SUMCO Stock

Thank you for your participation today. This is the results briefing for the first quarter of the fiscal year ending December 2026. Before starting the presentation, allow me to confirm today's materials, which consist of 3 items: the consolidated financial results for the 3 months ended March 31, 2026; the announcement regarding revision to dividend forecast and the presentation deck entitled Results for Q1 fiscal 2026, which we will use now. Next, a disclaimer. The estimates, expectations, forecasts and other future information discussed here and shown in today's materials were prepared based on the information available to the company as of today and on certain assumptions and qualifications, including our subjective judgment. Actual financial performance or results may differ substantially from the future information contained in this material due to risk factors, including domestic and global economic conditions, trends in the semiconductor market and foreign exchange rates.

We will have presentations today from Representative Director and President, Jiro Ryuta; and Representative Director and Vice President, CFO, Shinichi Kubozoe. President Ryuta will discuss our forecast and operating environment to be followed by an explanation of the financial results by CFO, Kubozoe. We have set aside time for a Q&A session as well. I will now hand over to President Ryuta.

I am President Ryuta. I have recently taken over from Chairman Hashimoto. I am still getting used to this part of my role and apologize if it feels a little awkward. I will start with an overview of the results and comment on the market environment. In Q1, SUMCO achieved sales of JPY 101.4 billion, an operating loss of JPY 5.2 billion, an ordinary loss of JPY 7.9 billion and a net loss of JPY 8.4 billion. For Q2, we project sales of JPY 112 billion, and operating loss of JPY 2.5 billion an ordinary loss of JPY 6.5 billion and a net loss of JPY 7 billion. Compared to Q1, our Q2 ForEx assumption is JPY 160 to the dollar, which is expected to contribute to the improved performance, but we expect the main driver of both higher sales and the narrowing of losses to be an increase in volumes.

Next page, please. With regard to dividends per share, our dividend policy is unchanged. Although we are projecting losses, we have taken a comprehensive view, factoring in the level of expected profits for the fiscal year, the outlook for the next fiscal year and beyond, cash needs such as for CapEx and free cash flow in guiding for an interim dividend of JPY 10 per share. On dividends, we take into account factors such as free cash flow in deciding dividends per share. While we are in the red, factoring in cash flow and other considerations and given that we have significant retained earnings, we set the interim dividend level at JPY 10 per share.

This is the projected trend for wafer shipments. Reflecting seasonality and inventory adjustments by customers, the 300-millimeter wafer shipment level was down sequentially, but on an absolute basis was still at a high level for Q1 on the back of rising AI-related demand. Growth in AI-related demand up to this point had been focused on leading-edge logic, but the increase in calculation volumes for AI is now driving growth for high-speed wideband DRAM, HBM. Recently, we have seen a pickup in NAND flash demand as a result of rising demand for SSDs for AI servers as well. The strong demand is underpinning continued CapEx by customers, fueling expectations for wafer growth from the second half of this year into early next year.

In contrast, in 200-millimeter, wafer shipments dropped significantly in 2023. Shipment levels remained low in 2024 and 2025. I believe that progress is being made on inventory adjustments, but sluggish growth in end applications such as consumer electronics, industrial machinery and automotive kept Q1 at low levels. It appears that there are some pockets of favorable demand for such items such as power management ICs for AI, but we think it will be difficult to get back to the high levels of either 2020 or 2021.

Next page, please. This is estimated customer wafer inventory. In Q1, customer wafer input volumes increased, leading to a decline in inventory volumes and days. Next page, please. This shows the trend for inventory split into Logic and Memory. While Logic inventory is still high compared to Memory, reflecting adjustments to purchase volumes, input volumes are rising. We are now starting to see a decline in inventory. For both Logic and Memory, backed by a recovery in production and customer capacity expansion, we could see an increase in purchase volumes going forward. That said, each customer has their own way of thinking about inventory, so it is still not clear whether we will see further progress on reductions in overall inventory days. Next page, please. Having talked about shipment and inventory estimates, I will now cover market conditions. Actuals for Q1 were, as already discussed thus far. 300-millimeter was down sequentially from Q4. Shipments for 200-millimeter and smaller diameters remained at low levels.

On prices, LTA prices continue to be respected. SUMCO does not have many LTAs for 200-millimeter, but spot market prices for 200-millimeter, with the exception of some specialty items were slightly lower on a sluggish supply-demand balance. On the outlook for Q2, 300-millimeter continues to show favorable trends. Backed by AI-related demand, leading-edge logic and memory trends are strong. For non-leading-edge, customers are still adjusting inventory. Also, AI demand has led to shortages in memory, which appears to be having an effect on end product production plans, such as consumer products, which is then impacting demand. That said, there are some items such as power management ICs where demand is picking up on AI-related demand. The inventory adjustments are not across the board for 200-millimeter either. Products where progress has been made on inventory adjustments or data center products are showing some signs of increased demand.

That said, we believe the overall strength of the recovery is lackluster at this time. LTA prices will continue to be respected. Spot prices had tended to be weak up to now, but there are some pockets of recovery. I believe, as conditions improve, we should start to see some corrections to price. Looking out to the second half of the year, our view remains largely unchanged. We expect to see continued strong growth for AI-related and a more gradual recovery in non-AI. We expect strong Wafer demand for AI-related leading-edge logic and memory to continue. There continues to be a sense of shortages for AI-related. In contrast, for non-AI logic, there are some products where demand is picking up, but given the variance in progress on inventory adjustments between customers and the impact of shortages of memory used in end products, the conflict in the Middle East and inflation, we need to monitor the market closely to determine whether we might see a recovery. 300-millimeter overall continues to see strong demand with the recovery trend likely to continue. While 200-millimeter should see some recovery and the mixed picture in terms of customer progress on inventory adjustments, the magnitude of a recovery is likely to be weak.

Next page, please. The operating environment for semiconductors is highly volatile and challenging, but semiconductors are a growth industry. Leveraging the solid base on the significant accumulation of technological expertise SUMCO has built up over many years and our strong relationships with customers, we aim to continue to grow over time. The 4 items we show here, which make up SUMCO Vision, are necessary for responsive and agile management. Of these items, what is particularly important is the first item: Being the global #1 in terms of technology. This will cement SUMCO's position within the industry. We are implementing many initiatives to achieve this.

First, we must swiftly and appropriately invest in R&D and CapEx. It is also necessary to train the human resources that will make this a reality. We are currently putting systems in place within the company. We must also engage with both our suppliers and customers, ensuring a solid flow of information to build a robust ecosystem. My aim is to see SUMCO build its own success. The second, third and fourth items are self-explanatory. Our policy remains unchanged. We will continue with the business structural reforms we are currently conducting with the aim of elevating our capabilities in leading-edge while taking a selective approach in evaluating the non-leading-edge areas to improve profitability and the sustainability of our business. We ask for your continued support. This completes my section of the presentation. I will hand over to CFO, Kubozoe, to talk about details of our Q1 earnings.

I, Kubozoe, will present an overview of the results and forecast. Next page, please. As touched upon at the outset, the results for first quarter fiscal 2026 are shown in the middle of the page. Sales were JPY 101.4 billion. Operating profit was minus JPY 5.2 billion. Ordinary profit was minus JPY 7.9 billion and profit attributable to owners of the parent was minus JPY 8.4 billion. Lower down on the table, we show CapEx on an acceptance basis of JPY 9.4 billion. CapEx is now declining as we are already past the peak, but the level is a little lower because of some timing pushouts into Q2. However, compared to previous acceptance levels, the amount is much lower. Depreciation was JPY 30.8 billion. It is down from the Q4 level of JPY 35.6 billion, reflecting the impact of the start to a new fiscal year.

Further down on the table, EBITDA was JPY 23.4 billion. The ForEx rate for the quarter was JPY 155 to the dollar. Next page, please. This is the analysis of change to operating profit. Starting on the left, in the analysis of sequential changes to quarterly operating profit, Q1 sales fell JPY 3.8 billion Q-on-Q and the operating loss widened by JPY 0.7 billion. The Yen weakened by JPY 2.3 Q-on-Q from Q4 to Q1. The results were largely in line with our Q1 forecast. As you can see from the chart below showing the components of OP change, costs increased, but sales variance was a negative JPY 4.9 billion, reflecting a decline in volume as well as a lower number of operating days during the quarter, which depressed volume. There was also some impact from weaker spot prices. These negatives were offset by the decline in depreciation and a ForEx tailwind for a net JPY 0.7 billion Q-on-Q decline in OP. We show the year-on-year change on the right. Sales were generally flat year-on-year, while OP fell JPY 11.1 billion. The change in the ForEx rate was JPY 1.5 year-on-year, a relatively small change.

The increase in depreciation of JPY 6.1 billion accounted for the vast majority of the year-on-year profit drop. On top of this, for sales variance, in Q1, there was an impact from inventory adjustments in non-leading edge logic, while there was an increase in PW, which led to a change in product mix, hence, the negative sales variance. Combined with the negative impact from costs, OP fell JPY 11.1 billion year-on-year. Next page, please. On this slide, I will cover the balance sheet and cash flow. Looking at the middle of the balance sheet on the left, total assets as of the end of March were JPY 1,142.8 billion, up JPY 14.9 billion compared to the end of December 2025. Cash and deposits increased by JPY 34.7 billion to JPY 109.9 billion as of the end of March. I will discuss the change in cash and deposits in covering cash flow on the right in a moment. There was a significant change in tangible and intangible assets falling JPY 21.4 billion as of the end of March, with depreciation outweighing CapEx acceptance. Liabilities increased JPY 20.1 billion. Given that interest rates are expected to rise going forward, we chose to front-load the refinancing of some of our cash needs for this year, pushing up outstanding borrowings for the end of Q1. There will be repayments in Q2 and Q3, which should lower the level of interest-bearing debt. Overall, interest-bearing debt should decline toward the level as of the end of last year over the course of the year. Under net assets, I highlight retained earnings. As a result of the net loss at the end of the fiscal year and dividend payments, there was a decline of JPY 11.9 billion in retained earnings. There was an increase of JPY 2.3 billion to the capital surplus, which reflects the impact of the sale of shares in subsidiary FST. Given FST was a wholly owned subsidiary, the gains of JPY 2.3 billion are directly reflected on the balance sheet.

As we front-loaded some of our borrowings, the equity-to-asset ratio was 49.8% and the D/E ratio on a gross basis was 0.66x as of the end of March. This represents a slight deterioration from levels as of the end of December 2025. On the right, we show cash flow. Operating cash flow was a positive JPY 24.1 billion. Cash flow for investment activities was an outflow of JPY 13.1 billion, reflecting a slight pushout of CapEx acceptance into Q2. As a result, free cash flow was a positive JPY 11 billion as of the end of March. Reflecting the increase in borrowings, interest-bearing debt rose JPY 20.4 billion. Under other, we show the proceeds from the sale of FST shares, including the impact of dividends paid, there was a net increase in cash and deposits of JPY 34.7 billion, which matches the balance sheet entry touched upon earlier.

We show our Q2 earnings forecast on the next page. I will now discuss our earnings forecast. The projections for Q2 are as shown on the third column from the right. We project sales of JPY 112 billion and an operating loss of JPY 2.5 billion. We project an ordinary loss of JPY 6.5 billion and net loss attributable to owners of the parent of JPY 7 billion. Q2 depreciation is projected to rise to JPY 33.7 billion. Below our assumption for ForEx in Q2 is JPY 160 to the dollar. This assumption underpins our forecast for the quarter. Near term, the Yen has appreciated somewhat, but the JPY 160 level was based on actual rates in April and May.

Next slide, please. On this next slide, we show the analysis of change in operating income. On the left, we show the sequential changes. Q2 sales are projected to rise to JPY 112 billion, up JPY 10.6 billion, driven primarily by 300-millimeter. Operating losses are projected to narrow by JPY 2.7 billion. Our ForEx assumption of JPY 160 to the dollar implies yen depreciation of roughly JPY 5 Q-on-Q. If you look at the waterfall chart below, you can see that we expect positive contributions from increased sales and ForEx, reflecting our view of improvements in sales variance and ForEx impact. We expect depreciation to increase by JPY 2.9 billion above the line. The expected increase of JPY 1.1 billion in cost takes into account a slight increase in unit prices for electrical power and the impact of annual increases in wages. On a net basis, we are expecting a JPY 2.7 billion Q-on-Q narrowing of operating losses in Q2. On the right, the year-on-year changes for first half are as shown here.

