales was JPY 236.3 billion. Gross profit was JPY 97.1 billion, 41.1%. Operating income was JPY 54.7 billion, 23.2%. Income before income taxes was JPY 55.1 billion. Net income was JPY 41.2 billion. On the right-hand side, you can see the changes from the previous quarter. Previous quarter means January to March 2017. You can see sales and profit declined from the previous quarter. Just because of the comparison with 4Q, when you look at other quarters of fiscal year 2017, net sales and operating income and gross profit are more than the increase than the three quarters of the fiscal 2017. You can see the financial performance graphical representation. As you can see over here, the operating margin was 23.2%.
This is how you can see the increase of operating margin. About the gross profit margin, achieved 41.1%. This is comparison between 4Q and 1Q. Net sales was declined from 4Q, still we can achieve 41% gross profit margin. You can see mild increasing trend in the gross profit margin, as you can see over here. This slide shows segment information. For SPE, as you can see over here, 29.8%, that is the segment profit margin. As you can see over here, when you compare 4Q and 1Q, there is some slight decrease in the corporate level profit margin. For this segment profit margin, you can see increase just because of the adjustment on consolidation.
There are some fluctuation on quarterly summary, but when you look at full year performance or half year performance, you can see good level of information on figures. For flat panel display, as I said in the flat highlights, the profit margin has been declined. This is again because of the very specific issue for quarterly basis, the product mix. Full-time performance or profitability is well maintained as described in the initial plan. The sales by region is shown on this slide. In the previous quarter, January to March, when you compare with last quarter and this quarter, you can see some increase in Korea. On the other hand, you can see decline in Taiwan. This is comparison on quarter-to-quarter basis. Next slide, please. This shows the SPE new equipment sales by application.
In the previous meeting of finance announcement, we said that we are going to cease the disclosure of the information on orders. Instead, we try to enhance the contents of information of sales to be disclosed. This is the enhanced information for the sales. For DRAM, the non-volatile memory, logic foundry, and logic and others. There are four different applications. You can see the quarterly sales by application. This is the new information we are going to disclose from this time and on. As you can see over here, compared with the January and March this year, logic foundry accounted for 27%. The non-volatile memory was comparable figure, 27%, but from April to June this year, non-volatile memory accounted for 40%. As I said in the previous slide, the sales in Korea was increased, and non-volatile memory sales proportion increased as well.
In Korea, NAND sales was increased in April to June, compared with January to March, foundry and DRAM in Taiwan was declined. This is what we learn from this graph. Again, this is newly disclosed information. The Field Solution sales is to be disclosed on the quarterly basis. This is Field Solution business. Compared with the previous page, the new equipment sales, actually, there is no major changes in the quarterly basis for Field Solution business. In other words, Field Solution is rather steady business. There are slight fluctuation from one quarter to another, but we had the JPY 54.4 billion for the first quarter of this year, and previous quarter was JPY 60.4 billion, you can see, but slight, a mild increasing trend. We have the breakdown for FPD and SPE, but FPD sales for the Field Solution is around JPY 2 billion plus.
Now you can see balance sheet data for assets. As you can quickly learn from this figure, the cash and cash equivalent, compared with the fourth quarter, you can see the decrease by JPY 20 billion from JPY 315.3 billion to JPY 294.6 billion because of the payment of the corporate income tax and dividend. The accounts receivable remain unchanged, but inventory is increased by JPY 30 billion. In the announcement of the midterm management plan, our criteria to recognize sales is based on completion of setup and testing. We first recognize the sales after the machine or process tool is set up and testing is completed. That's when we recognize the sales. Because of that criteria for CST, you can see some increase in inventory. On the right-hand side, you can see the liabilities and net assets. There is nothing so particular for this.
