Sumco Company (OTCPK:SUMCF) This fall 2023 Profits Convention Name February 14, 2024 1:00 AM ET
Corporate Individuals
Takayuki Komori – Investor Members of the family
Mayuki Hashimoto – Chairman and Leader Govt Officer
Michiharu Takii – Vice President and Leader Monetary Officer
Hiroshi Ito – Govt Officer and Common Supervisor, Accounting
Convention Name Individuals
Takashi Enomoto – BofA Securities
Takato Watabe – Morgan Stanley
Atsushi Ikeda – Goldman Sachs
Shigeki Okazaki – Nomura
Yuta Nishiyama – Citigroup Securities
Yu Yoshida – CLSA Securities
Mikiya Yamada – Mizuho Securities
Takayuki Komori
Thanks on your participation these days. That is the effects briefing for the Fourth Quarter of the fiscal 12 months finishing December 2023.
Prior to beginning the presentation, permit me to substantiate these daysâs fabrics, which is composed of 3 pieces: the temporary commentary on consolidated monetary effects for fiscal 2023, the announcement relating to revision to dividend forecast and the presentation deck entitled Effects for Fiscal 12 months 2023. This will likely be a 60-minute briefing, which is able to finish at 5 p.m.
Subsequent, a disclaimer. The estimates, expectancies, forecasts and different long term knowledge mentioned right here and proven in these daysâs fabrics have been ready in line with the tips to be had to the corporate as of these days and on sure assumptions and {qualifications}, together with our subjective judgment. Precise monetary efficiency or effects would possibly range considerably from the longer term knowledge contained on this subject material because of possibility elements, together with home and international financial stipulations, traits within the semiconductor marketplace and foreign currency echange charges.
We can have displays these days from Consultant Director, Chairman and CEO, Mayuki Hashimoto; and Vice President, CFO, Michiharu Takii. Hiroshi Ito, Govt Officer and Common Supervisor of Accounting may be available. Chairman and CEO Hashimoto will speak about our forecast and working surroundings to be adopted by means of an evidence of the monetary effects by means of CFO Takii. We now have put aside time for a Q&A consultation as smartly.
I will be able to now quit to Chairman Hashimoto.
Mayuki Hashimoto
I’m Chairman Hashimoto. I will be able to get started with the assessment on Slide 5 of the presentation.
It is a abstract of the effects for the fourth quarter of the fiscal 12 months 2023. Profits have been smartly forward of our forecast. The principle elements have been a good contribution of round JPY1 billion from the weaker yen, with the remainder kind of JPY3 billion coming from better-than-expected price discounts. Because of this, fourth quarter working source of revenue overshot our forecast by means of JPY4.7 billion, and strange source of revenue exceeded our forecast by means of JPY3.7 billion.
Turning to the income forecast for the primary quarter of 2024. We undertaking an important sequential decline in gross sales. At the again of this, working source of revenue is projected to be JPY4.5 billion; strange source of revenue, JPY4 billion; and internet source of revenue, JPY2 billion. We think a dollar-yen price of JPY145 to the greenback. The principle reason why for the sequential declines is the predicted drop in gross sales. I will be able to cross into extra element later, however our consumers are lately wearing stock ranges smartly above customary and are at some degree the place they’re not ready to just accept extra wafers because of a loss of to be had garage base, therefore, the adjustment on the subject of cargo volumes.
Please flip to Web page 6. This slide displays shareholder returns or dividends according to proportion. Reflecting the better-than-expected effects, we’ve got raised our steerage for our fiscal year-end dividend according to proportion from JPY10 to JPY13 for a complete 12 months general of JPY55. This represents a dividend payout ratio of 31%. Observe that we’ve got excluded subsidies won of JPY1.7 billion after tax from the calculation of the dividend as it isn’t suitable to make use of prefectural subsidies to pay dividends.
Subsequent web page, please. Taking a look at fourth quarter marketplace stipulations for silicon wafers, each common sense and reminiscence consumers persevered with manufacturing changes, resulting in a continuation of low cargo ranges for 300-millimeter wafers. In a similar fashion, for 200-millimeter and smaller diameter wafers, which might be utilized in plenty of programs, reflecting the whole weak spot of marketplace stipulations, consumers proceed to regulate manufacturing, miserable cargo ranges. That mentioned, consumers revered LTA value ranges for each 300- and 200-millimeter wafers. So SUMCO was once ready to succeed in stable value will increase in keeping with LTA costs.
