Tokyo Electron Ltd

TSE:8035

Earnings Call Transcript 2023-Q3

[Koichi Yatsuda, Vice President of Investor Relations]

Now it's time for us to start Tokyo Electron Financial Announcement for the Third Quarter of Fiscal Year Ended on March 31, 2023. Thank you very much for joining us today despite your busy schedule. I am Yatsuda of IR department acting as a moderator for today's session.

Now I'd like to introduce today's attendees Mr. Toshiki Kawai, Representative Director, President and CEO; next, Mr. Hiroshi Kawamoto, Vice President and General Manager, Global Business Platform Division Finance Unit.

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

I am Kawamoto. Nice to meet you.

[Koichi Yatsuda, Vice President of Investor Relations]

Prior to the presentation, let me explain the flow of today's conference. First of all, Mr. Kawamoto and Mr. Kawai will make presentation. After that, until 6:30 Japan Time, where we'll have a question-and-answer session where we take questions from the audience. This meeting will use two channels on Webex for the simultaneous interpretation to Japanese and English. As we explained in our e-mail, you are kindly requested to use apps on PCs or mobile terminals, if you plan to ask questions. But if you are not going to ask questions, you can use telephone.

In addition, since this conference is intended for the institutional investors and analysts, we would appreciate your understanding that we receive questions only from institutional investors and analysts. We will post the audio contents of this conference in Japanese and English on our website within a couple of days. It will be appreciated if you could also visit our website.

Now Mr. Kawamoto, Vice President and General Manager, will present the consolidated financial summary.

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

So now I would like to present financial summary of the third quarter. In the third quarter, we generated net sales of JPY467.8 billion, 34.0% decline from the previous quarter. By segment, SPE net sales were JPY458.8 billion. FPD net sales were JPY8.9 billion. Gross profit was JPY203.9 billion and operating income was JPY114.7 billion. Since the manufacturing -- sales was rather high in the second quarter. Therefore, compared with the previous year sales was declined relatively speaking. The manufacturing cost to sales ratio increased.

As a result, gross profit margin was 43.6% declined by 2.7 percentage points from the previous quarter. Operating profit margin was 24.5%, declining by 8.3 percentage points due to the increase of manufacturing cost sales ratio and SG&A sales ratio. This is the graphic representation of financial summary of the previous page. Really appreciate if you take a look at it. This slide shows segment information. For SPE, we generated net sales of JPY458.8 billion and delivered segment profit margin of 29.5%. Just like the overall company results, since manufacturing cost to sales ratio and SG&A sales ratio increased along with the decline of net sales, segment profit margin should decline from the previous quarter.

For FPD net sales were JPY8.9 billion and segment profit margin was minus 3.7%. As for the composition of net sales in the third quarter, SPE sales accounted for 98%, while FPD sales accounted for 2%. This shows the SPE sales by region. As you can see, the SPE sales declined from the previous quarter, mainly in China, the pink portion; North America, purple portion and Japan, the blue color.

Next slide, please. This slide shows SPE new equipment sales by application. On the right, the third quarter. From the bottom of this chart, sales to logic manufacturers accounted for 69%. Non-volatile memory accounted for 16% and DRAM accounted for 15%. Proportion of sales to non-volatile memory manufacturers declined while that of logic and others showed an increase. This slide shows Field Solutions sales. In the third quarter, sales amounted to JPY117.5 billion. The sales declined from the previous quarter, which is attributed to decreased sales of used equipment modifications and also drop of part sales due to the lower utilization of our customers' fabs. On the other hand, sales of the service in Field Solutions remained strong.

Next, this slide shows the balance sheet. The total assets were JPY2,092.7 billion. Cash and cash equivalents were JPY389.4 billion, accounts receivable and contract assets were JPY454.4 billion. Inventories were JPY632.0 billion showing an increase from the previous quarter due to strategic procurement and manufacturing doubling. Liabilities was JPY658.3 billion, net assets were JPY1,434.3 billion. The equity ratio was 68.0%. Now you can see the cash flow. The cash flow from operating activities was JPY53.2 billion. The cash flow from investing activities was minus JPY13.8 billion due to the investment to the fixed assets.

