Kokusai Electric Corporation ($6525)

We will now begin Kokusai Electric Corporation's earnings presentation for the fiscal year ended March 26. Thank you very much for joining us today despite your busy schedules. My name is Matsumoto from the Corporate Communications Department, and I will serve as today's moderator. First, let me introduce today's speakers. Kazunori Tsukada, Representative Director, President and CEO; Yoshitaka Kawakami, Senior Vice President and Executive Officer. As for today's agenda, Mr. Kawakami will first explain the consolidated financial results and full year forecast followed by Mr. Tsukada, who will discuss the future outlook. After that, we will move on to the Q&A session. We expect today's meeting to conclude at around 5:15 p.m. Today's presentation is being held as a live webcast via Zoom. If the stream is interrupted or the video freezes during the presentation, please wait a moment. The presentation and Q&A session will be conducted in Japanese. Participants may also choose simultaneous English interpretation. Please note that this meeting is intended for institutional investors and analysts. Accordingly, questions will be limited to institutional investors and analysts only. We also kindly ask participants to refrain from recording audio recording or photography. Now I would like to begin the presentation. Mr. Kawakami, please begin.

I am Kawakami, Senior Vice President and CFO. Thank you for joining Kokusai Electric's financial briefing today. First, I will explain our financial results for the fiscal year ended March 2026 and the earnings forecast for the fiscal year ending March 2027. These are disclaimers. I will not go into them. First, here is the consolidated financial summary for the year ending in March 2026. Page 4 is the highlight. Specific details will be explained from the next page onwards. Page 5 is the summary of consolidated financial results for the fourth quarter and the full year. In the fourth quarter, both revenue and profit decreased year-on-year, but both revenues and profits slightly exceeded the revised forecast announced at the second quarter financial results, mainly service revenue was on the upside and gross profit margin also improved then expectation. For the full year, although revenue and profit decreased year-on-year, the previous forecast was exceeded in revenue by JPY 5.1 billion, adjusted operating income by JPY 3.2 billion and adjusted net income by JPY 2.3 billion. Along the upside in adjusted net income, we will increase the year-end dividend by JPY 1 from the previous forecast of JPY 18 to JPY 19. As a result, the annual dividend per share is JPY 37 combined with the interim dividend of JPY 18. Consolidated payout ratio to adjusted net income is 25.3%. Bookings in the fourth quarter were approximately JPY 104 billion and bookings for the full year were JPY 264 billion, exceeding our assumption by about JPY 30 billion. The booking backlog at the end of the year was JPY 165 billion, and the strong momentum in inquiries is expected to continue into the year ending March 2027. R&D, capital expenditure and depreciation were more or less in line with the forecast. Page 6 shows the factors for the fourth quarter year-on-year changes in revenue and adjusted operating income. In the fourth quarter, compared to the same period last year, mainly for DRAM upgrade modifications that improved the performance and functions of existing equipments increased instead of new equipment sales, which led to an increase in service revenue. On the other hand, overall revenue decreased 4% year-on-year due to a stabilization in sales of equipment for China DRAM, which was active in the same period last year, resulting in equipment sales decrease. Changes by application will be explained later. Adjusted operating income decreased 17% year-on-year, mainly due to a decrease in gross profit, stemming from lower sales and an increase in SG&A expenses. Page 7 shows the full year of factors for change. For the full year, similar to the fourth quarter, upgrade modifications for DRAM included in service sales grew significantly in place of new equipment sales in addition to an increase in equipment sales for NAND. On the other hand, with the coming down of equipment sales for Chinese DRAM and our advanced packaging, overall revenue decreased by 2% year-on-year. Adjusted operating profit decreased by 18% year-on-year due to a decline in the gross profit margin caused by a drop in production capacity utilization from lower production volumes and changes in