Tokyo Electron Aktie

It's time for us to start Tokyo Electron financial announcement for the fiscal year ended March 2026. Thank you very much for joining us today despite your busy schedule.

I am Yatsuda of IR Department, serving as a moderator of today's session. I'd like to introduce today's attendees -- Toshiki Kawai, Representative Director, President and CEO.

I am Kawai. Thank you very much.

Next, Hiroshi Kawamoto, SVM & GM (sic) [ SVP & GM ] Division Officer of Finance Division.

I am Kawamoto. Thank you very much for joining us today.

Before starting the presentations, let me explain the flow of today's session. First of all, Kawamoto and Kawai will make presentations. After that, until 6:30 p.m. Japan Time, we will have a question-and-answer session where we entertain questions from the audience.

This meeting uses 2 channels of Webex for the simultaneous interpretation between Japanese and English. As we explained in our e-mail, you are kindly requested to use apps on PCs or mobile terminals if you wish to ask questions. But if you are not going to ask questions, you can use telephones.

Since this conference is intended for institutional investors and analysts, we would appreciate your understanding that we receive questions only from institutional investors and analysts, as usual. We will post the audio contents of this conference in Japanese and English on our website within a couple of days. It will be appreciated if you could also visit our website.

Now Mr. Kawamoto will present the consolidated financial summary. Kawamoto-san, please.

Good afternoon. I am Kawamoto, Finance Division. I'd like to present the consolidated financial summary of the fiscal year ended March 2026. I will start with the quarterly financial summary. I will mainly refer to the figures in the blue box.

In the fourth quarter, we generated net sales of JPY 711.8 billion, 28.9% increase from the third quarter, with net sales showed a temporary drop due to shipment timing. Accordingly, gross profit was JPY 333.1 billion, 41.3% increase from the previous quarter. Gross profit margin was 46.8%, 4.1 percentage point increase quarter-over-quarter.

Although SG&A expenses increased mainly due to R&D expenses increase, SG&A to sales ratio declined, which resulted in 77.1% quarter-over-quarter increase of operating income at JPY 205.6 billion.

Operating profit margin was 28.9%, increasing by 7.9 percentage points sequentially. Net income attributable to owners of parent was JPY 214.2 billion, 80.8% increase quarter-over-quarter, partly due to extraordinary income generated by selling strategic shareholdings.

This slide shows net sales by region. As for the composition in the fourth quarter, proportion of sales in Taiwan significantly rose by 40% from the previous quarter to 22.0%. Meanwhile, as growth rate of spending for leading-edge nodes was higher than that of mature nodes, proportion of sales in China dropped to 26.8%, 5.0 percentage point decline quarter-over-quarter. On the full year basis, in the fiscal year ended March 2026, proportion of sales in China was 34.1%.

Now I will move on to the full year financial summary. Since the leading customers continued active investment, and -- our Field Solutions sales were strong. Thanks to the increased utilization rate of the customers' fab, we generated net sales of JPY 2,443.5 billion, 0.5% increase year-over-year, hitting record high following the fiscal year ended March 2025.

Gross profit was JPY 1,107.8 billion, exceeding JPY 1 trillion in the second consecutive year, while gross profit margin declined by 1.8 percentage point year-over-year to 45.3%. This is due to soaring costs in parts and materials, as well as changes in the product mix. Another factor is the increase of the number of field engineers outside Japan to prepare for the future growth.

Operating income was JPY 624.9 billion. Operating profit margin was 25.6%, 3.1 percentage point drop year-over-year. This is because of active R&D investment to prepare for further growth and enhance our competitive edge. R&D expenses were JPY 277.8 billion, increasing by 11.1% year-over-year.

Net income attributable to owners of parent was JPY 574.4 billion, 5.6% increase year-over-year, reaching all-time high. We sold strategic shareholdings and recorded extraordinary income of JPY 115.4 billion. Capital expenditures were JPY 216.0 billion, mainly due to the completion of the development buildings in Miyagi and Kumamoto and production and logistics center in Iwate, and procurement of in-house use evaluation tools.

Depreciation was JPY 80.9 billion, 30.3% increase year-over-year. This is a graphic representation of the financial summary shown on the previous page on the chronological basis for your reference. ROE was close to 30% following the previous fiscal year. This shows SPE new equipment sales by application.

In the fiscal year ended March 2026, from the top of this chart, sales to DRAM customers accounted for 31%, non-flat memory accounted for 10% and non-memory accounted for 59%. For DRAM, while investment in advanced technologies such as HBM continued to be strong, investment levels are varied among customers. As a result, DRAM sales and proportion remained almost unchanged from the previous year.

For non-volatile memory, utilization ratio of our customers have improved significantly and investment has been back on course of recovery. Accordingly, both sales and proportion were in increasing trajectory. For non-memory, while investment for mature node paused tentatively, investment for advanced node was very active. Accordingly, non-memory investment exceeded JPY 1 trillion, just like in the previous year.

This slide shows Field Solutions sales. In the fiscal year ended March 2026, Field Solutions sales was JPY 626.0 billion, increased by 16.3% from year-over-year. Along with further improvement in utilization rate of the customers' staff, our parts & service business grew, and there were quite a few modifications to enhance productivity. Accordingly, Field Solutions sales were strong.

This slide shows the balance sheet. Total assets were JPY 2,860.9 billion. Cash and cash equivalents were JPY 506.2 billion, increasing by JPY 87.7 billion from the previous quarter. Notes and accounts receivables were JPY 525.8 billion, rising by JPY 124.3 billion sequentially. Inventories were JPY 713.1 billion, decreasing by JPY 12.2 billion from the previous quarter. Tangible assets were JPY 589.3 billion, increasing by JPY 15.3 billion quarter-over-quarter.

For the liabilities and net assets shown on the right-hand side, liabilities were JPY 791.0 billion, increasing by JPY 161.2 billion quarter-over-quarter. Net assets were JPY 2,699 billion, rising by JPY 64.7 billion sequentially.

This slide shows cash flow. The cash inflow from operating activities in the fourth quarter was JPY 205.7 billion. The cash inflow from investing activities was JPY 33.2 billion as a result of acquisition of tangible assets and sales of investments in securities, among others. The cash outflow from financing activities was JPY 150.8 billion due to the share repurchase. Free cash flow was plus JPY 239.0 billion. The full year free cash flow was also positive at JPY 433.2 billion. Both full year and quarterly free cash flow hit record high.

Finally, I will present total return amount. The share repurchase we announced in February 2026 was completed. The total acquisition amount was JPY 149.9 million. At the Board of Directors meeting held on March 27, 2026, it was decided to cancel 3,600,000 treasury stocks on April 30, 2026. The total return amount in the fiscal year ended March 2026 was JPY 437.4 billion, which exceeded that in the previous fiscal year, reaching all-time high.

This concludes my presentation. Thank you very much.

Now next, Kawai will talk about business environment and financial estimates. Kawai-san, please?

Once again, thank you very much. I am Kawai. I will present business environment and financial estimates.

Let me start with fiscal 2026 full year business highlights. In fiscal 2026, we generated net sales of JPY 2,443.5 billion, hitting record high. In addition to the active investment for advanced logic and DRAM/HBM for AI servers starting in the previous fiscal year, investment for 3D NAND, which had been muted for a long time, finally showed some signs of recovery.

Along with improvement of utilization rate of customers' fabs, our Field Solutions sales grew as well. We delivered record full year net income of JPY 574.4 billion as we strive to improve capital efficiency and recorded extraordinary income by selling strategic shareholdings.

The R&D centers in Miyagi and Kumamoto and production and logistics center in Iwate, which we had been constructing to prepare for next phase growth were completed. We also started constructing a new production building in Miyagi, which adopt a smart production concept to support manufacturing in the future. To properly address rapidly expanding WFE market, we are securing robust and strong capacity.

Winning PORs in advanced domains is another critical fiscal 2026 highlight, which will contribute to our sales growth in the future. For memory applications, where we are strong, we won high market share in major etching processes, including capacitor process and HBM interconnect process. For Advanced Packaging, which shows remarkable growth supported by our broad product portfolio, we won PORs for multiple products ranging from front-end process to 3D integration and testing.

Next I will present the business environment. For 2 years from calendar 2026 and 2027, we expect the WFE market to grow by 20% or more from calendar 2025, ranging from $150 billion to $170 billion for each year. For spendings in the high-end devices we focus our efforts on, as we are currently receiving strong inquiries, we expect 30% or more year-over-year growth.

As for ongoing geopolitical risks, for the time being, we do not see any changes in our customers' investment trends. When the blockage of the Strait of Hormuz is protracted, however, we must pay close attention as there is a concern about the shortage of parts and materials triggered by supply chain disruption.

Now I will present our fiscal 2027 sales growth drivers under such business environment. Among the investment for high-end devices, which will drive market growth this year, coater/developers and etching systems are expected to make a significant contribution to our sales.

In the coater/developer business, in particular, our share in the global market exceed 90%. We received inquiries regarding investment, both for capacity enhancement and device scaling from almost all customers as DRAM customers adopt EUV technology and logic customers introduce EUV multi-patterning. Accordingly, fiscal 2027 coater/developer sales are expected to grow by 50% or more year-over-year.

For etching system, we are strong in the field of dielectric etching, recording 50% or more global market share at present. For DRAM capacitor process, we have won PORs from all leading customers and maintain a very high market share in the interconnect process, which is growing for HBM applications.

For the GAA or gate-all-around structure, which was first adopted by 2-nanometer logic, business opportunities are expanding in gate etching and isotropic etching. Driven by these factors, fiscal 2027 etching system sales are expected to increase by nearly 30% year-over-year.

As we have a broad product portfolio, we are blessed with numerous growth opportunities also for Advanced Packaging. In the business of prober for advanced logic, where we have a compelling market share, the sales are growing steadily and expected to top JPY 100 billion in this fiscal year. Sales of bonder/debonder for the HBM, permanent wafer bonding for logic 3D integration and bonder for 3D NAND are growing.

In fiscal 2027, sales for Advanced Packaging, including coater/developer, etching systems, and deposition systems are expected to grow by 60% or more year-over-year.

Next I will present the financial estimates. First of all, let me talk about a change of the financial estimate disclosure period. While SPE market is expected to grow in midterm and long term, the size of customers' investment gets bigger than before, and their investment plan may change in the middle of fiscal year due to supply/demand balance, customer strategy and geopolitical factors.

Particularly as investment of some customers has been becoming extremely big in size, impacts of their movements on our group performance are getting relatively bigger. Taking account of those factors -- although in the past, we disclosed full year financial estimate of following fiscal year at the timing of year-end financial announcement -- from fiscal 2027 onward, we will disclose financial estimate of the first half of fiscal year, and thereby we will strive to share more timely and realistic information.

For the financial estimate of fiscal -- first half of fiscal 2027, driven by the strong demand for AI server, we expect net sales of JPY 1.570 billion, gross profit of JPY 715 billion and operating income of JPY 431 billion, all of which are expected to hit half year records.

For the second half of fiscal 2027, stronger growth than the first half is expected as we expect further increase of shipment, mainly to DRAM and advanced logic customers. As I said before, we must pay close attention to impacts of blockage of the Strait of Hormuz, but at present we do not see any changes in our customers' investment plans. We have secured parts and materials we will need for tools to be sold in the first half of fiscal 2027.

This slide shows fiscal 2027 SPE new equipment sales forecast. The new equipment sales in the first half of this fiscal year are expected to grow by 41% year-over-year to JPY 1.200 billion. The breakdown by application is shown on this slide. Driven by AI server demand, sales of our system for high-end devices are expected to increase.

This slide shows our plan for R&D expenses and CapEx. In fiscal 2027, we plan full year R&D expenses of JPY 330 billion. We will actively promote R&D to enhance foundation of our technology competitive edge and support semiconductor technology innovation.

For CapEx, we plan to spend JPY 190 billion on the full year basis. We plan to acquire equipment for the new development buildings whose construction was completed in fiscal 2026, and we plan to complete construction of a new production building adopting the smart fab in summer of 2027. We will utilize robust infrastructure shown in this slide and capitalize on future development opportunities to maximize our corporate value.

Finally, I will present the dividend forecast. Along with the revision of financial estimate disclosure period, for the dividend forecast as well, we present the forecast of interim dividend alone. Fiscal 2027 interim dividend is expected to be JPY 361 per share, maintaining a high level just as second half of fiscal 2026.

This concludes my presentation. Thank you very much for your kind attention.

Now we will have question-and-answer session until 6:30 p.m. Japan Time.

[Operator Instructions] So the first question is from Mr. Yoshida of CLSA Securities.

I am Yoshida from CLSA Securities Japan. Slide 15, I have a question regarding the outlook of the WFE market. Roughly speaking, according to this slide, CY 2025 WFE market was JPY 120 billion. By 2026, more than JPY 150 billion, maybe JPY 155 billion. Accordingly, 2027, that should be JPY 170 billion. That's what it looks like. So is that correct understanding?

By application, I think you've made some comments by application '26 and '27. What sort of growth do you expect? Are there any changes from your forecast 3 months ago? And for China, I would like to see your view on China market as well.

Thank you very much. Let me answer to your question. This is Kawai. First of all, WFE market, as you just said, what you said is correct. Compared with this year, next calendar year, you can see increasing trend of WFE market. At present, we are receiving new inquiries. Some request for delivery could be put forward to this year. But as for this year, maybe $150 billion or more and going toward $170 billion next year. That's how we understand the trend of WFE market.

Your second question, the composition. First of all, last year, composition, as Kawamoto said earlier in his presentation, DRAM and NAND accounted for 35% and logic accounted for 65% in calendar 2025. But this year, DRAM and NAND accounts for 40% and logic accounts for about 60%. So memory proportion is expected to grow slightly. That's how we view the composition for this calendar year.

For China, composition for 2025, China accounted for about the high 30s percent, non-China accounted for low 60s percent level. For this year, China accounts for the mid 30s percent and non-China accounts for mid-60% level.

So are there any changes from the 3 months ago in terms of application? Over the past 3 months, so maybe AI server inquiries have been added over the past 3 months, and there are some requests for pulling forward orders. So AI cyber demand is still very strong.

Is that DRAM logic?

Yes, that's correct.

Next question is from Tamura-san from Morgan Stanley MUFG Research Japan.

Yes. This is Tamura from Morgan Stanley. So this should be the final year of your midterm management plan. JPY 3 trillion is your target, and you can -- I can see the plan for this first year. And sales of the second half should be stronger. So I think you can achieve JPY 3 trillion. I would like to know the confidence level and your expectation for this fiscal year.

Operating profit margin, your target is 35% as well, as I can see the figure of the first half of this fiscal year. It might be difficult for you to achieve 35% of OPM. What are the reasons why you failed to achieve the 35%, but what sort of the time span you have to achieve the 35% of OPM, including fiscal 2028?