And cash flow from financing activities of minus JPY134.6 billion, primarily due to the dividend payment. The free cash flow was JPY39.3 billion. This was all about the consolidated financial summary of the third quarter. Finally, this slide shows the announcement of stock split that we announced today. I'd like to briefly touch upon this issue. On the record date of March 31, Friday 2023, Tokyo Electron split the shares of common stock with the proportion of one share into 3 shares. The purpose of this stock split is to create the environment to encourage more investment by lowering minimum investment in order to expand our investor base.

For giving comprehensive consolidation to various factors, including the trend of stock market, our shelf life, share distribution and shareholder composition, we intend to pursue a proper unit of investment for us to further enhance our corporate value. As for the dividend, through this record dated March 31, 2023, we will pay the year-end dividend based on the number of shares issued before the stock split since the effective date of this stock split is April 1, 2023.

Thank you very much. This concludes my presentation.

[Toshiki Kawai]

Good afternoon. I am Kawai once again. So now I'd like to talk about business environment and financial estimates. First of all, let me start with the business environment. Driven by progress of digital shift in the society, the WFE market has grown from $65 billion in 2020 to $92 billion in 2021 and about $100 billion in 2022. Though the WFE market is currently under adjustment due to the impact of macro economy and geopolitical developments, such as inflation, interest rate, COVID-19, utility costs and sluggish final demand, we expect that the WFE market will start coming from the second half of this year and reach about $80 billion in the full year of 2023.

Beyond 2024, the WFE market is expected to enter the stage of further growth driven by emergence of new CPUs and data centers, which are likely to be put with the advanced DRAM, DDR5 and 3D NAND with three access layers including more memory capacity. It is also expected that the data centers built in around 2017 and 2018 will be replaced by adopting innovative semiconductor devices with higher energy efficiency. Growth of Metaverse starting full-fledged service in 2025 and beyond, spread of electric vehicles and recovery of smartphone demand are expected to strongly drive expansion of the WFE market.

Next, this slide shows business progress in the third quarter of fiscal year ending in March 2023. As for SPE in calendar 2022, our SPE business generated net sales of JPY2,161.1 billion on a calendar year basis, hitting the record high. Our new equipment sales recorded an annual growth of 22%, outperforming the WFE market, which grew by 8%. I believe such positive results were achieved by the maximum effort we made to address the customers' demand, supported by our resilient and strong supply chain despite the lingering procurement uncertainty and disruption of logistics. The maturation of our strategic products and acquisition of PORs in the customers' development line, which leads to our future growth have been on course well-aligned with midterm management plan.

In SEMICON Japan held last December, we released a new single wafer cleaning system, CELLESTA MS2. This new equipment is able to simultaneously clean both surfaces of the wafer without reversing it, which realized higher productivity and lower running costs. Conventionally, during cleaning process pure water or gas was used to protect the wafer surface, which has not been cleaned. CELLESTA MS2 has eliminated such needs of water or gas, which also contribute to the lower environmental footprint. We are determined to strive for development of technologies to address our customers' needs.

And we have decided to reform our organizational structure in an attempt to promote technology development for application-specific semiconductor devices, which have grown considerably in recent years and expected to grow further in the future and to expand business opportunities furthermore. Application, leveraging such application-specific semiconductor devices include Metaverse, Autonomous Mobility, Green Energy, IoT & information and Communication. Our company calls these applications MAGIC market in short and will place more focus on these areas.

Key elements in MAGIC market includes semiconductors such as power device, CMOS image sensor, and RF, devices embedded into semiconductors, such as Waveguide, micro LED and silicon photonics and also displays. For evaluation those key elements, broad range of technology innovation is essential. Leveraging the leading-edge technology, we have developed so far and experienced based on wealth of installed base, where we enhance our responsive capability. In the domains of MAGIC, displays play extremely important lows interface in order to enhance our technology innovation capability and seamless customer responsiveness by leveraging our know-how for optical devices, and we have cultivated through FPD manufacturing.

