Now it's time for us to start Tokyo Electron Financial Announcement of the Second Half of the Fiscal Year ending on March 31, 2024. Thank you very much for joining us today despite your very busy schedule. I am Yatsuda of IR Department, acting as the moderator of today's session. I'd like to now introduce today's attendees. Toshiki Kawai, Representative Director, President, and CEO.
I am Kawai. Nice to meet you, everybody.
Next, Hiroshi Kawamoto, Senior Vice President and General Manager in charge of finance division.
I am Kawamoto.
Prior to the presentations, let me explain the flow of today's conference. First of all, Mr. Kawamoto and Mr. Kawai will make presentations. After that, until 6:30 Japan time, we will have a question- and- answer session where we take questions from the audience. This meeting uses two channels of Webex for simultaneous interpretation between Japanese and English.
As we explained in our email, you are kindly requested to use apps on PCs and mobile terminals if you plan to ask questions. But if you are not going to ask questions, then you can use telephones. In addition, since this conference is intended for institutional investors and analysts, we would appreciate you understanding that we receive questions only from institutional investors and analysts. We will post the audio contents of this conference in Japanese and English on our website within a couple of days. It would be appreciated if you could also visit our website. Now, Mr. Kawamoto will present the consolidated financial summary. Mr. Kawamoto, please.
So good afternoon. I am Kawamoto. I'd like to present the consolidated financial summary of the second quarter of financial year ending in March 2024. First of all, I'd like to present quarterly financial summary.
Could you look at the figures within the blue box, please? In the second quarter, we generated net sales of JPY 427.8 billion, 9.2% increase from the previous quarter, due mainly to the increasing sales to China. Gross profit was JPY 189.7 billion, 16.9% increase from the previous quarter, and gross profit margin was 44.3%, raised by 2.9 percentage points because of the increased sales and product mix. Operating income was JPY 96.1 billion, 16.6% increase from the previous quarter. Operating margin was 22.5%, raised by 1.5 percentage points despite the increase of R&D expenses. Net income attributable to owners of the parent was JPY 73.1 billion, 13.8% increase from the previous quarter.
On the year-over-year basis shown on the right, due to the investment adjustment by the major customers, both net sales and profit showed a significant decline. R&D expenses were JPY 51.0 billion, increasing from the previous quarter and also on the year-over-year basis as we continue R&D investment for the future growth. Capital expenditures were JPY 17.6 billion, and depreciation and amortization was JPY 12.5 billion. This is a graphic representation of financial summary shown on the previous page on the chronological basis for your information. This slide shows the financial summary on the half-year basis. Far right column shows the first half financial estimate announced on August the tenth. The second from the right shows comparison with the second half of fiscal 2023.
In the first half of this fiscal year, we achieved our plan that we announced on August 10 in every item. Compared with the second half of fiscal 2023, both sales and profit declined due to the investment adjustment by major customers. In the blue box, CapEx, shown on the second from the bottom, shows a significant increase. This is due to the construction of a development building in Miyagi. This shows net sales by region. As we switch to single segment disclosure from this fiscal year, we have presented composition of company-wide net sales by region. As for the net sales composition in the second quarter, following the first quarter, the proportion of sales to China rose to 42.8% due to active WFE investment to mature nodes in this region, as you can see here. This slide shows SPE new equipment sales by application.
In the second quarter, from the bottom of this chart, logic accounts for 67%, non-volatile memory accounted for 5%, and DRAM accounted for 28%. Sales to DRAM customers and logic foundries showed a rise from the previous quarter, also due to the active WFE investment by Chinese customers. This slide shows the field solution sales. In the second quarter, sales amounted to JPY 104.4 billion, increasing by JPY 4.1 billion from the previous quarter, mainly driven by the increase of modifications. Next, this slide shows the balance sheet. Total assets were JPY 2,191.7 billion. Cash and cash equivalents were JPY 362.6 billion, decreasing by JPY 38.3 billion from the previous quarter, partly because of share repurchase that I will present later.