We don't have any debts, and equity ratio is about a little bit below 70%. Now, inventory turnover and accounts receivable turnover. First of all, the purple line represents accounts receivable turnover. For this quarter, 57 days. There should be no problem in terms of the accounts receivable turnover. As for inventory turnover, 110 days. Slightly increased from the previous quarter. Again, as I said earlier, we ship the equipment to the customer sites and some equipment is waiting for installation. That inventory increasing. About 30% of our inventory is the inventory under transportation or the equipment which are waiting for installation at customer sites. Those process tools are now increasing. That's the reason why you can see some slight increase of the inventory turnover. There is no major problem in our nature of the business at all. Here you can see the cash flow.
The free cash flow was JPY 15.1 billion. For one thing, the cash flow from operating activity includes the payment of corporate income tax. That's the reason why you can see the decline in the free cash flow our cash flow from operating activity. You can see JPY 36.8 billion for the free cash flow from financing activities. They are attributed to the payment of the dividend. FY 2016 third quarter, you can see almost the same cash flow from financing activities. In third quarter of fiscal 2016, there were JPY 37.5 billion, including the dividend and share buyback. This time, the first quarter of this fiscal year, we have JPY 36.8 billion only from the dividend payment. We think the payout ratio of 50% is most appropriate. That's our understanding. Thank you very much. That's all from me.
Okay. Next, we have Mr. Kawai. He will make a presentation of our business environment and financial estimates. Mr. Kawai, please.
Once again, good afternoon. I am Kawai. I'd like to make a presentation as introduced by Mr. Sasagawa, the business environment and financial estimate for this fiscal year. Next slide, please. First of all, when you look at the WFE market outlook, the other day when we made an announcement of the new midterm management plan, as you can see over here, the WFE market will move up to the next phase. As you can see on this slide, you can see future growth drivers. When I use some different perspectives, three I's, namely interface, intelligence, and infrastructure. Those three I's will drive the growth of the future semiconductor device business. Next slide, please.
Based on the midterm direction, as I said earlier, you can see the business environment for this fiscal year. For SPE, the WFE CapEx is expected to grow by over 10%. Last time, I said about 10% of increase in WFE CapEx, 3D NAND investment is rather strong. Now we say over 10% increase in WFE CapEx. Continuously, 3D NAND will be very strong. For FPD, this is the demand for TFT array process FPD equipment remain unchanged. About 30% increase is expected compared with the last year. Again, for FPD, G6 for mobile application, G10.5 and G11, also OLED TV, G8 exhaust or inkjet technologies. Those technology innovations are highly expected. Next slide, please. Calendar year 2017 market growth and business opportunity by application.
For NAND, as I said earlier, in the previous meeting, we said 25%-30% increase on year-on-year basis. That's what we said in the previous meeting. However, this time we are going to say 30% market growth on year-on-year basis is expected. The SSD demand is rather strong, and because of the strong SSD demand, our major customer's investment is increasing in its trend, which is very clear trend. We said 30% increase is expected. For NAND bit growth for SSD accounts for 60%. Continuously, SSD for data center is rather strong, and that is one of the major drivers in this field. For DRAM, 5%-10% increase is expected. Logic and foundry, the same level of the market size on year-on-year basis. As for this, as you can see, you can see a very promising future as we expected initially. Next slide, please.
This is first quarter of fiscal 2018, and business progress is shown on this slide. For the SPE focus area, namely etching, film deposition, and cleaning, our business strategy in this field, we are very happy to say our business strategy is implemented as planned, especially for etcher, for 3D NAND, slit process. That is a major one. For DRAM and logic as well, we are increasing our share. ALD and cleaning as well, we are happy to say that our progress is just in line with the plan. For all the three focus area, we can expect the increase of our share. FPD equipment, G10.5 and G11. We are establishing a leading position in those generations. We are getting the business from the second customer as planned, and we are going to achieve high share for FPD equipment as well.
