Kokusai Electric Corporation (6525) Earnings Call Transcript & Summary

Kokusai Electric Corporation will now begin the financial results presentation for the third quarter of the fiscal year ending March 2025. Thank you very much for taking time out of your busy schedule to join us today. My name is [indiscernible] from the Corporate Communications and Investor Relations department, and I will be your moderator. To begin, I would like to introduce today's speakers, Kazunori Tsukada, Director, Senior Managing Executive Officer and CFO. He will be appointed as the Representative Director, President and CEO in April. Yoshitaka Kawakami, Managing Executive Officer and CFO. Today's proceedings will begin with the presentation by Kawakami on the consolidated financial results for the third quarter and the forecast for the full year, followed by Tsukada's presentation on the future outlook, followed by a question-and-answer session. This presentation and the Q&A session will be conducted in Japanese using a Zoom webinar. Simultaneous interpretation in English will also be available. Please note that this briefing is intended for institutional investors and analysts. So questions will be limited to those from institutional investors and analysts. Please also refrain from recording or taking photographs. I will now move on to the presentation. Mr. Kawakami, please.

I'm Kawakami, Managing Executive Officer and CFO. Thank you for joining us today at Kokusai Electric's earnings call. I will begin by presenting our third quarter financial results as well as our full year earnings forecast. These are disclaimers, which I will skip. First is a summary of the third quarter results. Page 4 are highlights. Specific details will be shared from the following pages and beyond. Page 5 is a summary of the consolidated financial results for the third quarter as well as the first 9 months. In the third quarter from October to December, both revenue and profits increased compared to the same period of last year, in line with the revised earnings forecast at the time of the second quarter results. Both revenue and profit increased also compared to the second quarter, continuing a recovery trend. The lower gross profit margin in the third quarter compared to the first and second quarters is due to the difference in project mix and onetime expenses, as explained at the second quarter earnings call. The third quarter cumulative results both for revenue and profit also increased compared to the same period last year, and each profit margin also exceeded that of the same period last year. R&D, CapEx and depreciation were generally in line with previous forecasts. Page 6 shows the factors behind the year-on-year changes in revenue and adjusted operating income for the third quarter. Equipment sales increased in the third quarter as equipment sales grew for all logic, foundry, DRAM and NAND applications. In addition, our sales relocation and modifications and legacy equipment sales of 200-millimeter and smaller were strong, and service sales also increased. As a result, overall revenue increased 11% year-on-year. Higher gross profits from increased sales and higher gross margin offset higher SG&A expenses, resulting in a 12% increase in adjusted operating income year-on-year. Page 7 shows the sales composition by business. Equipment sales increased 12% and service sales increased 10% in the third quarter compared to the same period last year. Compared to the second quarter, equipment sales increased 33% and service sales increased slightly. The reasons for the increase in equipment sales will be explained in detail on the next page. For the third quarter year-to-date, equipment sales increased 43% and service sales increased 16% compared to the same period last year. The remarkable growth in equipment sales increased as the ratio of equipment sales to total sales and brought it closer to its original sales mix. Page 8 shows sales of 300-millimeter equipment, which comprises the equipment business and sales of legacy equipment of 200 millimeters or less, which is included in the service business by application. In the third quarter, sales to Logic/Foundry, DRAM and NAND increased 24%, 17% and 20%, respectively, compared to the same period last year due to higher equipment sales to advanced nodes and logic foundry and to China in DRAM. In addition, equipment sales for NAND increased due to the generalization change of -- generational changes of devices. Compared to the second quarter, sales for logic/foundry increased 23%, sales for DRAM increased 23% and sales for NAND increased 2.7x due in part to smaller sales in the second quarter. There was an advance in shipments from the second quarter to the first quarter. But even by excluding this impact, recovery trend is continuing. Compared to the same period of the previous year, the cumulative third quarter saw a 36% increase in sales for logic/foundry, an 83% increase for DRAM and a 32% increase for NAND. Orders received in the third quarter totaled approximately JPY 45 billion, and the order backlog was approximately JPY 123 billion. Although some orders that were scheduled to be received in the third quarter were postponed to the fourth quarter, they have already been confirmed. And the total orders received in the second half of the year are expected to significantly exceed those in the first half of the year. Page 9 shows the sales of equipment and sales divided into 2 categories, sales to local manufacturers in China and sales to manufactures outside of China. From here and on sales to China, Chinese local manufacturers will be referred to as sales to China, and those to non-Chinese local manufacturers will be referred as sales to the rest of the world. Until the second quarter, we have explained the sales composition by destination. But from this time, we will explain sales to China and to the rest of the world where the market and business trends are different. Although quarterly sales are uneven, the overall trend is towards a recovery in sales to countries around the world. The main factors are: first, growth in sales for advanced node logic foundry; second, growth in sales for advanced DRAM; and third, recovery in sales up for NAND. We expect this trend to continue in the fourth quarter and the fiscal year ending March 2026. We will explain our future outlook later. In line with this growth in sales to countries around the world, the ratio of sales to China peaked in the first quarter when shipments to China manufacturers were concentrated and has been on a downward trend, reaching 40% in the third quarter. Please refer to the appendix for sales by destination, which had been reporting until the second quarter financial results. Page 10 shows quarterly R&D expenses, capital expenditures, and depreciation and amortization. Research and development expenses for the third quarter were JPY 3.8 billion, roughly in line with our previous forecast and accounted for 6.2% of net sales. We will continue to invest in the development of next-generation products as planned. But due to the rapid pace of sales expansion over the medium term, we plan to keep R&D expenses as a percentage of sales