Tokyo Electron Limited (8035) Earnings Call Transcript & Summary

Thank you very much for joining us today despite your busy schedule. I am Yatsuda of IR Department, acting as a moderator in today's session. Now let me introduce the attendees on our side: Mr. Tetsuo Tsuneishi, Representative Director, Chairman of the Board.

I am Tsuneishi. Nice to meet you.

Next is Mr. Toshiki Kawai, Representative Director, President and CEO.

I am Kawai.

And Mr. Yoshikazu Nunokawa, Corporate Director, Executive Vice President and General Manager, Finance Division.

I am Nunokawa. Nice to meet you, everybody.

Before starting the presentation, let me explain the flow of today's meeting. First of all, Mr. Nunokawa and Mr. Kawai will make presentation. After that, up to until 06:30, we will have the Q&A session, entertaining questions from you. This financial announcement uses 2 channels on Webex, providing simultaneous interpretation between Japanese and English. As we explained in our email, you are kindly requested to use apps on PCs or mobile terminals, if you plan to ask questions. But if you do not plan to ask questions, you can use telephones. Since this is the meeting for institutional investors and analysts, we appreciate your understanding that we will field questions only from institutional investors and analysts as usual. We will upload the audio content of this meeting, both in Japanese and English later. It will be kind if you could also refer to it. Now Mr. Nunokawa, our Corporate Director, Executive Vice President and General Manager, will present the consolidated financial summary.

Good afternoon. I am Nunokawa of Finance division. I'd like to present the consolidated financial summary of the first quarter of fiscal year ending in March 2021. Thank you very much for joining us despite your very busy schedule, taking care of the various problems, such as COVID-19. The -- yes, you can see the finance summary. The second column from the right-hand side, you can see the red color. Now you can see the first quarter of fiscal year 2021. The consolidated net sales was JPY 314.8 billion, 2.6% drop from the previous quarter, slight decline, but we maintained high level of net sales. By segment, the SPE net sales was JPY 303.7 billion, maintaining JPY 300 billion level. While the FPD net sales was JPY 11 billion, decreasing by 23.4% with obviously the FPD settlement was relatively high. The gross profit margin remained high at 40.8%. The operating margin increased by 1.8 percentage points to 23.5%, JPY 73.8 billion, increase by 1.8% from the previous quarter. The increase of the operating margin was attributed to such fact that SG&A expenses in the first quarter was kept low, as some of them were shifted to the second quarter. This is a graphic representation of the financial summary. You can see bar graphs. The blue color represent net sales, purple represent operating income and orange shows net income. The line graphs, the green one, represent gross profit margin and purple line graph shows operating margin. Our business in the first quarter proceeded steadily. Both gross profit margin and operating margin ended at a high level. With regard to the second quarter, new equipment sales plan, more than 80% of SPE and 100% FPD publication equipment have been shipped already. This shows segment information. On the left, SPE, as I explained earlier in the financial summary, impact of the drop of SG&A expenses were significant. Profit margin showed an increase. You can see steady growth on the quarter-to-quarter basis. In the middle, you can see FPD. The SPE SG&A expenses decreased, but at the same time profit margin declined due to the temporary impact of the COVID-19 spread, inducing considerable decrease of the net sales. For the composition of net sales, just like previous quarter, the proportion of SPE sales increased due to the difference in sales area between SPE and FPD. This slide shows SPE sales by region. On the right, you can see the first quarter results. Compared with the previous quarter, the sales to memory customers, particularly in Korea and China, increased. Orange is Korea and pink color represent China. So this shows the increase for memory customers. This show the SPE new equipment sales by application. In the previous fiscal year, the blue color and purple color represent memory sales. The proportion of sales to memory device manufacturers tended to be relatively low. In the first quarter, however, the sales to memory customers, as you can see here, accounts for about 50%. So sales to memory customers increased considerably. This shows Field Solutions sales. In the first quarter, the sales of Field Solutions was JPY 83.7 billion, again showing a good progress. Next, this slide shows balance sheet. On the left, the assets. On the top, the cash and cash equivalents, were JPY 322.6 billion. In the middle, you can see the light blue. That is the inventories. The inventories were JPY 413.9 billion. Thanks to recent strong inquiries, they remain relatively high, as in the case of previous quarter. On the right, you can see liabilities and net assets. The net assets were JPY 848.3 billion, as we firmly secured the profit also in the first quarter. The equity ratio was 65.3%. This shows the inventory turnover and accounts receivable turnover. You can see inventory turnover, the green color line, 123 days, remaining at the similar level to the previous quarter. The lower line graph, the purple one, represents the accounts receivable turnover, which was 49 days, unchanged from the previous quarter. My last slide shows the cash flow. The cash flow from operating activities was JPY 52.7 billion. The cash flow from financing activities was minus JPY 53.5 billion due to the dividend payment. Free cash flow was JPY 37.6 billion. This concludes my presentation on the consolidated financial summary. Thank you very much for your kind attention.