the product mix coupled with increased SG&A expenses from upfront investments such as R&D for the future. Page 8 shows the quarterly revenues by business. In the fourth quarter, continuing from the third quarter, a portion of equipment demand was replaced by upgrade modifications, leading to a service revenue increase, both year-on-year and quarter-on-quarter. The full year showed a similar trend with service revenue up 27% year-on-year, accounting for 40% of total sales. Page 9 shows revenues by application of 300-millimeter equipment, which comprised the equipment business and 200-millimeter or smaller legacy equipments included in the service business. In the fourth quarter, although equipment sales for major applications declined year-on-year, but compared to the quarter before, equipment sales for DRAM and logic foundry increased. For the full year, compared to the previous year, equipment sales for NAND increased by 90%, and equipment sales for DRAM by 44% and Logic Foundry sales decreased by 11%. The significant decrease in equipment sales for DRAM was due to a drop in Chinese DRAM equipment sales, which were active previous year and the replacement of some equipment sales with upgrade modifications in the service business. Page 10 shows revenue by destination. In the fourth quarter, revenue from Taiwan and South Korea increased both year-on-year and quarter-on-quarter, while revenue from China decreased. For the full year, revenue from the U.S. and China decreased year-on-year, lowering the U.S. revenue ratio to 3% and China revenue ratio to 39%. Page 11 shows non-China and China revenues by application. In the fourth quarter, sales to non-China manufacturers surged by 20% overall compared to the preceding quarter, with equipment and service sales increasing across all applications due to rising AI-related demand. Fourth quarter sales to Chinese manufacturers saw an increase in equipment sales for DRAM quarter-on-quarter have been going past the investment transition period. Logic/Foundry equipment sales also increased, showing a recovery trend. In the fourth quarter, similarly to the third quarter, sales to non-China manufacturers increased, while sales to Chinese manufacturers decreased, causing ratio of China sales to decline further to 26%. Page 12 is the balance sheet trend. Total assets at the end of March 2026 increased by JPY 18.1 billion from the end of March '25, due to an increase in cash and cash equivalents and an increase in PP&E from investments for a demo center in the U.S. Total liabilities decreased by JPY 5 billion from the end of March '25 due to the repayment of borrowings despite an increase in contract liabilities from the receipt of advances, increased by JPY 23.1 billion from the end of March '25 due to an increase in retained earnings. Page 13 shows key management indicators of the balance sheet. The equity ratio at the end of March '26 rose by about 4 points from the end of March '25 to 61%. Regarding cash and debt relationship, we eliminated net debt due to an increase in cash and paying down interest-bearing debt, resulting in a net cash position of JPY 6.6 billion at the end of March '26. We achieved a net cash position 1 year earlier than expected. In accordance with our shareholder return policy, we have resolved to acquire up to JPY 5.3 billion of our shares, which was disclosed today. We plan to cancel the acquired shares as a general rule. Page 14 is the full year cash flow. Free cash flow for March 2026 was JPY 31.8 billion as operating cash flows exceeded investment cash outflows. Free cash flow is expected to remain positive in March '27. Page 15 covers full year R&D expenses, capital expenditures vision. We are investing in R&D and CapEx in line with our midterm plan, anticipating demand recovery to long-term demand increases. R&D expenses were JPY 18.3 billion, about a 20% increase year-on-year. R&D expenses for March '27 are expected to increase by about 10% year-on-year. For capital expenditures, we recorded JPY 16.9 billion, a decrease of about 20% year-on-year. Going forward, in addition to regular capital expenditure, we are currently constructing a U.S. demo center totaling JPY 20 billion as a large-scale capital investment aimed at opening in January '27, which means CapEx from March '27 are expected to increase by about 60% year-on-year. Depreciation was JPY 14.3 billion, a 10% year-on-year increase associated with large-scale capital investments. Depreciation for March '27 is expected to increase by about 10%. Next, I will explain the full