Thank you very much. For our midterm management plan, our sales target is JPY 3 trillion or more, OPM of 35% or more, ROE of 30% or more. So this is our target. And this year is the target year, as you said in your question. As I said in my presentation, as for the sales, as you correctly said, the second half sales is more than the first half sales. And actually, the next fiscal year sales will be more than this year.

So our targets in the midterm management plan for sales and ROE, we are steadily progressing toward the targets of midterm management plan. As you pointed out, the operating profit margin, so we try our best effort to achieve our target and getting closer to the target level of OPM. We still continue this effort. However, we understand the achievement of OPM is one of the challenging factor for us.

For example, when we produce midterm management plan, foreign exchange has been drastically changed. Because of that, fixed costs have been changing by JPY 70 billion. In FY 2026 to '27, the foreign exchange rate is about JPY 146 to JPY 160 to the dollar. That's the reason why the fixed costs are increasing.

So one of the reason is the impact of the foreign exchange. The other one is the labor cost. That's about 9% to 10% increase, and logistics costs in fiscal '26 to '27 increased by 10%. So the traveling expenses and transportation expenses are also increasing. So because of this rapid change in foreign exchange and inflation factors are impacting the operating profit margin.

From when we produced the midterm management plan, the fixed cost to sales ratio has been increasing, but we are taking actions to do some more improvement. As I said earlier, inflation is the trend, and we need to take a proactive action against inflation and soaring cost of the materials and parts in addition to price increase, and we must enhance the productivity.

At the same time, we will launch new models to the market. By using those countermeasures within 2 years to come, we try to achieve 50% or higher gross profit margin. That's what we are doing right now. In addition, we are receiving inquiries from our customers. So this fiscal year and next fiscal year, we are going to steadily improve operating profit margin so that we can achieve high level of the operating profit margin.

Next question is from Mr. Shimamoto of Okasan Securities.

I am Shimamoto of Okasan Securities. I have a question regarding share of etch system. So you disclosed the annual share of your products compared with last year, etching share declined by 5 percentage points. Last year, why did you reduce your market share? And you may see some increasing 25% or higher growth is expected. But when I look at WFE, expected to increase 25%. So maybe you may not incorporate the share increase with that level of WFE market growth. So could you let me know your actions to increase your market share?

When you look at process share for etching, our share is increasing. That's how we analyze the situation. However, when we convert it to sales, when you look at the share converted to share sales, actually, Tokyo Electron itself is 0.9% negative. Etching is -- has the strong contribution to that.

Customer mix in terms of market share is another reason. And regulations are also impacting our performance. Customers start with purchasing the American tool vendors tools first and maybe the customer try to buy Tokyo Electron's tools in this fiscal year rather than last year. So 2 years ago, our etching share grew very rapidly significantly. So timing of delivery was another factor. Also customer mix and also regulation impact. Those 3 factors were major reasons to the result of the share.

On the other hand, as I said earlier, the process share -- when it comes to process share, so our company is now waiting for the future growth. Especially in conductor etch, we are winning PORs. You can see some positive information. Interconnect process and capacitor process, we maintain our share and that will contribute to the future DRAM and logic growth, and we can see more opportunities. And also GAA, gas chemical etching, there are some business opportunities for gas chemical etching.

So if possible, could you let me know your target for share in this year?

For that question, so we need to closely watch the customer investment trend. We haven't disclosed information about this year's share. I'm sorry for that.

Next question is from Mr. Nakamura of Goldman Sachs Japan.

Regarding profitability, so for this fiscal year and onward, I want to get your take. So gross profit margin for the first half of this fiscal year, you showed us 45% level. So sales increased rapidly, but your prospect of gross profit margin is rather weak, maybe because of the impact of labor cost or inflation. That's what you said earlier. In addition to those, are there any other reasons, including product mix, to lower your forecast of gross profit margin? As for the second half of this year, you said the sales will be increasing further more. So second half of this year or next fiscal year. So what do you think about profitability?

Thank you for your question. As I said earlier, the fixed costs are increasing. That's what I said before. The exchange rate and inflation as well as logistic costs, traveling costs, those things are increasing. And we are taking appropriate action for price rise. When it comes to the productivity enhancement, at present, what is important for customer is how we can improve the productivity.

So the throughput of process tool or yield enhancement, so we must expand our services to improve the throughput and yield. At the same time, we should introduce the new products. So this is how we can improve gross profit. So 1 year or 2 year, maybe we try to achieve gross profit margin of 50% or more by taking solid actions.

So within 2 years, you are going to achieve GPM of 50% or more. That's what you said. But GPM 50% at that stage, what is the level of the operating profit margin when you can achieve 50% of gross profit margin?

The midterm management plan target. Also depending on top line, when the gross profit margin goes up, then I think we can improve the situation. Therefore, we will make solid effort to achieve 35% of OPM. That's the intention that we have right now.

Next question is from Mr. Hirakawa of BofA Securities.

I have a question regarding the lead time of your products. At present, the lead time of your product is about 4 to 6 months, in average, 5 months. Is that correct understanding? In the first half of this fiscal year, you already received orders and about 90% of those orders are now waiting for the shipment. Is that correct understanding?

The lead time of our products are getting shorter. Rather than 5 months, depending on products, needless to say, might be 3 months or 4 months. We are trying to shorten the lead time of products. We must do that because we receive a huge amount of inquiries. For the first half of this fiscal year, yes, this rather high level of confidence for the figures for first half of this year. Yes, we do have the high level of confidence.

So your competitors just show us the first half, but the first quarter, but you are giving us the prospect of the first half of this year. So maybe 5 months to go, maybe you have the high level of confidence because you already received orders from the customer. Is that correct understanding?

We are very glad that our earnings draw a lot of attention. And we are trying to explain the market trend as much as possible. So there should be no major change within 6 months to go. And we try to look ahead when I -- so rather than 1 quarter, I try to show you our outlook of 6 months to go.

Next question is from Yoshioka-san from Nomura Securities.

I am Yoshioka of Nomura Securities. I have a question regarding Page 16. So the revenue driver for fiscal 2027. Starting from coater/developer, so Y-o-Y 50% or more, so your share is rather high from the very beginning, but you are outperforming market significantly and maybe you are very strong along with the exposure system. As you said in your presentation, but once again, I would like to know the reason why you can see this kind of drastic growth for coater/developer. And what is the level of confidence? That's one thing.

On the same page, Advanced Packaging, FY 2027, you said JPY 120 billion increase in sales is expected. So what is the contributing factors to improve your sales out of JPY 120 billion, if there are some major driver, could you share your idea with us, please?

So coater/developer, regarding coater/developer, let me explain. This is Kawai. As you said, in principle, EUV-related demand and EUV multi-patterning. And for all exposure systems have coater/developer ranging from high end to the general purpose coater/developer, coater/developer essential for lithography process. So we have incorporated all those needs or demands. So the investment for device scaling and investment for capacity enhancement, everything will help us to increase our sales. So this area is growing very rapidly and 50% or more year-over-year growth.

As for Advanced Packaging, Mr. Yatsuda will give you the answer.

So let me explain Advanced Packaging. This is Yatsuda. Advanced Packaging, so the advanced logic and HBM, those 2 are the drivers. We are receiving very strong inquiries in those 2 areas. Just like the front-end category, the coater/developer, etching and cleaning these area, we received the very strong inquiries for the Advanced Packaging. For coater/developer, not only resist, but also other coating film exists and receives many orders. And laser tool wafer bonder and HBM, temporary bonder and the bonder, we received quite a few inquiries in those areas. These are the major drivers for Advanced Packaging, and we expect a huge growth of our sales.

One follow-up question for bonder. So how much sales do you expect for bonders, please, if you have any figures for that?

As for bonder, we don't have a quantitative value we can disclose. But just for information, in last fiscal year, total sales is about JPY 30 billion. We can expect the huge increase. As I said 3 months ago, from this year and onwards to 2030, 5 years to come, so about JPY 500 billion sales on the laser tool bonder/debonder. The bonding-related product, we are expecting JPY 500 billion cumulatively. That means about JPY 100 billion for each year. So this year or next year, we can exceed that level.

Next question is from Mr. Nakanomyo from Jefferies Securities.

I am Nakanomyo from Jefferies Japan. Just for confirmation, you said first half of this fiscal year, you just gave us the outlook for the first half, but you didn't disclose your outlook for the second half of this year. That means second half of this fiscal year, you cannot come up with clear figures, especially the figure for second half might change depending on the movement of the leading customers, and you also take account of the situation in Middle East. So based on your inquiries, you said the sales in second half is stronger than the first half of this year. Is that correct understanding?

Right. So we do receive inquiries, very strong inquiries. And for second half of this fiscal year, actually, our inquiry is increasing very rapidly to fill our shipment for second half of this year. However, when we think about the yield enhancement of customer fab and also they have very limited clean room space and lack of the labor force. And there are also geopolitical factors or macroeconomic trends.

So in the future, we need to think about energy supply, cash flow, when the CapEx will be growing. Furthermore, we need to consider various factors not only for this fiscal year, but we need to continuously watch the situation under those business environment. We try to come up with high confidence figure. And there are many factors outside of the market and the actually semiconductor importance in increasing.

So semiconductor market is affected by the outside of the market itself. So that's the reason why we are going to disclose the forecast within 6 months to go. That is more accurate and realistic. Actually, inquiries are very strong right now. So from this year and next year, with the range of the market size, $150 billion to $170 billion.

I have one follow-up question. For the first half of this fiscal year, so your shipment increased by 40%. Therefore, you will outperform WFE market. Maybe same for the second half of this year, fiscal year as well. But once again, this fiscal year, are you going to outperform the WFE market growth? And what are the factors to help you to do that?

So we are focusing on our core competence, the cutting-edge area. So AI server related high-end area devices, we can see the growing trend. That's the reason why we can have the high level of revenue better than the average.

Next question is from [ Mr. Franz from Fortis Securities ].

Major foundries like TSMC have announced silicon photonics service for customers. How do you see this market opportunity? And what product POR does TEL have for silicon photonics-related processes?

The second question, Field Solutions grew by 16.3% in fiscal 2026. What were the main drivers? And in fiscal 2027, will Field Solution growth accelerate further in line with new equipment growth guided at plus 41% in first half of the fiscal year?

The first question is regarding silicon photonics, the Tokyo Electrons POR and product portfolio. When it comes to the silicon photonics in our company, the flat panel-related applications, we do have the product using glass substrate, the etching for flat panel. So those technologies that we have -- and also CMOS image center, we developed the technologies. Maybe we can use those technologies as well for silicon photonics applications.

About the Field Solution, the 16% growth. Actually, utilization rate of the customers' fab has been increasing. Therefore, the parts revenue is increasing and also support revenue is growing as well. Along with the demand increase for semiconductor, utilization rate of customer fab is increasing, resulting in the growth of Field Solution sales.

So next question is from Mr. Yamamoto of Mizuho Securities.

Yamamoto from Mizuho Securities. About your pricing strategy, may I ask some questions. So by and large, you are working hard by buying equipment. So maybe coater/developer should be the easy area for you to improve or increase pricing. So now 50% or more growth is expected in this fiscal year for coater/developer. When it comes to them, maybe 50% increase. However, I think those revenue are recorded in second half of this year. Have you increased your price by about 10%? So you said earlier, more than 50% within 2 years to come. So maybe you are now preparing for the price increase for the new orders to come. So 50% decrease for coater/developer. And you said you are going to exceed the 50% of gross profit margin within 2 years to come. Does that mean you are going to raise price of the coater/developer?

So for all products, very similarly, the fixed costs are increasing throughout the product range. Therefore, we must be fair. We try to maintain fairness and we should have a good consensus with our customers, and we are going to raise price when it's necessary. So we don't pick up any particular products for increase in price. That's not our strategy. This is the price increase along with the soaring cost. And also, if we can contribute to the customers' productivity, we can provide high value, then we can increase the price for those products. And depending on the timing of the machine model, maybe not only coater/developer, etch and film deposition system as well as cleaning system, we are taking a very similar approach for different products.

So 5 percentage point increase for the gross profit margin, so that's because of cost increase. Then in the past, you didn't exceed 50% for gross profit margin. So you are now passing the cost increase to the prices, but it's so difficult for you to increase gross profit margin by 5 percentage points. So maybe productivity enhancement, when you add more value to the product, so that is the major driver or pricing for new product. Is that correct understanding?

Yes, we need to keep good balance among those 3 factors: productivity enhancement, contribution to the yield enhancement by providing high value-added products, new products, surcharge and price increase.

Second question from Mr. Shimamoto of Okasan Securities.

I am Shimamoto from Okasan Securities. So first half of this fiscal year, what is your plan for sales? Actually, your sales growth rate is rather high. So what is the driver? Are there any special driver to increase your sales in the first half of the year, some deferred sales recognition or some orders whose delivery is pulled forward. Are there such special factors in this first half of this year?

There are no special factors, just the AI servers, almost every week, our customers ask us to pull forward the delivery date. So that is a kind of escalation having positive impact of our business, and we are taking appropriate action to meet customer needs. So there are no such special factors. Rather instead, rather than first half of this year, customers want more products in the second half of this fiscal year. So current trend of the demand will support us to increase our sales.

One more question. For next year, so this kind of growth rate, do you think this level of growth rate continue in next year? How much expectation do you have?

$150 billion to $170 billion is this WFE market size. So this is the quantitative expression of our forecast. But there are more positive factors to improve the WFE market. AI implementation will be accelerated. So the race for investment to AI will be getting more and more severe and NAND -- HBM is now having higher priority. However, NAND shortage might get more and more severe, then the customer may further increase investment to NAND, then physical AI R&D investment will be accelerating. So these are the positive factors to drive the market furthermore. And there must be the business opportunity, and we try to capture those business opportunities properly.

Thank you very much. So now we received the first question. So there are 2 more questions. So Mr. Shibano from Citigroup Global Markets.

I'm Shibano from Citigroup Global Markets Japan. Thank you very much. Earlier, you talked about the current management midterm management plan. But next fiscal year, you are going to start the new midterm management plan. So in March, there are some changes in the leadership team because of the changes in officers. So now you are going to prepare the next midterm management plan as far as Mr. Kawai is concerned. What sort of focus area you have in your mind to be incorporated into the next midterm management plan? Which is the area which require the higher enhancement?

Thank you very much. In our company, our vision is a company filled with streams and vitality that contribute to technological innovation in semiconductors. So in the future, the growing area includes patterning, device scaling and heterogeneous integration. So these are the major drivers to drive the technology innovation of semiconductors. The front-end process to contribute to the device sharing, that's where we are going to enhance our share.

In addition, Advanced Packaging area, which require heterogeneous integration. In our company, bonder/debonder, laser lift-off technology and device blowers, so these are the products of our company for Advanced Packaging. That's where we want to address the market properly, and SAM must be improved furthermore. In that sense, film deposition application need to be increased. That's another area we need to work on.

