8035.T - Tokyo Electron Limited
Q4
Q4 2025
2025-05-01
+
Koichi Yatsuda: It’s time for us to start Tokyo Electron Financial Announcement for Fiscal Year Ended March 2025. 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.
Toshiki Kawai: I am Kawai, nice to meet you.
A - Koichi Yatsuda: Next, Hiroshi Kawamoto, Senior Vice President, General Manager, Division Officer, Finance Division. 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 two channels of WebEx for the simultaneous interpretation between Japanese and English. As we explained in our email, 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 would appreciate your kind understanding that we receive questions only from institutional investors and analysts. We will post the audio contents of this conference in Japanese and English on our website within a couple of days for your reference. So now, Kawamoto will present the outline of consolidated financial summary. Kawamoto-san, please.
Hiroshi Kawamoto: Good afternoon. I am Kawamoto of Finance Division. I’d like to present the consolidated financial summary of fiscal year ended March 2025. This slide shows the financial summary of the fiscal year ended March 2025. First of all, I would like to highlight that the results beat our previously announced guidance in net sales, income and profit margin. Please mainly look at the figures in the blue box. Driven by the customers’ active spendings both for advanced and mature nodes, our net sales reached ¥2,431.5 billion, 32.8% increase year-over-year. Gross profit was ¥1,146.2 billion, exceeding the ¥1 trillion level for the first time. Gross profit margin rose to 47.1%, contributed by high value-added and high profit margin products. Operating income was ¥697.3 billion, 52.8% increase year-over-year. Operating profit margin was 28.7%, 3.8 percentage point minus year-over-year, as gross profit margin hit record high while we kept active R&D investment for the future growth. Net income attributable to owners or parent was ¥544.1 billion, 49.5% increase year-over-year. R&D expenses were ¥250.0 billion, 23.2% increase from the previous fiscal year since we continued investing for our growth, as I said before. Capital expenditures were ¥162.1 billion, mainly due to construction projects in various sites, such as development buildings in Tokyo Electron Kyushu and Tokyo Electron Miyagi, as well as procurement of equipment used for evaluation. The appreciation was ¥62.1 billion, 18.7% increase year-over-year. This shows financial trend. In the fiscal year ended March 2025, net sales, gross profit, operating income and net income hit all-time high. Also, gross profit margin and net profit margin reached record high. ROE on the bottom was 30.3%. This slide shows quarterly financial summary. I will mainly refer to the figures in the blue box. In the fourth quarter, we generated net sales of ¥655.4 billion, slightly higher than net sales in the third quarter. Gross profit was ¥310.5 billion, 0.4% decline from the previous quarter. Gross profit margin was 47.4%, 0.2-percentage-point drop from the previous quarter. Operating income was ¥183.7 billion, 7.9% drop from the previous quarter due to increase of SG&A expenses, mainly including R&D expenses. Operating profit margin was 28.0%, 2.5 percentage point decline from the third quarter. Net income attributable to owners of parent was ¥142.9 billion, 9.1% decrease from the previous quarter. Capital expenditures in the fourth quarter were ¥34.6 billion. This slide shows net sales by region. As for net sales composition in the fourth quarter, proportion of Korea and Taiwan rose by 4.9 percentage points and 2.4 percentage points to reach 22.4% and 20.7%, respectively, quarter-over-quarter. The proportion of sales to China on the bottom remains above 40% previously, but in the fourth quarter, due to some shipment pulled forward to the third quarter and peak out of capital investment by emerging customers, the China proportion declined by 8.4-percentage-point from the previous quarter to 34.3%. This shows SPE new equipment sales by application. In fiscal year ended March 2025, from the bottom of this chart, sales to non-memory customers accounted for 62%, non-volatile memory accounted for 7% and DRAM accounted for 31%. For DRAM, active investment for advanced technologies such as HBM significantly contributed to the increase of sales to DRAM customers and the rise of its proportion. The proportion of sales to non-volatile memory customers remained flat year-over-year, but as customer investment gradually started picking up, our sales showed an increase. Sales to non-memory customers rose significantly from the previous fiscal year, driven by strong demand for mature nodes, as well as active capital investment for advanced nodes. Now this shows the field solution sales. In fiscal 2025, field solution sales were ¥538.3 billion, growing by 25.6% year-over-year. Along with improving utilization rate of customers’ fabs, we enjoyed strong sales for parts, service, used equipment and modifications. This slide shows balance sheet. Total assets were ¥2625.9 billion. Cash and cash equivalents were ¥496.2 billion, increasing by ¥200.7 billion from the previous quarter. Notes and accounts receivables were ¥485.6 billion, declining by ¥25.2 billion from the previous quarter. Inventories were ¥749.1 billion, ¥15.9 billion declined from the previous quarter. Investment and other assets were ¥347.6 billion, declining by ¥42.0 billion from the previous quarter due to such a factor as market capitalization decrease. For the liabilities and net assets shown on the right-hand side, liabilities were ¥770.7 billion, decreasing by ¥66.9 billion from the previous quarter, mainly due to posting of income taxes payable. Net assets were ¥1855.2 billion, rising by ¥57.0 billion quarter-over-quarter. The equity ratio was 70.1%. This shows the cash flow. The cash inflow from operating activities in the fourth quarter was ¥264.8 billion. The cash outflow from investing activities was ¥38.9 billion due to acquisition of fixed asset, mainly including equipment use for evaluation. The cash outflow from financing activities was ¥23.5 billion, primarily because of share repurchase. As a result, free cash inflow was ¥225.8 billion. Free cash flow recorded all-time high, both on the quarterly and fiscal year basis. This concludes my presentation. Thank you very much for your kind attention.