Notes and accounts receivable, trade and contract assets was JPY 367.7 billion. Inventories were JPY 748.5 billion, increasing by JPY 31.9 billion, due to the strategic procurement prepared for future shipment. For liabilities and net assets shown on the right-hand side, liabilities were JPY 661.4 billion, increasing by JPY 21.4 billion, in part due to customer advances. Net assets were JPY 1,530.2 billion, decreasing by JPY 8.7 billion from the end of previous quarter due to share repurchase we have continued as we delivered net income of JPY 73.1 billion in the second quarter. The equity ratio was 69.2%. Next, this slide shows the cash flow.
In the second quarter, cash flow from operating activities was JPY 74.8 billion. The cash flow from investing activities were -JPY 23.4 billion. Cash flow from financing activities was -JPY 19.8 billion, primarily due to the share repurchase of JPY 90.2 billion. As a result, free cash flow was plus positive JPY 51.4 billion. Finally, I will present updates of share repurchase that we presented in the previous financial announcement. On September 30th, 2023, we completed the share repurchase based on the resolution of the board of directors meeting held on May 11th, 2023. Total number of shares purchased from June to the end of September 2023 amounted 5,899,200 shares. Total cost of share repurchase was JPY 119.9 billion.
This was all about the consolidated financial summary of the second quarter of fiscal year ending in March 2024. Thank you very much. Now, let's move on to business environment and financial estimate presentation given by Kawai-san. Mr. Kawai, please.
Once again, I am Kawai. Thank you very much for joining us, despite your very busy schedule. Let me make a presentation regarding business environment and financial estimates. Let me start with the business environment. The full year forecast of WFE market size in 2023 was revised upward to $85 billion-$90 billion from our August forecast of $70 billion-$75 billion. While the investment in leading-edge logic foundry is delayed, Chinese customers are further accelerating their investment to mature nodes.
Progress in delivery of some equipment, such as exposure tools deferred, due to supply shortage from the previous fiscal year, is also expected to have a positive effect to boost momentum of the market. Driven by those two trends, calendar 2023, WFE market is expected to go beyond the previous forecast. The full-fledged market recovery is slightly delayed from our previous forecast, but in calendar 2024 and 2025, WFE market is expected to grow to around $200 billion in total of those two years. One of the drivers is AI server, whose annual growth rate is 31%. The leading HGPU, DRAM, and NAND, as well as GPU for generative AI and HBM, in which memory devices are stacked in a package, will provide us with various business opportunities. In addition, AI will be mounted not only to servers but also PCs and smartphone.
Also, there will be a demand to replace those products purchased during the COVID-19 crisis, and businesses are actively investing in IT. These factors are expected to boost semiconductor demand. These factors act as a tailwind, and WFE market is expected to hit record high in size in 2025. So next, this shows business progress in the second quarter of fiscal year ending March 2024. Regarding financial performance, as Mr. Kawamoto presented earlier, net sales, profit, and all other indices achieved the target and plan. The cryogenic etching that we presented in the previous financial announcement and other innovative technology development for leading-edge processes and their evaluation by the customers are all on track. In the advanced packaging field, which is growing significantly, we are receiving a lot of inquiries, mainly for our bonders.
To be prepared for sustained growth, we keep up and maintain active investment. In July, construction of our new development building in Yamanashi was completed, which aims to develop film deposition equipment, gas chemical etching equipment, patterning technologies, and process integration. Also, in non-financial areas, we have made great achievements. In June, all of our domestic sites achieved 100% renewable energy-based operations. In September, our Yamanashi site obtained the top rank of platinum status in audit conducted by RBA, which is the international organization promoting sustainability in the supply chain. In October, our targets for GHG emission reduction were recognized as science-based targets by the International Initiative of SBTi after their successful validation. As for the up to JPY 120 billion share repurchase program that we announced in May, we have completed the share repurchase by the end of September.
Next, I will present the financial estimates for fiscal 2024. Reflecting the financial results in the first half of fiscal 2024, we have revised the estimates for net sales upward by JPY 30 billion. We also plan to spend record high R&D expenses of JPY 205.0 billion, increased by JPY 5 billion. Accordingly, the full-year financial estimates are expected to be JPY 1,730 billion for net sales, JPY 401 billion for operating income, and JPY 307 billion for net income attributable to owners of parent. This slide shows SPE new equipment sales forecast in this fiscal year. As shown here, we generated sales of JPY 602.6 billion in the first half of this fiscal year.