So current product lineup, we need to enhance share. Now etch market is rather big and we must improve our share in the etch market. In addition, Advanced Packaging area as well as served available market should be expanded. This is how we can enhance top line along with the growing WFE market. And we are going to launch high value-added products.

So this is how we try to take actions. And in principle, this ongoing midterm management plan, this is not our final goal. So through aggressive business and proactive management, we are going to pursue very close profit margin. And our sales is growing furthermore, and we need to take or catch the business opportunities as much as possible.

The last question is from Qiu-san of Berenberg.

So has your 2027 visibility become higher than previously? As you don't usually give WFE estimation for year out previously, is $170 billion the base case for 2027, is that kind of covered by customer commitment already?

Rather than customer commitment is a bit too much to say. So we have the very close communication path, and we are hearing from our customers, maybe this is the value what we can achieve. On the other hand, as you know, there are issues in the Strait of Hormuz. We must pay close attention to the development of the Middle East. So as far as customers' plan is concerned, I think $170 billion level of WFE market is achievable when I look at current customers' investment plan.

We have received some more questions, but it is time for us to close this conference. We will follow up the questions we couldn't answer today on our website in a few days. Lastly, we'd like to continuously improve our R&D activities based on your precious feedback. So we'd like to appreciate your kind cooperation in filling out the questionnaire survey 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.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

It's time for us to start Tokyo Electron financial announcement of the third quarter of fiscal year ending March 2026. Thank you very much for joining us today despite your busy schedule. I am Yatsuda of IR Department, serving as a moderator for today's session. Now I'd like to introduce our today's attendees.

Toshiki Kawai, Representative Director, President and CEO.

I am Kawai.

Thank you for joining us. Next, Hiroshi Kawamoto, Senior Vice President, General Manager Division Officer of Finance Division.

I am Kawamoto.

Thank you very much.

Before starting the presentations, let me explain the flow of today's session. First of all, Kawamoto and Kawai will make presentations. After that, until 6:30 p.m. Japan time, we will have a question-and-answer session where we entertain questions from the audience. This meeting uses 2 channels of WebEx for the simultaneous interpretation between Japanese and English. As we explained in our e-mail, you are kindly requested to use apps on PCs and mobile terminals if you wish to ask questions. But if you are not going to ask questions, you can use telephones.

Since this conference is intended for institutional investors and analysts, we would appreciate your understanding that we receive questions only from institutional investors and analysts as usual. 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.

Good afternoon. I am Kawamoto, Finance Division. I'd like to present the consolidated financial summary of the third quarter of the fiscal year ending March 2026. This slide shows the quarterly financial summary. I will mainly refer to the figures in the blue box. In the third quarter, we generated net sales of JPY 552.0 billion, 12.4% decline quarter-over-quarter.

Net sales in the third quarter were tentatively at a low level due to such a reason as shipment timing. But in the fourth quarter, net sales are expected to rise as planned. Gross profit was JPY 235.8 billion, 17.2% decrease from the previous quarter. Gross profit margin was 42.7%, 2.5 percentage point drop quarter-over-quarter due to the product mix change and the like.

Operating income was JPY 116.1 billion, 26.7% decline from the previous quarter. Operating profit margin was 21.0%, declined by 4.1 percentage point quarter-over-quarter, mainly due to increase of fixed cost ratio against net sales along with the decline of net sales. Income before income taxes dropped by 4.8% to JPY 153.3 billion. Net income attributable to owners of parent was JPY 118.5 billion, 4.3% decline quarter-over-quarter.

In the third quarter, we sold part of strategic shares recording extraordinary income of JPY 37.2 billion. Capital expenditures in the third quarter were JPY 30.3 billion.

This is a graphic representation of the financial summary shown on the previous slide on the chronological basis for your reference. This slide shows net sales by region. As for composition in the third quarter, proportion of sales in Korea rose by 6 percentage points from the previous quarter to 27.1%.

Proportion of sales in China dropped to 31.8% as expected, 8.5 percentage point decline quarter-over-quarter. This shows SPE new equipment sales by application. In the third quarter, from the bottom of this chart, sales to non-memory customers accounted for 56%, non-volatile memory accounted for 8% and DRAM accounted for 36%. Though SP new equipment sales declined from the previous quarter, sales to DRAM customers were strong, recording 12% increase quarter-over-quarter.

This slide shows the Field Solutions sales. In the third quarter, Field Solutions sales were JPY 161.6 billion. Thanks to increasing utilization ratio of customers' fabs, sales of spare parts were strong and following the second quarter, modification sales remained at a high level. This slide shows balance sheet. Total assets were JPY 2.635 trillion. Cash and cash equivalents were JPY 418.4 billion, decreasing by JPY 36.7 billion from the previous quarter. Notes and accounts receivables were JPY 401.5 billion, declining by JPY 9.8 billion quarter-over-quarter.

Inventories were JPY 725.3 billion, increasing by JPY 4.9 billion from the previous quarter. Tangible assets were JPY 573.9 billion, increasing by JPY 12.6 billion from the previous quarter. For the liabilities and net assets shown on the right-hand side, liabilities were JPY 629.7 billion, declining by JPY 32.6 billion quarter-over-quarter.

Net assets were JPY 2.0052 trillion, rising by JPY 0.6 billion quarter-over-quarter. This slide shows the cash flow. The cash inflow from operating activities in the third quarter was JPY 83.1 billion. The cash inflow from investing activities was JPY 1.2 billion as a result of acquisition of tangible fixed assets and sales of investment securities, among others.

The cash outflow from financing activities were JPY 122.3 billion due to dividend payment. Free cash flow was plus JPY 84.3 billion.

This concludes my presentation. Thank you very much.

Now Mr. Kawai will give you the business environment and financial estimates. Mr. Kawai, please.

I am Kawai. Thank you very much for joining us today. I will present business environment and financial estimates. Let me start with business environment. Currently, Calendar 2026 WFE market is expected to grow by more than 15% year-over-year. Although we need to closely watch our customers' cleanroom space, status of parts and material procurement by SPE vendors and response to manufacturing labor force, considering current strong inquiries, we can expect more than 20% growth year-over-year.

As for the momentum, driven by growing demand for AI applications, investment for leading-edge semiconductors is expected to increase continuously in the mid and long time span along with technology innovation. For DRAM, investment not only for HBM, but also for commodity DRAM is increasing sharply. Due to the supply constraints, we received a lot of further delivery pull-in requests. For NAND, along with increase of demand for SSD for data centers, namely enterprise -- ESSD, utilization rate of customers' fabs is going up, leading to new investment.

For logic, pursuing device scaling to 2 nm and 1.4 nm, further investment growth is expected in the future. The needs for advanced packaging and testing are

Accelerating day by day. They become more and more important.

For mature nodes, investment is expected to continue almost at the current level. Driven by these factors, Calendar 2026 WFE market is expected to hit a record high exceeding 130 billion dollars in size at least.

The WFE market for high-end devices mainly for AI servers is expected to grow with CAGR of 10% toward Calendar 2030. As for the scaling, more stacking, and higher performance are required, Tokyo Electron has made a great achievement since April in this fiscal year alone, in the product fields of etching, coater/developer, Film deposition and cleaning, as shown in this slide.

Also, the testing and advanced packaging areas are growing significantly. In the next fiscal year, our prober business is expected to generate sales of more than JPY 100 billion in total. In the 3D integration area, including bonders and laser-related systems referred to as process between frontend and backend, we expect cumulative sales of

Over JPY 500 billion by Calendar 2030.

Regarding etching for display, our share has reached more than 80%, providing a big business opportunity.

Due to the expanded SPE business opportunity as well as growing utilization rate of customers' fabs Field Solutions opportunities will be increasing.

It has been our industry consensus that semiconductor market will grow to $1 trillion in size in Calendar 2030. According to the latest WSTS statistics released in December 2025, however, the market is expected to reach $975 billion in Calendar 2026, getting very close to $1 trillion. Market growth is accelerating.

As much drastic market growth is expected, SEMICON Japan held last December, we released 2 new products designed to improve productivity and environmental performance. The first one is CLEAN TRACK LITHIUS Pro DICE, a state-of-the-art system developed through further evolution of our coater/developer with over 90% global share featuring world-class productivity and innovative defect control technology. We have started delivering this system to multiple customers, including for EUV lithography applications.

The other is EVAROS, thermal treatment deposition system. By using a novel multi-zone control heaters, it has achieved high thermal uniformity and drastic reduction of temperature rising and lowering time. Further enhancement of productivity is realized by throughput of up to 200 wafers per batch and shorter wafer transfer time. CO2 emissions per wafer can be reduced by 25% from the conventional system. The number of patents Tokyo Electron held at the end of 2025 was 26,029, World #1 in the SPE industry.

The Clarivate granted us the top 100 Global Innovator 2026 Award, recognizing our continuous effort to create sophisticated inventions. We received this award 6x in total in the fifth consecutive year. To continually create innovative high value-added one and only #1 technologies, we will keep investing in R&D actively.

Next, I will present the financial estimates. Reflecting the current strong business environment, we have revised the FY 2026 full year financial estimate upward. As shown here, we expect net sales of JPY 2.410 trillion, gross profit margin of 45.3% and operating profit margin of 24.6%. We have decided to additionally sell strategic shares in the fourth quarter as well.

Reflecting these factors, net income attributable to owners of parent is expected to be JPY 550 billion. This slide shows fiscal 2026 SPE new equipment sales forecast by application. The SPE new Equipment sales in the second half of this fiscal year have been revised to JPY 900 billion by taking account of active demand for AI servers. As shown on this slide, in the fourth quarter, SPE new equipment sales are expected to grow by more than 30% from the third quarter, driven mainly by sales to logic and foundry customers.

This shows our plan for R&D expenses and CapEx. Following completion of Miyagi new development building in April, construction of new development in Kumamoto was completed in October. And in November, production and logistics center in Iwate was also completed. In Miyagi, we also plan to complete the new production building at the end of next July, which adopt next-generation smart manufacturing concept.

R&D expenses and CapEx in fiscal 2026 are shown on this slide. There have been no changes from the financial announcement in October 2025. We believe that by implementing these investment for growth as planned, we have made ourselves ready for the significant market growth ahead. We have established agile responsiveness to support semiconductor technology innovation and production capacity to meet rapidly growing demand in Calendar 2026.

Leveraging this solid foundation, we will capture future opportunities for monetization to maximize our corporate value. This slide shows dividend forecast. Reflecting the revisions of financial estimates, we have revised full year dividend per share upward from JPY 533 to JPY 601, increasing by JPY 68, which hit all-time high.

In the Board of Directors meeting today, we decided to implement share repurchase up to JPY 150 billion. This decision was made by giving comprehensive consideration to our growing capacity to generate cash as well as enhancement of cash position and capital efficiency expected based on our expanding business opportunities in next fiscal year and onward.

We will conduct appropriate balance sheet management. This is my last slide showing total return amount. In this fiscal year, total return amount is expected to be JPY 426.2 billion, beating the previous record of the last fiscal year, setting a new record, combining dividend estimates and share buyback announced today.

This concludes my presentation. Thank you very much for your kind attention.

Now we will have question-and-answer session until 6:30 .m. Japan time. [Operator Instructions]

Now the first question is from Mr. Yoshida of CLSA Securities.

I am Yoshida from CLSA Securities. Regarding Slide 12, WFE market trend, by application, if you have any growth rate, could you share that with us, please? As for China, how do you view the China?

Thank you. So this is Kawai. Let me answer to your question. The growth rate by application. WFE market growth is expected to be more than 15%, as I said in my presentation. So 20% or more growth is expected for DRAM at present. China market is expected to remain flat. So centering on AI servers, the investment in other areas than China is expected to grow drastically. That's how we view the market trend. For NAND, it remains flat or slight increase is expected. The investment outside China is increasing.

Logic market is outperforming WFE market, about 15% to 20% growth is expected for Logic.

For NAND, in that sense, the NAND market is expected to be flat or slightly increased. So growth is a bit lower than the other applications. However, your company, the sales of the cryo etching will be increasing or recognized. So by increasing share, you can expect increase of sales by means of the share increase. How do you view that trend?

So for NAND, so the utilization rate of customers' fabs is now increasing. Therefore, the new equipment investment will start in the future. At present, the customers have been increasing their utilization ratio. And after that, they will shift to the new equipment investment. So we can see some sales for cryo system, but customer design rule and investment, that may come next year rather than this year.

Next question is from Mr. Nakamura of Goldman Sachs Japan.

I have a question regarding the trend of the gross profit margin. The third quarter gross profit margin was a little bit low. Are there any temporary reason just like the valuation loss of the inventory. But fourth quarter, we can expect the increasing trend of the gross profit margin. For next fiscal year, gross profit margin is -- how do you view the gross profit margin in next fiscal year?

This is Kawamoto. Let me answer to your question. So third quarter, as you pointed out, gross profit margin was not so good. That's true. There are several factors. So sales -- net sales, as I said, was a bit lower. That's one thing. And also, the product mix is another factor.

In addition, as Kawai said earlier, toward the growth, we have invested a lot for growth. In this fiscal year, production building and development building have been completed and start operation. You can -- it is also true the fixed cost increases. So third quarter, the gross profit margin declined a little bit. But when it comes to the fourth quarter and onward, we can expect the improvement in gross profit margin for the financial estimates, the gross profit margin forecast has remained almost the same as the previous financial announcement.

It is not true that the special valuation loss was recorded.

So next year, we -- for introduction of the new equipment, we are going to establish a plan to improve the gross profit margin furthermore. So we are now working on -- we are going to start budgeting next year. So we try to come up with some plan to improve the gross profit margin relatively speaking, so we can expect the sales increase. And earlier, I talked about the result by equipment. We got -- won some POR and some equipment expected to grow furthermore. We presented those plan for each product.

The product portfolio this year, next year and 2 years from now, those products will be incorporated, and we can provide the opportunity for high value added to the customer. So this is how we can further improve gross profit margin. In addition, recently, customers' fabs utilization rate is increasing. Therefore, we can expect the growth of the field solutions sales as well. So now new equipment sales opportunity. And number two, field solutions sales increase. Based on those factors, it is possible for us to improve gross profit margin.

So now we are in the inflationary trend and costs are increased because of the pull in delivery. So we need to do some adjustment. And in order to improve gross profit margin steadily, we are now discussing what we can do, and we believe we can improve gross profit margin.

Next question is from Mr. Shimamoto of Okasan Securities.

I am Shimamoto of Okasan Securities. On Page 12, WFE market. So 2026, you said 15% or more growth is expected. So 15% or more, what is the potential for more than 15% growth?

Especially, there are some factors. So the clean room space is limited. That's one thing. As for delivery, it depends on your production capacity, I wonder. So in order to bring 15% or more growth in WFE market. As for the current constraints, what sort of action do you take?

Thank you very much for your question. At present, based on the inquiries, maybe 20% or more growth can be expected for WFE. As far as our company is concerned, we are prepared. We are now preparing for such kind of drastic increase of the inquiries.