revenue in the 6% range. With regard to capital investment, the Tonami business office was completed in October as scheduled, bringing a break in large-scale capital investment in the second quarter. The main capital investment related to Tonami business site will be completed in the fiscal year ending March 2025. And from the fiscal year ending March 2026, we plan to invest JPY 40 billion to JPY 60 billion per year in the medium term. Page 11 is the balance sheet. Assets at the end of the third quarter included an increase in property, plant and equipment, mainly due to the construction of a new plant and an increase in trade and other receivables due to higher sales, while cash and cash equivalents decreased significantly due to the purchase of treasury stock. As a result, total assets decreased by JPY 9 billion from the end of the previous period. Total liabilities decreased by JPY 9.5 billion from the end of the previous period due to a decrease in trade and other payables, debt repayment and contract liabilities. Total shareholders' equity increased by JPY 500 million from the end of the previous fiscal year due to an increase in retained earnings resulting from the recording of quarterly income and other factors, while shareholders' equity decreased due to the acquisition of treasury stock. Page 12 shows quarterly cash flows. In the third quarter, free cash flow was a net outflow of JPY 5.5 billion as investment cash flow outflows such as purchase of property, plant and equipment exceeding operating cash flow inflows such as recording of quarterly income. Financing cash flow was a net outflow of JPY 4.1 billion, mainly due to dividend payments. Cash and cash equivalents remain sufficient for working capital. Page 13 shows key management indicators related to the balance sheet. The equity ratio at the end of the third quarter was 51.3%, remaining above 50%. Regarding the relationship between cash and debt. Cash and cash equivalents decreased due to share buybacks and dividend payments, resulting in a net debt of JPY 29.1 billion. Although net debt is still expected at the end of fiscal year ending March 2025, the company will continue to generate cash flow and repay debt, aiming to return to net cash from fiscal year ending March 2026 and onwards. Next, I will explain our full year forecast for the fiscal year ending March 2025. Page 15 are highlights. Specific details will be shared in the following pages and beyond. Page 16 shows the forecast for the fiscal year ending March 2025. Since the third quarter results were in line with the full year earnings forecast revised at the time of the second quarter results, and the same trend is expected to continue in the fourth quarter, the full year earnings forecast remains unchanged. There is also no change to the dividend forecast. On Page 17, we summarize the reasons for the increase or decrease in the forecast for the fiscal year ending March 2025 compared to the previous year's actual results. Sales revenue is expected to increase 32% from the previous year due to 3 factors, and both worldwide and to China are expected to increase by more than 30%. The most significant factor was equipment sales continued to countries around the world. As in the third quarter, equipment sales to countries around the world are expected to increase by JPY 23 billion due to recovery of NAND equipment sales in line with the device generation shift. In addition to the recent growth in equipment sales for advanced node logic/foundry and advanced DRAM. The second factor is equipment sales to China. Although sales of equipment for mature node logic/foundry have been slowing down, sales of equipment for DRAM are expected to increase significantly due to aggressive investment by major manufacturers, resulting in an increase of approximately JPY 22 billion in equipment sales to China. The third factor is service sales. In addition to growth in sales of legacy equipment relocation, modification and part sales are expected to increase due to active capital investments, resulting in an increase in service sales of approximately JPY 12 billion. Adjusted operating income is expected to increase 50% from the previous year due to higher gross profit from increased sales and improved profitability from increased sales of equipment for high value-added advanced devices. Page 18 shows a breakdown of sales by business segment and the full year forecast. Unchanged from the second quarter results, equipment sales and service sales are expected to increase 39% and 18%, respectively, over the same period last year. Due to the fast pace of recovery in equipment business sales, the sales composition ratio is expected to normalize. Page 19 shows a breakdown of sales by application in the full year forecast. Compared to the previous fiscal year, sales of equipment for logic/foundry, which has been -- which has seen a marked recovery for advanced nodes are expected to increase by JPY 11 billion. Sales of equipment for DRAM, for which demand for advanced devices is strong due to HBM demand are expected to increase by JPY 31 billion and sales of equipment for NAND, for which investment is beginning to accompany generation changes from the second half of the year are expected to increase by JPY 7 billion. In the second half of the year, we expect sales of equipment for NAND to increase by JPY 7 billion. For logic/foundry, we expect GAA related sales to be JPY 10 billion range as forecasted in the beginning of the fiscal year, and for enterprise, we expect JPY 10 billion double initial forecast. Sales to DRAM customers are in line with the revised forecast with sales to worldwide customers expected to reach JPY 25 billion, an increase of JPY 8 billion from the initial forecast. In addition, SiC power device-related sales, which are included in equipment, 200 millimeters or smaller are expected to increase by 70% to JPY 7 billion, exceeding the initial forecast of 20% increase over the previous year. Page 20 shows the breakdown of sales revenue by first half and second half and the forecast for fiscal year ending March 2025. The graph shows sales to China and the rest of the world broken down into equipment and services by application. The left graph is for the rest of the world, and the right graph is for China. For worldwide sales, both equipment and sales -- service sales have been on an increasing trend since the beginning of the fiscal year ending March 2025, and sales for major applications in logic/foundry, DRAM and NAND are expected to increase significantly in the second half of the fiscal year. Sales to the rest of the world are expected to increase by 20% from the first half to the second half of the year. In contrast, sales to China for DRAM increased in the fiscal year ending March 2025. And there are signs of recovery for NAND in the second half of the year, while sales for mature node, logic/foundry and services are showing signs of slowing down. Sales to China are expected to decline 6% from the first half to the second half of the year. As a result, the ratio of sales to China in the first half of the year was 48%, while it is expected to be 41% in the second half. So that concludes my part.

