Screen Holdings Co Ltd

TSE:7735

Earnings Call Analysis

Record Earnings and Upward Revision in Forecast

In the first quarter of FY2025, the company achieved record highs in net sales (JPY 134.2 billion) and operating income (JPY 27.7 billion) compared to last year. The equity ratio improved to 60.5%. For the full fiscal year, revenue is now forecasted at JPY 564.5 billion with an operating profit of JPY 105 billion, both upward revisions. Interim and annual dividends have also been revised upwards. Sales in China increased over twofold year-on-year, though a decrease is expected in the second half of the year. The company remains optimistic, anticipating higher AI-related demand and strategic investments to drive future growth.

Record Highs in Sales and Profits

In the first quarter of fiscal year 2025, the company achieved record highs in sales and profits. Net sales reached JPY 134.2 billion, marking an increase of JPY 34.5 billion from the previous year. Operating profit (OP) was JPY 27.7 billion, with an OP margin of 20.7%. Net income also saw a significant increase, reaching JPY 18.2 billion — an improvement of JPY 8.7 billion from the previous year【4:0†source】.

Positive Outlook and Revised Forecasts

Given the strong performance in the first quarter, the company has revised its forecasts upward for the first half and the entire fiscal year. For the first half, the company now expects revenue of JPY 280.5 billion and an operating profit of JPY 53 billion. Full-year forecasts anticipate revenue of JPY 564.5 billion and an operating profit of JPY 105 billion, with an ordinary profit also at JPY 105 billion. Net income is projected to be JPY 75 billion【4:1†source】【4:4†source】.

Segment Performance Highlights

The Semiconductor Production Equipment (SPE) segment continues to be the company's main revenue driver, accounting for 83.6% of total sales. SPE achieved net sales of JPY 112.1 billion and an OP income of JPY 29 billion, reflecting an OP margin of 25.9%. The Graphic Arts (GA) segment saw sales of JPY 12.3 billion with an OP margin of 6.6%, while the Finetech (FT) segment reported a slight loss with sales of JPY 5.2 billion. The PE segment achieved net sales of JPY 3.9 billion and an OP income of JPY 0.5 billion【4:0†source】.

Sales by Destination and Future Projections

China remains the largest market for the company, accounting for 46% of total sales. However, sales to China are expected to decrease in the coming quarters. Conversely, sales in North America and Taiwan are projected to increase. For the full year, Japan, South Korea, and Europe are expected to see higher sales【4:0†source】【4:4†source】.

Cash Flow and Balance Sheet Health

Despite strong earnings, the operating cash flow for the first quarter was negative, landing at minus JPY 32.1 billion primarily due to changes in the payment schedule and decreased contract liabilities. Free cash flow was JPY 40 billion, and the company aims for a positive cash flow by the end of the fiscal year. The equity ratio has improved to 60.5%, indicative of a solid balance sheet【4:1†source】【4:5†source】.

Investment and Dividend Outlook

R&D expenses in the first quarter were JPY 7.1 billion, with capital expenditures at JPY 5.8 billion. For the full year, R&D spending is projected to be JPY 33 billion, and CapEx is expected to be JPY 30 billion. The total annual dividend is forecasted to be JPY 233 per share, a record high, reflecting confidence in continued growth【4:1†source】【4:7†source】.

Navigating Market Dynamics and Future Opportunities

The company remains optimistic about growth in various segments, particularly SPE and GA. The semiconductor market, driven by AI-related demand, and the OLED sector, are poised for growth. While China’s contributions are expected to decline, the company is focusing on other regions to offset this. New product launches and strategic investments in emerging technologies like hydrogen applications are expected to drive future revenue【4:5†source】【4:13†source】【4:14†source】.

Earnings Call Transcript 2025-Q1

[Operator]

Hello, everyone. Now is the time, so let us start with the business results briefing meeting of SCREEN Holdings Company Limited for the term of March 2025 in the first quarter. Thank you very much for coming to this meeting, taking time out of your busy schedule.

Now I would like to introduce our presenters, SCREEN Holdings Company Limited Representative, Director, President and CEO, Toshio Hiroe's.

[廣江 敏朗, executive]

Hello everyone. I am Toshio Hiroe. Thank you for your time.

[Operator]

Representative, Director, CFO, Yoichi Kondo.

[近藤 洋一, executive]

I am Kondo. Thank you for your time.

[Operator]

And associated two directors are also with us today. Senior Corporate Strategy Officer, Masato Goto.

[Masato Goto, executive]

I am Goto. Thank you very much for your time.