In addition to the factors discussed for the sequential changes, depreciation will rise, but in terms of sales and production, volumes are expected to increase. So if we compare the year-on-year for Q1 last time, the negative for sales variance is slightly lower at minus JPY 4.6 billion. On top of this, we project a positive from ForEx impact. On a net basis, first half OP is expected to decline JPY 15.1 billion year-on-year. Next slide, please. We have provided reference material at the end of the presentation with historical trends for earnings and EBITDA on the next page. We project sales of JPY 112 billion, up from the previous JPY 100 billion level. In addition, EBITDA margin is expected to improve from the 23.1% of Q1 to 26% in Q2. This completes my section of the presentation. Thank you.

Thank you. We will now open the floor to questions. We will start with Mr. Enomoto.

I am Enomoto of BofA Securities. I would like to take this opportunity to ask you about your management policy. What are your aims for SUMCO as the new President? When I look at SUMCO, what comes to mind is the sheer challenge of timing CapEx, particularly in the past. How are you thinking about addressing this challenge going forward? Will the approach be to specialize in leading-edge? Or maybe given that you need to go where the opportunities are, there will be times where you will need to invest. Please elaborate on your management vision for SUMCO.

It is true that CapEx has been very challenging in the past. This is a market where timing and accurately forecasting the market is very difficult. Currently, the pace of market developments has accelerated, raising the probability of failed investments if you invest in one fell swoop. There is a need to constantly monitor the market and as much as possible, invest at the optimal timing but in phases. With regard to CapEx for SUMCO, the focus for now is mainly on facilities for fabricating and testing high-performance and leading-edge Wafers.

SUMCO amended its plan to expand capacity at Yoshinogari. Can I confirm that SUMCO will basically not need to make major investments in the next few years?

When we started our greenfield investment program in 2021, our assumption was that the magnitude of market growth would be larger. Subsequently, the trend changed, and it now appears that the market will not grow to the levels we had previously anticipated. With regard to the large-scale investment made in the Imari area of Saga Prefecture, we have built a large physical shell. We believe that the facilities in place at this location represent sufficient room for capacity expansion for the time being. Additionally, we still have room to add more equipment at this site. My view is that only once this site is fully populated, would we then potentially revisit Yoshinogari after rigorously studying the then current market conditions.

Understood.

Thank you. Next is Mr. Watabe.

I am Watabe of Morgan Stanley. Earlier, you commented on the outlook for 300-millimeter demand, but are you seeing any impact as a result of the Middle East conflict? Are customers adding to inventory? Are you not seeing rush orders? Also, you indicated that there was some movement in terms of price hikes, but can you elaborate on this further? Also, are you fully excluding the impact of FST from Q2 forecast onward? If that is the case, the figures imply significant top line growth.

At this time, we are not seeing a significant direct impact as a result of the conflict in the Middle East in terms of the demand outlook for 300-millimeter. SUMCO is seeing virtually no rush orders or front-loading either.

On price hikes?

On price hikes, as we have been saying to this point, the vast majority of our 300-millimeter business is covered by LTAs. Reflecting the pushouts of deliveries, the expiry of LTAs is still some way away, so there isn't much talk of price hikes or customers seeking to negotiate price at this time.

I, Kubozoe, would like to follow up here. I believe your question, Mr. Watabe, is not about LTA prices since they won't change, but more about previous comments that spot prices were slightly weak. Near term, we are starting to see a slight rerating for spot. FST earnings are factored into the current forecast.

Will you be excluding FST earnings from Q3? You said you had sold shares

Actually, our stake is still above the level that would make FST an equity method affiliate. We haven't fully sold our shares to that level. It will take maybe 1 or 2 more rounds of disposals before FST becomes an equity method affiliate. Once that happens, it will impact the scope of consolidation, but the Q2 figures include the contribution from FST.

Next is Mr. Yoshida.

I am Yoshida of CLSA Securities. With regard to the earlier comments on LTAs, you indicated that SUMCO wasn't yet at a negotiation stage for prices. When do you think negotiations are likely to start? Also, given signs that spot prices are starting to rebound, last time, Chairman Hashimoto suggested that prices were unlikely to decline significantly. If we think about the current situation, given rising costs, it seems likely that you could raise prices. Please comment on the timing of negotiations and price levels at that time for LTAs.

I prefer not to comment on when the LTAs are likely to roll over. The situation is different for each customer, so it is also tough to generalize. On prices, supply and demand are the determining factors, so it isn't the case that the only direction for prices is down. I would be happy to see a scenario where there is a tightening in supply/demand in which a customer asks for more volume and says they are willing to pay a higher price. In any case, it has always been the case that silicon wafer prices have gone up and down on supply demand. Based on what we are seeing now, I believe we can look forward to gradual price increases. I think there is a good possibility that prices will rise in the near future.

I see. With regard to the impact, last time around, I believe that the LTAs were for 3 years and baked in price increases of around 50%. What is the image we should have for the next round? I understand that we are not currently at that phase, but depending on demand, is there a possibility that prices could be negotiated up?

At this stage, as we have said previously, because the customers have not fully taken the volume stipulated in the LTAs, the endpoint of the LTAs is being extended. We can't say specifically when, but generally speaking, the LTA periods are still getting longer. So it is still too early to be thinking about the next round of LTAs at this time. Although negotiations will happen sometime in the future, it is still some way off. We aren't there yet.

Next is Mr. Ikeda.

I am Ikeda of Goldman Sachs. I would like to ask new President Ryuta about your aspirations and medium-term objectives in terms of growth and margin improvement. In particular, the EBITDA margin has dropped to around 23% compared to peak levels of close to 40%. Are you aiming to return to these levels by transitioning to more sophisticated technology? If we look at near-term 300-millimeter demand on top of GPUs and ASICs, there is growth in CPU demand driven by AI inference and related to this, LPDDR5 and NAND flash demand driven by higher server capacity, which suggests significant growth potential. Beyond this, the use of 2 wafers in chip fabrication is also a positive factor for volume.

In particular, I think we can look forward to double-digit growth for 300-millimeter in 2027 and 2028. If we assume this kind of growth, do you think a return to an EBITDA margin of close to 40% might be possible? Also related to the discussion of prices earlier, I would expect there would be a significant improvement in prices in 2027 and 2028. Can you comment on what you are expecting for the medium term, touching upon the above factors?

I would like to defer to CFO, Kubozoe.

As you highlighted in your question, Mr. Ikeda, the EBITDA margin has come down from the close to 40% levels at the peak. We are aiming to get back to this level with initiatives in sales as well as internal cost measures. The objective is unchanged and has been carried over from Chairman Hashimoto. However, we don't have visibility at this time as to whether it will happen in the 2027, 2028 time frame and what sort of volumes we are talking about. Hypothetically, if we can get the volume, we would be very focused on ensuring that we don't miss the opportunity.

What is important is that we are prepared to produce, sell and have customers buy wafers. We have been focused on this to date, and we will continue with our efforts going forward. On prices, LTA prices are predetermined, so there isn't room for a change until the LTA expires. For spot, it doesn't represent a large portion for SUMCO, and it isn't a situation where prices are surging either. The current situation is one where the mindset is starting to change. There is also the question of how prices will move in response to supply/demand. But hypothetically, if we find ourselves in a situation where we can raise prices, we certainly would want to ensure that we don't miss this opportunity. That has been our approach to date. And although it is perhaps presumptuous for me to say with President Ryuta here, I think our approach will remain unchanged.

Understood. If possible, can you disclose the proportion of your business that is leading-edge AI? I believe that an increase in the ratio and the change in product mix, including GPUs and CPUs and leading-edge DRAM will have a meaningful impact. What is your view on the direction of the ratio?

The market that is growing the most is leading-edge logic for AI. So we are pursuing this market with a focus on further technological development for wafers. If demand picks up, then we will do our best to increase our capacity appropriately by adding equipment to address bottlenecks or improving equipment throughput. It is tough to say specifically what we will do, but leading-edge will definitely increase going forward.

Next is Mr. Nishiyama

I am Nishiyama of Citigroup Securities. With regard to 300-millimeter wafer supply demand, in the past up to Q3 of 2024, you provided a graph showing this data. Within this, you included data on wafer manufacturers production capacity. I believe that there is probably not much variance from the estimates shown at that time. If we then compare that to demand growth in 2025, this implies that wafer utilization rates were around 85%. If we limit ourselves to leading-edge, utilization rates could be close to 90%. Do these levels feel right to you? If that is the case, we could posit a scenario where there are some items where there will be supply shortfalls when we think about the period from second half 2026 into early next year. Can you comment on current supply/demand and your view of the outlook?

Currently, we are not operating at full capacity utilization and utilization rates vary from site to site. You asked whether there were particular lines operating at full capacity. There are some items where we are seeing shortages under current conditions. We are implementing a number of reforms with the aim of responding to customer demand in the near future. So there is some equipment that is not fully utilized, but other equipment that is running at full utilization.

You said that there are some items that are in short supply already. How should we interpret the fact that negotiations for new LTAs are not being initiated at this time? Your peers are suggesting that negotiations for the next round are gradually starting.

You say that our peers are already starting to negotiate the next round, but that is not the case for SUMCO, so I can't really answer your question. It may well be that the current proportion of 300-millimeter under LTAs is higher for SUMCO.

Next is Mr. Omura.

I am Omura of UBS Securities. I have a technology question. On Page 11, President Ryuta stated that SUMCO seeks to be the global #1 for technology and also aims to be able to generate stable profits even in tough operating environments. I think being #1 for technology is also a function of how you shape up in comparison to your peers. If we step back, SUMCO is the result of the integration of 3 companies in 2000. 25 or 26 years have elapsed since the merger, but how much progress do you think you have made on technology? Also, what sort of changes have you seen in technology with the new greenfield you have done? Where do you have superiority over your peers? Also, how does this tie into stable profitability?

In terms of becoming the global #1 with technology, SUMCO has been aiming to achieve this since its inception. This is the backdrop to the creation of SUMCO vision under Chairman Hashimoto. Becoming #1 in technology is the first objective under this vision. So how do we go about becoming #1 in technology? The area where we have a high degree of confidence in achieving #1 for technology is in leading-edge. We have a high market share in leading-edge wafers. We are also seeing many inquiries for the next generation of leading-edge wafers. What is very important from SUMCO's perspective is communication with the customers. The ability to have a clear understanding of what the customer wants is important as is the ability to present, respond or explain appropriately to the customers' inquiries.

Communication with our suppliers is also very important. The open lines of communication allows them to present us with proposals or offer products or for us to ask if they can help provide a solution to an issue. Effectively, I am talking about creating an ecosystem and ensuring that we can grow successfully within this ecosystem. I believe this is one of our current strengths.

Thank you. I believe SUMCO is top class globally in terms of wafer quality. But in terms of manufacturing technology, there is a significant margin gap between SUMCO and its peer, Shin-Etsu Chemical. Can you comment on this issue from the perspective of manufacturing technology?

From the perspective of manufacturing technology, Shin-Etsu has historically been strong. I'm not sure if this is the best way to express this, but they waste very little in their manufacturing process. SUMCO is working very hard to learn from Shin-Etsu's example. If we are successful, then I think our margin will improve.

Understood. I hope you are successful.

Next is Mr. Miyamoto.

I am Miyamoto of SMBC Nikko Securities. Similar to Mr. Enomoto, I would like to ask about your management policy. In my view, how you approach LTAs is an important element of management policy. The current LTAs, which were signed 5 years ago, were successful in controlling price volatility on the one hand, but have proven to be less effective on volumes. Changes in customer wafer input have meant that the contracts have not played out in line with initial assumptions. At a minimum, customer input volumes, effectively shipment volumes have been lower on a single year basis than expected. The weaker shipment volume growth has led SUMCO to fall in the red.

Based on the lessons learned from this experience, what will you be looking for in signing new LTAs going forward? For example, would you adopt a structure that would lock in a minimum margin even if shipment volumes decline? Or would you seek significantly higher prices, which allow you to bake in a buffer? Or although it would likely be difficult in practice, would you aim to lock in volumes? Could you incorporate a take-or-pay clause? What sort of measures are possible? As you mentioned earlier, in an environment where market forecasting is very difficult, please talk about how you are thinking about future LTAs.

