Ferrotec Holdings / 6890xqdoc.imedao.com/15f49060fcd1ee3fc9c82419.pdf · 2017. 10. 23. · 48.8%...

R Ferrotec Holdings / 6890

COVERAGE INITIATED ON: 2011.02.10

LAST UPDATE: 2017.09.25

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to

provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate,

objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will

always present opinions from company management as such. Our views are ours where stated. We do not try to

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Research Coverage Report by Shared Research Inc.

Ferrotec Holdings / 6890 LAST UPDATE: 2017.09.25 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

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INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent

earnings. First-time readers should start at the business section later in the report.

Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 3 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 4

Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------ 4 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 6

Quarterly trends and results ----------------------------------------------------------------------------------------------------------------------------------- 6 Full-year outlook ------------------------------------------------------------------------------------------------------------------------------------------------- 14 Outlook ------------------------------------------------------------------------------------------------------------------------------------------------------------- 24

Business ------------------------------------------------------------------------------------------------------------------------------------------------ 36 Business description -------------------------------------------------------------------------------------------------------------------------------------------- 36 Business model, profitability, financial ratios ----------------------------------------------------------------------------------------------------------- 45 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 46

Historical financial statements ------------------------------------------------------------------------------------------------------------------ 47 Historical earnings results (for reference purposes) ------------------------------------------------------------------------------------------------- 47 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 74 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 75 Statement of cash flows --------------------------------------------------------------------------------------------------------------------------------------- 77

Other information ---------------------------------------------------------------------------------------------------------------------------------- 78 History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 78 News and topics ------------------------------------------------------------------------------------------------------------------------------------------------- 79 Major shareholders --------------------------------------------------------------------------------------------------------------------------------------------- 81 Top management ----------------------------------------------------------------------------------------------------------------------------------------------- 81 Employees --------------------------------------------------------------------------------------------------------------------------------------------------------- 81 Investor relations ------------------------------------------------------------------------------------------------------------------------------------------------ 81 Company profile ------------------------------------------------------------------------------------------------------------------------------------------------- 82


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Key financial data

Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Income statement FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est.Total sales 23,946 32,517 36,625 36,653 31,541 57,880 60,088 38,425 44,746 59,079 69,464 73,848 83,000

YoY 13.5% 35.8% 12.6% 0.1% -13.9% 83.5% 3.8% -36.1% 16.4% 32.0% 17.6% 6.3% 12.4%Gross profit 6,924 9,041 10,641 11,296 8,554 18,520 16,524 6,976 10,820 13,484 17,314 19,709 -

YoY 3.6% 30.6% 17.7% 6.2% -24.3% 116.5% -10.8% -57.8% 55.1% 24.6% 28.4% 13.8% -GPM 28.9% 27.8% 29.1% 30.8% 27.1% 32.0% 27.5% 18.2% 24.2% 22.8% 24.9% 26.7% -

SG&A expenses 5,713 6,752 7,583 8,505 7,850 11,589 12,399 10,585 10,022 11,813 13,289 14,031 -YoY 16.1% 18.2% 12.3% 12.2% -7.7% 47.6% 7.0% -14.6% -5.3% 17.9% 12.5% 5.6% -SG&A-to-sales ratio 23.9% 20.8% 20.7% 23.2% 24.9% 20.0% 20.6% 27.5% 22.4% 20.0% 19.1% 19.0% -

Operating profit 1,211 2,289 3,057 2,791 703 6,932 4,124 -3,608 798 1,671 4,025 5,678 8,200YoY -31.3% 89.0% 33.6% -8.7% -74.8% 885.4% -40.5% - - 109.4% 140.8% 41.1% 44.4%OPM 5.1% 7.0% 8.3% 7.6% 2.2% 12.0% 6.9% -9.4% 1.8% 2.8% 5.8% 7.7% 9.9%

Recurring profit 1,041 2,082 2,414 2,097 524 6,290 3,288 -3,466 1,262 2,031 3,822 5,676 7,100YoY -28.5% 100.0% 16.0% -13.1% -75.0% ##### -47.7% - - 60.9% 88.2% 48.5% 25.1%RPM 4.3% 6.4% 6.6% 5.7% 1.7% 10.9% 5.5% -9.0% 2.8% 3.4% 5.5% 7.7% 8.6%

Net income 709 1,703 1,904 743 156 4,483 1,715 -6,533 1,392 -2,132 2,162 3,256 4,200YoY 11.8% 140.3% 11.8% -61.0% -79.0% ##### -61.7% - - - - 50.6% 29.0%Net margin 3.0% 5.2% 5.2% 2.0% 0.5% 7.7% 2.9% -17.0% 3.1% -3.6% 3.1% 4.4% 5.1%

Per share data (JPY) Shares issued ('000, year end) 20,157 20,157 21,295 21,797 24,897 25,089 30,706 30,904 30,904 30,904 30,904 30,904 30,904EPS 35.6 86.4 99.3 34.4 6.6 180.6 59.2 -212.1 45.2 -69.2 70.2 105.7 126.8EPS (fully diluted) 31.7 76.8 98.9 34.2 - 175.7 58.4 - - - 69.9 105.1 -Dividend per share 8.0 12.0 12.0 12.0 12.0 20.0 20.0 5.0 6.0 8.0 10.0 18.0 20.0Book value per share 857.8 956.4 1,004.4 856.2 892.2 986.6 986.6 966.1 1,216.8 1,260.8 1,255.6 1,271.8 -Balance sheet (JPYmn)

Cash and cash equivalents 4,408 3,226 5,462 7,675 7,346 7,311 9,561 7,373 7,551 10,518 10,039 14,778 Other current assets 10,357 12,736 13,445 16,473 18,277 28,823 31,769 26,898 32,285 33,901 35,246 36,467

Total current assets 14,765 15,962 18,906 24,148 25,622 36,134 41,330 34,271 39,836 44,419 45,285 51,246

Tangible fixed assets 13,819 16,276 16,327 17,275 16,944 19,205 25,397 24,915 29,042 27,739 26,045 34,295 Intangible fixed assets 3,403 3,474 3,074 3,425 2,929 2,812 2,369 1,684 1,614 1,876 2,063 2,061 Investment and other assets 3,351 2,944 2,666 2,104 2,469 3,349 3,475 5,474 4,232 5,377 5,377 4,500

Total assets 35,339 38,657 40,974 46,952 47,964 61,500 72,572 66,344 74,724 79,411 78,769 92,101

Accounts payable 3,087 3,668 4,147 5,386 4,988 8,709 8,610 8,554 10,474 13,241 10,996 13,927 Short-term debt 5,806 7,680 6,263 12,367 10,104 10,835 15,012 12,534 12,424 11,674 10,309 9,541

Total current liabilities 11,521 14,867 14,253 21,034 19,239 25,848 29,592 27,244 28,522 31,536 29,352 32,109

Long-term debt 5,690 4,509 4,399 6,019 5,151 8,256 6,056 5,836 5,673 5,240 6,399 12,625 Total fixed liabilities 6,369 5,516 5,219 6,883 6,143 10,087 8,792 8,661 8,141 8,444 9,929 20,291

Total liabilities 17,890 20,383 19,472 27,917 25,382 35,935 38,385 35,905 36,663 39,979 39,281 52,400 Net assets 17,149 18,274 21,501 19,035 22,582 25,564 34,187 30,439 38,061 39,431 39,489 39,701 Total interest-bearing debt 11,496 12,188 10,662 18,386 15,255 19,091 21,068 18,370 18,097 16,914 16,708 22,167 Cash flow statement (JPYmn) Cash flows from operating activities 4,134 2,050 4,414 2,699 2,374 1,833 643 1,584 3,928 7,829 4,642 8,218 Cash flows from investing activities -3,542 -2,666 -2,104 -8,693 -1,521 -4,419 -8,493 -402 -2,814 -3,553 -4,024 -7,070 Cash flows from financing activities 163 -487 -175 6,686 -459 4,505 10,098 -3,991 -1,861 -2,111 -521 3,898 Financial ratios ROA (RP-based) 3.2% 5.6% 6.1% 4.8% 1.1% 11.5% 4.9% -5.0% 1.8% 2.6% 4.8% 6.6% ROE 4.4% 9.7% 9.7% 3.7% 0.8% 19.2% 5.9% -20.7% 4.1% -5.6% 5.6% 8.4% Equity ratio 48.8% 46.7% 52.0% 39.6% 46.1% 40.1% 46.0% 44.9% 50.2% 48.9% 49.1% 42.6%


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Recent updates

Highlights On September 25, 2017, Ferrotec Holdings Corporation announced the issuance of unsecured corporate bonds (privately

placed bonds). The proceeds will be used as operating capital. It decided to switch a part of its borrowings, previously procured

as long-term working capital, to privately placed bonds to reduce the costs of fundraising and weighted average cost of capital.

Overview of the corporate bonds

Source: Shared Research based on company data

On September 15, 2017, the company announced plans to collaborate with Hangzhao City in China in the semiconductor

wafer business and establish a new company. As a result of these plans, the capital support system will be strengthened in order

to build an 8-inch semiconductor wafer production structure capable of producing a maximum of 450,000 units per month

(includes 150,000 units per month from Yinchuan and Shanghai). The investment period is three years between end-2017 and

end-2020. The company intends to increase capital in stages to a total sum of CNY2.9bn (approximately JPY48.7bn based on

CNY1=JPY16.8 exchange rate), including investments in kind. The company plans for construction to begin at end-2017, for

construction to be completed and equipment testing to begin by end-2018, and for production to begin in the second half of

2019.

Overview

The company made this decision based on the following factors. In the current market environment, the company is making a

progress for mass production of 8-inch semiconductor wafers at Yinchuan and Shanghai factories as customer inquires have led to

demand for semiconductor wafers in China so pressing that current supply cannot meet demands. The company has considered

expanding its business from a long-term perspective in order to respond to customer demands and build a solid foothold in the

Chinese market. The company also sought a strategy to alleviate investment burden while controlling risks because it already has

massive capital expenditures (according to a Shared Research estimate, the company has already invested approximately

JPY9.0bn in 8-inch semiconductor wafers).

