Kokusai Electric Corporation (6525) Earnings Call Transcript & Summary

Kokusai Electric Corporation is pleased to begin the presentation of fiscal -- financial results for the fiscal year ending March '25. Thank you very much for watching and participating today. My name is Takaaki Nose, from the IR and Corporate Communications Department. I am the moderator of this meeting. Today's proceeding will begin with the presentation. And I would like to introduce the participants today, Tsukada, the President and CEO; Kawakami Yoshitaka, the Senior Vice President and Executive Officer. Today's proceedings will begin with the presentation of the financial results for the fiscal year ending March '25 and the forecast for the fiscal year by the Kawakami, and President and CEO Tsukada will explain the outlook for the future. Today's presentation will be given in Japanese, but with translation into English. This presentation is intended for institutional investors and analysts only. So we will limit the questions only to institutional investors and analysts. Please understand. We would also appreciate if you do not record the presentation. So let us proceed to the presentation. Kawakami-san, please.

This is Kawakami, Senior Vice President and CFO. Thank you very much today for participating in the financial briefings of Kokusai Electric. I will explain the financial results for the year ending in March 2025 and the forecast for March 2026. These are the disclaimers. I will not go into them. . First is the financial summary for March 2025. Page 4 is the highlight. I will go over the specifics from the next page on. Page 5 is the consolidated results summary of the fourth quarter and the full year. In the fourth quarter, revenue, gross profit and adjusted operating profit were all about JPY 1 billion to the upside compared to the revised forecast at the time of the second quarter results. Year-on-year, fourth quarter result was increased revenue and profits. Adjusted net income due to the decrease in full year tax expenses resulted in a big upside. Profit margin due to improvement in the product mix also was on the upside compared to the forecast. In comparison to the third quarter, adjusted operating profit decreased, but this is due to cost of goods unique to the fourth quarter and the increase in SG&A coming from upfront investments in R&D and human resources, et cetera. Also on a full year basis, revenue and profits increased year-on-year, marking a clear recovery trend. Following the upside in the adjusted net income, the year-end dividend will go up JPY 1 from the previous forecast of JPY 18 to JPY 19. Further, orders received in the fourth quarter were about JPY 77 billion, and in the full year, JPY 225 billion, about JPY 14 billion more than expected. Balance of orders at the end of the year was about JPY 136 billion, about JPY 13 billion more than expected. Page 6 is the fourth quarter revenue and adjusted operating profit bridge year-on-year. In the fourth quarter, Equipment Non-China sales and service sales primarily grew year-on-year, resulting in overall revenue growth of 31% year-on-year. The increase in gross profit coming from higher sales and gross profit margin more than offset increase in SG&A from upfront investments into R&D and human resources, resulting in adjusted operating income growth of 50% year-on-year. Page 7 is full year comparison of the ups and downs versus the year before. For the full year, Equipment Non-China, Equipment China and Service revenues all increased, resulting in year-on-year overall revenue increase of 32%. In Equipment Non-China, revenues grew for logic, foundry and DRAM applications. And on top, recovered for NAND. In Equipment China, DRAM revenue increased. . In Service revenue, legacy equipment sales, part sales and relocation and conversion saw increases. Adjusted operating profit increased due to gross profit increase coming from sales volume growth plus profitability improvement from product mix improvement. Adjusted operating profit increased 53% year-on-year. Page 8 shows quarterly revenues by business. In the fourth quarter, Equipment revenue increased 30% and Service revenue increased 32% year-on-year. In comparison with the third quarter, Equipment revenue increase was prominent. On a full year basis, Equipment revenue increased 39% and Service revenue increased 19% year-on-year. Page 9 is revenues by application of 300-millimeter equipment consisting the Equipment business and legacy Equipment that are 200 millimeters or less included in the Service business. The fourth quarter situation will come on the next page. For the full year, equipment revenues for DRAM increased 67%; NAND, 32%; Logic/Foundry, 30%, respectively, year-on-year. Page 10 is