[Operator]

And the Senior Financial Strategy Officer, Akihiko Miyagawa.

[Akihiko MIyagawa, executive]

I am Miyagawa, thank you.

[Operator]

Now from here, I'd like to ask Mr. Kondo, Representative Director to give us the presentation about the overview of the consolidated financial results.

[近藤 洋一, executive]

So I'd like to give you the summary of the FY '25 first quarter. First of all, compared to the same time of the previous year, we had the increase of sales and profits, sales and OP version, ordinary income and net income, as the first quarter, we hit record highs.

And in the first half of the fiscal year and the full-year earnings and dividend forecasts were upward -- mid dividend were revised upward. And as for SPE compared to the same time in previous year, we achieved the sales and profit increase. And as the first quarter sales and OP, we hit the record high. And as a quarter, the OP margin achieved a record high. And as for the balance sheet, the equity ratio reached 60.5%.

And this is the result of the first quarter. The net sales was JPY 134.2 billion, with OP income of JPY 27.7 billion, OP margin 20.7% and ordinary income, JPY 27.8 billion, net income JPY 18.2 billion.

Net sales increased by JPY 34.5 billion and OP income increased JPY 14.3 billion, ordinary income also increased JPY 14.2 billion, net income increased by JPY 8.7 billion.

And this is a composition of group sales by destination. Japan of 14%, followed by Taiwan 17%; China, 46%; Korea, 5% and North America, 11%, Europe 4%; and Other Asia, 3%.

And this is the composition of group sales by segment. SPE accounts 83.6%, GA 9%, FT 4%, PE 3%. This is a situation we have by the segment. And this is earnings by segment. SPE net sales JPY 112.1 billion, and OP income JPY 29 billion and the OP margin was 25.9%.

GA sales was JPY 12.3 billion, OP income JPY 0.8 billion and OP margin was 6.6%. And FT sales was JPY 5.2 billion, OP income minus JPY 0.2 billion and this minus was reduced and OP margins minus 5.0%, and PE net sales was JPY 3.9 billion and OP income is JPY 0.5 billion.

And this is a consolidated earnings by segment analysis year-on-year and Q-on-Q. First with the Q-on-Q, SPE decreased in the profit and sales, but operating profit margin improved. Logic sales rose slightly above foundry, sales remain steady. Sales to North America declined, but sales to Taiwan increased.

In GA, both sales and profit increased because of the recurring business remained solid. In FT, both sales and the profit decreased. And from now, we can expect the recovery with OLED. In PE, sales decreased, while OP margin maintained at least 10% range. So the OP margin was flat.

And as for the year-on-year result, SPE, sales and profit increased sales to DRAM and Foundries increased. And sales to North America decreased and sales to China increased. In GA, sales increased, profits decreased. And recurring, especially ink sales increased. In FT, sales increased and operating loss reduced. In PE, both sales and profit increased. And sales of the direct patterning system increased.

Next is about the balance sheet status. First of all, about the total asset that is JPY 632 billion, and with the -- and liabilities and net asset. And as for the notes and account payable and other debt decreased and that include the contract liabilities. And this increased so the side of the asset be cash and deposits decreased and the liabilities increased. And on the other hand, this is the inventory and our current assets increased.

And as for the fixed asset or noncurrent assets increased and as a result, the total asset was decreased and the equity ratio improved to 60.5%. That is because of the introduction of the shorter payment terms.

And this is a cash flows. In the first quarter, the operating cash flow was minus JPY 32.1 billion and existing cash flow minus JPY 7.9 billion. Free cash flow JPY 40 billion and financing cash flow was minus JPY 13.6 billion. And because of the decrease in notes and accounts payable with a shift in payment schedule due to the holidays at the end of the first quarter and operating cash flow for the first quarter landed at minus JPY 32.1 billion. And there's also a decrease in the contract liabilities. It is the situation we have the cash flow but with the downsizing the balance sheet measures, so the picture we now have is a minus. But for the full year, we'd like to have the profit level of the cash flow. So I'm not worried about the situation.

And this is an analysis of operating income growth.

So in the first quarter of the previous year, income was at JPY 13.4 billion, and we have the increase of the sales with a JPY 14 billion impact and profitability increased -- improved by the JPY 5.5 billion, but there was an increase of the fixed cost by the JPY 5.5 billion. And there was an impact on exchange rate, about JPY 0.5 billion. And so the total is JPY 27.7 billion. And as you can see at the bottom, the sales increase and capacity utilization is mainly due to SPE. And the profitability increase is also mainly with SPE and the increase in fixed cost is notably due to the growth investments in SPE labor cost, depreciation, R&D expenses. The impact of exchange rate was biggest in GA and also and in PE. And that's all from me.