I am Tsukada, Director and Senior Managing Executive Officer. I am pleased to announce that I will begin serving as Representative Director, President and CEO in April. I am looking forward to leading the company in the right direction, while engaging in dialogue with you all. Thank you for your continuous support. Please refer to Page 29 of the appendix for the new executive officer structure effective April 1. Now I will explain the outlook for the future. Looking at third quarter-to-date business operations, despite with some market condition changes, our growth initiatives have made steady progress, and this has been reflected in our business performance. I will explain the specifics of these efforts. Page 22 is the outlook for the business environment. In the semiconductor device market, we expect the demand of advanced devices to continue to drive the market. However, we are seeing a slow recovery in general purpose DRAM and NAND and settling down of a mature node logic foundry. In light of these changes, we have revised the scale of WFE growth outlook in 2025 from the high single-digit Y-o-Y to the same level as in 2024. We assume a 10% or 20% Y-o-Y increase in the world and a 20% or 30% Y-o-Y decrease in WFE in China. In the mid to long term, the outlook remains unchanged that the semiconductor-related market is expected to grow significantly due to increasing demand for electronic devices such as smartphones and PCs, the expansion of data centers and the investment in reducing environmental impact. And there is no change in our assumption that WFE will grow to around $120 billion in the next few years. On Page 23, we summarize the business environment and our status by application. In the logic/foundry market, active investment in mature nodes in China appears to be slowing down, and investment in mature nodes in Europe and the U.S. is expected to continue to be restrained for some time. On the other hand, the investment in most cutting-edge nodes is picking up. And although some device manufacturers are curbing their investment, we expect that the overall demand for large foundry equipment will continue to increase. We expect that sales of equipment for GAA will expand to the JPY 20 billion level in the fiscal year March '26, and that sales will continue to increase thereafter as the industry moves to the second generation. For DRAM, we expect equipment demand for -- to decline significantly in 2025 due to investment cycle in China. On the other hand, we expect strong demand for cutting-edge equipment to continue in the global market despite the slow recovery in general purpose DRAM, and we have almost finalized the POR for D1C generation batch ALD compatible equipment and have 1 POR for D1C generation single-wafer treatment equipment. With the contribution of these new PORs, we expect equipment sales for DRAM to remain strong in fiscal year March '26. And we aim to expand PORs for D1d generation and subsequent generations. For NAND, although the pace is slower than previously expected, demand for replacing or upgrades and modifying equipment due to the change in generations of device is beginning to recover. Accordingly, in the second half of the fiscal year, March 2025, sales of high value-added batch ALD systems begin to recover. We expect this trend to continue in the fiscal year March 2026, and we anticipate an increase in sales of equipment for Chinese market. Although the market for SiC Power device appears to be stagnant, sales of existing products mainly to China are strong and new high-temperature activation annealing products, which are being evaluated jointly with customers are expected to contribute to sales as the market recovers. Regarding export regulations, from December of last year to January of this year, the U.S. government revised its export regulations. In addition, on January 31, the Japanese government released public comments on the export regulation revision. Upon close examination of these issues, we have confirmed that there will be no direct impact on our equipment business due to regulatory revisions by the U.S. government. We have confirmed that even if the Japanese government's regulatory amendments are enforced as per the public comments, the direct impact on our group's business will be very limited. We are not aware of any indirect impact at this time, but we'll continue to monitor them closely. Page 24 shows the trend of sales to China and to the rest of the world. In the midterm management plan explained at the IR Day last June, we targeted a 10% or 15% increase in sales for the fiscal year March '26 compared to the most recent forecast for the fiscal year March '25 based on the assumption of