At the outlook for 300-millimeter volumes in first quarter 2024, whilst there are some consumers that experience noticed slight recoveries, there are others that experience noticed an extra deterioration, so the image is blended. On an total foundation, stipulations have advanced, however we expect that fourth quarter into first quarter may be the ground with a gentle restoration to practice, even if the momentum of the restoration is not likely to be robust, individually. It is because up to now, consumers have complied with the phrases of the LTAs, proceeding to buy wafers, which has ended in vital buyer stock ranges. As such, we don’t have any selection however to cooperate with buyer requests to lengthen deliveries.
The entire volumes beneath the LTAs stay unchanged, however consumers are asking to somewhat push out the timing of deliveries. We now have agreed to such request to a definite extent. For 200 millimeter and smaller diameters, consumers proceed to regulate manufacturing ranges so shipments are anticipated to say no additional. Not like 300 millimeter, indicators of a restoration haven’t begun to emerge. Alternatively, if smartphone handsets begin to recuperate, for the reason that 200-millimeter wafers are utilized in many smartphone programs, then we might be expecting to look a restoration in 200-millimeter wafers as smartly. That mentioned, the restoration in smartphones remains to be susceptible. In the case of costs, LTA costs proceed to be revered. However costs for spot, particularly for smaller diameters in sure areas for sure programs, are softer for commodity product. The exception is extra technologically tricky programs the place costs stay quite company.
Taking a look on the outlook, investments are more likely to stay robust for knowledge facilities for generative AI and company for EV and energy-related programs. On best of this, the bottoming out of smartphone and PC call for is contributing to indicators of sunshine on the finish of the tunnel. Alternatively, the restoration in wafers in most cases lags a restoration in finish merchandise. Particularly, this time round, consumers are wearing vital ranges of stock, which means it will take time prior to we see a restoration in wafers. I imagine it’s more likely to take till the second one part of this 12 months.
That mentioned, as I’ve been announcing at each and every of our fresh conferences, 300-millimeter epitaxial wafers are utilized in made-to-order merchandise whilst 300-millimeter polished wafers are used for reminiscence, which is in most cases produced in anticipation of call for and, due to this fact, tends to overshoot. So it is important to take into accounts no longer most effective wafer stock ranges however finish product stock ranges as smartly, which seem to be top. As such, a restoration in polished wafers is more likely to take extra time than epi individually.
Web page 8, please. This slide displays the wafer development for 200 millimeter by means of quarter. Sadly, volumes have fallen under 2016 ranges. We imagine a restoration will take time.
Web page 9, please. That is the fad for 300 millimeter. I talked previous about stipulations for 300 millimeter. The primary part of 2024 it will be the ground for wafers, however I believe we will have to therefore see a gentle development. Clearly, there will likely be a slight distinction in development between epi and PW. I be expecting it’s going to take longer prior to we see a restoration in PW, however I believe we will have to see a quite early restoration in epi.
Web page 10, please. I might now like to discuss the longer term for silicon wafers. I will be able to give an explanation for the 4 topics proven right here so as.
Slide 11, please. I will be able to get started with AI servers and the way they’re structured. You might already be acquainted with this, however an AI server is composed of a GPU and HBMs, which might be DRAMs. Fabricating DRAM HBMs is technologically difficult. There is just one participant that may fabricate HBMs in huge volumes. Even if there are different gamers that may do small volumes, the highest participant produces considerably upper volumes. The chips are mixed on a silicon interposer as smartly.
As such, AI servers will devour an enormous quantity of silicon, riding an important building up within the house of silicon required. A unmarried AI server is estimated to devour 1.8 wafers. In comparison to a traditional server, an AI server consumes 3.4x as a lot silicon. Lately, smartphones have begun to introduce generative AI. This, mixed with the emergence of 3-d structure, recommend silicon intake is more likely to develop considerably in long term.
Slide 12, please. This chart displays the projected call for enlargement for server volumes. Unit volumes are anticipated to extend as proven right here. As there was once an important decline remaining 12 months, we think to look a slight restoration this 12 months. Alternatively, we imagine a full-scale restoration will most effective are available in 2025. We imagine that the share of AI servers will building up at the again of the rise in total volumes. We undertaking a CAGR of 26% for AI servers in comparison to standard server quantity enlargement of five%.
