Tokyo Electron Ltd

TSE:8035

Earnings Call Transcript 2022-Q2

[Koichi Yatsuda, executive]

Now it's time for us to start the Tokyo Electron financial announcement for the second quarter of the fiscal year ending March 31, 2022. Thank you very much for joining us today despite your busy schedule. I am Yatsuda of IR department, acting as the moderator of today's session.

I would now like to introduce today's attendees: Mr. Toshiki Kawai, Representative Director, President and CEO; next, Mr. Yoshikazu Nunokawa, Corporate Director, Executive Vice President and General Manager, Global Business Platform Division, Financial Unit. Just for your information, Mr. Tsuneishi, Chairman of the Board, will be absent today due to the other business. He's planning to attend the next briefing updating.

Prior to the presentation, let me explain the flow of today's meeting. First of all, Mr. Nunokawa and Mr. Kawai will make presentations. After that, until 6:00 at Japan Standard Time, we will have a question-and-answer session, where we take questions from the audience.

This briefing will be conducted using 2 channels. Webex will have simultaneous interpretation between Japanese and English. As we announced by email, if you'd like to listen to the audio only, you can participate by phone. But if you'd like to ask questions, please see the application on your PC or mobile device.

In addition, since this briefing is intended for institutional investors and analysts, we will take questions from the institutional investors and analysts only. We will post the audio of this briefing in Japanese and English on our website within a couple of days. So please access to our website if necessary.

So let's move on to the presentation session. First, Mr. Nunokawa will explain the Q2 FY 2022 consolidated financial summary. Mr. Nunokawa, please?

[Yoshikazu Nunokawa, executive]

Good afternoon. My name is Nunokawa, and I am responsible for the finance division. Now let me explain to you the FY 2022 Q2 consolidated financial announcement outline. Here, we look at the performance of the half year.

The net sales of the first half was JPY 932.5 billion, and it was above the forecast that was announced on August 16. And for the half year, it was the highest ever net sales.

For SPE net sales, new POR contributed to net sales, and field solutions achieved a very good net sales. And because of it, we achieved JPY 905.7 billion, which was above forecast. For FPD, net sales was JPY 26.6 billion. This was in line with the forecast.

The gross profit margin was 45.3%. For operating margin, it was 29.5%, and both were above forecast. For the half year, both gross profit margin and operating margin were the highest ever.

This is the quarterly performance. Net sales in Q2 increased 6.3% compared to the previous quarter to reach JPY 480.4 billion. Following Q1, we recorded the highest ever quarterly net sales.

By segment, SPE net sales was JPY 467.8 billion, and this was the highest ever quarterly net sales. For FPD net sales, it achieved JPY 12.5 billion.

Gross profit margin was 44.1%. Operating margin was 27.7%. The very high level was maintained. It was lower than the previous quarter, but the main factor behind it was the increase in R&D expenses.

This shows the performance that I just explained to you in graph format, and this is by segment information. For SPE, net sales was JPY 467.8 billion. Profit margin was 32.7%. In addition to steady sales in SPE products, field solutions net sales was very good, and therefore, net sales increased from the previous quarter. For profit margin, we continue to enjoy a very high level.

For FPD, net sales, JPY 12.5 billion. Profit margin was minus 6.2%. We continue investment for future growth, and we are seeing steady progress against this year's plan.

For composition of net sales for Q2 following Q1, SPE accounted for 97%, and FPD accounted for 3%. This shows SPE division sales by region. Mainly, we have seen a growth for Taiwan and North American markets.

This shows SPE division's new equipment sales by applications. For the second quarter, the results was from the bottom: logic, 53%; nonvolatile memory, 18%; DRAM, 29%. In memory, because of the customers' investment timing, there are some changes in composition. But in the first half of this fiscal year, the logic and the memory ratio was 1:1.

This shows the field sales -- field solution sales. Second quarter was JPY 120.5 billion. In addition to the strong parts services, we've seen the growth of the modification sales. It went up significantly from the previous quarter.