high single-digit growth for WFE. The breakdown was assumed to be a 40% increase for the rest of the world and a 20% decrease for China. We have revised the outlook of our fiscal year March '26 results based on the assumption that the size of the WFE in 2025 will be similar to that of 2024, and we are aiming for increase in both sales and profit for fiscal year March '26, assuming an increase in sales of about 5% compared to fiscal year March 2025. We have revised the breakdown of sales to the rest of the world to an increase of about 30%, exceeding WFE growth and sales to China to a decrease of 20% or 30%, the same as WFE. Let me explain outlook for the rest of the world where substantial growth is expected. The most significant growth is expected in equipment sales for advanced DRAM to countries around the world. As device makers continue to invest in the D1C generation, we expect sales of batch ALD and single wafer treatment equipment to grow. Next, although equipment sales for NAND will not reach the scale expected in the midterm management plan, we expect to see a recovery trend as the generational shift progresses. Some of this may come from modifications rather than new equipment sales, but even in this case, service revenue will grow. Finally, equipment sales for advanced node logic and foundry. Although we expect softness in equipment sales for mature nodes for some time, we expect equipment sales for cutting-edge GAA to grow as expected in the medium-term management plan. On the other hand, sales for DRAM in China are expected to decline significantly in line with the investment plans of major manufacturers and demand for mature node logic and foundry is also expected to stagnate for some manufacturers. However, the sales to China will be partially offset by a recovery in sales for NAND, which had been cautiously estimated. Page 25 shows the product mix. In the fiscal year ending March ' 24, while capital investment for advanced device was restrained due to the sluggish market, CapEx for mature nodes was active, resulting in a decline in the sales composition ratio of batch ALD compatible equipment and single wafer treatment equipment, which have been increasingly adopted for advanced devices. However, the mix of batch ALD compatible equipment and single wafer treatment equipment has turned to an upward trend due to increased sales of equipment for cutting-edge nodes, logic and foundry and advanced DRAM in the fiscal year March '25 and the recovery in sales equipment for NAND from the second half of the year. We expect the mix of batch ALD compatible equipment and single wafer treatment equipment, which are high value-added products to expand in line with the evolution of devices. At present, the mix of mini batch systems and TSURUGI high-end ALD compatible deposition system is expected to recover along with the recovery of NAND application. We aim to raise the sales mix of batch ALD and compatible equipment and single wafer treatment equipment combined from 56% in fiscal year March '24 to about 65% in fiscal year March '25 to 65% or 70% in the fiscal year March '26 and to more than 70% in the medium term. This will enable us to maintain overall profitability even if the relatively high profitability of the China sales composition declines and furthermore, to increase profitability as sales expand in the future. On Page 26, we have summarized our semiconductor device development road map, our catalysts and KPIs. There are no changes to the strategies and medium-term targets we have explained so far. We expect to achieve our midterm target in the year in which WFE reaches $120 billion, either in the fiscal year ending March '27 or in the fiscal year ending March '28. We believe that as semiconductor devices become more complex and 3-dimensional, there will be more opportunities to take advantage of our strength in batch ALD and single-wafer treatment equipment. Therefore, even if the pace of WFE growth slows down in the short term, we believe that sales to the leading-edge market will exceed WFE growth. In the medium term, we will expand the demand for GAA second-generation logic/foundry and DRAM D1d generation, expand sales of mature node logic/foundry and SiC power devices as the market recovers and achieve a well-balanced portfolio through these efforts. In the long term, we are aiming for sustainable growth while realizing growth in our new business area of advanced packaging, which includes Logic CFET, vertical channel transistor DRAM and the transition to 3D stacked DRAM, we will aim to achieve sustainable growth while also realizing growth in the new business area of advanced packaging. That wraps up my presentation. Thank you.