Slide 13, please. This slide seems at how advances in AI will force call for for modern procedure wafers. AI servers, in fact, use modern common sense at 3 or 2 nanometers, so enlargement in AI servers will due to this fact force call for for modern procedure wafers. Additionally, AI servers devour 3.4x the silicon in floor house phrases in comparison to standard servers. Given this, we think AI servers will upward thrust to account for part of the call for for wafers utilized in servers within the close to long term.
Slide 14, please. Turning now to smartphones. We’re seeing a surprising building up within the adoption of AI in smartphone handsets from this 12 months. We predict it’s affordable to be expecting that, through the years, AI-enabled smartphones will come to account for part of general quantity. Assuming that is the case, the collection of parameters or calculation quantity, which is lately 10 billion, will have to double by means of 2026 and proceed to extend therefore. Given the want to procedure massive volumes of information at top speeds, this will have to force call for for modern wafers utilized in CPUs, GPUs and DRAM, successfully considerably boosting wafer intake.
Slide 15, please. This displays buyer wafer stock ranges for 300-millimeter wafers. The white bars constitute acquire volumes whilst the blue bars constitute wafer enter volumes and the golf green bars are stock. Present buyer stock ranges are at document highs. Even now acquire volumes proceed to exceed enter volumes, so consumers at the moment are at some degree the place they are saying they can not purchase to any extent further wafers. On the similar time, wafer purchases can not cross to 0 both. So we’re engaged with our consumers in excited about how to go back to extra customary ranges of stock. The have an effect on of purchaser stock changes is a significant factor at the back of our forecast for a decline in first quarter earnings to JPY87 billion. It isn’t a sign of a deterioration in marketplace stipulations. As a substitute, the marketplace is bottoming out in fourth quarter into first quarter. We don’t be expecting to look an extra deterioration of marketplace stipulations.
Slide 16, please. This displays the breakout of purchaser inventories between common sense and reminiscence. You’ll be able to see that wafer stock ranges are in a similar way top.
Slide 17, please. This chart displays traits for logic-use epi wafers. The orange line is stock. Stock is at document top ranges. Alternatively, the grey line, which is value, has been emerging regularly in keeping with the LTAs. That mentioned, call for has fallen somewhat, even if just lately, there are indicators of a conceivable rebound after changes in first or 2nd quarter.
Slide 18, please. This is similar chart for PW. Even if there was communicate that reminiscence costs were emerging, this displays a decline in enter volumes, which has ended in a slight tightening of the marketplace slightly than costs emerging at the again of higher call for. Given this, it’s most probably it’s going to take a while for a restoration to emerge.
Slide 19, please. So on the subject of how we see the marketplace over the longer-term, we think the primary part of this 12 months to be very difficult, even if we think a rebound in the second one part of the 12 months. On a complete 12 months mixed foundation, we might hope to check 2023 ranges, even if it may well be somewhat weaker on a year-on-year foundation. We’re lately in a transition duration, which makes it difficult to learn. What we will be able to say is that the marketplace has bottomed. The power of the restoration will hinge at the power of generative AI-related call for in addition to what occurs with China, given the sheer scale of buying energy. The power of alternative call for for smartphones and different finish merchandise in China may also be a very powerful issue.
This completes my phase of the presentation. I will be able to quit to CFO Takii to discuss main points of our income.
Michiharu Takii
I, Takii, will provide the income in additional element. Please flip to Slide 21. This slide displays the effects for fiscal 2023. On a year-on-year foundation, gross sales declined however consolidated gross sales, come with gross sales of polysilicon from 2nd quarter onward which means the declines in wafer gross sales, was once in truth higher. Working source of revenue additionally fell year-on-year to JPY73 billion. Peculiar source of revenue was once JPY72.6 billion. Alternatively, we known an atypical acquire in first quarter associated with the purchase of the polysilicon trade, so the magnitude of the benefit decline is smaller on the internet benefit stage at JPY63.8 billion.