With regard to future LTAs, how we approach this will be determined in discussions with our customers going forward. We will have thoughts on what we would like to see, and that will likely be the basis for negotiations. With regard to increase in volume under current LTAs, we have allowed customers to push out the timing of when they take delivery. As previously explained by former Chairman Hashimoto, we could have chosen to force our customers to take the volume as stipulated in the contracts. But when we thought about our long-standing relationships with our customers, we felt it was better to take a more flexible approach, but at the same time, ensure that customers respected the LTA prices.

From that perspective, with regard to prices, we were very determined not to lower prices. In terms of how we thought about volume, the decision to grant flexibility did have an impact, as you mentioned in your question. We recognize that we need to find a better way of dealing with such circumstances. But I do feel that holding firm on price points is important in principle, but at the same time, the contracts will likely need to reflect relationships with customers, the then current market conditions and economic conditions.

Next is Mr. Nakada.

I am Nakada of JPMorgan Securities. I want to ask about the analysis of OP change on Pages 14 and 18 and wafer volume as shown on Page 7. I want to confirm the impact of volume while referring to these pages. If we look at Page 7, 200-millimeter wafers appear to be up slightly year-on-year, just under 4 million wafers per month, while 300-millimeter wafers are at just below 8 million wafers per month for year-on-year growth of around 15% in Q1. Despite this, you referred to a deterioration in mix with an increase in PW for a negative contribution from sales variance. SUMCO is strong in leading-edge and inquiry levels for leading-edge are high, so this should be doing well. If non-leading-edge customers are adjusting inventory, wafer volumes for legacy should be weaker.

Doesn't this mean that the mix should have improved? Why was sales variance in Q1 negative? Can you explain this again, breaking it down into 200- and 300-millimeter, please?

Are you looking at the year-on-year change for Q1 on Page 14, the negative JPY 3.5 billion? If we look at year-on-year Q1 market growth on Page 7 for 300-millimeter, it is around 15%. However, in Q1, which is typically a weak quarter for volumes, SUMCO was not down as much as the market in 2025, so our volumes did not grow as much as 15% on a year-on-year basis. This is why sales is not up that much. With regard to the negative JPY 3.5 billion in sales variance, if you split wafers into Logic and Memory, Memory was growing. For Logic, while leading-edge was growing, non-leading edge was impacted by customer inventory adjustments. Overall, the proportion of PW was higher. Given the selling price for Epi at SUMCO is higher than PW, the change in mix resulted in a drag on profits.

If I remember correctly, March quarter of 2025 was seeing significant industry inventory adjustments, but the impact on SUMCO was not as severe because the sequential decline from the previous December quarter was modest. So Q1 2025 was not down that much Q-on-Q. But for Q1 overall, volume was still up year-on-year. Is that correct?

Yes, volumes were up, but not as much as implied by market growth. SUMCO did not see as big of a decline in Q1 2025 relative to the market.

So Q1 year-on-year volume growth for SUMCO was somewhere between the Q1 and Q2 levels shown on Page 7, so perhaps around half the level of market growth. For leading-edge, margins are clearly higher, but there is still relatively significant volume in non-leading edge for logic. So when that goes down, the relative proportion of PW for memory increased, resulting in a negative impact from mix. Is that correct?

Yes.

So apart from this, there were changes in 200-millimeter in volume that were also a drag on sales variance.

For 200-millimeter, as we show on Page 7, there wasn't much change in the overall market picture. SUMCO didn't see significant change in 200-millimeter either. There was nothing in 200-millimeter that was a factor for disruption.

Next is Mr. Ban.

I am Ban of Nomura Securities. I would like to ask about the operating environment for leading-edge, which is an area of strength for SUMCO. In the past, only the Taiwanese foundry with strength in leading-edge was doing well with GPUs leading the market. But more recently, AI agents are driving demand for CPUs as well. Does the Q2 forecast take this trend into account? Also, in terms of logic device structure, as backside power supply devices start being produced in Taiwan and the U.S., I believe this will require the most advanced wafer. Is this improvement in mix also factored into your Q2 forecast?

For leading-edge, it is true that until recently that company T had been well ahead, but we are now seeing company S in South Korea and company I from the U.S. catching up. These companies are gradually starting to do leading-edge, and we expect that they will gradually expand capacity here. Currently, SUMCO is setting its sights on doing leading-edge for the big 3 and building the required processes. Beyond this, although it is tough to say, given that we don't have much visibility for more than 3 months out, we have been working on developing even more advanced wafers for the last 4 to 5 years. With regard to backside power supply, we are already in the process of developing wafers enabled for this and other technologies such as 3D or 2.5D. We are actively communicating with our customers as we develop these products. So our forecast for second half onwards reflect our expectations for the market.

Thank you. Next is Mr. Nishihira.

I am Nishihira of Okasan Securities. I have a question about the Q-on-Q bar chart for changes to OP on the left hand of Page 14. Can you provide more color on the sales variation impact of minus JPY 4.9 billion?

One component of the minus JPY 4.9 billion is the lower sales and production levels in first quarter related to the fact that there are only 28 days in February, which reduces the number of operating days. So there is a negative associated, particularly with production. Also, I touched upon this in commenting on the Q-on-Q change from Q4 into Q1 previously, but there was a change in mix as well for non-leading-edge with EPI volume falling on the back of inventory adjustments.

This mix change also had an impact. In addition, there was a slight impact from price reviews to spot prices. Sales were also down, but these are the major elements of change within the sales variation on top of changes in sales.

When you say price reviews for spot prices, do you mean price declines on spot transactions being done by FST?

Yes.

Also, can I ask one more thing? Do you think you will return to the black for operating income in Q3? Or will it be Q4? Please comment to the extent that you can.

Apologies, we can't comment on this.

Sorry. Thank you. That's all from me.

Thank you. Next is Mr. Yamada.

I am Yamada of Mizuho Securities. You mentioned that you had front-loaded some financing. The figures show that both interest-bearing debt and cash and deposits are up. Free cash flow is JPY 11 billion for the quarter, and you have been in the black with free cash flow since Q3 of the previous year, and free cash flow has been growing at a pace where it is more than doubling each quarter. Earlier, the company indicated that it was not at a phase where CapEx will increase and CapEx-related liabilities are declining. So at some point, the fall in liabilities will stop. Why do you need to increase interest-bearing debt? Can we expect free cash flow to continue to increase? Please comment.

With regard to free cash flow, we are expecting positive free cash flow for the full year, but the cadence may vary by quarter because, as noted earlier, we are seeing some pushouts in terms of CapEx acceptance. In Q1, the pushout resulted in the positive free cash flow being higher than it would normally be since some CapEx acceptance was pushed into Q2. So if the question is, will free cash flow grow significantly from the Q1 level as a base, we don't think so. With regard to borrowings, I may not have been clear in explaining that there are debts that are up for refinancing this year.

So as you alluded to in your question, we are reviewing which borrowings we will roll over and which we will pay down while monitoring the level of cash. We did not refinance the full amount of debt coming due this fiscal year in Q1, but instead refinanced a certain proportion of this year's maturing debt. So there is still some debt that will come due this fiscal year. For this portion, we will be monitoring cash levels as we consider which borrowings we will refinance. There is still some room left in terms of whether or not we will refinance some debt. That said, the total amount of borrowings relative to the amount of debt which came due in Q1 was larger, which is why interest-bearing debt went up on a snapshot basis at the end of the quarter.

So you are making decisions on which borrowings you will roll over and which you will pay down. So there are evergreen contracts where you have the ability to choose to roll over?

Actually, these are individual borrowings, but we are making decisions on whether we refinance or not.

So I can understand the CapEx acceptance timing could get pushed out. But for Q1, you were at JPY 9.4 billion. Relative to levels you had previously indicated, the figure does not appear to be significantly lower. On top of this, CapEx-related liabilities are coming down. It doesn't seem likely that there would be a significant cash outflow from CapEx, but is there a possibility that it could increase?

No, I'm not suggesting that there might be an increase from the levels previously discussed. It just so happens that there was a timing difference this time. So I'm not saying that the total amount will increase, but there may be puts and takes on a quarterly basis.

So the total amount will not increase and the decline in CapEx-related liabilities is tied to previously accepted CapEx, so it will continue to fall. Is that correct?

Yes. So the overall direction will be positive. That is clear.

We will end the meeting here. Thank you to everyone for joining the Q1 fiscal 2026 results briefing. We are grateful for your participation today.

[Statements in English on this transcript were

spoken by an interpreter present on the live call.]

Thank you for your participation today. This is the results briefing for the fourth quarter of the fiscal year ended December 2025. Before starting the presentation, allow me to confirm today's materials, which consists of 3 items: the consolidated financial results for the fiscal year ended December 31, 2025, the announcement concerning difference between forecast and actual figures for the fiscal year ended December 31, 2025, and the presentation deck entitled Results for Fiscal 2025, which we will use now.

Next, a disclaimer. The estimates, expectations, forecasts and other future information discussed here and shown in today's materials were prepared based on information available to the company as of today and on certain assumptions and qualifications, including our subjective judgment. Actual financial performance or results may differ substantially from the future information contained in this material due to risk factors, including domestic and global economic conditions, trends in the semiconductor market and foreign exchange rates.

We will have presentations today from Representative Director, Chairman and CEO, Mayuki Hashimoto; and Representative Director and Vice President, CFO, Shinichi Kubozoe. Chairman and CEO, Hashimoto, will discuss our forecast and operating environment to be followed by an explanation of the financial results by CFO, Kubozoe. We have set aside time for a Q&A session as well.

I will now hand over to Chairman Hashimoto.

I am Chairman Hashimoto. I will start with an overview of the results. I often get scolded for missing forecast, but this time, we overshot quite significantly. With regard to the JPY 5.5 billion overshoot in operating profit, major factors were JPY 2.1 billion from cost reductions, a JPY 1.7 billion impact from ForEx and JPY 1.2 billion as a result of delays to depreciation. These 3 items alone totaled JPY 5 billion. However, despite the increase in sales, the contribution of volume and product mix to profit was only around JPY 0.5 billion. This is because there was a relatively higher level of polished wafer or PW sales. Marginal profitability for epitaxial wafers is actually slightly higher than PW. So despite top line growth, the shift in product mix had an impact on profits.

With regard to Q1 earnings forecast, the actual content for the quarter is largely unchanged from fourth quarter. The reason for the JPY 1.5 billion Q-on-Q widening of the loss is the expected negative impact on production volume owing to periodic maintenance at a key plant slated for March as well as one-off maintenance expenses related to the periodic maintenance. This is what is behind the Q-on-Q widening of operating losses. We expect no other major changes from Q4.

Next page, please. On dividends, we take into account factors such as free cash flow in deciding dividends per share. While we were in the red, factoring in cash flow and other considerations and given that we have significant retained earnings, we set the fiscal year-end dividend level at JPY 10 per share.

Next page, please. This is the trend for 200-millimeter wafers. As you can see, there have been significant declines to this point. The fall is structural, and as such, we do not expect to see a rebound. We must consider countermeasures. 200-millimeter fell 21% in 2023, 13% in 2024 and a further 4% in 2025. Optically, it may appear that there was an uptick in Q4, but this is probably a reflection of a very slight pickup in power management IC, MOSFET for AI. We think that the current conditions reflect the structural reality for 200-millimeter now.

Next page, please. This is the trend for 300-millimeter wafers. The overall trend is not as strong as the very favorable trends we are seeing in AI, but 300-millimeter is definitely recovering. 300-millimeter was down 11% in 2023, but was up 2% in 2024 and up 9% in 2025. This is, of course, due to the continued strength in AI-related demand. Other sources of demand are sluggish. However, we are starting to see a pickup in AI-related demand, particularly for memory.

While DRAM had already been a beneficiary, NAND has now become necessary for AI as well. I will go into more detail later, but NAND is needed for inference. That said, there are still uncertainties about whether this will drive strong growth going forward. This is because DRAM, specifically HBM, is already in short supply. Because tack time for HBM is significant, it is a significant consumer of fab capacity. Taking capacity away from other types of DRAM has led to a shortage of conventional DRAM. This is on top of the shortages in HBM. So DRAM as a whole is experiencing shortages.