For the second half, sales forecast remains unchanged at JPY 690 billion, hitting the bottom in the first half of this fiscal year. SPE new equipment sales expected to be in transition up to upward trend. Next, this shows our plan for R&D expenses and CapEx. In fiscal 2024, both R&D expenses and CapEx expected to hit the record high. As I said earlier, we are planning R&D expenses of JPY 205 billion. The plan for CapEx and depreciation remains unchanged, expecting to be JPY 124 billion and JPY 57 billion, respectively. To address expanding market and fulfill increasingly diversified leading-edge technology needs, we will continue active R&D and capital investment. This slide shows dividend forecast.
Reflecting financial results in the first half of this fiscal year, the interim dividend is raised by 20 JPY, and full year dividend per share is expected to be 340 JPY. This shows total return amount over the past few years. Total return amount in this fiscal year, totaling the dividend per share and share repurchase that I presented earlier, is expected to be JPY 277.7 billion, hitting a record high. Tokyo Electron will celebrate the sixtieth anniversary tomorrow, November the eleventh, 2023. I would like to express my heartfelt gratitude to all the stakeholders for warm support over so many years. We are determined to strive hard to further enhance shareholders' value. This concludes my presentation.
Thank you very much for your kind attention. We will have question and answer session until 6:30, Japan time. You can ask questions either in Japanese or English, but our speakers are attending on the Japanese channel. Please allow us to take audio questions only in Japanese. If you ask a question in Japanese, please press the Raise Hand button on the Webex. For details, please refer to the instructions attached to the invitation email. I will call name and person one by one. Our secretariat will contact you in advance, so please check the Webex chat box. Please speak out after unmuting your system. For questions in English, please use Webex chat box and enter your affiliation and name and question in text, and send it to our secretariat. We will refrain from answering question if your name and affiliation are not given.
On the Japanese channel, we will translate your English question, and I will read it out in Japanese, and speakers will answer in Japanese. On the English channel, questions and answers will be simultaneously interpreted into English on the real-time basis. As we'd like to take as many questions as possible, we'd like to take one question per person. If time allows, we will take additional questions. So first question is from Yoshida-san, from CLSA Securities.
Thank you very much. I am Yoshida from CLSA Securities. I have a question regarding slide 14, WFE Market 2024. The slight increase in is expected in 2024, the foundry DRAM NAND. What sort of growth forecast do you have by region? How do you view China in 2024? In addition, 2024 and 2025, you said $200 billion in total. So if the $90 billion in 2024, $110 billion in 2025, so increase to $20 billion. What sort of application and regions are contribute to this drastic increase?
Let me answer to your question. First of all, for China proportion, in the future, China will account for about 40% in 2024. That's our view. So by device, by application that you asked about, at present, toward next fiscal year, little by little, the recovery is being observed for DRAM, and logic will start recovering fast. That's our forecast. Actually, already, the recovery trend has started, especially for servers, AI servers. I expect it to grow furthermore, but inventory is now being consumed right now. But next, in the middle of next year and onward, you can see a significant recovery expected.
Toward 2025, you can see another big step in increase or growth in the market. The WFE market itself is expected to grow slightly, but this fiscal year, what is unique, I mean, exposure tool, which is rather unique, is expected to grow drastically. So that's one of the drivers for the growth of the WFE market this fiscal year, increased by about $15 billion. As for next year, 2024, other than exposure tool, you can see some recovery trend, so that will contribute our business performance as well. 2025, you said $110 billion. That's what you said in your question. Based on the calculation from $200 billion, as for your outlook, I don't have any big disagreement regarding that particular forecast. 40% for China, other regions accounts for 60%. Investment for leading-edge devices will recover.
For memories and logic, the proportion between the two should be around logic for 65% and memory for 35%. For next fiscal year, the drivers should be DRAM and logic. NAND, on the other hand, may take another year, next year, for adjustments. Did I answer to your question? I hope my answer covers all the items within your question.
Thank you very much. That was a very comprehensive answer.
Thank you very much.
Thank you very much, Mr. Yoshida, for your question. Next question is from Mr. Nakamura from Goldman Sachs, Japan.
I am Nakamura from Goldman Sachs. Page 14, WFE 2023, I... You have raised your forecast in 2023 slightly, but your sales does not increase that much. Probably second half of this year, your forecast remain unchanged, so there is some difference. Could you give me the reason why there is some difference between the WFE market trend and your sales forecast?