Next is the balance sheet. Total assets was JPY 1,634 billion; cash and cash equivalent, JPY 420.4 billion; trade accounts receivables and contract assets, JPY 301 billion; inventory, JPY 394.1 billion.

Next is total liability and net asset. Liability was JPY 448.1 billion; net assets, JPY 1,185.8 billion. Due to the retained earnings growth, it went up from the previous quarter. And the equity ratio became 71.8%.

This shows inventory turnover and accounts receivable turnover in days. Inventory turnover period, 86 days. Receivables turnover period was 66 days.

Finally, cash flow. Operating cash flow was JPY 94.6 billion. Investment cash flow was minus JPY 15.5 billion. Financial cash flow was negative JPY 200 million. Free cash flow was JPY 79 billion.

Those are consolidated financial statement briefings. Now Mr. Kawai, the CEO, will be talking about the business environment and financial estimates. Mr. Kawai, please.

[Toshiki Kawai, executive]

Good afternoon. My name is Kawai. I will talk about the business environment and financial estimates. Starting with the business environment.

For CY 2021, WFE market. At the time of the August financial results meeting, we expected the market to grow around 40% year-on-year, but driven by semiconductor demand due to the digital shift of society, not only leading edge, but our mature generation product investments are also increasing. Because of this background, the CY 2021 WFE market growth is expected to approach 50% year-on-year.

For the FPD TFT array process equipment market, no change. Year-on-year, a reduction of 20% is forecast.

Now let us look at the by application outlook for the WFE market. For logic and foundry, last time, we expected a growth rate of 45%. But this time, this number was increased to 60%. For DRAM, our forecast remains the same at a growth rate of about 60%. For nonvolatile memory, we made a slight upward revision from the last time. A year-on-year increase of about 20% is expected.

Next, let me talk about the first half of FY 2022 business progress. As Mr. Nunokawa reported to you, in the first half for both net sales and profits, they recorded, by far, the highest ever numbers.

If you look at the background, core products were adopted for high-volume production. Field solution business progressed as scheduled. In the field solution business, the half yearly net sales was above JPY 200 billion. And towards the achievement of the medium-term management plan, products important for scaling and patterning achieved new POR.

And in addition to that, there were new product releases for wafer probers, where demand is expected to grow because of the evolution of leading-edge packaging technology. In preparation to the expansion of WFE market, the Miyagi Technology Innovation Center was complete. And we entered into an MOU for the introduction of equipment to imec-ASML joint research laboratory.

And we started up the supply chain initiative E-COMPASS. It was the creation of environmentally friendly high-performance equipment with the acceleration of a shift to a data society. Through these previous activities, we will continue the technology innovation of semiconductors.

Next is the financial estimate for FY 2022. Because of the actual first half results and also under the strong demand background, we have revised the estimate upward.

Since the August announcement, full year sales will increase by JPY 50 billion to JPY 1,900 billion. Gross profit will increase by JPY 37 billion to JPY 861 billion. Operating income will increase by JPY 43 billion to JPY 551 billion. Current net income will increase by JPY 30 billion to JPY 400 billion.

And then the full year profit ratios will be for example: GPM, 45.3%; OPM, 29%. And that is our estimate. So all the sales, operating income, operating profit margins, we are going to record a highest ever. We'll continue to seek the achievement of the mid-term plan.

Next, let me talk about the FY 2022 SPE division's new equipment sales estimate. As you can see, first half year sales was JPY 695.5 billion. So the half year record of the FY 2019 first half of JPY 504.3 billion was exceeded again. Last half, we will also grow the sales to JPY 734.5 billion. And then full year new equipment sales, it's going to increase by 48% over previous year to JPY 1,430 billion.

Calendar year new year sales growth will come very close to 60% increase over previous year, outperforming WFE market growth ratio. And application mix will stay the same.

Next, R&D costs and the CapEx planning. They will remain unchanged. In FY '22, both will be a record high. R&D expenses, JPY 165 billion; CapEx, JPY 64 billion. Those are expectations, and then we expect the depreciation and amortization still will be JPY 43 billion. Because of the expanding market and diversifying latest technology requirement, we will accelerate R&D and the CapEx aggressively.