For memory players who produce both DRAM and NAND, the higher profitability of DRAM has meant such players have been converting NAND capacity over to DRAM and reducing capacity for NAND. With demand now emerging for NAND, the situation is starting to change. With NAND capacity also falling and challenges in increasing capacity, we have a situation where DRAM customers are actively expanding capacity, which should eventually lead to improved wafer consumption. Given the pickup in NAND, we should start to see changes. That said, it is likely to take around 12 months for the capacity increases to come through. So even at the earliest, I believe it will be late this year or early next year before the gradual increases in capacity kick in. So I expect wafer consumption to grow solidly from this year into next year.

Next page, please. The Q4 results were as discussed earlier. However, although 300-millimeter is improving, the overall gains are moderate. Last year, 300-millimeter grew 9%, which is a fair recovery, but it still only gets us back to the peak levels of 2022. Current 200-millimeter wafer conditions reflect the structural reality. On prices, LTA prices are, by and large, being respected. So prices are not bad and are generally flattish. We don't have many 200-millimeter LTAs. So reflecting supply/demand, 200-millimeter prices were generally softer. Setting aside specialty products, commodity 200-millimeter wafer prices declined. The outlook for Q1 is for continued solid volumes in 300-millimeter, particularly for leading edge. Demand for legacy node wafers remains lackluster. You may have seen that TSMC has shifted to using the Kumamoto plant to produce 3-nanometer. This reflects the continued weakness even in design rules that are legacy adjacent, such as 16-nanometer and 28-nanometer. When it cannot keep capacity utilization in Taiwan for these design rules at 100%, it doesn't make sense to produce at these design rules outside of Taiwan. 3-nanometer production in Taiwan, on the other hand, is running at a high utilization. They are working very hard to expand existing capacity, but it's still not enough to keep up with demand, which only further suggests that there is an excess in legacy node products. So the customer is keen to get inventory back to normal levels as quickly as possible. I have already described the situation for 200-millimeter. While there appears to be a slight pickup in power management ICs or MOSFETs for AI, all other applications are similarly weak. Of course, we expect LTA prices will continue to be respected. For spot, 200-millimeter prices are falling with commodity prices particularly under pressure, as mentioned earlier. This is our outlook for Q1.

Looking further out into the longer term, there are those that suggest that AI applications are frothy, but I don't believe that, that is the case. The current situation is one where supply is failing to keep up with rising demand. So while our customers' selling prices are rising, I don't think that we are going to see a spike in wafer volumes. I don't know how long the very pricey AI chips remain at these levels, but I don't think that demand is likely to come off much.

Until recently, customers were keen to rapidly expand existing capacity on the back of very strong demand for leading edge logic and HBM, but we are now seeing demand for NAND grow as well. As mentioned earlier, this is being driven by an increase in chips used for inference. However, with the glut of legacy products, customers are now seriously making plans to normalize legacy inventory levels this year. Customers are likely to adjust their wafer purchase volumes. However, given that these are customers that have been very respectful of the LTA conditions, we understand their situations. Suppliers, ourselves included, are likely to have little choice but to cooperate with the customers to a certain extent. For 200-millimeter and smaller diameters, as noted earlier, demand is likely to remain at current levels.

Next page, please. So what are we talking about when we say AI server? You may well already be familiar with much of this, but we show here user numbers for well-known generative AI services like ChatGPT and Gemini. I use them as well, but as you can see, growth is strong. This level of growth is understandable. That said, up to now, AI has primarily been in the training phase, which allows it to answer queries like what is this? However, as questions become more complex or detailed, it requires the model to use inference. There is a shift underway.

Next page, please. This shows the number of AI servers. This shows the split between training use and inference use servers. We are currently seeing significantly stronger growth in servers used for inference.

Next page, please. There is a lot on this slide, but simply stated, when you show a model in the training phase, a picture of a human and ask, is this a human, you get an immediate answer of yes. To answer this question, the model has learned from a huge volume of images of dogs, monkeys, orangutans and humans. So when presented with an image of a human, it is able to respond immediately. To achieve this, what the server needs is high-speed DRAM and GPU or in other words, temporary storage. However, if you ask how old is the person in the image, the model cannot respond immediately, but would need to refer to a significant accumulated database. If each also needs to save individual histories, there is a need for high-capacity NAND memory and within NAND, ESSD, which is relatively fast. We are seeing rapidly increasing demand for these now as well as for ASICs.

Next page, please. So how much DRAM is used by such servers? Training use servers use significantly more DRAM. If we look at the chart on the left for memory capacity, training requires 3 to 4x more DRAM per server. In total, AI use DRAM is currently around 500,000 to 600,000 wafers per month, but is expected to rise to 1.5 million over the next 3 to 4 years for an increase of 1 million.

Next page, please. This shows NAND capacity for AI servers. Unlike the previous chart, inference use requires a significant volume of NAND per server as shown on the left. The chart on the right shows inference, which consumes a significant volume of NAND use wafers. That said, we are still only talking about volumes of the order of 200,000 wafers per month rather than 1 million plus for DRAM as covered on the previous page. However, given solid declines in NAND capacity, this increase in volume would be sufficient to drive a shortage. This is our image.

Next page, please. So how much of a shortage in memory use wafers will result from AI servers? I believe that we are talking about demand growth of the order of 1.5 million wafers per month. So there is a need to increase capacity, particularly NAND capacity. NAND has generally been considered a nice to have and is usually the first thing that gets cut when money gets tight for devices like smartphone handsets. Photos can be stored in the cloud. You could argue that you don't need a huge memory of, say, 1 terabyte. If that's the case, NAND would be the first to go. Because of this, they are somewhat reluctant to invest in more capacity. While players recognize there are shortages, there isn't a huge shift towards investing yet. This is different from DRAM where players are keen to invest. This is why many suggest that there will be shortages in NAND memory for PCs, smartphone handsets and in particular, automotive applications. For us, we haven't seen a sudden surge in NAND memory use wafers and our customers' capacity is not increasing, so it will probably take some time for wafer demand to pick up. Perhaps it will take until next year. I think that the market may be okay with some shortages with the more difficult NAND for now. I will say that this doesn't particularly have a major impact on us this year. Next year, on the back of capacity expansion by customers, we expect a favorable environment with wafer volumes increasing for logic, NAND and DRAM. We hope that wafer increases for logic will kick in from the second half of this year when the new plant comes online.

Next page, please. This is the situation for customer inventories, which is of keen interest to all of you. Inventories are not coming down much. I would like to show you why on the next page. Logic inventory is significant. We don't show the number of inventory months, but the white bars are purchase volumes and the blue bars are wafer inputs. We continue to see purchase volumes outweigh wafer inputs. The reason for this is that while leading-edge wafers are selling like hot cakes, and we have seen TSMC shift to 3-nanometer at Kumamoto, their original plan was for legacy products at 12-,16- or 28-nanometer. However, even the parent fabs are not seeing favorable levels of capacity utilization, so it doesn't make sense for them to be producing at these design rules overseas. 3-nanometer, on the other hand, is seeing extreme shortages. My point is that there is a significant accumulated inventory in non-leading edge. So there is a pressing need to significantly normalize inventories, and we will need to cooperate with inventory adjustments in many locations this year. I don't expect large inventory adjustments in memory, but dealing with the significant inventory in logic must be addressed. It is unavoidable but a one-off. This completes my section of the presentation.

I will hand over to CFO, Kubozoe, to talk about details of our Q4 earnings.

The results for fourth quarter fiscal 2025 are shown in the third column from the right, as highlighted earlier by Chairman Hashimoto. Sales were JPY 105.2 billion, operating profit was minus JPY 4.5 billion, ordinary profit was minus JPY 5.9 billion and profit attributable to owners of the parent was minus JPY 10.8 billion. To the right, for the full year, sales were JPY 409.6 billion and operating profit was JPY 1.3 billion. We were able to be in the black on a full year basis. Ordinary profit was minus JPY 3.8 billion and losses attributable to owners of the parent were JPY 11.7 billion. Total CapEx for the year was JPY 79.9 billion. We show 2024 CapEx on the far left at JPY 214.9 billion.

Compared to this time last year, CapEx is down a substantial JPY 135 billion year-on-year. If you look at the quarterly progression, while there was still some CapEx on an acceptance basis in Q1, subsequently, there was a sequential decline over the course of the year. In contrast, if you look at depreciation expense, it was up JPY 36.7 billion year-on-year to JPY 115.6 billion for the full year.

In terms of quarterly progression, Q1 was the bottom with depreciation rising sequentially in each quarter to hit JPY 35.6 billion in Q4. EBITDA was JPY 112.4 billion, largely unchanged from the 2024 level. We show the key metrics based on the above results in the lower half of the table.

This is the analysis of change to operating profit. Starting on the left, in the analysis of sequential change to quarterly operating profit, Q4 sales rose JPY 6.1 billion Q-on-Q to JPY 105.2 billion from JPY 99.1 billion. We also beat our forecast by JPY 5 billion. The overshoot in sales was due to the arrival of more goods than expected at the end of Q4 as well as ForEx impact. Our standard of revenue recognition is arrival of goods.

Operating losses widened from JPY 1.6 billion to JPY 4.9 billion, a Q-on-Q deterioration of JPY 2.9 billion. As you can see from the chart below, depreciation increased a hefty JPY 4.5 billion. In addition, production was down Q-on-Q as a result of periodic maintenance at a mainstay plant in Q4 as well as closures for the end of year holiday season, which depressed production levels versus Q3. Also, as mentioned earlier by Chairman Hashimoto, there was a negative impact from changes in mix, partially offsetting the impact of higher sales. However, this was offset by steady production activity and utilization for an improvement on costs and by a positive ForEx impact.

The net Q-on-Q decline in profits was JPY 2.9 billion. On the right, we show the year-on-year change for the full year. Sales rose JPY 13 billion, while OP fell JPY 35.6 billion. The increase in depreciation accounted for the vast majority of the year-on-year profit drop with cost, ForEx and production reporting only small changes year-on-year. On sales variance, as mentioned earlier, last year, there was an increase in PW relative to epi. The resulting product mix impact as well as a small impact from price responses on spot product is why there wasn't a significant contribution in either direction from sales variance.

Next page, please. On this slide, I will cover the balance sheet and cash flow. Looking at the middle of the balance sheet, total assets as of the end of December were JPY 1,127.9 billion, down JPY 44.7 billion compared to the end of December 2024. The major changes were a JPY 20.4 billion decline in cash and deposits and a JPY 29 billion drop in tangible and intangible assets. I will discuss the change in cash and deposits in covering cash flow on the right in a moment. Tangible and intangible assets fell as of the end of December with depreciation outweighing CapEx. Raw materials and supplies rose particularly on a slight increase in polysilicon inventory. However, in terms of impact on total assets, what is more significant is the decreases in cash and deposits and tangible assets.

Liabilities declined JPY 35.2 billion to JPY 480.2 billion, but interest-bearing debt was largely unchanged from a year ago. We have kept our balance of borrowings unchanged. Under other liabilities, there is a JPY 35 billion negative. This is related to the fact that actual payments for CapEx were quite significant relative to CapEx acceptance in 2024, reducing unpaid liabilities. Under net assets, I highlight retained earnings. As a result of the net loss at the end of the fiscal year and dividend payments, there was a decline of JPY 17.4 billion in retained earnings. Based on this, the equity-to-asset ratio was 51.3% and the D/E ratio on a gross basis was 0.61x as of the end of December. Both are largely unchanged from the levels as of the end of December 2024.

On the right, we show cash flow. Operating cash flow was a positive JPY 100 billion for the year. Cash flow for investment activities was an outflow of JPY 111.4 billion, the combination of CapEx acceptance for 2025 and net changes in unpaid liabilities related to facilities. As a result, free cash flow was a negative JPY 11.4 billion for the full year. At the time of Q3 results, I indicated that free cash flow for third quarter became positive, but Q4 free cash flow was also positive for positive free cash flow for second half in total. After factoring in dividends paid, cash and deposits declined JPY 20.4 billion. With regard to meeting our cash obligations in 2025, we tapped into cash and deposits.