Koichi Yatsuda: Next, Kawai will present business environment and financial estimates. Kawai-san, please.
Toshiki Kawai: 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 fiscal 2025 full year business highlights. In fiscal 2025, due to a drastic increase of investment for advanced logic for AI servers and in HBM as well as the pulled-forward investment by Chinese customers, we generated net sales of ¥2431.5 billion, gross profit of ¥1146.2 billion, operating income of ¥697.3 billion, and net income of ¥544.1 billion on the full year basis, all of which hit all-time high. Driven by sales growth of high value-added products to support technology innovation, such as device scaling, higher stacking and 3D integration, gross profit exceeded ¥1 trillion for the first time and gross profit margin reached 47.1%. Sales growth rate was 33%. In particular, sales to DRAM customers increased by 59% year-over-year as a broad range of our tools were adopted for HBM. Our market share also increased significantly. For etch systems, in particular, we succeeded in raising our share by 6 percentage points year-over-year, as we won 100% mass-production PORs from the major customers, for the capacitor etching process which is the most difficult process in DRAM production, one customer adopted our cryogenic etching system in NAND channel etching process which contributed to our sales, also we won new PORs in NAND slit etching process which drove sales growth and demand for etch system grew in interconnect process of advanced packaging for logic and HBM. Sales of wafer bonders increased driven by growing demand for HBM, while sales of wafer probers expanded capitalizing on the growing momentum of advanced logic investment. Share of wafer bonders and wafer probers showed a drastic increase. In particular, bonder sales reached about ¥30 billion, growing by 3 times over the past two years. To further expand our future profit, we made steady progress in penetrating into new technology domains. Specifically, we released multiple new outstanding products contributing to the semiconductor technology innovation. For example, penetration to untapped segments such as single-wafer plasma CVD and PVD, gas cluster beam system which improves efficiency of leading-edge lithography, and laser-lift-off system to drastically decrease environmental footprint of processing. In fiscal 2025, we conducted share repurchase of about ¥150 billion in total. Next, I will talk about business environment. As we announced three months ago, we expect calendar year 2025 WFE market size will be about $110 billion, remaining flat year-over-year. Despite a low in investment to automotive semiconductors and power semiconductors, as well as in mature-node investment, Chinese emerging chipmakers, thanks to continuing expansion of AI semiconductor demand, investment for advanced logic and HBM will be expected. Accordingly, WFE market is expected to keep growing to record-high level. Also in calendar 2026, growth of AI-related investment will drive the WFE market. GPU for AI server will shift to the 3 nanometer node from the current 4 nanometer node. HBM to be used will evolve from the current 8-chip stacking to 12-chip stacking and 16-chip stacking while proceeding with device scaling. In addition, full-swing introduction of AI to the edge, such as smartphone and PC, will start, which will trigger demand growth for 2 nanometer-node logic and DDR5. Due to these drivers, the WFE market is expected to show a double-digit growth. For AI applications, cutting-edge semiconductor technologies are essential. Toward the realization of semiconductor devices featuring ultrahigh speed, large capacity, high reliability, and low power consumption, technology innovation is moving forward, supported by two primary drivers, one is device scaling which is well-known intrinsic nature of semiconductor innovation, and the other is a new driver, heterogeneous integration. Along with the evolution of such technologies as GAA, backside PDN, next-generation DRAM, higher-stacking NAND and packaging processes, our business opportunities will expand more and more. Together with our customers developing cutting-edge technologies, Tokyo Electron works on concurrent development of four generations looking 10 years ahead. And this slide shows some examples of focused technologies we are addressing for next generation and the generation after. To capture these business opportunities for sure, we are actively investing in R&D so as to improve our future corporate value. Next, I will present financial estimate for fiscal 2026. In the ongoing fiscal 2026, we expect full year net sales of ¥2600, positive growth of 6.9% year-over-year. The details are shown in this table. We expect record high net sales and operating income again in this fiscal year. We will keep on investing for further growth, planning to invest ¥300 billion for R&D. This slide shows SPE new equipment sales focused. As the investment advance nodes