CY2027 WFE of $210B+ Built Bottom-Up from Customer Forecasts; On Track for ~50% GPM Early Next Fiscal Year and First-Ever Operating Income Above JPY 1T This Fiscal Year

Summary

2Q revenue and profits both set quarterly records, and 1H results beat the July guidance on every line item. Management argued that the spread of agentic AI has turned memory into a core component underpinning AI performance, and it updated its WFE outlook accordingly. The CY2027 outlook is built bottom-up from rolling forecasts shared with customers. Management stressed that it has not been haircut for supply constraints. The 2H GPM assumption is conservative because high-margin projects were pulled into 1H and production ramp costs are rising. Price revisions are continuing, however, and management said GPM of ~50% early next fiscal year remains on plan.

Key Points (Earnings Takeaways and Growth Initiatives)

• Management Strategy and Market View
  • WFE outlook is ~$160B for CY2026 and $210B+ for CY2027, implying ~30% YoY growth in both years.
  • The CY2027 mix is DRAM in the low-$70B range, NAND in the high-$10B range and logic/foundry at ~$100B, putting memory and logic at roughly 50:50.
  • The CY2026 mix is logic/foundry in the high-$80B range, DRAM in the high-$40B range and NAND in the mid-$10B range, with logic at ~60%.
  • The overall leading-edge:mature split is expected to shift from 50:50 in CY2026 to 55:45 in CY2027. Within logic/foundry, the leading-edge share should rise from ~30% to 35% to just under 40%.
  • In the AI era, the ability to retain massive data sets and feed GPUs quickly determines system performance. Management therefore sees memory's role expanding.
• Current Business Progress and Drivers
  • Strong AI server demand is driving continued customer requests for delivery pull-ins and additional purchases.
  • Despite the Kumamoto earthquake in July, the Coater/Developer and Cleaning BU grew 1H revenue by more than 50% vs. the prior 2H. This reflects the resilience of the broader supply chain.
  • Within SPE new equipment, DRAM grew +45% QoQ, the strongest growth of any application.
  • Parts & services grew for a sixth consecutive quarter, supported by high utilization at customer fabs.
• Key Strategic Initiatives and Inflection Points
  • The company won POR for the DRAM capacitor mask step. It also secured its first DRAM process win in contact etch, an area it has pursued for years.
  • Cryogenic etch for NAND channel holes is moving into volume orders, with a large number of additional inquiries for CY2027–2028.
  • In deposition, a new MOCVD product is being deployed in contact metal and metal cap steps for leading-edge logic. High-k batch ALD shipments for DTC are expected to exceed 200 units in both this fiscal year and next.
  • Prober shipments are expected to rise ~60% YoY. The company also won POR in integrated optical-electrical testing for silicon photonics.

Outlook and Strategy

• FY guidance calls for revenue of JPY 3,700B (+51.4%) and operating income of JPY 1,169B (+87.1%), with operating income set to exceed JPY 1T for the first time. 1H operating income progress stands at 43.3% (our estimate). Capacity to support 2H revenue of over JPY 2T is already secured.
• 2H GPM guidance is 48.3%, up ~1pt vs. 1H, with half the improvement from higher production and half from price revisions. Whether 4Q reaches 50% depends on whether high-margin start-ups (installation work at customer sites) are completed ahead of schedule.
• For next fiscal year, the company aims to grow at least in line with WFE. Coater/developers, 3DI for advanced packaging and probers are expected to drive above-market growth.
• The company plans R&D spending of JPY 335B and capex of JPY 190B. The Miyagi Production Innovation Center is slated for completion in summer 2027, and additional etch capacity is planned for around August.
• Annual DPS guidance is a record JPY 191 (JPY 955 on a pre-split basis). A share buyback of up to JPY 150B / 25M shares has been authorized for November 1, 2026 to March 31, 2027.
• Price revisions are not a one-off. Management intends to pass through cost increases from inflation and other factors on an ongoing basis and keep improving margins.

Positive Factors

• Coater/developers carry a 90%+ share, so the company captures virtually all semiconductor capex in that category. As a result, the product line is growing faster than others.
• The WFE outlook is built bottom-up from customer rolling forecasts, and management sees potential for further upside.
• Customers accept bearing ramp-related costs and pricing that reflects fair value. Consensus-building on next fiscal year's price revisions is progressing smoothly.
• POR wins at the leading edge now span DRAM, NAND, logic, advanced packaging and silicon photonics, strengthening the foundation for future revenue.
• Management explicitly stated that the Japanese government's US investment, including investment in GlobalFoundries, is a business opportunity for the company and creates no obligations whatsoever.
• SEMI projects a 2030 semiconductor market of $2T–$3T, a long-term growth tailwind.