Under these circumstances, the company chose to partner with Hangzhao City, in which it began conducting business in 1992.

This partnership was formed based on common desires, as Hangzhao City sought to attract cutting-edge semiconductor industry

to the area and the company sought to expand its business while alleviating investment risks. The company was also praised for

its many years of contributions to Hangzhao City. This partnership includes industrial support in the form of subsidies for

expenses related to wafer development and equipment purchases, as well as financial support in the form of subsidized interest

payments on lending related to this project. The company plans to establish a wholly-owned subsidiary in Hangzhao City which

will develop, design, and manufacture semiconductor wafers. The company intends to increase capital in stages to a total sum of

CNY2.9bn (approximately JPY48.7bn based on CNY1=JPY16.8 exchange rate), including investments in kind.

As a result of this partnership, in large-diameter semiconductor wafers, the capital support system will be strengthened in order

to build an 8-inch semiconductor wafer production structure capable of producing a maximum of 450,000 units per month

(includes 150,000 units per month from Yinchuan and Shanghai). Along with the current maximum monthly production of

400,000 units for small-diameter semiconductor wafers, this project will result in a production structure capable of producing a

monthly maximum of 850,000 units across the entire wafer business. The company expects to become the largest supplier of

semiconductor wafers in China, as it already is the largest supplier of small-diameter semiconductor wafers.

Issued in Interest Maturity Guarantor(JPYbn) rate date

Series 1 Unsecured bonds Sep. 2017 1.2 0.25% Sep. 2024 84Series 2 Unsecured bonds Sep. 2017 1.0 0.18% Sep. 2022 Sumitomo Mitsui Bank 100Series 3 Unsecured bonds Sep. 2017 1.0 0.019% Sep. 2022 Mizuho Bank 100Series 4 Unsecured bonds Sep. 2017 0.1 0.32% Sep. 2022 Chiba Bank 10Total 3.3

Periodical redemption amount(JPYmn: balance redeemed at maturity)


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On August 22, 2017, Shared Research updated the report following interviews with the company.

On August 14, 2017, the company announced earnings results for Q1 FY03/18. The company also released revisions to its 1H

and full-year FY03/18 earnings forecasts

On July 13, 2017, the company announced that the construction of its new plant for 8-inch semiconductor wafer production in

Yinchuan, China was completed on July 6, 2017. The new plant will handle the production and slicing of monocrystalline ingot,

while the polishing process that follow will be done on the newly added production line at the company’s Shanghai plant.

For corporate releases and developments more than three months old, see the News and topics section.


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Trends and outlook

Quarterly trends and results

Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: From Q1 FY03/18, the name of the Equipment-related segment was changed to the Semiconductor Manufacturing Equipment-related segment

Foreign exchange rates


FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18(JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1H 1H 1H Rev. Est. % of FY 1H Init. Est. FY FY Rev. Est. % of FY Init. Est.Sales 16,761 16,855 17,697 18,151 17,214 20,437 16,607 19,590 20,793 33,616 37,651 42,000 49.5% 42,000 69,464 73,848 83,000 25.1% 83,000

YoY 18.6% 11.6% 22.0% 18.3% 2.7% 21.2% -6.2% 7.9% 20.8% 15.0% 12.0% 11.6% 11.6% 17.6% 6.3% 12.4% 12.4%Gross profit 4,133 4,415 4,319 4,446 4,874 5,220 4,477 5,137 5,985 8,549 10,094 11,890 50.3% 10,875 17,314 19,709 23,190 25.8% 21,671

YoY 30.6% 25.7% 30.5% 27.1% 17.9% 18.2% 3.7% 15.6% 22.8% 28.0% 18.1% 17.8% 7.7% 28.4% 13.8% 17.7% 10.0%GPM 24.7% 26.2% 24.4% 24.5% 28.3% 25.5% 27.0% 26.2% 28.8% 25.4% 26.8% 28.3% 25.9% 24.9% 26.7% 27.9% 26.1%

SG&A expenses 3,294 3,311 3,507 3,176 3,237 3,480 3,367 3,947 3,717 6,606 6,717 7,490 49.6% 7,275 13,289 14,031 14,990 24.8% 14,471YoY 27.9% 14.1% 20.7% -7.4% -1.7% 5.1% -4.0% 24.3% 14.8% 20.6% 1.7% 11.5% 8.3% 12.5% 5.6% 6.8% 3.1%SG&A-to-sales ratio 19.7% 19.6% 19.8% 17.5% 18.8% 17.0% 20.3% 20.1% 17.9% 19.7% 17.8% 17.8% 17.3% 19.1% 19.0% 18.1% 17.4%

Operating profit 839 1,104 812 1,270 1,637 1,740 1,111 1,191 2,268 1,943 3,377 4,400 51.5% 3,600 4,025 5,678 8,200 27.7% 7,200YoY 42.0% 81.4% 101.4% 1,750.9% 95.1% 57.6% 36.8% -6.2% 38.5% 62.0% 73.8% 30.3% 6.6% 140.8% 41.1% 44.4% 26.8%OPM 5.0% 6.5% 4.6% 7.0% 9.5% 8.5% 6.7% 6.1% 10.9% 5.8% 9.0% 10.5% 8.6% 5.8% 7.7% 9.9% 8.7%

Recurring profit 844 1,045 856 1,078 985 1,123 1,435 2,133 1,748 1,889 2,108 3,700 47.2% 3,200 3,822 5,676 7,100 24.6% 6,400YoY 343.9% 62.2% 5.8% 177.9% 16.7% 7.5% 67.7% 97.9% 77.5% 126.4% 11.6% 75.5% 51.8% 88.2% 48.5% 25.1% 12.8%RPM 5.0% 6.2% 4.8% 5.9% 5.7% 5.5% 8.6% 10.9% 8.4% 5.6% 5.6% 8.8% 7.6% 5.5% 7.7% 8.6% 7.7%

Net income 584 619 312 648 454 580 925 1,297 926 1,202 1,034 2,100 44.1% 2,000 2,162 3,256 4,200 22.0% 4,000YoY - 55.1% -41.4% - -22.2% -6.3% 196.9% 100.1% 103.9% 239.1% -14.0% 103.1% 93.5% - 50.6% 29.0% 22.8%Net margin 3.5% 3.7% 1.8% 3.6% 2.6% 2.8% 5.6% 6.6% 4.5% 3.6% 2.7% 5.0% 4.8% 3.1% 4.4% 5.1% 4.8%

FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 FY03/18(JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1H 1H 1H Rev. Est. % of FY 1H Init. Est. FY FY Rev. Est. % of FY Init. Est.Sales 16,761 16,855 17,697 18,151 17,214 20,437 16,607 19,590 20,793 33,616 37,651 42,000 49.5% 42,000 69,464 73,848 83,000 25.1% 83,000YoY 18.6% 11.6% 22.0% 18.3% 2.7% 21.2% -6.2% 7.9% 20.8% 15.0% 12.0% 11.6% 11.6% 17.6% 6.3% 12.4% 12.4%

Semiconductor Equip.-related 7,264 8,227 7,965 7,949 7,733 8,316 7,707 8,486 10,027 15,491 16,050 20,350 20,350 31,405 32,243 41,250 24.3% 41,250Vacuum feedthroughs 1,569 1,958 1,962 1,674 1,931 2,035 1,840 2,354 2,639 3,527 3,966 4,900 4,900 7,163 8,160 9,300 9,300Quartz 1,659 1,966 1,399 2,600 2,013 2,092 1,857 2,280 2,348 3,625 4,105 5,450 5,450 7,624 8,242 11,450 11,450Ceramics 1,692 1,578 1,629 1,248 1,413 1,580 1,533 1,740 2,165 3,270 2,993 4,100 4,100 6,147 6,266 8,050 8,050CVD-SiC - 504 596 585 548 664 551 142 885 504 1,212 1,550 1,550 1,685 1,905 3,300 3,300EB-gun, others 1,117 824 1,446 1,081 947 921 1,001 948 803 1,941 1,868 2,150 2,150 4,468 3,817 4,750 4,750Silicon wafer processing 1,239 1,385 933 760 882 1,024 925 1,023 1,186 2,624 1,906 2,200 2,200 4,317 3,854 4,400 4,400

YoY 18.8% 20.4% 21.8% 12.3% 6.5% 1.1% -3.2% 6.8% 29.7% 19.6% 3.6% 26.8% 26.8% 18.2% 2.7% 27.9% 27.9%Vacuum feedthroughs -15.5% -12.4% 11.2% 0.6% 23.1% 3.9% -6.2% 40.6% 36.7% -13.8% 12.4% 23.6% 23.6% -4.7% 13.9% 14.0% 14.0%Quartz 40.5% 58.8% 12.2% 73.0% 21.3% 6.4% 32.7% -12.3% 16.6% 49.9% 13.2% 32.8% 32.8% 47.5% 8.1% 38.9% 38.9%Ceramics 45.6% 18.4% 23.4% -8.7% -16.5% 0.1% -5.9% 39.4% 53.2% 31.1% -8.5% 37.0% 37.0% 18.6% 1.9% 28.5% 28.5%CVD-SiC - - - - - 31.7% -7.6% -75.7% 61.5% - 140.5% 27.9% 27.9% - 13.1% 73.2% 73.2%EB-gun, others 64.3% -1.6% 36.8% -18.8% -15.2% 11.8% -30.8% -12.3% -15.2% 27.9% -3.8% 15.1% 15.1% 14.4% -14.6% 24.4% 24.4%Silicon wafer processing 0.4% 16.1% -18.9% -37.4% -28.8% -26.1% -0.9% 34.6% 34.5% 8.1% -27.4% 15.4% 15.4% -9.9% -10.7% 14.2% 14.2%