year earnings forecast for the fiscal year in March 2027. Page 17 is the highlight. Specific details will be explained from the next phase on. Page 18 is the forecast for the fiscal year ending March 2027. In the fiscal year ending March 2027, semiconductor device manufacturers are expected to accelerate investments in generational shifts and production scale expansion, mainly for advanced devices. In our earnings for the year ending March '27, we aim to achieve revenue and profit growth above market by leveraging the technical superiority of our equipment for advanced devices. Specifically, we forecast year-on-year increases in revenue by 19%, adjusted operating profit by 27% and adjusted net income by 26%. Gross profit margin is expected to be 42%, 0.8 points higher year-on-year by improvements in production capacity utilization and product mix changes. Dividend forecast is JPY 47 annually a payout ratio of 25.6% to adjusted net income, in line with our shareholder return policy. Page 19. Starting from fiscal year March 27, we will change our business classification. 200-millimeter equipment -- used equipment, and upgrade modifications that were included in service business will be moved into equipment business to be more aligned with the WFE market. Page. 20 summarizes the factors for change in the March 2027 forecast compared to the previous year using the new standard. Overall, revenue is expected to increase by 19% year-on-year supported by a 39% increase in equipment sales to non-China and a slight 6% increase in service sales despite a slight 3% decrease in equipment sales to China. As for adjusted operating profit, we forecast a 27% year-on-year increase because of higher sales and gross profit margin improvement due to increased capacity utilization from higher volumes and changes in the product mix absorbing the increase in SG&A expenses. Page 21 shows forecasted equipment sales by application and service revenue. For reference, figures under the old standard are also shown. Driven by generative AI demand, semiconductor device manufacturers are expected to further accelerate investment in high-performance devices through technology migration and capacity expansion. Against this backdrop, we expect the DRAM-related sales to increase 36% year-on-year, and the Logic and Foundry sales increased 38%. For NAND, investment is expected to continue focusing on technology migration. And even under that environment, we expect NAND related sales to increase 7% year-on-year. Under the new standard, service revenue will mainly consist of part sales in the maintenance services and is expected to account for 19% of total revenue. Page 22 presents revenue trend under the new standard from FY March '23 through FY March '27 forecast divided between non-China customers and China device manufacturers. Revenue to non-China customers have been on a recovery trend since bottoming out in FY March '24, and we expect growth to accelerate further in FY March '27. We've forecast NAND-related revenue growth of 50%, DRAM related growth of 30% and Logic and Foundry growth of 50%. Overall revenue to non-China customers are expected to increase 30% year-on-year. Meanwhile, revenue to China device manufacturers are expected to decline slightly by 2% year-on-year. Although Logic and Foundry and DRAM sales are expected to increase. NAND equipment sales are projected to decline significantly due to a temporary slowdown in investment by major device manufacturers. From FY March '28 onwards, we expect the NAND equipment revenue to recover and return to a growth trend. Since revenue to non-China customers are growing faster than revenue to China device manufacturers, the ratio of revenue to China is expected to be 29% and remain around that level going forward. Page 23 shows revenue by destination in our forecast. Compared with the previous year, revenue to Japan, the U.S., Taiwan and Korea are expected to increase, while China revenue ratio is expected to decline to 34%. At present, we have not seen any direct impact from export controls or tariff policies in various countries, but we will continue to closely monitor both direct and indirect impacts. Page 24 shows forecasted revenue by equipment category. -- figures under the old standard or to shown for your reference. For FY March '27, the ratio of high value-added product is expected to reach 71%, and as generational investment progresses across each device area going forward, we will accelerate the introduction of high value-added products. This concludes my presentation.