One more issue, Miyagi factory. By 2019, we are going to double our capacity. For etching market trend on the midterm or longer basis is rather strong, and now we have the good progress for the share plan. By 2019, we are going to double capacity in Miyagi factory. For this plan, we have several methods to be introduced. One of them is building of the construction of the new logistics facility. By the end of this year, we are going to complete the construction of new logistics facility. From early next year, we can start using this new logistics facility. One more issue, we are working together with the suppliers, and we are going to double the flow lines. That is second measure. Also, we are going to reduce takt time.
These are the measures to achieve the target to double the capacity by 2019 in Miyagi factory. Now you can see the financial estimate for fiscal 2018. This is just as planned. There is no change from our announcement made on April 28th, 2017. You can see the information on detail. We are going to achieve record high profit for second consecutive year. Next slide, please. For R&D expenses, CapEx plan, again, there is no change. Annually expenses, JPY 94 billion, CapEx, JPY 42 billion, and depreciation of JPY 24 billion. As I said in the mid-term management plan announcement, maybe you can see JPY 100 billion-JPY 110 billion of R&D expenses for the future. Our growth strategy is driven by the technology innovation and market expansion. We are going to focus our effort in those area where we can see some technology innovation and market expansion.
We have reorganized the business units for wet film deposition, etching, and flat panel and testing and Field Solution. We are focusing on those areas. We have the policy to develop competitive next-generation products. R&D expenses, we try to spend money for the basic technology development and higher functionality of chambers and next-generation platform, process to intelligence introduction. These are the area we are going to focus on. Next slide, please. Now you can see the dividend forecast. Again, there are no changes from our announcement made on the April 28th, 2017. Based on the financial estimate, we are going to expect raise dividend per share more than 40% on a year-on-year basis, and we can see the record high dividend on the fourth consecutive year in this fiscal year. Thank you very much. Thank you very much for your kind attention.
Now I would like to entertain questions from the floor. If you have any questions, could you raise your hand and identify yourself by your name and affiliation, please. Today there are so many people attending today's session, could you limit your question one, and one more follow-up question only. Now, are there any questions from the floor? Yes, the gentleman in the front row, please. Thank you very much.
I'm Shigeki from Nomura Securities. That was very perfect business performance. I'm very much impressed with that. For this fiscal year, there should be no problems. I want to understand the outlook of next fiscal year. Flash should be okay. Now there are some Taiwan major company, which has the rather redundant demand or MPU manufacturer who is suffering from the PC business, and DRAM manufacturer suffering from the spot price reduction.
Do you have any outlook for next fiscal year for those areas?
In one word, next year there should be no problem, according to my understanding. It is true that for high-end smartphone, business timing has been shifted a little bit, but this is just a temporary timing adjustment, and there should be no problem in terms of their investment plan. They are expected to grow as planned. There should be no problem. What about MPU and DRAM? I understand TSMC has no problem, but what about MPU and DRAM? Everything are in line with the plan, and we are having very positive outlook for everything. Thank you very much. FPD business is rather in solid situation.
Any other questions? Yes, the gentleman on the second row, please. Thank you very much. I am Ogawa from Goldman Sachs Japan. I have a question on page 18.
I have a question about share for etching system. Clearly 2017, etching system share is increasing. That's what you said clearly earlier. According to my understanding in the past, we all Performance was rather difficult when the logic's investment was rather flat and NAND's investment rather increasing. Now this time you said you are looking at increasing trend of the share for etching machine. Could you give us more detailed information? DRAM, NAND, and logic, how do you increase your share in those three areas? Are there any additional comments on those issues? For DRAM, that is for the patterning application in Korea. For NAND flash memory, specifically 3D NAND, as I said in my presentation, the slit is where we are gaining market share. Those two are making great contributions.
For NAND, in the previous meeting, you said the 9X layer is a kind of area, but also for 6X layers, you are also increasing your share. Is that correct understanding? Yes. Even for the existing generation, we are increasing our share. That's correct. Next question, please. Yes, the gentleman in the front row, please. Thank you very much. I am Ishino from Tokai Tokyo Research Center. Thank you very much. The ASML of the Netherlands made a financial announcement. According to ASML, EUV orders and order backlog are growing rapidly. That's what they said. Your company is a coater/developer. You do have the high share in that area. I have a question for EUV. What sort of schedule is expected for EUV lithography? The orders are announced, therefore it's difficult for you to answer to my question, but that is my first question.