I said 15% or more, this is global WFE rather than our WFE. So some of the companies may not be able to address increasing inquiries. So as for the global WFE market, I said 15% or more growth is expected. That's how I explained.

In order to improve the growth rate furthermore, for one thing, the clean room space of the customer's fab should be secured and how fast customers can increase the space of clean room, if they can accelerate the pace to increase the clean room of their fab, they can purchase the new equipment earlier. And DRAM, in particular, shortage is one of the concerns in the future, but whether some manufacturers may not able to secure the materials, cannot purchase the materials. That's one other factor. For the foreign exchange, foreign exchange rate is increasing and decreasing. So it's so uncertain what happens to foreign exchange market.

The proportion of made in Japan equipment accounts for about 30% in the global WFE market. Therefore, if there is a drastic change in foreign exchange rate, that might be impacted. Based on those factors, the global WFE market is expected to grow 15% or more. But based on inquiries, we can expect more than 20% growth in WFE market. I hope I answered your question properly.

So your capacity doesn't have any problem -- you don't have any problem as far as your capacity is concerned?

Yes. Mr. Shimamoto thank you very much for your question.

Next question is from Mr. Hirakawa of BofA Securities.

I'm Hirakawa of BofA. Earlier, you talked about the WFE market growth. You said China market remained flat. Are you referring to DRAM? I just wonder. So let me just confirm, get clarification. So WFE market in China, what sort of growth do you expect of Chinese market in 2026 by application? And against that, what is your sales to Chinese market, increasing or decrease? Could you share your current forecast with us, please?

I said flat earlier. So memories and logic have been replaced. So that's what I mean by flat. Last year, memory, last year, memory, including DRAM and NAND. And this year, more like logic increased. Therefore, last year, memory investment increased and this year, logic investment increased.

So top line Chinese market in this year remained almost the same as last year. And our company, as the Chinese markets remain flat, then our sales to Chinese market remain flat. That's how I view the trend.

Next question is from Mr. Yamamoto of Mizuho Securities.

I am Yamamoto of Mizuho Securities. Can you hear me?

Yes, we can hear you.

For the improvement of the gross profit margin, I want to ask about your strategy for pricing? So it's so uncertain about the foreign exchange, but now yen depreciation is going on. So as many people said in the past, on Page 13, so the new POR for leading -edge product has been increasing.

So this is how you can increase the price. I think once you get the order, then if there is the same equipment, I don't think you increase the price. But when it comes to the new equipment, if you have the technology competitive edge, you said that you want to set up the price to meet the technology competitive edge.

So what is your pricing strategy? And when the pricing strategy changes, what sort of impact does it have on the gross profit margin?

Our company's technology should be leveraged, and we can expect the continual technology innovation and market growth continue. That's where we try to sell our products. That's our sales strategy. In that sense, so we should see the market where continuous technology innovation is expected.

So device scaling and technology innovation, we can launch new models. That's what we mean by that. From that viewpoint, for new model, we need to optimize price of the new model. We need to do it properly. So this is how we can improve the gross profit margin, which is important for us to aim at increasing or improving gross profit margin because of inflation, there are soaring cost of the materials and components.

Here in Japan, we declare partnership. So the cost increase throughout the supply chain should be embraced by setting optimum pricing. For customers, we provide the solution to improve their productivity for the customers. This is how we can improve the gross profit margin. And recently, now there are request to pull in delivery from the customers. We may ask partner companies to work hard. That could be the cost increase.

So we need to take care of those cost increase because of the pull in request for delivery and inflation, some of the materials or parts price is going up. So even if model is not changed, we need to discuss with customer so that customer can understand the reason why we need to increase price when the material cost increases. And now device scaling is going on and utilization rate and productivity enhancement. We should provide methods to help customers to improve their productivity. That is another area of value-added solution. So for example, ultimate uniformity to improve the yield or reduction of particles and other defects or the maintenance cycle extension solution, the solution to reduce maintenance time or duration.

So for existing installed base, we can provide some solutions to improve the condition and we can provide value added. This is how we can improve gross profit margin. So not only new products and appropriate pricing to take care of inflation and providing effective solution to the customer. So by taking those actions, we try to improve the gross profit margin.

Thank you very much. For example, competitively do you have any target of the gross profit margin? When you set the pricing, some other companies are doing such kind of approach. So current gross profit margin, so 35% of the OPM cannot be achieved for the midterm management plan. And so 35% target for operating profit margin for midterm management plan, I think you can have certain strategy for pricing. So do you have any target of the gross profit margin for 50% under the leadership of Kawai San? Do you -- do you have any quantitative approach to improve gross profit margin?

Exactly. So midterm management plan, 35% operating profit margin in order for us to achieve this target of OPM, 35% gross profit should -- are in our mind. Therefore, we are working based on that assumption. So we are working on based on what you said. But Tokyo Electron, not only just increasing price, but we try to provide value to the customer. And -- at the same time, we try to improve gross profit margin. And at the same, we are going to achieve our midterm management plan.

So we try to brush up our technologies, and we try our best to meet our expectation by improving gross profit margin. And we are focusing our effort on that area.

The next question is from Mr. Yoshioka of Nomura Securities.

I am Yoshioka of Nomura Securities. My question is regarding WFE market growth potential. On Page 12, I'm just looking at Page 12. So leading-edge semiconductors, midterm, long-term expansion trend is expected. That's what you said in your presentation. And when you look at the investment by the chip makers, I think you can see some investment plan for long-term period.

My question is 2027 or 2028. At present, do you expect a certain level of visibility of the growth? Or -- and if yes, if that is true, what sort of applications are expected to contribute to the growth in '27 or 2028? I want to understand or I want to ask about your view on WFE market in 2027 and 2028.

It's too early to say anything about quantitative thing, but it is definite the high level will remain continue, especially memory customers. We are doing good communication with memory customers for next year trend. And as I said earlier, the clean room space of the customer is one of the challenge. So each customer, so we're working very hard to pull in the construction of new fab. So talk-to-talk communication with the memory customers and logic customers through the conversation with those customers, next year, the high level WFE is expected. It's so difficult to see what happens in year 2028. But [ HAI ] is growing now. Therefore, the demand application for [ HAI ] is expected to grow. ICT industry is expected to grow furthermore. Huge amount of wafer fab is planned to be constructed by year 2030 and [ HAI ] application is also a driver. Therefore, high level of demand is expected to continue.

I understand your view for the future market. The technology innovation will continue. For example, from JAA sic [ GAA ] to CFET, the trend or VCT to 3D DRAM and the number of layers or number of layers for NAND will be increasing. So high performance and low power consumption should be pursued. And there is a demand for the process in between front end and back-end process, CFET and 3D DRAM, maybe that should be 2032 or 2033.

So drastically changed -- drastic change of equipment expected in those years, then quantum computing, 6G or AI with robotics, those demand are expected further beyond. Therefore, technology innovation of semiconductor expected. We need to closely watch the energy consumption. That's one thing and cash flow, now you can see the massive investment. So we also need to closely watch cash flow. But in the future, you can see long-term growth trend remain unchanged.

I understand this strong trend of the growth.

The next question is from Mr. Shibano of Citigroup Global Market Japan.

I am Shibano from Citigroup Global Market Japan. So I have a question for the business performance in the second half of this fiscal year. So you said toward next fiscal year, there are strong request from the customer for the delivery pull in.

On the other hand, over the past 3 months, the October-December period, against the plan, I think the progress is rather low compared with your plan. And the second quarter, China was rather strong. Therefore, third quarter looks soft because of this very strong second quarter. But October to December performance compared with your guidance 3 months ago, are there any gap between the result and the guidance?

And from January to March, you just expect the high sales. What is the progress of shipment, the current status of shipment? And what is the confidence level to achieve the higher level of sales? And if you can meet the request for pull-in delivery, you may be able to further enhance your sales more than guidance. Is that possible?

As for your first question, so for the second, third and fourth quarter, performance is as planned. There is no difference or gap. There is some seasonality. But last year, from the SEMICON West last year, we expect the increasing demand and now momentum is coming in.

So the budget finalized at that time is to be implemented in January to March period. Needless to say, there are upward revision of the financial estimate because of the pull in request for delivery. And we are sure we can take care of the pull in request for delivery. That's the reason why we made upward revision. And customers want us to further pull in the delivery. So including such requests, we are now taking actions. But there is a possibility that our estimate can be revised upward furthermore. And when -- so in some cases, the sales is recognized after the completion of the start-up. So there are some positive or negative impacts, but there is a slight possibility of the further upward revision, but we are sure that we can achieve the figures that we have revised this time.

Mr. Shibano, thank you very much for your question.

So we received all questions. We have 10 minutes to go. So maybe second round of question. [Operator Instructions] So next question is from Mr. Hirakawa of BofA Securities.

So JPY 150 billion share repurchase is announced, and you conduct the share repurchase every year to keep good balance sheet management. So JPY 150 billion, could you let me know the reason why you set up this figure, JPY 150 billion?

As for size of share repurchase, as Mr. Kawai said earlier in his presentation, we will see cash end of fiscal year or current capital policies, ROE or total return ratio or total return amount. Based on those factors, we decided JPY 150 billion should be appropriate. So we made the decision to keep good balance.

Let me add some comments. This is Kawai. So ROE or our capital policy, ROE, 30% or more. In the previous fiscal year, our ROE exceeded 30%. Next fiscal year is our target year. Again, we like to achieve high -- more than 30% ROE. We committed this figure. Based on that consideration, we thought JPY 150 billion should be appropriate amount for share repurchase.

Just looking at the leading-edge area, the R&D investment accounts for about 10% of the sales. But in the area to drive technology innovation, in that area, at present, about 20% of R&D investment against sales is made and cash in principle is leading to the investment for growth. On the other hand, the equity ratio is about 70%. But this time, the equity ratio is expected to be rather high. Of course, we keep investment for further growth, but equity ratio of 70% should be considered. And also, we need to pay attention to ROE. Based on those factors, we decided the amount of JPY 150 billion.

I don't try to get the commitment. But next fiscal year, so ROE of 30% to be achieved, that's your strong?

Yes, of course, that's really important to achieve ROE of 30% next fiscal year.

Next question is from Mr. Nakamura of Goldman Sachs Japan.

I'm sorry, this is my second question. So I have a question to Mr. Kawai, CEO. So JPY 3 trillion OP margin, 30% by year ending March 2027. And what is the current status to achieve those targets?

So top line of JPY 3 trillion or ROE of 30% in year ending March 2027, we are now following our midterm management plan target. That's the goal we want to pursue. Of course, we need to pursue all the targets we have set. So JPY 3 trillion, we are now getting somewhat closer to JPY 3 trillion. We are now scrutinizing current status.

For the operating profit margin, there are various situations in the past, so composition of the overseas market is rather high or proportion of overseas market or proposed sales is rather high. I think the yen depreciation had big impact. So when we started midterm management plan, the $1 was JPY 120. So that is one of the impacts. Also, the regulations, national regulations is another factor and the customer with high share, customer -- those customers didn't proceed with their investment as planned.

And also NAND investment was smaller than expected. So there are several factors to impact our plan, but we see AI demand is coming. So -- more than midterm management plan, we are now increasing R&D investment so that we can maintain the world-leading technology innovation power. We didn't see such kind of accelerated trend of AI when we established the plan.

So because of those factors, operating profit margin does have some challenge, but we try to catch the current demand, and we try to promote penetration of our new products. We try to see the way to further improve the operating profit margin. And we would like to make every effort to improve the operating profit margin. For top line and ROE, our targets are within our reach. So the other -- then we need to take various approach to pursue the further enhancement of the operating profit margin. Did I answer to your question?

Next question is from Mr. Yoshida of CLSA Securities.

Sorry, this is my second question. So WFE for this year. So first half and second half of this year, what is the proportion between the two? So clean room space limitation among customers more weighted in the second half. Was there any proportion between first half and second half of this year?

Actually, that is rather even according to my impression. Even now, you can see the drastic request from the customer to pull in delivery. So already started now. So customers try to improve the clean room space and customer may ask us for the location to bring the equipment, the new area of clean room. But I think we receive inquiries or requests evenly throughout the year.

So when you say evenly throughout the year, demand is now coming. But the first half and second half of the year, are there any changes in application drivers?

So drivers are from the leading edge node -- leading-edge technology. So both logic, DRAM are getting momentum. And I think NAND might be the second half. Thank you very much for your question.

Next question is in English. Let me read it out. We saw very strong CapEx -- sorry, [ Ling Pin Fan from Fai Securities. ] We saw very strong CapEx from US CSP in recent quarter results. The total CapEx from CSP grew 80% year-over-year, which is higher than WFE market. What is your view on this gap? And what is your capacity expansion plan now to satisfy future demand in 2027?

For the data center, yes, the JPY 50 trillion of investment in the Japanese yen -- so I think implementation proceeded this year. Then now you can see increasing number of applications and customers are working hard to take care of various applications, and they are trying to catch up by introducing high productivity equipment. That's the reason why we have many inquiries for the equipment with high productivity.

For the gap in capital intensity, so semiconductor device value added is increased. Accordingly, capital intensity is slightly declining. But in the future, the device scaling is going on and technology innovation is expected for various equipment.

Therefore, capital intensity may be likely to increase slightly. So what is very important, the 2 vendors and our customers. So OPM should be improved. The capital intensity does not increase so much. On the other hand, cash flow goes up. That means the investment will increase in the future. In particular, capital intensity is not -- we don't have big concern about the lower capital intensity. Thank you very much for your question.

Another follow-up question. We saw a 31% sequential decline in Chinese revenue this quarter. Do you view this primarily as a temporary inventory adjustment by Chinese customers in the mature nodes? When do you expect the demand in China to recover?

From last year, now we can see quite a few new customers starting investment to improve yield. So they are working hard to enhance the yield. That's the reason why they just refrain from new investment. Because of regulations, the equipment is delivered earlier and those equipment is now in the inventory or warehouse. And customer mix is another factor. So because of those factors, the third quarter, there was a slight decline in third quarter.

In the future, now there are quite a few customers, and we need to closely watch the trend of demands of customers in China. For commodity area, maybe in the future, WFE in China is likely to remain flat in the future. That's how we view the Chinese market trend.

So, since there is no question, we like to close financial announcement. Before closing, there is one announcement, from this quarter, we will hold a follow-up session for institutional investors after the financial announcement; 2 sessions in total, one in Japanese, the other in English. Japanese session is planned to be held at 10:30 a.m. to 11:30 a.m. on February 19, 2026; English session is planned to be held at 8 a.m. to 9 a.m. on February 20, 2026. We would appreciate your kind understanding that neither sessions will use interpretation services.

Yatsuda and Takagi of IR department will attend the session as speakers. And this follow-up session will be held in webinar format. If you wish to attend the session, you are kindly requested to access the registration site from this URL or QR code to complete the registration in advance.