[Operator]

So thank you very much, Mr. Condo. And I'd like to invite to President, Hiroe to talk about the business environment and outlook. So Mr. Hiroe, microphone is yours.

[廣江 敏朗, executive]

So I'd like to talk about the business environment and outlook. And as for the business environment, you can see the environment for each business. And so starting from SPE in calendar year 2024, as for the semiconductor market, AI-related demand is expected to drive. And as for the consumables, PC, smartphone and server applications, on a monetary basis, we can expect the growth. GA business environment, the largest industry exhibition, drupa was held in Germany and successfully completed. And we expect that contribution from this exhibition to earn net sales growth from now. And display market, the panel price has been rising. So demand has turned up as we expect. That is the current situation.

And for this fiscal year, the orders expected to come mainly for OLED application during this fiscal year. And for PE, towards the miniaturization of the circuit board, investment for the packaging is expected to take off, but it takes some time now. So in the second half of this fiscal year, we can expect the order place for this.

And as for the business outlook is announced today for this fiscal year, that is a full-year forecast and first half and full-year focus have been revised upward. So sales and profits to increase year-on-year. And the interim dividend focus has been revised upward for this fiscal year. The total annual dividend is projected to be record high at JPY 233 per share.

And this is the business overview of SPE, so WFE. So the calendar year 2024, mid-single-digit growth was projected, and we have to change this deal. So for the calendar year 2025, further growth is expected.

Further growth can be expected greater growth can be expected in calendar year 2025 than in calendar year 2024. As for Foundry and Logic, investment in leading-edge nodes is accelerating at this moment as expected. And as of memory, the WFE growth this year will be led by the Memory. So DRAM may start to perform strongly now. And gradually, we expect investment will be made into NAND too.

And investment trends by application to Foundry. The investment into the leading edge is steadily growing. This is a current situation. And as for the logic, installation in new factories is in progress. In memory, the investment is focused on the DRAM for the AI application. That means HBM. And the demand from hyperscalers is expected to grow. So NAND investment will resume gradually. That's how we see the situation. And Image Devices, the additional capital investment is cautiously taken account. So there is a slight decrease. In Power Device and Others, investment expected to remain low key during the calendar year 2024 due to the supply-demand balance.

And as for China market, still a robust investment is continuing both for the emerging and existing chip manufacturers. So for the mature node, robust investment is being made by the emerging and existing chip manufacturers.

And for SPE, this is the composition of sales by application and post sales. So for the first quarter, by application or Q-on-Q situation is that foundry increased and Logic slightly increased. In Flash, CIS and others slightly decreased. That's the situation. And year-on-year, the first quarter comparison as DRAM increased slightly and also the foundry increased slightly. You can tell that from the slide. And as for the post sales Q-on-Q, the actual amount decreased a little bit and proportion maintained.

And next is the composition of sales by destination. In the first quarter, data is available here, so we can make the Q-on-Q comparison. And the proportion of Taiwan greatly increased. And China also increased its presence. And on year-on-year comparison, China compared to the first quarter of the previous year, increased by more than 2x.

And next is the by application and post-sales forecast. So from now, the second half focus is also added, so please refer to it. And actual of the first quarter and the forecast into the second quarter, the Logic and others expected to increase. And the foundry will increase. And the first half forecast and second half forecast when we compare them Flash and Other post sales are expected to grow. That foundry will slightly decrease from 47% to 39%. And for the full year, so from the previous year, full year result and the full year focus for this year, Logic and DRAM will increase. And so there's a change in the mix. And the half and second half proportion when we compare these, the Foundry will decrease but Logic, DRAM and Others will increase. And at present, this is a focus we have about the application.

And next, this is the sales destination focus. So the first quarter results and the second quarter comparison is made compare, you can find that the China will decrease from 51% to 44%. And North America, will increase. That's how we expect the situation.

And the first half forecast and second half forecast when we compare them, China will decrease greatly. So on the previous occasion, when we talked about the forecast, I talked about that, we expect Chinese proportion will decrease from now.

And as expected, in the second half, we expect a smaller sales from China. While we see the increase in full year and others. And whether you see the full-year forecast, we can see that Taiwan expected to rise. So when we compare the first half and the second half, Japan will increase, but Taiwan and China will decline. And South Korea and Europe will increase. That's how we see the situation.