The inventory reduction is rather slow. On the other hand, China customers are increasing investment, so there are some adjustment over there. But market is in the trend of recovery. The first half of this fiscal year, you saw the figures. Compared with our guidance that we announced in early this year, we outperformed our guidance, but that includes some values coming, putting forward from the second half of this year. And that was covered by the Chinese customers' investment. But by and large, we are in the transition toward upwards trend. Another part of your question, could you just explain the second part of your question?
I think you have covered the question. I have one follow-up question. Three months before and six months before, compared with the past, inquiries from China might be increasing, or orders from China should be increasing. That's what we expect. Does that contribute to the increase of your sales in the second half of this year?
Right. That there is some possibility that contribute to the increase of our sales in the second half of the year. So you are not losing your market share? No, no, we do not lose the market share. No, there are some characteristic issues each company. When you look at business performance, different companies, the overseas exposure vendors increase their sales a lot. So they failed to ship those exposure tools because of the supply shortage in the past, but they have started delivering those exposure tools. But as well as the business is concerned, our share does not decrease at all.
Excluding some special exceptional factors, there is no trend that our share is declined. I'm sure we can increase our share in the future. We are penetrating the market, and we do have very solid share in each process. Thank you very much. Mr. Nakamura, thank you very much for your question. Next question is from Mr. Shibano from Citigroup Global Markets Japan. Thank you very much for your presentations. I am Shibano from Citigroup Global Markets Japan. WFE market as a whole, from 2023 to 2024, slightly increased by 23, which you said earlier in your presentation. In particular, exposure tools sales are increasing. So what about your SAM, S-A-M, from year 2023 to 2024, rather than slight increase, but you can see, expect more than slight growth? Or could you give me some qualitative comparison in SAM for 2024 compared with your previous financial announcement?
Is there some, recovery trend or getting worse than three months ago? Thank you. This time, we made a presentation about $15 billion upward revision for WFE market for calendar year 2023, compared with what we had announced in August in our financial announcement. As I said earlier, the exposure tools are the major driver of this upward revision. Part of $15 billion in 2023 and also part of slight increase in 2024 will be contributing to our SAM. Therefore, next fiscal year, rather compared with this year, you can see the better market condition. Accordingly, our SAM is expected to grow furthermore.
Thank you very much.
Mr. Shibano, thank you very much for your question.
Next question is Mr. Wadaki of Mitsubishi UFJ Morgan Stanley Securities. Mr. Wadaki, please.
I am Wadaki from Mitsubishi. Thank you very much. I have a question regarding competition status. There are two products that I have some concern. One of them is cryogenic etching system , and you said you are increasing your share and you're promoting these products a lot, but are there anything that you can explain from your own standpoint? Another concern is the cleaning system in China. Actually, you are increasing your share, but Chinese customers respect the past record; therefore, SCREEN might be catching up with you. So could you give us some comments on those two issues, please?
As for the Cryogenic Etching, the strength of this technology is to complete etching of the depth of 10 micron within 33 minutes. So this features high etch rate. Another strength is this doesn't use CF gas, but we can reduce global warming potential by 84% compared with conventional technology. Therefore, this is environmentally friendly technology.
We obtained the development POR for some customers, and those customers have started evaluation preferentially. So for this area, it's rather smooth in progress for the cryogenic etching system promotion. In reality, 400 layers should be the major target application. When you think about that, the drastic investment period timing, we can expect a lot in calendar 2025. There are some possibility of early adoption of this cryogenic etching for the etching depth of 7-9 micrometers. So we are now working on the evaluation together with our customers for our cryogenic etching. That is the really remarkable, outstanding technology, and some characteristics have been already confirmed. So competition landscape will continue on the fair basis. According to our analysis, we do have the high advantage in our product of this cryogenic etching.
So that's, in that sense, etching is a big market for us, and in order for us to further improve our share in the market, not now, but next year or year after next year, we can expect a lot by promoting this new technology. As for the cleaning system that you asked about, you can see a growing trend, and our competitors are providing very good cleaning systems as well. But we have established certain performance in our cleaning system in terms of technology, so we can have a fair competition with our competitors, and as a result, I hope we can increase our share. I'm sorry, I cannot give you any specific share values, but we have a lot of expectation for the future.