Concerns and Risks

• Materials are tight enough to require item-by-item management. Some additional orders are being fulfilled using customer-held inventory.
• Certain critical parts and units remain constrained. Management believes further output increases will require industry-wide improvement.
• Start-up revenue recognition timing depends on progress in customer facility construction. Some of this is not fully reflected in 2H GPM.
• Costs are being incurred for production ramps and delivery pull-ins, and additional expenses are expected from capacity expansion for next fiscal year.
• Customers have not mentioned any slowdown. However, cash flow from AI investment, energy supply/demand balance and state-level regulation in the US warrant monitoring.
• China's revenue share rose in 2Q but is expected in the low-30% range for the full year. The regional mix remains prone to volatility.

Performance Highlights

2Q revenue was JPY 935B (+48.4% YoY, +27.7% QoQ), operating income JPY 295.3B (+86.4% YoY) and OPM 31.6%, all quarterly records. Net income attributable to owners of parent company was JPY 212.5B (+71.7% YoY). 1H revenue of JPY 1,667.4B and operating income of JPY 506.7B beat July guidance (revenue JPY 1,620B, operating income JPY 458B).

Segment Performance

• Gross Profit Margin: 47.8% (+2.6pts YoY)
• DRAM Share of SPE New Equipment: 34% (27% in the prior-year period)
• Parts & Services Revenue: JPY 144.3B (+41.3% YoY: our estimate)
• China Revenue: JPY 339.9B (+33.8% YoY: our estimate)
• Korea Revenue: JPY 190.7B (+43.9% YoY: our estimate)
• Taiwan Revenue: JPY 180.4B (+50.7% YoY: our estimate)
• Operating Cash Flow: JPY 351.1B (+99.7% YoY: our estimate)
• Free Cash Flow: JPY 310.4B (JPY 89.1B in the prior-year period)
• R&D Expenses: JPY 85.2B (+17.3% YoY)

Q&A List

• Q

  Regarding the 2026 and 2027 WFE outlook on slide 13, could you provide a breakdown by application, either in dollar terms or growth rates?

  A

  In CY2026, logic is ~60% and memory ~40%. On a $160B base, DRAM is in the high-$40B range, NAND in the mid-$10B range, logic/foundry in the high-$80B range, and factory automation and wafer-level packaging ~$10B. That gives a logic-to-memory ratio of 6:4. For next year we indicated +30% to $210B, with memory and logic at roughly 50:50, though logic is again slightly larger. We expect the $210B to break down as DRAM in the low-$70B range, NAND in the high-$10B range, logic/foundry ~$100B, and factory automation and wafer-level packaging in the low-$10B range, similar to this year. For leading-edge vs. mature, total WFE is 50:50 in CY2026 and 55:45 in CY2027, tilting slightly toward leading-edge. Within logic/foundry, leading-edge is ~30% in 2026, and we expect it to rise to 35% or just under 40% next year.

• Q

  Previous materials showed this year's growth outlook by major product, but this time only the probers' 60% increase was shown. Previously you expected coater/developers at 50%+ and etch at 25%+. How do you see them now? And based on the updated WFE outlook, what growth do you expect for each next year?

  A

  Coater/developers are growing very strongly. Etchers will also grow. What stands out is our 90%+ share in coater/developers. We capture all of the semiconductor capex allocated to coater/developers, so growth there is larger than for other products. The ratios have not changed materially from what we said last time. Because overall demand has grown, however, the same growth rates now translate into larger amounts than we had assumed.

• Q

  You assume ~48% GPM for 2H, but 2Q already hit 48%. Revenue will grow in 2H, and we understood price increases would take effect from 4Q. Please explain your 2H GPM view, including how the price increases are reflected.

  A

  1H GPM was 47.4%, and we expect 48.3% in 2H, roughly 1pt higher. Some high-margin projects were pulled forward into 1H, and we have added some ramp-related costs in 2H. The figure reflects both factors. We attribute about half of the ~1pt improvement to higher production and the other half to our ongoing price revisions. Some costs are being incurred for delivery pull-ins to support production. However, customers understand that ramp costs need to be shared and are willing to bear part of them. They have also been receptive to pricing that reflects inflation. These revisions are being applied to orders added for next fiscal year, and consensus with customers is progressing smoothly. We previously said we aimed to achieve GPM of ~50% early next fiscal year, and we remain on plan.