Thank you. So that will be for our presentation. We would now like to open the floor for questions, please.

[Operator Instructions] Thank you very much. We have Mr. Yu Yoshida.

This is Yu Yoshida from CLSA. As for WFE outlook for 2025, we believe that you said it's going to be flat. When we look at China as well as sales to the rest of the world, that was the categorization that you had as a breakdown. When you think about this from a by country perspective, how would that look?

Thank you for the question. Thank you very much for your patience. When it comes to the increase and decrease for DRAM, year-on-year is constantly about a 1% decline. And for NAND, it is approximately a 25% increase. And for logic and others, it is basically flat. And that would be the breakdown by device and that would be our outlook.

It is a 1% for DRAM, it was a minus 1%. So it's basically flat.

Understood. And when it comes to this year's market, NAND is going to be a 25% increase, DRAM 1% decrease and logic is going to be about pretty much flat. I thought it could have been a little more positive.

When it comes to DRAM, if you think about fiscal year 2024, there was quite a bit of proactive investment in China. That is going to decline significantly in each of the advanced DRAM investments in the rest of the world, it should be recovering significantly compared to 2024. However, overall, there would be a decline that we will be seeing as a whole.

So allow me to elaborate. When it comes to the WFE outlook, 2024, when is that -- how is that landing going to look like, which was going to be the starting point. When we look at your slide, it's pretty much unchanged from 2023, maybe just a little bit of an increase compared to 2023. And versus that, your WFE outlook is going to be flat compared to your peers, when we look at the 2 years, it seems like a very, I think, slow pace of growth as a market. So if you see the market as such, and maybe pretty much linked with your business growth as well from that perspective. So how is that your market outlook is lower than what you think when compared to other peer groups? Is it because of the product mix? Is it because of the customer mix when you compare with the competitors, your growth seems to be a little more sluggish compared to your peers. So can you maybe explain the backdrop, please.

What you see on the slide, which will be WFE outlook, exactly to your point, the numbers may look a bit weaker. However, 2024 WFE -- calendar year 2024 WFE is expected to be maybe 103 or 105, and for fiscal year 2025. Even though we're saying it's flat, we're thinking maybe 105. So these are the numbers that we are considering. and I would like to answer as such, I hope that's suffices.