Next, Mr. Kawai, CEO, will present the business environment and financial estimates. Mr. Kawai, please?

Once again, I am Kawai. Thank you very much for joining us despite your very busy schedule today. So let me start with the business environment. There are some changes or increases and decreases by application in WFE market. As you can see, in general, there had been no major changes from the financial estimates announced on June 18. Although it is necessary to keep closely looking at the macroeconomy trend, along with the COVID-19 spread, WFE market is expected to grow by 10% and the FPD fabrication equipment, TFT array process market is expected to grow by 15% on a year-on-year basis. Next, this shows business progress. Our business activities in the first quarter made good progress. With various countermeasures against COVID-19 spread taken, our factories operated in line with the plan in general. The equipment installation is conducted by mobilizing local and Japanese expert employees as well as remote support services partially. The Field Solutions business is making good progress, in line with full year plan, thanks to the high utilization rate of our customers' fab. Next, I'd like to talk about our business opportunities and focus areas for the future. For logic/foundry, the EUV lithography will be introduced to the high-volume production lines. Context will further scale down in geometry. And in the near future, complex 3D structures, such as gate-all-around or GAA will need to be adopted. For the lithography, we are developing coater/developer and etching process technologies, which adapt to new resist materials and also developing production technologies to enhance yield and productivity. To address highly-scaled down contacts, we are developing ALE, which is high selectivity atomic layer etching technology and also the position technologies of new low resistance metal materials. In relation with GAA plasma etching and gas chemical etching, both of which are core competencies as well as screening free from patent clubs will present new business opportunities. For DRAM, the advanced patterning technologies are essential. Our company is developing and proposing various solutions packages, combining a wide range of our products. In particular, capacity module, though they are particularly demanding and challenging, provide our company with numerous opportunities to leverage our strength. We are investing development resources to enhance competitive edge of our product. For 3D NAND, our customers are engaged in development of higher stacking of more than 200 layers. It requires to realize both precise etch control profile and high etch rate in the HARC process. And also for ALD and CVD, film quality and gapfill performance are critical differentiators. For the 3D NAND as well there are also increasing demands of high productivity wet etching to remove sacrificial films with high selectivity. Our company is expanding our share in these high value-added areas. Next, I'd like to show the financial estimates. There have been no changes from the financial estimates announced on June 18. As I presented in June, we compiled the financial estimate, reflecting the impacts of COVID-19 and other factors. As of today, we plan to achieve the record high full year net sales of JPY 1,280 billion. The R&D expenses and CapEx plan also remains unchanged from the announcement on June 18. In order to make the maximum use of our future growth potential, we are planning a record high R&D expenses of JPY 135 billion and CapEx of JPY 56 billion. We will continue active investment for future growth -- further growth to achieve the objective of the midterm business plan. This shows dividend forecast of this fiscal year. Again, there have been no changes. We are planning to pay the full year dividend per share of JPY 660, along with the payout ratio of 50%. Thank you very much for your kind attention. This concludes my presentation.

