Jun 8, 2022 Medium-term Management Plan Briefing Q&A

We do not link the financial targets of the new Medium-term Management Plan with the size of the WFE market. The size of the semiconductor market in CY2021 was approximately $500 billion, but this value is expected to reach around $1.35 trillion by CY2030, and the WFE market will also continue to grow as it supports the semiconductor market. FY2027, the final year of the new Medium-term Management Plan, is merely a passing point along that path.
To achieve our financial targets, we will create next-generation products with high added value in our current focus areas in order to increase our market share and profits. In addition, by releasing new products, such as the Ulucus™ L we introduced today, we will further expand our SAM*2 and thereby grow our sales. Through these initiatives, we will try to achieve our financial targets before the final year of the new Medium-term Management Plan.

The first driver to increase our margin is improvements to our marginal profit ratio. By continuously creating next-generation products with high added value, we will strive to increase our gross profit margin and operating margin. Another driver is the expansion of our SAM. Although this will cause advance costs to increase during the phase that spans across everything from evaluations, POR*3 acquisition to the initial stage of equipment adoption, thus having a temporary negative impact on profitability, it will eventually contribute to higher profit margins in the future.

We do not anticipate that our net sales or operating profit margin will decrease. Even where net sales and profits increase, that does not necessarily mean that ROE will increase if retained earnings build up. We do not intend to wait to achieve ROE of 30% until the final fiscal year of the new Medium-term Management Plan, but to maintain a stable ROE of 30% or higher throughout the term of the Medium-term Management Plan.

As we will require more working capital as the size of our business expands, the appropriate level of cash on hand will also change. Our basic policy is that we need cash on hand equivalent to around 2.5 to 3 months of net sales as working capital. In addition, we also consider the medium- to long-term financial plan for growth investments and capital expenditures to determine the appropriate level of cash on hand.

That's correct. We expect around 400 billion yen in capital expenditures over the 5 year term. This includes capital expenditures for production capacity expansion and R&D facilities.

We have considered ways to improve the efficiency of equipment start-up, after experiencing difficulties in dispatching start-up personnel overseas due to travel restrictions imposed by COVID-19. We anticipate that we will be able to drastically decrease equipment start-up time through a variety of means, such as the automated inspection of equipment at start-up and utilizing digital transformation technologies. We aim to reduce equipment start-up time by 50% to 75% compared to the current start-up time, and to achieve One-touch start-up of equipment in the future.
The first benefit of these activities is that we can optimize resources by reducing man-hours required for equipment start-up. Furthermore, by increasing the reliability of equipment start-up and reducing the risk of accidents, we expect to reduce costs for equipment follow-up and maintenance. Additionally, the work-life balance of engineers involved in equipment start-up will be improved, and new career opportunities will be provided to them in different areas outside of equipment start-up.

Rather than simply increasing production spaces and manufacturing personnel, we are working to optimize various manufacturing operations such as inventory management, as well as procurement and supply of parts and components. Through these efforts, we plan to increase production capacity to about twice its current level.

Previously, the demand forecast could only look up to 1 year ahead. Taking into account recent parts and components shortages, we explained to our customers how necessary it would be to make more long-term demand forecast. As a result, we received significant support from our customers, leading most of them to share with us their investment plans for the next 24 months, or longer in some cases, making it possible for us to forecast demand for 24 months. Although we believe this was originally our own initiative, we assume that our customers are now sharing their long-term investment plans with other equipment manufacturers as well in order to ensure stable procurement of all different types of equipment.
Through this 24+ month demand forecast, it becomes possible for us to procure parts and components further in advance. On the other hand, for the sake of our plans to expand our workforce, make investments for production facilities, and construct production buildings, it would be desirable to forecast demand over an even longer period of time, and we are now engaging in efforts to make this a reality as well.

The evolution of semiconductor devices requires more than just performance improvement of individual chips, but also of the systems as a whole. The wafer bonding equipment that makes this possible is getting significant attention from customers. As for our business opportunities, one such example is the wafer bonding for 3D DRAM, and we project that this will create a huge market once mass-production begins. However, I would like to refrain from speaking about the market size.
We have various technologies such as super-clean, high-accuracy alignment, and cleaning that we have cultivated in the front-end wafer processes. Our ability to integrate and co-optimize these technologies and platforms is a strength that our competition does not have.

Although EUV is being adopted in logic/foundry, the processes to which it is being applied are limited. Also, even EUV requires multi-patterning, and EUV will not be applied to 3D NAND. As for DRAM, we anticipate that EUV will not be used when it transitions to 3D DRAM. Therefore, EUV will not serve to constrain the growth of the etch system market. Rather, EUV has a positive impact for the overall WFE market, as it enables further scaling.

In the etch system market, our market share for NAND has been increasing, and our market share for DRAM remains high. When high-NA EUV is utilized, resist thickness will become even thinner. This will require technology that enables etch with high selectivity, and it will be an opportunity for us to provide added value to this market.