Photovoltaic 4,701 4,041 4,708 5,056 4,655 5,989 3,897 4,232 4,386 8,741 10,644 7,700 7,700 18,506 18,773 15,000 29.2% 15,000Silicon growing equipment -5 109 147 108 140 354 473 - 76 104 494 850 850 359 967 50 50Quartz crucibles 905 799 888 932 753 578 359 351 381 1,704 1,331 4,500 4,500 3,524 2,041 1,950 1,950PV silicon 2,585 2,656 1,271 1,971 1,812 3,670 2,411 2,706 2,910 5,241 5,482 50 50 8,483 10,599 8,500 8,500PV cells, others 1,257 435 2,403 2,046 1,949 1,388 654 1,175 1,020 1,692 3,337 2,300 2,300 6,141 5,166 4,500 4,500

YoY -6.3% -21.3% 23.1% 27.3% -1.0% 48.2% -17.2% -16.3% -5.8% -13.9% 21.8% -27.7% -27.7% 3.1% 1.4% -20.1% -20.1%Silicon growing equipment - 10.1% 568.2% - - 224.8% 221.8% - -45.7% -77.4% 375.0% 72.1% 72.1% -20.6% 169.4% -94.8% -94.8%Quartz crucibles -2.9% -7.9% 27.2% 7.5% -16.8% -27.7% -59.6% -62.3% -49.4% -5.3% -21.9% 238.1% 238.1% 4.7% -42.1% -4.5% -4.5%PV silicon -7.6% -17.2% -56.2% -22.7% -29.9% 38.2% 89.7% 37.3% 60.6% -12.7% 4.6% -99.1% -99.1% -26.0% 24.9% -19.8% -19.8%PV cells, others 36.2% -54.9% 1,089.6% 249.7% 55.1% 219.1% -72.8% -42.6% -47.7% -10.3% 97.2% -31.1% -31.1% 129.7% -15.9% -12.9% -12.9%

Electronic Device 3,338 3,128 3,582 3,280 3,058 3,073 3,199 3,298 3,223 6,466 6,131 6,900 6,900 13,328 12,627 13,450 24.0% 13,450Thermoelectric modules 3,145 2,929 3,372 3,113 2,887 2,850 2,939 3,071 3,037 6,074 5,737 6,400 6,400 12,559 11,747 12,450 12,450Magnetic fluids, others 193 199 210 167 171 222 261 225 186 392 393 500 500 769 879 1,000 1,000

YoY 60.6% 50.0% 34.4% 15.1% -8.4% -1.8% -10.7% 0.5% 5.4% 55.3% -5.2% 12.5% 12.5% 37.7% -5.3% 6.5% 6.5%Thermoelectric modules 64.3% 55.2% 35.7% 17.6% -8.2% -2.7% -12.8% -1.3% 5.2% 59.8% -5.5% 11.6% 11.6% 40.6% -6.5% 6.0% 6.0%Magnetic fluids, others 17.7% - 16.0% -18.1% -11.4% 11.6% 24.3% 34.7% 8.8% 8.0% 0.3% 27.2% 27.2% 2.8% 14.3% 13.8% 13.8%

Others 1,458 1,459 1,442 1,865 1,768 3,058 1,804 3,574 3,157 2,917 4,826 3,450 3,450 6,224 10,204 13,300 23.7% 13,300YoY 58.2% 38.8% -2.1% 29.8% 21.3% 109.6% 25.2% 91.6% 78.5% 47.8% 65.4% -28.5% -28.5% 27.4% 63.9% 30.3% 30.3%

Operating profit 839 1,104 812 1,270 1,637 1,740 1,111 1,191 2,268 1,943 3,377 4,400 51.5% 3,600 4,025 5,678 7,100 35.4% 6,400YoY 42.0% 81.4% 101.4% 1,750.9% 95.1% 57.6% 36.8% -6.2% 38.5% 62.0% 73.8% 30.3% 6.6% 140.8% 41.1% 25.0% 12.7%

Semiconductor Equip.-related 709 728 956 756 883 1,023 1,146 1,183 1,648 1,437 1,905 3,148 4,234 Increase IncreasePhotovoltaic -488 -249 -835 -120 175 19 -739 -639 -222 -737 193 -1,692 -1,184 Narrower loss Narrower lossElectronic Device 606 613 631 618 600 664 669 662 805 1,219 1,264 2,467 2,595 Increase IncreaseOthers 22 41 62 19 5 32 89 118 46 63 37 143 244 Eliminations -10 -28 -1 -3 -25 3 -54 -134 -9 -38 -23 -42 -211

OPM 5.0% 6.5% 4.6% 7.0% 9.5% 8.5% 6.7% 6.1% 10.9% 5.8% 9.0% 10.5% 8.6% 5.8% 7.7% 8.6% 7.7%Semiconductor Equip.-related 9.8% 8.8% 12.0% 9.5% 11.4% 12.3% 14.9% 13.9% 16.4% 9.3% 11.9% 10.0% 13.1% Photovoltaic -10.4% -6.2% -17.7% -2.4% 3.7% 0.3% -19.0% -15.1% -5.1% -8.4% 1.8% -9.1% -6.3% Electronic Device 18.1% 19.6% 17.6% 18.8% 19.6% 21.6% 20.9% 20.1% 25.0% 18.8% 20.6% 18.5% 20.5% Others 1.5% 2.8% 4.3% 1.0% 0.3% 1.1% 4.9% 3.3% 1.5% 2.1% 0.8% 2.3% 2.4%

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Coverage

Full-year trends and results


FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18(JPYmn) FY FY FY FY FY FY FY FY FY FY FY FY FY Rev. Est. Init. Est. Diff.Sales 21,106 23,946 32,517 36,625 36,653 31,541 57,880 60,088 38,425 44,746 59,079 69,464 73,848 83,000 83,000 -

YoY 40.7% 13.5% 35.8% 12.6% 0.1% -13.9% 83.5% 3.8% -36.1% 16.4% 32.0% 17.6% 6.3% 12.4% 12.4% Gross profit 6,682 6,924 9,041 10,641 11,296 8,554 18,520 16,524 6,976 10,820 13,484 17,314 19,709 23,190 21,671 +1,519

YoY 39.8% 3.6% 30.6% 17.7% 6.2% -24.3% 116.5% -10.8% -57.8% 55.1% 24.6% 28.4% 13.8% 17.7% 10.0% GPM 31.7% 28.9% 27.8% 29.1% 30.8% 27.1% 32.0% 27.5% 18.2% 24.2% 22.8% 24.9% 26.7% 27.9% 26.1% +1.8pp

SG&A expenses 4,920 5,713 6,752 7,583 8,505 7,850 11,589 12,399 10,585 10,022 11,813 13,289 14,031 14,990 14,471 +519YoY 18.1% 16.1% 18.2% 12.3% 12.2% -7.7% 47.6% 7.0% -14.6% -5.3% 17.9% 12.5% 5.6% 6.8% 3.1% SG&A-to-sales ratio 23.3% 23.9% 20.8% 20.7% 23.2% 24.9% 20.0% 20.6% 27.5% 22.4% 20.0% 19.1% 19.0% 18.1% 17.4% +0.6pp

Operating profit 1,762 1,211 2,289 3,057 2,791 703 6,932 4,124 -3,608 798 1,671 4,025 5,678 8,200 7,200 +1,000YoY 186.5% -31.3% 89.0% 33.6% -8.7% -74.8% 885.4% -40.5% - - 109.4% 140.8% 41.1% 44.4% 26.8% OPM 8.3% 5.1% 7.0% 8.3% 7.6% 2.2% 12.0% 6.9% -9.4% 1.8% 2.8% 5.8% 7.7% 9.9% 8.7% +1.2pp

Recurring profit 1,457 1,041 2,082 2,414 2,097 524 6,290 3,288 -3,466 1,262 2,031 3,822 5,676 7,100 6,400 +700YoY - -28.5% 100.0% 16.0% -13.1% -75.0% 1,099.9% -47.7% - - 60.9% 88.2% 48.5% 25.1% 12.8% RPM 6.9% 4.3% 6.4% 6.6% 5.7% 1.7% 10.9% 5.5% -9.0% 2.8% 3.4% 5.5% 7.7% 8.6% 7.7% +0.8pp

Net income 634 709 1,703 1,904 743 156 4,483 1,715 -6,533 1,392 -2,132 2,162 3,256 4,200 4,000 +200YoY - 11.8% 140.3% 11.8% -61.0% -79.0% 2,768.4% -61.7% - - - - 50.6% 29.0% 22.8% Net margin 3.0% 3.0% 5.2% 5.2% 2.0% 0.5% 7.7% 2.9% -17.0% 3.1% -3.6% 3.1% 4.4% 5.1% 4.8% +0.2pp

Capital expenditures 2,074 3,129 4,927 3,483 3,020 2,366 5,036 7,877 3,706 3,825 3,375 3,440 7,322 10,000 Depreciation 1,359 1,670 1,807 2,145 2,421 2,605 2,655 2,825 3,321 3,942 3,964 4,303 3,593 4,000 Amortization of goodwill 233 81 87 269 171 316 421 436 456 380 149 155 197

FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 -(JPYmn) FY FY FY FY FY FY FY FY FY FY FY FY FY Rev. Est. Init. Est. Diff.Sales 21,106 23,946 32,517 36,625 36,653 31,541 57,880 60,088 38,425 44,746 59,079 69,464 73,848 83,000 83,000 -YoY 40.7% 13.5% 35.8% 12.6% 0.1% -13.9% 83.5% 3.8% -36.1% 16.4% 32.0% 17.6% 6.3% 12.4% 12.4%

Semiconductor Equip.-related 14,477 15,805 20,639 22,852 17,524 14,952 27,694 24,884 18,868 21,628 26,567 31,405 32,243 41,250 41,250 -YoY - 9.2% 30.6% 10.7% -23.3% -14.7% 85.2% -10.1% -24.2% 14.6% 22.8% 18.2% 2.7% 27.9% 27.9%