We will have the question-and-answer session until 06:30. We'll receive questions in both Japanese and English. But our attendees are on the Japanese channel. Please allow us to restrict questions asked only in Japanese. When you ask questions in Japanese, please hit raise hand button on Webex. For details, you are kindly requested to refer to instructions attached to the e-mail. I will announce the name of the person who will ask a question one by one. Please check the chatbox on the Webex as our Secretary will inform you in advance that you will be next person to ask a question. If you ask a question in English, please, you chatbox to send the question in text, together with your name and affiliation, to the Secretary. We cannot answer a question if no name or affiliation is given. On the Japanese channel, I'll read out the question, translate it into Japanese, and our attendees will answer it in Japanese. While on the English channel, it will be simultaneously translated to English on a real-time basis. For the questions asked in Japanese, please allow us to limit to one question with one follow-up question. For English questions sent in text, I'm sorry but we will receive only one question without the follow-up question. If we have extra time toward the end of the meeting, we will receive additional questions.

So the first question, please. Mr. Shibano, please.

I'm Shibano from Citigroup Securities. In June, WFE 2020 assumption was -- focus was presented, and you also came up with the financial estimate in this fiscal year ending in March 2020. After that, some of the memory manufacturers decided to push out the CapEx plan. As of June 18, you announced that the WFE market is expected to grow by 10%. According to my understanding, however, you did maintain your January forecast. You have a market expected to grow by high-teen level. So is your internal assumption declined a little bit? And if that is the case, are there any impacts on that, that is a grand assumption of your focus? That is the first question. I also have the follow-up question later on.

Let me answer to your question. I am Kawai. So initially, this year, we said the -- about 10 -- more than 10%. But June the 18, we said 10% growth of the WFE market compared with the last fiscal year. That's what I said. But WFE, as a whole and now we are in the July. And when you look at the WFE market side itself, there have been no changes in our forecast in terms of the size of WFE market. That's why our full year forecast, JPY 1,280 billion, we didn't change that for year forecast at all.

So according to your -- my understanding, for memories, I just heard that you had some decline in demand for memory, but logic/foundry demand remain high. That's the reason why there is no major change in the total size of WFE market. Is that correct?

Yes, that's correct. Application, there are some increase or decrease by application, depending on WFE. That's what I meant actually. High-performance computing, actually there are wider applications for high-performance computing. The logic and foundry -- actually, they are growing steadily. However, for DRAM, smartphone demand is decelerated. And there are some delay -- slowdown in the data center investment because of their strategy. There is slight decrease for DRAM. So slight increase in demand for DRAM compared with last year. When it comes to 3D NAND, actually, the clients elasticity is rather high. So if the price goes down, the demand may increase for NAND. So about 50% increase is expected on a year-on-year basis. And I still have the same opinion for NAND demand.

What you have said is C1 2020 calendar year WFE market focused. But your fiscal year ending in March 2021, including January to March. So there is some difference between calendar year and fiscal year, but that changes are to be absorbed by the end of March 2021. There should be no major changes for the application mix as well. Is that correct?

Yes, that's how we view the market trend.

I understand. I have one follow-up question. In June, you said that you have received all orders for the sales planned for the first half of this year for the SPE new equipment. So it's been 1 month since June. Let's say, when you look at toward the third quarter of this fiscal year, how do you view the progress of the orders to be taken? If you have any explanation, could you share that with us, please.

Actually, we haven't disclosed that much in forecast yet.

Mr. Shibano, thank you very much. Next question is from CLSA Securities Japan, Mr. Yoshida, please.

I am Yoshida from CLSA Securities. My first question is about -- so a follow-up question for WFE. In calendar -- we are now in the second half of the calendar year. How do you see the WFE market in next calendar year 2021? Could you share your idea with us, please?