CapEx was once up considerably year-on-year on endured full-scale Inexperienced Box investments in each Japan and Taiwan on an acceptance foundation. In a similar fashion, depreciation additionally rose at the again of investments. The principle building up was once in belongings. Because of this, EBITDA was once down on a year-on-year foundation, however we’ve got been ready to deal with an EBITDA margin within the 30% vary. On a complete 12 months foundation, ROE was once 11.6%.
Please flip to Slide 22. That is the research of adjustments in working source of revenue. First, the sequential research. As famous on the outset, fourth quarter income have been significantly better than anticipated. As proven within the research, prices advanced by means of JPY4.3 billion Q-on-Q. To start with, we had anticipated to look an development of JPY1 billion in prices in fourth quarter associated with decrease electrical energy prices, however as well as, we have been ready to succeed in JPY3 billion in price discounts via interior efforts to cut back bills, decrease fabrics prices and upkeep bills and different projects. Depreciation was once in-line with plan at minus JPY2.5 billion. Gross sales-related variance was once minus JPY7 billion. The cause of the decline in sales-related variance, in spite of gross sales ultimate in large part unchanged, is a mirrored image of manufacturing slightly than gross sales.
I had prior to now discussed our plans to go through common repairs at our mainstay crystal ingot crops in October and November in addition to at a processing plant. This depressed capability usage considerably. As well as, associated with the common repairs, we additionally selected to cut back work-in-progress stock considerably in anticipation of a considerable drop in shipments in first quarter. The weaker yen generated a good of JPY1.3 billion.
Taking a look on the year-on-year exchange for the total 12 months effects, as proven at the proper, working source of revenue fell JPY36.6 billion. Prices higher JPY15.5 billion, which breaks down right into a JPY9 billion destructive for fabrics unit costs, a JPY7 billion destructive from electrical energy prices and an building up in hard work prices, specifically in first part when capability usage was once top, of JPY2 billion. We have been ready to offset the upper price with interior price aid efforts of JPY2 billion. Depreciation higher JPY11.9 billion. Gross sales-related variance was once a destructive of JPY22.8 billion, which breaks down right into a JPY22 billion certain from upper costs associated with the beginning of a brand new fiscal 12 months, offset by means of a JPY45 billion destructive because of decrease volumes. The weaker yen had a good have an effect on of JPY13.6 billion year-on-year.
Slide 23, please. Slide 23 displays the steadiness sheet. I will be able to comment on this later, however loose money waft was once considerably destructive in fiscal 2023. We tapped into money and time deposits, decreasing it by means of JPY100 billion. Uncooked fabrics and provides rose, reflecting an building up in provides as part of projects to make stronger BCP. Tangible and intangible belongings higher JPY250 billion. That is the have an effect on of the Inexperienced Box CapEx of greater than JPY300 billion on an acceptance foundation mentioned previous much less depreciation.
Hobby-bearing debt higher kind of JPY83 billion year-on-year. This breaks right down to new borrowings at three way partnership FST of JPY50 billion and at SUMCO in Japan of JPY30 billion. If we have a look at the capital account, retained income higher, reflecting the have an effect on of benefit enlargement. As proven on the backside of the desk, the fairness ratio declined somewhat, however fairness according to proportion higher. At the money waft commentary to the precise, the sub general of pretax earnings, atypical source of revenue and depreciation was once JPY144 billion. Alternatively, there was once an building up in stock, and beneath Others, tax bills have been quite huge. The ensuing working money waft was once somewhat lower than JPY100 billion.
Capital expenditures have been JPY310 billion, break up between kind of JPY200 billion in Japan and JPY100 billion for FST in Taiwan. In line with the destructive loose money waft, we undertook new borrowings and tapped into money and time deposits, therefore the decline in money available.
Slide 25, please. On Web page 25, we display our forecast for first quarter. We predict an important sequential drop in gross sales. Working source of revenue is predicted to be kind of part Q-on-Q. The figures are as proven at the desk. Depreciation is projected to be JPY18 billion, down sequentially reflecting the beginning of a brand new fiscal 12 months. As you’ll be able to see from the quite a lot of metrics, we predict a deterioration in profitability.