non-China and China revenues by application. First is the left-hand side, revenues from non-China. In the fourth quarter, compared with the third, equipment revenue for DRAM application grew significantly. In Services, relocations and conversions also grew significantly. Logic, foundry and NAND revenues decreased because of shipment timings, but continue to be on the recovery trend. Next, moving to the right, revenues from China. Shipments concentrated in the first quarter and there was a reactionary drop. But with the second quarter at the bottom, growth trend is continuing. In the fourth quarter, quarter-on-quarter, Logic/Foundry equipment revenue grew significantly. Service revenue decreased, but this is because legacy Equipment shipments were skewed to the first to the third quarter. Because revenues from non-China grew since the third quarter, China revenue mix has come down to around 40%. Page 11 is revenues by destination. By destination, revenues from Taiwan and South Korea are on an upward trend. For the full year, revenue mix of Taiwan increased year-on-year. Page 12 is the balance sheet trend. As for the total assets in March 2025, trade and other receivables and PP&E increased. Whilst with the early repayment of borrowings and acquisition of treasury stock, cash and cash equivalents decreased. Consequently, total assets at the end of March 2025 decreased JPY 33.9 billion from a year ago. Total liabilities decreased with the repayment of loans and trade payables and others by JPY 42.7 billion from the end of last year. Total equity increased JPY 8.8 billion with retained earnings increase among others. Page 13 shows balance sheet main management indices. Equity ratio at the end of March 2025 rose 7 points to 57%. As to cash and debt relationship, by spending cash to purchase treasury stock, net debt increased to JPY 15.4 billion, but loans payable decreased by JPY 33.3 billion due to early repayment. . Page 14 is the full year cash flows. In the year ending in March 2025, cash inflow from operating activities exceeded cash outflow from investing activities, resulting in free cash flow of JPY 10.8 billion. In March 2026, we also expect a positive free cash flow. Page 15 is full year R&D, capital expenditure and depreciation expenses. In anticipation of demand recovery and mid- to long-term demand expansion, we continue to invest in R&D and capital equipment in line with our midterm plan. For R&D spend, which used to be 4% to 5% of revenues, we plan to raise to 6% or higher. In March 2025, we spent according to the plan, resulting in a 20% increase year-on-year or JPY 15.6 billion. R&D spend in March 2026 is expected to increase 20% year-on-year. CapEx was JPY 20.3 billion, about the same as last year. Demonstration room expansion in Korea totaling JPY 9 billion and Tonami Manufacturing Center construction totaling JPY 24 billion completed in March 2025. Going forward, in addition to the regular CapEx, for large-scale CapEx, a total of JPY 20 billion is planned to build a new demonstration center in the U.S. which will result in about 10% CapEx increase in March 2026 year-on-year. Following the large-scale CapEx, depreciation in March 2025 increased 20% year-on-year to JPY 12.6 billion. Depreciation in March 2026 is expected to increase about 10%. I will now move on to explain the full year forecast for March 2026. Page 17 is the highlight. I will cover the specifics next page onwards. Page 18 is March 2026 earnings and dividend forecast. March 2026 forecast is revenue of 2% growth. Adjusted operating profit decreased 4% and adjusted net income decrease of 5% year-on-year. Gross profit margin is expected to increase 0.2 points year-on-year due to the recovery of NAND equipment sales. With regards to dividends, following the shareholder return policy of payout ratio of more than 20% based on adjusted net income, we forecast JPY 36 dividend for the full year. Page 19 shows earnings forecast bridge from last year actuals. In March 2026, DRAM sales totaling plus and minus of Equipment non-China and Equipment China will be decreasing JPY 27 billion year-on-year, but NAND sales is expected to increase a total of JPY 36 billion, combining non-China and China, resulting in total revenue increase of 2% year-on-year. Adjusted operating profit due to further upfront investments into R&D and human resources over last year is expected to decrease 4% year-on-year, which we consider is the minimum and will be added up as much as possible. At the time of the third quarter results against the March 2025 forecast of revenue of JPY 238 billion, we were anticipating an increase of 5% or about JPY 250 billion. But taking into account the indirect impact of the tariff policies resulting in economic recession, we