Commencing April 1, 2023, we will merge Field Solutions Business Unit and FPD Business Unit to newly established Diverse Systems and Solutions Business Unit, or DSS BU for further business expansion by efficiently mixing resources to MAGIC market where significant growth is expected, which will maximize business opportunities. As for the FPD business, Capital investment in FPD fabrication equipment, TFT array process is expected to decline by 30% to 40% in calendar 2023, as a round of large amount of investment to LCD and OLED was completed.

As for the future FPD business, we will focus on high value-added areas such as etching. For the inkjet printing system, we have suspended the development project by taking account of its growth potential. For the inkjet printing system, our technology is advantageous, particularly in large-size OLED, and we have evaluating the technology together with leading FPD customers over the past few years, along with the difficulties caused by COVID-19 spread, however, need for [IT] (ph) mobile display, rather than need for life flat TV have grown recently. And accordingly, our customers have revised their products strategy.

Consequently, our customers are shifting their focus of capital investments to micro LED, micro OLED and [ITOLED] (ph). This micro-OLED is one of the devices in the MAGIC domains that I explained before. Based on these backgrounds, we have decided to reallocate our resources to those areas with faster growth potential so that we can maximize profits. As I said earlier, Field Solution business unit and FPD business unit will be merged in fiscal 2024. And accordingly, we will not disclose financial performance, specific to FPD segment because those two business will operate altogether.

Next, I will present the financial estimate for fiscal year ending in March 2023. In November 2022, we revised fiscal 2023 financial estimate. This time, we scrutinized the results of the third quarter and estimates of the fourth quarter again, and we are going to revise the financial estimate upward by JPY70 billion. On a full year basis, we expect net sales of JPY2,170 billion, gross profit of JPY946 billion, operating income of JPY580 billion and net income attributed to owners of parent of JPY433 billion.

This slide shows SPE new equipment sales forecast in the fourth quarter. Compared with the third quarter, there's little change in application mix and slight growth is expected in sales. As I said earlier, SPE new equipment sales in calendar 2022 from January through December were JPY1,689.6 billion, growing by about 22% on a year-on-year basis. On a fiscal year basis, we also expect about 11% growth. In calendar 2023, we will work hard aiming to outperform the market again. This shows our plan for R&D expenses and CapEx. The plan remained unchanged.

As we announced before, over the five years to go, we plan to invest more than JPY1 trillion in R&D and spent more than JPY400 billion for capital investment, mainly in evaluation tools. To achieve the midterm management plan we will continue proactive R&D and capital investment. My last slide shows dividend forecast. For interim dividend, we paid JPY857, which is record high interim dividend, along with the revision of our financial estimates year-end dividend is expected to be JPY531.

As I said in the previous meeting, while celebrating our 60th anniversary this year, we are planning to -- planning a commemorative dividend of JPY200 per share at the end of this fiscal year with our sincere gratitude to the shareholders who have warmly supported our growth.

This concludes my presentation. Thank you very much for your kind attention.

[Koichi Yatsuda, Vice President of Investor Relations]

[Operator Instructions] So first question is from Mr. Nakamura of Goldman Sachs Japan.

[Shuhei Nakamura, Goldman Sachs]

I'm Nakamura. For WFE market, I would like to learn about how to look at the WFE market 2023? That's about 20%. The second half is you expect recovery in the market. So what sort of application will drive the recovery in the WFE market first? And 2024, you have any forecast for 2024? In the previous meeting 2024 will exceed the result of 2022. That's what you've said in the previous meeting. As of today, what sort of latest viewpoint you have for the 2024 market?