Slide 26, please. Slide 26 displays the research of exchange in working benefit. First, the primary quarter sequential exchange at the left. With reference to the Q-on-Q decline in working source of revenue of JPY6.7 billion, we predict a slight building up in prices, reflecting ongoing will increase in unit price of fabrics. Depreciation, as famous previous, is predicted to say no Q-on-Q, reflecting the beginning of a brand new fiscal 12 months. Gross sales-related variance displays the numerous anticipated drop in gross sales. This comprises an anticipated drop in non-LTA spot costs of round JPY2 billion, essentially in smaller diameters. We additionally think about a JPY6 billion decline to mirror decrease volumes. At the again of decrease gross sales, we undertaking a deterioration within the profitability of gross sales. Our ForEx assumption is for a somewhat more potent greenback yen at JPY145 to the greenback. Close to-term, the yen is somewhat weaker, however that is matter to switch.
Taking a look on the research of year-on-year exchange for first quarter, we think vital declines in each gross sales and earnings in first quarter. On prices, we think to seriously scale back hard work prices in first quarter for a year-on-year development. Electrical energy unit costs also are anticipated to enhance, however this will likely be offset by means of a slight building up in fabrics price. On a year-on-year foundation, depreciation is predicted to extend for a destructive of JPY3.6 billion. Of the sales-related variance, as famous previous, spot costs are falling, so JPY2 billion of the decline is said to worth. The rest kind of JPY20 billion destructive displays the whole huge drop in gross sales volumes. We predict a good have an effect on from the weaker yen.
Web page 28, please. This displays EBITDA and gross sales. As you’ll be able to see, we think gross sales to fall sharply in first quarter. If we think this would be the backside, we think to look a reversal of the fad in 2nd quarter and 3rd quarter of 2023. That is our assumption.
This completes my phase of the presentation.
Takayuki Komori
Thanks. We can now open the ground to questions.
Query-and-Solution Consultation
A – Takayuki Komori
We can get started with Mr. Enomoto of BofA Securities.
Takashi Enomoto
Prior to asking my query, I want to take this chance to thank Mr. Takii for his provider. Thanks such a lot. Transferring directly to my query, are you able to discuss how we will have to take into accounts costs in 2024? In the past, you had indicated that you are expecting unit costs would upward thrust in 2024. However in line with the research of exchange in earnings introduced these days, you’ve gotten factored in a decline in spot costs and seem to be anticipating LTA costs to be flat. Is that this on account of the pushouts in supply timing for LTAs? So for earlier deliveries which were driven into 2024, are you anticipating costs won’t upward thrust? Please discuss how we will have to take into accounts LTA pricing and why costs aren’t anticipated to upward thrust.
Mayuki Hashimoto
At a top stage, even if there may be variance in person contracts, LTAs will also be categorised into two teams. The ones have been the costs fastened over a freelance duration of, say, 5 years and the ones the place there’s a step-up characteristic the place the costs upward thrust once a year, for instance. For fastened value contracts, a lengthen in deliveries has no have an effect on because the value is similar. For step-up contracts, then again, if a supply at the start scheduled for 2024 have been to be driven into 2025, in an excessive case, the entire supply will likely be made at a later date however on the 2024 value level. Clearly, this is an excessive instance this is extremely not likely. Alternatively, the cumulative have an effect on of sluggish pushouts up to now is having an have an effect on at the mixed value level. So costs, which will have to have risen this 12 months, gainedât upward thrust a lot. For FST, the share of LTAs isn’t as top, so the decline in spot costs is having an have an effect on. Because of this, on a internet foundation, costs aren’t anticipated to upward thrust.
Takashi Enomoto
With reference to prior to now driven out deliveries, are we able to think that you are going to be capable of succeed in the unique value when the true cargo is made? So for behind schedule shipments in 2024, when the cargo is in truth finished, are we able to be expecting you’re going to obtain the upper 2024 value?
Mayuki Hashimoto
Sure, thatâs proper.
Takashi Enomoto
Understood. I’ve top expectancies for the finishing touch of stock changes. Thanks.
Mayuki Hashimoto
Me too.
Takayuki Komori
Thanks. Subsequent is Mr. Watabe of Morgan Stanley.
Takato Watabe
In response to these daysâs dialogue, if the remainder of the trade tracks in line-with SUMCOâs first quarter gross sales forecast, apparently trade cargo quantity for 300 millimeter will most probably drop under the extent of 6 million wafers monthly. Do you imagine that this displays the magnitude of the stock changes? When you have a picture of the magnitude of the stock changes, both on a quarterly or per thirty days foundation, may you proportion it with us?
