Q3 FY2023 Earnings Release Conference Q&A

We are currently in an adjustment period for the WFE market, and investments in memory are particularly restrained right now. We expect that the size of the CY2023 WFE market will be around $80 billion, a decrease of 20% YoY. From two years ago through the previous year, the logic : memory ratio was around 6 : 4, but this ratio shifted to 7 : 3 in the second half of the previous year, and our view is that it will further shift to around 8 : 2 in CY2023.
We expect investments in memory to recover in the second half of CY2023. As for the timing of recovery by application, although we expect that DRAM will recover slightly ahead of NAND, we also believe it may be possible that DRAM and NAND may recover at around the same time depending on inventory level.
We believe that the size of the WFE market in CY2024 will be the same as, or larger than, that of CY2022, and there is no change to our view that the market will grow from CY2024 onwards. The growth drivers will be high-speed CPUs, DRAM DDR5 that will be adopted along with the CPUs and 300-layer class 3D NAND. These devices will be used in applications that requires low-power consumption and high speed, such as data centers and metaverse which is expected to begin full-scale services in 2025. Furthermore, we assume that there will be replacement demand for data centers established between 2017 and 2018, and that PC and smartphone demand will recover.

We will need to pay close attention to macroeconomic risks, such as geopolitical risks, inflation and soaring utility costs. Conflicts between the United States and China will require continued attention. In addition, factors such as soaring utility costs may also work to inhibit consumer desire to purchase replacement PCs and smartphones. Our CY2023 WFE market outlook of around $80 billion has taken these risks into consideration. On the other hand, production adjustments on semiconductor manufacturers may compress memory inventories and accelerate the optimization of the supply-demand balance. Conversations with customers have shown us that they also have the view that investments in memory will start recovering in the second half of CY2023, and that is when investments will likely move forward. We intend to focus on preparing ourselves for growth in CY2024 and CY2025.

We are still assessing the timing, but our overall outlook is that the supply-demand balance for memory will begin improving steadily starting after June of this year. Also, beyond the subject of recent supply-demand balance, we expect to see advance investments in the technological innovations that occur every 1 to 2 years. In order to respond to these investments, we are making preparations for the procurement side, such as securing sufficient inventories.

We do not forecast timing of recoveries on a quarterly basis. Instead of reacting to things from a short-term perspective, we are preparing for growth we expect will begin in CY2023 with a more long-term perspective, including leveling off production. We believe that preparing for future growth with a broad perspective will lead to stabilization of our business operation. I would like to refrain from commenting on the timing in which we receive orders as circumstances differ from customer to customer.

There has been no change to our view that the CY2024 WFE market will be equivalent to, or larger than, that of CY2022. Speaking with customers, we have confirmed that many customers are planning to increase investments as memory demand recovers in the future. Research companies have also predicted recovery trends in the WFE market.

There are two main reasons. The first is the fact that sales from two logic customers which were originally planned to be recorded after April of the next fiscal year are now expected to be recorded during Q4 of FY2023. The second is based on the reduced likelihood that some of the impacts of tightened regulations on China, which had been maximally incorporated in the previous downward adjustments, are now less likely to materialize. There have been no changes to conditions for the field solutions business since the previous quarter.

As a company, we would like to refrain from commenting on geopolitical matters. As for the WFE market, our view is that the market for CY2023 will be around $80 billion based on a comprehensive examination of conceivable risks.

As mentioned above, we expect that the logic : memory ratio for WFE investments will reach 8 : 2 in CY2023. Although our forecast is that sales for etch systems utilizing 3D NAND will drop in CY2023 compared to the previous year, our market share for logic increased with a 55% boost in sales in CY2022 compared to the preceding year. Recently, the sales composition ratio for logic has exceeded that of memory, and the ratio has become better balanced between logic, DRAM and NAND. We also believe that differences between different types of equipment will not be significant.

We have not disclosed details regarding our financial estimates by region. For FY2022, 26% of our overall net sales came from China. Of this proportion, 80% came from local Chinese companies, and 20% came from foreign companies. As the ratio of investments by foreign companies in China has been decreasing recently, it is possible that the ratio for foreign companies may decrease in FY2023 compared to FY2022.

At present, we are in the process of considering our measures, including budget composition, and would like to explain them at the FY2023 Q4 financial results briefing. We will make appropriate decisions based both on how we expect the market will bottom out, and how future recovery will proceed.

There is absolutely no special relationship between TEL and Rapidus, and we will be treating Rapidus fairly as one of our customers, and no differently from other customers. Going forward, we will continue to maintain the high level of information security that enables all of our customers to trust us.