I am Tsukada, President and CEO. I will explain our future outlook. Page 26 shows our market share trend. Chart on the left shows market share data from Gartner Research. The deposition market mainly consists of tube and non-tube categories, and we classify our batch deposition systems in the tube category. Treatment systems are included in the RTP and oxidation diffusion category. In 2025, our share in the batch deposition market rose 8 percentage points year-on-year to 49%. The chart on the upper right shows the breakdown of the batch deposition equipment market. In the batch ALD compatible equipment segment, our market share reached 80%, as shown in the pie chart. In 2023, the batch ALD compatible equipment market and our revenue declined due to reduced NAND investment. However, since 2024, the market has recovered steadily and both our revenue and market share have continued to increase. The lower right chart shows the breakdown of the treatment equipment market. Within the Plasma Gate Modification, where our single-wafer treatment systems are categorized. Our market share declined slightly in 2025. We believe this was mainly because China local makers, which had invested aggressively in 2024, entered a temporary investment slowdown phase in 2025. Our single wafer treatment systems are also being increasingly adopted for DRAM applications since DRAM related revenue are expected to expand significantly in FY March '27. Additional NAND investment could lead to further market share gains. Page 27 shows our outlook for the business environment. In the semiconductor device market, demand related to generative continues to drive capital investment by device manufacturers and investment in high-performance device is expected to increase further. On the other hand, the investment in mature node Logic Foundry is slowing, not only in the U.S. and Asia, but also in China, and [indiscernible] is still awaited. That said, our medium- to long-term growth expectations remain unchanged. In fact, we believe the overall semiconductor device market could grow faster than previously expected. Regarding WFE market size in calendar year '26, at the time of our third quarter results briefing, we projected year-on-year growth of 10% plus alpha, given stronger-than-expected AI-related investment, we have now raised that outlook to 15% and upward revision of roughly 5 percentage points. Page 27 provides an update on our POR wins in 3D NAND. In FY 'March 27, we expect the major manufacturers to continue technology investment for the 200 to 300 layer generations, which are expected to account for more than 80% of total NAND-related equipment sales. For generations above 200 layers, we continue to maintain and expand PORs for batch ALD compatible systems centered on our latest mini batch deposition systems as well as for single wafer treatment systems. Pas device migration progresses, demand is expected to increase for replacing conventional deposition systems with our latest models as well as for upgrade modifications, supporting recovery in our NAND-related equipment revenue. As devices continue to become more high listed, we intend to further expand the POR wins for our flagship mini badge ALD and single wafer determent systems with higher value-added solutions. Page 29 provides an update on the POR wins in DRAM. In FY March '27, we expect major manufacturers to continue technology investment in the D1C and D1D generations. Revenue related to D1C and D1D are expected to account for roughly half of total DRAM related equipment revenue. We have already secured the PORs for single-wafer treatment systems in DRAM starting from the D1B generation, and we expect significant revenue growth in FY March '27. Looking ahead, as DRAM technology evolves towards the D0 generations and vertical transistor DRAM, device structures will become increasingly finer and more complex. As a result, we expect more opportunities for adoption of that ALD compatible systems and single-wafer treatment systems. Page 30 provides an update on our POR wins in GAA. In FY March '27, investment in first-generation GAA is expected to continue following the previous year. We have already secured PORs for first generation GA and are actively promoting proposals for second-generation GA as well. Sales related to GAA in FY March '26 came in at JPY 15 billion, below our previous forecast of JPY 20 billion. For FY March '27, we forecast revenue of JPY 20 billion. Thereafter, around FY March '28 as the industry transitions to a second-generation GAA, we expect additional opportunities for adoption of batch ALD compatible systems and treatment systems, which should support further revenue expansion. Revenue related advanced packaging were JPY 3 billion in FY March '26, and we expect FY March '27 revenue to remain at least at the same level while continuing to expect additional customer investments such as multisite investment deployment, we will also continue promoting new applications. Page 31, medium-term management objectives. At our IR Day held in June 2024, we announced our medium-term management plan and target. Given significant changes in the market environment since then, we have now revised the plan. First, our visional medium-term target assumes the WFE market size of USD 120 billion or more. We now expect to achieve this target no later than FY March '29. Second, starting from the FY March '27, we changed our business application by transferring upgrade modifications and revenue of 200-millimeter equipment the from service business to the equipment business. As a result, the target revenue mix has been revised to approximately 80% equipment business and 20% service business. Third, we revised our target revenue composition by application. Previously, the target mix was 25% DRAM, 25% NAND and 50% Logic and Foundry plus others, reflecting rapidly growing demand for AI-related advanced devices and slowly mature neurologic investment, we revised the mix to 40% DRAM, 20% NAND and 40% Logic and foundry plus others. We will continue driving our growth strategy to achieve these term objectives. Page 32 explains our acquisition of new land adjacent to the Tonami manufacturing center. In October 24, we began operations at the Tonami site and have been expanding production capacity across the group in anticipation of future semiconductor market growth. However, the semiconductor market is now expected to grow faster and larger than originally anticipated. Accordingly, we decided to acquire additional land adjacent to the Tonami site will be utilized existing supply chains in the logistics infrastructure. We plan to use the site for a range of initiatives, including production and R&D expansion to support future market growth. Page 33 summarizes semiconductor device roadmaps. The business environment and our growth catalysts. As the semiconductor devices continue evolving toward multilayering more miniaturization, complex in 3-dimensional opportunities for our core technologies, particularly batch ALD comparable systems, especially mini-vac systems and single-wafer treatment systems are expected to increase. Accordingly, we believe we can continue achieving revenue growth above overall WFE market growth. We also remain committed to achieving adjusted operating profit growth at the pace faster than revenue growth through a higher mix of high value-added products and lower ratios resulting from revenue expansion. To achieve these goals, we will continue pursuing new POR wins for new generation devices while steadily advancing towards our medium-term objectives. This concludes our presentation. Thank you for your attention.