Could you answer to my question, please?
As I said earlier, reported earlier, for EUV, our share is very, very high, growing rapidly. Therefore, our schedule is almost synchronized with the ASML's plan. This is how we can recognize our sales. That's our current plan. For sales recognition timing, in our case, we use the completion of setup and testing. That is our criteria. Therefore, there might be some slight difference in the timing of sales recognition between our company and ASML. However, the basic, can I say, timing should be synchronized between two companies. According to ASML's data, they say EUV lithography is very expensive, JPY 13.5 billion. Your coater/developers, compared with the conventional one, your coater/developer EUV lithography has some additional value. How much added value do you have for the EUV coater/developer? I'm sorry, I cannot give you any specific values.
However, defect control and productivity enhancement. We are making many business technology innovation from the coater side, and we are working on development to come up with better defect control and productivity. That productivity enhancement on coater side feature very, very high value added. We have a lot of promising outlook for the future.
Second question from my side. For NAND, you said earlier in your presentation, the market growth expectation is improved in your forecast. Japanese companies and Korean companies, however, are struggling for the 6X, 7X layer. In other words, their yield is not so good. One specific company is doing very well, I heard. When you look at the existing market, the 48 layer generation should be main area, and every manufacturer are working very hard on the 6X, 7X area, but they are struggling.
Because of the certain etching system is not provided as much as necessary. Do you have any comments on that? There are some shortage in the certain etching machine. Is that correct?
We are not able to make any comments on the customer's yield information. When it comes to the number of layers stacked and yield, rather than those two factors, actually market itself is growing very rapidly. In other words, 3D NAND demand is infinitely increasing. Because of that, the SPE vendors and IC vendors are having very good or strong outlook for the business opportunities because of the very strong demand of 3D NAND.
Thank you very much. On page 18, etching machine capacity is to be doubled. That's what you said in your presentation.
At present, example, one equipment have several chambers. Are you going to increase the number of chambers for each system? Value added per equipment is increasing, and you are just increasing the number of the equipment to be launched? Do you have the same number of chamber per tool, but increasing the number of tools production? How do you describe the increase in capacity of etching on page 18? In pri
nciple, number of layer stack is increasing. Aspect ratio is getting more and more challenging. At the same time, we need to improve etching profile as well. Customer side, they may have two-step etching, or they are going to increase the number of layers but have the one-shot etching process. There are two different approaches, and they are discussing the possibility of the potential technologies for those future generation.
All customers' conditions and device structures are to be considered. All those elements are considered when we decide to double our production capacity. Our value added, in particular for 3D NAND, there is very strong demand from the market. In that area, we need to achieve high etch rate and improved etch profile at the same time. We need to work on those two area. That's how we can enhance our value added. The number of chambers per tool, now we have the number of layer stack is increased. Some companies are trying two-step etching or one-step etching, but according to your system, you just see the number of chambers per tool doesn't change so much, but the number of tool production needs to be increased, if that's your assumption. Yes, that's correct.
Generation and customers' structure, the number of layers increasing. As I said earlier, 9X and next generation. In some cases, customer may think about 200 layers as a potential future. For those area, we are going to focus on etch rate so that we can improve or increase our value added. The gentleman next to the previous gentleman, please. Thank you very much for your presentation. I am Miyamoto from Mitsubishi UFJ Morgan Stanley Securities. I have a question for DRAM. Market outlook, 5%-10% increase as planned. SK Hynix and Samsung, inquiries from DRAM is increasing. They are not able to catch up with the increasing inquiries for DRAM in their production. From your viewpoint, DRAM inquiry is increasing. Is that how you understand the market situation?