Actually, the COVID -- under the COVID-19 impacts, and there are various trends in the macroeconomy. Of course, we must closely watch the trends of the macroeconomy and impacts of COVID-19. IoT, AI, 5G data traffic increase, so those things will be increasing and growing steadily. So our society will be more and more depending on ICT technology. And ICT will be implemented in the society more and more in the future. So next calendar year should be big year for the market. And I haven't changed that opinion. In that sense, IMF, the other day, said -- announced the GDP is expected to grow by 5.4% next fiscal year. So data traffic is expected to grow furthermore. And I think the data traffic increase should be more than the general GDP growth. That's why we expect a strong growth in WFE market as well in calendar year 2021. But we are not able to give you any specific figures or numbers because we must closely look at the impacts of COVID-19. I'm sorry for that, but we can expect rather strong growth in WFE market.

I have one follow-up question. The other day, Intel made financial announcement, in which they said that they have a plan to use foundry for their leading-edge technology node. Does this plan of Intel have any impact on your future business plan or strategy? If any, could you share that with us, please?

As for the Intel, we are not in a position to make any comment on each individual customers' financial announcement. However, by and large, in general, we do carry out some general analysis. And as far as the general analysis is concerned, there are no major impacts on our business.

Thank you very much, Mr. Yoshida. Next question is from Mr. Wadaki of Nomura Securities.

I am Wadaki from Nomura Securities. The first question -- so I have a question on the market trend. The North America -- I mean, how do you view North America market? Do you have any comments? You said you cannot say anything about specific customer, but there are many interesting news coming up from North America. So I wonder, the North America will be growing in the future. How do you see the North America market?

There is a big growth potential in North America. So various countries do have their own strategies. The North America are planning to increase their production capacity. That is a general trend. So North America market is expected to grow furthermore. That's how I view the market. The change will not come soon, but at various facilities and there's timing need to be investigated to find out when. So I cannot say any specific timing. But when you look at midterm, long-term trend, I think, some growth is expected in North America market.

So you don't have any specific inquiries from North America customers, okay? My follow-up question is about Korea. So there are some troubles and many conflicts. So Korean customers may have some negative feeling about the Japanese manufacturers and your market share might be affected by such kind of sentiment. How do you view that trend?

So the Korean -- as for the Korea market for one thing -- so if we provide, we're #1 performance equipment process tools, our business will not be affected so significantly. So we are now leading the technology innovation. And that is most important thing for us to pursue as long as we are #1 in technology innovation. As you know, our industry is depending on the strong technology innovation. So as long as we lead the technology innovation, our business will not be impacted.

Mr. Wadaki, thank you very much for your question. Next question is from JPMorgan Securities, Mr. Moriyama.

I am Moriyama from JPMorgan Securities Japan. The Slide 16 -- I have a question on Slide 16. From your viewpoint, when you look at current semiconductor logic and 3D NAND technology challenge, how do you see the technological challenge for logic and 3D NAND? For example, logic, Intel made announcement the other day about some changes in their production strategy, 7-nanometer or 10-nanometer, that they are now hitting some ceiling limit, obviously. But from your viewpoint, the logic scaling, how much logic scaling will be possible in the future? Also for 3D NAND, you said 200 layers or more, you talked about etching process for 200 layers or more. Up into last year, you worked on 96 layers and now you're shifting to 120 layers. So next year, maybe 200 layers. You have been working on this area for years, HARC etching technology that you have been working. And market share of HARC etching is to be obtained. There are any changes in your forecast in that part of that market?

Okay. So technology innovation. Actually, when you look at the history, the technology innovation never stops and will not stop in the future. High speed, high ability, low-power consumption, high storage, all those requirements need to be satisfied. And those requirements are getting higher and higher. New structure, new materials should be introduced and also more and more technologies need to be developed. In order to satisfy those needs, we cannot stop technology innovation. However, having said that, the integration or various power to consolidate different technologies is necessary. So in our industry, we are the leader in our industry. We have been developing our core competence, the technology competence and service competence. We must further enhance those competencies because that will provide us higher value added and we will see more market applications. Now there are several applications on this Slide 16, but we are carrying out joint evaluation together with customers. Those -- that items under the joint evaluation with customer is increasing and the technology innovation is growing exponentially. I don't think that is exaggeration. I think the technology innovation is accelerated rather than slowing down. That's the feeling I have. So from now on, we'll see more and more technologies to innovate it. That's the current status. For 3D NAND, there are 3 major etching processes. For MLC, we did have high market share for years. For slit, we are making good progress. That's what I feel about the condition -- situation right now.