Thank you very much for a very detailed explanation.
Mr. Wadaki, thank you very much for asking question.
Next question is from Mr. Shimamoto of Okasan Securities.
Thank you very much. I am Shimamoto from Okasan Securities. So I have one question regarding China investment, which is strong, and I want to see continuity of the investment in China. You have revised your forecast upward. What sort of applications are major contributors, and what-- or do you see increasing new customers? Could you just give us more explanation with high granularity about Chinese market situation?
From the viewpoint of the WFE, the exposure tools, sales are increasing. Next, etching system, CVD system, cleaning and drying systems, all those areas show good significant growth. The number of customers in China, now we can see the new names in the market of China, and you can see drastic increase of new customers. Roughly speaking, 20-30 new customers are now getting into this market.
So major market, that we named it, that these are the major applications area. As for the future of the market in China, the Chinese customers are quite a few in number. Several dozens of customers are there in China. In that sense, also in the future, the market is expected to grow a lot in China. As for the continuity of the China market growth, its domestic self-sufficiency is rather low yet. Therefore, the China market growth is expected to continue in the future. At the same time, there is the export control by American government on China, but as a company, we don't have any comment, but the influence is not zero. Therefore, we need to closely look at the situation of American government export control in China. Thank you very much.
That was very clear. Thank you very much.
Thank you very much, Mr. Shimamoto, for your question. Next question is from Mr. Hirakawa from BofA Securities.
Thank you very much. I am Hirakawa from BofA. Thank you. I'm sorry, I have very persistent question, regarding demand from China. I want to ask additional question. 2024 and 2025, the strong demand expected to continue. Have you any talks regarding 2024 to 2025 already started? If yes, for 2024 and 2025, are there any difference in Chinese demand between the two years? China are investing very actively for the mature node for DRAM or 2025. What sort of expectation do you have for the 2025 Chinese market in details, please?
For 2024, the inquiries are now coming to our company. In that sense, we can expect, to some extent, about 40% should be the level, especially for the first half of next fiscal year. We can expect to receive almost the same level of inquiries. I'm not saying the WFE market growing, not because of China market, but AI server was CAGR 31%, so inventory adjustments are completed. So WFE market, including DRAM, logic, and NAND in 2025, all those things expected growth. That's the major driver of WFE market growth. And also replacement demand for PC and smartphone and on-demand AI. So PCs and smartphone, new functions using AI will be mounted, so more and more PCs and smartphones are to be sourced. Because of the fusion of those, WFE market is expected to grow drastically in 2025.
It's not because of the increase in China market in 2025 solely. As for China, China market is expected to grow drastically. The China market overall basis, that's WFE, is about $30 billion for this fiscal year. So year 2020 to 2030, that is expected to grow $50 billion or beyond. So China market is expected to be doubled in size. And now, China customers accounts for a huge portion within that China market. And as I said earlier, the domestic self-sufficiency is expected to be increasing. When you think about that trend, we cannot see so many negative factors for our business performance.
Thank you very much for your asking the question. Next question is from Mr. Yoshioka from Nomura Securities.
I am Yoshioka from Nomura Securities. My question might be a little bit the same as other questions. I have a question regarding your sales by equipment. It's been 9 months in fiscal 2023, so you have just completed the first half of this fiscal year. Looking back the first half, by equipment, are there any increase or decrease of the shares? Are there any good performing tools? Another concern I have is the exposure to sales is rather strong. How about your coater/developer sales? Have you seen drastic increase of your sales of coater/developer? Could you give us some information regarding the changes in the sales by product?
For this fiscal year, this fiscal year is kind of adjustment year, therefore, customer mix, product mix, there are quite a few factors to be considered. We are very happy to achieve the plan in every aspect.
I mean, those circumstances, the growth of coater/developer sales was higher than our original guidance, as you mentioned earlier. So that was very good result. We executed very well in sales of Coater and Developer. Another unique thing is the bonder for HBM. Now that we are receiving orders for high-volume production lines, and that order has been accelerated. Other than that, the Etching for silicon from logic customers for back-end patterning, we have obtained PORs. This is the overall picture. Did I answer to your question properly?
