Guidance

Jun 18, 2020

Let's start with the start Tokyo Electron financial estimate announcement for fiscal year ending March 2021. Thank you very much for joining us despite your very busy schedule today. I am Yatsuda of IR department acting as a moderator for today's session. Today, I appreciate your cooperation. Now let me introduce the participant for today's meeting, mister Tetsuo Tsuneishi, representative director, chairman of the board. And Tsemeishi, I'm very happy to make announcement of our financial estimate today. I believe you have been waiting for this for a long time. Next, mister Toshiki Kawaii, representative director, president, and CEO. I am Kawaii. Thank you very much for joining us. Welcome to Yoshi Kansunu Nokawa, corporate director, second vice president, and general manager, finance division. I am Nokawa. Thank you. Before starting the presentation, let me explain the flow of today's meeting. First of all, mister Kawaii, our CEO, made about ten minute presentation. After that, objective 05:30, we'll take questions from the floor. The presentation will be given only in Japanese, but for questions, we get both English and Japanese questions, and both questions and answers will be translated. Please allow us to limit the questions from those people who are using web Webex apps on PC and tablet. So if you want to ask questions, please join us in this meeting through Webex apps apps. And this is the meeting for the institutional investors and analysts. I really appreciate your understanding that we just have the same questions from institutional investors and analysts as before. For this meeting, the Japanese and English audio will be uploaded to our website later. So now mister Kawai, our CEO, make a presentation on business environment and financial estimates. Once again, I am Kawaii. Thank you very much for joining us in our web meeting despite a very busy schedule. We are currently experiencing the unprecedented event in the world. We'd like to extend our sincere sympathies to everyone in the world who has been affected by the COVID-nineteen pandemic. We also want to express our sincere thanks to all the people, including medical professionals on the frontlines of the response for their tremendous efforts taking this opportunity. For the post COVID-nineteen world, it's necessary to build strong and resilient society. ICT need to be promoted and implemented in the society. Essential businesses, including communication and medical services, require semiconductors and FEDs. They are essential in our world. By promoting our core businesses, WFE and FED production equipment, we are prepared to make some contribution to the development of society and in the industry. And our corporate policy is to contribute to the development of dream inspiring society through our leading edge technologies and reliable service and support. Now I'd like to talk about business environment and financial estimates. Let me start with business environment. The WFE capital investment in calendar year 2020 is expected to increase by around 10% on year on year basis. Though we need to carefully watch the trend of macro economy, there are strong inquiries at present. Even including the constellation to the impacts of the COVID-nineteen, it is possible to achieve 10% increase, and we expect the WFE market will grow to the biggest size in its history. Capital investment in FPD production equipment for PTFT array process. In calendar year 2020, capital investment is expected to grow by about 15% on year on year basis. Capital investment in large sized panels for TVs is expected to continue. Investment in OLED for mobile application is likely to recover. Next slide shows the WFE market and business opportunities via application. Logic and foundry investment is expected to be as high as that in the previous year. The demand for both leading edge devices and mature previous devices nodes are expected to be strong. DRAM, the investment for DRAM is expected to increase by 15% to 20% on year on year basis. Investment for non volatile memory is expected to rise by about 50% on a year on year basis. The customer's investment for capacity enhancement will be accelerated. This shows the financial estimates for this year fiscal year. The full year net sales are expected to be JPY $1,280,000,000,000 yen 13.5% increase on the year on year basis, hitting the record high as the net sales. In both SPE and FBA business, the year on year growth ratio of our net sales is expected to outperform the market growth. The operating income will be JPY275 billion, 15.9% increase on the year on year basis. Next, this slide shows the SPE new equipment sales forecast by application. Due to the recovery of Memory investment, the full year net sales is expected to increase by 15% on the year on year basis. As the proportion of the sales for memory customers increases, the sales composition will be in general 50% for logic foundry, 25% for DRAM and 25% for non VARTA memory. So 5050% between memory and logic proportion. This slide shows fiscal year twenty twenty one R and D expenses and CapEx plan. In order to capitalize on our future growth potential as much as possible, the R and D investment and CapEx will be record high JPY135 billion and JPY56 billion, respectively. These figures remain unchanged from those that we reported in April. To achieve our mid term management plan, we will continue investing actively for future growth. Finally, this shows the dividend focus for this fiscal year. Based on the financial estimates that I explained earlier, we expect to pay full year dividend per share of $6.60 yen in line