Having said that when it comes to NAND investments, it's going to be a 25% increase that you said for this fiscal year. On the other hand, when it comes to the most recent developments, so it's not probably going to reach the midterm expectations. But when it comes to the sustainability of NAND investments, how much do you think this year's investment will continue? Or is it going to be revised and revisited? And could it supposed to be a downside risk? So what would be the sustainability of NAND investments? Can you maybe elaborate, please?

When it comes to calendar year 2024 NAND investments, it was quite suppressed. And therefore 2025, from a growth perspective, otherwise, we could expect a significant growth, and that's what we're picking up at the moment. For NAND, there will be a generation change. So there will be more layers that will be stacked, and that would be quite critical. So generation change investment is most likely going to be rock solid, and that is what we are picking up from customer forecast information and others. So generation change investments should be rock solid. However, when it comes to increasing the wafer output, that type of investment, it cannot be expected too significantly, and versus the NAND market, when it comes to sustainability of the investments. For the time being, I do believe it will be predominantly focusing on generation change investments, and then beyond that, for the NAND demand to be increasing, there could be some kind of a trigger, which could be greenfield investments, which is hopefully going to increase.

So we would like to take questions from Shuhei Nakamura.

I am Nakamura from Goldman Sachs Securities. So my first question is about the page 4, if we compare your explanation from the previous presentation, you are -- so you have added the explanation that there is a sign of the recovery. So can you tell us what you are expecting to see?

So there are 2 factors. First of all, as I explained in the rest of the world, we are seeing the demand from multinational customers, we are seeing the generation shift related investment for sure, we are seeing that to start already. And on top of that, of the Chinese NAND manufacturers, more than what we had expected, the investment is taking place more than we expected. So given those circumstances, we have added this comment in the highlight slide.

And my second question is about your performance from Q3 to Q4. As for the change of your profit, there is going to be some decline in the profit as I understand. I would like to know if there is any upside to this or not. And also, you talked about the direction for next year's outlook. As for gross margin, what is your outlook for the gross margin for the next fiscal year? Last time you mentioned the gross margin will be around 43%, if there is any change in your outlook. Please comment.

So as for the fourth quarter outlook, so after we revised up the full year guidance from when we announced the second quarter, we have not changed our full year guidance. If we take out the cumulative numbers, it seems like there will be some decline in profit in Q4 because we will expect to see some ad expenses, which is always seeing toward the end of the fiscal year end. There will be some upside to this number. So what we have provided is the minimum, the number we can achieve. And also, as for the gross margin for the next fiscal year, as Tsukada-san has mentioned, for China, there will be a sales decline. So that will have a certain impact to our sales, but there will be the sales for high value-added products mix to increase to offset. So we can offset the decline in China. We will prepare our budget for the next fiscal year from here, so I cannot give you any details here. But most likely, it will be in line with this fiscal year '24.

Yoshioka-san from Nomura Securities, please.

This is Yoshioka from Nomura Securities. I have 2 questions as well. First, this is surrounding China. So in your outlook, it seems like the WFE market in 2025 for China is going to see a 30% decline. Basically, I think that will be sales to China. So do you have numbers that would be by destination breakdown that you can maybe share with us?

So when it comes to destination of WFE, yes.

So when you compare with, it would be easier if you have like by destination breakdown, it would make it easier for me to compare you with your peers. So when it comes to the destination of shipment of WFE.

Please forgive us that when it comes to WFE by destination, we don't have that readily available as numbers at the moment. So maybe like circle back, please. It is my account, and it is sales to China and also sales to the rest of the world. So please forgive us.

Understood. And so then I do have a follow-up. When it comes to March end of 2026, sales for China, is it going to be a 20% to 30% decline just like the WFE market. I do believe that is what you are planning. However, traditionally speaking, I think you had a dependency when it comes to March of 2024, there was quite a bit of dependency to one account. And therefore, that could have -- that could possibly be declining. If so, when it comes to your sales, is it going to be a significant decline compared to the market decline? I thought maybe that could be possible. So what would be your observation surrounding that point.