Lastly, we'd like to continually improve our IR activities based on precious feedback. So we appreciate your kind cooperation in filling out the question-and-answer way 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.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

It's time for us to start Tokyo Electron Financial Announcement for the second quarter of fiscal year ending March 2026. Thank you very much for joining us today despite your busy schedule. I am Yatsuda of IR Department, serving as the moderator for today's session. Let me introduce today's attendees. Toshiki Kawai, Representative Director, President and CEO.

I am Kawai. Thank you very much.

Hiroshi Kawamoto, Senior Vice President, General Manager, Division Officer of Finance Department.

I am Kawamoto. Thank you very much for joining us today.

Before starting the presentations, let me explain the flow of today's session. First of all, Kawamoto and Kawai will make presentations. After that, until 6:00 p.m. Japan time, we will have a question-and-answer session where we entertain questions from the audience. This meeting uses 2 channels of Webex for the simultaneous interpretation between Japanese and English.

As we explained in our e-mail, you are kindly requested to use apps on PCs and mobile terminals if you wish to ask questions. But if you're not going to ask questions, you can use telephones. Since this conference is intended for institutional investors and analysts, we would appreciate your understanding that we receive questions only from institutional investors and analysts as usual.

We will post the audio contents of this conference in Japanese and English on our website within a couple of days. It will be appreciated if you could also visit our website. So first of all, Mr. Kawamoto will present the consolidated financial summary.

Once again, good afternoon. I am Kawamoto Finance Division. I'd like to present the consolidated financial summary of the second quarter of the fiscal year ending March 2026. This slide shows the quarterly financial summary. I will mainly refer to the figures in the blue box. In the second quarter, we generated net sales of JPY 630.0 billion, which is in line with our guidance, 14.6% increase quarter-over-quarter.

Gross profit was JPY 284.8 billion, 12.2% increase from the previous quarter. Gross profit margin was 45.2%, 1.0 percentage point drop quarter-over-quarter due to the increased ratio of fixed costs. Operating income was JPY 158.4 billion, 9.5% increase from the previous quarter. Operating profit margin was 25.1%, declined by 1.2 percentage point quarter-over-quarter, mainly due to the impact of increased development expenses.

Income before income taxes increased by 6.0% to JPY 161.0 billion. Net income attributable to owners of parent was JPY 123.8 billion, 5.1% increase quarter-over-quarter. Capital expenditures in the second quarter were JPY 91.2 billion, consisting mainly of the payment made at the start of construction of the production building at Tokyo Electron Miyagi and development building of Tokyo Electron Kyushu.

This is a graphic representation of the financial summary shown on the previous page on the chronological basis for your reference. This shows financial summary on the semiannual basis. The figures in the blue box are financial results in the first half of this fiscal year. The far right column shows the financial estimate for the first half of this fiscal year we announced on July 31. As you can see, our results in most cases, exceeded our guidance.

This slide shows net sales by region. As for the composition in the second quarter, proportion of Korea rose by 5 percentage points quarter-over-quarter to 21.1%. Proportion of sales in China was 40.3% in the second quarter, reflecting the trend of pulling forward from the second half of this fiscal year. This shows SPE new equipment sales by application. In the second quarter, from the bottom of this chart, sales to non-memory customers accounted for 59%, nonvolatile memory accounted for 14% and DRAM accounted for 27%. In the first half of this fiscal year, composition of SPE new equipment sales by application was mostly in line with our estimates. This shows the Field Solutions sales.

In the second quarter, Field Solutions sales were JPY 160.3 billion, thanks to high utilization rate of the customers' fabs in the second quarter. Sales of services were strong and modifications increased as well. As a result, Field Solutions sales grew by JPY 19.1 billion quarter-over-quarter. This slide shows the balance sheet. The total assets were JPY 2,667.0 billion. Cash and cash equivalents were JPY 455.2 billion, increasing by JPY 87.7 billion from the previous quarter.

Notes and accounts receivable were JPY 411.4 billion, increasing by JPY 18.1 billion quarter-over-quarter. Inventories were JPY 720.4 billion, declining by JPY 36.6 billion from the previous quarter, partly because of drop in inventory at the factories. Tangible assets were JPY 561.2 billion, increasing by JPY 80.9 billion from the previous quarter, primarily due to the capital expenditures that I mentioned earlier. For the liabilities and net assets shown on the right-hand side, liabilities were JPY 662.3 billion, increasing by JPY 25.8 billion from the previous quarter.

Net assets were JPY 2,046 billion, rising by JPY 131.8 billion quarter-over-quarter. The equity ratio was 74.4%, just for your information. This slide shows the cash flow. The cash inflow from operating activities in the second quarter was JPY 175.8 billion. The cash outflow from investing activities was JPY 86.7 billion, mainly due to acquisition of fixed assets. Cash outflow from financing activities was JPY 1 billion. Free cash flow was plus JPY 89.1 billion. This concludes my presentation.

Thank you very much. Now Kawai-san will make a presentation regarding business environment and financial estimate. Kawai-san, go ahead, please.

This is Kawai. Once again, thank you very much for joining us today. I will present business environment and financial estimates. Let me start with the business environment. CY 2025 WFE market is expected to be $115 billion in size as projected in July. Investment in the mature nodes is soft in general, while investment in NAND is now picking up after being soft over the past few years. In particular, advanced logic and DRAM for AI applications are driving investment.

The era of AI sure is here. The strong AI server demand and technology innovation of semiconductors essential for AI servers will act as a powerful driver to continually lead dramatic growth of investment for leading-edge semiconductors. For DRAM, investment not only for HBM, but also for commodity DRAM are growing sharply. Double-digit growth is expected to continue next year and beyond. For NAND, along with the growing demand of SSD for data center, namely enterprise SSD, utilization rate is improving at our customers' fabs.

For logic, along with device scaling to 2-nanometer and 1.4 nanometer, further investment growth is expected in the future. The need for advanced packaging and testing are growing day by day. They become more and more important. For mature nodes, investment is expected to continue at the current level. Driven by those factors, CY2026 WFE market size is expected to hit a record high. We expect expansion of demand for high value-added cutting-edge equipment in coming years.

In the growing semiconductor production equipment market, Tokyo Electron has established an advantage to strategically capitalize on diversified business opportunities as we offer not only front-end process tools for device scaling and device stacking, but also 3D heterogeneous integration tools and testers. There is a consensus that in year 2030, semiconductor market will reach $1 trillion in size. Among various technology innovations by 2030, Tokyo Electron has a lot of business opportunities.

For example, for etching, due to growing investment in HBM featuring numerous interconnect layers, we expect the sales of JPY 500 billion in total for DRAM interconnect process by year 2030. For bonder and other 3D integration tools, we generated sales of about JPY 30 billion in previous fiscal 2025. From now on, however, drastic expansion is expected in applications of advanced logic, DRAM and NAND. And accordingly, we expect to generate sales of more than JPY 500 billion by year 2030.

Tester demand is growing more than expected. Looking back Tokyo Electron's history, there was time when prober business made up bulk of our sales. The current tester momentum is just like that time. In the case of advanced probers for AI and HPC, where Tokyo Electron has high market share, along with the increase of test time and test process as well as introduction of new test methods such as die prober, high growth rate of CAGR of more than 15% is expected between 2025 and 2030. We are also focusing our efforts on penetration to new business areas and SAM creation.

For die probers, whose market size is expected to account for 10% to 15% of total prober market, we have achieved agreement with customers to initiate evaluation for development. For logic of future generations, single wafer plasma-enhanced CVD is expected to boost business opportunities for void-free gap fill. The market size of plasma-enhanced CVD is currently about JPY 1 trillion. The gap field business is expected to grow to about 10% of this market.

Tokyo Electron has succeeded to develop damage-free gap field deposition technology. And we have started evaluation with leading-edge customers to expand the application of this technology. There are more projects going on very well. For low-resistant metal film deposition, evaluation is going smoothly at multiple DRAM and NAND customers, and we won POR from one customer. For cleaning equipment, we are making good progress in SPM vapor cleaning and system to clean both sides of wafer simultaneously, which lead to our market share enhancement.

For etching, in addition to the business growth of DRAM capacitor for which we are in dominant POR position, customers will start investment in mass production of NAND with 400 layers at the end of next year. Accordingly, our cryogenic etching system will be deployed into high-volume manufacturing line, driven by market growth and our share increase growth potential expanding significantly. We will actively promote customer engagement activities and forward-looking R&D activities and strive to continually enhance our corporate value.

Next, I will present the financial estimates. Reflecting the results of first half of this fiscal year, we have revised our financial estimates. For full year fiscal 2026, we expect net sales of JPY 2.380 billion, gross profit margin of 45.3% and operating profit margin of 24.6% as shown here. In the ongoing third quarter, we sold some of shares we own and recorded extraordinary income. Taking these factors into account, we have revised fiscal 2026 net income upward by JPY 44 billion to JPY 488 billion.

Now this slide shows fiscal 2026 SPE new equipment sales forecast. The SPE new equipment sales in the second half of this fiscal year remained unchanged from the 3 months ago. As expected, growth slightly from the first half to JPY 880 billion. The breakdown by application is shown on this slide. This shows our plan for R&D expenses and CapEx. In this fiscal year, following completion of Miyagi new development building in April, construction of a new development building in Kumamoto was completed this month, October.

A production and logistics center in Iwate is also planned to be completed next month. In Miyagi, we are -- we also started construction of new production building in June, which adopt next-generation smart manufacturing concept. R&D expenses in fiscal 2026 are slightly revised to JPY 290 billion. The plan for CapEx and depreciation remains unchanged, expected to be JPY 240 billion and JPY 86 billion, respectively.

This is my last slide showing the dividend forecast. Reflecting the revised financial estimates and selling of some shares we own, the full year dividend per share is expected to be JPY 533 in this fiscal year. While taking account of balance between status of cash on hand and capital efficiency during this fiscal year, we will flexibly consider possibility of share repurchase. This concludes my presentation. Thank you very much for your kind attention.

Now we'd like to start the question-and-answer session until 6:00 p.m. Japan time. You can ask questions either in English or Japanese, speak. Bt our speakers are on the Japanese channel, please allow us to take audio questions only in Japanese. [Operator Instructions] As we like to take questions from as many participants as possible we will take 1 question per person. If time allows, we will take additional questions. So the first question, Yu Yoshida-san from CLSA Securities.

WFE market forecast next year, for DRAM, you made some comments. But once again, as a whole, WFE market, how do you view next year WFE market? And also by application, could you share your image of the growth rate? And first half of next year, your competitors say the sales will be -- the market should be flat and recovery starting in the second half of next fiscal year. And what's your view? What is your view?

WFE market forecast or outlook. At present, we are now scrutinizing WFE market trend. You can see quite strong inquiries, especially for the leading edge nodes for AI server, we have rather strong inquiries. In particular, DRAM is expected to grow double digit. That's how I view for next year. The strong -- very strong demand for AI server is now coming. However, there is one thing I want to note.

Although demand is rather strong, the customers' fab space is limited against a very, very strong demand. So fab space of customers might have some limitation. So we have strong inquiries, but in second half, recovery is expected because once the open space is available in the customers' fab, they all have process tools moving to the new open space in their fab. For this year, logic and memory proportion should be 35% for memory.

Out of memory, 80% is from leading-edge memory and 20% from non-advanced memory out of 65% logic, non-memory, 25% from is leading edge and 75% is non-leading edge. So in the breakdown next year, the memory and non-memory proportion should be 40% to 60%. Maybe in the future memory, 85% is from the leading-edge memory. As for logic, for this year, 25% is from leading edge. But next year, about 40% of total logic are leading-edge logic next year.

I have one short follow-up question. Next year, this first half of next year, if the market is -- remain flat, so now you have the January to March, you can see some drop expected. So if there is no change, so April to June, you can see drastic recovery in next fiscal year. Is my view is correct? Or as you said earlier, we need to wait for the second half because there is no open space.

I think inquiries are rather strong for next fiscal year. So delivery adjustment is now being conducted. So AI server demand is growing. So now we can see the timing of recovery. So the market is now moving as we expected. So we can have a great expectation for next year.

Next question is from Mr. Nakamura of Goldman Sachs Japan.

I am Nakamura from Goldman Sachs Japan. Can you hear me?

Yes.

So 3 months ago, the calendar '26 WFE market was drastically revised. And after that, various OpenAI news and memory market has been booming. So there was drastic changes over the past 3 months. You said there are strong inquiries. And once again, 3 months ago, when you made downward revision, there are some factors for that downward revision.

And how do you view those factors right now? In particular, in some memory customers, you said the yield has been improved. And because of that, you declined the WFE market outlook. in the first half of next calendar year. How do you view the current situation?

Initially, we had expected early recovery. That's the reason why we need to make the revision. But 3 months later, you can see some momentum gaining now. We landed the first half of this fiscal year with the results in line with our forecast. We received the orders and had fixed the production plan. I think we can fulfill the plan. Initially, we had the expectation for early recovery. That's the reason why we need to make the downward revision 3 months ago. But now we can see some symptoms for recovery.

Initially, we expected early recovery both for logic and NAND market. Currently, you can see some growing trend of PC and smartphone demand. But initially, we expected a bit too early recovery. And the demand for the mature node has been decelerated. Because of that, we came up with downward revision 3 months ago. For mature node market, also in the future, maybe the investment remain unchanged. For leading-edge AI server-related area, the market will be growing. Therefore, portion of the mature node will be declining gradually. Did I answer to your question?

Thank you very much. So calendar 2026 WFE market trend. So when you say your current comment, 6 months ago, you said you expect double-digit growth. And 3 months ago, you retreat that comment. But what is your view for WFE market 2026 calendar year?

WFE market is expected to hit the record high in calendar 2026. For memory demand, it is really big, drastically big. So against that big demand, we may not be able to fill the demand. So we may see memory shortage. In that sense, long-term super cycle might start. And also customer production plan should be closely watched. In that sense, when customers' fab capacity is ready, in the second half of next year, you can see another jump in the business.

So this is one of the way to view the next year, and I feel comfortable about that kind of outlook. Demand is growing, definitely. and deliveries have started. But even that, the supply cannot catch up with the demand. So we need to be carefully watched the capacity enhancement.

Next question is from Mr. Wadaki of Morgan Stanley MUFG Research Japan.

So I'm sorry, I was not able to connect rightly. So I think the atmosphere in the market is improving. And next market, you may -- it may be difficult. Maybe 20% growth can be achieved, excluding China. How do you view the market growth next year at Kawai-san?

So rather high growth rate can be expected. But actually, my expectation is not so accurate. So I think I feel very good. condition.

So even if 20% growth outside of China, depending on Chinese market, overall situation might be rather difficult. So SML is not so good in China next year. So how do you think about the outlook of China?

In principle, certain level of semiconductor devices, including commodity devices are required.

Therefore, certain level can be maintained. However, I cannot hear any bright news.

