Q1 FY2022 Earnings Release Conference Q&A

It is our understanding that the increase amount does not come from the investment pulled forward from CY2022, but that it is an increase in investment amid heightened semiconductor demand. The breakdown is roughly 50% for leading-edge logic/foundry, roughly 15 to 20% for DRAM and the remainder for other investments.

We expect to see high levels of WFE investment in CY2022 as well. In such an environment, if customers request some investments to be pulled forward from CY2022, it is possible that the YoY growth rate for CY2021 will exceed 40%.

We believe that the investments being made are in-line with semiconductor demand, and it is unlikely that these are pulled-forward investments being made out of concerns that restrictions will tighten. The amount of WFE investments being made in China constitute approximately 25% of total WFE investments, and we anticipate this trend will continue going forward.

We would like to refrain from providing a quantitative answer regarding the WFE market in CY2022, but we anticipate positive growth.
The reason we raised the WFE market outlook in CY2021 is primarily due to increases in investments in leading-edge logic and DRAM driven by the acceleration of the shift to digitalization. With respect to DRAM, DDR5 will begin mass production, and since chip sizes will increase with DDR5 due to the introduction of on-chip ECCs*2, this will result in increase in DRAM investments.
This trend will continue into CY2022, and we can expect ongoing leading-edge logic and DRAM investments. In addition, we expect investments in mature generation logic/foundry of 28nm or larger.

The forecast for the WFE market in CY2022 was made based on current inquiries from our customers.

At present, there have been no changes in inquiries from customers. As we can anticipate increased DRAM demand in tandem with the release of new server CPUs, and increases in DRAM investments in tandem with the mass production of DDR5, we don't think that the recent fluctuation in spot prices will have much impact on customer investment plans.

If you compare the new standard against the old standard, the timing for revenue recognition will be off by about one quarter. As such, the high net sales for Q1 FY2022 based on the new standard will be reflected in the net sales for Q2 FY2022 based on the old standard. There was a large gap in net sales for Q1 FY2022 between the new and old standards, but for the full year of FY2022, the revenue recognition timing will simply be off by around one quarter, and we do not believe this gap will continue getting bigger.
Further, when making comparisons based on our product shipment volumes (monetary basis), Q1 FY2022 saw increases compared to the previous quarter, and have increased significantly YoY.

Generally speaking, under the new revenue recognition standard, sales for systems are recorded at the time the systems have been shipped, and sales for any services related to system startup are recorded at the time customer acceptance inspections have been completed. Therefore, the systems shipped in Q4 FY2021 were not recorded as system sales in Q1 FY2022. On the other hand, if the acceptance inspections for those systems are completed in Q1 FY2022, the sales for the services associated with those systems should be recorded in Q1 FY2022.
Note that the sales for systems that are not recorded were reflected in retained earnings on the balance sheet without going through the income statement.

In Q1 FY2022, multiple positive factors such as the sales contributions of newly acquired PORs*3 , as well as device mix and customer mix stacked up to boost gross profit margin. However, as those positive factors will level out over the full year of FY2022, the gross profit margin forecast is closer to our current capabilities.
Product strategies for leading-edge processes are progressing smoothly, and resulting in increased market shares and profit margins realized through the provision of products with high added value. Although profit margins can vary from quarter to quarter, our business strategy is progressing steadily toward the achievement of our Medium-term Management Plan.

The major factor behind the increase in gross profit margin for Q1 FY2022 was the sales contributions from the newly acquired PORs. As there are many new customers in China, the proportion of new POR-based sales among sales to China was comparatively high. Note that, although sales to Taiwan and South Korea have decreased compared to the previous quarter, they remain at high levels.

The PORs acquired in the last two years, specifically etch systems for 3D NAND slit processes and cleaning systems with supercritical drying technology, have been contributing to business performance as customers have begun investments for mass production. Furthermore, POR acquisition is progressing for deposition systems as well, resulting in sales contributions.
We are also advancing POR acquisition activities in etching processes other than 3D NAND slit as well, in order to realize further growth. Furthermore, as new technologies are being introduced in the lithography, etching, depositing and cleaning processes necessary for patterning, we are seeing more expansive business opportunities.

Manufacturing lead time has not changed significantly.
As for component procurement, we have not experienced delays thanks to the efforts we have made to share our production plans for FY2022 with our suppliers. However, as demand has been increasing rapidly, we will need to pay close attention to this matter.

Due to various factors such as customer mix and device mix, profitability may fluctuate in the short term. However, thanks to the proactive R&D investments we have made thus far, we have been able to introduce products with higher added value and high profitability. By increasing the proportion of products like these, we believe profitability will grow going forward.