Mayuki Hashimoto
SUMCO does trade with nearly the entire trade gamers, and I imagine that the purchasers deal with all in their providers similarly and aren’t inquiring for cargo changes simply from SUMCO. In such instances, consumers usually are as equitable as conceivable. So I imagine that the trade as an entire is in a identical place to us.
Takato Watabe
Is it tricky to discuss particular numbers right now?
Mayuki Hashimoto
In the case of a particular symbol, there are some consumers that be expecting a restoration from April, so itâs arduous to mention. Something that I will be able to say, then again, is that first quarter shall be the ground on the subject of wafer volumes. Clearly, this might exchange if there are new tendencies. Lately, there were such a lot of other geopolitical elements which makes it very tricky to expect. However barring some unexpected instances, I imagine first quarter will have to be the ground, and that is the view rising from our discussions with consumers.
Takato Watabe
Understood. Thanks. Additionally, many because of Mr. Takii.
Michiharu Takii
Thanks on your sort feedback. I didnât take the chance to say it within the presentation, however thanks all.
Takayuki Komori
Thanks. Subsequent is Mr. Ikeda of Goldman Sachs.
Atsushi Ikeda
Are you able to supply slightly extra colour at the LTA pricing, please? Recently, consumers are wearing top ranges of wafer stock of round 3 months and also are dealing with demanding situations to profitability. In those instances, having the ability to deal with flat pricing could also be the most efficient you’ll be able to hope for. Having mentioned that, there are contracts in position beneath which you’d hope to look costs upward thrust. If the trade as an entire makes robust growth on stock changes, decreasing stock to round 2x months, wouldn’t it be more straightforward to start out negotiating for upper costs from 2nd quarter? Moreover, are we able to be expecting the costs within the September quarter may upward thrust by means of round 5%? Are you able to remark at the steadiness between LTA costs and stock ranges?
Mayuki Hashimoto
LTAs will also be normally grouped into two varieties, contracts with fastened flat pricing and contracts the place costs step up through the years. Very simplistically, for the step-up contracts, the use of a 3-year contract of three million wafers for instance, in most cases, there can be one value level for this 12 months, a better value level for the following 12 months and so forth. Hypothetically, if the contract is for the acquisition of one million wafers this 12 months, even if the push-outs normally aren’t as excessive, if we think that supply of 500,000 wafers is driven into subsequent 12 months, it’s tricky for us to invite for the client to pay the 2025 value level for the driven out 500,000 wafers, for the reason that we all know the client is suffering. In such instances, we ask the client to admire the associated fee level set out within the contract. Clearly, we might no longer agree to chop costs, however agreeing to just accept a push-out implies that the predicted building up in value additionally will get driven out. Thatâs whatâs taking place now. Alternatively, there are lots of contracts the place costs are fastened for the lifetime of the LTA. There isnât a lot have an effect on from push-outs on those contracts. Yet another factor that complicates the image is the spot trade at FST in Taiwan. Even if non-consolidated SUMCO is 100% LTAs, FST sells a few of its wafers at spot costs, specifically when doing trade with associates. Negotiations with associates, the place FST is prioritizing the sale of wafers, will also be difficult. In scenarios the place associates are being requested to shop for, value issues can differ. So, that is whatâs taking place now. Alternatively, if we have a look at the whole image for the total 12 months this 12 months, on a mixed foundation, I donât suppose that costs will fall on a year-on-year foundation. Costs would possibly upward thrust somewhat in the second one part of the 12 months, however I wouldnât be expecting to look complete 12 months mixed costs upward thrust in the similar manner as they did in 2023. This is my view.
Atsushi Ikeda
Understood. So, costs may upward thrust somewhat this 12 months, however would possibly upward thrust extra considerably by means of round mid-2025. If we have a look at costs on the finish of 2025 or within the first part of 2026, do you suppose they’ll revert again to the at the start expected ranges?
Mayuki Hashimoto
Sure, precisely.
Atsushi Ikeda
Understood. I’ve top hopes for SUMCO. Thanks.
Mayuki Hashimoto
Easy methods to take into accounts it’s that the entire wafers have value issues. So, there’s a value for the primary 1 million, any other value for the following 1 million and so forth. The upward thrust within the mixed value is impacted by means of the timing of deliveries.
Atsushi Ikeda
Understood. Thanks.