When it comes to China, there are 3 things. Number one, the major DRAM investment cycle saw that March 2025, the sales expectation could be declining, and that's something that we are definitely prepared for. So I do believe we have been able to price that in -- correction, that would be March of 2026. On the other hand, when it comes to the mature node logic/foundry for China, we had a higher expectation to begin with, however, it is starting to show signs that it could be sluggish, a little sluggish than what we had initially expected. On the other hand, as I noted before, more than what we had assumed, the Chinese NAND investments are most likely going to be happening, and that is looking more sure. And therefore, when it comes to the mature node logic/foundry decline, the NAND portion will most likely offset that. And together with that, we would be able to see similar deterioration as the WFE market, and we do believe we will be able to cope at that level.

So when it comes to the second question, when it comes to your order taking, I think there's about JPY 45 billion that you were mentioning as a number. So you already have that order intake. So compared to the first quarter, how does that compare? And from the fourth quarter and on, what kind of a curve, what kind of an image do you have? So by application, are you seeing like certain order intake demand? Can you maybe like share with us a little more in detail?

When it comes to order intake, this would be specifically for equipment. For the third quarter, NAND will be about 20% DRAM 34%, and logic/foundry and others will be 46%. And I think that will be a breakdown. And when it comes to our fourth quarter outlook, NAND should be increasing quite a bit. So as we have been noting the Chinese customer should be continuing to remain, and DRAM will decline significantly. We will see an order intake on the NAND area, and so the third quarter -- compared to the third quarter, we should be seeing an order intake increase for the fourth quarter.

So we would like to take another question from Tetsuya Wadaki-san.

This is Wadaki from Morgan Stanley Securities. I also have 2 questions. My first question is that, so there will be a change of the CEO this time, Kanai-san has been well received within your company and also from the industry. So what Kanai-san has been implementing and the kind of management that he has pursued, what kind of plan do you have in terms of the succession of management policies?

That's a very difficult question to answer. So if you can call it Kanaism, I would like to continue what Kanai-san has implemented. And also on top of that, I would like to make effort to also maximize the good value of our company. Of course, there is not going to be a major change of how the company will be run. That is not my intention. And of course, that is not the intention of investors or our customers. So if we are talking about the experiences and expertise between Kanai and myself, I probably spent more time with our customers. So my expertise having dialogue with the customers can be added to what Kanai-san has pursued in the management. So we can improve the business with the customers going forward.

So can you identify what the Kanaism for you is?

So sincerely and certainly, and honestly, he will pursue the manage -- he has been pursuing the management. That is the image I personally have.

And my second question is about the Interposer business. The future outlook for Interposer business, you have not changed the outlook at this time. It is JPY 10 billion. And from next year and onwards, what kind of -- are you expecting?

So some people have some concern over the growth outlook. So for the Interposer business, we are discussing the content of the forecast with our customers. And from our customer side, they are yet to come up with a clear outlook for the future business. And as you mentioned, depending on the change of the direction, it may have some impact to our businesses. But better for us, as we have been receiving some forecast from our customers, we are expecting that part of the business to be materialized. And then as we prepare our budget going forward, we need to analyze what kind of the scale of that business can be included in our outlook.

Next Nakanomyo-san.

It is Nakanomyo from Jefferies Securities. Just like Wadaki-san said, I would like to ask about the interposer. I do believe that the forecast that we have to date, what would be the image for fiscal year 2025.

As for the forecast that we have from our customers, it's about JPY 5 billion, which was in the forecast.

And furthermore, is that going to increase or how that would develop?

We are currently working on the details with the customers at the moment.

So versus the JPY 10 billion of this fiscal year, it could be decreasing a bit?

As compared to the numbers that we can foresee, yes, it was less.

When it comes to treatment, for fiscal year 2024, it seems like DRAM, NAND, logic, what was the breakdown? And for fiscal year 2025, I do believe that DRAM portion could be increasing. So is there like a by application outlook that you have?

So when it comes to treatment, the application that would used is most would be NAND. So if NAND investments start to recover, then the treatment business expectation to increase will be furthered. And when it comes to DRAM investments, which is very active at the moment, there are treatment equipment that is being used in DRAM as well, but it's not as much to the extent of NAND.