Jumping forward to Page 23, I will now discuss our earnings forecast. The projections for Q1 are as shown on the third column from the right. We project sales of JPY 100 billion and an operating loss of JPY 6 billion. We project an ordinary loss of JPY 10 billion and net loss attributable to owners of the parent of JPY 10 billion, given that corporate taxes and profit attributable to noncontrolling interest offset each other. Reflecting the start of a new fiscal year, the roll-off of existing depreciation outweighed new depreciation, resulting in a decline of JPY 4.3 billion Q-on-Q. We expect a Q-on-Q decline in depreciation. Our ForEx assumption is JPY 155 to the dollar.

Next slide, please. On this slide, we show the analysis of changes in operating income. On the left, we show the sequential changes. Q1 sales are projected to fall to JPY 100 billion, reflecting the timing differences in arrival of goods, which pushed up Q4 sales. Operating losses are projected to widen by JPY 1.5 billion. If you look at the waterfall chart below, you can see that while there are positives from depreciation and ForEx, sales variance is expected to have a negative impact. We are expecting to undertake periodic maintenance again in Q1 at another mainstay plant. Also, we have reflected a lower number of operating days, taking into account the fewer number of days in February. Both will be negative for sales. On costs, we expect an increase of JPY 2.1 billion, some due to pushouts from Q4 and to seasonal factors reflecting payments in Q1. As a result, we expect costs to rise Q-on-Q. On the right, we show the year-on-year change for Q1. For OP, we are guiding for an JPY 11.9 billion deterioration. The major factors are an increase in depreciation and a negative impact of product mix on sales variance with PW volumes rising relative to epi.

Next slide, please. We have provided reference material at the end of the presentation with historical trends for earnings and EBITDA. This completes my section of the presentation.

Thank you. We will now open the floor to questions. Mr. Enomoto, please go ahead.

I am Enomoto of BofA Securities. I believe you are implementing major changes to the senior management team. I think you will be handing over to President Ryuta. Please comment on the background to this major management change, how you selected the new President and what your expectations are for the new team given the significant change? I would also like to take this opportunity to thank you for all of your efforts since I believe this is the last time you will be presenting the results. When I think back to when I was covering Sumco in the past, I think Sumco has changed dramatically since you joined.

With regard to the change, I have been in this position for 14 years now. I had been thinking that it might be time to hand over, but we had the pandemic and then we made large-scale investments, which pushed cash flow significantly into negative territory, effectively putting myself in a position where I couldn't step down.

Now cash flow is back in positive territory, so there isn't a need to worry about cash. Typically, Sumco generates operating cash flow of around JPY 100 billion and in a steady environment, invests around JPY 50 billion, including modernization investments. Under current conditions, we should be able to generate profits of around JPY 50 billion. Because we have made major investments, there is depreciation, but this is a noncash expense, and we have already paid for our investments, so there won't be cash outflows for the investments.

With depreciation declining and the market recovering, I felt this was a good time to step down. My successor is someone who has spent a long time in the U.S., like me. I was in the U.S. for more than 10 years. He is someone who has significant international business experience. 80% of our business is overseas, so the ability to engage directly with customers overseas is very important. At my level, directly engaging gives you access to very high-quality market intelligence. Typically, my counterparts have a very broad outlook and good visibility. I have learned a lot from my interactions with them. Therefore, I felt it was important that my successor was someone who could engage with our customers. Also, I think he is very skilled at managing people, which is another point in his favor.

With regard to the team, as I have been in this role for 14 years, the entire team consists of executives that I handpicked and appointed, and they have worked alongside me for the last 14 years. They are all very talented and highly capable individuals. When I joined, retained earnings were minus JPY 80 billion and the effective equity ratio was in the teens. Many people said that the company was going to go under, but together with this team, we were able to rebuild the company. I have a deep trust in this team, and I'm extremely grateful to have been able to work with them. I am confident that they will take the company forward. I see my role as laying the foundation so that the company can function without me. I would take no pleasure if my departure were to lead to serious challenges. My role and the true role of senior management should be to put into place a framework that will allow the company to develop regardless of whether I am there or not. This is why I created the Sumco vision with the aspiration to become #1 in technology.

Over these 14 years, and it may well be that anyone can do this, but I never turned down a request for funding for R&D. In fact, if R&D did not fully use up their budgets, I would suggest that they were being complacent. This is an industry where you must have technological capabilities. When I joined, our technological expertise wasn't necessarily as high as it is now. We took on many challenges together. It was a very meaningful and fruitful time for me. Also, we have seen a solid increase in the number of women in our workplaces. In addition, people that I hired after we restarted hiring are now getting promoted to section chief level.

We have superior technology in 300-millimeter, and our customers rate our leading-edge product very highly. From the second year after I joined Sumco, we have been consistently recognized by TSMC, winning awards now for 12 consecutive years. So I do think we are well recognized by our customers. Also seeing our employees be motivated is inspiring. Progress in R&D doesn't happen because I pushed. It happens because the employees are motivated. I did a lot to cultivate this culture, creating programs to recognize excellence. As a result, our turnover is very low. I think morale at Sumco is very high. If I have to sum up how I feel in one word, it would be gratitude to the employees. Mr. Enomoto, thank you for everything. I hold high hopes for Sumco's future.

I am Ikeda of Goldman Sachs. I would like to ask about 300-millimeter inventory levels and longer-term customer concerns about supply. I suspect there is a significant polarization between legacy products and leading edge. The situation with inventory is really the result of elevated inventory for legacy products over a prolonged period of time. I am concerned that there could be shortages in leading edge. What is your strategy as you think about 2027 and 2028? And with regard to LTAs, how are you thinking about the next round of contracts with customers? If you can comment from a longer-term perspective about when you think supply/demand becomes balanced or we start to see shortages, that would be helpful.

We have invested heavily in increasing capacity, but almost all of our investments were for leading edge logic at 7-nanometer, 5-nanometer and below. Going forward, I think legacy capacity utilization will drop and there will be a transition to leading edge. However, when we entered into contracts with customers, there was no specification of volumes for legacy or leading edge because no one knew and the contracts were simply for total volume. There are only 2 companies doing leading edge. There isn't a third player. Because of this, we have contracts with everyone and our customers have no choice but to buy legacy wafers because that is what the contracts stipulate and there is a shortage of leading-edge wafers.

With legacy use wafer inventory rising, customers want to reduce inventory in one fell swoop. This is why our legacy use wafers have been significantly impacted. So we want to get this over with in a short time frame. Once that's done, the picture is much more favorable in my view. Our leading-edge wafers are very highly rated by the 2 new customers that are fabricating leading-edge chips. Given this, I expect our new plant's capacity will be filled up first with utilization rates at our older plants dropping off. We have a plan to modernize our older plants swiftly, which is already in motion. We are steadily replacing facilities. That's my thinking. Does this answer your question?

When do you think the current LTAs roll over?

It's a long way off.

Understood. Do you have any major concerns? Are prices okay?

I think prices will be fine.

Next is Mr. Yoshida.

I am Yoshida of CLSA Securities. With regard to 2026, you provided information about trends in 2025 earlier, but is it possible to provide volume forecast for 300-millimeter and 200-millimeter for 2026? Also, what will be the percentage decline in wafer demand as a result of the adjustment to mature node inventory? When do you think that the adjustment will be complete?

First, I think the correction will last until the end of this year. It is a very dramatic correction. In terms of what will happen, as I said earlier, I think we will see very strong growth in leading edge, so I expect to see some gradual increases from the second half of this year. With regard to 300-millimeter wafers, while there will be cuts to purchase volume, we are also seeing an increase in PW. So I think overall 300-millimeter wafers this year should be in line with last year, even if the customers make cuts. So volumes may be flat year-on-year to growing slightly in the second half of the year. This suggests that there may be a slight recovery this year. Last year was 9% market growth for 300-millimeter. Sumco was fortunately able to do better than this. 2026 might not get that high, but there are some offsets, so I don't think volumes will fall significantly year-on-year.

I'm sorry, can I confirm? When you say in line with last year, are you talking about matching the growth rate achieved last year?

No, I don't know that.

So you are saying that absolute volume could be flat to higher year-on-year?

I do think that absolute volume this year should be able to match last year. I can't say how many percent it might grow, but my sense is that there should be some growth. If you were asking whether growth will be higher than last year, I can't really say. I think we might see some growth given the strength in PW.

That's very helpful.

Next is Mr. Miyamoto.

I am Miyamoto of SMBC Nikko Securities. This is a high-level question. Currently, Sumco and Siltronic are in the red. At the same time, if we look at memory makers' OPMs, in the most recent quarter, South Korean makers reported 58% and the U.S. maker was at 45%. I feel that wafer prices are unfairly low. Is it possible to use the gap in margins between wafer makers and memory makers to negotiate for higher prices in future? Is it not possible to link the earnings of wafer makers to the margins of memory players given you support them? I understand, of course, that you have LTAs, but can you comment on your thoughts?

The higher memory chip prices are the consequence of supply/demand. So in our world, the business world, it's all about supply-demand balance. It's not possible to ask for higher prices just because the customer is making good profits. In fact, there have been instances when the customers are loss-making, but we asked for price hikes when there were shortfalls due to supply/demand. However, although we can't generalize at a minimum, I think that higher customer margins do mean less downward price pressure on suppliers. I think that is true. I also think that you might be able to raise prices to a certain extent. But while we expanded epi capacity, many wafer makers expanded PW capacity. So the capacity increases in PW may mean that even if customer margins have improved, it might be challenging to win a price hike. Unless there is a supply shortfall, it isn't easy to raise prices. I do think you make a good point. But unfortunately, economic rationality is not that forgiving. I have been here for 10-plus years and 40 years in the industry. This is not that kind of industry. I have never seen price hikes go through because a customer is making solid profits.

Over the 10-plus years at Sumco, I think there must have been cycles where once profits improve, you see downstream investments, which drive up wafer demand. And as wafer supply tightens, it becomes possible to raise prices. Can we look forward to this going forward?

I do think that there have been such cycles. While I think this could apply to leading edge, when you look at commodity products, Chinese wafer makers now produce test wafers. Also, if you don't mind poor yields, Chinese players could use prime wafers. For instance, yield is not an issue for Chinese chip makers. They use wafers regardless of yields because they are instructed to do so by the government. That makes for a challenging environment.

Thank you. We will end the meeting here. Thank you to everyone for joining the Q4 fiscal 2025 results briefing. We are grateful for your participation today.

Thank you for your participation today. This is the results briefing for the third quarter of the fiscal year ending December 2025. Before starting the presentation, allow me to confirm today's materials which consists of 4 items. The consolidated financial results for the 9 months ended September 30, 2025, and -- the announcement concerning difference between forecast and actual figures for the 9 months ended September 30, 2025. The announcement regarding revision to dividend forecast and the presentation deck entitled Results for Q3 fiscal 2025, which we will use now.

Next, a disclaimer. The estimates, expectations, forecasts and other future information discussed here and shown in today's materials were prepared based on the information available to the company as of today and on certain assumptions and qualifications, including our subjective judgment. Actual financial performance or results may differ substantially from the future information contained in this material due to risk factors, including domestic and global economic conditions, trends in the semiconductor market and foreign exchange rates.

We will have presentations today from Representative Director, Chairman and CEO, Mayuki Hashimoto; and Representative Director and Vice President, CFO, Shinichi Kubozoe. Chairman and CEO, Hashimoto, will discuss our forecast and operating environment. to be followed by an explanation of the financial results by CFO, Kubozoe. We have set aside time for a Q&A session as well.

I will now hand over to Chairman Hashimoto.

I am Chairman Hashimoto. I will start with an overview of the Q3 results. We did come in ahead of plan. Although it wasn't a big overshoot, the results were pretty good. One factor was a delay in incurring depreciation of JPY 0.6 billion. There was also a JPY 1.1 billion contribution from cost reductions, which was the aggregation of many different elements of around JPY 0.1 billion each, such as improvement in yields. Although sales fell short of plan, profits were not that bad.

On sales, and I think this will be covered later, our standard for recognition is not shipment, but arrival at destination. So when there are delays to sea freight, sales can easily vary by JPY 1 billion to JPY 2 billion in either direction. Basically, you should view sales as having been largely unchanged Q-on-Q.