I have a follow-up question for 3D NAND. Recently, in China, for example, YMTC, the China local NAND manufacturer. Do you think in the future is it possible for them to catch up with the global NAND manufacturers in terms of their technology? And how do you view the time frame? Could you share your idea with us, please?

I'm sorry. I cannot say anything about specific for the specific customers. I'm not in a position to make any comment on the specific customer. We appreciate your understanding.

Thank you very much, Mr. Moriyama, for your question. Next question is from Mr. Yamamoto of Mizuho Securities.

I am Yamamoto of Mizuho Securities. I have one question. As for the financial results, so the plan for the first half of this year. So when you look at -- when you have this past quarter results, when we deduct it from the first half, I think the second quarter, we will see some decline. It didn't happened in the past. Usually, in your company, Q2 results were better than Q1 results. But do you see the Q2 results will be higher than the plan or the Q1 sales by region -- when I look at the Q1 sales by region? So in China, the sales in China increases from April to June. So maybe from the January to March, you are supposed to recognize the sales. But because of the COVID-19, you are not able to recognize the sales in January to March. That's the reason why sales in the first quarter looks rather high because of the sales and booking, the combination. Is that the correct understanding?

Let me answer to your question. I am Nunokawa. Let me answer to your question. Thank you very much for your question. About your question, as you said in your question, in the past, our results of the second and fourth quarter are better than the first and third quarter. That was the general trend in the past. But this fiscal year, the first quarter results and when you compare the first half plan, as you said, the Q2 result is supposed to decline. What you say is correct. That's how it looks like. The first quarter sales was rather high, thanks to the good progress. That is good news. On the other hand, when you deduct the Q1 result from the first half of this year, we forecast Q2 result might be lower. But as Mr. Yamamoto said in your question, the first -- the previous quarter, the fourth quarter, actually, some equipment was started up. But because of COVID-19, some of the sales were shifted to Q1, the first quarter. And that is the reason why the sales in the first quarter look rather high. That was one of the reasons why Q1 sales was rather high. So as a result, Q1 and Q2 in this fiscal year -- Q1 results are higher than Q2 expected results. That's how we see at this moment.

So may I say something? I am Kawai. I want to add some comment. Actually, this year is a bit different from the previous years, maybe because of the COVID-19 impact. That's how we understand this trend. The first quarter, actually, we need to set up the equipment, but we are in the middle of a state of emergency, but we need to take good care of that situation. And in second quarter, we are now supposed to do various activities to take care of the situation. As you said, if the things go well, there are good possibilities that Q2 sales will exceed the plan in the future, but we cannot see the future so well because of the COVID-19 impact. So as of today, we haven't decided to modify the Q2 forecast because it's too early for us to see -- say something decisive for the Q2 forecast. We are under -- in the middle of the impacts of the COVID-19 and there are many changes. So there are possibilities that Q2 sales will exceed the plan. But when you look at the overall situation, are there any sufficient factors for us to make a decision to change the Q2 forecast? We think it's not -- it's too early to say such kind of thing.

Actually, I have one follow-up question. So if that is the case, your shipment from April to June and also the start-up situation in the global market, are there any stagnation? Or if there is no stagnation at all, but you are now reflecting various risks, that's the reason why you decided not to change the current plan.

There are no specific factors. And there might be some unexpected factors coming out. So we cannot see the future. That's the reason why we didn't -- we haven't modified the forecast of this fiscal year.

Next question is from Mr. Hirakawa of Merrill Lynch Japan Securities.

I am Hirakawa from Merrill Lynch. I have a question on China, your sales in China. In your presentation, for -- in Korea and China, memory customers sales are rather high in the April to June. That's what you said earlier. Could you give us more details? For example, year-on-year basis, that is 2.7x high. But on the year-on-year basis or quarter-to-quarter basis, what sort of trend you can see for the memory sales, for example?