Last but not least, the dividend forecast. Based on the current financial estimates and the payout ratings ratio of the 50%, we revised upward. And then dividend per share is planned to be JPY 1,284 for full year. That will be, again, a record high dividend amount.

From October 29, our company was selected for TOPIX Core30, and that was the honor for us for steel semiconductor technology innovation and provide high value-added products and services that strive to further enhance our corporate values.

That is all from me. Thank you.

[Koichi Yatsuda, executive]

Now let us move on to the question-and-answer session, which will last till 6 p.m. Japan time. Questions will be accepted in both Japanese and English, but the speakers will be available on the Japanese channel. So audio questions will be limited to Japanese. [Operator Instructions] And on the Japanese channel, we will translate your English question and read it out in Japanese, and the speaker will answer it in Japanese. On the English channel, the question-and-answer will be broadcast live with simultaneous interpretation. [Operator Instructions] Mr. Yoshida of CLSA.

[Yu Yoshida, analyst]

So the first question is on the WFE in next year's forecast. Do you have any expectation by application?

[Toshiki Kawai, executive]

This is Kawai. Let me answer your question. Next year, again, 50% growth is expected from the last year to this year. So the next year, again, at the last announcement, we expect the positive growth.

But we are still kind of studying the actual quantification, but the actual memory and the logics and the board will grow next year, especially the drivers of DDR5 for the DRAM and for the NAND, the 170 layers and also DDR5 requirement, CPU investments and the data center, PC and smartphones markets. All those areas will receive the strong investment.

[Yu Yoshida, analyst]

As a follow-up question, as for the maturities, logic foundry information for the WFE was revised. I think it is only coming from the maturity section. At the foundry investment for 2021, what would be the portion of the maturity? And then what would be the prospect for the next year for the maturity section?

[Toshiki Kawai, executive]

As for the maturity and also the advanced sections and also the memory, everything grew so far as I have talked about for the next year. And as for the increment that logic advanced as well as the legacy, I think that it will be about 50-50 percentage wise. And the next year as well, legacy logic investment will also be strong.

That is what we think. But the quantified estimate for next year, let us refrain from sharing that. But we expect probably a positive growth for next year.

[Koichi Yatsuda, executive]

Thank you very much to Mr. Yoshida for your question. Next, from Goldman Sachs, Mr. Nakamura, please.

[Shuhei Nakamura, analyst]

I have a question about gross margin. From Q1 to Q2, it seems like gross margin went down slightly. What is the background of that? And -- but compared to the original plan, it has increased or improved. So please explain the background. For the second half or compared to Q2, it seems like gross margin is expected to go up. So please tell us about your thoughts on gross margin trend.

[Yoshikazu Nunokawa, executive]

This is Nunokawa speaking, and I will answer your question. For Q1 and Q2, gross margin, that was your question. In Q1, the margin was very high. And when we reported to you, we did provide some explanation, but the level was very high. And I think we said that we hope this could continue.

But unfortunately, it will be difficult to continue at that level. In Q1 for both the customer mix and the customers' application mix, both were very favorable for our profit margin. And as a result, we achieved a very high level.

And at the -- as of the end of Q1, we talked about forecast of Q2. And we mentioned that we will not reach the level of Q1 or it will be a more modest level. But as a result, the margin was -- it did not go down as we had expected.

As of Q1, we had expected the positive factors for Q1 application mix or customer mix. That didn't degrade as much as we had expected. And so due to results did not go down to the level that we had expected at the end of Q1, for Q3 and Q4 compared to Q2, the numbers will go up.

And for the second half on half yearly basis, it will be about the same as first half. Q2, Q3, Q4, we are steadily making improvement and strengthening our profitability. That is from my side.

[Toshiki Kawai, executive]

And let me add an explanation from my side. For product mix, geography mix, they will have an impact on our quarterly base numbers. And the gross margin will go up towards the future. High speed, high reliability, high capacity packaging, we have that technology. So high value-add products for the customers.