Next is the sales trend and forecast for GA. So both for the first half and second half recurring business has been progressing stably. So [ Korea ] are going to invest in the development so that we can accomplish. The OP, same as last year. Orders coming via drupa. I think it is going to impact our revenue in the second quarter and third quarter. So we are going to focus on that.

As to FT, like I said before, displays demand is now showing the sign of recovery. The OLED related investment, the 8.5%, so large investment is expected. And therefore, going forward, basically OLED is expected to drive the revenue growth. In the first half, we have compressed the amount of the deficit. So in the -- for the full year, we would like to accomplish the [indiscernible] for the first time after 3 years.

PE, like I said at the beginning, we are struggling a little bit. The packaging Board investment for the miniaturization is anticipated in the second half. So basically expecting the growth. We have launched a new product called Ledia Qs. So this is a system that much is demand. Post sales is progressing quite steadfastly. So we would like to generate revenue from post sales in the second half, main body growth is expected.

Now given the situation, this is the forecast of our performance. So we have revised them upward and compared with the May announcement. In July, we have made a revision. You can compare them side by side. In the first half, you can see that there is revision upward. In the second half, the details are not hammered out there, but we haven't revised them in the first half given the situation of the first quarter. Total first half forecast was revised with revenue, JPY 280.5 billion and OP is JPY 53 billion. So this is by 18.9% and ordinary profit, JPY 53 billion and the net income, JPY 35 billion.

And the second half forecast are not changed. So basically, the full-year revenue is JPY 564.5 billion and OP is found to be JPY 105 billion, OP margin 18.6% and ordinary profit, JPY 105 billion. Our net profit is going to be JPY 75 billion. So this is an upward revision.

For SPE, the first half numbers is JPY 233 billion for revenue or sales. So this is the upward revision by JPY 3 billion. As for operating profit, JPY 57.5 billion, again, coupled with revision OP margin 24.7% is anticipated. As for GA, JPY 24 billion for sales, OP JPY 1.5 billion, OP margin, 6.3% is the target. And these are not really revised up. As for FT, the deficit volume is going to be minus JPY 500 million against the revenue of JPY 14.5 billion so this is upward revision. As for PE, revenue is a bit of struggling. But in the second half, we are going to focus more on. So in the first half, JPY 7.5 billion of revenue and operating profit forecast is JPY 500 million. There's going to be heavier profit in the second half. So as such, we have made the upward revision of the forecast.

Now R&D, CapEx and depreciation/amortization in the first quarter, R&D, JPY 7.1 billion; CapEx, JPY 5.8 billion, depreciation/amortization, JPY 3 billion was spent. As for R&D, SPE is the mainstay for the strategic investment and also we have been leasing up the investment for the new business areas, such as ADPKG and hydrogen-associated. And as for the CapEx, we are mainly investing for the SPE in Hikone and new plants and so forth. For the full year, we haven't revised the numbers. So for R&D, JPY 33 billion, CapEx, JPY 30 billion, the depreciation amortization, JPY 13 billion.

Now this is the waterfall analysis of the operating income. So the starting point is the JPY 94.1 billion at the end of last year and our forecast for March 2025 is JPY 105 billion. So the increase of the revenue and improvement of utilization would give us a plus JPY 33 billion. So majority of the increase of the profit is because of this element, via the increase of revenue on the utilization and profitability contribution is zero. The factor of fixed cost, minus JPY 21 billion. The ForEx negative impact is JPY 1 billion. The final focus is JPY 105 billion. These numbers are rather small payer profitability improvement. Basically, we anticipated it to be plus JPY 1 billion, but it has been reduced down to zero and therefore, we have reduced the FX cost to offset that.

As for the revenue increase and utilization, mainly this is driven by SPE and FT is also going to contribute as for the increase of fixed costs, mainly SPE is the reason and holdings growth investments are the main reason.

So these are the purpose for the investment or the expense.

Now next is about the dividend outlook. The interim dividend forecast was revised upward. So fully our dividend is going to be JPY 233 and this is going to be the record high. On the right-hand side, you will find a table, the main announcement was interim dividend JPY 100, but we have raised it up to JPY 109. As for the second half, we didn't imply the numbers. So in total, we expect to aim to accomplish JPY 233. On the right-hand side, you can see the actual numbers from the previous year, March 2024. So the dividend is going to be increased from the previous year.

Now about ESG and group revenues and new product topics also included in the material, but due to the time constraint, I would like to ask you to refer to them later when you have time.

[Operator]

Thank you very much, our President, Hiroe. Now we would like to open Q&A session.

[Operator]

Now I would like to ask the first person, Yoshida San from CLSA Securities.