My concern is the restriction -- risks of regulations. How do you view the risks of regulations?

So compared with the previous period, there are quite a few considerations. But as far as our company is concerned, we haven't identified anything additional. So we must closely watch the situation of regulations. And when we ship equipment from Japan, there are quite a few equipment shipped from Japan. So we must abide by the Japanese regulations continuously.

This is how I view the trend. However, the portion of the Chinese market different from the geopolitical viewpoint, the AI server proportion goes up, the leading-edge area portion is increasing. Therefore, the general proportion of China market will be declining.

Next question is from Shimamoto-san of Okasan Securities.

I'm Shimamoto from Okasan Securities. So my question is a bit different from other questions so far. Next fiscal year is the final year of the midterm management plan and sales target is JPY 3 trillion. You haven't removed this target, but market has been improving so far. So your milestone target, how do you view this midterm management plan target? As for the growth rate, growth rate is expected rather high. How do you view the trend?

So for our midterm management plan, ever since its announcement, there have been various changes in macro economy, geopolitical situation between America, China, regulations, inflation, Russia-Ukraine war. So there are quite a few things happening over the past 3 years. So there are some difference from our original assumption. But for some equipment, in the beginning, there are some regulations imposed on some of the equipment.

And those changes or difference have some impact on our performance of the achievement of financial model. But having said that, high value-added leading-edge equipment evaluation is going on track. So by providing high value-added equipment, we do have the strong earning power. So the -- excluding macroeconomic impacts as far as our strategy is concerned, I think we are now fulfilling our strategy smoothly.

40% gross profit margin 5 years ago has been increasing to 45% along with the provision of high value-added products. In the future, in the leading-edge area, our technology is provided to more and more opportunities. And as I said earlier, there are various factors, but we try to offset those impacts because of the strong demand for AI servers. Therefore, if the WFM market grow to a certain expected level, I think we may get close to our midterm management plan. So we should closely watch various factors to pursue the possibilities.

I have one follow-up question. For memories, there are some fluctuation -- big fluctuation of memory. I think that is the critical issue. especially NAND. For the time being, there had been no investment for NAND, but customers' utilization goes up and NAND price goes up as well. So appetite for investment on Page 13. So now you have increased -- there is no increasing inquiries, but do you have a high expectation next year for inquiry for NAND?

Right. Yes, definitely. I think next year is a good year for NAND, strong year.

Next question is from Mr. Hirakawa of BofA.

I am Hirakawa from BofA. The Field Solution business, now we have JPY 160 billion, one step higher. That's what you showed us. Now over here, it's not greenfield, but brownfield. That's the reason why it goes to JPY 160 billion. Towards next fiscal year, I wonder WFE market growth, that figure will be declining? Or do you think JPY 160 billion should be a new standard?

So for customers, utilization rate is increasing. Therefore, field solution is growing accordingly. That's one thing. And leading-edge node, the customer assets should be upgraded. CIP continuous improvement project is the kind of upgrade or modifications will be rather high in volume. So we do have demand for CIP. -- etching system, for example, in our company, customers asking for upgrade from [ Ulucus 4 to Ulucus 7 ]. So these are the drivers.

I have one follow-up question. If that is the case, second half of this fiscal year or the next fiscal year, the field solution is JPY 160 billion should be a kind of standard. Is that correct understanding?

In the future, increasingly, so the installed base creates the new value. So field solution modifications and uptime improvement of the equipment, also yield enhancement, which is really critical. Therefore, how can we support our customers to enhance the yield or how can we provide the services and technology to support customers to improve yield, which has become more and more critical. Therefore, the field solution sales is expected to grow along with the increase of the installed base growth.

Next question is from Yamamoto-san from Mizuho Securities.

I am Yamamoto from Mizuho Securities. Cost control. I have a question regarding cost control. Tokyo Electron is working hard to grow. That's your direction. And you have the company-wide power to promote the growth. I know your driving power is very strong. So in some cases, your forecast is not correct upward and downward. But for the growth, you have very strength.

When your performance is in downturn phase, -- why don't you think about streamlining your structure rather than bloating? This could be a great opportunity to stop and look back. That's how I view your company's trend. Even under the leadership of Kawai-san, the cost cut is not so much and initially committed gross profit margin of 47% and gross profit margin in the midterm management plan is higher than that.

I thought you couldn't reduce cost in the previous guidance cut, including SG&A ratio. But 3 months later, you could only reduce cost this much. And there is a wide gap in profit margin against what is committed to the capital market. Even under the leadership of the Kawai-san, you are not able to change the corporate culture.

I don't think in that way, I want to say that. For one thing, our employees are a source of value creation. So actually, investment for human resources is equal to the investment for further growth. That's our management policy. So for the future, semiconductor market is growing based on that growth, $1 trillion. So we want to have the steady preparation to prepare for the $1 trillion semiconductor market.

Short term, midterm and long-term strategy for growth should be considered carefully. Ever since cancellation of integration with Applied Materials over the past 10 years, our sales has been increased more than 4x -- about 4x. Our profit has been increased by 8x. So from now onward, $1 trillion market or more than that, that's the new era. Therefore, we are now working on the R&D investment, CapEx and human resource investment.

We do have plans for that to prepare for $1 trillion semiconductor market. We are now preparing for that. Based on such assets, we want to make the best use of our assets so that we can enhance our capability for the device market, which is to be doubled. For short time, so we have the performance-based bonus. to have the downside flexibility. But now we have the huge market next year and 2 years from now. So we must follow.

Otherwise, we are not able to address customers' requirements. On the other hand, when it comes to efficiency, digital transformation should be utilized, for example, robotics, DX manufacturing with AI and robotics using the current assets, we should be prepared for the sales to be doubled in the future. So we'd like to exceed the midterm management plan in terms of the operating profit margin.

And this is the growing industry and this growing industry is cyclicality. The financial crisis or IT bubbles or cloud, COVID-19, there have been many events in the past. So we should be capable of a dynamic capability to cope with various changes or events in the market so that we can achieve world-class profit margin. So competitors are now working on various initiatives. We are aware of that. So under such strategy, we try to further enhance our profit margin.

So your target -- ultimate goal is rather high. So you don't have to worry about short-term turbulences?

Right, 3 year or 4 year, 5 years ahead, we should closely look at the future. And we also need to think about the -- our employees' work life balance and work-life balance of supply chain as well. So if the market is flat, things are different, but actually, our industry is growing industry. So short-term, midterm, long-term perspective should be respected when we run the operation of our company.

Next question is from Mr. Nakanomyo of Jefferies Japan.

I am Nakanomyo of Jefferies Japan. Can you hear me?

Yes.

I have 2 questions. Number one, on Slide 14, now you are talking about the bonder laser. You said JPY 300 billion -- you said JPY 500 billion by year 2030. That means JPY 100 billion per year is achieved somewhere in the future, maybe 2026. So mainly driven by NAND wafer bonding according to my understanding. Could you elaborate JPY 500 billion for bonder laser. Could you give me some breakdowns, please?

At present, the momentum is rather strong. HBM, high-bandwidth memory is now coming. And logic, backside PDN, for example. So quite a few applications are now expanding for bonding, bonder, debonder, temporary bonder debonder, laser trimming, extreme laser lift-off, their applications are expanding and wafer-to-wafer stacking is also coming.

So next fiscal year, we can expect the drastic growth in this area. When it comes to applications, not only expansion of applications, HBM, we do have the strong position as a company. And that is expected to expand other companies.

Maybe we can enhance the share. So application expansion, market expansion and share increase. By those 3 factors, we can see the drastic growth in this area. Of course, step-by-step growth will be followed. But by year 2030, quite large market will become one of our pillars. So you don't have any figure for next year sales. You cannot say that today. I want to say, but I'm sorry, let me refrain from saying any figures.

Another question, a very similar question, I'm sorry, for NAND. So DRAM is expected to have double-digit growth, but that is the NAND growth rate? For this year, last year's market was rather low. So actually, your sales for NAND customer should be growing considerably.

So next year, the investment for NAND with 400-layer will start maybe with high confidence level, maybe double digit, maybe high teens growth is expected for NAND or through the penetration of generative AI, storage of servers require NAND, NAND demand will be going up. I think 2022, we hit the record high of JPY 340 billion. Can you see very similar? So I want to see the growth rate of NAND in year 2026.

Figures will have been increasing gradually. So next fiscal year, we can have a high expectation for NAND. So NAND with 400 layers, the NAND WFE is expected to grow drastically. From the second half of next calendar year, investment for mass production of NAND with 400-layer will be growing gradually. I think NAND market is better than this year, and we can have high expectation in 2026. Mr. Yatsuda, do you have any comment?

At present, for inquiries, the data center, the nearline demand is now growing. But PC and smartphones, that is the major market of NAND. Actually, the PC and smartphones market is rather soft, but migration investment will continue next year as well. So investment for 400-layer NAND is highly expected. When the demand for PC and smartphone increases, we can see the capacity enhancement investment for NAND.

But for the time being, there is no symptom of the increase of the demand for NAND in the smartphone or PCs. Therefore, we cannot give you any specific numbers now. Next question is from Mr. Yoshioka of Nomura Securities.

I am Yoshioka of Nomura Securities. Again, on Page 14, I have a question regarding Page 14. This is just a clarification. So Etch, JPY 500 billion more in total by 2030. So what is your cumulative sales so far? I want to get the number for that. And the same line for Prober, you are expecting to grow the prober, but your competition -- competitor is rather strong for HBM. So your company, so in order to achieve the CAGR of 15% or more, the market is expected to grow furthermore?

Or do you improve the share? Are there any factors for you to increase your share? So I want to see how the prober business grown.

For etching system, the DRAM interconnect process alone for HBM, investment increase is expected, not only HBM, for DRAM, there is the investment growth, but interconnect process in the case of HBM will be 4x more. Therefore, it's rather stable, strong growth is expected. That's the reason why JPY 500 billion or more. That's what we want to say. So simply about JPY 100 billion per year, simply calculating, but getting closer to 2030, the sales will be growing gradually.

In addition, for capacitor edge, we are in the dominant positions for major customers. Therefore, that will bring us the big business opportunities. As for prober, when it comes to prober, in particular, cutting-edge logic, our position there is rather strong. The leading-edge logic. in the area of leading edge, we are dominant position. So our share is increasing steadily.

So that application, the test for that application, the test time and test volume are increasing steadily and that has a strong momentum. AI server demand increases. Accordingly, the prober business grows rapidly with a CAGR of 15% or more and CAGR 15% or more includes die probers. And die prober for the future is expected to grow -- accounts for 10% to 15% of the entire prober market. We agreed with our customers on the evaluation for development.

And if they are in progress, we may have some opportunity to make some announcement, but we have consensus with customer -- agreement with customer to conduct evaluation for development, and we can expect the good growth.

Next question in text. So let me read it out. The first question is from Mr. Rolf Bulk of New Street Research. You mentioned in your prepared remarks, mature nodes WFE spending is expected to remain roughly flat at current levels. Does this include or exclude Chinese investment? What do you expect for Chinese WFE spending growth next year? And what is your level of confidence or visibility on this?

Thank you very much for the question. For mature node, yes, China is included. China is included. We need to take account of various things. But when it comes to future outlook, maybe flat, including China. So mature node market remain flat, including China. That should be the appropriate way to view the future. WFE market is driven by AI servers, the cutting-edge technology, that is the major driver. So that's where we must provide high value-added products with good strategy. So stable and continual growth is expected.

Thank you very much, Mr. Next question is from Lepin Huang of Huatai Securities. Management highlighted advanced packaging as a key growth driver in the past. Could you introduce what is the progress in this area and quantify current revenue contribution from equipment sold into advanced packaging applications and the future target?

So for the advanced packaging, the bonder and debonder and prober-related products are rather important, bonder, debonder and probers the 2 years, our sales has been tripled, and we achieved about JPY 30 billion last year of the sales. When you refer to Page 14, as I said on Page 14, the bonder debonder, 5 years to come, we are going to achieve the cumulative sales more than JPY 500 billion. So that's our plan.

And this plan really reflects the high potential advanced packaging or integration or heterogeneous integration. die prober is expected to grow furthermore. On Page 14, I already talked about that, including our expectations.

Next question is Tammy Qiu from Berenberg Securities. Let me read it out. You mentioned the leading-edge logic/foundry investment will accelerate. Will leading-edge foundry logic grow significantly next year year-over-year? Driven by which node, 3-nanometer or 2-nanometer node, which node will drive the growth?

Will all the foundry and logic players CapEx up year-over-year or only 1 or 2 players will invest where China bottoms back to 20%-ish of your revenue at some point?

Well, thank you very much for your question. So currently, it's flat and mature node. and that covers China market. That's what I said earlier. In the future, high-end nodes for AI server will drive WFE market growth. Let me answer to your last question, I'm sorry, 30% or less. There is rather high, highly likely that the China proportion will go below 30%.

Talking about your earlier questions, the logic, leading edge. Node is expected to grow. Yes, we need to scrutinize the figures or percentage, but we do receive the strong inquiries. Therefore, we expect the growth -- strong growth. Any other questions I should answer generally about nodes. So it depends on customers' situation. So we are a supplier, so we are not able to give you any comments because we are a supplier. So we need to be ready to fulfill the customers' demands and make some contribution.

Thank you very much, Qiu-san, for your question. So no more questions. So since there seems to be no more questions, we'd like to conclude or close the financial announcement. Lastly, we'd like to continually improve our IR activities based on your precious feedback. So we would 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.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

It's time for us to start Tokyo Electron financial announcement for the first quarter of fiscal year ending March 2026.

Thank you very much for joining us today despite your busy schedule.

I'm Yatsuda of IR Department serving as the moderator for today's session.

Let me introduce today's attendees. Toshiki Kawai, Representative Director, President and CEO.

I am Kawai. Thank you very much.

Next, Hiroshi Kawamoto, Senior Vice President, General Manager, Division Officer of Finance Division.

I am Kawamoto. Thank you very much for joining us today.

Before starting the presentations, let me explain the flow of today's session. First of all, Kawamoto and Kawai will make presentations. After that, until 6:30 p.m. Japan Time, we will have a question-and-answer session where we entertain questions from the audience. This meeting uses 2 channels of WebEx for the simultaneous interpretation between Japanese and English.

As we explained in our e-mail, you are kindly requested to use apps on PCs or mobile terminals if you plan to ask questions. But if you are not going to ask questions, you can use telephones.

Since this conference is intended for institutional investors and analysts, we'd like to appreciate your understanding that we receive questions only from institutional investors and analysts, as usual.

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. Kawamoto-san, please.

Good afternoon. I am Kawamoto of Finance division. I'd like to present the consolidated financial summary of the first quarter of the fiscal year ending March 2026.

This slide shows the quarterly financial summary. I will mainly refer to the figures in the blue box.

In the first quarter, we generated net sales of JPY 549.5 billion, 16.1% decrease from the previous quarter, partially because of temporary pause of customers' capital investments.