made a more cautious estimate. Even if the indirect impacts materialize, we think investments into technologies for device generational changes will continue. Because of the recent strong equipment inquiries for NAND generational change, we raised the NAND revenue forecast by JPY 5 billion to the forecast at the time of the third quarter results, whilst capacity investments for greater production volume may be subject to indirect impacts. And thus, we lowered general purpose DRAM sales forecast by JPY 12 billion. Page 20 shows revenue forecast by business. In March 2026, Equipment revenues are expected to increase 3% and Service revenues to remain flat year-on-year. Revenue mix is projected to recover to the ordinary times range of equipment revenue being 70% to 75%. Page 21 shows the Equipment sales revenue by application in the forecast. In fiscal year March '26, sales of Equipment for NAND are expected to increase 2.8x from the previous fiscal year due to growth in sales of Equipment for NAND as a result of CapEx for generation shift of 3D NAND. We expect CapEx for DRAM to increase as device generation changes. But considering the investment low among Chinese manufacturers, we forecast a 35% decrease Y-o-Y. In logic and foundry, aggressive GAA-related CapEx will drive equipment sales growth, while considering the recent slowdown in CapEx for mature node, we forecast decline of 4% Y-o-Y. Sales for SiC/GaN, power devices over 200-millimeter or smaller are expected to increase by 50% Y-o-Y, taking into account the strong inquiries for existing and new products. Page 22 shows a breakdown of sales broken down into those to the rest of the world and those to the local Chinese market. First, let me explain the worldwide sales revenue on the left side. Sales to the rest of the world were up from the previous year by 22%. For the fiscal year ending March '26, we raised our third quarter forecast for NAND by about JPY 5 billion to 2.4x the previous year's level. On the other hand, for DRAM, we lowered our assumption for general purpose DRAM by about JPY 12 billion to a 20% increase from the previous fiscal year. And for Logic and Foundry, we lowered our assumption by about JPY 7 billion, mainly for interposers to the same level as the previous year. Next, I would like to explain the revenue from the sales to the Chinese local market on the right-hand side. Sales to local market in China were up from the previous year. It is expected to decrease by 23%. We maintained our forecast of 5.2x the previous year's level for NAND in the fiscal year ending March '25 and have already received orders for shipment in the fiscal year ending fiscal March '26. So for the DRAM, it's going to be the low for the investment for large manufacturers, we expect the 65% year-on-year decline. For Logic and Foundry, amongst the investment -- as the amount -- although the investment appears to have come down, we were too cautious at the time of the third quarter results, and we are now looking at JPY 7 billion. . We raised our forecast by 10% from the previous fiscal year to a 10% decrease. As a result of the above, the ratio of sales to China local market is expected to decline from 44% to 33% in the fiscal year in March '26. Page 23 is the sales revenue forecast for the first and second half. For March '26, fiscal year March '26 is expected to be heavily weighted towards the second half due to a concentrated shipment to NAND manufacturers and logic and foundry manufacturers worldwide. Due to a lead time of 6 months, orders for equipment commitments for shipment in the first half of -- at March '26 have been received, and we consider the probability of achieving the forecast to be high. For the second half, we have cautiously estimated capacity-related demand and focused the plan on technology investment demand. We will provide an update when we announce the second quarter results. Page 24 is the revenue by destination for the year. Sales to Taiwan and South Korea continues to increase, and the ratio of sales to the U.S. is expected to remain at 5%. The company will not be -- we will not bear any tariffs on the equipment. With regard to the tariff policies of various countries, the direct impact is expected to be negligible, because we do not bear any tariffs on the equipment since our contracts are based on delivery of the equipment at the airport or port or the production side. The indirect impact of device manufacturers revaluating their investment plans due to economic slowdown and cost increase is expected to be material. We will see no direct impact from export restrictions, no indirect impact is anticipated at this time. There is no other issues identified yet, but we will continue to monitor the situation closely.