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

For WFE market is $80 billion, around $80 billion. So our present adjustments are just being conducted. We are just in the middle of adjustment period. So 20% is what we can -- 20% decline in this year. But actually, we are very close to the bottom. So we can see the sharp increase from now on. As a result, we can achieve $80 billion. That's how we view the WFE market. So memories are now under adjustment as we presented in previous meeting and that condition remain unchanged. So proportion up until recently, last year or two years ago, with the proportion was about 64%, Logic, 60%, and memory 40%.

That is the kind of proportion between logic and memory. But last year, from the second half of last year, 72% to 30% and investment in the first half of this year, namely investment will be reduced. Maybe 80% is divided into 80% to 20% between logic and memory. That's how we view the WFE market. So in the recovery -- so in the second half next year, especially the fourth quarter, we expect some recovery in memory. As for the [indiscernible] of the recovery, actually, customers are now reducing their utilization ratio of their fab. So because that may have some impacts on the balance between supply and demand so slightly DRAM might be a bit earlier than NAND in terms of recovery.

But depending on the utilization ratio of customers' fab DRAM and NAND may recover at the same time. So this is our view for the WFE market. For 2024, the direction in 2024, as you know, there are various factors. We need to closely recap. By 2024 and 2025, the recovery trend will continue. That focus remains unchanged. In particular, high-speed CPUs and DDR5 -- 300 they are three times layers 3D NAND and 2025 already, we have seen some emergence of the Metaverse and Metaverse will start full-fledged servicing near 2025.

So new servers in low-power consumption devices with high speed were coming out. So 2016, 2017, we hit the bid. So data center will be replaced with the new innovative semiconductors with high energy power efficiency not only 2024, but 2025, you can see the growing trend. Last year, WFE market hit the maximum almost the same or more than last year WFE market will grow that much in 2025 in our viewpoint, I can say our view doesn't change. In that sense, 2024 and 2025, the COVID-19 impact. We had the strong demand for PC or mobile, we had the strong demand during COVID, in COVID spreads, and we may see some replacement demand for the PC and mobile phone as well.

[Koichi Yatsuda, Vice President of Investor Relations]

Mr. Nakamura, thank you very much for your question. Next question is from Mr. Yoshida of CLSA Securities.

[Yu Yoshida, CLSA Securities]

I am Yoshida from CLSA Securities, Japan. So for this year's guidance, so now you revise the financial estimate upward. So now you have the new equipment -- Field Solution. I think your focus is upward, especially for Field Solution. What sort of background are there to increase your focus? As for new equipment. By application, maybe the logic and DRAM increases and NAND dropped a little bit. So I want to see, which was the driver to revise your financial estimates upward?

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

Thank you very much for your question. About your question, JPY70 billion upfront revision was made. And your question is what is the major reason for that upward revision of JPY70 billion. Is my understanding correct? So partially, for logic, next fiscal year, April and onward, we had some expectation of sales. But actually, those orders are put forward to this fourth quarter of this fiscal year in the two companies in logic area, two logic manufacturers and also the America China trade conflict. So the October 7 last year, the American Government announced their export control and customers -- American two vendors are not able to deliver to the China customers, and we incorporated the impact of first trade export controlled at maximum level.

Of course, the export control had some impact but compared to the worst scenario, there was not so much drastic change in the China customers, the CapEx plan. So that is the reason why we made the upward revised by JPY70 billion. So for China, in particular, as you said earlier, so DRAM is from China -- China's impact mainly. Is that correct understanding? So all of the items covered by the American Government export control, I wonder maybe the customers' CapEx plan might be changed, actually, not only DRAM. Actually, I want to just give you some overall answer rather than specific to the DRAM.

[Yu Yoshida, CLSA Securities]

So how about Field Solution? Maybe you have revised the financial estimate for Field Solution upwards as well. So what is the major reason for that upward revision for the Field Solution?

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

In the previous meeting, there have been no changes in principle. So Kawamoto San just answer that because of the microphone, by and large, for Field Solution, there have been no changes in our financial estimates.