with 50% of dividend payout ratio. Thank you very much for your kind attention. This concludes my presentation. I want to take questions up until 05:30. If you want to ask questions, please click the participants button at the middle button at the bottom of the web Webex screen to open the participant panel. The moderator will call the name of the person asking the question one by one. We on the secretarial side can mute or unmute participants, but all of you need to set audio connection by yourselves. You can set your audio connection by pushing the connect to audio button, the very left button at the bottom of the web Webex screen. When audio is connected, text that symbol will appear to the left of your screen or your name. I'd like to take one question with one follow-up question per person. Really appreciate if you ask very complex question because your questions will be translated into both English and Japanese. When we receive English question, questions in English, the translator will translate them into Japanese, and the our people will answer to your question in Japanese. The Japanese answer will be translated back into English. When I say, those who are pleased with such a question. So first question is, so mister Wadakki of Nomura Securities, please. Thank you very much for very for very productive presentation. At present, I'm afraid the Huawei risks are more dangerous than COVID nineteen risk. So I want to ask some questions about this particular issue because some IC vendors are not able to take or receive orders from Huawei. So the what what happens to those players and some player or I see vendors start trying to set up the factories in United United States by taking up the consolation of the American government. So what happens to the so some of the Chinese IC vendors also take orders from Huawei. So from the viewpoint of CWFE or SPE, what sort of kind of things will be happening at this sort of timing? Mister Kawai, could you answer to this question, please? Thank you very much for your question. This is the very first question I expected in today's meeting. And I'm afraid my answer is not it's a kind of great question great answers to some extent because we are not we are not in the position to answer specific issues about the political issues between United States and China. We are not in such position. And also, it's so difficult for for us to give some answers about specific customer with specific company. But when it comes to the COVID nineteen geopolitical issues or some frictions in the world, as you know, it's been about one and a half month ever since the financial announcement back in April. So I'd like to answer to your question by incorporating all the factors which might affect our businesses. Earlier this year, as you know, one American competitor said the WFE market expected to grow by about 10%, more than 10%, very close to 20%. And I said to that forecast given by the American company that I don't find I don't feel any anything uncomfortable about that kind of forecast. But after that, we scrutinize situation in the market. And today, we said WFE market is expected to grow by about 10% this year. That's our conclusion as of today. The difference between 10% and my previous comment earlier earlier this year is because of the various factors that we are now facing right now. So in addition to IoT, AI, and five g, now we are being affected by the corona and COVID nineteen crisis, and we are forced to seek the new normal right now. But in I mean, those circumstances, it is really important for us to implement ICT information communication technology more aggressively. And semiconductor will become more and more important in such kind of circumstances. And semiconductor's performance is required to increase further more. I'm sure that our customers will continue investment in any case. And as far as our company is concerned, we must be we must be prepared to maintain our very strong innovation capability. I'm sorry, mister Wadakim. I'm not able to give you direct answer to your question, but I just share my idea of the current situation right now. Thank you very much. I have one follow-up question. Were there any cancellations for some live sites push out? If any, could you share that with us, please? Nothing so special or significant at all. Thank you very much for your question. So the next question is from mister Yoshida of ShiOSA Securities Japan. The other day, SEMI announced 2020 forecast. And according to SEMI's forecast, WFE market is expected decline expected to decline by 4%. And DRAM and logic, negative growth is also expected. But earlier, you said you are expecting 10% growth in the WFE market. Could you let us know the reason why there is a difference in perspective between semi and your company? Do you see any increase in demand quite recently? So in just report, what we are thinking right now, as you pointed out, there is some difference between our estimate and sales forecast, which is true. And you said some you asked question about that particular issue. Maybe you are interested in the probability or likelihood of our estimate that we announced today. It is true that it's a difference from same forecast, So let me just make some comments on that issue. So as for the first half of this year, fiscal year, we 100% equipment orders are the basis of this forecast. And for the second half of this year, our customers' investment activity, both as I said earlier, maybe because of the backlash of the COVID nineteen and because of the further development of ICT, I think the customers are prepared to continue their investment throughout