On year-on-year basis, last year, memory and logic, the proportion between the 2 was about 40-60. Logic was more than memory. The ratio is 60-40 for last fiscal year. Memory, in particular, DRAM were under adjustment last year -- last fiscal year. However, this year, the memory, the DRAM, a slight increase, but 3D NAND, 50% increase. So by and large, in calendar year, on a year-on-year basis, when you can see our results, about 50-50, the memory and logic is 50%, 50%. That's how we view the market -- the results, sorry.

I'm sorry. I was not able to hear you very well because of noises. So you just talked about the overall market rather than China market. The same understanding is applied to China?

I'm sorry. I talked about global market rather than China market.

If it's -- as a follow-up question, could you just focus on China? So maybe last year, so memory and nonmemory, what is the proportion in China last year? And now we are middle after the April-June period. What are the changes between memory, nonmemory China market? Could you share your idea with us, please?

Well for that question -- okay. I am Yatsuda of IR Department. May I answer to your question? Last year, in China, especially local Chinese manufacturers, they're focused on memory investment. This year, what we expect is foundry in China. But actually, we cannot see any growing trend in the China foundry yet. But by the end of this year, Chinese foundry customer make some announcement of the increase of CapEx. And I think foundry's proportion in our sales will be increasing.

So June -- April-June period, so memory in China, sales was very good, better than local memories, but it's a kind of investment done by the global memory manufacturers rather than the China local memory manufacturers. Is that correct understanding?

No, no. Actually, the China local memory manufacturers were rather active in the April-June period in their investment. Thank you very much Mr. Hirakawa for your questions. Cowen Corporation (sic) [ Cowen and Company ], Mr. Krish Sankar. This is a question in English. So let me just speak out -- read out the question in Japanese.

How do you see your NAND etch market share evolving this year and next year with both international NAND manufacturers and Chinese domestic NAND manufacturer?

Share, so the changes in share, so TEL product in NAND, so TEL's share in NAND, how much increase is expected? That's the intention of the question. I understand. As I said earlier, the Tokyo Electron etching for NAND application, MLC, we are acquiring. We have obtained high share. For slit process, we are making good progress for the evaluation and you can see some evaluation results coming out little by little. Based on that, for slit process area, for NAND, we can see some increasing trend. We can see increasing trend in the slit -- our share in the slit process. As for the future, further high aspect ratio trend is going on. So we are focusing on the HARC process and high-etch rate and precise etch profile controllability. These are advantages and we can capitalize on that core competencies. We have the midterm business plan and etching is expected to grow furthermore. And that is one of the drivers for us to achieve the midterm business plan. So against the objectives of the midterm business plan, we are on the steady progress to achieve the midterm business objectives.

Mr. Sankar, thank you very much for your question. Next question is from Mr. Yasui of UBS Securities.

I am Yasui. I also have a question on the limit of the scalability of the devices. So now Intel made announcement about 7-nanometer and it's rather inevitable. Have you expected that sort of limit in terms of the scalability of the logic devices beyond 7-nanometer? What do you think that is the very serious problem inside of your company? In other words, did you expect such announcement by Intel or is that kind of out of blue for you? Could you share some idea with us, please?

So Intel's announcement last week, there are many comments coming out on that announcement. But actually, that is the customer strategy. So I'm sorry. We are not in a position to make any comment on our individual customers' announcement. I have nothing to talk about that. I understand. I'm sorry for that.

I have one follow-up question. So limit of the mutualization, how do you view the limitation of the scalability? According to my understanding, in the past, JPY 1 trillion, for example, was invested in the high-volume production line for the advanced technology node, but that level of investment is now being slowed down. As a result, I'm afraid your company sales might be reduced. You are not able to gain profit because the cost has increased and sales has decreased. So how do you see the limitation of the scaling? From the viewpoint of the process industry, what sort of impact do you expect because of the limit of the scaling of devices?

