SUMCO CORPORATION Q4 FY2025 earnings call

• Chairman Hashimoto mentioned overshoot in operating profit by JPY 5.5 billion with major factors including cost reductions, ForEx impact and delays to depreciation. Q1 earnings forecast has largely unchanged content from fourth quarter but Q-on-Q loss widens due to periodic maintenance and one-off maintenance expenses. - Dividends per share set at JPY 10 per share considering free cash flow and retained earnings. - Trend for 200-millimeter wafers is structural decline with no rebound expected. - 300-millimeter wafers are recovering due to AI-related demand but overall gains are moderate. - CFO Kubozoe discussed Q4 earnings details, balance sheet and cash flow, and earnings forecast for Q1 with projected sales, operating loss, etc. - Chairman Hashimoto talked about management change background, successor's qualifications, and Sumco's progress in R&D and employee morale.

For 200-millimeter wafers, there have been significant structural declines with 21% fall in 2023, 13% in 2024 and a further 4% in 2025. Optically, there may be a slight pickup in power management IC, MOSFET for AI but overall other applications are weak. For 300-millimeter wafers, overall trend is recovering with 300-millimeter down 11% in 2023, up 2% in 2024 and up 9% in 2025 due to AI-related demand. Marginal profitability for epitaxial wafers is slightly higher than polished wafer (PW), so shift in product mix from PW to epitaxial wafers would be more profitable but actual product mix had relatively higher PW sales impacting profits. Q4 sales were JPY 105.2 billion, operating profit was minus JPY 4.5 billion. Full year sales were JPY 409.6 billion and operating profit was JPY 1.3 billion.

• Q1 projection: Sales of JPY 100 billion, operating loss of JPY 6 billion, ordinary loss of JPY 10 billion and net loss attributable to owners of the parent of JPY 10 billion. - Reflects roll-off of existing depreciation outweighing new depreciation leading to Q-on-Q decline in depreciation. - ForEx assumption is JPY 155 to the dollar. - Q1 sales projected to fall to JPY 100 billion due to timing differences in arrival of goods, operating losses projected to widen by JPY 1.5 billion with factors like periodic maintenance and lower operating days, and costs expected to rise Q-on-Q. - Year-on-year change for Q1: OP expected to deteriorate by JPY 11.9 billion due to increase in depreciation and negative impact of product mix on sales variance.

• Actual financial performance may differ from future information due to risk factors like domestic and global economic conditions, trends in semiconductor market and foreign exchange rates. - Legacy product inventory issues with customers wanting to reduce legacy wafer inventory in one fell swoop impacting business. - Chinese wafer makers producing test wafers and potentially using prime wafers regardless of yields creating challenging environment for wafer suppliers.

Q: 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?

A: Hashimoto said he had been thinking of handing over for 14 years, cash flow is back in positive so it's a good time. Successor has significant international business experience. Team is talented and capable, he trusts them to take the company forward.

Q: 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. 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?

A: Hashimoto said invested heavily in leading edge logic, legacy capacity utilization will drop, transition to leading edge. LTAs roll over is long way off, prices will be fine.

Q: With regard to 2026, 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?

A: Hashimoto said correction will last until end of this year, 300-millimeter volumes may be flat to higher year-on-year, can't say exact percentage growth.

Q: 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%. Is it possible to use the gap in margins between wafer makers and memory makers to negotiate for higher prices in future?

A: Hashimoto said higher memory chip prices are due to supply-demand. Can't ask for higher prices just because customer is making good profits. Unless there is supply shortfall, hard to raise prices.