Takayuki Komori
Thanks. Subsequent is Mr. Okazaki of Nomura.
Shigeki Okazaki
Thanks to CFO, Takii. I need to ask about gross sales quantity and manufacturing quantity. 3 months in the past, you indicated that you’d be adjusting manufacturing to cut back your individual stock in fourth quarter following a cancellation, however recommended gross sales and manufacturing quantity would go back to customary within the March quarter. To what do you characteristic the distance between what you’ve gotten mentioned remaining time and this time? Is it as a result of consumers are closely fascinated by decreasing stock?
Mayuki Hashimoto
I donât recall suggesting that stock volumes would rebound from January. What I mentioned was once that we have been anticipating first quarter to be very difficult.
Shigeki Okazaki
What I understood was once that when the manufacturing cuts you deliberate for the December quarter, you anticipated to revert to customary ranges within the March quarter.
Mayuki Hashimoto
In the case of the manufacturing cuts, for the reason that general quantity had fallen, we didn’t need to elevate extra stock, so we decreased our stock to an acceptable stage by means of slicing manufacturing quantity. For those who understood that to imply that we meant to extend manufacturing quantity from January, then there will have been a false impression. Fourth quarter into first quarter is the ground for the marketplace itself. In the case of what is occurring in first quarter, even if there are consumers that decreased quantity additional, it’s extra that there have been finish customers which can be decreasing wafer intake additional in first quarter. Total, first quarter is most likely flat to somewhat decrease on a sequential foundation. Epi, specifically, is down. So, first quarter into 2nd quarter is most likely the ground individually. We now have aligned our manufacturing to present stipulations.
Shigeki Okazaki
With reference to 2nd quarter on a sequential foundation, as you discussed previous, the image for the June quarter remains to be combined, is that proper, and you are expecting a restoration in gross sales or manufacturing volumes to return within the September quarter?
Mayuki Hashimoto
This is true for epi. For SUMCO, the share of epi is upper, so I imagine we will have to see a forged restoration. PW, then again, is more likely to take longer to recuperate. However even for epi, there are a selection of consumers, a few of which might be doing smartly whilst others aren’t. The winners are doing quite smartly, however there are some consumers which can be in point of fact suffering. The total image is blended, so it’s tricky to generalize. That mentioned, I imagine that normally epi will recuperate in the second one part of the 12 months.
Shigeki Okazaki
Understood. Thanks.
Takayuki Komori
Subsequent is Mr. Nishiyama of Citigroup Securities.
Yuta Nishiyama
I want to ask in regards to the outlook for wafer call for. I will be able to see on Web page 15 that wafer enter began to recuperate from the tip of remaining 12 months. If I have a look at the supply-demand chart on Web page 19, SUMCO has revised up its forecast for 2024 by means of 7% relative to 3 months in the past. As well as, the wafer trade, as an entire, is endeavor vital cargo changes. This implies that the normalization of stock would possibly occur previous than was once anticipated 3 months in the past, individually. Are you able to remark in your view of those issues?
Mayuki Hashimoto
I totally agree. In the case of the normalization of stock, enter ranges will have to building up, even if I might view first quarter as the ground. Alternatively, stipulations range considerably by means of buyer. The image is blended, which makes it tricky to generalize. What I will be able to say is that, total, first quarter may be the ground and that we will have to begin to see restoration from 2nd quarter. Alternatively, there will likely be consumers the place the restoration will likely be sluggish whilst consumers with strengths in DRAM or AI are more likely to see a forged rebound. Alternatively, different programs, similar to smartphones, are nonetheless susceptible. I will be able to say it is extremely tricky to generalize.
Yuta Nishiyama
I see. While you discuss first quarter as the ground, are you relating to gross sales? Income usually are impacted by means of an building up in depreciation, I believe.
Mayuki Hashimoto
I’m speaking about gross sales.
Yuta Nishiyama
Understood. Thanks.
Takayuki Komori
Subsequent is Mr. Yoshida of CLSA.
Yu Yoshida
I need to ask about Slide 19 and the supply-demand steadiness. As discussed in a prior query, you’ve gotten revised up your call for forecast for 2024 from a destructive enlargement to flat this time. Please discuss the place you noticed the most important exchange on your view on the subject of programs. If conceivable, are you able to body your remark on the subject of epi. And for reminiscence, may you distinguish between DRAM and NAND? Are you able to additionally proportion your assumption for buyer wafer stock ranges as of the tip of 2024, which underpins the flat forecast, i.e., what number of months of stock have you ever assumed?