for AI server and investment by Chinese chip makers were pulled forward to the second half of fiscal 2025, there is a sense of low in the first half of fiscal 2026. But in the second half, we expect situation will improve and investment by customers preparing for calendar 2026 market growth will be activated. Based on this focus, the SPE new equipment sales in the second half of this fiscal year are expected to be ¥1100 billion, which is record high half year sales. This shows our plan for R&D expenses and CapEx. Following new development building in Miyagi, whose construction was completed the other day, construction of a new building in Kumamoto and production logistics center in Iwate is planned to be completed during this fiscal year. In Miyagi, we will start construction of a new production building in June, which adopts next generation smart manufacturing concept. In fiscal 2026, we expect R&D expenses of ¥300 billion, CapEx of ¥240 billion, and depreciation of ¥86 billion. This is my last slide showing the dividend forecast. In fiscal 2026, the full year dividend per share is expected to be ¥618, surpassing the previous record. This concludes my presentation. Thank you very much for your kind attention.
A - Koichi Yatsuda: We will have Q&A session until 6.30 p.m. Japan time. You can ask questions either in Japanese or English, but as our speakers on the Japanese channel, please allow us to take audio question only in Japanese. If you ask a question in Japanese, please click the raise hand button on the WebEx. For details, please refer to the instructions attached to the invitation email. I will call the name of the person one-by-one. Our secretariat will contact you in advance, so please check the WebEx chat box. When asking a question, you are kindly requested to unmute your microphone for yourself. When your question is answered by our attendees, please hit the raise hand button once again to remove the raise hand signal. For questions in English, please use the WebEx chat box and give your affiliation name and question in text and send it to our secretariat. We will refrain from answering questions if your name and affiliations are not given. On the Japanese channel, we will translate your English question and I will read it out in Japanese and our speakers will answer in Japanese. On the English channel, the question-and-answer will be simultaneously interpreted into English on the real-time basis. As we like to take questions from as many participants as possible, we will take one question per person. If time allows, we will take additional questions. So the first question is from Mr. Yoshida from CLSA Securities.
Yu Yoshida: I am Yoshida from CLSA Securities. Regarding WFE market focus 2025 and 2026, you said there is no change from the previous announcement by application. What is your view for the WFE market? If you have figures, please let us know. What sort of growth rate do you expect in China for WFE market?
Toshiki Kawai: Thank you. The breakdown by device, see by 2024 last year and this year, we do have some forecast. So as far as our analysis is concerned, 2024 high-end logic, 20%; DRAM accounts for 17%; NAND accounts for about 5%. Others, including CMOS image sensor, fab automation devices accounts for 13%. The China accounts for 45%, around 45% out of 45% of China. 70% are for commodity logics. That’s how we view the WFE market by application. This year CY 2025, the high-end logic accounts for 20%, the same as last year; DRAM, HBM, 20%, 3 percentage point increase; NAND accounts for 10%, last year, 5%, so slight increase; and commodities and factory automation-related devices, as well as CMOS image sensor, wafer-level packaging accounts for 15%. The China accounts for about 35%, out of which 80% is logic. So the proportion of China last year was more than 40%. However, in WFE market, that should be about 35% by launch, declined by about 10-percentage-point from previous year. That’s our expectation.
Yu Yoshida: Thank you very much. One more follow-up question. Compared with the figures you announced three months ago, are there any changes? And now Trump administration announced a tariff quite recently. Are there any changes in the customer’s attitude toward investment? For example, in China, ASML says that their sales is expected to grow. So those figures, compared with three-month prospect, are there any changes? And are there any changes in customers’ attitude for investment?
Toshiki Kawai: Right. By and large, there have been no changes over the past three months. In reality, last fiscal year results have been revised upward a little bit because there are some figures pulled forward. However, there have been no major changes over the past three months.
Yu Yoshida: Thank you very much for your answer.
Toshiki Kawai: Thank you very much.
Koichi Yatsuda: Mr. Yoshida, thank you very much for your question. Next question is from Mr. Wadaki from Morgan Stanley MUFG Research Japan. Wadaki-san, please.