[Koichi Yatsuda, Vice President of Investor Relations]

Thank you very much, Mr. Yoshida, for your question. Next question is from Mr. Hirakawa of BofA Securities.

[Mikio Hirakawa, BofA Securities Japan]

I am Hirakawa from BofA Securities. My question is a kind of follow-up question of previous question. So 2022 and 2023, WFE market so the impact of the American trade regulation, what is the proportion of the impact of the American regulations and Tokyo Electron calendar year 2023 and/or fiscal year 2023? What sort of impact are you suffering from that can you say, regulation imposed by the American Government?

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

So geopolitical issues are hot topic right now. So as one company, we are very careful making some comments, honestly speaking. So as a company, I would like to refrain from making specific comments on those issues. Last year, we reported some facts and based on that, WFE should be $80 billion. That's our current prospect that we want to report to you this time.

[Mikio Hirakawa, BofA Securities Japan]

So I would like to ask some questions. So in the second quarter, you revised the second half financial estimate by 20% and 50%, 50% between the China market and the memory adjustment, so now 10%. Half of that, less than 10% impact is smaller than 10%. Is that correct understanding?

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

Well, there are still many factors which have some influence, and we do not see the clear direction in the future. So if we receive some new information, we try to respond to that new information appropriately. As for your question, we didn't conduct such kind of calculations. So please allow me to refrain from answering that question.

[Koichi Yatsuda, Vice President of Investor Relations]

Thank you very much, Mr. Hirakawa, for your question. Next question is from Mr. Wadaki of Mitsubishi UFJ Morgan Stanley Securities.

[Tetsuya Wadaki, Mitsubishi UFJ Morgan Stanley Securities]

I am Wadaki. I have one question. So toward next year, 2023, 20% digitalization is expected. And I think the drastic decline might be expected depending on some tool [indiscernible] developer or diffusion furnace. For those decline do you expect for each one of those tools, equipment?

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

For memory, and logic proportion, I said 80% to 20% between logic and memory. That's what I said earlier. In that sense, for example, 3D NAND will use the long etching processes. The investment in that area compared with last year will be decreasing. On the other hand, for logic, in the case of our company, in particular, last year, about 55% increase was recorded for logic sales last year. In that sense, DRAM and 3D NAND as well as logic, you can see a very good balance in orders that we received so far. Therefore, by product, there is no drastic drain. We don't -- we have very limited impact because there is a good balance in orders among different products.

So there is no big change in the proportion of the applications among our -- within ourselves. So for other two vendors, for example, ASML, so they are very bullish [indiscernible] good. And also [indiscernible] made a great announcement on the cleaning is very good. On the other hand, NAND research as well as the others 3D NAND is not so good. So the diffusion furnace might be very difficult. Don't you feel that sort of impression? So for 3D NAND, you can see some significant effect and for logic, we do have high share in the logic area, and that area is growing. Therefore, we don't see the drastic kind of increase or drastic decrease for some of the products.

[Koichi Yatsuda, Vice President of Investor Relations]

Mr. Wadaki, thank you very much for your question. Next question is from Mr. Shimamoto of Okasan Securities. Mr. Shimamoto, please.

[Takashi Shimamoto, Okasan Securities]

I am Shimamoto from Okasan Securities. So 2023 -- second half of 2023, you can expect some recovery in the market. So I see vendors also mentioned to the very similar perspective for the future. And the accuracy probability of our forecast so application, you said smartphone demand will be increasing, but there are some risks in 2023. There are any areas which might have slower recovery in 2023? Are there any concerns or are you prepared for some of the negative estimates?

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

On the current situation, now you can look at the macro-economy, inflation, geopolitical development, which increases the energy or utility costs. And memory inventory is now under adjustment -- so these factors are there and also PC and smartphone replacement demand. We also have the problem or impact of the energy cost increase. So the consumers are not so much active in replacing their PCs or smartphone. Interest rates, generally speaking, I think interest rate might have some kind of a mild change and industry adjustment, mainly manufacturers are very aware of the inventory -- so there might be some acceleration.