I am Tsukada, President and CEO. I would like to explain the outlook for the future. Page 26 shows our market share. The bar graph on the left shows the share data from Gartner Research. There are 2 main categories in the deposition field, tube and non-tube, and we have batch deposition equipment in the tube category. The tube equipment is classified into the RTP and oxidation diffusion categories. Treatment equipment is classified into RTP and oxidation diffusion. Our share of the batch deposition market in '24 was 41%, up 7 percentage points from the previous year. In the batch deposition market, NAND investment strains have led to a decline in the batch ALD market size and our sales. However, in '24, the batch ALD market began to recover and our sales and market share began to increase. On the upper right hand, we have a breakdown of the batch deposition equipment market. Of that, the batch ALD market, the pie chart, as shown, our market share rose to more than 70%. The lower right-hand corner shows the breakdown of the treatment equipment market, of which our treatment equipment belonging to the plasma, the gate modification tools market, our market share increased as shown. The reason our share has not returned to the 2022 level is that the investment in NAND, where our treatment equipment is widely used, has only begun to recover, while investment has been mainly focused in DRAM so far. However, adoption of our treatment equipment in DRAM is progressing, leading to expanded sales. Therefore, we anticipate further market share gain once the investment in NAND resumes. The market share of gate stack tools was included in the previous figures, but it has been changed to gate stack tools, but we have decided to show the share of focus on plasma gate modification tools. 27 is the outlook for the business environment. In the semiconductor device market, investment in NAND is beginning to recover in addition to continued active investment, especially in the generation AI-related market. On the other hand, the recovery in general purpose DRAM has been slow and the mature node logic and foundry also continues to remain calm. In light of this situation, we forecast that the size of the WFE in 2025 will not change significantly from our previous forecast and will remain at the same level as '24. There is no change in our assumption that the WFE will grow to about $120 billion in the next few years. On Page 28, we summarize the business environment and our situation by application. First, we are confident that the NAND business will recover due to the increase in number of new product launches and increased capital investment for NAND. Second, the full-scale mass production investment for the first generation for GAA has started smoothly, raising the growth potential for the future. Third, the company won a new POR for new high-temperature activated annealing products for power devices. So these are the 3 major reasons. In NAND devices, technology investment for device generation shift has led to a strong demand in the global market as well as in China. We expect demand for the pre-prospective equipment for the local market to increase. In the DRAM market, although recovery for general purpose DRAM has been slow, the recovery of the advanced devices is expected to slow in the next generation of devices. Technology investments are expected to increase demand for equipment for worldwide. In logic and foundry, major device makers are actively investing in equipment and for advanced nodes. We expect demand to continue to increase. Investment in mature node is slowing down, although we expect a reasonable scale of investment to continue in the Chinese local market. In the power device market, investment continues in the Chinese market and the demand for our product is increasing. We see this as the case. Despite the stagnation of investment in the global market, the first PORs of new products have been obtained. And as a result, we expect to see a contribution to sales as the market recovers. On Page 29, we update the status of the 3D NAND POR acquisitions discussed at our IR Day. In the fiscal year ending March '25, we expect the major manufacturers will continue to invest in technology for the generation of 200-plus layers. Sales of equipment for the 200-plus layer generation are expected to account for more than 80% of total NAND equipment sales. This includes the following. We expect the investment -- we expect to invest in capacity to expand the scale of production from the fiscal year ending March '27 onward. We expect technology investment to be the main focus in the fiscal year ending March '26. We are focusing on state-of-the-art mini batch deposition equipment, including new POR with more than 200 layers of generation. Batch ALD equipment and single wafer treatment equipment PORs have been finalized and the high POR share is maintained. The new generation of devices is expected to replace conventional deposition equipment with the latest models. Due to a generation -- changes in devices, conventional deposition equipment must be replaced with the latest models or modified to meet the needs of the new generation of devices. We expect to see recovery of NAND equipment sales and service sales to increase. As devices will continue to be multilayered, we offer our top-of-line mini batch ALD compatible equipment. We will continue to upgrade