Vacuum feedthroughs 4,214 4,335 5,616 5,768 5,393 3,921 7,764 6,763 4,686 5,422 7,519 7,163 8,160 9,300 9,300 -Quartz 4,300 4,086 5,306 7,214 3,780 3,470 6,501 5,509 3,420 4,484 5,169 7,624 8,242 11,450 11,450 -Ceramics - - - - 1,947 2,524 3,819 4,507 4,108 3,965 5,182 6,147 6,266 8,050 8,050 -CVD-SiC 1,685 1,905 3,300 3,300 -EB-gun, others 1,589 1,703 2,519 2,855 1,859 1,167 4,122 4,078 2,724 3,242 3,905 4,468 3,817 4,750 4,750 -Silicon wafer processing 4,374 5,682 7,198 7,016 4,545 3,870 5,489 4,027 3,930 4,515 4,791 4,317 3,854 4,400 4,400 -

Photovoltaic 3,267 4,638 11,019 10,579 21,152 27,357 12,345 13,204 17,948 18,506 18,773 15,000 15,000 -YoY -4.0% 99.9% 29.3% -54.9% 7.0% 35.9% 3.1% 1.4% -20.1% -20.1%

Silicon growing equipment 2,194 2,775 8,023 6,699 9,801 12,959 2,280 687 452 359 967 50 50 -Quartz crucibles 143 657 1,203 1,893 3,654 4,887 2,709 3,699 3,365 3,524 2,041 1,950 1,950 -PV silicon 930 1,206 1,793 1,987 6,185 7,420 5,509 7,570 11,458 8,483 10,599 8,500 8,500 -PV cells, others 1,510 2,091 1,847 1,247 2,674 6,141 5,166 4,500 4,500 -

Electronic Device 3,578 3,409 5,286 5,609 4,355 3,750 6,917 5,337 4,564 6,609 9,680 13,328 12,627 13,450 13,450 -YoY -4.7% 55.0% 6.1% -22.4% -13.9% 84.5% -22.8% -14.5% 44.8% 46.5% 37.7% -5.3% 6.5% 6.5%

Thermoelectric modules 2,054 2,623 4,586 5,032 3,914 3,407 6,442 4,933 4,126 6,054 8,932 12,559 11,747 12,450 12,450 -Magnetic fluids, others 1,524 785 700 577 441 343 475 404 438 555 748 769 879 1,000 1,000 -

Others 3,051 4,732 3,331 3,526 3,756 2,259 2,117 2,510 2,648 3,304 4,884 6,224 10,204 13,300 13,300 -YoY 55.1% -29.6% 5.9% 6.5% -39.9% -6.3% 18.5% 5.5% 24.8% 47.8% 27.4% 63.9% 30.3% 30.3%

Gross profit 6,682 6,924 9,041 10,641 11,296 8,554 18,520 16,524 6,976 10,820 13,484 17,314 19,709 21,671 21,671 -YoY 39.8% 3.6% 30.6% 17.7% 6.2% -24.3% 116.5% -10.8% -57.8% 55.1% 24.6% 28.4% 13.8% 10.0% 10.0% GPM 31.7% 28.9% 27.8% 29.1% 30.8% 27.1% 32.0% 27.5% 18.2% 24.2% 22.8% 24.9% 26.7% 26.1% 26.1% -

SG&A expenses 4,920 5,713 6,752 7,583 8,505 7,850 11,589 12,399 10,585 10,022 11,813 13,289 14,031 14,471 14,471 -YoY 18.1% 16.1% 18.2% 12.3% 12.2% -7.7% 47.6% 7.0% -14.6% -5.3% 17.9% 12.5% 5.6% 3.1% 3.1% SG&A-to-sales ratio 23.3% 23.9% 20.8% 20.7% 23.2% 24.9% 20.0% 20.6% 27.5% 22.4% 20.0% 19.1% 19.0% 17.4% 17.4% -

Operating profit 1,762 1,211 2,289 3,057 2,791 703 6,932 4,124 -3,608 798 1,671 4,025 5,678 8,200 7,200 +1,000YoY -31.3% 89.0% 33.6% -8.7% -74.8% 885.4% -40.5% - - 109.4% 140.8% 41.1% 44.4% 26.8%

Semiconductor Equip.-related 931 -505 3,097 2,499 138 505 1,524 3,148 4,234 Increase Increase IncreasePhotovoltaic 1,658 1,168 2,475 776 -3,934 -387 -1,272 -1,692 -1,184 Narrower loss Narrower loss Wider lossElectronic Device 180 188 1,165 555 258 733 1,460 2,467 2,595 Increase Increase IncreaseOthers 81 -101 237 368 -8 8 10 143 244 Eliminations -60 -46 -43 -74 -61 -61 -50 -42 -211

OPM 8.3% 5.1% 7.0% 8.3% 7.6% 2.2% 12.0% 6.9% -9.4% 1.8% 2.8% 5.8% 7.7% 9.9% 8.7% +1.2ppSemiconductor Equip.-related 5.3% -3.4% 11.2% 10.0% 0.7% 2.3% 5.7% 10.0% 13.1% - Photovoltaic 15.0% 11.0% 11.7% 2.8% -31.9% -2.9% -7.1% -9.1% -6.3% - Electronic Device 4.1% 5.0% 16.8% 10.4% 5.6% 11.1% 15.1% 18.5% 20.5% - Others 2.2% -4.5% 11.2% 14.7% -0.3% 0.2% 0.2% 2.3% 2.4% -



Capital expenditures 2,074 3,129 4,927 3,483 3,020 2,366 5,036 7,877 3,706 3,825 3,375 3,440 7,322 - 10,000 Depreciation 1,359 1,670 1,807 2,145 2,421 2,605 2,655 2,825 3,321 3,942 3,964 4,303 3,593 - 4,000 Amortization of goodwill 233 81 87 269 171 316 421 436 456 380 149 155 197 - -


08/83

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Coverage

Q1 FY03/18 results (out August 14, 2017)

▷ Q1: Sales rose 21% and operating profit rose 39%. Mainstay Semiconductor Manufacturing Equipment-related sales drove results.

Upward revision of 1H and full-year results forecasts for operating profit, recurring profit, and net income

▷ Semiconductor Manufacturing Equipment-related segment: Robust results for semiconductor materials. Improved yields and the

positive impact of higher production contributed. Mainstay vacuum feedthroughs continued to perform well

Materials: Robust results along all product lines. Strong demand expected to continue in Q2 and higher production forecasted from 2H and beyond

▷ Photovoltaic segment: Continued to conduct structural reforms for unprofitable products. Operating losses shrunk compared

with Q4 FY03/17. No one-time factors. Operating losses within expectations

Revised forecasts: From Q2, the company expects to see effects from structural reforms. However, the company expanded the loss forecast to account for the possibility of one-time factors such as valuation losses and allowances

▷ Electronic Device segment: Both sales and profits rose. Results of mainstay thermoelectric modules for heated car seats were

within expectations. Communication equipment performed well. Demand rose in the semiconductor manufacturing equipment

business

▷ Upward revision: No changes to sales forecasts (even within the sub-segments), however operating profit, recurring profit, and

net income revised upward, primarily in Semiconductor Manufacturing Equipment-related and Electronic Device segments

Quarterly earnings


Earnings overview In Q1 FY03/18, sales rose 21% YoY while operating profit rose 39% YoY. The Electronic Device segment generated profits, and

operating profit doubled at the Semiconductor Manufacturing Equipment-related segment, which has been driving results, due

to a favorable market environment and the effects of increased production. The Photovoltaic segment also ended the quarter

with solid results as it shrunk its operating loss compared with Q4 FY03/17.

In the Semiconductor Manufacturing Equipment-related segment, demand was robust for relatively high-margin products, such

as vacuum feedthroughs for semiconductor, LC panel and organic EL panel production equipment, as well as materials such as

jigs and consumables used in manufacturing equipment, as production increased. In the Electronic Device segment, mainstay

heated automotive seat products were generally solid as non-automotive products, primarily communications equipment, also

2.9 3.1 3.95.1 5.9 7.1

7.2 7.5 7.2 7.5 5.5 4.7 4.5 5.1 4.7 4.7 4.6 5.6 5.4 6.1 6.16.8 6.5 7.1 7.3 8.2 8.0 7.9 7.7 8.3 7.7 8.5

10.02.5 2.53.2 2.4

2.93.9

6.18.3 9.3 7.3

6.93.8 3.3 3.8 2.7 2.7 2.8 2.9 3.4

4.2 5.05.1 3.8 4.0

4.7 4.0 4.7 5.1 4.76.0

3.9 4.24.4

0.7 0.81.1 1.2

1.41.6

2.11.8 1.8 1.4

1.1

1.0 1.2 1.0 1.1 1.3 1.41.4 1.9

1.9 2.12.1

2.7 2.93.3 3.1 3.6 3.3 3.1

3.13.2

3.33.2

6.5 6.98.7 9.4

10.713.1

16.018.1 18.8

16.9

14.0

10.3 9.5 10.5 9.1 9.3 9.510.7 11.4

13.2 14.115.1 14.5 15.3

16.8 16.9 17.718.2 17.2

20.4

16.6

19.620.8

-120%

-80%

-40%

0%

40%

80%

120%

0

4

8

12

16

20

24

Q1FY03/10

Q3 Q1FY03/11

Q3 Q1FY03/12

Q3 Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3

Semiconductor Equip. Related Photovoltaic Electronic Device Others YoY (right axis)(JPYbn)

-238 -306

538 709986

1,257

2,1102,5782,382

1,183980

-420-471

-1,683

-493-961

-58

217 89550 591 609

40369

8391,104812

1,2701,6371,740

1,1111,1912,268

4.0%2.8%0.4%

5.0%6.5%4.6%7.0%

9.5%8.5%6.7%6.1%10.9%

-20%

-10%

0%

10%

20%

30%

-2,000

-1,000

0

1,000

2,000

3,000

Q1FY03/10

Q3 Q1FY03/11

Q3 Q1FY03/12

Q3 Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3

Semiconductor Equip. Related Photovoltaic Electronic Device Others Eliminations OPM (right axis)(JPYmn)


09/83

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Coverage

were robust. The company has won orders in Europe for its substrates for power semiconductor devices.. Based on Q1 FY03/18

results, the company announced an upward revision of 1H and full-year forecasts. The reason for this revision is as follows.