Tetsuya Wadaki: I have a question regarding China. So two vendors know that, but actually quite big investment for memory was made. The LAM and AMAT do have become more aggressive. However, because of the following regulations, the market situation might become much stronger, difficult. But the changes in China now, how do you view that? And what sort of impact do you expect for the future regulations to be imposed? Thank you.
Toshiki Kawai: Yes. So at present, the regulations or tariffs, those things are discussed quite often nowadays. But about your question, that changes in Chinese market because of the regulations, I don’t see any significant changes. No, I don’t think there is a major change. The information we already knew have been incorporated in our figures announced today, but there have been no major changes happening right now. That’s how I view the Chinese market. The middle of 40% will be declining to in the middle of 30% level. And I don’t think there is major change in the Chinese market focused. I don’t have any impression.
Tetsuya Wadaki: Okay. So I have one follow-up question. So competition in China, how do you see? Actually, in the past, you are increasing your market share in China. But the local Chinese vendors and American vendors, are there any competition landscape change?
Toshiki Kawai: So for example, Chinese tool vendors are growing rapidly right now. The Chinese Government promote the industry, especially in the field of commodities. But in the field of commodities, there are only limited differentiation factors, such as environmental performance like net zero or productivity. Therefore, there is some limitation in differentiation. In that sense, within China, the Chinese tool vendors are now growing in share. That’s how I view the competitors in China. For American tool vendors, there is no change in the competitive landscape with or against American tool vendors. I don’t -- we don’t have any intention to capitalize on the regulations imposed by American Government. We are working on the fair basis and we don’t have -- we don’t see any particular impact. But in the future, the global -- when it comes to global share, we should promote technology innovation furthermore. So our company try to provide values to the global market and the opportunity is growing. China is growing, but other -- all of other areas are growing now and we try -- we think we can improve our share. So the share in the global market, I think we have a plan to further increase our share on the global market. But because of the regulations, our share in Chinese market, when you think about regulations, and also Chinese tool vendors expected to grow their sales.
Tetsuya Wadaki: Thank you very much. That’s very clear.
Koichi Yatsuda: Mr. Wadaki, thank you very much for your question. Next question is from Mr. Nakamura of Goldman Sachs Japan. Mr. Nakamura, please.
Shuhei Nakamura: Thank you very much. This is Nakamura. I have a question regarding 2026, the new fiscal year. I want to understand more about your business plan for this fiscal year. So by six months, for the first half, the gross profit margin will decline a little bit, according to your plan. So could you let me know more details about that trend? You can see the acceleration of the sales toward the second half of this year, compared with three months ago. Your forecast from your customers have been changed or no changes in the focus from the customers?
Hiroshi Kawamoto: This is Kawamoto. Let me answer to your question regarding the profit margin. Profit margin declines a little bit in the first half of your fiscal year. As you pointed out, as I said before, in the first half of this fiscal year, you can see some low in the sales. That has a great impact. And we continue our investment for further growth. We are investing in R&D continuously and you can see some increasing labor costs as well. So when you think about overall picture for the first half of this year, profit margin declined from the second half of previous fiscal year, also because of the decline in sales. For the second half of this fiscal year, the sales is expected to recover or improve. And toward next fiscal year, the investment for leading edge node will be increasing. Therefore, you can see increasing trend of the profit margin.
Shuhei Nakamura: That’s all from me. Thank you very much.
Toshiki Kawai: So let me add some more comments. The first half of this fiscal year, there is the sense of low. However, toward the second half of this fiscal year, the AI server inquiries are very strong. In addition, next fiscal year, PC, smartphones demand are expected to increase to some extent. That is additional factor to drive the market. So AI server technology innovation is also having some impact. For PCs and smartphone, food market used to be large during COVID-19. Ever since that time, number of PCs and smartphones has been declining. However, quite recently, you can see some picking up trend. And Windows 10 support will discontinue during this year. Because of the battery life, the number of PC and smartphones will be increasing. On top of that, you can see function of on-device AI and semiconductor content will increase. And we can see increasing investment last year. That’s the reason why we expect double-digit growth next fiscal year. That’s the reason why second half of this fiscal year sees some growing trend. And fixed costs to the sales will be declining because sales will be growing. And the gross profit margin is expected to grow as well.
Shuhei Nakamura: Thank you very much. In March, the American Government announced tariffs. And are there any change in customers’ reaction?
Toshiki Kawai: No. There is no change in customers’ forecast.
Shuhei Nakamura: Thank you very much.
Koichi Yatsuda: Mr. Nakamura, thank you very much for your question. Next question is from Mr. Yasui of UBS Securities. Mr. Yasui, please.
Kenji Yasui: Thank you very much. I am Yasui from UBS. I have a question regarding the demand difference between the first half and second half of this year?