Gross profit was JPY 253.9 billion, 18.2% decline from the previous quarter. Gross profit margin was 46.2%, 1.2 percentage point drop quarter-over-quarter due to the increased ratio of fixed cost, along with the decrease of net sales.

Operating income was JPY 144.6 billion, 21.3% drop from the previous quarter. Operating profit margin was 26.3%, declined by 1.7 percentage point quarter-over-quarter, mainly due to the decrease of gross profit margin mentioned before.

Income before income taxes decreased by 17.9% to JPY 151.9 billion. Net income attributable to owners of parent was JPY 117.8 billion, 17.6% decline from the previous quarter.

Capital expenditures in the first quarter were JPY 52.8 billion, consisting mainly of the new development building of Tokyo Electron Miyagi whose construction was completed in April.

This is a graphic representation of the financial summary shown on the previous slide on the chronological basis for your reference.

This slide shows net sales by region. As for composition in the first quarter, proportion of Japan rose by 3.6 percentage points to 11.7% quarter-over-quarter while proportion of Korea dropped by 6.3 percentage points to 16.1% from the previous quarter. Proportion of sales in China in the first quarter was 38.6%, remaining below 40% following the previous quarter.

This shows SPE new equipment sales by application. In the first quarter, from the bottom of this chart, sales to non-memory customers accounted for 64%, nonvolatile memory accounted for 10% and DRAM accounted for 26%.

Sales to non-memory customers were flat from the previous quarter while proportion of sales to DRAM customers declined by 11 percentage points quarter-over-quarter, partly because of their intensive spendings in previous quarter.

This slide shows the field solutions sales. In the first quarter, field solutions sales were JPY 141.2 billion, growing by JPY 2.2 billion quarter-over-quarter. Thanks to high utilization rate mainly for the advanced nodes of the customers' fabs, sales of parts, service and modifications were all strong.

This slide shows balance sheet. The total assets were JPY 2,509.3 billion. Cash and cash equivalents were JPY 367.5 billion, declining by JPY 128.7 billion from the previous quarter, primarily due to dividend payment to shareholders and payment of income taxes.

Notes and accounts receivable were JPY 393.2 billion, decreasing by JPY 92.3 billion quarter-over-quarter.

Inventories were JPY 757.1 billion, increasing by JPY 7.9 billion from the previous quarter.

Investment and other assets were JPY 400.2 billion, increasing by JPY 52.5 billion from the previous quarter, mainly because of the increased share price.

For the liabilities and net assets shown on the right-hand side, liabilities were JPY 636.5 billion, decreasing by JPY 134.1 billion from the previous quarter. This is mainly because of the decrease of income tax payable, along with the payment in income taxes, as I mentioned earlier.

Net assets were JPY 1,872.7 billion, rising by JPY 17.5 billion quarter-over-quarter. The equity ratio was 74.0%.

This shows cash flow. Cash inflow from operating activities in the first quarter was JPY 74.9 billion.

The cash outflow from the investment activities was JPY 54.1 billion, mainly due to acquisition of fixed assets.

The cash outflow from financing activities was JPY 151.1 billion, primarily because of dividend payment.

As a result, free cash flow was positive JPY 20.7 billion.

This concludes my presentation. Thank you very much for your kind attention.

Now Kawai -- Mr. Kawai will talk about business environment and financial estimates. Kawai-san, please. Go ahead.

This is Kawai. Once again, thank you very much for joining us today. I will present business environment and financial estimates. As some changes were observed in the business environment, we have revised WFE market outlook and our financial estimates.

So let me start the revisions made and the business progress as well. In the first quarter of fiscal 2026, both net sales and profit were almost in line with guidance. Progress of strategic product sales and development evaluation activities toward POR acquisition proceeded smoothly.

For film deposition tool handling a new material, namely, low-resistant metal, many NAND customers are working on evaluation with our batch furnaces.

For a series of 3D integration tools, including the Extreme Laser Lift Off tool released in December 2024, we are currently having business discussion with advanced logic customers and NAND customers.

In April, construction of the new development building in Miyagi was completed in which we will enhance development of etchers, one of our main products.

Our financial estimate for the first half of fiscal 2026 remain unchanged. Specifically, we expect net sales of JPY 1,150 billion, operating income of JPY 288 billion and operating profit margin of 25.0%.

Calendar 2025, WFE market proceeds almost as expected, although there are some shifts in investments. Factoring in impacts of exchange rate fluctuation, WFE market is expected to grow slightly from the previous year to $115 billion.

The outlook of semiconductor demand remains unchanged. The WFE market in the first half of CY 2026, however, is expected to be affected by changes of customers' investment trends. Specifically, customers now seek for higher productivity through yield enhancement, optimization of supply-demand balance to raise profitability and shift from proactive to solid investment.

Accordingly, we have revised the outlook of WFE market growth in the fiscal year ending March 2026 to negative 5% year-over-year.

Changes in each segment are shown in this slide. Along with the downward revision of the fiscal year-based WFE market outlook, we have revised our FY 2026 full year financial estimates to net sales of JPY 2,350 billion and operating profit margin of 24.3%. Despite the downward revision, our gross profit is expected to exceed JPY 1 trillion for 2 years in a row.

Despite the changes of the WFE market outlook from January to June 2026, there is no change at all in powerful growing trend of the semiconductor demand supported by technology driver of AI server applications. Therefore, we plan to invest JPY 295 billion to R&D, almost as announced 3 months ago.

This shows the revised SPE new equipment sales forecast. The SPE new equipment sales in the second half of this fiscal year are expected to grow slightly from the first half to JPY 880 billion.

Here is the breakdown by application. Please note that this revision is attributed mainly to the customers' manufacturing technology enhancement and their investment strategy changes, and therefore, it does not necessarily link with the semiconductor demand.

As I said before, due to the changes in customers' investment trend, we are currently scrutinizing CY 2026 WFE market. Having said that, however, there is no change in our outlook of semiconductor market, which keeps expanding driven by the growing demand of cutting-edge semiconductor planned to be released in calendar 2027 for AI servers.

AI servers require high computing power to process massive data at high speed. Currently, 2 of the 4-nanometer nodes GPU are used. But in calendar 2026, 4 of 3-nanometer nodes GPU will be used. And in calendar 2027, each GPU will have 500 billion transistors, about 2.5x more than the current GPU.

The number of HBM will also increase. Memory capacity of HBM will increase by about 4x, driven by device scaling of each DRAM and increase of number of DRAMs to be stacked. So we are finally shift from the gigabyte to terabyte era.

Investment to realize the next-generation AI computing platform is expected to start growing from the second half of CY 2026. With device scaling, advanced packaging, our business opportunities will be expanding more and more.

This shows our plan for R&D expenses and CapEx. In this fiscal year, following the new development building in Miyagi whose construction was completed in April, construction of a new development building in Kumamoto and production and logistics center in Iwate is going to be completed in this coming fall. In Miyagi, we have also started construction of new production building in June, which adopts next-generation smart manufacturing concept.

R&D expenses in fiscal 2026 are expected to be JPY 295 billion, as I said before.

The plan for CapEx and depreciation remains unchanged, expected to be JPY 240 billion and JPY 86 billion, respectively.

This is my last slide showing the dividend forecast. Reflecting the revised financial estimate for the second half of this fiscal year, full year dividend per share is expected to JPY 485 in this fiscal year. While taking account of state of cash on hand and capital efficiency during this fiscal year, we will flexibly consider implementation of share repurchase.

This concludes my presentation. Thank you very much for your kind attention.

Now we will have question-and-answer session till 6:30 p.m. Japan time. You can ask questions either in Japanese or English. But our speakers on the Japanese channel, please allow us to take all your questions only in Japanese. [Operator Instructions]

So the first question from Yoshida-san from CLSA Securities.

I am Yoshida from CLSA Securities. I have a question. 2025, you have revised the WFE market outlook. I want to see some information by application. So now you are now conservative for the first half of 2026. So based on the peripheral situation, I think the advanced foundry and DRAM might be increasing so I was a bit surprised.

So once again, so first half, you said rather weak, but throughout the year for 2026 I think you said double-digit growth. So what happens in the full year forecast by application and the full market, please?

By application, changes are made for logic and foundry. The advanced logic some of the customers have revised their investment plan for logic and foundry. That's the reason why we have revised our outlook partially. For others, there have been no major changes.

However, NAND investment gets a bit weaker than expected. However, the NAND investment will double. That's what I said before, but original amount is not so much. Therefore, the changes in NAND investment does not have a big impact.

This is Kawai. Let me add some more comments. The customers, now technology is enhanced and they try to review the supply-demand balance when they prepare the investment plan. And also, they are shifting from the aggressive proactive investment to the steady, solid investment to enhance the yield.

So there are several aspects. So from first quarter, we thought there is some upward trend. However, there have been some deceleration in the customer spending. So this trend, the demand for semiconductor does not decrease. Therefore, you can see recovery sometime in the future. From maybe the first 6 months next fiscal -- next calendar year might be some correction period.

However, as I said earlier, now new technologies for AI server will be released in the second half of 2027. Therefore, from the second half of 2026 to the early 2027, we think the customers' CapEx will be increasing. That's how we view the market trend.

In that sense, I thought double-digit growth is expected, but the first half of next year we'll see some deceleration, but we have a lot of expectation for the increasing trend in the second half of next year, but we are now scrutinizing the situation. But we think the positive growth is expected.

So the advanced logic and logic, the proportion is about 50% to 50% for this year. The next year should be 60% to 40%. That's how we view that proportion. Thank you very much.

Let me get some clarification. 2026 -- calendar year 2026, although this is positive growth, but you are now revising the figure, scrutinizing figures. Therefore, you will give us more. And when you said proportion between the advanced and logic, are you talking about the proportion between the advanced and mature node? This year, 50% to 50%, but next year, that proportion will become 60% to 40%?

That's correct. 2027, we can see new technology for AI server. As I said earlier in my presentation, that will be a driver. That's one thing.

Also, now DDR4 and DDR5 price has been reversed. Because of there are some corrections in the market, DDR5 will become a driver to further grow the WFE markets. For HAI technology, NPU will be introduced and die size will be increased by 30% as well. So these are the technology drivers, which will have the big impact from late 2026 to the early 2027.

So customers' enhancement of technology for production and they are focusing on profitability. So they do have now healthy growth plan. Because of that, there are some deceleration in the investment plan. But by and large, there might be the delay of 6 months and that 6-month delay has been incorporated.

And there have been no changes in device market. I think the device market will be growing as expected.

Mr. Yoshida, thank you very much for your question. Next question is from Mr. Wadaki, Morgan Stanley MUFG Securities, Research Japan.

First of all, about the downward revision. I think it's a kind of plateau, so I understand the downward revision.

I have a question regarding China. In general, in your company, so the companies on entity list will not be conducted at all? Or as for -- you don't sell [indiscernible] products, but you are selling other products to the customers, Chinese customers, on entity list. Could you explain the situation, please?

Our company is not affected by the entity list. We are shipping the tools approved by the Japanese government, METI. So we are following the METI's policy.

So your company products, for example, the products on the entity list, roughly how much percentage of your products are related to the entity list? And how much percentage are not related entity?

More critical equipment are to be regulated. That's the natural trend. Therefore, it's not volume based or month based, it's a bit difficult to say. But to some extent, there are some equipment we are not allowed to ship over the past few years.

But clear figures or numbers cannot be disclosed in this meeting. So we are following METI's policy and METI's rule. So now the revision of financial estimate is not attributed to the export control.

So about more than 50% or less than 50%.

Way below 50%.

So more than 10% of your products are affected by the regulations?

We haven't calculated the percentage. I'm sorry for that.

Mr. Wadaki, thank you very much for your question. Next question is from Mr. Nakamura of Goldman Sachs Japan.

This is Nakamura. So the second half of your -- this fiscal year, now you have made the downward revision. I want to know more about that downward revision.

WFE market for calendar 2025, so there have been no major changes, but you have revised your outlook downward. That means in the market, your market share has been declining. Is that what you mean? Or there had been drastic change for the outlook of the January to March 2026 over the past 3 months?

On Page 13, you can see several factors related to the downward revision. So when you quantify those factors, which factor plays the major role?

If the customers' productivity goes up, even if the semiconductor market will grow, I'm afraid the SPE industry cannot enjoy good business. Could you explain those things, please?

First of all -- could you repeat the first question once again, please?

Okay. The calendar 2025, WFE market does not change so much while your financial estimate has been revised downward. Why does it happen?

Thank you very much. This time, WFE market on the calendar year basis should be $115 billion so the WFE market outlook is increased. But because of the exchange rate, the equipment produced in Japan, when they are calculated on the dollar basis, actually increased by $3 billion. The remaining $2 billion is coming from the leading-edge logic pulled in investment together with other reasons. That's the reason why we have increased the WFE market outlook by $5 billion.

As for your second question, what you say is correct. So the fourth quarter, we think -- so from March to -- from January to March next fiscal -- next year, we thought we can see increasing growth from the January to March 2026. That's our previous forecast.

However, because of the changes in the customer strategy, where they are trying to improve productivity and they try to focus on profitability now, that actually our outlook has been revised downward.

So impacts are shown on Page 13. And you asked me quantify those factors, that's what you said in your question. There are 5 factors on Page 13: the customers' investment revision for advanced logic, the reduction of the legacy investment by the emerging customer, Chinese customers and investment plan change because of the focusing on the profitability and DDR4 and DD5. So this is the order from the top towards the bottom. I think this is the order of the impact, especially the top 3 has a major impact.

When it comes to China, the emerging semiconductor manufacturers in China, that is about $2 billion. On the basis of fiscal year, the impact is about $2 billion. So the Chinese emerging customers, maybe there are about 150 chip makers in China and that 150 Chinese chip makers are getting more -- a little bit conservative. And when we accumulate the figures, that is amounted to $2 billion.

So 5 factors and the top one is a major one. I mentioned primarily there are 3 major reasons on the top for our downward revision.

Mr. Nakamura, thank you very much for your question. Next question is from Shimamoto-san from Okasan Securities.

I am Shimamoto from Okasan Securities. I have some questions for figures. The very simple question, CY calendar year WFE. Calendar 2025 WFE market, you said $115 billion, this is the upward revision. On the FY basis, also on the dollar basis, the minus or negative 5% is expected. Compared with previous year, 5% increase on this calendar year basis, but minus 5% on the fiscal year basis. So 3-month difference makes that big difference.

That's correct.

So that's because of the outlook from January to March next year has been drastic changes.

Yes. We thought you can see some increasing trend from January to March and we thought we need to do some preparation because in the technology driver, we were expecting increasing trend from January to March.

However, there is only actually the decreasing trend from January to March. This -- the fourth quarter of our fiscal year or calendar year January to March, WFE market trend has been shifted or pushed out. We thought the WFE market will increase, but actually now it's revised downward.