Reasons for forecasts revision

For 1H, the company kept its sales forecasts unchanged from its initial forecasts because it expects orders for materials for

semiconductor manufacturing equipment to remain at certain level based on Q1 FY03/18 results. However, the company does

expect operating profit to be boosted by improved yields due to changes in the product mix for materials and higher production.

The company also expects recurring profit to be helped by limited foreign exchange losses as the currency market seems to be

fluctuating only slightly.

For the full-year FY03/18, the company has also maintained its previous sales forecast because it expects capex and facility

utilization to be stable for device manufacturers in the electronics industry. However, operating profit is expected to be affected

by plans to ship eight-inch semiconductor wafers and the completed construction of a new ceramics factory. From 2H, the

company expects depreciation related to capex to emerge.

However, Shared Research expects that demand for semiconductor manufacturing equipment and materials will be solid. Taking

into consideration that high production can be expected in 2H, Shared Research views this revised forecast as conservative.

1H and full-year forecast revision


Semiconductor Manufacturing Equipment-related segment (formerly Equipment-related segment)

▷ Q1: Sales up 30% (JPY2.3bn) and profit up 87% (JPY800mn). Mainstay vacuum feedthroughs were robust. Material products

were also solid. Production expected to increase significantly from 2H

▷ OPM: 16.4%, up 5pp YoY due to improved yields as profitable products such as materials rose and there was higher production

FY03/17 FY03/18 Revised Est. FY03/18 Initial Est. Difference(JPYmn) 1H Act. 2H Act. FY Act. 1H Est. 2H Est. FY Est. 1H Est. 2H Est. FY Est. 1H 2H FYSales 37,651 36,197 73,848 42,000 41,000 83,000 42,000 41,000 83,000 - - -　　YoY 12.0% 1.0% 6.3% 11.6% 13.3% 12.4% 11.6% 13.3% 12.4% Gross profit 10,094 9,615 19,709 11,890 11,300 23,190 10,875 10,796 21,671 +1,015 +504 +1,519　　YoY 18.1% 9.7% 13.8% 17.8% 17.5% 17.7% 7.7% 12.3% 10.0% GPM 26.8% 26.6% 26.7% 28.3% 27.6% 27.9% 25.9% 26.3% 26.1% +2.4pp +1.2pp +1.8ppSG&A expenses 6,717 7,313 14,031 7,490 7,500 14,990 7,275 7,196 14,471 +215 +304 +519

SG&A-to-sales ratio 17.8% 20.2% 19.0% 17.8% 18.3% 18.1% 17.3% 17.6% 17.4% +0.5pp +0.7pp +0.6ppOperating profit 3,377 2,301 5,678 4,400 3,800 8,200 3,600 3,600 7,200 +800 +200 +1,000　　YoY 73.8% 10.5% 41.1% 30.3% 65.1% 44.4% 6.6% 56.4% 26.8% 　　OPM 9.0% 6.4% 7.7% 10.5% 9.3% 9.9% 8.6% 8.8% 8.7% +1.9pp +0.5pp +1.2ppRecurring profit 2,108 3,568 5,676 3,700 3,400 7,100 3,200 3,200 6,400 +500 +200 +700　　YoY 11.6% 84.5% 48.5% 75.5% -4.7% 25.1% 51.8% -10.3% 12.8% 　　RPM 5.6% 9.9% 7.7% 8.8% 8.3% 8.6% 7.6% 7.8% 7.7% +1.2pp +0.5pp +0.8ppNet income 1,034 2,222 3,256 2,100 2,100 4,200 2,000 2,000 4,000 +100 +100 +200 YoY -14.0% 131.5% 50.6% 103.1% -5.5% 29.0% 93.5% -10.0% 22.8% By segment

Semiconductor Equip.-related 16,050 16,193 32,243 20,350 20,900 41,250 20,350 20,900 41,250 - - -YoY 3.6% 1.8% 2.7% 26.8% 29.1% 27.9% 26.8% 29.1% 27.9%

Vacuum feedthroughs 3,966 4,194 8,160 4,900 4,400 9,300 4,900 4,400 9,300 - - -Quartz 4,105 4,137 8,242 5,450 6,000 11,450 5,450 6,000 11,450 - - -Ceramics 2,993 3,273 6,266 4,100 3,950 8,050 4,100 3,950 8,050 - - -CVD-SiC 1,212 693 1,905 1,550 1,750 3,300 1,550 1,750 3,300 - - -EB-gun, LED 1,868 1,949 3,817 2,150 2,600 4,750 2,150 2,600 4,750 - - -Silicon wafer processing 1,906 1,948 3,854 2,200 2,200 4,400 2,200 2,200 4,400 - - -

Electronic Device 6,131 6,496 12,627 6,900 6,550 13,450 6,900 6,550 13,450 - - -YoY -5.2% -5.3% -5.3% 12.5% 0.8% 6.5% 12.5% 0.8% 6.5%

Thermoelectric module 5,737 6,010 11,747 6,400 6,050 12,450 6,400 6,050 12,450 - - -Magnetic fluids, others 393 486 879 500 500 1,000 500 500 1,000 - - -

Photovoltaic 10,644 8,129 18,773 7,700 7,300 15,000 7,700 7,300 15,000 - - -YoY 21.8% -16.7% 1.4% -27.7% -10.2% -20.1% -27.7% -10.2% -20.1%

Quartz crucibles 1,331 710 2,041 850 1,100 1,950 850 1,100 1,950 - - -PV silicon 5,482 5,117 10,599 4,500 4,000 8,500 4,500 4,000 8,500 - - -Silicon growing equipment 494 473 967 50 - 50 50 - 50 - - -PV cells, others 3,337 1,829 5,166 2,300 2,200 4,500 2,300 2,200 4,500 - - -

Others 4,826 5,379 10,204 7,050 6,250 13,300 7,050 6,250 13,300 - - -YoY 65.4% 62.6% 63.9% 46.1% 16.2% 30.3% 46.1% 16.2% 30.3%


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▷ Vacuum feedthroughs: Sales up 37% (JPY710mn). Organic EL display-related manufacturing equipment robust. Metal processing

and equipment assembly businesses also growing steadily and contributing to results

▷ Materials: Equipment utilization at high level for device manufacturers. The company continued working to raise production

capacity in order to meet high demand

Quartz products: Sales rose 17% (JPY340mn). Benefiting from higher capex in 3D NAND-related, sales from Q2 also expected to rise due to higher production

Demand for silicon parts also rising as progress in semiconductor miniaturization has driven the need for high-temperature processing, which requires heat-resistant elements

Ceramics: Sales rose 53% (JPY750mn). Both fine and machinable ceramics were robust as production rose. The new factory will contribute fully to results from 2H

Production of fine ceramics will increase in earnest from October (Q3). A development center for machinable ceramics will begin operation in November (Q4), reinforcing production capability and developing new products

Silicon wafer processing: Sales rose 34% (JPY300mn). Higher demand trend for 6-inch wafers used in automobiles and sensors. Profitability rose as supply and demand was favorable

8-inch wafers: Construction was completed in July 2017 for a new factory producing 8-inch wafers. The company has begun shipping sample products for assessment. The company plans to begin shipping in 2H as forecasted

CVD-SiC: Sales rose 61% (JPY340mn). A new factory in South Korea is currently being certified by the client. If this process proceeds smoothly, shipping can begin in Q4

▷ Topics: Awarded in “2017 Supplier of the Year Awards” (ten companies received awards) by a North American company

▷ Q2 and beyond: There are no changes to the forecast for 1H and full-year sales; however, for the time being vacuum

feedthroughs and materials will perform well. Higher production expected for 2H

▷ From Q1, this segment name was changed to Semiconductor Manufacturing Equipment-related segment. This name change

does not affect the information regarding the segment

Sales breakdown

Quarterly performance


0.8 0.8 1.0 1.31.6 2.0 2.0 2.1 2.2 2.1 1.4 1.0 1.3 1.2 1.1 1.2 1.1 1.3 1.3 1.6

1.9 2.2 1.8 1.7 1.6 2.0 2.0 1.7 1.9 2.0 1.8 2.42.60.5 0.6

1.01.3 1.4

1.6 1.8 1.7 1.7 1.61.2

1.0 0.8 0.9 0.8 0.8 0.91.2 1.1 1.3

1.21.2

1.2 1.5 1.72.0 1.4 2.6 2.0

2.1 1.92.3 2.3

0.6 0.60.6

0.80.9

0.9 1.0 1.0 1.1 1.3

1.21.0 1.0 1.1 1.1 0.9 0.9

1.0 1.01.1 1.2

1.31.3 1.4 1.7

1.61.6

1.2 1.4 1.6 1.5

1.72.20.5

0.60.6 0.5

0.70.6

0.1

0.9

0.3 0.20.2

0.40.7

1.1 1.0 1.4 0.91.3

0.81.0 0.5 0.8 0.6 0.9 0.8

0.8 0.71.0 0.7

0.8 1.1 1.31.1

0.8 1.4 1.1 0.90.9

1.00.9

0.8

0.4 0.70.8

1.11.1

1.2 1.21.1 1.3 1.2

0.80.7 0.8

1.1 1.1 0.9 0.91.2 1.2

1.1 1.21.2 1.2

1.2 1.21.4 0.9 0.8 0.9

1.00.9

1.0

1.2

2.9 3.13.9

5.15.9

7.1 7.2 7.5 7.27.5

5.54.7 4.5

5.1 4.7 4.7 4.65.6 5.4

6.1 6.16.8 6.5

7.1 7.38.2 8.0 7.9 7.7

8.37.7

8.5

10.0

-40%

0%

40%

80%

120%

160%

0

2

4

6

8

10

Q1FY03/10

Q1FY03/11

Q1FY03/12

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18

Vacuum feedthroughs Quartz products Ceramics CVD-SiC EB-gun, others Silicon wafer processing YoY (right axis)(JPYbn)

-401-423

42 277558 812 921 806 765

1,113551 70 36 104 71

-74

10 67 64 363 428 489552

55709 728 956 756 8831,0231,1461,183

1,648-14.0%-13.6%

1.1%5.5%

9.4%11.5%12.7%10.8%10.7%

14.8%

10.1%

1.5%0.8%2.1%1.5%-1.6%0.2%

1.2%1.2%

6.0%7.0%7.2%8.4%

0.8%

9.8%8.8%12.0%

9.5%11.4%12.3%

14.9%13.9%16.4%

-25%-20%-15%-10%-5%0%5%10%15%20%25%

-1,0000

1,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,000

Q1FY03/10

Q3 Q1FY03/11

Q3 Q1FY03/12

Q3 Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3

Sales Operating profit OPM (right axis)

(JPYmn)


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Sales of the company’s materials and WSTS global semiconductor shipments

Source: Shared Research based on company data Note: With regard to quartz product sales, which declined in Q3 then jumped sharply in Q4, the fluctuation was simply the result of problems with the timing of when certain orders were booked to sales, and it would be fair to take the average of those two quarters to gauge its performance.