Mayuki Hashimoto
We donât have a virtual learn of purchaser stock ranges, so our research does no longer cross that deep. The explanation why we somewhat revised our forecast to flat is as a result of we think an previous restoration in epi. We additionally factored in an early restoration in DRAM, given the numerous use of DRAM in generative AI.
Yu Yoshida
I see. Can I additionally ask what you’re assuming on the subject of the velocity of exchange in manufacturing, both upward or downward, to be able to accomplish that forecast for flat shipments?
Mayuki Hashimoto
You imply the forecast for flat shipments, on an total foundation we think it to be flat, even if we predict a quite sharp development in the second one part of this 12 months. Clearly, I may well be improper, however without a doubt, we might want to see a quite forged restoration in smartphones to succeed in this. That mentioned, there will likely be an building up in smartphones enabled for AI. I additionally be expecting to look proactive enlargement in AI knowledge facilities. Alternatively, as you understand, the clientâs manufacturing capability for those programs is proscribed. They’re running very arduous to extend capability. Thankfully for us, we’re a significant provider to this buyer, so I believe it hinges in this buyer. I donât be expecting to look a dramatic restoration in standard epi wafers, however do be expecting to look a speedy restoration in epi wafers for AI programs. I believe it’s going to hinge in this.
Yu Yoshida
Understood. Thanks.
Takayuki Komori
Subsequent is Mr. Yamada of Mizuho Securities.
Mikiya Yamada
CFO, Takii, thanks for the entirety over time. I want to ask about the way to take into accounts LTA costs, apologies for being continual. There was once a dialogue of particular costs for 2024 wafers, however the explanation why total costs aren’t at those ranges now could be on account of the cumulative have an effect on of earlier push-outs. So, in excited about value ranges for 2025 and 2026, will have to we think a identical development?
Mayuki Hashimoto
The unique contracts stipulate quantity and worth for each and every 12 months. So, for example, the contract would say x collection of wafers for 2023 at a particular value. Alternatively, the contract does no longer state a value level for the remainder wafers within the tournament that no longer the entire wafers for a given 12 months are delivered in that 12 months. When consumers ask to lengthen shipments, it’s because they’re suffering so it’s tricky for us to mention that the 2023 value is not legitimate for behind schedule shipments and that the associated fee level is now upper. It’s tricky to have interaction in this sort of dialogue except each events are doing smartly. Moreover, we’ve got been serious about joint construction so far as smartly, so it makes it tricky to take a purely self-interested way. I additionally acknowledge that the client most likely desires to invite for a lower cost, however out of admire for his or her commitments, they don’t. They really feel dangerous about having to lengthen shipments. On this scenario, each side finally end up discovering center flooring by means of sharing the ache. It isn’t specified within the contract, however there may be an working out that the portion of 2024 deliveries this is driven out will likely be priced on the 2024 value level. Push-outs within the subsequent 12 months will practice the similar development. The opposite may be true. If the client ask to take extra quantity previous, that portion can be on the upper value level. That is the unstated working out that we’ve got with our consumers.
Mikiya Yamada
On this scenario, for the reason that there may be endured growth being made on procedure construction, I’m assuming the level of issue for wafers in 2025 and 2026 will building up, does what you’ve gotten simply mentioned imply that you simply should promote extra complex wafers at decrease costs?
Mayuki Hashimoto
Thatâs other, we set costs for extra technologically difficult wafers rent initially, in order that is other.
Mikiya Yamada
In different phrases, the wafers are other, so the costs are other as smartly. A extra complex wafer is bought at a better value, is that proper?
Mayuki Hashimoto
Sure.
Mikiya Yamada
Understood. Thanks. I’ve top expectancies for an early normalization of stock ranges.
Mayuki Hashimoto
Me too. Please reinforce us.
Takayuki Komori
Thanks on your questions. Thanks to everybody for becoming a member of the fiscal 2023 effects briefing. We’re thankful on your participation these days. We can finish the assembly right here.
Mayuki Hashimoto
Thanks.
Michiharu Takii
Thanks.