This concludes our presentation. We will now begin the Q&A session. [Operator Instructions] Tamura san, please.

This is Morgan Stanley Securities, Tamura speaking. First of all, I have a question about the WFE outlook that you have. This time, you showed 50%, but by application and for the Chinese market, what are your outlooks? Please explain. Thank you very much.

As of now, the new outlook that we have is for application by application, year-on-year growth rate. Why I will expect NAND is plus 15%. DRAM plus 25 to plus 30, Logic, Foundry and others together, plus 5 to plus 10. These include China and non-China in Overall. Next, China and non-China, China, minus 5% non-China plus 20%. This is what we expect. I.

And what is the image of second half of the year split?

First half and second half split, we don't have a clear view as of now.

All right. Then -- when we're looking at your company's business plans, second half Were you expecting less revenue and profit half-on-half. And when -- looking at other companies with forecast, I don't think Europe forecast matches. Second half, our image was that there will be an acceleration. Is there anything in particular that is for your company that is serving differently for you or is there not simply not much visibility in the second half of the year. Therefore, you have a more conservative view?

The second half of our company for the revenue as of now -- the changes are more for the increase. This is the change taking place lately. But right now, as a number that we show you today is the number I have mentioned and shown you already. In fact, from several clients in 2027, the investments planned, they want to implement earlier. We are receiving asset inquiries from customers.

And when did you put together this plan? When was the plan made February of this year, right?

Yes, February of this year, this was the snapshot as of February this year.

And then over the past 3 years, you think that demand is increasing and coming in earlier and not reflected and not updated over the past 3 months?

You are exactly right.

Because there are other people wanting to ask questions, I will come back later and stop for now.

Thank you very much. So we would like to take a question from you, Yoshida san. Yoshida of CLSA Security is asking a question. So my question may be similar to what the question now has been raised. On Page 21, you're showing the guidance of the new equipment revenue for the year. So what is your assumption for the first half? And can you share the numbers by application and account for the first half. So under new standard, in the first half, equipment sales is JPY 119 billion. In the second half, we are expecting JPY 98 billion of revenue. So can you give us the composition by application?

In the first half, NAND is 18%. DRAM is 40%. Logic and Foundry and others is 42%. And in the second half, for the equipment -- new equipment sales, NAND is 23%. DRAM is 50%. Logic and foundry and the others is 27%.

So this is the composition for the total revenue of equipment, right?

The numbers look slightly different from the numbers shown on slide because yet this includes service revenue.

And by account, can you share some numbers between first half and second half?

For 200-millimeter because we have some of those, I would like to share information when we have a separate meeting. So my second question is about the revenue growth. And it doesn't look like you are not going to benefit from the leverage on your profit.

And last time, you talked about the expectation for the margin expansion by the several percentage point and OP margin is going into the improved by 1.4% and gross margin improvement is only 0.8%. So does that mean you are seeing expansion of your expenses faster than you had expected?

Yes. In terms of we were targeting for 53%. That is the message we conveyed. But this time, we are expecting 42% gross margin. So we do have a conservative gross margin outlook, which is 1 percentage point lower than original forecast. Because conventional equipment revenue mix is going to be higher than we had expected. And for OP margin this time, compared to last time, our outlook looks more conservative because for the future investment, the personnel cost and R&D expenses and we are replacing our -- the main system. So there is an increase in our DX-related expenses. So SG&A is going to see a JPY 8 billion increase. So compared to FY '25. So we do -- are showing some conservative margin outlook.

So why are you going to see increase in the conventional equipment mix?

There is a slight change in the mix by account.

Thank you for answering my question.

Moving over to the next person, Yoshioka san of Nomura Securities, please.