I'm sorry. Actually, I'm not able to hear your question very well because of some noises. So I hope my answer is matching your question. I can answer properly to your question. If it's not, please let me know. If I understand your question correctly, to begin with, as I said earlier, the technology innovation, actually, so the storage, speed, low-power consumption and high reliability. So in different aspects, we have been promoting technology innovation. And in our company, we are working on leading-edge EUV coater/developer technologies. We have the 100% for the volume -- for the high-volume production for coater/developer used for the EUV lithography. And patterning, etching, film deposition and cleaning, those applications, we have devices for all those applications. So the applications and patterning, when they are combined each other and when you see the new materials as well I think there will be increasing opportunity for us to create our values. So that provides us a lot of business opportunities. R&D expenses and CapEx, we are going to enhance the R&D investment and CapEx in the future actively. We may see increasing depreciation as well. But in order for us to provide high-quality services and products, including Field Solution services, we must pursue the top line increase and also bottom line increase. From that viewpoint, we try to achieve the financial model in the midterm management plan. And there are many chances for us to achieve that financial model. Therefore, we are very happy to see increasing number of business opportunities. As we said in our midterm business plan, although things are challenging, but they are achievable. I'm sorry, if my answer is not good enough for you. It's not apple-to-apple. But we are determined to pursue high value-added application creation in the leading-edge area and you can see more and more opportunities. And about our installment base is increased by 4,000 unit year-by-year, which provide higher opportunities for our Field Solution services. And using data by using DX, digital transformation, there are many opportunities for enhancing efficiency, remote services. We can provide remote support to the customers further more in the future. So our midterm business plan says we do see the high-growth potential toward the future.

Mr. Yasui, thank you very much. The next question is from Mr. Hasegawa of Mitsubishi UFJ Morgan Stanley Securities.

I am Hasegawa. In the first quarter results, I want to get some confirmation from you. This net sales in the first quarter will stand out to be good by region. Do you think that is because the acceptance in China were more successful than expectation? As for the SG&A, expenses were lower than expected. I think that has been suppressed to some extent. So could you just give more reasons why you can see higher results than the plan? And you have more customer advances. And where did you get the orders? Could you just give us more details about the results of the first quarter, for example, customer advances?

So I am Nunokawa. Let me answer to your question. Thank you very much for your question. First of all, about by region. As you asked earlier, so in China, I talked about China earlier. And as you can see here, Korea, the portion of Korean sales increased. So by and large, compared with previous quarter, the JPY 300 billion last quarter, but North America slightly shrunk. Similarly, on the bottom, the green color, Taiwan sales decreased a little bit from the previous quarter. Relatively speaking, as you can see, as I said earlier, on the bottom, pink color, China -- sales in China and sales in Korea, the orange color, increased from previous quarter. So China, I talked about China mainly. But also in Korea, we saw the drastic increase in sales in the first quarter, Korea and China. And as for the customer advances, we are not able to give specific information on customer. But as far as our business is concerned, we have some advances from the customer. That's our business style. And in this quarter, we've received a bit more customer advances. Can I name the name?

I have one follow-up question. So what is the customer acceptance of your equipment? Which region you saw the higher sales than your expectation? And by device, by region, are there any characteristics by device or region or devices? Could you give us some implications?

As for the sales, I'm sorry, let me repeat the same thing. China and Korea, the sales increased a lot. And the acceptance by the customer, actually, we are working on completion of the setup. And there is no major advancement of the completion of the setup. But in every region, our start-up staff members were very high to complete the start-up steadily. That's the reason why we saw the increase in sales.

Thank very much, Mr. Hasegawa. Next question is from overseas. Let me just read it out. This is a question from Mr. [ Harry Chen ] of Nan Shan Life Insurance. The question is, are you gaining market share in China because of rising U.S.-China tension?

Let me answer to your question. I am Kawai. So U.S.-China trade friction, I'm not in a position to say anything about the country-to-country about relationship of the 2 different countries. But in principle, our company's policy, we are determined to engage in the fair competition with the American competitors. For various reasons, American competitors are not able to deliver their products to China market, and we are not willing to obtain that kind of market area. We want to remain fair in our competition with American competitors. We won't get any market share from the U.S. manufacturers because they are not able to deliver the products. But under that policy, we are still increasing our share.