So rather than the slide that you're saying, we may have -- we may have had some numbers that were delving a bit deeper.

So March of 2024, when we look at the treatment equipment, the portion out of the overall equipment sales was about 10%, as you can see from this graph, I do believe you can capture the image. In the medium term, we're hoping to increase this 10% to about 15% levels, and that is our plan.

So I was looking at this page. But when we look at March of 2026, NAND is growing. If you can get the POR, I thought maybe the single wafer treatment could see a higher uptick in the graph.

So yes, being used in NAND that is very -- that is quite voluminous. However, even with the generation change, you can actually continue to use the same equipment. And therefore, even with the generation change and if there are more applications or if the production capacity is lacking, in order to enhance that, -- and that would be the expectation for the NAND area, especially for treatment.

But yes, the NAND recovery is quite significant as a number. However, is that going to directly link to the treatment increase?

It's probably not a linear linkage.

Lastly, when it comes to March 2026, I would like to understand the direction. You have been showing us details. On the other hand, as a stock market, the 2025 WFE is still looking uncertain, specifically whether if memory is really going to grow, and we don't really know what the outlook for China is going to look like. So what I want to ask is that when it comes to your PORs and the order intake, clear picture that you do have from a profitability point of view, how far do you have visibility? Would it be the front half of this year? How far of a visibility do you have in terms of this surety of your rate? And as for the numbers that you have introduced, what breadth do you have in those numbers? What is the range that you have in mind?

So the world that we can see from backlog will be maybe 6 months down by, when it comes to March of 2026, maybe up until the first half of March of 2026, we can't capture everything. However, maybe a certain part of the first half of March 2026, I think we would be able to have a pretty good read. On the other hand, when it comes to the second half of March 2026, we don't have any sure information that we could depend on. It's really not sufficient. So we do have investment plan information from the customers as well as how their plant construction is proceeding. We are based on that type of information, trying to make assumptions, and that is pretty much inclusive in the second half numbers. When it comes to the WFE assumptions, that is also broad in range, and there are negative outlook as well as positive outlooks, and there would be a range both on the positive as well as the negative side. And therefore, at this moment, it is quite troubling for us as well in terms of how to understand the outlook. But when it comes to the March 2026 year, I think maybe half of the first half, I think we can pretty much have a solid visibility from our backlog information at the moment.

So now we are nearing the end of the time. I would like to conclude with the final question, [indiscernible]. .

[indiscernible] asking the question. I have one question, very simple question. So this time, Tokyo Electron and Screen have already announced their results and the outlook for WFE are quite different. So it seems like everybody have a different view, and it's difficult to identify who is right. Rather than discussing who is right, I would like to understand where -- why the gap is coming from. So from your eyes, I understand you have already analyzed what TEL and the Screen have explained about their outlook. But do you think the difference is coming from what the actual results for this fiscal year will be? Or is the difference coming from the outlook for the first half of the next year, which is likely to be similar. So the difference could be coming from the outlook for the second half of next year.

So for WFE outlook, the difference in the absolute terms could be seen. But qualitatively, I think everybody has the similar idea that the growth will be almost flat. But the absolute level of WFE, the view may be slightly different because the segment of the market or the products we look at could be different. We understand that, that could be the reason why the difference is coming from. And also, for fiscal year March '26, towards the year-end or the second half of March '26. So for the possibility that we do not have enough information or a clear idea of what the outlook for the second half will be. If all the companies are in a similar situation, we don't really have quite a clear visibility.

So from your equipment, the other market, you have prepared your guidance, your outlook for WFE. So you have calculated your WFE outlook based on the other part of the business you are involved in. Is that correct?

Yes. So we try not to really have -- we really want to take a look at the WFE from a broader perspective, even though we have -- only have certain products, still that is our WFE outlook.

Thank you very much. So that concludes the question-and-answer session. Thank you very much for attending today's results briefing session. We will distribute a questionnaire to everyone later. We would appreciate your cooperation in filling out the questionnaire for our future IR activities. With that remark, I would like to conclude the presentation. Thank you very much for your time today.