As we talked about in the presentation, the penetration of this product is going up. So towards the achievement of our midterm business goal, our gross margin will go up, but that is the plan. So on a short-term quarter-to-quarter basis, product mix and the geography mix may have an impact. But the major trend is that we can expect further growth.

[Koichi Yatsuda, executive]

Thank you, Mr. Nakamura. Next is from Mr. Hirakawa of BofA Securities.

[Mikio Hirakawa, analyst]

Mikio of BofA. As for the raw materials procurement and also the -- you have also increased the sales to JPY 1,900 billion. If the material procurement is better, then you can see more growth in sales?

[Toshiki Kawai, executive]

So the component procurement, yes, we need to make sure the procurement is done because of the strong demand and also the standardizations or the leveling off of the production is also conducted. If the materials becomes the bottleneck and then the -- it should not affect the sale.

We need to consider every possible effort to make sure the sales would be achieved. And that's why we could revise our numbers this time. And during the COVID-19 crisis, there was some closure of the flow. But it is now being in released, and we'll make sure that the materials should be procured steadily and supply chains enhancement would be conducted, so that we can meet the customers' demand.

And at the same time, in Japan, we have many suppliers. And also, they are supporting us. So thanks to them, we have been doing our business. And we would like to keep the communication with those partners to meet the demands in the market.

[Mikio Hirakawa, analyst]

As a follow-up, you've talked about the supply chain management, and support is quite good. But how about the lead time of the products? From 2 years ago, is it the -- improving? How is it going?

[Toshiki Kawai, executive]

As for the material procurement, in fact, it is somewhat elongated, the lead time. And because of the shortage of the materials, it might affect our production. So the planning of the production and also assembling time has been coordinated so that they would not affect the customers. And also from the long-term perspective, customers give us an orders, so that it would not be -- negatively affect the delivery timing. And we see some of the inquiries for those long-term period, and we are now managing it.

[Koichi Yatsuda, executive]

Mr. Hirakawa, thank you. The next question is from Mr. Wadaki of Nomura Securities.

[Tetsuya Wadaki, analyst]

Can you hear me? My first question, the equipment market is in a very good condition. But in 1998, I think you're in a situation where you had orders for the next 1 year and 3 months. But all of a sudden, those orders disappeared. But what is the present situation? Will that not happen again?

[Toshiki Kawai, executive]

At this moment, we don't see any signs of that happening. I think we are much more mature than before. In the past, we used to have computer-centric or PC-centric demand. But after the supply goes a full circle, you go into an adjustment period. And for mobile-centric, once the smartphone demand run its full cycle, the demand went down.

And with IoT, all of a sudden, we moved into the data-centric era. So the model has changed from goods to things. And semiconductors are now said to be the rise of the society. ICT DX will continue to grow strongly towards the future, we believe. So the traditional silicon cycle way to a strong continued growth with no drastic decline is what we expect.

For customers, considering the profit and cash flow, they are making investments. The DRAM top manufacturers, NAND top manufacturers, logic major manufacturers, all of them are looking closely at market trends. So in that sense, everybody making investments at the same time is not happening. Everybody is looking at the market to make investment decisions. That is a major difference between now and the past.

So big years is what we can expect. There will be no major decline. The special pandemic or unless that kind of special situation occurs, we will not see a major decline. That is what we expect.

[Tetsuya Wadaki, analyst]

So overall, you're in a good condition, and you can expect a good year next year. And if you look at different applications, what is the forecast?

[Toshiki Kawai, executive]

There is no difference between the different applications. I think they will be roughly same across the board.

[Koichi Yatsuda, executive]

Thank you very much to Mr. Wadaki. Mr. Shimamoto of Okasan Securities.

[Shimamoto Takashi, analyst]

Shimamoto of Okasan Securities. Can you hear me? As for the actual sales of SPE, it was up JPY 30 billion. What was the reasons of this difference?