Capex plans (at Q1)


Photovoltaic segment

▷ Photovoltaic segment: Continued to conduct structural reforms for unprofitable products. Operating losses shrunk compared

with Q4 FY03/17. No one-time factors. Operating losses within expectations

▷ Structural reforms: Effects seen in Q1. If there are no significant market changes nor special factors such as inventory valuation

losses or allowances for doubtful receivables, the effects of structural reforms are expected to build in Q2 and beyond

▷ Revised forecasts: Conservatively forecasted one-time factors and market changes so that forecasted losses are higher than in

initial forecasts

▷ Non-consolidation: No change to the plan to remove the Photovoltaic segment from the consolidated scope; intends to execute

plan during FY03/19

Photovoltaic segment earnings performance


40

50

60

70

80

90

100

0

400

800

1,200

1,600

2,000

2,400

Q1FY03/10

Q1FY03/11

Q1FY03/12

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18

WSTS global semiconductor shipments (USDbn, right axis) Quartz products Ceramics

(JPYmn) (USDbn)

8 inch wafers

Quartz products

Fine ceramics

CVD-SiC

8 inch wafer new plant4.5CVD-SiC new plant1.1

Fine ceramics new plant0.7

Power device substrates0.4

Quarts, others1.3

Capex in FY03/17 (JPYbn)

Pilot production to start in Dec. 2016, finished product out in Jan. 2017. Expect six to 12 months for customer qualification. Capacity expansion: 100,000 wafers/month (max 150,000). Aims for full operation in Q4 2017, upon qualification. Eyes further expansion.

Expanding capacity at a facility used to serve as a fine ceramics plant (which moves to a new location). Qualification expected in three to six months; could be sooner given strong demand from customers.Capacity expansion: Accelerating expansion; up 50% by end of 2017.

New plant: Line transfer started in Dec. 2016 upon completion of new plant. Expect qualification in three to six months. Mass production to start in June 2017, and reach full operation in October.Capacity expansion: Up 30% in Q2 2017; further expansion in October or later by adding furnaces. Aims for doubling by end-FY03/18.

New plant: Started construction in May 2016, completed in December. Pilot production and qualification started in march 2017; mass production to start in June; sales contribution in 2H FY03/17.Production capacity: Equivalent to sales of approximately JPY3.0bn at Okayama Plant. With the plant in Dangjin (Korea) coming on line, aims for JPY5.0bn in FY03/19.

262 173 392 341 243 114 6451,4731,206

-222

301

-509-550-1,843

-637-905-169

58

-293

18

-109-138-605-421-488-249-835-120

175 19

-739-639-222

10.3%6.9%

12.4%14.4%8.3%

2.9%

10.6%17.8%

12.9%

-3.0%

4.4%

-13.2%-16.9%

-49.0%

-24.0%

-33.9%

-6.0%2.0%

-8.7%

0.4%-2.2%-2.7%

-15.8%-10.6%-10.4%

-6.2%

-17.7%

-2.4%3.7% 0.3%

-19.0%-15.1%

-5.1%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

Q1FY03/10

Q3 Q1FY03/11

Q3 Q1FY03/12

Q3 Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3


(JPYmn)


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Photovoltaic segment sales breakdown


Photovoltaic spot prices (left: polycrystalline silicon and modules, middle: polycrystalline wafers and cells, right: monocrystalline wafers and cells)

Source: Shared Research based on PVinsights and Bloomberg data

Electronic Device segment

▷ Electronic Device segment: Both sales and profits rose. Results of mainstay thermoelectric modules for heated car seats were

within expectations. Communication equipment performed well. Demand rose in the semiconductor manufacturing equipment

business

OPM: 25.0% (+5.3pp YoY). Comparatively profitable products such as non-automotive products expanded, spurring stronger profit growth

▷ Automotive products: The number of vehicles sold in the US market has fallen. However, sales of luxury vehicles equipped with

heated car seats have been steady

▷ Other industrial products: Sales have been strong from Chinese communications equipment manufacturers as demand related to

updating mobile communications systems has been robust in China

Progress being made in utilizing these products in semiconductor manufacturing equipment

▷ DCB substrates: Built a framework for increased production as the company received orders from new clients. Contribution to

results expected in 2H or later

▷ Magnetic fluids: Increased use in vibration mechanisms for smartphones (a new application) and automobile speakers

Electronic Device segment quarterly earnings


0.6 0.3 0.5 0.6 0.7 0.8 1.1 1.11.2 1.4 1.5 0.8 0.9 0.8 0.5 0.5 0.8 1.0 0.9 0.9 0.9 0.9 0.7 0.9 0.9 0.8 0.9 0.9 0.8 0.6 0.4 0.4 0.4

0.6 0.5 0.5 0.40.9 1.2

2.0 2.1 2.22.4 1.8

1.0 0.9 1.7 1.3 1.71.8 1.3 2.0

2.4 2.8 3.2 2.9 2.6 2.6 2.71.3 2.0 1.8

3.72.4 2.7 2.91.4 1.7

2.3 1.41.2

1.8

2.74.2

5.23.0

3.0

1.81.0

0.60.4 0.2

0.0 0.10.2 0.1 0.1 0.5 0.0

0.12.5 2.53.2

2.42.9

3.9

6.1

8.39.3

7.36.9

3.83.3

3.8

2.7 2.7 2.8 2.93.4

4.25.0 5.1

3.8 4.04.7

4.04.7 5.1 4.7

6.0

3.9 4.24.4

-200%

-100%

0%

100%

200%

300%

0

2

4

6

8

10

Q1FY03/10

Q3 Q1FY03/11

Q3 Q1FY03/12

Q3 Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3

Quartz crucibles PV silicon Silicon growing equipment Cells, others YoY (right axis)(JPYbn)

0.2

0.3

0.4

0.5

0.6

0.7

0.8

12

14

16

18

20

22

24

Jan 2014 Jan 2015 Jan 2016 Jan 2017

Polycrystalline siliconPolycrystalline modules (right axis)

(USD/kg) (USD/W)

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Jan 2014 Jan 2015 Jan 2016 Jan 2017

Polycrystalline wafers Polycrystalline cells(USD/unit)

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Jan 2014 Jan 2015 Jan 2016 Jan 2017

Monocrystalline wafers Monocrystalline cells(USD/unit)

-51 -21

135 124 152 259441 313 327 199 49

-21

60 56 76 66 123 127242 242 285 319 386

469 606 613 631 618 600664 669 662 805

-7%-3%

13%11%11%16%

21%18%18%

14%

4%

-2%

5% 5% 7% 5%9% 9%

13%13%14%15%15%16%

18%20%18%19%20%22%21%20%

25%

-30%

-20%

-10%

0%

10%

20%

30%

-5000

5001,0001,5002,0002,5003,0003,5004,000

Q1FY03/10

Q3 Q1FY03/11

Q3 Q1FY03/12

Q3 Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3


(JPYmn)


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Electronic Device segment sales breakdown


Sales values of thermoelectric modules and sales volumes of North American-made autos


For details on previous quarterly and annual results, please refer to the Historical financial statements section.

632

742 955

1,07

8

1,30

6

1,49

2

1,99

0

1,65

4

1,65

2

1,35

9

987

935

1,04

8

927

983

1,16

8

1,25

1

1,28

0

1,74

2

1,78

1

1,91

4

1,88

7 2,48

4

2,64

7

3,14

5

2,92

9

3,37

2

3,11

3

2,88

7

2,85

0

2,93

9

3,07

1

3,03

7

690 821 1,

062

1,17

7

1,43

7

1,61

3 2,1

15

1,75

2

1,77

1

1,44

9

1,09

1

1,02

6

1,15

1

1,04

5

1,10

5

1,26

3

1,37

9

1,42

3 1,88

8

1,91

9

2,07

8

2,08

6 2,6

65 2,85

1 3,3

38

3,12

8 3,58

2

3,28

0

3,05

8

3,07

3

3,19

9

3,29

8

3,22

3

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Q1FY03/10

Q3 Q1FY03/11

Q3 Q1FY03/12

Q3 Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3

Thermoelectric module Magnetic fluids, others YoY (right axis)

(JPYmn)

0

500

1,000

1,500

2,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Q1FY03/10

Q1FY03/11

Q1FY03/12

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18

Sales volumes of North American-made autos ('000 units, right axis) Thermoelectric module

(JPYmn)

('000 units)


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Full-year outlook FY03/17 FY03/18 Revised Est. FY03/18 Initial Est. Difference