Year 2018, toward year 2018, what sort of opportunities do you see for the DRAM? It's just flat, or +10, or +20? How much increase can you expect for DRAM inquiry in year 2018? It is true that for DRAM, again, the market situation is very positive and strong. However, when I look at all the figures announced so far, of course, needless to say, we are aware of all that information announced, and we have incorporate that information in our estimate as well. Having said that, even if we include those issues, still, the DRAM inquiry is further increasing. Timing of delivery is another issue to be considered. For market forecast, the second half of this year and next year and on, we are now working on the investigation to come up with more detailed information.
Short-term basis for DRAM, you can see positive increase. Is that how you understand the market situation? We are now working on the investigation, but yes, we understand the positive trend for the DRAM market for the future. Next question, please. The gentleman on the third row, please. Thank you very much for your presentation. I am Yoshida from Deutsche Securities. I have some follow-up question of the previous question. Next year, WFE increase is expected, DRAM is also expected to increase. What about others? Do you have any outlook for other application? I want to get some information by application, please. By application. Rather than by application, at present, as we announced in our midterm management plan, say for toward 2020 or 2019, JPY 45 billion is the figure we announced. In the lowest scenario, still JPY 42 billion is the figure we announced for the future.
Those are circumstances We are going to see what happens in next year and on. That's how we see the future trend. At present, are there any application whose prospect is rather negative? Next year, 2018, there is no application which is expected to decrease. That means all applications are expected to grow or just remain flat. That's correct. Another question. For DRAM, it's positive increase. In NAND, foundry, logic, they are flat or positive growth. For memory, just like the DRAM we discussed earlier, memory, including 3D NAND, those are expected to grow considerably. For logic and for foundry, again, steady increase is expected for the future. Thank you. As for the order, 3D NAND is number 1, followed by DRAM. Thank you very much.
For this year, WFE increase in market size for 3D NAND is a kind of driver for the market outlook increase. At each IC vendor do have devised their bit growth forecast lower, they try to increase the wafer output, and that's why they are investing large amount of money, or they try to increase yield, and that's the reason why capital intensity is increasing. Wafer, number of wafers increased or capital intensity is a major factor. According to my feeling, rather than the investment to improve the yield, they are trying to meet the increasing demands. That's the reason why they are increasing their investment. Thank you very much. Are there any questions? I have additional comments on the previous question. They are trying to address the increasing demand, and they have decided investment to meet the demands. That's what I said earlier.
One of the reason for that is actually, we heard the customer plan from early stage, and actually current status really meets the initial customer's plan. Actually, enhancement of yield is a kind of sudden needs for the IC vendors. However, our customer's plan is really matched with the current status, that's the reason why. The gentleman in the front row, please. I am Utsumi from Tachibana Securities. Fan-out. I have a question about fan-out package, next generation technology and innovation. I think that has a big impact. When you look at the out outlook of the market or electrochemical deposition, for your company, what sort of impact do you see or expect for those new technologies? As you said, fan-out wafer level package and 3D stacked ICs. These are the part of the various technology innovation approaches.
Also the semiconductor industry is to be driven by this kind of innovation as well. Short time basis for TEL testing system and coater/developer. Our system has been adapted by customers, so we have a lot of expectation for the business opportunities, and we think this is promising market as well. Any other questions from the floor? Yes, the gentleman in the front row, please. Sorry, again, I am Ishino from Tokai Tokyo Research Center. I have a question for FPD. I want to learn something from you. For G10.5, business is now increasing. On the other hand, the OLED investment boom is coming back once again. In China as well, the significant investment is about to start. That's the current market situation. Your business opportunities are supposed to be increasing. How do you understand your business opportunity for G10.5 and G6 for OLED?