our single wafer treatment equipment to meet customers' demand and with higher values. We hope to meet the needs of customers. . On Page 30, we update our status of DRAM POR. In fiscal year '26, we expect that the major manufacturers will continue to invest in technology for the D1c generation. Equipment sales for the D1c generation are expected to account for more than 60% of total DRAM equipment sales. We expect technology to invest -- technology investment to be the main focus of the generation. In addition to increasing the POR of batch ALD compatible equipments in the D1c generation, we are also working on the development of new products that can be used in 3D NAND. We also acquired POR for the sheet treatment equipment used in DRAM and expand the sales of equipment to countries around the world. The size of the DRAM market is expected to continue to grow. The device continues to become finer and more complex with the D1d generation, D1d generation and vertical channel transistor DRAM. We expect to see more opportunities for our batch ALD. On 31, we have updated the status of GAA POR acquisition. In the fiscal year ending March '26, major manufacturers are expected to make aggressive CapEx in the first generation of GAA. We have finalized our GAA first-generation POR and has obtained a new POR at gap fill. The mini batch deposition system is the first of its kind in the logic field. Sales for the GAA generation in fiscal year March '25 was lower than previous forecast due to the shift of some shipment to fiscal year March '26. Although we failed to reach JPY 10 billion, the target, it is expected to increase in the March '26. And then as there will be the GAA second generation, we will see more the adoption of the battery of the compatible equipment. Interposer, the sales in the March '25 was JPY 9.7 billion as expected. On the other hand, sales to device manufacturers is quite fluid. And so we are not able to identify additional investment demand. Therefore the March '26, we are not including any revenue contribution from the interposers. However, we have been maintaining our POR as we do have expectation for additional investment, and we are going to make more proposals for new applications and evaluation opportunities. On Page 32, we updated the status for power devices. Currently, CapEx for power devices is stagnant in markets around the world with the exception of China. Our products are easy to operate and maintain, and have common spare parts and have excellent energy-saving features. Sales of the SiC/GAN power devices for the fiscal year that ended March '25 have been strong due to this acceptance of their environmental performance and other factors. It increased by more than 80%. And high temperature, activated Atos, which we have been evaluating with our customers, and the POR share, which was about 30%. We are going to -- we have seen our share turn 40%. And in the fiscal year ended March '25, POR for 200-millimeter exceeded POR for 450 millimeters, enabling us to further strengthen our foundation for business expansion, and we expect more increases to come when the market condition recovers. On Page 33, we show the product mix. In the fiscal year that ended March '24, CapEx in cutting-edge devices was curbed due to sluggish market conditions. On the other hand, the impact of increased CapEx in the mature node has led to increased adoption in cutting-edge devices. The composition ratio of batch ALD compatible equipment and single wafer treatment equipment declined. In the fiscal year that ended March '25, the composition of batch ALD and single wafer treatment equipment turned to an upward trend due to increased sales of equipment for advanced DRAM and advanced logic and foundry, and the recovery in sales of equipment for NAND. In the fiscal year that will end in March '26, demand for NAND equipment will recover and the batch ALD support equipment on the -- for mini batch deposition equipment will increase. In addition to the recovery, as we have acquired a new POR for DRAM, we will see the sales mix to increase. We have recovered to the 68% in the fiscal year that ended March '25. And we will see the ratio to go above to reach 70% in the fiscal year March '26, which is our medium-term target as a result. The gross profit margin for the fiscal year ending March '26 is expected to exceed that of the previous year. On Page 34, we summarize our semiconductor device development road map, our catalyst and our growth potential. There is no change in the strategies and medium-term target that we have explained. The medium-term target will be achieved when WFE reaches $120 billion, either in the fiscal year ending March '27 or March '28. As the semiconductor devices continue to become more multilayered, finer, more complex and more 3-dimensional, we will continue to develop and manufacture products that meet the needs of our customers, which is our strength, so we will continue to outperform the WFE growth in our sales. As opportunities to take advantage of batch ALD compatible equipment and single wafer treatment equipment increase, we will be able to achieve the growth. In addition, as the -- due to a decrease in the SG&A ratio accompanying to an increase in sales, the pace of increase in adjusted operating income is expected to be faster than pace of sales growth. That concludes our presentation. Thank you for the attention.