[Yu Yoshida, analyst]

For the outlook of SPE in the second half, you didn't revise the numbers for the second half. On the other hand, by applications and variations, the breakdown information was provided. So towards the calendar year 2025, actually, the numbers are growing, I guess. So I think there is some upside. So with what kind of applications or region, where do you think there are still to be an upside?

[廣江 敏朗, executive]

Okay. I, Hiroe, I am going to answer your question. Well, at the moment, we haven't yet worked out the details of the second half. And therefore, we just showed the forecast for the full year -- just the forecast. But basically, the customers have given us inquiries. And based on that information, we made this forecast. So there is some upside, but there is also going to be some downside as well. But in particular, the most advanced foundry-related investment, this could come in, and that could serve as an upside driver. And memory associated business, well, we think that the investment for NAND would increase, but the degree of the increase is going to be the source of upside.

[Yu Yoshida, analyst]

I see. By regions, for example, China and region from a region perspective, are there going to be any upside or downside?

[廣江 敏朗, executive]

About destination, the ratio of sales to China in the second half will depend on how far we accept orders with an eye on the production capacity going forward.

[Yu Yoshida, analyst]

Now my second question, so SPEs margin forecast towards the second quarter is my question. So in terms of Q-on-Q, the revenue is going to go up, but the profit will go down. So is it because of the customer mix and the region mix? Is that the reason? And in the previous meeting, you talked about the low margin as you recall which will be posted in the first quarter or second quarter. And low margin business, so when would that be posted?

[廣江 敏朗, executive]

So comparing the first quarter and the second quarter, there is a bit of the decline. And basically, regional mix and customer mix, both of them are offering some role. Another point, like you said, in the first quarter, there was this evaluation equipment we wanted to deliver to the customers. However because of the customer situation, we had to shift that to the second quarter. That's another reason why first quarter was higher than we expected.

[Operator]

Next, I'd like to invite to [indiscernible] from Morgan Stanley.

[Unknown Analyst]

Thank you very much for the explanation. And under the leadership of Hiroe san, we do not have any surprising releases. So happy about that. But there is a risk with China. And in your case, you have a very careful attitude to that, so we're not to worry about that situation, but what impact this China situation will have? So do you see any political impact to? Or do you see any increase of the CapEx in China? So what is your forecast after next year about China?

[Operator]

So Hiroe will answer your question.

[廣江 敏朗, executive]

So about China, at present, we have the inquiry, which is not so weak compared to the past. There are some fluctuation in inquiry. But for us, still, it accounts for more than 30%. So I think we can maintain this level of business for China and 40% is a very high percentage. So 40%, 50%, not China comes to very large portion of ourselves. And as we have been saying that we expect this figure will decrease from now. So that is the trend we expect. But China still will continue to be the main customer for us.

[Unknown Analyst]

So what is expectation until the next fiscal year? Do you expect more slowing down of China business? Or do you go [indiscernible] it?

[廣江 敏朗, executive]

So for this fiscal year, as I mentioned now, we don't expect it will decrease so much. But until next year, more than 30% order has been placed with us from China, and we think that the situation will continue into next fiscal year.

[Unknown Analyst]

And next question is about by application -- Memory or NAND. The memory manufacturers are now shifting to the HBM. And I think the investment for NAND is placed backward. So when do you expect the investment into NAND will recover? And do you have any visibility into that?

[廣江 敏朗, executive]

We thank you very much for your question. About investment into NAND, the hyperscalers investment into server should accelerate. Without that we cannot expect recovery. So still now, there was not much movement taking place. And NAND itself will recover maybe in the second half or in the latter half of the fiscal year.

[Unknown Analyst]

And your expectation is based on actual inquiry from the customers? Or is this focus from the market?

[廣江 敏朗, executive]

Yes, we already have some inquiries received, but they are not finalized. The finalizing been clearly taking much -- a little bit more time than usual. So that's how we see the situation.

[Operator]

Next from Goldman Sachs, Nakamura san.

[Shuhei Nakamura, analyst]

I have two questions. First, it is about balance sheet. The compared with the end of March and June, the amount of the contract debt has come down by JPY 3 billion. Is it because of the reduction of the new orders? Or this is due to the balance between the new orders and shipment. How come it has come down by JPY 3 billion?

[Operator]

Kondo is going to handle this question.

[近藤 洋一, executive]

This is Kondo. Right, the China's projects are probably the prepaid project, was sold. And revenue to China is posted according to the schedule.

[Shuhei Nakamura, analyst]

So the -- do you mean that the order is smaller than the revenue?