When it comes to share, our share in the SAM has been secured. Therefore, this is not negative or downward revision because of the decline in share. Each company made their own announcement, the timing of delivery or product mix are the reasons. Therefore, our share is not declined, I want to add this comment.

I'm sorry, I answered to the previous question as well.

I have one follow-up question. When you look at full year basis, there is the possibility for positive growth, that's what you said. But some projects have been pushed out. Is that how you view the market trend? Or some projects or some investment are canceled? How do you view the market situation?

The semiconductor demand is expected to grow toward next year, and that outlook hasn't changed at all. We have revised downward revision. So one of the reasons is the customers' approach to enhance productivity by improving yield. And customers are more aware of profitability by balancing supply, demand more effectively and they try to shift from the proactive aggressive investment to the solid investment, especially among logic customers. So these are the major changes from our original previous outlook.

When it comes to investment project, there have been no cancellation at all. So maybe the delay should be 6 months at maximum.

Thank you very much for your question, Mr. Shimamoto. Next question is Mr. Yamamoto of Mizuho Securities.

I am Yamamoto from Mizuho Securities. Can you hear me?

Yes.

I have a very similar question, sorry for that. So 6 months delay you referred to. But as for your company, the first half and second half sales by application, could you give us some more information regarding the sales in the first and second half by application?

DRAM, you can see some decline in figures, but actually DRAM sales from the first and second half, your sales will be increasing. And NAND sales, you expect a drastic increase from the first and second half, but actually it declined. Non-memory, you saw there is some increase from the first to second half, but actually the non-memory sales remained flat.

So maybe for NAND, deceleration is a major factor. You said on Page 13, you said the first 3 are the major factors, and I think the NAND is the #3 factor. But actually when you look at figures, the amount is almost the same, but the change rate for NAND is rather big and significant. So could you explain those figures, please?

I think there are some specific issues for Tokyo Electron. So could you refer to Page 15, please? Could you refer to Page 15. On the left, you can see the sales by application for the second half of this fiscal year, the JPY 880 billion. On the right, you can see our announcement in April. The estimate announced April, JPY 1,100 billion.

And the height of the bar chart, the change of the height of bar chart represents the changes or revision of our outlook. The green portion back in April, the height of green bar, when you refer to the left-hand side, the second half of this fiscal year, there is no change in proportion. However, height of the green bar is decreased because of the changes of the strategy by some logic customers.

The NAND, you can see reduction of purple portion, 15% back in April. However, now we expect an 11 percentage. So you can see height of the purple portion. That represents the amount. You can see the data of the previous fiscal year. As you can see, height of purple is more than last year when you look at this fiscal year's purple portion.

So supply-demand balance for NAND is well closely watched by NAND customer and NAND customer conducted some adjustment, and we have incorporated that adjustment made by the NAND customers.

The first half of next year is a kind of correction period. So there is some difference between calendar year and fiscal year, but your company's new equipment application sales might be reduced in this first half of next fiscal year. Is that correct understanding?

Actually, toward 2-nanometer node, the customers' investment plan, not only one company, I think more customers will present their investment plan towards 2-nanometer node. So we want to closely watch the situation. It's so difficult to find out the right timing.

Mr. Yamamoto, thank you very much for your question. Next question is from Kamisaki-san from Tokai Tokyo Intelligence Laboratory.

I am Kamisaki from Tokai Tokyo. I have a question regarding emerging Chinese chip makers. WFE market assumption on calendar 2025, second half of calendar 2025, I think the investment is getting weaker.

So for the first half of calendar 2026, do you think that further reduction is expected in the first half of the calendar '26 among the Chinese emerging chip makers?

So annually, it's about JPY 45 billion to JPY 46 billion. I think that's the trend toward 2026. The legacy node market and the number of chip makers in China is rather big. There are so many emerging Chinese chip makers.

I don't know the average. It's a bit difficult for me to give you the answer. But the WFE in China, this year, $45 billion or $46 billion, I think the size of the revenue market remain unchanged. However, the entire WFE market is going up. Therefore, the proportion of legacy will be declining next calendar year.

So for the new foundries, their yield has been improving. And now you can see more and more new foundries. Do you think so or you don't see any new emerging foundries?

So far, there is no such trend. If the emerging chip makers' yield is improving, so the parts and service sales are expected to increase because their utilization rate goes up. However, so far, we haven't seen such kind of trend.

Kamisaki-san, thank you very much for your question. The next question is given in English text, so let me read it out. The question is from Tammy Qiu-san of Berenberg Asset Management.

The question is, "What's the growth driver for second half 2026 regarding acceleration, please?

Then, is your 2026 WFE estimation still unchanged?

Also on China, has China spending bottomed after scaling back you have been seeing or can it go down further?

Three questions. As for your first question, the growth driver is AI server applications, the leading-edge logic for AI server and HBM.

When you refer to Page 16 of the slide, as I said on Page 16 of the slide, at present, the current device for AI server, 4-nanometer -- 2 of the 4-nanometer node GPU are mounted right now. But in the future, 3-nanometer node GPU -- 4 of them actually will be mounted in the future in calendar 2027.

Now there are 200 billion transistors right now. However, in 2027, 2 years from now, 500 billion transistors will be mounted.

As for HBM, at present, there are 8 HBM for 2 GPU to generate the memory capacity of 288 gigabyte. But in year 2027, the memory capacity will increase to 1 terabyte, the 16 DRAM dies to be stacked and the number of layers will be increasing from 12 to 16. So these are the major drivers.

What was the second question?

Yes. The second question is, is your 2026 WFE estimation still unchanged?

So 2026 WFE market outlook is under investigation right now. There is some delay from January to March 2026, but second quarter from April to June 2026 when we can see some recovery trend. So we are now scrutinizing WFE market trend in calendar 2026 and we are now scrutinizing the situation.

But anyway, 2027, then you can see the steady increasing investment for AI server. And I think the preparation for such new innovation will start from the second half of the 2026. WFE market is expected to grow in later 2026. We want to analyze the situation more to come up with something more clear.

The third question is regarding China. From last year to this year, so WFE market in China has been shrinking. Do you think the Chinese WFE market bottomed out? Or do you see some more decline in WFE market?

For DX and GX, semiconductor demand for digital transformation and green transportation will be increasing steadily.

And the Chinese customers, self-sufficiency in China is not yet fulfilled in Chinese market. And at present, there are some struggle in power semiconductors. I think China proportion is about -- in the middle of the 30% level.

When WFE goes up, when it comes to amount, Chinese market is also expected to grow. So we don't see the further decline in Chinese WFE market in the future.

Thank you very much for your question. Next question is from Yoshioka-san from Nomura Securities.

I am Yoshioka from Nomura Securities. Can you hear me?

Yes, I can hear you.

So WFE market and TEL growth potential, this is what I want to ask. First of all, FY '26 or fiscal year ending March 2026, you have made the downward revision, minus 5%. What was the figure 3 months ago announcement?

And after that, after you tell me, what about this fiscal year, you said that Tokyo Electron sales will decrease by 3%. That means your company outperformed the WFE market. But when it comes to the fiscal 2027, do you think you can outperform WFE market? Are there any difference between TEL's potential for growth and WFE market trend?

So our midterm management plan, 2027 is a target year of our midterm management plan and product mix and timing of delivery. So there is not consistent trend. But when it comes to our earning power, our company's earning power is getting stronger and stronger.

So Gartner made announcement April this year for the share when it comes to WFE market, the calendar year, the growth rate is 5.6%. And our company's growth rate was 23%. Therefore, especially our etch sales increased and [indiscernible] developer share is increased from 90% and further higher. And 3D integration bonder/debonder, actually, our sales of bonder/debonder has been increased by 3x over the past 2 years. So our earning power is getting stronger steadily.

Because of that, 5 years ago our gross profit margin was 40%. But recently, our gross profit margin has increased by about 5 percentage points. So the gross profit is exceeding JPY 1 trillion for 2 years in a row.

Needless to say, regulations have some impact. High value-added product cannot be delivered to Chinese market, as Wadaki-san said in his question. And geopolitical impacts and inflation impacts are also observed.

But our gross profit exceed JPY 1 trillion for 2 years in a row and our gross profit margin has increased by 5 percentage points over the past 5 years, and our share has been increasing. So our share and profit growth, both of those 2 factors are improving steadily despite those geopolitical factors.

Maybe next fiscal year, we will closely see whether we can achieve those figures, but it is clear that our earning power is improving steady.

Also ROE, 30% or more. Last year, we achieved 30.3% ROE. So we achieved our midterm management goal 2 years ahead of the target year. So if the sales come back, we are able to achieve the figures or targets of midterm management plan sometime in the future.

And midterm management plan is not a final goal. It's a kind of interim goal for us. So on the FY basis, we haven't disclosed information of the WFE market on FY fiscal year basis.

So FY 2027, WFE market growth and Tokyo Electron's sales are almost comparable?

Yes, of course, we won't be below the WFE market growth in fiscal 2027. I think we can outperform the WFE market also in the fiscal 2027.

Thank you very much, Mr. Yoshioka for your question. Next question is Mr. Nakanomyo of Jefferies Japan Limited.

On Page 13, I'm sorry, repeat the same question once again. I try to improve my understanding. So some leading-edge logic customers are revising their CapEx plan. So you may not be able to talk about a specific customer, but your 3 major customers, originally 2 logic customers didn't change their investment so much. In that sense, the active investment made by only 1 logic customer and that particular logic customer has changed their investment plan for January to March 2027? Or do you think, too, the other 2 logic customers' investment plan will be deferred furthermore?

It's a bit difficult to make that comment. I think your second option is more likely.

So capital efficiency improves for the one major logic customer and your business is rather getting smaller.

No, that doesn't happen.

And January to March next year, it's 6 months ahead, and now you have revised your outlook. That means the changes in January to March is rather clear or realistic.

So now various customers and some top management have been changed, the new top management issued a new policy or direction and some customers' financial announcement are made and we have incorporated all those factors.

And number four, HBM, HBM investment. And again, the investment efficiency gets better and investment for HBM is not increasing so much or scaling of DDR5 improves investment efficiency, or only the matter of timing of investment.

So semiconductor demand itself is growing and toward year 2030, the semiconductor market is expected to grow to $1 trillion. There is no major -- no changes at all for this major trend. For 2027, the new device for server will be spreading furthermore. So there is no change in the growing trend of semiconductor market demand.

So in that sense, there have been no changes compared with the previous outlook, but customers' technology production technology is improved. Because of that, some revision were made. Our short-term financial estimate has been revised downward and that portion has a negative impact.

However, on the other hand, the investment -- actually customers closely watch supply-demand balance and customers are more focusing on profitability and they try to improve productivity and they are improving their yield, so they can produce chips with low cost.

So now for midterm, long-term perspective, these factors have positive impact to further drive the growth in mid- and longer-term perspective because of the technology innovation.

So as for the financial estimates, maybe we might have some impact for 6 months and there are some symptoms and we'd like to address to the capital market properly. And because we are -- we have become aware of this kind of trend, we decided to make this announcement.

Thank you very much for your question, Mr. Nakanomyo. Next question is Mr. Shibano of Citigroup Global Markets Japan.

I am Shibano of Citigroup Global Markets Japan. For the quarterly performance improvement or momentum for the further improvement of your financial performance, so the quarterly sales the fourth quarter should be the bottom. Is that correct understanding?

There is no quantitative disclosure, I understand that. When it comes to qualitative manner, in terms of orders, do you see some decreasing trend in orders? Let's say, the July-September period should be the bottom period. Is that correct understanding?

So the bottom period, we should investigate to scrutinize furthermore. I think January-March period is very close to the bottom. We should study more to see what happens in -- what will happen in April to June, there might be some delay by 3 months or 6 months.

But in the second half of 2027, we will see a new device for AI server. When you think about that new device, there is a possibility to have the sudden increase or growth in the market. So we also need to watch the enhancement of customers' yield.

You talked about midterm management plan when you answered to the question of Mr. Yoshioka, I have one follow-up question. For FY 2027, it's the target year of midterm management plan. So 6 months ago, so maybe you said you can achieve the net sales of JPY 3 trillion. And do you think there are some changes in that prospect or external environment has been changed over the past 3 years and not only the recent -- most recent changes, but I think overall trend has been changed.

So would you like to refresh your grand targets or you don't think -- there is no need to revise the midterm management plan. When it comes -- I think the approach to the fixed cost and investment has been changed. How do you view the current midterm management plan?

As I said a little bit earlier, so now we can see improvement of the gross profit margin and our share has been improving. And new products, process of record, POR or qualification by the customer has been acquired. So there are quite a few good positive factors because of that.

So now there is a kind of delay by 6 months and we try to find out the magnitude of impact. But for midterm management plan, maybe in fiscal 2027 or 2028, ever since the announcement of our current midterm management plan, there have been many changes in terms of geopolitics.

But we are making steady progress in our business, and we are keeping the investment for further growth in the future and there is high expectation for further technology innovation. Therefore, we have no intention to revise our midterm management plan.

The only thing is the timing for achievement of midterm management plan, which will be affected by WFE market trend to some extent. But when WFE market reaches a certain level, we are sure to achieve the targets.

Thank you very much for your question. Actually, one more question. The question is from Varun Rajwanshi from Lazard Asset Management.

The question is, can you please make a comment on your market share, excluding China? Are there areas where Tokyo Electron is losing share? Your sales outlook for this fiscal year is much worse versus what peers are suggesting.

First of all, among different applications, the leading-edge area, we don't lose shares in the advanced areas. Partially, in China, the general purpose or legacy node devices because of the Chinese government policy, the Chinese tool vendors are improving their share. That's true.

Last year, WFE market analysis announced by Gartner, the WFE market grew by 5.7% on average. Tokyo Electron grew by more than 23%. Despite weak yen, the growth rate of 23% or more is very outstanding. And actually, 3 Chinese companies are among the top 20 and some of their sales growth rate is more than 40% in the Chinese legacy market.

Our share in that Chinese legacy market has been declining slightly. However, when it comes to the volume zone for our further growth, that is cutting-edge technology area, we keep our share.

Compared with our peers, there might be some strong negative impacts. Some companies may have stronger figures for share in this year. That is because of product mix and the timing of delivery. But in our existing markets, we don't lose our market share at all in the leading-edge area.

Thank you very much for your question. So it is time for us to close today's conference. Before closing, however, I'd like to make an announcement. SEMICON West will be held in Phoenix, Arizona for 3 days from October 7 to 9, 2025.

On day 1, October 7, Tokyo Electron will organize a fireside chat from 1:00 joined by Mr. Kawai, Mr. Akiyama, Mr. Ishida and Mr. Sekiguchi. In this event, we plan to discuss our midterm and long-term business opportunities and growth potential. If you go to SEMICON West, please join us in this event. We will send you the details later.

And lastly, we'd like to continually improve our IR activities based on your precious feedback. So we would like -- 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.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]