[Operator Instructions] First question, Mr. Shuhei Nakamura.

This is Goldman Sachs, Nakamura speaking. Can you hear me?

Yes, we hear you.

My first question is for the new fiscal year's sales planning, 3 months ago, you said 5% increase in revenue. And in comparison to that, what have been the changes you explained in detail? Overall, you raised the forecast for NAND, but DRAM and Logic/Foundry interposers, you have lowered the forecast. But the actual inquiries from customers have -- they already reflected such changes in the new fiscal year's planning, the tariff impact, you also said you included as well. What is actually happening lately? Or are you considering as risk buffer only? I want to know that.

First of all, the customers' forecast -- setting aside tariff, customers' forecast changes reflected in the interposer forecast, which means interposer not decided, therefore, not factored into the forecast. And the other is for NAND. NAND investment is becoming a bit stronger. Based on the forecast and reflecting the forecast, we came up with this expectation, not because of the tariff or other external factors. On the other hand, the indirect impact of the tariff, slowdown of the market and so forth have been factored into the general purpose DRAM. That is capacity investment could be contained. Therefore, for capacity investment, we voluntarily assessed and lowered the forecast. This is the sense. .

That is clear. One additional question that is on tariff. Ever since the talk of the tariffs, has there been any changes from your customers in their forecast or any change to the customers' investment plans? Ever since the talk of the tariffs, immediately after the tariff discussion, there have been many small movements such as wait a little bit for the shipment and so forth. But for the main investment plan, any reviews or any changes to the forecast?

No, that has not taken place.

And then second point is in the fourth quarter order upside, I want to know the content. NAND in China, in the fourth quarter, you have been expecting orders. But any additional orders that you did not expect in the fourth quarter?

In the fourth quarter orders, about JPY 14 billion to the upside, as we said earlier. And the biggest part was China's NAND, large Chinese NAND manufacturer. This client's order was JPY 15 billion to the upside. On the other hand, Chinese major DRAM manufacturers orders shifted a little, which was rather JPY 12 billion to the downside. And Chinese mature logic customer, about JPY 5 billion to the upside, which means for China, Chinese customers in total, JPY 8 billion upside in orders. And other positive was Service orders, about JPY 5 billion to the upside, a total of JPY 14 billion upside.

One thing to add that is Chinese NAND January to March orders, JPY 15 billion to the upside, as you said. On the other hand, in the new fiscal year, Chinese NAND sales outlook has not really changed from 3 months ago. What is your perspective here?

For orders, originally in the third quarter, we expected sales and this expectation due to monthly timing differences delayed, but included in the sales for March 2026. Due to the timing delay, no particular upside. This is as expected, already factored in. Please understand that the sales expectation is factored in as orders.

In this sense, the fourth quarter, JPY 77 billion, January to March orders, not because of Chinese upside, but upside coming from elsewhere. Is that right?

As for orders, orders was on the upside for China and service.

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

This is Wadaki from Morgan Stanley asking the question. So if we can talk about the change in your outlook against other companies, I think the different companies have different view. But for China -- outside of China for other regions, where do you think the CapEx to increase?

Mainly in South Korea, the large semiconductor companies, their NAND, the investment with the generation change, we are seeing the growth strong, the demand. Even though they are Korean company, they have a plant in China. And at the local or the Chinese plant, they are going to have a generation shift. That is active the movement we are seeing. And also U.S. memory maker in Singapore, above our expectation. There is a stronger investment for generation change. We are seeing that to happen.

I think it's a difficult question for you to answer, but in this industry, we are seeing a very -- various changes so quickly. And the global NAND makers, they are making the more aggressive investments, especially in China. And most likely, the demand will be in line with the expectation. But do you see any change in the content of the investment?