• Q

  Am I right that the first part refers to surcharges and the second part to price revisions? Since price revisions start next fiscal year, they are largely not in this year's guidance. We understood surcharges would cover pull-in costs, but the CFO mentioned an impact there. Is the uncovered portion what is weighing on 2H GPM?

  A

  That is not the only factor. We are receiving a large number of pull-in requests. Our approach is to meet customer requests and deliver equipment as far as possible through year-end, so a lot will come in during 2H as well. Given the high unit volume, our budget also considers whether completed start-ups can be booked this fiscal year. Start-ups carry almost no material cost and very high margins. They are progressing smoothly, but please understand that some of that benefit is not fully reflected in 2H gross profit.

• Q

  If you reach ~50% GPM and ~35% OPM early next fiscal year and revenue rises throughout the year, should we view 50% GPM and 35% OPM as the floor for next fiscal year's full-year margins?

  A

  We are still reviewing next fiscal year's guidance and will report back, including on various measures. That said, given our margin improvement and expected WFE growth, further improvement in GPM and OPM is naturally within our sights. We will refrain from giving specific numbers here, but we are working toward further growth.

• Q

  Is it possible to reach 50% GPM and 35% OPM within 4Q alone?

  A

  Reaching ~50% GPM around 4Q is possible if the start-ups I mentioned are pulled forward. However, customers are rushing their facility construction, and timing could slip slightly depending on progress. Because this depends on factors such as the pace of customer facility work, we will not say whether the likelihood is high or low. We do believe it is possible.

• Q

  As you raise capacity, could additional costs arise heading into next fiscal year?

  A

  We believe further production increases will be needed for next fiscal year and are planning capacity expansion accordingly. Given the sudden and strong demand, we are now catching up on areas where we had fallen behind. We expect to catch up around year-end to January. Demand will keep growing after that, but we have solid plans for the corresponding production increases.

• Q

  Do you have concerns about securing the materials and components needed to ship equipment? And even if you can produce and ship, could readiness or construction progress at customer fabs become a constraint?

  A

  Customers are investing under arrangements such as long-term agreements and are sharing that information with us early. We need to secure required materials in advance, including supply chain-vulnerable components like those seen during COVID. We are therefore sharing 1–2 year rolling forecasts with customers and holding proper inventory of potentially vulnerable components.

• Q

  Some competitors have said their current price revisions are a one-time event, not annual. You have long noted that FX has widened the price gap with US competitors. Can we expect price revisions to continue beyond this fiscal year?

  A

  Price revisions are not a one-off. We will discuss inflation-driven cost increases with customers and continuously work to set appropriate prices. Our lens is inflation and similar factors, not FX. However, extreme FX moves require timely discussion with customers. One example is yen weakness pushing up overseas support costs, which behave like fixed costs. We want to reflect in pricing not only existing resources but also the resources needed as the market expands. As technology advances, improving customer productivity creates significant value. That includes reducing particles and defects to raise yields, and in some cases offering upgrades or new products that use AI to manage maintenance time and maximize tool uptime. Alongside delivering that value, we want to set prices at the appropriate level for each period.

• Q

  US competitors have cited GPM figures such as 55%. Is that level in your long-term sights? Any hints would be appreciated.

  A

  We have many opportunities to deliver value. With demand very strong, there is also room for cost reduction and efficiency gains. As stated in our operating vision, we view profit as a measure of the value of our products and services. We will naturally continue working to improve margins further.

• Q

  Am I right that there are currently no rate-limiting factors or constraints in materials procurement for visible revenue and inquiries into next fiscal year?

  A

  Materials are an area requiring intense focus right now. As you point out, we do not deny that the situation is difficult enough to require item-by-item management. The plan we just announced also requires every possible workaround, and we monitor the situation daily.

• Q

  If you grow at least in line with WFE next year, revenue would be in the high-JPY 4T range to JPY 5T. You said 2H capacity is not an issue, but could you outline your thinking on capacity looking further ahead?

  A

  Our production plans fully factor in WFE growth. As you note, the supply chain requires extensive monitoring and proactive action. We see that as the area where we, as a manufacturer, must make our utmost effort.

• Q

  To confirm, materials are very tight heading into December and January, but no actual constraints have materialized?

  A

  For additional orders, we sometimes use customer-held inventory depending on the item, but we are managing.