Mr. [ Chen ], thank you very much for your question. Next question is from Mr. Sugiura of Daiwa Securities. Mr. Sugiura, please.

I am Sugiura of Daiwa Securities. Earlier in the presentation, you talked about DRAM capital investment. You said DRAM capital investment decreased slightly. So you just talked about one customer? Or do you see the general trend among the old DRAM manufacturers? That brand is, actually, this year, the DRAM share increased. And you are supposed to outperform the market growth, and I want to see if there are any impact on that plan?

As far as I'm concerned -- our company is concerned, I'm not giving you any answer based on one specific customer. So for your question, I'm just talking about the overall trend of DRAM manufacturers. So when you look at DRAM market, smartphone decelerated, demand is decelerated. And data center, actually, they have slowing down -- they are slowing down the CapEx because of their strategy. But having said that, DRAM demand increased slightly compared with the previous year. So CPU will be coming out this fiscal year. So toward next fiscal year, we see some expanding trend for DRAM market. That's what I can say about the trend of the DRAM market.

Follow-up question. So you said your company outperforms market growth, and there is no changes in that view.

Correct, no changes in our view.

I have one more follow-up question. So DRAM forecast. So now we have some decrease, but that decrease in DRAM can be filled out, compensated by the foundries. So which regions -- the foundry in which region may offset or fill out the negative growth of the DRAM demands?

Yes. There are some cancellation, offsetting, but I'm sorry, we are not able to give you any specific answer for that.

Thank you very much, Mr. Sugiura. Now I have one last question. Mr. Ishino of Tokai Tokyo Research Center, Mr. Ishino, please.

Can you hear me?

Yes. We can hear you.

I put down the notes on chatbox. As of April and now in July, from the viewpoint of Mr. Kawai, how do you view the WFE market environment? Are they improving? No changes from April to July? If it's improving, if there is no changes, please let us know. You said DRAM CapEx, capital investment, is slowing down, but offsetted by foundry CapEx. How do you see the overall trend? So between April and July, over the past 3 months, what sort of changes have you seen so far?

Our financial estimate announcement was delayed from April to June 18. Because of the COVID-19, things have been changed. And we -- that's the reason why we made announcement on June 18. WFE, so there are many factors increasing or decreasing factors. And now we can see 10% increase in WFE market on a year-on-year basis. As for more details, as I said earlier, there are some offset high-performance computing growth, which drive foundry capital investment. On the other hand, smartphone and data center purchases less DRAM now. So DRAM shows some decline in demand, so they offsetted each other. As a total, there is no big difference. So the total value remain unchanged between June and July, but there are some difference in details.

I have one follow-up question. The China -- are there any equipment you cannot deliver or ship to Chinese market because of Chinese customers or because of the equipment -- nature of equipment? The first question is, are there any equipment you cannot deliver or ship to the Chinese market?

So entity list, the customers on entity list, unfortunately, we are not able to deliver things to the customers on entity list. But we don't have any other products affected at this moment. One more thing. Next fiscal -- toward next fiscal year, many customers are now watching the market situation. But next fiscal year, I think many customers do have the very ambitious plan. Our original outlook in January was the growth rate in high teen, but it was revised to 10%. I think that some decreasing portion for this fiscal year will be carried over to next fiscal year. IoT, AI, 5G are to be promoted by the semiconductors. So general trend as a whole remain unchanged. That's one thing I wanted to say. And also, one more thing I want to add is that, for example, logic, the EUV applications will be increasing in logic, for example. And now we have 100% share for coater/developer for EUV lithography. We also have products equipment for patterning. And we are asked -- required to promote technology innovation, and we want to make contribution to the society and industry. So we have high potential to contribute to society and industry, and we'd like to meet the needs of the society by providing good technology -- advanced technologies. So I want to share that idea with you. That's the reason why I repeat this comment.

Thank you very much, Mr. Ishino, for your question. It's time for us to close today's financial announcement. Thank you very much, once again, for joining us despite your very tough schedule. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]