this year. So there have been no changes. There will be no changes in terms of the customers investment plan so far. So about this we we under those circumstances, I'm talking with stock management of many of our customer, top management of many customers for the further collaboration or calculation in the future, and we got commitment from our customer about their investments for the future based on that sort of, I'd say, information. We announced today's forecast for the WFE market. And I don't know why there's such difference between ours and and its focus. This is how we advise 10% increase of the WFE market. Thank you very much for your answer. I have one follow-up question. You said earlier your performance will outperform the market growth. And is that because of the customer mix your customer mix help you to increase your share? Or are there some other reasons for that? When it comes to our strategy business strategy, we'd like to we are trying to focus on three areas. We are the number one way of the our technology can provide some value added. Number two, where the technology innovation can be expected. Number three, the area where market is expected to grow further and more. And that's the reason why we decide decided to focus on etching, thin film, deposition, and cleaning areas in addition to our very strong area of quota development. And so therefore, we are trying to introduce our products and service to the area of the market, which are expected to offer them more. Because of this strategy, it is quite natural that our growth will outperform the market growth. And also for the field solution business, we are very happy to say our field solution business is going very well and achieving more than 300,000,000,000 yen. And although last year, the market has the market was declined in our field solution sales increase, and same thing will happen this year as well. So these are the factors that we can achieve the better performance than the market growth as well. Thank you very much for your question. Now we have JPMorgan. Mr. Moriyama of JPMorgan Securities. I have a question about your sales increase ratio and income increase ratio in your guidance. When we look at the numbers, the top line expected to grow by 13.5%, while the operating profit is supposed to increase to 15.9%. So almost the comparable figures between the top line and operating profit. When you take account of your marginal profit ratio, however, you can achieve a little bit higher operating profit. But could you also know the assumptions to arrive at this kind of figures? When you compare first half and second half of this fiscal year, in the first half of this year, the year on year sales increase is 21.9%, while the second half of this year, there is some slowdown and year on year sales increase is about 6.7%. Once again, could you let us know the assumptions that you used to arrive at those figures? So I I your question part of your question is maybe we can we could increase the operating profit margin a little bit more. But actually, we are planning to invest JPY135 billion for our R and D. That is a record high size of the r and d develop development r and d investment. And as you as I said, I answered the question given by mister Wodachi. Although the market itself has grown by 10%, but I think there is a huge potential in the market itself. So it's been important for us to follow what support the ICT development by the more by introducing high performance devices. That's the reason why we must not stop or we must suspend the R and D investment under any circumstances. Although the top line is affected by COVID-nineteen and other factors, we must continue the record high R and D investment. That's the reason why this fiscal year profits are affected. This R and D investment is essential to achieve our mid term management goals. So before answering to your second question, let me add some more comments on your first question. For this fiscal year, we will visit the whole midterm business plan announcement meeting. And as we there is no changes in our midterm business or management plan. And the financial models, when I look at our financial models or midterm management plan, we are planning to invest 400,000,000,000 yen for RNG within three years in the area focus areas. So this is our CPL, this plan, and we are determined to implement this plan steadily for the future. This is the investment very special for us to capitalize on our growth potential as a company. For your second question, maybe you wanted to say the our numbers for the second half is too low. We can could increase further more. But, actually, because of COVID-nineteen, there are quite a few restrictions in logistics or traveling. So we are being affected by those factors. Having said that, the WFE market is still expected to grow by 10%. Meanwhile, there are some delays in our sales in this fiscal year, and that portion will be shifted to next fiscal year. Much for your question. Next, mister Sugiura of Daiwa Securities. I am Sugiura of Daiwa Securities. Although you said something about this issue, but I'd like to once again ask a very similar question about the memory itself. Earlier this year, multiple memory manufacturers announced that they are going to decrease their CapEx capital investment for this year. Because after that, because of the COVID nineteen, the bit growth, there is increasing uncertainty in the big growth in the market. Accordingly, the memory genders memory manufacturer that's still trying to reduce the investment. So but on the other hand, you your expectation of memory business is rather positive. So