This is Yoshioka from Nomura Securities. I also have 2 questions as well. The first question is since confirmation question of the previous quarter this time, the WFE market of 2026 growth outlook, you said 15%. But compared to other companies and compared to WFE related companies, you appear to be cautious. And in your explanation earlier, until February, you have reflected in your forecast only. In this sense, March or more updated census not reflected in the forecast. Maybe that is the only reason I billing. But in any event, last time, 3 months ago, you said 10% or more growth than you expected and other companies were saying 15% or higher growth. Other companies were bullish in their growth outlook. Therefore, compared to other WFE companies in comparison, only your company appears to be cautious. Is there any particular question? What is the reason? As demand do you have more difficulty in demand visibility compared to other companies?

Our company uniquely -- are we applying any lowering bias ourselves alone, not in particular. We don't do that. But what is included in the WFE number. When we assessed our company and after assessing we put together our number. It took some time to assess the number. Maybe we have not had number, but there is no particular circumstance resulting in a lower number. We are not biasing the number to be lower.

All right. Then JPY 30 billion upside you have in the bookings and bookings maybe the upside was greater in March. Was that the case?

Bookings, in the fourth quarter, big upswing more than we expected JPY 30 billion upside than we expected. May we have not been able to reflect the circumstance to next year's sales forecast sufficiently. Okay. Then second question, this is longer matter. Page 29, for example and Page 31, for example, midterm sales, especially DRAM sales.

Recently, you are seeing DRAM sales gave us Page 29. [indiscernible] Page 29 appears that from March '27 and up to the midterm target, DRAM sales is only going to increase by 8%. That seems to be your plant or ours, you said we'll be increasing which means there is simplification for growth. The midterm DRAM growth is only 8%. Why only 8%? Can you explain?

Yes. When it comes to the midterm, the customer's fab circumstances, we need to take into consideration the big DRAM players, they are all quite aggressive in constructing their plants. This situation, we are, of course, aware of, but the fab circumstance is one factor that we should take into consideration, all the companies are very bullish and strongly eager to construct their plants earlier than the schedule. Maybe we we review our forecast at that timing, we will be reflecting this aspect as well.

Then to the DRAM market, you are taking a conservative stance. You have a conservative assumption for the DRAM market. That is why it appears that your DRAM sales is not increasing. Is that correct?

The POR metrics I showed you earlier, there, you can see what we have visibility in POR. We have been increasing POI at what timing, which companies, what generations ramp-ups to take place, we are securely going to grow more than the market for sure. From the mid- to long-term perspective for DRAM. We need also to assess and look at how the manufacturing plants go as.

Well. I see. Thank you very much for your answer.

Thank you very much. So we would like to take a question from Nakamura san of Goldman Sachs. Thank you for the opportunity. This is a question. My first question is your guidance for new fiscal year. You said you prepared that in February. -- there could be potential upside? And can you give us some more color on what kind of upside you can see by application or destination? It seems like in Q1, there was JPY 100 billion of increase in bookings. So it's the first half looks rather weak too. Can you comment on that? So if I may start to answer the latter part of the question. So for the first half, because there are some delivery time issues, I don't really think there is much potential for an upside because there is more visibility. And talking about the potential upside, so for advanced node or non-China DRAM and largest of the foundry, those can be a potential the upside to us. Thank you very much. So for China market, compared to 3 months ago for memory and nonmemory, it seems like there has been a slight increase. What's your feeling? So major for makers, as I have been saying, we can expect a firm investment from them. But for large DRAM makers investment, we have more clarity of their investment. Is that reflected in your new guidance for the fiscal [indiscernible] it seems like there is not much change from 3 months ago. Yes, it is reflected in our guidance. Understood. So even with that compared to March '26, the China, the device manufacturers revenue in March '27 is not going to show much increase. Yes. If you can look at the revenue outlook by application, we are going to see some increase of DRAM, but the overall trend is going to be more flatas far as we can see now, that is the outlook. And my second question is about SG&A, you're expecting JPY 7.9 billion of increase in the new fiscal year. Can you tell me where the increase will be? The biggest increase will come from personnel costs, more than JPY 3 billion growth will come from the JPY 2 billion increase from R&D. And for Dex related, our -- the main system we are replacing them. That's about JPY 1 billion of increase. And we also have some other items. You have a visibility of executing those budgets, right? Yes. We believe we need to be need to expect this level of increase. Yes, on Page 28, for NAND. On the right-hand side, for POR win up to date from the 200 to 500 layers, the blocking side is missing. And compared to what you had to share on IR Day, it seems like you lost some of the PORs. So can you talk about that? And for Logic and Foundry? The revenue for gate-all-around? You are expecting JPY 20 billion for new fiscal year. We think there was some delay in booking the revenue last year. So for advanced in the Logic and Foundry and for Logic and GAA,can you comment on the revenue outlook? Okay. So there is 1 decline of a checkmark. It's not like we lost it against the other competitor, but the application itself disappeared with a certain customer. So if we just show whether a realistic picture, this is what it looks like. But -- it does not mean our performance was -- did not meet the expectation. That is not the reason. And for GAA, in March '26, we expected JPY 20 billion, but it was a JPY 15 billion of revenue. And in FY March '27, as I mentioned, as of now, we are expecting JPY 20 billion of revenue. But for this large foundry maker investment, if they accelerate their investment, if that is seen, we may see some uplift to this number. Thank you very much. Thank you very much. Through tax, we have received several questions. We would like to move on to the next question. For March 2027, the operating margin seems to be weak. What are the main reasons? That was 1 question. And this partially applied to the earlier question. The biggest reason is we are still continuing to make growth investments -- for future, we continue to invest. And SG&A, [indiscernible], they are the biggest reasons I see. And next, we would like to read the question. There was some as the NAND is showing a recovery -- sign of recovery for GA, ASM and the Lam, they are becoming more aggressive for the single wafer. So can you talk about the situation?