[近藤 洋一, executive]

No, the prepaid amount was reduced because that was converted to the sales. So it is not having to do with the amount of the order. President is going to answer the question about orders. We expect more orders coming from China going forward. So towards the end of this year, we're not worried about the cash flow. At the moment, the cash flow is declining, but we're not worried. He said that in the presentation. So basically the prepayments will continue to come from China. That's our anticipation.

[Shuhei Nakamura, analyst]

My second question is about the regulations. I don't know what kind of regulations are going to come in. But let's say that the FDPR regulations are utilized by the U.S., than your equipment. Can you ship your equipment without using any components or technologies protected by the U.S. IP? Is it possible?

[近藤 洋一, executive]

We are not in the place to make a comment about that. So because of the background of our equipment, we do -- with regards to the point whether we use any components and technologies from the U.S. well, if we have the amounted to chips, then that means that we do have the technology from the U.S. So because of the way we manufacture equipment, we cannot make our products without using American technology. So far, we have been sticking to 30%, but we have to continue to monitor how things will play out going forward.

[Operator]

Now I'd like to invite you Mr. Yoshioka from Nomura Securities.

[Atsushi Yoshioka, analyst]

I have two questions. First of all, about China. So you only explained this, but let me ask this question again. So are sales of the [indiscernible] standard, with the point of my concern. So in the fourth quarter of the [ '22 ] there was more than JPY 60 billion of sales. But for the second half, this will increase to JPY 78.2 billion. So on a quarterly basis, sales will drop to about JPY 39 billion.

And on this point, do you see any change in the demand? I think you mentioned that there's no big change in demand. So basically, it is because of the capacity. So maybe you are trying to use production capacity for some other future demand. So the drop in the second half, would you explain how do you see -- how do you come up with the expected drop in sales to China in the second half?

[廣江 敏朗, executive]

So what makes the comparison of the previous fiscal year. China, inquiry is now a little bit lower than the previous year. That is actually the situation we have. But we can't sale order only when we finalize it with the customers. So we are not trying to find out the exact delivery of -- the delivery time of the order to the customers. So there are some orders relating to these transfer.

[Atsushi Yoshioka, analyst]

And second question is about the WFE market. So how do you see this WFE market?

[廣江 敏朗, executive]

So in 2024, there was no change but on the other hand, the investment in the foundry is expected to increase or accelerate. So there are some up and downs. But would you give us more detail explanation and the further growth is expected with SPE. But when we see these figures in the midterm edition plan, you expect to be 8% cost with the WFE market. And from this 8% growth, do you have any kind of [ upward revision ] of the gross expected WFE for the 2024 and 2025.

[Atsushi Yoshioka, analyst]

So how do you see the growth of the WFE market?

[廣江 敏朗, executive]

So for F 2024, the mid-single-digit growth, a little bit less than 5% was the image I explained to you. And that view itself hasn't changed. And for the 2025 at present, we expect the growth because of the inquiry we now receive. So the image of 8%. I think that's the one you have now. But at present, we can have the stronger than 8% growth. And as of the Foundry and Logic, the investment into the leading edge is expected to accelerate. That's how we see -- how you see on the Screen. But to calendar year 2023 and 2024, the investment into the Foundry will be in the same level. So the [indiscernible] investment into the leading edge will account for the large portion of the investment.

[Atsushi Yoshioka, analyst]

So 2025. So you said that you see the stronger -- situations are getting stronger. That application is getting stronger. That can I understand the situation that way?

[廣江 敏朗, executive]

So memory, will -- is expected to get stronger and significant. So that's about calendar year 2025. So in 2025, we will catch the demand from that sector.

[Operator]

Next is Shimamoto san from Okasan Securities.

[Shimamoto Takashi, analyst]

My first question. So going forward, the China businesses representation is expected to decline. How will that impact the profitability of your business? That's my question.

[廣江 敏朗, executive]

So basically, that's not going to give too much impact or I get the impression that the newly emerging manufacturers actually give you very high prices, what is going to affect our profitability. As to Chinese manufacturers, it is true that our profitability with them is high. So by having a small representation of the Chinese business, is it possible to assume that the profitability could also decline. However, as to the new equipment we are going to sell, we are going to appeal our added value, that's our strategy. Therefore, through that approach, we would like to recover our profitability. So we would like to develop such products that can improve our profitability. So along with the reduction of the China's representation in our business still, we would like to manage our business so that the profitability will not be compromised.