So we need to closely watch the condition of macro-economy and adjustments in the market. Having said that however, last week, the SEMICON Korea was held last week and now I have many opportunities to talk with various customers, taking those opportunities. So in the second half of this year, the memory market will start recovering and accordingly, the new [indiscernible] trend of the investment will start from memory as well. So now we have [indiscernible] era and we must pay attention. So we cannot ignore the situation of United States, China trade conflict.

So by and large, we need to take consideration of those risks and maybe $80 billion should be the appropriate number for the refi market. There might be some increase or decrease, and we should look at the progress to make adjustment to that amount. But as for now, $80 billion should be the appropriate number. So 2024 and 2025, the market trend will be increasing. We are now in the middle of the bottom. So we should be prepared for the positive change in the future. We may see surge start-up. We must be prepared for the very prompt recovery in the market. That's what we need to give more attention closely, and we are now focusing on that area.

[Koichi Yatsuda, Vice President of Investor Relations]

Mr. Shimamoto, thank you very much for your question. Next question is from Mr. Ishino, Tokai Tokyo Research Center.

[Masahiko Ishino, Tokai Tokyo Research Institute]

Thank you very much, can you hear me? I have a question regarding WFE market. In the previous meeting, Kawai San made comment the second quarter should be the bottom in the market and from the third quarter, some recoveries stands. That's what Kawai San said, and we agreed each other. But now earlier, Mr. Kawai said, we compared with the initial financial estimates, the utilization rate of the wafer fab has been declining.

So therefore, certain increase, what recovery is expected in the future. And you said you need to prepare for the certain recovery in the market. So if you said that, so then when you look at memory market and memory market is deteriorating, and many of the manufacturers are now very close to below the breakeven point. So right now, the utilization rate of customers' fab as a whole, how much decline do you see? And from Mr. Kawai's viewpoint, when you can see some surge in the recovery of the market?

[Toshiki Kawai]

So that's what we are trying to locate the timing. We try to find out the right timing. And not only our company, but also our customers are very careful to find out when the markets start recovering precisely. But roughly speaking, the memory imbalance maybe in June and onward. Memory is expected to recover little by little in June and over it, that is a general trend. So we have some increasing CapEx accordingly, not only the demand, supply-demand balance, maybe you can see innovation or generation replacement takes place every 1.5 years to two years, and we can also expect some investment to prepare for the next generation.

But the quarter level, for example, calendar year third quarter or fourth quarter in the calendar year or in the fiscal year -- would it be in the second quarter or third quarter? The quarter-based estimation is a bit difficult to be conducted. But what we can say is now you can see some increasing trends in the future. Therefore, we must be prepared for the future recovery trend. So procurement should be properly done because we know what sort of products are sure to be delivered. So we need to have some inventory for that area to have a good procurement. When the COVID-19 pandemic started, we increased inventory to some extent. And similarly, now, we are now preparing for the future growth.

[Masahiko Ishino, Tokai Tokyo Research Institute]

So the utilization rate in the industry, how much decline do you see in the utilization rate of the wafer fab? And are there any technology innovation going on in parallel to eliminate or offset the utilization rate decline, so 20% WFE. So maybe you can see the V shaped recovery from the bottom. That is the presumption you have. So you haven't changed your market forecast. What slight changes in the market forecast?

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

Actually, our focus hasn't been changed drastically. We just -- if that is the case, so maybe the V-shaped recovery starts from the July to September. I wonder whether that is starting from July to September or next quarter. It's a bit difficult for us to say something precisely now. But three months -- we shouldn't can we say, jump by quarter-by-quarter, and we need to think about the leveling of the manufacturing to be prepared. We can see this increase. We don't know when, which month the recovery starts -- rather than pinpoint when -- which month you barista we should come up with big picture when we run the company.