Turning to the earnings forecast for the fourth quarter of 2025. We project sales to be generally similar Q-on-Q at around JPY 100 billion. Q4 includes the year-end holiday season, which has implications for shipments. Sales tend to fall slightly short every year. However, given some pushouts from Q3, we are projecting JPY 100 billion, basically flat Q-on-Q. On profitability, we are expecting a slight dip given our expectation of lower volumes on the back of regular maintenance during the quarter. Depreciation is expected to rise JPY 5.7 billion Q-on-Q, which is reflected in the projection of an JPY 8.4 billion Q-on-Q drop in OP. Production will also decline as a result of the regular maintenance for a negative impact of around JPY 3 billion. These 2 factors combined largely explain the Q-on-Q change.

Next slide, please. This slide shows shareholder returns. The fiscal year-end dividend guidance has been set at JPY 10 per share for a total annual dividend per share of JPY 20. With regard to determining dividend level, we consider a number of factors. We take into account the demand for cash for items such as free cash flow, EBITDA, the situation for funding for dividends to be paid as well as CapEx.

Of course, we take profitability into consideration. But given we are already incurring significant depreciation and expect to incur more going forward, we expect the profit levels may be challenging until depreciation rolls off. However, from next year onward, I expect cash flow should improve significantly. So from the perspective of cash flow available for dividends, I think the situation should get better.

When I became Chairman and CEO, retained earnings were a negative JPY 82.6 billion. But in terms of cash available for dividends, the combination of retained earnings and capital surplus is now around JPY 360 billion. So even in bad times, I would hope to be able to pay dividends at a level equivalent to bank interest rates, hence, the JPY 10 fiscal year-end dividend.

Next page, please. This is the trend for 200-millimeter wafers. The red line is 2025. Trends remain weak. I think that a recovery will be very difficult. I looked at many different factors, but certainly, the decoupling of the U.S. and China is a factor. China is home to a huge pool of 1.43 billion consumers, so consumption of conventional semiconductors is big. The development of a homegrown semiconductor industry has meant that the Chinese are now producing their own chips as well as packages. This has made it difficult for our customers to export to China and has limited their appetite for wafers. This is the single biggest factor. 200-millimeter wafer demand in China was not that large to begin with, so the impact was significant. I think the outlook for a recovery is not good. We will continue to monitor the situation and implement structural reforms as appropriate.

Next slide, please. This is the trend for 300-millimeter wafers. Despite the general conditions, we are seeing a gradual recovery in 300-millimeter wafers. The trend has caught up to the 2022 level, which was the peak level. At that time, with the previous production facilities, everyone in the industry was operating at full capacity. However, the incremental portion of capacity that was subsequently installed is currently excess to requirements in my view.

In Sumco's case, the capacity we added is all leading edge. So in our case, while new facilities are being utilized, increasingly utilization of our older facilities is declining. Therefore, I believe modernization of such facilities is an immediate priority.

Next slide, please. I find myself making the same comments with regard to market conditions every quarter. Third quarter market conditions were largely unchanged. However, if we compare 300-millimeter conditions to last year, there has been a clear recovery.

On the other hand, 200-millimeter market conditions are clearly depressed. LTA prices are being respected. The outlook for Q4 is similar. In terms of the outlook going forward, for now, we continue to expect strong growth for AI-related chips. The reason why I say this is because leading -edge production at our customers is running at full capacity regardless of whether we are talking about HBM or logic at 5 nanometers or lower. There are shortages in customer capacity here, so the drag on growth is the constraints to chip production capacity. Customers are very focused on increasing capacity. However, mature legacy products have been slow to rebound.

Some of this is a reflection of the general sluggishness of the overall market, but consumer and automotive applications are weak. The transition of 200-millimeter applications like CMOS sensors or IGBTs for automotive to 300-millimeter is also substantially impacting 200-millimeter demand. Of course, Chinese players have developed capabilities in producing relatively lower-end products, so there is competition with Chinese players as well.

Next slide, please. So what is our view of the market? We expect the semiconductor market to get to $1 trillion in 2028 with the growth in the market for AI-related chips accounting for the majority of overall growth. We don't expect to see huge growth for the market as a whole, but growth related to AI will be the driver for the semiconductor market, in my view.

There are 3 key applications using 300-millimeter wafers that are enabled for AI, smartphones, PC and tablets and servers. Starting with smartphones, we expect to see rapid adoption of AI functionality in smartphones, but it isn't necessarily the case that the handsets will incorporate AI chips. Instead, much of the AI functionality consists of transactions with the cloud. So this will not be a big driver for leading-edge wafers, although NAND memory will likely increase. So this only accounts for demand of less than 1 million wafers per month, and we estimated the increase from 2024 to 2028 is only around 100,000 wafers per month.

Next slide, please. For PCs as well, we don't expect much growth, although there is likely to be a dramatic increase in AI functionality. By 2028, the vast majority will be enabled for AI. However, here again, we don't expect this to be a big driver of increased wafer demand. This is because bit growth will be offset by scaling. So as a consequence, there won't be much wafer growth.

Next slide, please. Looking at servers, this is an area where bit growth is expected to be dramatic so much that scaling will not be able to keep pace. So we expect leading-edge logic to grow by around 30% and DRAM to grow around 17% to 18%. NAND, on the other hand, is not absolutely necessary for servers, but we do expect to see volume growth in absolute terms. We are hearing of shortages even in HDDs, so there is some slight growth in NAND happening.

More recently, we have started to see a pickup in activity levels for NAND, but customers are carrying significant levels of wafers. So I don't expect to see an immediate impact on wafer demand, although there are signs of an improvement going forward for memory.

Next slide, please. This is an image of total 300-millimeter wafer market demand by application. By 2028, we expect to get close to 10 million wafers per month. The driving force will be servers in our view. PC and tablet demand volume is likely to be flattish and therefore, not a significant growth driver. The same could also be said of smartphones as well. That said, for the foreseeable future, we expect AI will continue to be the market driver.

Next slide, please. This is the situation for customer inventories, which I have been mentioning. Inventory levels remain elevated at a plateau with no signs of dramatic decline. This suggests that a recovery in demand is not likely to lead to an immediate increase in wafers. However, versus where inventories have been, there has been some improvement.

Next slide, please. This is customer inventory split into logic and memory. Actually, in terms of inventory months, memory is stabilizing. Logic inventory months remain high. The reason for this is because while wafers for leading edge logic like GPUs for 7-nanometer or 5-nanometer and lower are selling like hot cakes, but wafers for commoditized conventional logic at 28 nanometers or 40 nanometers won't recover in the absence of a macro recovery. What's more, logic at these design rules are no longer the preserve of Western countries, but can now also be fabricated in China.

These factors are what is weighing heavily on inventory. Also, although we talk about wafers as if they are interchangeable, the production and degree of difficulty for wafers for 28 or 40-nanometer is very different from leading-edge use wafers. It is inventory of wafers for such conventional products that is proving difficult to work down.

So from our perspective, customers are working very hard to increase their capacity for leading edge by building fabs, but top line growth for us depends on this capacity coming online, boosting production and therefore, revenue. This completes my section of the presentation.

I will hand over to CFO, Kubozoe, to talk about details of our Q3 earnings.

I, Kubozoe will present the earnings and outlook in more detail. The results for Q3 fiscal 2025 are shown in the third column from the right and are as highlighted earlier by Chairman Hashimoto. Sales were JPY 99.1 billion, operating profit was minus JPY 1.6 billion, ordinary profit was minus JPY 2.6 billion and profit attributable to owners of the parent was minus JPY 3.9 billion.

In the middle of the table, we show CapEx on an acceptance basis for Q3, which was JPY 17.4 billion. 9-month CapEx was JPY 69.3 billion. CapEx peaked in 2023 and has since been declining. Compared to last year this time, CapEx is down a substantial JPY 100 billion year-on-year. Depreciation, on the other hand, which we show in the line below CapEx, has been rising sequentially. Q3 was JPY 30.6 billion, while 9-month depreciation was JPY 80 billion, up JPY 23.9 billion year-on-year.

The ForEx rate was JPY 147 to the dollar. OPM and other metrics are as shown on this table. We show the analysis of changes to operating profit on the next page.

Next slide, please. Starting on the left, in the analysis of sequential changes to quarterly operating profit, Q3 sales fell JPY 3.8 billion to JPY 99.1 billion from Q2's JPY 102.9 billion. As mentioned earlier, there were some larger-than-expected pushouts to shipments and sales at the end of the quarter, leading to timing differences.

Operating profit fell JPY 3 billion. The waterfall chart below shows an increase in depreciation of JPY 2.8 billion, effectively accounting for the majority of the Q-on-Q change to OP. Sales-related variance was a slight negative, reflecting the dip in sales, but this was offset by cost reductions and the positive impact from a slightly weaker yen, hence, the JPY 3.1 billion Q-on-Q decline in Q3 OP.

Turning to the 9-month results. Sales grew JPY 7.8 billion, but OP fell JPY 24.1 billion year-on-year. The yen appreciated JPY 3 versus the U.S. dollar. As shown in the waterfall chart below, the big year-on-year negatives were depreciation and ForEx impact. There was a slight positive in sales-related variance on the back of top line growth, but this was outweighed by the negative impact of depreciation and ForEx with the combination of the 2 accounting for the vast majority of the year-on-year decline.

Next slide, please. On this slide, I will cover the balance sheet and cash flow. Looking at the middle of the balance sheet, total assets as of the end of September were JPY 1,142.5 billion, down JPY 30 billion compared to the end of December 2024. I will discuss the change in cash and deposits in covering cash flow on the right in a moment, but cash and deposits were down JPY 19.6 billion.

In terms of major items, raw materials and supplies were up on factors such as consumption of polysilicon and ForEx. In contrast, tangible and intangible assets, which had been rising to this point are now falling. CapEx acceptance is now lower than depreciation, hence, the decline as of the end of September.

On the liability side, total liabilities were JPY 493.1 billion, down JPY 22.3 billion. In terms of interest-bearing debt, we chose to cover all of our long-term refinancing needs in 2025 in March at the end of Q1, hence, the increase in debt in first half. However, as maturing debt rolls off in second half, we expect the outstanding balance of interest-bearing debt to decline.

Others under liabilities is down a significant JPY 27.8 billion. The major factor is timing differences between CapEx acceptance and actual payments, as you can also see in net others under cash flow for investing activities. CapEx acceptance is now falling with actual payments starting to take place, leading to a decline in unpaid liabilities. Under net assets, I highlight retained earnings.

As a result of the profit decline and dividend payments, there was a slight decline in retained earnings. Based on this, the equity-to-asset ratio was 51% and the D/E ratio on a gross basis was 0.62x as of the end of September. Both are largely unchanged from the levels as of the end of December 2024.

On the right, we show cash flow. Operating cash flow was a positive JPY 78.5 billion. However, as touched upon earlier, the outflow of cash flow for investment activities was JPY 93.7 billion, reflecting both the decline in CapEx acceptance and an increase in actual payments. The resulting free cash flow was a negative JPY 15.2 billion. After factoring in dividends paid, cash and deposits declined JPY 19.6 billion. With regard to our cash obligations this year, we are tapping into cash and deposits.

Next slide, please. Jumping forward to Page 23, I will now discuss our earnings forecast. The projections for Q4 are as shown on the third column from the right. Our ForEx assumption is JPY 148 to the dollar. We project sales of JPY 100 billion and an operating loss of JPY 10 billion. We project an ordinary loss of JPY 13 billion and a net loss attributable to owners of the parent of JPY 16 billion.

In the next column to the right, we show our full year forecast. We forecast sales of around JPY 400 billion, an operating loss of JPY 4 billion, an ordinary loss of JPY 10.9 billion and a net loss of JPY 16.9 billion. Q4 depreciation is projected to increase further to JPY 37 billion. On a full year basis, we project depreciation of JPY 116.8 billion, up around JPY 38 billion year-on-year. Depreciation has been increasing sequentially. OPM and other metrics are shown in the lower part of the table.