[Shimamoto Takashi, analyst]

As for the memory investment, you are anticipating the recovery from NAND. So at the moment, memory, the largest manufacturers, they are not really big, your market share is large. However, what's the current status of the adoption rate in them? -

[廣江 敏朗, executive]

We cannot really discuss or explain about our situation with a specific customer. But if I give you some general explanation as for the DRAM, as cleaning equipment, we are now increasing -- we are not really increasing our exposure. However, with F&A, we are now developing new applications. So this is where we would like to create more business opportunities.

[Operator]

I would like to invite Mr. Shibano from Citi Group.

[Masahiro Shibano, analyst]

Let's talk about the margin. In the first quarter, the sales dropped by Q-on-Q, but margin improved [indiscernible] that's the explanation you've given us. And the sustainability of that margin. So how do we understand sustainability of this margin? So we have been hearing about drop in China presence in the second half of the fiscal year. So thing they expected a 2% drop. And do you think that this is a practical expectation? Or do you take any measures to prevent the drop of the margin. So how do you think of the margin? That is the first question.

[廣江 敏朗, executive]

So into the second quarter, given the situation or results of the first quarter, we are now making the analysis of it. So as for the figure for the second quarter, of course, we are going to achieve the better ones. So that we can achieve the better result than the forecast.

But I think this expectation is very practical. That's how we see the situation now. And as for the second half, we don't have the order finalized yet. So we haven't made the detailed analysis yet. So this is a -- we have committed to this figure, but whether or not we can achieve the better than this year will be based on the analysis we are going to make from now. So please understand the figures in that way.

[Masahiro Shibano, analyst]

My second question is about how we see the next fiscal year. So WFE have the memory as the kind of driver for the product growth. And I think that corresponds to a kind of general way to see the market.

And your SPE sales and WFE in [indiscernible] when you see and compare the growth. Your sales growth may perform the total industry growth, for example, if China continued to support your growth now. So the WFE growth maybe mainly was memory. I think you can have a scenario to outperform the market growth. So how do you see the growth into the next fiscal year?

[廣江 敏朗, executive]

So let me answer your question. So on the previous IR Day, we explained to you that we, along with the miniaturization I think we can expect a further greater exposure, and we are going to challenge the new PORs. And result of which will contribute from now and gradually.

So for this fiscal year, our market share according to our own calculation is expected to grow. So if there is any big drop in WFE to grow the market share, it would be difficult. But as long as we comprehend the situation, we can expect our market share will continue to rise, especially investment in China is into the legacy node. The customers of legacy node concerned, especially front-end cleaning proportion is greater. And this will result in the greater contribution -- to make a greater contribution to our market share.

[Operator]

Next is Nakanomyo san from Jefferies Securities.

[Masahiro Nakanomyo, analyst]

I have two questions, but this might sound like a repetition of the previous questions. But in terms of the capacity, I have yet another clarification question. So at the moment, there is still a constraint of the supply. It's not resolved completely. That's what you said previously. So looking at the numbers in the first half and second half, SPE sales is almost flat. But this year S-Cube 5 will start its operations. So basically, it has a potential to sell JPY 500 billion. So if that's the case in the second half, maybe the revenue of JPY 250 billion is possible. Is this correct? So according to the current plan, it is JPY 230 billion. Do you think there's going to be an upside to this number?

[廣江 敏朗, executive]

You're right. S-Cube 5 equipments are now being installed. So we would like to reinforce that. And as to the current situation of the order -- incoming order, it is quite strong. The order is robust. So against this target of JPY 230 billion gradually, we would like to increase the number of orders so that we can pursue upside.

If that's the case, in that situation, at the moment, China is not fully incorporated but would you say that the China's representation is going to increase. So looking at the first half and second half, as of now, the China is expected to decline quite substantially. But as long as the capacity is ready, the situation is going to change? Is that what you're saying. But compared with the first half, it's going to decline. However, the degree of the drop is going to be mild.

[Masahiro Nakanomyo, analyst]

My second question is about China next year. So you explained that the Chinese representation is going to shrink. But when you look at the absolute amount of the revenue, the China's investment and your revenue, when you separate them out compared with this year, do you think it is going to go up, when you look at the absolute amount of the money?

[廣江 敏朗, executive]

I think it is going to decline still -- this year, I'm sorry, this year compared with the previous year, some of the business was sort of shifted to this year from previous year. So that is some portion that was added. In that sense, next year, the situation will come back to normalcy. That's our outlook.

[Masahiro Nakanomyo, analyst]

I think you're talking about your revenue. But if you take a look at the total investment and market in China, what is your outlook. They are quite robust and vibrant. That's true for sure. So there's a bit of a gap. Would you say that there is going to be a bit of an increase in China?