So for logic GAA, if I can update you on the situation, for GAA first generation to nanometer generation, we have already finalized 1 or -- so once the scale of investment of Acute can book our revenue too. But as we move on to second generation GAA and beyond, we are trying to win PORs. We have petition for that. So on the complex surface, we needed to do deposition. And the competitive advantage of our batch ALD can be exerted more. So we believe that will give us an opportunity to get the more POR wins. With the latest update for 1.4 nanometer, we are not able to share much information about our new POR wins. But in the competitive landscape, we are still trying to -- going to do our best to see the evaluation of our batch ALD.

Then I will read out another question. Korean memory maker, 1 of them says for NAND, existing equipment is sold and using the freed up space new equipment is expected to be installed. That is different. If this is the truth, what is going to be the impact on your company sales? This was the question.

Generational change when generational change takes place, clean room space may be lacking. And for generational change some equipment may not be introduced. And all the equipment may be moved out to free up space for the clean room. This used to take place in the past. This has been taking place from the past, which means when generational change to new equipment will become necessary -- and that is what we are creating in POR. In the freed up space, we will be able to bring in our equipment. From our perspective, the generational change will be accelerated. This is going to be a welcoming situation for our company.

We are coming close to the end of the scheduled time, but we will be Happy to take the last question. So Tamara san, please.

Thank you for the opportunity to raise question again. This is Tamura of Morgan Stanley. For China, when we look at the WFE outlook for application, NAND outlook looks rather weak, and you are expecting the revenue and revenue growth for China to decline. And the Chinese, the NAND makers, I think they are going to accelerate their investment from the second half. So do I understand there could be some upside opportunity. So what was your assumption when you prepared your guidance?

So our China customer, they place their orders matching our lead time and also they share the forecast -- their forecast. Based on the information we received from our customer, we prepare our business plans. -- and guidance. And for the China NAND manufactures based on the information we receive from them, we are not adding our excess expectation, but we are just showing cautious guidance. But as you said, we are going to start a new plant. And they are -- sorry, they are going to start new the fab and they're going to install new equipment. So we hear that is their plan. So that could be a potential upside for us too.

So when you talk about your lead time by how many months before they want to receive the equipment, do they have to place orders?

Production lead time is becoming longer. So it's around 8 months now. But the capacity for production is declining itself, too. So in the second half, we are trying to -- if I can -- we can use some of the additional capacity. Then we can the capture the opportunity to achieve a slight increase in our revenue in the second half.

This is now time to close today's meeting. Thank you very much for your participation to our results briefing meeting. After the meeting, will be distributing to you a survey questionnaire. We want to improve our future activities. Therefore, we ask you to kindly respond to the survey. We will now conclude the meeting. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]