Next slide, please. On this next slide, we show the analysis of changes in operating income. On the left, we show the sequential changes. Q4 sales are projected to increase slightly, but operating income to fall by a significant JPY 8.4 billion. The ForEx assumption is expected to be largely unchanged Q-on-Q. Of the JPY 8.4 billion decline in OP, depreciation is expected to be a major contributor at JPY 5.7 billion. On sales-related variance, we project a negative despite an increase in sales related to regular maintenance at one of our main plants in Q4.

Also related to the year-end holiday season, several of our plants plan to pause operations. Relative to sales, production is expected, therefore, to be slightly lower, resulting in the negative sales-related variance. As a result, we expect a sequential decline in OP of JPY 8.4 billion.

On the right, we show the year-on-year change for the full year forecast. We project a roughly JPY 8 billion year-on-year improvement in sales. For OP, we are guiding for a drop from a positive JPY 36.9 billion to a loss of JPY 4.2 billion, a fall of JPY 41.1 billion. We are assuming a JPY 2.6 strengthening of the yen to the dollar on a year-on-year basis.

On a year-on-year basis, we are also expecting a large increase in depreciation and an impact from ForEx. The combination of these 2 elements is a negative of JPY 39 billion, accounting for the vast majority of the year-on-year decline in OP. Sales is expected to increase, but we do not expect much of an improvement in sales-related variance if we look at the product and customer mix.

We are not assuming much contribution from either sales-related variance or costs. So the big year-on-year declines in depreciation and ForEx are the major factors expected to depress profits. We have provided reference material at the end of the presentation. We have received many questions about depreciation and CapEx, so we have added this page. We show the trends for both starting from 2011, along with our forecast for 2025. Depreciation is the bar on the left and CapEx is shown on the right.

If you look at the dark blue bars for CapEx, you can see that after we made the decision to expand capacity in 2021, there was a sharp increase in investments up to the peak in 2023. While CapEx in 2024 fell year-on-year, it was still at an elevated level. For 2025, it is expected to fall further to around the level we show here. For 2026, we expect further significant declines in CapEx.

In contrast, depreciation has been rising consistently on the back of the ramp-up of the new facilities from 2023 onward. Our expectation for 2026 is that it will continue to rise versus 2025. We expect 2026 to be the peak for depreciation.

Next slide, please. Finally, on Page 27, we show historical trends for sales, OP, EBITDA and EBITDA margin on a quarterly basis. Please review these items at your leisure. This completes my section of the presentation.

We will now open the floor to questions. Our first question comes from Mr. Enomoto of Bank of America Securities.

I would like to ask you about how you are thinking about profitability going forward. Under Sumco vision, you had indicated that you aim to not incur losses even in a market downturn. I think your current vision states that you aim to maintain stable margins. How do you propose to achieve this? Frankly, this year, you are projecting operating losses and operating conditions are tough. What is your strategy for a recovery and stabilizing profits going forward?

In undertaking the current round of capacity expansion, we, of course, did simulations out 10 years based on our capacity once the investments were complete, looking at factors such as LTA-related numbers and prices. At that point, we did not expect that we would fall into the red.

The reason why we are loss-making now is because despite having made investments, our customers have fallen short of their expectations for demand growth. Effectively, they became unable to buy the volumes to which they had committed. With regard to this, our customers have agreed to respect the total volume of their agreements, but only by pushing out deliveries. That is the single biggest miscalculation.

The other miscalculation was that we did not expect the trade war between the U.S. and China to escalate to this level. We have seen a decoupling between the 2 countries. With President Trump coming to power, there was a further escalation driving China toward a strategy of developing its own homegrown semiconductor production capability. While we have not experienced this, our subsidiary, FST, had LTAs that fell through. This is the backdrop to the losses.

Some suggest that we should suspend depreciation. Obviously, if we did so, it would put us back in the black. However, it is our policy to proceed with depreciation even if the facilities are not in use and to work through depreciation quickly. We raised funds based on our plan and are now focused on working down depreciation.

2026 is likely to be a very tough year. But given that we use the declining balance method over a 5-year period, the depreciation burden is likely to ease significantly when we get into 2027 and 2028. We expect revenue should recover at around the same time, particularly for leading-edge wafers. This is our current thinking. That said, 200-millimeter has also been much weaker than we expected initially.

We did not read the market correctly, but it's difficult to predict how this will play out. This is because China has shifted to a focus on developing its own semiconductor capabilities, which has hurt our customers' sales. If our customers can't sell, they won't produce, which has led to a decline in wafer demand.

Also, our operation in the U.S. is facing 2 issues. The first is that there were a lot of exports from the U.S. going into China, including semiconductors. The halting of such exports is impacting our U.S. operation. Also, it isn't the case that the U.S. is buying a significant volume of imports. The shift in the U.S. to producing more domestically has not led to an increase in volume, at least thus far, but exports from the U.S. into China are being significantly reduced.

So at this stage, it is difficult to project the net result of the reduction in exports to China on the one hand versus an increase in business as a result of the U.S. producing more within its own borders. With regard to 200-millimeter, I recognize that we need to make some fundamental changes, and we are considering many things to ensure that we have multiple options, but I don't think we're at the execution phase yet.

We still need to do more in terms of monitoring trends and get a better understanding of cause and effect. We don't yet have enough information to make decisions. In the case of 200-millimeter, book value is already low at this stage, so there is no need to rush to make a decision in any case.

On the other hand, with regard to our domestic capacity expansions, we needed to do this or risk missing out on growth going forward. Without these investments, we would not have been able to catch up on AI demand in my view. So I do think that we did need to make these investments.

Our miscalculation relates to our existing plants producing wafers for chips at design rules like 14-nanometer or 28-nanometer. We do need to modernize our facilities to enable these plants for leading edge. This is what is different from our previous thinking. Once we have completed the modernization of our existing plants, depreciation should be significantly lower and any investments we need to do would be small rather than large-scale investments.

Although we have invested several hundreds of billions of yen so far, the modernization investments would probably be half of JPY 100 billion or so. This should be enough to upgrade these plants for leading edge in my view. This is what we're thinking now.

Next is Mr. Watabe of Morgan Stanley MUFG Securities.

On Page 15, you show wafer demand. Despite the current buzz, you aren't expecting to see much growth in 2026 and 2027. If we think about profitability in the next year and beyond, it sounds like you are expecting next year to be tough. Although there are differences between your shipments and demand, can you talk about what sort of order flow you are seeing? Can you also comment on how much you expect depreciation to increase next year?

In terms of wafer demand, there is the difference between shipments and real demand, but what we are seeing currently is that there is a mismatch between purchases and input volume. Obviously, the reason for the gap is because customers are carrying significant levels of inventory.

In particular, there is a significant overhang of inventory for logic, especially for 28-nanometer, 40-nanometer and 16-nanometer as well. We are not the main supplier for such wafers. It appears that customers have multiple LTAs in place for the mature nodes. There are also suppliers that can only do these mature nodes. This is contributing to the serious inventory overhang. We are expecting demand for us to ramp up relatively sooner. But in terms of a recovery in profitability, it probably does not happen until 2027.

Depreciation will be quite heavy in 2026, so 2026 will likely be tough. I expect the markets to recover in the 2027, 2028 time frame, so I would expect to see a relatively solid performance in these years. We understand that some of our peers have chosen to pause depreciation. In our case, it is our policy to proceed with depreciation. We have already, in any case, paid for our investments, so we will move forward with depreciation. This approach will mean that things get easier in the future. So for now, we simply need to do what we need to do. It does mean that conditions will be tough in the near term.

That is my view. CFO, Kubozoe, do you have anything to add on depreciation?

With regard to next year's depreciation, I can't comment on specific numbers at this time, but I expect depreciation will increase by several tens of billions of yen and we will say that it won't be the high end of the range.

Does that mean an increase of around JPY 20 billion to JPY 30 billion as an image?

What I can say is it won't be a surprisingly large number.

Our depreciation method is declining balance over 5 years at 40%, so depreciation falls 60% per year. We have provided our investment amount in the materials, so you can calculate depreciation. But depreciation doesn't always track in line with expectations, which makes it difficult to comment by year, but this should give you a framework for thinking about it. Depreciation drops off quite quickly since it is declining balance.

Next is Mr. Ikeda of Goldman Sachs Securities.

Could you talk about your initiatives and strategy related to AI? Recently, you were recognized by SK Hynix as a best supplier. I believe your position in HBM has improved. Can you talk about what it was that SK hynix rated highly? I believe that you also hold a very high share with the Taiwanese foundry, but can you talk about your initiatives here?

Also, demand for NAND for AI data servers appears to be rising, and we have seen the emergence of CBA. With regard to stacking, I believe that planarization for logic is very challenging, but I think this can be a promising area going forward. Please talk about your initiatives in and your exposure to semiconductor wafers for AI as well as expected mix in 2027, '28 to the extent possible.

We are particularly strong in leading edge for logic. There are 2 players in HBM, SK Hynix and Samsung. Historically, we had a very strong relationship with Samsung. In contrast, our relationship with SK Hynix had been distant, but in the last 2 to 3 years, we have become very close because of HBM. We now supply significant volumes.

It appears that Samsung has recently entered into contracts with multiple customers for HBM, so their business is ramping up. So we consider HBM to also be an area of focus for us. Effectively, what is growing now for wafers is logic at 5 nanometers and lower and HBM. So we are very focused on both these areas.

If we look at NAND, Kioxia has launched its CBA. We understand that SSDs using CBI are replacing HDDs and SSDs are in great demand for servers. Stacking of NAND is not super challenging. And in fact, YMTC has been doing this from the outset. It is not hugely difficult but still challenging.

Our impression in the past had been that since it was just stacking and all that is being connected is the power source, it is not that difficult. But in fact, it is quite challenging. It does require relatively advanced wafers. So it isn't the kind of thing that can be done easily by the Chinese. For us, very simply, we will devote our efforts to leading-edge wafers.

AI use logic wafers cannot be produced using conventional equipment to date. We have continued to modify and upgrade our facilities. We have significant know-how on how best to use the facilities as well. Unfortunately, existing facilities cannot be used for AI logic, which is why we need to modernize. So what we are seeing now is a wholesale shift to AI.

HBM is driving the growth for DRAM. We have already been certified for HBM, which I think is very important. What is growing is these 2 areas, we are very focused on both. This is why we chose to invest significantly to expand capacity, although it was a very large investment. If we hadn't done this, I believe that we would have seen our share decline sharply. At the moment, depreciation is very heavy, but it was necessary if we think about our future.

If possible, can you talk about how much of Q4 300-millimeter revenue is AI related? I recognize that it may depend on how you view servers, but is it around 15% to 20% of revenue? If you have numbers you can share, that would be very helpful.

AI-related HBM is probably around 200,000 to 250,000 wafers per month overall. For 5-nanometer and lower, maybe it's around 500,000 wafers per month, roughly speaking. So leading -edge market demand is around 600,000 to 700,000 wafers per month. In terms of Sumco share, certainly, we have a very high share for logic. So it probably accounts for, say, around 20% of our revenue.

You mean it is around 20% of your 300-millimeter revenue. Is that correct?

Yes, because price points are high for leading edge.

Next is Mr. Nishiyama of Citigroup Securities.

I have a question about inventory. The Q3 wafer shipments depicted on Page 8 show a flat Q-on-Q progression. So as input volumes picks up, it suggests directionally that inventory should be heading towards peaking out. But on Page 16, you show wafer purchases increasing. Can you explain the apparent divergence between the data? Also, what is your expectation for purchase volumes and input volumes in the December quarter? What do you think this implies for when we will see a normalization of inventory level?

This is quite difficult to explain. As I have been saying, the reason why I expect customers make substantial inventory adjustments in 2026 is because the companies that have committed to LTAs are globally recognized players. Therefore, they are not fly-by-night players or Chinese players that might simply walk away from contracts. Instead, they honor their commitments.

So up to now, they have continued to respect purchase volumes as stipulated in the LTAs. In situations where they can't buy the contracted volumes, they still try to show goodwill by buying a certain level of wafers, but as a result, have ended up with significant inventory. They rented warehouses to accommodate this inventory. We have now reached a point where there is no more room, but to that point, they have been buying wafers they did not need, resulting in a buildup of inventory.

So given this, we will need to see how this plays out. I anticipate that there will be some very tough negotiations. My understanding is that customers will move to address excess inventory in 2026. Wafer inventory for memory is relatively better. So I would expect that purchase volumes will increase in line with input volumes. But for logic, especially 28-nanometer or 40-nanometer, given the weakness of the players, with the exception of one, I think there is a significant overhang in this area.

