DISCO Corporation, FAQ (FY18 3Q) 1. Business 3Q (October December) Results and Comparison between Results and Forecast Sales: JPY 34 billion (Compared to the assumed figures: JPY -1.3 billion) GP ratio against assumed ratio: Less than +1 p. Effects due to foreign exchange: Less than +2 p. USD Assumption: JPY 105, Actual: JPY 113 (Quarterly sensitivity: approx. JPY 180 million) Effects due to product mix, etc.: Less than -1 p. Sales consumption of Other increased more than anticipated. SG&A: Almost equal to the forecast OP: Approx. JPY -600 million, compared to the assumed figures 4Q (January March) Business Forecast Sales: JPY 32.3 billion, Assumed foreign exchange: JPY 100 per USD (Predicted to be flat if the exchange rate is equal to that of the previous quarter.) GP ratio: QoQ decrease (Will increase slightly if the exchange rate is equal to that of the previous quarter.) SG&A: QoQ decrease of JPY 500 million or less (mainly due to variable costs and personal expenses) OP: JPY 650 million (due to decrease in sales) Sales for 4Q - Changes from the Previous Forecast In October: Expected to increase from 3Q to 4Q (excerpt from the Q&A in the Meeting for analysts) In February (this time) : Suspected to decrease from 3Q to 4Q The point of change was the decreased willingness of OSAT in Taiwan and China to invest compared to the previous assumption. However, investments in back-end processes for memory have not changed from the previous assumption.
2. Application Services By Product (3Q to 4Q) Equipment: Increase (Dicing saws: Decrease, Laser saws: Increase, Grinders: Increase), Consumables: Decrease, Other products: Decrease Overall Because investments for a wide range of markets, from power semiconductors, LEDs, wafer making to back-end processes for some memory and logic memory manufacturers and precision and medical equipment manufacturers have been observed, some specific customers have continued investing in specific applications. However, investments from OSAT and handler manufacturers in Taiwan and China, which are conducting high volume business (smartphones, etc.), are low. Thus, the general willingness to invest is also low, and a momentum in inquiries is not expected. In response to this decreased willingness to invest, customer trends must be carefully observed with trading negotiations between the U.S. and China as a base. Memory General willingness to invest has decreased due to the effect of memory prices. However, for some manufacturers in Asia, the willingness to invest back-end processes has not decreased, and investments will continue throughout the period from January to March. OSAT Along with the seasonal decline, the general willingness of OSAT in Taiwan and China to invest has remained low. Although the number of inquiries tends to start growing around the Chinese New Year, signs of this trend are not currently being observed.
LED Investments in LED were firm both domestically and abroad from October to December. LED sales are stable with automotive applications as a base. Currently, there seems to be a slight pause, but sales are steady. Power Semiconductor Both domestic and international investments have remained stable. Most investments were made in Si, and investments in SiC are expected to be made in the future because there are many R&D projects. Wafer Making Although the price scale was not large, investments are expected to remain stable, both domestically and abroad. Electric Components and Image Sensors, etc. Future investments in both applications are expected from each company. However, there are currently fluctuations in movement in the electric components and image sensor category depending on the products, e.g., automotive, smartphones. For this reason, we carefully pay attention to the detailed inquiries. Non-Semiconductor There are inquiries from a wide range of fields, including precision and medical equipment manufacturers. Although the scale of each is not that large, they are sources of support for the entire category. Trend of Consumables Although consumable sales remained high from October to December, they are expected to decrease from January to March due to seasonal factors. After observing the contrast in the capacity utilization and applications of each customer, we need to pay close attention to our customers production trends.
3. Other Investment Plans Inventory Inventory has increased throughout the period from the end of September to the end of December. Although we are controlling part orders, the number of products in-progress has increased because there have been fewer shipments than predicted. However, the risk of obsolescence was reduced by changing the destinations. We will control inventories by remaining aware of demand trends in the future. CAPEX Investment plans will proceed without being influenced by current business performance fluctuations. Construction of Zone C in Kuwabata Plant was completed at the end of January. Facilities will be relocated and operations will begin sequentially. In order to transfer resources for the relocation operation, we will start preparing for the future when the manufacturing division becomes less busy. Plans regarding the expansion of Chino Plant will also be developed. Assumed CAPEX in FY2019: JPY 12 billion JPY 20 billion DEP and Other Expenses Construction of Zone C in Kuwabata Plant was completed at the end of January, and annual depreciation is approx. JPY 600 to 700 million (building). Total expected depreciation in FY18: Approx. JPY 6 billion, FY19 (assumption): Approx. JPY 6.5 billion Currently, in conjunction with the profit predicted in the business forecast, the Expense Management Level has been changed to B. However, R&D will continue to be conducted and funded in the future. Thus, the cost level is expected to be similar to the current level.
Tips and Themes to Consider in FY19 Final product trends for smartphones, etc. (volume or new technologies) Infrastructure investments (data centers, 5G, etc.) Semiconductor investments in China Trade friction between the U.S. and China These items should be considered separately based on the theme. However, the macro impact on the customer s willingness to invest is suspected to be large. Thus, close attention must be paid to this. End of report DISCLAIMER Statements in this PDF with respect to DISCO's current strategies, plans, estimates, and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of DISCO. These statements are based on management's assumptions and beliefs in light of the information currently available to it and therefore you should not place undue reliance on them. DISCO cautions you that a number of important factors could cause actual results to differ materially from those discussed in the forward-looking statements, and you should not make decision on your investment thoroughly based on these statements. Such factors include, but not limited to, (i) general economic conditions and levels of demand in DISCO's markets; (ii) developments in technology and resulting changes in semiconductor and/or electronic component manufacturing process; (iii) levels of capital investment for manufacturing semiconductors and/or electronic components; (iv) expansions of the area for products and technologies using semiconductors and/or electronic components and its expanding speed; (v) DISCO's ability to continue to offer products and services corresponding to developments of new semiconductors and/or electronic components and new technologies for manufacturing them; (vi) exchange rates, particularly between the yen, the U.S. dollar, and the euro, and other currencies.