[Yoshikazu Nunokawa, executive]

So let me answer. My name is Nunokawa. Against the first half budget, we've seen increase of the JPY 30 billion increase. In the content slide, first of all, the new equipment sales growth and also field solutions sales, both of them contributing to it. DRAM market new equipment was strongly contributing to it.

[Shimamoto Takashi, analyst]

As a follow-up question, SPE, the demand backlog could be also high because of the strong demand. And it is almost at full capacity. What will be the quarter-by-quarter capacity of the maximum sales you can make from the current capacity? And also because of your capacity building plan, do you have any increased plan of the sales capability?

[Toshiki Kawai, executive]

Let me answer to that. For the 3 or 4 or 5 years or so, we have been trying to increase our capacity. The Miyagi logistics building was the first. And logistics improvements and also production lines was doubled from 1 to 2. So there, the capacity building was conducted.

And then after the expansions, as for the thin film, Tohoku and Yamanashi, the new plant was built, respectively, and last year, started production. So from 2 years ago, 1.5x and 2x the capacity were achieved from those efforts.

So in terms of the amount and the products, there are some differences, and we will not be able to quantify right now. But for the growing WFE and also midterm plans is concerned, we are climbing in accordance to those background. And towards 2024, JPY 1.9 trillion estimate was already made for FY 2022. And we are also planning to achieve it in advance.

[Koichi Yatsuda, executive]

Thank you very much to Mr. Shimamoto for your question. The next question is Mr. Nakanomyo from Jefferies Securities.

[Masahiro Nakanomyo, analyst]

This is Nakanomyo speaking. You talked about 2022. But for 2023 or 2024, what is your outlook? We recently heard about entering United States for TSMC Kumamoto. So for 2023 or 2024, what is your outlook?

[Toshiki Kawai, executive]

If you look at the global macro economy, of course, we have to closely watch the macro economy. But all customers have very big investment plans. In that sense, we can expect major inquiries.

So 2 or 3 years ago, we talked about a higher-level growth phase. But at this moment, we can say we came to a higher level than that. The semiconductor device business in 2020 was JPY 440 billion. But in 2030, it is expected to reach JPY 1 trillion, a lot of people are saying, which means that the market will double.

The data traffic CAGR will grow at 25% to 26%. So that is the major trend. So the semiconductor production equipment will also grow in line with that adjustment or will it go up gradually, stepwise or -- it's very difficult to explain in front of a screen or monitor. But rather than going down, there will be some ways of adjustments, but we expect a linear growth.

Digital and green seem to be major trends. And looking at those trends, we are establishing our plans. So over the medium to long term, we could have high expectations.

[Masahiro Nakanomyo, analyst]

One additional question then. So your customers, you said, are looking at the supply-demand balance in making their decisions on investments. For this year and next year, that may be the case. But when a huge amount of investments come in with subsidies provided for major investments, those who have the subsidies may have major investments. But those who don't, if they want to catch up on their own, there will be some disruption of the market.

So towards over 25 or 30 years, maybe the supply demand -- there may be a balance between supply and demand balance. But in the short term, do you think there may be some adjustments, but -- or do you think the market can maintain a healthy level?

[Toshiki Kawai, executive]

So we're talking about major investments. But as I mentioned before, the market -- we're not sure whether the lack of legacy devices was foreseen. But I think the market will continue to be -- maintain a healthy balance.

This industry is not just about volume. Technical innovation is very fast in this industry. And in the high-value areas, investments will continue. In the future, the keys will be EUV in lithography or GAA, Nano-C, backside power via VDI. And in DRAMs, further scaling in and 3D RAM and NAND multi-layers.

So a manufacturer that can respond to those changes, I think, are watching the market closely. And the existing equipment can be upgraded with field solution and productivity improvement.

And then maybe shifting to legacy devices, so there is a technical innovation side and especially the leading-edge customers are watching the market very closely. So most of our sales come from our leading-edge, high-value area for new equipment. So I think we can surely continue growth. Market disruption would be very hard to imagine.