(JPYmn) 1H Act. 2H Act. FY Act. 1H Est. 2H Est. FY Est. 1H Est. 2H Est. FY Est. 1H 2H FYSales 37,651 36,197 73,848 42,000 41,000 83,000 42,000 41,000 83,000 - - -　　YoY 12.0% 1.0% 6.3% 11.6% 13.3% 12.4% 11.6% 13.3% 12.4% Gross profit 10,094 9,615 19,709 11,890 11,300 23,190 10,875 10,796 21,671 +1,015 +504 +1,519　　YoY 18.1% 9.7% 13.8% 17.8% 17.5% 17.7% 7.7% 12.3% 10.0% GPM 26.8% 26.6% 26.7% 28.3% 27.6% 27.9% 25.9% 26.3% 26.1% +2.4pp +1.2pp +1.8ppSG&A expenses 6,717 7,313 14,031 7,490 7,500 14,990 7,275 7,196 14,471 +215 +304 +519

SG&A-to-sales ratio 17.8% 20.2% 19.0% 17.8% 18.3% 18.1% 17.3% 17.6% 17.4% +0.5pp +0.7pp +0.6ppOperating profit 3,377 2,301 5,678 4,400 3,800 8,200 3,600 3,600 7,200 +800 +200 +1,000　　YoY 73.8% 10.5% 41.1% 30.3% 65.1% 44.4% 6.6% 56.4% 26.8% 　　OPM 9.0% 6.4% 7.7% 10.5% 9.3% 9.9% 8.6% 8.8% 8.7% +1.9pp +0.5pp +1.2ppRecurring profit 2,108 3,568 5,676 3,700 3,400 7,100 3,200 3,200 6,400 +500 +200 +700　　YoY 11.6% 84.5% 48.5% 75.5% -4.7% 25.1% 51.8% -10.3% 12.8% 　　RPM 5.6% 9.9% 7.7% 8.8% 8.3% 8.6% 7.6% 7.8% 7.7% +1.2pp +0.5pp +0.8ppNet income 1,034 2,222 3,256 2,100 2,100 4,200 2,000 2,000 4,000 +100 +100 +200 YoY -14.0% 131.5% 50.6% 103.1% -5.5% 29.0% 93.5% -10.0% 22.8% By segment

Semiconductor Equip.-related 16,050 16,193 32,243 20,350 20,900 41,250 20,350 20,900 41,250 - - -YoY 3.6% 1.8% 2.7% 26.8% 29.1% 27.9% 26.8% 29.1% 27.9%

Vacuum feedthroughs 3,966 4,194 8,160 4,900 4,400 9,300 4,900 4,400 9,300 - - -Quartz 4,105 4,137 8,242 5,450 6,000 11,450 5,450 6,000 11,450 - - -Ceramics 2,993 3,273 6,266 4,100 3,950 8,050 4,100 3,950 8,050 - - -CVD-SiC 1,212 693 1,905 1,550 1,750 3,300 1,550 1,750 3,300 - - -EB-gun, LED 1,868 1,949 3,817 2,150 2,600 4,750 2,150 2,600 4,750 - - -Silicon wafer processing 1,906 1,948 3,854 2,200 2,200 4,400 2,200 2,200 4,400 - - -

Electronic Device 6,131 6,496 12,627 6,900 6,550 13,450 6,900 6,550 13,450 - - -YoY -5.2% -5.3% -5.3% 12.5% 0.8% 6.5% 12.5% 0.8% 6.5%

Thermoelectric module 5,737 6,010 11,747 6,400 6,050 12,450 6,400 6,050 12,450 - - -Magnetic fluids, others 393 486 879 500 500 1,000 500 500 1,000 - - -

Photovoltaic 10,644 8,129 18,773 7,700 7,300 15,000 7,700 7,300 15,000 - - -YoY 21.8% -16.7% 1.4% -27.7% -10.2% -20.1% -27.7% -10.2% -20.1%

Quartz crucibles 1,331 710 2,041 850 1,100 1,950 850 1,100 1,950 - - -PV silicon 5,482 5,117 10,599 4,500 4,000 8,500 4,500 4,000 8,500 - - -Silicon growing equipment 494 473 967 50 - 50 50 - 50 - - -PV cells, others 3,337 1,829 5,166 2,300 2,200 4,500 2,300 2,200 4,500 - - -

Others 4,826 5,379 10,204 7,050 6,250 13,300 7,050 6,250 13,300 - - -YoY 65.4% 62.6% 63.9% 46.1% 16.2% 30.3% 46.1% 16.2% 30.3%


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FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18(JPYmn) FY FY FY FY FY FY FY FY FY FY FY FY FY Rev. Est. Init. Est. Diff.Sales 21,106 23,946 32,517 36,625 36,653 31,541 57,880 60,088 38,425 44,746 59,079 69,464 73,848 83,000 83,000 -

YoY 40.7% 13.5% 35.8% 12.6% 0.1% -13.9% 83.5% 3.8% -36.1% 16.4% 32.0% 17.6% 6.3% 12.4% 12.4% Gross profit 6,682 6,924 9,041 10,641 11,296 8,554 18,520 16,524 6,976 10,820 13,484 17,314 19,709 23,190 21,671 +1,519

YoY 39.8% 3.6% 30.6% 17.7% 6.2% -24.3% 116.5% -10.8% -57.8% 55.1% 24.6% 28.4% 13.8% 17.7% 10.0% GPM 31.7% 28.9% 27.8% 29.1% 30.8% 27.1% 32.0% 27.5% 18.2% 24.2% 22.8% 24.9% 26.7% 27.9% 26.1% +1.8pp

SG&A expenses 4,920 5,713 6,752 7,583 8,505 7,850 11,589 12,399 10,585 10,022 11,813 13,289 14,031 14,990 14,471 +519YoY 18.1% 16.1% 18.2% 12.3% 12.2% -7.7% 47.6% 7.0% -14.6% -5.3% 17.9% 12.5% 5.6% 6.8% 3.1% SG&A-to-sales ratio 23.3% 23.9% 20.8% 20.7% 23.2% 24.9% 20.0% 20.6% 27.5% 22.4% 20.0% 19.1% 19.0% 18.1% 17.4% +0.6pp

Operating profit 1,762 1,211 2,289 3,057 2,791 703 6,932 4,124 -3,608 798 1,671 4,025 5,678 8,200 7,200 +1,000YoY 186.5% -31.3% 89.0% 33.6% -8.7% -74.8% 885.4% -40.5% - - 109.4% 140.8% 41.1% 44.4% 26.8% OPM 8.3% 5.1% 7.0% 8.3% 7.6% 2.2% 12.0% 6.9% -9.4% 1.8% 2.8% 5.8% 7.7% 9.9% 8.7% +1.2pp



Capital expenditures 2,074 3,129 4,927 3,483 3,020 2,366 5,036 7,877 3,706 3,825 3,375 3,440 7,322 10,000 Depreciation 1,359 1,670 1,807 2,145 2,421 2,605 2,655 2,825 3,321 3,942 3,964 4,303 3,593 4,000 Amortization of goodwill 233 81 87 269 171 316 421 436 456 380 149 155 197

FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 -(JPYmn) FY FY FY FY FY FY FY FY FY FY FY FY FY Rev. Est. Init. Est. Diff.Sales 21,106 23,946 32,517 36,625 36,653 31,541 57,880 60,088 38,425 44,746 59,079 69,464 73,848 83,000 83,000 -YoY 40.7% 13.5% 35.8% 12.6% 0.1% -13.9% 83.5% 3.8% -36.1% 16.4% 32.0% 17.6% 6.3% 12.4% 12.4%

Semiconductor Equip.-related 14,477 15,805 20,639 22,852 17,524 14,952 27,694 24,884 18,868 21,628 26,567 31,405 32,243 41,250 41,250 -YoY - 9.2% 30.6% 10.7% -23.3% -14.7% 85.2% -10.1% -24.2% 14.6% 22.8% 18.2% 2.7% 27.9% 27.9%

Vacuum feedthroughs 4,214 4,335 5,616 5,768 5,393 3,921 7,764 6,763 4,686 5,422 7,519 7,163 8,160 9,300 9,300 -Quartz 4,300 4,086 5,306 7,214 3,780 3,470 6,501 5,509 3,420 4,484 5,169 7,624 8,242 11,450 11,450 -Ceramics - - - - 1,947 2,524 3,819 4,507 4,108 3,965 5,182 6,147 6,266 8,050 8,050 -CVD-SiC 1,685 1,905 3,300 3,300 -EB-gun, others 1,589 1,703 2,519 2,855 1,859 1,167 4,122 4,078 2,724 3,242 3,905 4,468 3,817 4,750 4,750 -Silicon wafer processing 4,374 5,682 7,198 7,016 4,545 3,870 5,489 4,027 3,930 4,515 4,791 4,317 3,854 4,400 4,400 -

Photovoltaic 3,267 4,638 11,019 10,579 21,152 27,357 12,345 13,204 17,948 18,506 18,773 15,000 15,000 -YoY -4.0% 99.9% 29.3% -54.9% 7.0% 35.9% 3.1% 1.4% -20.1% -20.1%

Silicon growing equipment 2,194 2,775 8,023 6,699 9,801 12,959 2,280 687 452 359 967 50 50 -Quartz crucibles 143 657 1,203 1,893 3,654 4,887 2,709 3,699 3,365 3,524 2,041 1,950 1,950 -PV silicon 930 1,206 1,793 1,987 6,185 7,420 5,509 7,570 11,458 8,483 10,599 8,500 8,500 -PV cells, others 1,510 2,091 1,847 1,247 2,674 6,141 5,166 4,500 4,500 -

Electronic Device 3,578 3,409 5,286 5,609 4,355 3,750 6,917 5,337 4,564 6,609 9,680 13,328 12,627 13,450 13,450 -YoY -4.7% 55.0% 6.1% -22.4% -13.9% 84.5% -22.8% -14.5% 44.8% 46.5% 37.7% -5.3% 6.5% 6.5%