How do you see your business opportunities in those areas? First of all, for G10.5 and G11. For the first customer, we are very happy to say that we have delivered good results. For second customer, delivery is not yet completed, but as planned, we are maintaining our business with high share. That's the current status. For the upfront investment, and we are going to see more investment, but now we have the upfront investment. We have established our position, and we need to establish good technology. In that sense, we have some advantageous position. Next, for G6 substrate, in particular, for etching system, we have PICP etching system. This PICP feature low power consumption for high density plasma to come up with high etching uniformity, and we can reduce damages. These are the benefits we can enjoy from PICP.
After release of PICP, all the customers have adapted this PICP etching system, and we will see the very, very big business opportunities for that particular product. For OLED, the etching for OLED application, yes, our system has been adapted, especially for OLED TV EX Technology, as I said in my presentation earlier, EX Technology and also inkjet technology. The customers are now investigating those technologies, but we think that is promising area, one of the promising areas for large sized TV. Compared with the conventional system, without using color filter, they can come up with low power consumption. Also, the resolution of the screen is really high, which is very good. Low power consumption, we can have good solution for that. We can see the good business opportunities as well. You talked about the inkjet technology. What is the progress of development?
Have you achieved about 90% of the development completion, or are you still in the 60% of the completion of development? What is the progress of development? For the adoption in the high volume manufacturing line, some verification is now being carried out so that we can establish the process, and we are getting very good promising data coming out from the verification of the technology. Maybe 70% or 80% of the completion of development so far. The remaining issues is timing of the start of high volume manufacturing, also the degree of expansion of market. Both scale and our customers are now observing market to see the opportunity of business. We are ready, try to be ready, for the start of mass production when the market is getting matured. The last question, you talked about EUV earlier. Korean company for foundry and DRAM.
Samsung is going to install EUV for both foundry and DRAM. ASML Holding N.V. made such kind of announcement as well. For process, the DRAM foundry, I think they use EUV lithography in different way. What do you see the situation, and what is the market expansion for EUV? Do you think the foundry is a major driver for EUV technology and DRAM doesn't adopt so much EUV? Do you see some direction for the adoption of EUV lithography tools? The major one is called a coater/developer area. Our share on market is one of the approach we need to take, and we have three focus areas in products. For customers, we are providing this single one and only strategic solution.
Memory, logic, and foundry, for those three area, we are ready to take care of the three areas. That is our responsibility for the market, especially- Excuse me. Do you mean you have each individual system for each application, or do you have the one single platform to take care of three of them, memory, logic, and foundry? What is the correct understanding? Of course, for the customers, the equipment model itself will not be multiple. We have the one series process tool to take care of different products, but memory function or function necessary for logic or, of course, customization requirement for customer need to be met. At the same time, the uptime ratio, productivity enhancement, and defect control, these are the area we can increase the area of added.
This is how we try to approach the development of the coater/developer for EUV. In the case of logic, number of stack layer is more than memory. You are more happier when you can sell your products to logic and foundry. In the case of DRAM, out of 40 masks, maybe 5 to 10 masks are to be replaced for EUV. For foundry, out of 60 masks, maybe 10 to 20 masks are to be replaced by the EUV lithography. Out of three, maybe logic and foundry, rather than memory, should be growing to take care of the EUV lithography. Is that correct understanding? It might be true. As far as I understand, I can say that even for DRAM, quite technology innovation is necessary, even for the DRAM as well. We do not just specifically focus on logic.
I think both for logic and memory, we can do have the big expectations, good expectations. Thank you very much. Any other questions? We do have some more time. No more questions. Okay. There is some announcement. Today, our company announced the personnel transfer relating to IR activities. Me, myself, as of October the 1st, I'm transferred to the accounting department as Vice President. Ever since 2010, I have been supported by all of you, that's the reason why I can be acting as working in the IR department. Especially through the discussion about corporate value, I learned a lot, that become a big asset, my personal asset. Really appreciate your longstanding support. Thank you very much. Thank you so much. My successor is Mr. Hirakawa of IR department. Really appreciate your continued support to him as well. Thank you very much. Thank you very much.
This concludes today's financial announcement. Thank you very much for joining us today.