• Q

  Does the CY2027 WFE figure of $210B+ account for supply difficulties at other supply chain companies, or is it demand-based? Does the "+" reflect supply-side considerations such as easing bottlenecks?

  A

  The $210B+ figure is built bottom-up from rolling forecasts shared with customers. It is based on customer communication rather than our own projection. Inquiries are strong enough that there could even be further upside, which is why we said $210B+. It was calculated with a view to supporting "more tokens, more semiconductors," as mentioned in the presentation. We did not cap the number over concerns about meeting demand. It is a straightforward projection based on customer investment plans.

• Q

  If demand is heavily pulled into 2027, is there a risk that 2028 temporarily declines vs. 2027? It is a long-term question, but do you have any sense of this now?

  A

  Memory prices are currently quite high, and the semiconductor market is now about USD 1.6T, well beyond USD 1T. SEMI expects it to reach USD 2T by 2030, possibly USD 3T. That implies a semiconductor device market CAGR of 5.7% at USD 2T and 17% at USD 3T. On that basis, we expect further growth toward 2030. As noted in the presentation, the amount of memory available partly determines AI performance. AI performance innovation will continue, extending into agentic AI, physical AI and high-performance computing. Not a single customer has mentioned a slowdown. In general terms, however, we need to watch trends such as cash flow relative to AI investment, energy balance and state-level regulation in the US. Excluding such external factors, we can expect strong demand and certain long-term growth. We therefore need the capability to respond appropriately if those factors materialize.

• Q

  Previously, your WFE forecasts assumed supply chain-wide bottlenecks, framing them as "demand may be stronger, but this is the level." Did you raise the CY2027 forecast because bottlenecks proved less severe than expected, or for another reason?

  A

  The role of semiconductors has broadened. Demand used to be driven largely by devices such as PCs and smartphones. That has clearly shifted to demand from the data era and the AI era. Some call it a supercycle or more, and from a demand standpoint we see no room for doubt. Applications are also increasing. Additional inquiries are coming from agentic AI, physical AI and new data center architectures, and the figure takes all of this into account. Even after considering risks, current demand is strong enough that we do not see them becoming a rate-limiting factor.

• Q

  How should we think about 2028? Will supply chain bottlenecks worsen and limit growth, or can we expect them to be resolved and growth to accelerate?

  A

  From a demand standpoint, we have entered the data and AI era. Some describe it as a supercycle or more, and we see no room for doubt. However, we must closely watch volatility from the external factors I mentioned in the earlier answer.

• Q

  Under the US investment program tied to the Japan-US tariff negotiations, the Japanese government announced semiconductors as a third investment area, including ~USD 20B for GlobalFoundries, and your company was named. Is this simply a positive business opportunity, or could it create obligations for you through the investment structure?

  A

  It is a business opportunity, and there are zero obligations.

• Q

  In 2026, your revenue should grow ~40% YoY, outpacing WFE growth of ~30% by about 10pts. I understand 2027 guidance is not yet out, but considering share gains and production, could you again outperform WFE by ~10pts, or grow in line? Please share the President's current view.

  A

  Our core products, including coater/developers, etchers, deposition and cleaning tools, cover areas essential to chipmaking, and these markets are very large. There are also several approaches within etch. In these areas, we believe we can grow in line with or above a market growing 30%. It is no exaggeration to say coater/developers capture global demand almost single-handedly, and we see them driving growth above WFE. 3DI for advanced packaging is also expected to grow substantially from next fiscal year, a major growth opportunity. For probers, test demand is very large. We do not disclose unit numbers, but as explained in the presentation, we are seeing very strong inquiries. We have tremendous test inquiries for next year and the year after. On that basis, we believe we can build a plan aimed at outperforming the market.

• Q

  Are you seeing bottlenecks in procurement of key components or in equipment lead times?

  A

  We will not go into detail, but some critical parts and units exist. We will meet demand through strong partnerships, adding our own support in some cases. We recognize that further production increases require industry-wide improvement. We need to build a critical parts list and respond appropriately to it.

• Q

  If AI drives customer demand above current expectations, how much spare capacity do your fabs and the broader supply chain have to ramp output flexibly?

  A

  We believe we must anticipate strong demand and respond proactively. In Tohoku, we are building a logistics center and automated warehouse. At other sites, we are securing production space by building production and development buildings. In etch, our largest market, we can add further capacity around August, and we must steadily continue capacity expansion. It will take ingenuity and effort, but we can respond. It is not a matter of being unable to.