So based on the forecast we received from our customers, we prepare our -- the guidance. And for the later part of March '26, there could be some other change. But for the markets outside of China, we don't really see the major substantial changes in the demand.

And my second question is about your market share as you are still acquiring PORs. And in the last -- when you used to be Kokusai, you have gained so much of the market share. And by utilizing your expertise, you were able to increase your market share and you have gained the market share from APAC. And now you are also making a steady progress in the Korean POR. And can you give us some of the story so that it will be easy for us to understand what the current situation is?

In ALD deposition, the technology because we have a technology competitive advantage. But because it is ALD, in terms of productivity, we do have some inferiority in the throughput. So for that part, with the batch, the method which we are strong in, we can make up for this -- the gap and we can reduce the cost of our customers and still achieve the highly complex deposition. We have been focusing mainly on that part of our business. That has helped us to gain our market share. We believe that is the reason.

So you have been focusing on the batch ALD, and now that we have come to see the demand to catch up to the batch ALD.

Yes. For batch, there are batch with the many the 2b input or with the TSURUGI where the numbers, the input will be limited and pursue the high-quality film. But by having these products, we have been able to gain market share. That is the one reason. Thank you for your question.

Next is Yu Yoshida-san.

CLSA Securities, Yoshida speaking. The outlook for this fiscal year, thank you very much for explaining in detail. I very much appreciate it. And on top of that, I may be a bit in haste, but going into the next fiscal year, the market and your company's sales outlook, how is this going to change? For March 2027, what is going to be the driver application? You have the midterm plan, but what do you see already to be changing going into the next fiscal year? Please comment on the changes going into the next fiscal year.

First of all, for Logic/Foundry, there is aggressive investments into the advanced nodes for advanced applications. This will continue. And another expectation is one step back from the leading edge, that is semi- advanced. In these areas, increasing production in other locations and also recovery of investments into the mature nodes, I think, will be the expectation for Logic and Foundry. For DRAM, HBM DRAM will continue, but conventional multipurpose DRAM demand for quantity will be recovering. DRAM CapEx for quantity or capacity can be expected. For NAND, currently, switchover into new generations is taking place. And therefore, quantity increase investment in new generation will also take place. In the 3 applications, capital expenditure can be expected, respectively. That is going to be the year of March 2027.

And to confirm, Logic/Foundry advanced node investment to continue. That would be the same level of investment continuing plus production in other additional locations will be added? Multi-location deployment, would that be at the very leading edge or minus 1 from the leading edge?

We don't know yet clearly. But the biggest foundry makers, offshore deployment will take place for sure. This is what I mean.

And excuse me, for confirmation, the DRAM part, yes, capacity increase can be expected in next fiscal year. But for NAND, the current high level and the current recovery in investment, will this become higher in next financial year?

NAND wafer output increase. Rather than that, the new generation of product production capacity increase will be taking place, not for wafer output, but new generation production capacity increase. That is going to be the sense.

I see. Understood. And then my second point, in the mid- to long term; and in the IR Day, you talked about mid- to long term. And then when we look at Page 29 to 31, compared to the level of expectation for March 2026. DRAM side, I think there can be upside expected. This fiscal year, there is much less greenfield investment. In the perspective, there can be a bit more upside. And on the other hand, Page 31 for Logic/Foundry, inclusive of mature node, you expect growth. And mature nodes under the current environment and the competitive environment, I feel rather to be difficult considering the current starting point. How realistic do you think is the midterm goal? Please comment.

For the midterm plan, regularly, we review the midterm plan internally. But you particularly raised the question about DRAM, which we think is in our trajectory. And we can understand that you think that we can aim for higher. That is understandable. Of course, we should have high goals. And in line with the external environment, we will be reviewing, yes. Further, for Logic/Foundry, Page 31 bar chart, you can see that there is yet quite a lot of challenges remaining. That is how it appears. But this mature node part plus, as I mentioned earlier, the FinFET generation production location expansions, we should be able to capture demand there as well. Therefore, for logic, as of this stage, we are not thinking of lowering our target. We think that the target is quite realizable.