[Masahiro Nakanomyo, analyst]

The second point is about memory supply-demand balance. This year, DRAM, 20% or 25%, and maybe next year would be lower than that at 15% to 20%. And for this year, there has been a lot of investments, and capital intensity has gone up.

So this year, the supply capacity has not grown that much. But if you look at next year's supply-demand balance, yield will go up because of this year's investments. And next year, if you make more investments than this year, is it possible that the supply-demand balance would be disrupted?

[Toshiki Kawai, executive]

The -- our logic supply is in shortage. And for DRAM actually, because of logic shortage, they cannot supply the products. Investments in DDR5 will be seen next year in equipment market.

And the die size will be 10% larger, and the data will be growing. So I don't think what you are worrying about will be realized. And memory will continue to grow steadily.

[Masahiro Nakanomyo, analyst]

Sorry, I'm not actually worried. But sorry, I just wanted to ask that question.

[Toshiki Kawai, executive]

I feel very sure that you are of the same opinion as I am.

[Koichi Yatsuda, executive]

Thank you, Mr. Nakanomyo. The next would be Mr. Ishino of Tokai Tokyo Research Center.

[Masahiko Ishino, analyst]

Can you hear me? Good. Okay. I have one question. Because of the semiconductor shortage, what was the reason of this heavy shortage? The big semiconductors, manufacturers was having a record high backlog of the semiconductors. And in your prospect, how long does it take to be resolved?

I think you have also your situations, and you would like to produce your products. But because of that then, it is somewhat stuck. Can you teach me or enlighten me?

[Toshiki Kawai, executive]

This is my personal view. As I said before, because of the digital society and IoT is also accelerating the growth of the demand for semiconductor. And under such circumstance and also because of the COVID-19 crisis, the usage has become heavier and the new sales was also hybrid. And the industry's IoT usages were also increasing these days.

If you look at the investment in 2020, probably, we must have had a heavier investment, but it was stopped rather in between. And as for the SPEs as well because of the government restraint, engineers couldn't travel to facilities. So the facilities' connections were also stopped because of such, the circumstances.

So for all industries affected and new investments and the production started all of a sudden. And we are supposed to have a -- snoozed bit growth. But because of the flat situations because of the such catch-up momentum, we need to grow more drastically. I think that is leading to the shortage of the semiconductors right now.

How long does it take to be resolved? IoT, AI and also 5G, everything is using the Internet traffic. And so we do increase the productions, but probably the shortage stay in the market. That is the forecast.

It's very difficult to say when it would be resolved. But for our company, we would like to meet the customers' demands, and we'd like to increase our production. And that is the work that we are thinking.

[Masahiko Ishino, analyst]

A follow-up question. With the WFE, it is like increasing by 30% or 40%, 50%. I think you have good marketing capabilities. And also, your positioning in the market was also favorable.

But within just the year, I think the forecast was revised during the year so frequently. What is the reason for this?

[Toshiki Kawai, executive]

The catch-up demand, as I said before, was quite demanding. And it is not a matter of the yield on the customer side. The demand grew actually. And we have been discussing for generations why. But they're still -- it is insured, and it was traditionally ordered.

And that's why we have seen the unit increase, and also the future investment is also necessary. And as for the memory, not only just the logic, I think that is the pure demand increase. And also coming from the IoT devices, I think the demand for such is also increasing. But that is also the experience for the industry as a whole.

[Masahiko Ishino, analyst]

High-performance computing era. It is coming.

[Toshiki Kawai, executive]

Yes, it is. All of a sudden, all the communications and DX and the Internet graphics increase. Those are type of things that needed to be considered. And the strategic planning is also conducted right now. I think that what you have summarized was correct.

[Koichi Yatsuda, executive]

Next question is through English text. [ Nancy ] online questions us, so how far into the future do you have an expectation or forecast for orders?

[Toshiki Kawai, executive]

We have announced a medium-term business plan. And over the long term and for the -- our customers who have construction plans, we are looking at those numbers so for quite a long time. However, we are now seeing high demand, and the customers are placing orders earlier than before.

