SCREEN Holdings Co.,Ltd. Q2 FY2027 earnings call

• Record High Orders: The company received record-high order intake, driven by robust demand in AI-related leading-edge logic and memory manufacturing.
• Market Growth Expectations: The global WFE market is projected to grow ~25% in Calendar Year 2026 to $155 billion, exceeding $200 billion in CY2027.
• Capacity Expansion: Significant investments are underway in Nagaoka-kyo to increase production capacity by ~1.3x relative to current levels, responding to anticipated >20% market growth. CAPEX forecast raised from 47 to 58 billion yen.
• Strategic R&D: Opened ATCA research hub in the US; engaged in joint quantum computing module research with Yakumo via NEDO; acquired shares in Atomis (MOF technology startup) for gas separation applications.
• Revenue Recognition: Sales are recognized on an installation basis. Delayed projects from last year were fully posted in Q2, causing timing fluctuations but not reflecting fundamental weakness.
• Regional Mix: China remains a key market (~36% full-year forecast), but North America is seeing significant absolute growth. Geopolitical factors cause quarterly regional fluctuations, but application type is the primary driver.

SPE (Semiconductor Process Equipment): Net sales of 251 billion yen (+15% YoY), contributing to approximately 81.5% of group revenue in the first half. Operating profit was 57.5 billion yen (+18.2% YoY) with a margin of 22.9%. GA (General Applications): Net sales of 29.1 billion yen (+3.3 billion yen YoY). Operating profit was 1.7 billion yen (+0.4 billion yen YoY). FT (Flat Panel Display): Net sales of 19.0 billion yen (-18.9% YoY). Operating profit declined due to strong prior year comparisons, though advanced packaging is progressing as planned. PE (Printed Electronics): Net sales of 7.0 billion yen (+1.5 billion yen YoY). Operating profit was -0.1 billion yen; however, strong orders for the second half are expected to drive growth.

• Full-Year Group Forecast: Maintained at July levels. Net sales: 743 billion yen. Operating Profit: 156 billion yen (Margin: 21.1%).
• Segment Adjustments: SPE, GA, and NPE forecasts remain unchanged. FT sales forecast lowered to 42 billion yen with operating profit of 1 billion yen.
• Dividend Policy: Annual dividend maintained at 183 yen (60 yen interim, 123 yen year-end).
• Next Mid-Term Plan: Outline to be announced in late March; full figures in May FY2028 earnings call. Investment focus will continue despite the end of the current plan.
• Cash Flow: Operating cash flow negative in H1 (-10.9 billion yen) due to working capital needs for strong orders; expected to improve as sales are established.

• Supply Chain Constraints: Material procurement shortages are emerging gradually. While no immediate crisis exists for this fiscal year, securing materials for next fiscal year's expansion requires active effort to avoid repeating COVID-era shortages.
• Production Bottlenecks: Lead times for equipment delivery are generally 4-5 months. Management acknowledges that customer urgency could potentially allow for outperformance, but they are prioritizing steady fulfillment over rushing shipments.
• Revenue Recognition Timing: Heavy reliance on installation-based accounting means large order backlogs may sit in warehouses if customers delay installation, potentially impacting reported sales timing rather than underlying demand.
• FX Impact: Exchange rate fluctuations have had a positive impact (~1.5 billion yen) on operating income, primarily benefiting the GA segment, indicating vulnerability to currency shifts.

Q: Yoshida (CLSA) asked why Screen can outperform WFE growth despite historically limited memory exposure, given the market mix shift toward memory. / A: Goto explained that while traditional memory offered limited exposure, new high-function memories like HBM and server DRAM require complex cleaning processes where Screen has strong capabilities. Combined with accelerating leading-edge logic miniaturization, Screen is positioned to grow alongside or faster than the overall WFE market, dispelling the legacy view that memory growth doesn't benefit them.

Q: Shibano (Citi) questioned why full-year targets weren't revised upward despite record orders, and asked about portfolio reorganization. / A: Goto stated that strong inquiries will convert to sales mainly in FY2028, not FY2027. The current fiscal year is focused on preparing manufacturing infrastructure (Hikone reorganization, Nagaoka innovation) to capture next year's growth. Regarding portfolio, details aren't ready yet, but resource allocation will be optimized for efficiency, with the new mid-term plan outline coming in March.

Q: Tamura (Morgan Stanley) asked about the reason for slightly lower-than-expected top-line in Q2 and confirmed if foundry weakness was just a timing issue. / A: Ishimura clarified that the variance was purely due to installation timing delays for sales recognition, not weak demand. Cutting-edge logic foundry orders remain strong. He emphasized that logic foundry is the primary market driver, and quarterly fluctuations are normal due to the installation-based accounting model.

Q: Shimamoto (Okasan) asked about the profitability of delayed projects recognized in Q2 and the sales split between Q3 and Q4. / A: The delayed projects had an average profitability of 27%, consistent with general performance. For the full year, management expects a gradual increase in sales from Q3 to Q4, with a projected split of roughly 60% in Q4 and 40% in Q3, reflecting steady ramp-up.

Q: Yamamoto (SBI) asked if the company plans to change its revenue recognition policy from 'installation completion' to mitigate warehouse storage issues with large backlogs. / A: Management responded that they are continuously discussing with auditing firms to reflect environmental changes but have no concrete plans to change the policy currently. They aim to balance accurate reflection of value transfer with practical operational realities.