[Koichi Yatsuda, Vice President of Investor Relations]

Thank you very much, Mr. Ishino, for your question. Next question is from Mr. Nakanomyo from Jefferies Japan Limited.

[Masahiro Nakanomyo, Jefferies (Japan)]

I'm Nakanomyo from Jefferies Japan Limited. I have similar questions. I'm very sorry for that. Once again, the second half of next year, you can see -- expect demand recovery. But now you have some -- you take orders in accordance with your production lead time. So if in July to September rather than recovery -- I think that in terms of shipment, if you can see some increase in shipment in July-September period, then you may see some increasing trend of orders now -- this is my understanding. So this time, there is no clear change in the orders. In some cases, some projects are pushed out or orders are not certainly increases in all of sudden, that's what I feel personally, but how do you view the recovery trend?

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

So now there were some disruptions in logistics. So customers are now preparing for the future recovery. Some customers are doing that. And on the other hand, there are some customers putting their foot on the break, all of sudden. So utilization rate of sales has been declining in some of our customers. So there are varied situation -- situation is varied from one customer to another.

So even if you ask us when to recover, specifically, I would like to refrain from giving you some specific answer, but we are now facing the bottom in the market, and you can see some recovery trend in the second half of this year, so we must be prepared for that future recovery. So memory, the balance in memory, we must take a close look at the balance of memory, but we don't change our view that the markets start recovering from the second half of this year. So we will report it once again. So we will see some trend of recovery in the future.

[Masahiro Nakanomyo, Jefferies (Japan)]

One more question, may I ask? So 2023, the memory proportion declined drastically. That's what you said. So far, relatively speaking, your sales in -- the memory manufacturers is rather big. By 2022, memory customers purchase decreased to 2023, again, the drop on memory demand might have some impacts, but still you can outperform the market.

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

Yes. As I said earlier, last year -- as for last year for logic, accounted for 55% -- sorry, logic growth grew by 55%. Logic grew 55%, coater/developer also increased and etching sales also increased. So a broad range of our products are purchased by the logic lines, logic manufacturers and cleaning equipment and metallization -- metal disposition area, you can see some increase in demand, so you can have a good balance in receiving orders.

So now even if the proportion between memory, logic and memory changes from 60 to 40, 70 to 30 by 80 to 20, that sort of difference or change in proportion does not have a big impact on our sales. One -- now you can see the proportion of our sales over the past one year or two years, our sales proposition, as you know, the logic foundry is dominant compared to these memories. So compared with other competitors, our sales is well balanced. So memory proportion is not so high.

[Masahiro Nakanomyo, Jefferies (Japan)]

I understand that point. By 2021, when you compare with 2021, I think your proportion is higher than the market average.

[Hiroshi Kawamoto, Vice President & General Manager, Finance Unit]

So this is determined by the customers' CapEx, proportion of customer and CapEx. And our sales composition is determined by customers' proportion investment. And as you can see, that is a very good balance.

[Koichi Yatsuda, Vice President of Investor Relations]

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

[Kenji Yasui, UBS Securities Japan]

I'm Yasui. For China, the sales to China 2023, WFE, how do you view the sales to Chinese customers? Could you share your idea? For example, Samsung, China factory that should be the [indiscernible] companies in China and also local China customers, do you see some increased logistic trend in the Chinese market in 2023?

[Toshiki Kawai]

So as for financial estimate, we don't announce the financial aspect by region, but 26% for China for a full year basis. In the first half of this year, about 80% is for the local Chinese customers and 20% is the global customers in China. So over the past few years, the capital investment by the global players decreases in China. And next year 2023, so as for the financial estimates, we do not announce or present the financial estimate by region. So please allow us refraining from answering to your question specifically.

[Koichi Yatsuda, Vice President of Investor Relations]

[Operator Instructions] So next question is from Mr. Shibano of Citigroup Global Markets Japan. Mr. Shibano, please.