I have one follow-up question. So year 2024, do you think the equipment other than exposure tool will be expected to expand? So I think your coater/developer sales is accelerated, thanks to the exposure tool s sales increase. But are there any potential risks for year 2024?
No, there is not so much risks. Thank you very much.
Mr. Yoshioka, thank you very much for your question. Next question is from Mr. Ishino of Tokai Tokyo Research Center. Mr. Ishino, please.
Thank you very much. As Mr. Kawai said, now, I have a question regarding bonders for HBM. So the generative AI requires the HBM. HBM demands increases furthermore, and you have rather dominant products, so quite a few customers are now waiting in line to purchase your system, so your capacity might not able to meet the demands. And I got some information customers are now frustrated because they cannot purchase. So what is the capacity current right now for the bonders for HBM, and what is your plan for next fiscal year?
So, all of sudden, quite a few inquiries are coming, in particular from Korea market.
In the beginning, it was rather hard, but we tried to enhance our responsiveness to the customers, and our factories are working very hard, thanks to the cooperation from our suppliers. So our capacity has been increased by several times successfully. Therefore, the shortage of our products is not the issue to meet or fulfill the demands for HBM. We are prepared, and we are capable.
So is that correct, if I understand your business model of JPY 10 billion in six months, been increased by several times?
No. So three months ago, in August, the financial announcement, at that time already, in August this year, against the demand, we were able to deliver our products to meet the inquiries. We have established that method already. Therefore, there is no big change in that area, so we have addressed the demands.
It doesn't mean JPY 10 billion is increased by several times. Not this year, but about next year. So yes, we can see some increase. WFE for server is about $9.3 billion. Out of that, $2.4 billion for AI servers. Next year, 2024, the server is about $15 billion. Out of that, AI server is about $6 billion. In 2025, the server total is about $20 billion, and AI servers are expected to be more than $8.2 billion. So this is how we view the growth of the market. WFE for server is increasing. At the same time, this AI server WFE is also increasing, so HBM proportionally increasing. And we can provide bonder, bonding, too, and we expect a lot for the increase of sales of our bonding tools.
Thank you very much, Mr. Ishino, for your question. Next question is from Mr. Hanaya of SMBC Nikko Securities.
Thank you very much for your presentation today. I am Hanaya from SMBC. Thank you very much. I have one question: regarding the WFE market in CY 2023, do you expect your SPE new equipment outperform the market? Or because the legacy for China is rather strong and exposure to sales are rather big, do you think you are underperforming? But next year, because of the growth of the leading-edge pro devices, can you think you can outperform the market next year?
Last year, if my memory serves correctly, you said you are going to outperform the market with the new equipment sales. That's the reason why I'm asking this question. So rather than me myself, I think you know better.
So for exposure tools, the vendor was not able to ship exposure tool, but now they have restarted the delivery of the exposure tool. And big China market, there are some inquiries, although the export control is applied. So now JPY 15 billion upward revision is not part of our sum. We are using yen basis business, so the yen depreciation has some impacts. From the viewpoint of the share, those two factors do not have positive impacts. However, having said that, our process share is steadily increasing by obtaining and winning process of records. So when demand recovers and some shift from the year will be eliminated because of the shortage of supply, then, in that sense, we are able to obtain our positions securely. Next fiscal year, and after next year, our share is expected to grow.
This is how we view the market trend. We can increase our share in two years to come.
Thank you very much. That was very clear.
Mr. Hanaya, thank you very much for your question. Next question is from Mr. Nakanomyo from Jefferies Japan Limited.
Thank you. Rather than HBM, I have a question regarding generative AI as a whole, probably. JPY 10 billion is related to the bonder and debonder for HBM, but when you look at generative AI as a whole, how much contribution do you see for TEL for this year in terms of business chance or two years to come in the future? How much business opportunity can you enjoy this year and next year, thanks to the generative AI? You talked about WFE for AI server out of total servers. I think it's a bit difficult to calculate them precisely, but rather than bonder and debonder, do you see increasing business opportunities coming from the generative AI?
I think there are quite a few business opportunities we can see. When you look at our product portfolio very closely, there are quite a few opportunities lying there. So, new products are being developed. At present, we try to maximize the opportunities, and we are now working on the strategy, and we are going to present the new strategies when it is finalized.