Thank you for your question. Do we have any other questions? Please raise your hand. Yoshioka-san of Nomura Securities.

This is Yoshioka of Nomura Securities. I have 2 questions, please. And my first question is that the China, the local -- the Chinese demand where we are seeing major changes rather than this year for March '27 or can you share more medium-term outlook? In March '26, DRAM, there was a transition period for the investment. And for March '27 and beyond, do you see -- have any visibility of additional investment? And for NAND, I think the recovery has been seen in March '26, what is your evaluation of the sustainability of the current demand?

First, for the local Chinese manufacturers, DRAM demand. So the largest DRAM manufacturer in China, their CapEx currently as they are -- they only have one new plant. So they are now in the low of their investment. But in China, they are -- have a plan to add multiple plants in China. So when they start to implement those construction, we are -- we can expect the continuous investment. And for NAND, already -- they already have plans to build new plants. So for March '26 and beyond, as for March '27, we are expecting to see the level of the demand to continue at the current level.

I understand. And my second question is about some of the numbers I needed to check. So for gate-all-around, previously on your IR Day and you expected the number to be above JPY 40 billion by March '28. So the medium-term target for GAA, has there been any changes to your outlook? Or do you not see any problems to meet your target?

So for now, the sales for GAA, we are not going to make any changes to our sales outlook. And we believe we can achieve the target. And to achieve that, we will be acquiring POR. We continue to make our activities to get more PORs. And in March '25, the number was a little less than JPY 10 billion that we have been talking about. But in fiscal year March '26, we will achieve JPY 20 billion for sure. And going beyond, we will be increasing our numbers to meet our medium-term plan.

In your the presentation, we talked about acquiring the process for gap fill. And in your IR Day presentation, you did not mention the POR for gap fill. So in that respect, has there been any upside to your original plan? Or is that too much to expect?

Including the fact whether there has been upside or not, in order to drive sales from our POR, we still need to see our customers to invest in certain scale. So as we have been gaining some PORs, depending on the level of the investment of our customers, that we can evaluate our contribution. So going forward, there is a possibility to see an upside.

Any other questions? Yes. Mr. Sean Park.

This is UBS Securities, Park. Can you hear me?

Yes.

From my side, Chinese NAND major client orders. I have a question here. First, I want to check the numbers. Earlier in the questions and answer, you mentioned from Chinese NAND large client, January to March order was JPY 15 billion upside to the expectation. Was this JPY 15 billion upside to the expectation? Or was it the total absolute amount of orders being JPY 15 billion was upside to the expectation? What was the total absolute value of orders from this Chinese client?

Absolute amount, in FY 2024, this large NAND manufacturers orders was about JPY 18 billion.

This Chinese NAND large client, their investment level, I think, is quite high. But this year to next year, how much is the investment sustainable? This time the order received will be switching to sales of March 2026. The orders will be contributing to sales in March 2026. And does the customers' plant become full?

Yes, the customers' plant will be full with this order, which means when the new plant will be made -- will be built, the next business opportunity and commercial negotiation will start. Whether there will be a big order coming March 2026 is up to the plant construction and the investment plan.

I see. Then finally, one more final question is a follow-up question. U.S. entity listed companies transactions. The METI guideline of Japan, you will follow which means you will receive orders and will not have any problem continue to do business. You can continue to do business.

Yes, for us, we abide by Japanese laws and regulations in our compliance. The existing exports we have today, we have no problem. We will be in compliance with the laws and regulations. It is not a problem.

We are very sorry. We do understand there are more people with questions. But due to time constraints, we would like to conclude the Q&A session. If you have any additional questions, please contact us, and we will be sharing the information through our website. So we would like to conclude our Q&A session. Thank you very much for participating our presentation. We will be sending the questionnaire to all of you, please cooperate. So we would like to conclude the presentation today. Thank you very much for participating in today's presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]