[Masahiro Shibano, Citigroup Global Markets Japan]

I am Shibano from Citigroup Global Markets. As for the profitability, I would like you to share your idea with us, up until third quarter, now the net sales declined. Against that, you have maintained relatively high profitability. But when you look at next fiscal year, WFE will decline by 20%. So along with the market trend, your sales are expected to decline several percent. So when it comes to profitability, for example, this fiscal year 2023, do you see profitability will decline in fiscal 2024 or do you have any potential to maintain the profitability in next fiscal year? Could you share your idea with us, please?

[Toshiki Kawai]

So as for budget, we are now reviewing or discussing the budget right now for next fiscal year. Therefore, I would like to make some announcement in next quarterly review meeting -- quarterly meeting for financial announcement. We need to closely look at the current status, and we prepare the appropriate plan for next fiscal year. And we'd like to announce that plan in the next meeting for financial announcement. So short term, now we are in the bottom, and we will see some recovery. So preparation for recovery is what we are working on right now. So we need to take comprehensive consolidation, we must make appropriate action.

[Koichi Yatsuda, Vice President of Investor Relations]

Next question is from Mr. Yoshida of CLSA Securities Japan.

[Yu Yoshida, CLSA Securities]

My second question is about -- I'm sorry, I'm so persistent -- year 2024 WFE market trend. So far, you said memory demand will recover from the second half of next year, this year.

[Toshiki Kawai]

Now 2023, now we said the forecast for next fiscal year. So memory top vendor is a bit bullish compared with some expectation in terms of capital investment plan because now there might be some prolonging balance utilization. In 2024, there might be some decline in the capital investment toward year 2024. So we discussed with our customers strictly exchange information with our customer.

As I said earlier, many of our customers are now trying to find out the right timing for recovery. That means many of our customers expect the recovery in the market. So Gartner, Semi, many organizations are reporting WFE financial estimates. And many of them announced the recovery trend in the WFE market compared with last year, what happened in next year. As far as we are concerned, we think equivalent or better. That's how we view the market in the future, equivalent, more better. And that view does not change -- remain unchanged.

[Koichi Yatsuda, Vice President of Investor Relations]

Next question is from Mr. Ishino of Tokai Tokyo Research Center.

[Masahiko Ishino, Tokai Tokyo Research Institute]

So now I -- this is my second question. So I want to ask a question about Rapidus. I want you to give us some comments. So your former Chairman, Mr. Higashi is now the Chairman of Rapidus. So now the semiconductor -- so from the viewpoint of the Korea IC vendors, Rapidus should be the competitor. So I think your position is rather sensitive. So from the customers, what would you do to take care of those different customers? So Mr. Kawai, how -- what sort of things do you think? And how do you answer to your competitive vendors?

[Toshiki Kawai]

So Rapidus and Tokyo Electron are independent each other, nothing linked between two. The Tokyo Electron is a global manufacturer as you know, our sales, 80% of our sales are from outside of Japan. So we should remain fair all the time, and we -- the basic position remain unchanged. So Rapidus is one of the very important customers, and we will address the important customers. So far, we have cultivated the relation of trust. And that trust relationship will remain unchanged. And Tokyo Electron is trusted by our customers. Our turnover ratio is rather small.

So Tokyo Electron is trusted by our customers because we have very high levels of information security, and we maintained the high level of information security from now onwards as well. Mr. Higashi is Chairman of Rapidus and Mr. Higashi has used to be our Chairman, but in the history. So there is no special relationship between our company and Rapidus and we are expanding global business. So Rapidus is one of our important customers, overseas customers, Korea, Taiwan and American customers. So all those customers are trusting us.

[Koichi Yatsuda, Vice President of Investor Relations]

So now since there seems to be no more questions, we'd like to conclude today's financial announcement. Lastly, we'd like to continuously improve our IR activities based on your precious feedback. So we appreciate your kind cooperation in heading up question before you accept your Webex. Thank you so much for taking time to join this conference despite your busy schedule today. Thank you very much.