Hiroshi Kawamoto: So now we can see low in the first half of this fiscal year, according to my understanding. And that’s what Kawai-san said earlier. However, having said that, when you look at the situation, the Chinese players try to place orders as soon as possible. I think that’s the trend. And that trend remain unchanged. Therefore, the first half of this fiscal year, so China and others, if there is any difference, please let us know. Actually, so the Japanese supply chain is well established. So we are very flexible and agile to meet the short delivery lead time requirement. So we have very strong and resilient supply chain here in Japan. So even if there are some inquiries or orders pulling forward for AI server and China, we have been addressing those inquiries and demands. In that sense, the confidence level of the figures for the first half of this year is rather good because we do have orders, what we already signed, get the LOI from our customers. Therefore, the confidence level for the figures in the first half is rather high. For the second half of this fiscal year, we do have demand, but we should see the qualification by customers and yield enhancement to customers. We need to closely watch the situation in the customer’s path. And when it comes to tariffs, there have been no changes so far. About 8% for America, even if there is some impact, that is the impact. So we must closely watch the situation. Then we can further increase the confidence level of our forecast. And let me just give some comments for tariff. So of course, we must be closely watch the situation from now on. And if something is decided, then we must address the situation to come up with best solution together with customers through the discussion with customers. And now there are various regulations and changes, and we did have experience in the past many times actually. So tariff. So we try to come up products which feature higher productivity to overcome negative impacts of tariff. That is the mission of Tokyo Electron. Therefore, our mission is to promote semiconductor technology innovation and productivity enhancement. That’s our mission. This is the purpose of the semiconductor production equipment manufacturers that remain unchanged. And this is what we are going to do and this is a core of our business, and we need to take appropriate action.
Kenji Yasui: Thank you very much. I have one follow-up question. There are some overlaps. I’m sorry for that. So now here’s a guidance. So first half is rather conservative guidance, but second half of this fiscal year. So you are trying to watch the impact of tariff and you think this is the figure you can maybe achieve. But as for the possibility, first half and second half, are there any possibility that the result become much stronger in the first half of this fiscal year?
Hiroshi Kawamoto: When the budgets are finalized, we need to be prepared. So we should. If customer places some orders earlier than expected, and there is a possibility, and we are making announcement those figures, I think this is most likely figures for the first half and second half of this fiscal year.
Kenji Yasui: Thank you very much.
Koichi Yatsuda: Mr. Yasui, thank you very much for your question. The next question is from Mr. Hirakawa of BofA Securities.
Mikio Hirakawa: This is Hirakawa from BofA. Thank you very much. I have a question regarding application. According to your presentation, HBM toward 2026, AI-mounted PC and smartphone will be appearing. On the other hand, the DRAM proportion. So for the fiscal year ending in March 2026, you can see some decline. So if I -- maybe the difference between fiscal year and calendar year, or are there any low somewhere, or there are some changes in legacy notes. Could you elaborate this portion, please?
Hiroshi Kawamoto: Yes. For DRAM, there are very strong inquiries. Last fiscal year, the sales to DRAM customers increased by 50% or more. And for months in this fiscal year, you can see additional 10% to 20% growth expected. That’s how we view the market trend. So there is no sense of low in the sense total amount, and the device scaling in both cases, the number of HBMs and device scaling in both aspects, there’s a very strong inquiry for DRAM. Therefore, you can see some additional increase by 10% to 20% in DRAM sales. Let me add one more comment. In the fiscal year basis, it is true our guidance says that DRAM sales decline. However, on the calendar year basis, we think the DRAM sales growth will slightly outperform WFE market. And investment in China for DRAM declined this year. Kawai-san said earlier, actually, it is true that the DRAM demand increased outside of China. However, the DRAM demand in China is declined, so there is some offset between the two.
Mikio Hirakawa: I have one follow-up question. So the decline -- even if there is a decline in China for DRAM, you can see about 20% or 10% increase on the calendar year basis. Is that correct way to see the DRAM market?
Hiroshi Kawamoto: The total, we don’t see 10% increase, but the DRAM other than excluding China, you can see the growth expected about 10% for DRAM. This year, about 10% to 20% excluding China. Yes, that’s right. I’m sorry. I made a mistake in the year date chronological figures.
Koichi Yatsuda: Thank you very much, Mr. Hirakawa for your answer. Next question is Nakanomyo-san from Jefferies Japan.
Masahiro Nakanomyo: I am Nakanomyo from Jefferies Japan. Can you hear me?
Toshiki Kawai: Yes.
Masahiro Nakanomyo: I’m sorry. This is a kind of repetitive question. So now Trump administration will announce the tariff and global economy will face the recession. I think that’s risk case. But even under such situation, this forecast for your business outlook or WFE market will not be impacted so much. Is that how you view?