And depending on the product, we are already receiving LOIs for orders for next fall. And not only orders but long-term forecast or a 2-year forecast are what we are trying to develop. And within that 2-year forecast, we are managing the company. So we have our long-term numbers, and we do review on a quarterly basis. So that would be the answer.

[Koichi Yatsuda, executive]

Thank you very much to Ms. [ Utsumi ] for your question. Next, Mr. Yamamoto of Mizuho Securities.

[Yoshitsugu Yamamoto, analyst]

Yamamoto from Mizuho Securities. I'd like to ask about the initiative with the suppliers. Every year, the forecast is they are growing. But with the material, procurement-wise, I don't see any programs in terms of that. But what kind of the initiative do you have with the suppliers to realize it?

[Toshiki Kawai, executive]

With the strong demand footprint, it's not that we don't have any big problems. We are managing it so far with the customers with the cooperation of the partners and the suppliers. But I needed to take this opportunity to express the gratitude to those partners.

Every type of their efforts were envisaged, and it was the -- actually, due to their cooperation, we could survive. We have a full plan. And those plans, we are conducting the briefing biannually about the product planning and what would be the policy and what would be the trend for the production brief. And I myself would also visit sometimes, and the trends and viewpoint would be shared with the partner companies so that we can have a good communications to meet the customers' demand.

In the beginning, we have already told you that probably from the case, it would be probably better or favorable because we have a local supply, more content from the local supply. But as for the overseas, the competitor's case, it was a different matter. But we are probably better off because we have a better local content.

That is the current situation due to the support from the suppliers. So I believe that the supporters are now probably also struggling how to supply them. And also, if there's another cycle, so for the 2022 and '23, I think that these industries can survive for the next cycle as well. But it will be another effort necessary for the 3 years ahead and the 5 years ahead if this demand must be then achieved.

[Yoshitsugu Yamamoto, analyst]

What initiative do you have for 3-year ahead future?

[Toshiki Kawai, executive]

Right now, what we have been doing is to deal with the current situation. And that is the rather urgent so far. And as for the long-term enhancement of the supply chain, it is just starting with the discussions for the 3 years, 4 years, 5 years ahead planning.

The production, corporate production division, was also established. And the orders, the experienced people from the different plants are convened to make that organization and under Mr. Sasaki of the plant-related organization. But we are now looking at their supply chain management. And from October 1, this was organized.

And as Mr. Yamamoto has asked, the long-term plan and the strategy is now being discussed at that organization. And the E-COMPASS was also created for the environment's sake. And we would like to enhance the supply chain. Not only just the environment, but the performance for the environment is quite important for the productivity per unit and that whole matching may not be necessary and so that timing would be increased.

And those could be also very important measures for the productivity improvement. So per area, unit-wise productivities would be improved through this E-COMPASS initiative. And also, we will not use a -- the, say, banned from the environment sake, and that is the mandatory.

And so from the October 1, organization was started to think about environment with the collaboration with the suppliers. That is just started, and I would like to continue the dialogue with them.

[Koichi Yatsuda, executive]

Thank you, Mr. Yamamoto. It is now time, but we're now receiving a lot of questions, so we would like to extend the time today. The next question is from Mitsubishi UFJ Morgan Stanley, Mr. Hasegawa.

[Hasegawa, analyst]

From Mitsubishi UFJ, my name is Hasegawa. I think this is an extension of the first question. For the 2030 semiconductor market, not only your company, but the semiconductor equipment company is -- are all talking about $1 trillion. And on the IR Day, you talked about the shift from products to value.

And talking about things, AI processing, robots or several years down the road, maybe automated driving, but with device manufacturers, our system and service companies, for them, how do they run their business and if you look at the overall supply chain?

[Toshiki Kawai, executive]

When we look at investment plans, we look at the customers' cash flow. So each company, there is planning to create value based on the financial situation. So in the future, based on IoT, smart cities, smart houses, EV, fuel cell vehicles, automated drive vehicles, smart medicine, you will see an expansion into these markets.