Thank you very much.
Mr. Nakanomiya, thank you very much for your question. Next question is from Mr. Yasui of UBS Securities.
I am Yasui from UBS Securities. I'm sorry again, I have a question regarding demand from China. Is it sustainable? And I have two major questions.
So only for the power semiconductors, China market accounts for the 50% of the global market. When you think about capacity, whether the China market is sustainable, when you think about the WFE market, the $100 billion-$120 billion, and China market accounts for 40% in total, how do you see the risks of the excessive supply? Another issue is the export controls imposed by the American government. I think top management may have some contact with the government. How do you see the risks of export control? Or do you think there is no problem of the export control because target market in China is 28 nanometer node or older technology node? You may not have any idea. Could you give us some comments on that regard, please?
So in our conversation, we talked about this year, 2024 and 2025, in terms of WFE market. So when you look short term, mid-term, and long term, we need to first look at not only short term, but also longer term market forecast. So digitalization trend is one thing, and also CO2 emission reduction trend is another thing we need to look at. We need to look at those two things, digitalization and global environment. We should look at the entire picture by looking at those two factors. Data traffic is growing with CAGR of about 25%-26%, and AI is also has a lot to do. So semiconductor device market was about $570 billion, but into 2030, the market is about $1 trillion. Capital intensity is about 10-17%.
If that is maintained, the SPE market, another new market, is to be created by year 2030. So data traffic increase and new application emerging from the market. So as long as those two things are increasing, regardless of the geography, that demand should be fulfilled by some of the players, regardless of the geography. The Chinese market, when you look at the Chinese market, so geopolitical issue need to be closely watched. However, if there are some problems there, I think we need to cover them in other areas. So for longer period of time, sustainable growth is expected in the Chinese market. For shorter perspective, as a company, we cannot say anything decisive, so we must closely look at the trend in short term.
Thank you very much.
Thank you very much, Mr. Yasui, for your question. Next question is from Mr. Sugiura of Daiwa Securities.
I am Sugiura from Daiwa Securities. I have a question regarding profitability. So first half of this year, gross margin, but gross margin in the second half of this year is expected to be better. Could you give me the reasons why you can see the better gross margin? And also, now Japanese yen depreciation is going on rapidly. Some suppliers are now having increasing cost for procurement. So based on such factors from the suppliers, are there any requests to increase price from some of the suppliers? If yes, do you have any cost pressure because of the increase of the cost of the supply goods?
So Kawamoto-san will answer to your question.
Thank you very much for your question. I am Kawamoto. As for the gross profit margin, is expected to high in the second half of this year. That's your question.
If we compare first half and second half of this fiscal year, sales is a little bit high in the second half of this year. We do have very good profit margin compared with initial guidance in this first half of this year, because we are providing high value-added products, and we can sell a product with high average price. Of course, there is an issue of product mix. So based on that result, we can come up with the forecast for the second half of this year. This is how we set the gross profit margin for the second half of this year. Second question. So inflation among the suppliers were requests to raise price from the suppliers. When you look at the current situation, there are some possibilities that supplier may ask to increase their price, but there is no certain increase in the price of the supplies.
The price increase should be within our expectation. We do have costing strategy, and we want to increase our gross margin in the future as well. Thank you. Thank you very much. And also, regarding procurement costs, the supply chain is very important for us. So we should listen to the voice of suppliers closely, and we respect the suppliers' positions. On the other hand, technology innovation is rather rapid in our industry, so maybe once every 18 months, customer ask us to provide new value for three generations and four generations ahead. So for a new model, we can set optimum pricing to reflect the value of the new product. At the same time, within the supply chain, we try to listen to the voice of suppliers, so that we can have the healthy business with our suppliers by applying the appropriate price or cost.
Thank you very much for your very thorough answer.
Thank you very much. Mr. Sugiura, thank you very much for your question. So since there seems to be no more question, we'd like to conclude the financial announcement. Lastly, we'd like to continually improve our IR activities based on your precious feedbacks. So we'd appreciate your kind cooperation in filling out the questionnaire before you exit the WebEx. Thank you very much for taking time to join this conference, despite your busy schedule today. Thank you very much.