Toshiki Kawai: This is Kawai. As I said earlier, we must look at the market situation very carefully. As of today, our sales to North America, which is subject to the impact of tariff, accounts for about 8% out of the total sales. So it’s very limited impact. And WFE market, actually there is nothing decided yet, but there have been no changes in WFE market situation. When it comes to macroeconomy as a whole, however, according to the tariff introduction, we must closely watch the situation of the macroeconomy dynamics. In that sense, for example, the semiconductor or electronic equipment will be subject to the tariff given by the American administration. And they are saying that, but tariff is not actually imposed yet. But even if tariff is imposed, we should wait and watch what happens to that. For short-term perspective, as I said earlier, 8%, and we will see what happens to that 8%. And we must closely watch the situation regarding that 8% impact in North America. And if there are any burden on the customer because of the tariff, we should take appropriate action. And also for mid-term, long-term perspective, actually new model tool is launched every 18 months to 24 months. And we must introduce new product with high productivity to cancel the negative impacts of the tariff. This is how we can provide value to the customer properly by proposing new product. This is our business core mission. And we need to take appropriate action in the mid-term, long-term perspective. So short-term, we must be closely watching the situation.
Koichi Yatsuda: Mr. Nakanomyo, is everything clear for you? Thank you. Thank you very much for your question. Next question is from Mr. Shimamoto of Okasan Securities.
Takashi Shimamoto: I am Shimamoto. Thank you very much. I have a question regarding WFE market. For this fiscal year, you already talked a lot about this year, but when it comes to next year, 2026, high-end logic, DRAM and NAND, as well as China market. So do you have any picture about the two-digit, double-digit growth? Could you elaborate your outlook?
Hiroshi Kawamoto: So for composition, I said in the beginning, let me just repeat. So high-end logic, 20%. DRAM accounts for 20%. NAND accounts for 10%. And factory automation, CMOS image sensor, weather level packaging, and others accounts for about 15%. And China accounts for about 35%. Out of which, 80% accounts for logic. That’s how I view the situation. And from the viewpoint of market, AI server demand continuously strong and 2-nanometer mass production investment will be accelerated. One country is now promoting this. That will become multiple chip makers. That’s what we can expect. In addition, PC and smartphone will be increasing in unit, and semiconductor content of PC and smartphone will be growing furthermore. So these are the drivers for the double-digit growth.
Takashi Shimamoto: Thank you very much. So you said, that’s about calendar 2026. Those, the 30%...
Hiroshi Kawamoto: I’m sorry. I’m sorry. Calendar 2026, that’s the question you asked about. I’m sorry for that. Do -- yes. Calendar 2026, almost the same as 2025. Yatsuda-san, do you have any additional comments?
Koichi Yatsuda: Maybe increase in logic area. Next year, what we expect, so NAND investment is almost comparable, but DRAM investment is expected to grow in 2026. As I said earlier, the leading edge customers, excluding China, will increase, but investment in China will decline. Therefore, we can see increase in the advanced DRAM investment, but the major driver is advanced logic. The advanced logic proportion will increase furthermore.
Takashi Shimamoto: Thank you very much. That means DRAM increases and the China hit the bottom this year, and leading edge logic is also a driver?
Koichi Yatsuda: But actually, we don’t have any prospect that China will grow drastically. Actually, major driver are the investment outside of China. The China market remain almost flat between this year and next year, according to our understanding. So advanced logic will show a drastic increase and DRAM will further increase.
Takashi Shimamoto: Thank you very much.
Koichi Yatsuda: For example, the advanced node and mature node. Last year, for example, that proportion is four to six. We have more mature node. This year, five to five between mature and advanced nodes. And next year, the leading edge node accounts for 60%, commodity accounts for 40%. So this kind of trend will continue for a few years or advanced nodes will increase in proportion furthermore.
Takashi Shimamoto: Thank you very much.
Koichi Yatsuda: Shimamoto-san, thank you very much for your question. Next question is from Mr. Kamisaki from Tokai Tokyo Intelligence Laboratory.
Shoichiro Kamisaki: I am Kamisaki from Tokai Tokyo. I have a question regarding China. I’m sorry I’m so persistent. So the fourth quarter, the China sales decreased, but after that, originally the first half, the business is rather strong, and second half, the business goes down. That’s how you view the CY 2025. However, when it comes to China, there is no difference or changes in this forecast. So the emerging foundry investment declined, according to my memory. Are there any changes in your outlook?
Hiroshi Kawamoto: There have been no changes at present. Yatsuda-san, do you have any additional comments?