And then we will be moving into the post-5G era. And that will lead to a $1 trillion market opportunity. So we see a very healthy investment cycle with investments into areas where there is need.

At the moment, we don't see any signs of our cash flow being disrupted. The importance of semiconductors is attracting attention. So I think everybody will be managing their cash flow carefully. So this is about our customers' plan. So I am not in position to say anything about that as a person from an equipment manufacturer.

But I think they are solidly looking at numbers and establishing their plans. I think that is true for device manufacturers but with more advancements in services and equipment.

[Hasegawa, analyst]

Yes. With the advancement of IT, our service prices may come down or our simple services may be replaced by more advanced services. And the economy will be shifting more towards IT, and -- on the net, you have an advertising. You have a system, where you can collect money through advertisement. So I was thinking about how much the market can expand. You are an equipment manufacturer, but for the service companies, how can they really achieve cash flow for the future?

It's a very ambiguous question, and this question is not directly related to you. But you talked about a $1 trillion market opportunity. So I was thinking about your thoughts on that.

[Toshiki Kawai, executive]

Many things are happening now, and some people are talking about [ Voca ]. But rather than just talking about the short term, it is important to look at the mega trend, the overall trend.

In that sense, the big global trend is digital and green, making these compliant. With the digital economy, productivity will go up further. And with more production, that may lead to the creation of new things, which will contribute to positive growth.

And with advancements of IoT, power consumption will also go up. So in that sense, according to nature, at 20% power consumption, so to have both green and digital, transistor performance may be improved for low energy consumption.

Now if you look at the real mega-trend, I think we will be moving towards $1 trillion with technical innovation, with convenience and productivity going up. And under any condition, we will have ICT and DX being implemented. And so that society or economy will not be stopped whatever happens.

[Koichi Yatsuda, executive]

Thank you, Mr. Hasegawa. The last question from the -- Mr. Sugiura from Daiwa Securities.

[Toru Sugiura, analyst]

Sugiura from Daiwa Securities. For the field solutions, I have a question. I think it is quite good right now. And with the manufacturers and the equipment manufacturers, I think the new equipment is now getting more attention. And it might be affecting the modification sales. And also, the install numbers are also increasing. And probably, you expect more growth for the field solutions for next year again?

[Toshiki Kawai, executive]

Nunokawa is going to answer your question.

[Yoshikazu Nunokawa, executive]

Field solutions are increasing their sales, and modifications for the second quarter also increased and contributed to the annual growth. And this, the upfront charge of the modification sales, happened. But it went up for the second quarter and it contributed positively.

When the annual demand for the new equipments are strong, then the modifications and/or the improvement can probably and lengthen the machine's life. And so there will never be a strong demand for the new equipment.

Similarly, we see the strong demand for the modifications business. That is the trends in probably the last half. And the next change onward, we see, again, more growth in this area, and we expect the growth for these field solutions. We are also looking forward to it.

We already have more than 78,000 is already installed. And we are shipping 4,000 every year. And we are now accumulating the old installed numbers. And because of that, we expect a strong growth of the field solutions, modifications and also the movements in the new change. And also the remote service and yield improvement support, those are also accompanying with the equipment. And that would be also creating new business values from the equipment. So stable growth is expected. We are also looking forward to it.

[Koichi Yatsuda, executive]

Thank you, Mr. Sugiura. So we would like to conclude the financial announcement briefing. Before closing the meeting, I would like to inform you about the follow-up session of our IR Day, which we had last month.

Due to time constraints, we were unable to answer the questions of many of those who raised their hands during the IR Day Q&A session. Therefore, we would like to hold a fireside chat between the moderator and the IR Day speakers.

We will ask you for questions in advance to the fireside chat so that we can focus our discussion on the area in which many people are interested. The fireside chat will be held online, and the timing is scheduled for mid-January. Details will be provided later via email and our website.

We would like to continue to improve our IR activities based on your opinions. So we would appreciate your cooperation in completing the questionnaire before you exit from the Webex. Thank you very much for taking time to join this conference despite your busy schedule today.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]