I see, to the extent that you have visibility, how far along are we in terms of the inventory adjustments to logic? How long do you expect normalization to take? Also, you mentioned that leading edge accounted for a significant portion of sales, and I would expect that demand is strong. How do you expect this to be reflected in your earnings?

The most advanced within leading edge should continue to increase. But if you look at what is happening with customers, building a fab that handles 150,000 wafers per month requires a very significant investment and the construction lead time is very long. So it's not really possible for the customers to increase their capacity that quickly. That's why NVIDIA has been saying that the shortages will likely continue into 2026. It's because they cannot increase capacity that quickly.

If we think about chip on wafer on silicon, availability of packaging facilities is also constrained. So the customers are in a position where they have not been able to produce as many chips as they expected. I think next year will be the most difficult. In 2027, you will see fabs start to come online, so chip production volumes should pick up. That's why AI chip prices are 10x the price of a conventional chip now.

Given this, it is hard for me to forecast, but I do think we may be in for challenging times over the next 1 to 2 years.

Next is Mr. Yoshida of CLSA Securities.

I would like to ask about LTAs. When do you expect negotiations for the next round to begin? Also, based on what you have said, it sounds like negotiations are likely to be very tough for mature nodes. For the 3 key categories of leading edge logic, mature logic and memory, what will you be aiming for?

First of all, with regard to LTAs, as we have said in the past, the end dates have been significantly extended, so they are now expected to run until 2027 or '28. We have also seen extensions as well for memory, but not as far out as logic. My sense is that we will start to see discussions for memory next year. That is probably the case for logic as well, maybe at around this time next year.

From that perspective, although you may be engaging with logic players next year, the LTAs themselves still have more to run. Is that correct? But for memory, depending upon the contracts, do you think there may be some positive factors that could kick in, in price terms?

We aren't yet in a situation where there are shortages, so I don't think prices will rise, but I think the likelihood of prices collapsing is low. I think current conditions are likely to be generally maintained, although I expect there may be a slight increase in memory.

You mean prices would reflect inflation?

When I said increase, I was talking about volume.

Next is Mr. Omura of UBS Securities.

My question is related to the question asked by Mr. Enomoto at the beginning. I am hoping that you can provide a quantitative response. Sumco typically does not provide full year guidance at the beginning of the fiscal year. Hypothetically speaking, if annual sales were to reach JPY 500 billion next year, what level of OP do you think you might aim for? If you have a rough image, that would be very helpful. This fiscal year appears to be shaping up for sales of JPY 400 billion. Taking that into account and assuming that depreciation increases by several tens of billions of yen, I believe that at the top line of JPY 500 billion, you should be able to achieve profits of JPY 50 billion. If you have a framework that you can share, that would be helpful.

With regard to next year, I don't want to mislead you. We typically do not announce full year guidance because it is difficult to provide accurate guidance. Ours is an industry that is quite variable, frequently stopping and starting. That said, for next year, given that our customers are still in the midst of building new fabs, I wouldn't expect them to be able to grow their capacity that much. So volume won't rise that much, but depreciation will increase. Added to this, it is our policy to move forward with depreciation even if the facilities are idle.

So I think profitability next year will be very tough. I would prefer not to provide figures given the risk that it might prove misleading. However, I don't have a sense that we can take a rosy view of next year.

Next year will be a year of hunkering down in my view. In the following year, I think we may see more signs of light. But for 2026, wafer consumption by our customers will not increase that much, especially for leading edge. To grow leading -edge capacity, it is necessary to complete the fabs. This is true for HBMs and for sub -5-nanometer.

Also, although Intel is working very hard, there is still a question about what sort of growth they will get with A14 Angstrom or 18 Angstrom. While the fab construction is complete, the technology is very challenging, so it won't be easy. Next year, TSMC is likely to be the only winner in leading-edge logic. We may see more diversification in players in HBM next year, but even so, I don't think volumes will increase dramatically.

Next is Mr. Miyamoto of SMBC Nikko Securities.

I have a question about demand growth related to AI as shown on Pages 11 through 15. At the beginning of last month, OpenAI announced partnerships with Samsung and SK Hynix and talked about 900,000 wafers per month for DRAM. Based on your experience and also the conversations that you are having with memory makers and family players, what is your view of anticipated demand growth? According to what you show on Slide 15, it doesn't appear that you are taking the suggestion of 900,000 wafers per month at face value, but I think there are other customers besides OpenAI, and there is probably demand growth potential apart from DRAM. What is your view of demand growth driven by AI given OpenAI's talk of 900,000 wafers per month over the medium to long term?

Samsung is certainly very bullish and appears to be very confident about HBM. I wouldn't dismiss the comments out of hand, but our forecasts are based on our analysis of data from multiple sources. I would be very happy if OpenAI were correct, and we have a very good relationship with Samsung. What I will say is that we certainly cheer them on in their efforts.

I did think it was quite a large number when I heard it.

Last year, you received a best partner award from SK Hynix, so I hope that you will see volume increases through them as well. Is that a fair assumption?

Yes, I expect to see some slight increases. My impression is that memory should be more upbeat next year. In logic, on the other hand, one player is dominating the market, so monitoring their progress is a good indicator. Typically, I'm guessing a single fab requires 150,000 wafers per month. The back-end process for CoWoS is still weak, but it appears that they are expanding here. It will depend on the progress here. Probably, their view is that they -- if they produce, there will be buyers. So it is simply a question of when they can start producing.

I have high expectations for an improvement in profitability.

I have high expectations, too. Please continue to support us.

Next is Mr. Nakada of JPMorgan Securities.

My question relates to the question asked earlier by Mr. Nishiyama. Can you explain the 300-millimeter wafer shipment figures shown on Page 8 and the chart on Page 16. Page 8 suggests that shipments are matching the historical peak, but customer purchase in light blue on Page 16 for Q3 is below the previous peak levels in 2021, '22. This suggests that purchases are not at peak levels.

Up to now, I had assumed that shipment volumes were equal to customer purchases, but is that the wrong way to read this chart? Is there an intermediary such as a trading company or distributor that is in between you and the customer that is pulling inventory and is not counted towards customer purchases that can explain this gap? Is this what is pushing up inventory as shown in the green bar? Can you explain the relationship between shipments, customer purchases and customer inventory given that there appears to be a gap?

I would like to confirm the flow to make sure I understand this properly. Also, do the increases in the green bar reflect what is happening in China?

Actually, the sources of data underlying Pages 8 and 16 and 17 are different. The data for Pages 16 and 17 is the aggregation of what we have heard directly from our customers. The data is only from our main customers. For Page 8, we know the overall picture, but recently, we have found that it sometimes includes China, but sometimes not. So we don't really know how the China data is being handled.

At a minimum, China itself does not disclose statistics of how much and where they have sold 300-millimeter. So my sense is that the data on Page 8 may be skewed. However, the data we show on Pages 16 and 17 is based on what we have heard directly from our customers, so it could be that the data may be conservative, but in any case, the data on Page 8 does not match the data on Pages 16 and 17. These charts are really only indicators of trends. The data for the 2 sets of pages do not match.

I see. So in terms of thinking about Sumco's earnings, we should look at Pages 16 and 17 because it is based on what you are hearing from good customers. Is that correct?

Yes. What you see on Pages 16 and 17 are directly reflected in our earnings. The data underlying Page 8 seems to be slightly skewed recently. China is producing 1 million wafers per month, but we don't know what is or isn't included here because those wafers are not being sold in markets outside of China.

There is an estimate that of the 1 million wafers being produced in China, the 200,000 to 300,000 are test wafers, which might be included in this data. This is something our salespeople have heard from customers, but more recently, we have concerns that the data we are collecting may be skewed as well. We actually stopped production of long-term data on wafer demand because the numbers don't match up.

China's presence has grown, but there is no disclosure, so we don't know. However, we have very strong relationships with the top 3 global players, so we are able to collect information throughout these firms at all levels. But even so, the numbers increasingly don't match up. To reiterate, the numbers on Page 8 do not match the numbers on Pages 16 and 17. Please use these charts as an indicator of trends.

Next is Mr. Okazaki of Nomura Securities.

To date, you have talked about Chinese wafer makers, but my understanding is that while they are supplying 300-millimeter to local Chinese chip makers, they are not a significant competitor for Sumco.

For now, yes.

Is that situation still unchanged? So for instance, you explained that the Chinese wafer makers are not reflected in the charts on Pages 16 and 17, but hypothetically, even if they were, this would not impact Sumco's earnings. Is that correct?

That's actually a little difficult. We are actually selling furnaces to China. We analyze the data from many different perspectives. So for instance, you have YMTC in China. They are consuming several hundreds of thousands of wafers per month, but they source virtually all of their wafers from Chinese players. But in terms of how much of the wafers produced in China are sold in markets outside of China, when we have conducted interviews, it appears that there is a company that is exporting test wafers, but we estimate that it represents maybe around 20% of total Chinese production, assuming that China is producing 1 million wafers per month in total.

So for now, I believe the impact is not that large. Also, our customers cannot buy Chinese wafers from a risk perspective, and we understand that they do not find Chinese wafers attractive given that you generally get what you pay for.

That said, Chinese chip makers are using China-made wafers by the order of the government, so yields are not an issue for them.

So currently, you are not competing directly with Chinese wafers, but we don't know about the future. Is that the correct way to understand the situation?

For leading edge, we still have a significant lead. For non-leading edge, I would expect Chinese players to emerge in the medium term. It's also a question of what happens with geopolitics going forward.

Next is Mr. Yamada of Mizuho Securities.

I actually would like to just confirm 3 numbers with you. We have been talking a lot about leading edge, but when you say there is demand for leading edge of 600,000 wafers per month, I understand this to be 7-nanometer or lower. Is this correct?

Second, with regard to the expansion we have seen to this point, I understand it to have started in the fiscal year ended December 2019. I believe that your total CapEx from 2019 to the present is around JPY 880 billion. Has all of this been used either to invest in leading edge or for the modernization of existing facilities?

Third, next fiscal year, CapEx will fall further. Given that 9-month free cash flow for this fiscal year is already in the black, can we assume that free cash flow will grow from here and that this growth will be possible with the facilities in which you have already invested JPY 880 billion.

For the first question, you are correct. When we say leading edge, we are referring to 7-nanometer or lower. On CapEx, almost all was invested in new facilities, but it isn't the case that the remainder was invested in upgrading existing facilities. There were some investments where we were building exact copies of existing facilities. This applies to our foreign joint venture. The JV has strong relationships in China. There isn't that much demand for leading edge, so the investments there were basically replicating existing facilities to expand capacity. This accounts for around JPY 100 billion of the total.

In hindsight, I do feel that we need to modernize even though the facilities are new. For the other investments, I am pleased with what we have achieved. Third, on free cash flow for next fiscal year, at a minimum, CapEx will fall significantly.

I will hand over to CFO, Kubozoe.

On free cash flow, Mr. Yamada referred to Q3, but on a quarterly basis, it can be lumpy, but free cash flow should improve from second half. For next year and beyond, we should see further improvements. The level of modernization investments we are contemplating can be covered by the free cash flow we expect to generate, and we will be disciplined in controlling investments into the medium term as well.

Even if we do all of the proposed modernization investments, it won't require JPY 100 billion over the next 3 to 4 years. On an annual basis, therefore, CapEx would consist of maintenance CapEx and modernization investments. We have completed our greenfield investments and aren't expecting to do more. Also, at this time, it is not the environment for expanding capacity further. We started out by accumulating cash, then raising equity from the market and expected that we would not incur further cash needs.

We did come up slightly short, so our borrowings increased slightly, but we don't anticipate big outlays going forward, given that we have largely completed our payments. So I would expect to be free cash flow positive next year.

The modernization investments of JPY 100 billion that you referred to is the cumulative total for the 3- to 4-year period. Is that correct?

We won't need JPY 100 billion. It will probably be about half that amount. And yes, it is cumulative.

Congratulations on achieving positive free cash flow for the 9 months of 2025.

We will end the meeting here. Thank you to everyone for joining the Q3 fiscal 2025 results briefing. We are grateful for your participation today.