Koichi Yatsuda: So three months ago, we announced the figures, and there have been no changes over the past three months. As I said, the fourth quarter, the China proportion goes down, and absolute amount goes down as well. So the actual reality is in line with our focus.
Shoichiro Kamisaki: So is it correct if I understand that there is no difference between the fourth quarter and first quarter, and we can expect additional decline in the second half of this year from the first half of the year? Is this correct understanding?
Koichi Yatsuda: So in the future, so now we can see drastic decline in the emerging customers. On the other hand, existing customers continue their investment. We don’t see any ups and downs in the future.
Shoichiro Kamisaki: Thank you very much. That’s very clear.
Koichi Yatsuda: Kamisaki-san, thank you very much for your question. Next question is from Thong-san from Macquarie Capital Securities.
Damian Thong: I am Damian Thong from Macquarie Capital Securities. Earlier, HBM, bonder and debonder, the about ¥30 billion is the sales volume, and this fiscal year and next fiscal year, how do you view the outlook and drywall etching? Earlier, NAND flash in next fiscal year should be flat, but there is some demand. I mean, those circumstances, next fiscal year, NAND flash too, how much growth do you expect for NAND flash customers?
Hiroshi Kawamoto: So bonder and debonder, for the HBM, the drastic growth has been recorded. Actually, the sales is increased by 3 times over the past two years, achieving ¥30 billion, and we have big expectation in this area. We thought it was doubled, actually increased by 3 times and now we achieve ¥30 billion. Maybe next year, you can see another drastic growth, according to our forecast. So it has been increasing steadily. Maybe that’s how we can see the trend of this market. In addition, temporary bond, not only temporary bonder, but also backside for logic or 3D NAND, the evaluation in those area is now going on. So bonder, debonder growth, bonder , debonder sales growth is expected to be very huge. This year, we can see another step of increase compared with last year. And next, the cryogenic etching. Again, the full swing introduction of 400 layers and 10 micrometer depth profile application. Those application will be introduced in 2026, but this year and not next year. Next year, will be the big year for the growth of this market. We have won the mass production POR from one customer, and two other customers are now evaluating the technology. The other day, we held IR Day for the high aspect ratio profile. So we use the wavelength of the current and voltage, and also the pulse width will be enhanced, and ion vertical penetration should be enhanced. That’s how we can differentiate our machines from our competitions. So this is how we further enhance the performance of the cryogenic etching system and we are now working on the release of the new products.
Damian Thong: Thank you very much. May I ask one more follow-up question?
Hiroshi Kawamoto: Yes, please.
Damian Thong: So DRAM etcher, that’s dielectric etcher, you did have the share of 60% last year and you have increased the share, but now you are winning PORs. And when you look at the customer engagement for year 2026, along with the growth of the DRAM market, can you expect further growth in market share?
Toshiki Kawai: When it comes to share, for this year, our share is about increased by 6-percentage-point. But as I said earlier, we will see more exciting situation in etching. There we can see opportunity of the drastic growth at the cutting-edge technology, DRAM capacitor etch, that is one area for high potential growth, and we are taking some advantage because of pulse and ion angle, incident angle adjustment. Those two are this advantage that we have. When it comes to cryo etch -- cryogenic etch, so we have the rectangular waveform and also pulse, and this is how we can further enhance our business opportunity for slit, NAND slit. We won, we beat against the competitor, and also HBM interconnect process, especially in Korea, the market is now growing rapidly. So now there are four key areas, and for few years to come, you can see further growth in those four key area. This is really exciting, and etcher business can see another step of growth for three years to come. So all the investors have very high expectation.
Koichi Yatsuda: Thank you very much, Mr. Thong for your question. So maybe we have two more questions before closing today’s session. Next question is from Yoshioka-san from Nomura Securities. Yoshioka-san, please.
Atsushi Yoshioka: Thank you. I have a question regarding NAND. So second half last year, NAND sales has been, sales for NAND customers have been increasing. So do you think the investment for NAND is increasing generally, but is that because of the increase of your share or do you see some new emerging investment for NAND in China? So could you let me know why NAND sales has been, sales for NAND customer has been increasing? And second half, compared with this first half of this year, you can see the drastic increase of the sales to NAND customers, and could you let me know the factors for the growth of the NAND sales in the second half of this year?
Toshiki Kawai: So now we can see increasing volume, the NAND market has been growing, that’s one thing, and we have been increasing our share in the growing market, and for China market, the China market doesn’t grow, therefore the market, the inquiries are increasing in leading edge NAND market, and we succeeded in increasing our share, that’s the current status. For next year, this trend is expected to continue. Mr. Yatsuda, do you have any additional comments?