why there is some difference between the memory vendors and guidance and your prospects in the future? So in the dent data centers, there is increasing data traffic in the data centers centers. Therefore, we must can I say, means or fulfill to take care of the demands properly? And there's there is no changes in the customer capital investment plan. Also, the the and customer need to prepare for the future demand increase at the earlier stage as well as inquiries our inquiries we received at present. There are there are no major impacts on my inquiries because of the strong demand of the data center and PCs. In addition, we have this future potential for the five gs mobiles. Our memory customers are currently investing to prepare for the future five gs mobile. Therefore, despite of the circumstances market, there have been no changes in customer's investment plan. And there is more gap between customer distribution and the customer's announcement about their plan, and we don't know why there is such gap. But based on the inquiries we received right now, we are we feel very comfortable about those figures we presented today. There are some concerns among some investors. PC manufacturers and data center operators have been building up their memory inventory. As a result, the inventory level is getting very, very high. In the second half of this year, accordingly, the memory sales will be slowing down. As a result, memory price is expected to decline. Accordingly, the incentives or motivation for capital investment is about to decline. But when you discuss with memory manufacturers, in their discussion, do you detect some concerns as such? No, there is no such concerns at all. Thank you very much. So next question is from mister Yasli of UBS Securities. I have a question on the America China relations. What will happen to the investment capital investment in China in the future? That is a major point of my question. Because of The US China trade restrictions, currently, the China customers are investing more than more than expected or planned. For example, SMIC is getting much support from the Chinese government. So what how how would you see the trend or circumstances Chinese market? Are there any difference from your views on the early this year and now? So the China market has been very big and still very big, and I'm I believe China market will continue growing in the future as well. I already talked about various interest including COVID nineteen data impacts earlier, and I don't and when you ask about the trend of the Chinese the capital investment in Chinese market for this fiscal year, and I think there is no major impact factors which directly impact the the plan of investment for this year. But it is necessary for us to carefully and closely watch situation from next year and on. And my question next follow-up question is, is there any difference between the capital investment for Logic and Memory? Could you share your idea with us, please? When it comes to the size of the investment, I think memory's investment is much, much bigger than the one for logic. I hope this answers to your question. Thank you very much. The next question is from Mr. Shimonishinosono. Mr. Shimonishinosono, please. I have one question regarding COVID-nineteen. Because of the COVID-nineteen, the data traffic has been increasing by 30% to 40%. And I think this data traffic increasing trend will remain unchanged in the future. And I want to understand the impact of this increase on the overall picture. I think the data traffic growing trend has been changing. What sort of impact does this increase of data traffic have on the semiconductor investment? I I quite under I quite agree with you on that viewpoint. Last year, if my memory serves, semiconductor device market grew to $412,000,000,000. And year 2030. The $1,000,000,000,000 should be the level of the semiconductor market size. That's what we have been talking for a while so far. Transistor, it's been seventeen years, seven zero, seventy years ever since transistor was invented. And by taking seventy years, the transistor IC market grew to $410,000,000,000 size. But when you look at next decade, next ten years, the size of the market will be doubled or more than doubled. So we will see another same size of market in the future in addition to the current one. Based on those background, in the future, more and more and more increasingly, the technology innovation is required. I think technology innovation is a kind of driver, a very essential driver to grow the market. And higher and higher value added will be required, including higher storage, higher reliability, higher speed, and lower power consumption. Those needs to be fulfilled properly. And because of the COVID nineteen, currently, people's transfer of traffic has been restricted to some extent. However, data traffic is and will be accelerated furthermore. So it's necessary for us to enhance the ICT technology further more in the future. Example, for the autonomous driving machine to machine. Applications. Much higher speed will be necessary, and that trend will be accelerated. Therefore, I think there is no, can I say, factors to go against the current trend? I think current trend will be accelerated furthermore, and market will expect it to further more driven by the increase of the demand and the needs of the technology patient. Thank you very much. Now it's time for us to close today's meeting of financial estimate announcement. We are sorry about very sorry about the poor connection during this meeting. Thank you very much for joining us today despite your very tight schedule.