[廣江 敏朗, executive]

Well, legacy area or batch cleaning area in these segments, our market share has been eroded, and that is true. So in those areas, gradually the localized will progress. That's our anticipation.

[Operator]

I like to invite Mr. Hirakawa from the BofA Securities.

[Mikio Hirakawa, analyst]

I am Hirakawa from BofA Securities. I have two questions. First, about the profitability. So in the -- mainly in the first half, you revised the focus on SPE and sales expected by JPY 3 billion and operating profit is expected to increase by JPY 4.5 billion. And -- so the great expect -- greater growth was expected towards the operating profit. So I want to know why you expect a greater growth with the operating profit than the sales?

[廣江 敏朗, executive]

So as it is not only by the SPE alone and also in the other businesses, in the past quarter, we had very stable recovery in the profitability. And this situation was analyzed for the second quarter and we can expect the contribution from the other businesses into the sales in the second quarter.

So rather than SPE, when we have the three other businesses and others, we can expect the -- should expect the improvement of the profitability. That's why we made this upward revision. And of course, SPE part of it. And as for SPE, the production mix was better than expectation. As for the testing machine about [indiscernible] was made, it is not delayed into the second quarter and after. And SPE in the first half, the operating profit is expected to increase by JPY 4.5 billion.

[Mikio Hirakawa, analyst]

Next question is about Page 11 about the profitability to increase by JPY 5.5 billion. And I want to know more about this profitability improvement. And the total increase of profitability for the full year is zero as we see on Page 24. So the one on the first quarter is most in the full year. I think figures should be accumulated. So I want to know the relationship between the first-quarter profitability and full-year profitability.

[廣江 敏朗, executive]

So for the full year forecast, so our original look for the improvement of the profitability was based on the product mix. And also the customer mix. But now we see that situation does not allow us to have that improvement. So we have to cut or reduce the fixed cost to cover that. That's how we are operating the business right now.

So that means in the first quarter, you have some improvement of the profitability, but that's the last because of the situation -- a different situation in the customer mix and the product mix. Yes. So that is the expectation for the full year. But that is without any detailed analysis. So we made a data analysis up to the second quarter. But as for the second half of the fiscal year, we haven't made the exact or with a detailed analysis.

[Operator]

So next person is going to the last person from UBS Securities. Yasui, please ask your question. And this is the last question we're going to take.

[Kenji Yasui, analyst]

I am Yasui from UBS Securities. I have two questions. First one, I'm sorry. I'm still sticking to China, but I have a question about China. As to the revenue breakdown in China. The advanced node investment is a bit hard to understand. So I understand that it is difficult to clearly answer this question, but how much of the revenue is from the advance area? Would you say three or four top manufacturers make up the 30%, 40% of the total revenue or even more like 15 companies.

And the image device, second question is about image device. So for the full year, there is the substantial decline forecast compared with the initial forecasted actually, initially, your outlook was not so negative. But in the past couple of months, whether the investment dropped substantially. Could you give me a little bit more details about that. Could you elaborate why the outlook has declined so much?

[廣江 敏朗, executive]

As for the breakdown of the revenue in China, well, major players, the big players are making investment. As of now, we don't have much connection with a CHIP Act. So legacy level investment is taking place. So along with the METI's guideline, we are developing our business in China.

So when -- there is a timing when the big customers make an investment, then our business also increased accordingly. As for the [indiscernible] sensor, like I said previously, it is going to be a slight decline and listening to the customers' investment plan, it seems like the shrinkage of the investment is stronger than we have expected. And this has become clearer in the past couple of months.

[Kenji Yasui, analyst]

And as a follow-up with the first question, the China's top three companies, how much of the Chinese revenue do they make up?

[廣江 敏朗, executive]

Top three manufacturers are not always top three customers in our business. So they actually change when emerging customers come up and existing customers become bigger. So in each quarter, about 3 top companies make an investment. That's what's happening on the ground.

[Kenji Yasui, analyst]

So in 2023, 2024, if you look at the total revenue, and if you look at the top three companies in China, how much do they represent, the top three companies in the total revenue you make in China?

[廣江 敏朗, executive]

Do we disclose that information. We're going to look into the numbers. And then [indiscernible] is going to check whether we can answer that question. And if yes, we are going to come back to you.

[Operator]

I understand that there are still more people who want to ask questions. But to some constraint, we would like to close this Q&A session now of SCREEN Holding Company Limited. This was the financial results briefing session for institutional investors for the first quarter in the time of March 2025. Thank you again for coming to the meeting despite your busy schedule. Thank you. And I'll ask for your continued support. Thank you.