Koichi Yatsuda: So now you can see drastic increase in sales, but actually over the past two years, the NAND investment was very small, so because of the recovery, you can see drastic recovery, but actually when it comes to the proportion of the NAND, it’s not so big. At present, this is a brownfield investment rather than greenfield investment and we receive increasing inquiries for brownfield investment.
Atsushi Yoshioka: Thank you very much for your answer. That was very clear.
Koichi Yatsuda: Mr. Yoshioka, thank you very much for your question. The next question, this is last question, Mr. Shibano from Citigroup Securities.
Masahiro Shibano: I am Shibano from Citigroup Global Market Japan. So for this fiscal year, the CapEx and R&D budget, when I look at your figures, the drastic increase is expected for this fiscal year, so in this fiscal year, so now I understand the assumption, but for next fiscal year or fiscal 2028, when you come -- when you look at the situation in the mid-term perspective, how do you view the fluctuation of R&D investment and CapEx for R&D? I think you are planning to increase R&D gradually, but when it comes to CapEx, so do you think, do you increase CapEx in 2027 and 2028 as well or do you see, are you going to keep the plateau somewhere in the future for CapEx?
Koichi Yatsuda: Mr. Kawamoto will give you the answer. Mr. Kawamoto will answer the question.
Hiroshi Kawamoto: Mr. Shibano, thank you very much for your question. So, yes, we are maintaining high level for this fiscal year, so Tokyo Electron Miyagi and Tokyo Electron Kyushu, as we announced before, we do have the new development buildings in those two sites, and that investment is rather huge to increase our CapEx. And after that, we will make a decision in the future, so things are not decisive, but as for the Miyagi production building, require about ¥100 billion investment. That impact will be appearing next fiscal year, increasing CapEx. And afterward, we will see what we are going to do in the next mid-term management plan. We do have some plan, so we are going to continue certain level of investment for the future. Mr. Shibano, ¥1.5 trillion investment for R&D for five years and CapEx of at least ¥700 billion. These are minimum value of investment, actually. So when you look at the market growth potential and our growth potential, we don’t have any plan to stop this kind of investment. So R&D building, actually this year, quite a few development building construction will be completed. So next year, I think the number of buildings to be constructed will be decreasing, but two years from now, so we need to enhance research activities furthermore because of new business opportunity. We will see the macroeconomic dynamics and also semiconductor environment as well to make a decision what to do. But I think this year, our capital investment is rather big, as I said in our presentation.
Masahiro Shibano: Thank you very much. In that sense, compared with five years in the past, you are making quite big R&D investment and capital investment last year and this year. And now you have the fiscal year ending March 2027, and you are going to pursue the OPM of 35% or more, ROE of 30% or more, operating income of ¥1 trillion or more. And when it comes to the mid-term management plan target, and when you can get the recovery of the huge investment, and when you say 35% or more OPM, when can you be able to achieve this kind of target? And if possible, WFP market, that’s about ¥100 billion or more, but when it comes to China market, so the access by the western tool vendors in Chinese market will become more and more difficult, and also presence of the China local tool vendors will increase their presence. So in mid-term, there is no need to reduce your focus. Because of the growth of the leading-edge logic, you can compensate the decline in China market.
Hiroshi Kawamoto: Thank you very much for your question. For when it comes to sales, what the fixed cost ratio against sales, every six months we incorporate it to look at the market trend. We are making every effort to improve the profit margin, and we are trying to invest in the R&D, and we also do the CapEx, but we always watch and review the financial finance model while we are making decision for investment. ¥1450 billion in the second half of this year, we do have such plan and 30% or higher operating profit margin is now being planned. So when we double it, the topline is getting very close to our mid-term management plan target. What is very good for us is the value-added for AI servers, what PCs and smartphones, high value-added product. Proportion of the high value-added product will be increasing furthermore in the future. In that sense, that’s the reason why gross profit margin has been increasing so far. I think that’s where we can have high expectations, so we should pursue two double-digit sales increase in the double-digit market growth. When you think about that, 35% or higher operating profit margin, we know this is challenging goal, but it’s a challengeable target. So next fiscal year, as planned or two years from now, so we need to watch the macroeconomy trend and also impact of the tariff, but we are on the growth trajectory.
Masahiro Shibano: Thank you very much.
Koichi Yatsuda: Thank you very much, Mr. Shibano, for your question. So this concludes today’s conference. And we’d like to continuously improve our IR activities based on your precious feedback, so we’d like to appreciate your kind cooperation in filling out the questionnaire before you exit the WebEx. Thank you very much for taking time to join us in this conference despite your busy schedule today. Thank you very much.