Thermoelectric modules 2,054 2,623 4,586 5,032 3,914 3,407 6,442 4,933 4,126 6,054 8,932 12,559 11,747 12,450 12,450 -Magnetic fluids, others 1,524 785 700 577 441 343 475 404 438 555 748 769 879 1,000 1,000 -

Others 3,051 4,732 3,331 3,526 3,756 2,259 2,117 2,510 2,648 3,304 4,884 6,224 10,204 13,300 13,300 -YoY 55.1% -29.6% 5.9% 6.5% -39.9% -6.3% 18.5% 5.5% 24.8% 47.8% 27.4% 63.9% 30.3% 30.3%

Gross profit 6,682 6,924 9,041 10,641 11,296 8,554 18,520 16,524 6,976 10,820 13,484 17,314 19,709 21,671 21,671 -YoY 39.8% 3.6% 30.6% 17.7% 6.2% -24.3% 116.5% -10.8% -57.8% 55.1% 24.6% 28.4% 13.8% 10.0% 10.0% GPM 31.7% 28.9% 27.8% 29.1% 30.8% 27.1% 32.0% 27.5% 18.2% 24.2% 22.8% 24.9% 26.7% 26.1% 26.1% -

SG&A expenses 4,920 5,713 6,752 7,583 8,505 7,850 11,589 12,399 10,585 10,022 11,813 13,289 14,031 14,471 14,471 -YoY 18.1% 16.1% 18.2% 12.3% 12.2% -7.7% 47.6% 7.0% -14.6% -5.3% 17.9% 12.5% 5.6% 3.1% 3.1% SG&A-to-sales ratio 23.3% 23.9% 20.8% 20.7% 23.2% 24.9% 20.0% 20.6% 27.5% 22.4% 20.0% 19.1% 19.0% 17.4% 17.4% -

Operating profit 1,762 1,211 2,289 3,057 2,791 703 6,932 4,124 -3,608 798 1,671 4,025 5,678 8,200 7,200 +1,000YoY -31.3% 89.0% 33.6% -8.7% -74.8% 885.4% -40.5% - - 109.4% 140.8% 41.1% 44.4% 26.8%

Semiconductor Equip.-related 931 -505 3,097 2,499 138 505 1,524 3,148 4,234 Increase Increase IncreasePhotovoltaic 1,658 1,168 2,475 776 -3,934 -387 -1,272 -1,692 -1,184 Narrower loss Narrower loss Wider lossElectronic Device 180 188 1,165 555 258 733 1,460 2,467 2,595 Increase Increase IncreaseOthers 81 -101 237 368 -8 8 10 143 244 Eliminations -60 -46 -43 -74 -61 -61 -50 -42 -211

OPM 8.3% 5.1% 7.0% 8.3% 7.6% 2.2% 12.0% 6.9% -9.4% 1.8% 2.8% 5.8% 7.7% 9.9% 8.7% +1.2ppSemiconductor Equip.-related 5.3% -3.4% 11.2% 10.0% 0.7% 2.3% 5.7% 10.0% 13.1% - Photovoltaic 15.0% 11.0% 11.7% 2.8% -31.9% -2.9% -7.1% -9.1% -6.3% - Electronic Device 4.1% 5.0% 16.8% 10.4% 5.6% 11.1% 15.1% 18.5% 20.5% - Others 2.2% -4.5% 11.2% 14.7% -0.3% 0.2% 0.2% 2.3% 2.4% -



Capital expenditures 2,074 3,129 4,927 3,483 3,020 2,366 5,036 7,877 3,706 3,825 3,375 3,440 7,322 - 10,000 Depreciation 1,359 1,670 1,807 2,145 2,421 2,605 2,655 2,825 3,321 3,942 3,964 4,303 3,593 - 4,000 Amortization of goodwill 233 81 87 269 171 316 421 436 456 380 149 155 197 - -


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Company forecasts for FY03/18 (initial forecasts)

Sales (upper; JPYbn), and operating profit (lower; JPYmn)


Targeting sales of JPY100bn and 8% OPM (target 10%) within three years (FY03/19)

Under its medium-term business plan, Ferrotec is aiming for FY03/19 sales of JPY100bn and OPM of 8.0% (10% target). (For

details, see Outlook.). To generate JPY100bn in sales in three years, the company started laying the groundwork in FY03/17. In

FY03/18, it will make aggressive investments to power further growth, and aims to gradually start reaping the rewards from

previous strategic moves.

Focus on progress with production capacity expansion and resulting effects, and on sweeping structural reforms in Photovoltaic segment

(conversion into equity-method affiliate)

At Shared Research, we will be paying close attention to two areas highlighted by the company: 1) initial effects of production

capacity expansion for high-margin semiconductor materials in the Equipment-related segment manifesting from FY03/18

(full-scale contributions expected from FY03/19), and 2) the early conversion of the Photovoltaic segment into an equity-method

affiliate as part of sweeping structural reforms in the segment.

For FY03/18, the company is targeting sales of JPY83.0bn (+12.4% YoY), operating profit of JPY7.2bn (+26.8% YoY), and OPM of

8.7% (+1.0pp YoY). The company sees sales growth at the Equipment-related segment (driven by products for the

semiconductor and FPD markets) and Others segment, and an increase in operating profit as the Equipment-related segment

drives growth by absorbing the depreciation burden. At the same time, it looks for profit growth in the Electronic Device

segment alongside a contraction in losses at the Photovoltaic segment. For the year, the company is assuming average exchange

rates of JPY110/USD and JPY16.0/CNY.

The following is an outline of forecasts for FY03/18.

Outlook for operating environment

Ferrotec sees the market environment being characterized by three developments: 1) capital investment in semiconductors is

expected to continue (firm demand for SSD, onboard sensors for automobiles and power semiconductor devices); 2) the FPD

sector is seeing greater capital investment in organic EL panels, following a similar trend for large-size LCD panels; and 3)

research and development in the fields of 5G communication infrastructure and wireless technology is advancing in the mobile

telecommunication systems sector.

22.9 17.5 15.027.7 24.9 18.9 21.6 26.6

31.4 32.241.3

4.6 11.0 10.6

21.2 27.4

12.3 13.217.9

18.5 18.815.0

5.6 4.4 3.8

6.9 5.3

4.66.6

9.713.3 12.6

13.5

3.5 3.82.3

2.1 2.5

2.63.3

4.96.2 10.2

13.3

94.0

36.6 36.731.5

57.9 60.1

38.444.7

59.169.5

73.883.0

100.0

-20%

0%

20%

40%

60%

80%

0

20

40

60

80

100

FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18Est.

FY03/19Plan

Equipment-related Photovoltaic Electronic Device Others YoY (right axis)

(JPYbn)

931-505

3,097 2,499138 505

1,5243,148 4,2341,658

1,168

2,475

776

-3,934

-387 -1,272 -1,692 -1,184

180

188

1,165

555

258733

1,460

2,4672,595

3,057 2,791

703

6,932

4,124

-3,608

798

1,671

4,0255,678 7,200

8,000

-10%

0%

10%

-5,000

0

5,000


FY03/19Plan

Equipment-related Photovoltaic Electronic Device Others Eliminations OPM (right axis)

(JPYmn)


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Under such conditions, the company plans the following initiatives:

◤ Equipment-related segment (existing): establish a new ceramics plant, add capacity to its quartz production line, and set up a new CVD-SiC plant with the aim of accommodating turnaround times for semiconductor materials that are enjoying strong

demand

◤ Equipment-related segment (new): begin supply of 8-inch wafers to China in 2H and focus on winning orders for consignment manufacturing by leveraging the company’s metal precision processing technology

◤ Electronic Device segment (automotive): move forward with development of applications other than the mainstay heated seats

◤ Electronic Device segment (non-automotive): expand the lineup of high-performance products such as those used in telecommunications equipment, base stations, and small antennas, all of which offer growth prospects; and

◤ Electronic Device segment (DCB substrates): make capital investments in mass-production lines to respond to increased orders from European clients.

Equipment-related segment

In the Equipment-related segment, we intend to pay close attention to:

◤ Semiconductor materials (existing): production capacity increases (new ceramics factory, expanded production lines for quartz manufacturing, new CVD-SiC factory) amid strong demand

◤ Semiconductor materials (new): start of operations at new factory manufacturing 8-inch wafers for Chinese market

◤ Vacuum feedthroughs: securing of orders for consignment manufacturing that leverages the company’s metal precision processing technology

Photovoltaic segment

The main focal points for the Photovoltaic segment include:

◤ Sweeping structural reforms: progress with early conversion of segment into equity-method affiliate

◤ Earnings improvement: operating loss after excluding one-time factors (Q4 FY03/17: about JPY500mn in allowance for doubtful accounts)

Electronic Device segment

At the Electronic Device segment, we will be watching:

▷ Automotive: development trends for applications other than the mainstay heated seats

▷ Non-automotive: trends in applications for telecommunications equipment that offer strong growth prospects

▷ DCB substrates: capital investment and startup of mass-production lines in response to increased orders from European clients

Others segment

At the Others segment, we expect to see contributions to earnings from the fourth plant (Dalian) that was recently built to meet

growing demand for semiconductor production equipment cleaning. Construction was completed in April 2016, and there has

apparently been strong demand from clients to ramp up production. Fifth and sixth plants are expected to be added in 2018, and

we also intend to monitor progress on this front.

The outlook and company plans by segment are outlined in the following.


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Equipment-related segment Equipment-related segment sales


Semiconductor material capacity expansion to absorb rises in upfront spending and depreciation, supporting profit growth

Ferrotec forecasts sales of JPY41.3bn (+27.9% YoY). It expects sales growth to absorb the higher depreciation and upfront

spending accompanying capacity expansion and accordingly targets a sharp rise in operating profit. Amid strong demand for

products related to SPE and organic EL production equipment, the company plans to significantly expand production for

semiconductor materials (consumables) and expects this to drive earnings.

The company has substantially ramped up production capacity for various semiconductor materials products since FY03/17 to

meet turnaround times for its clients. The expanded facilities are slated to successively start operations in FY03/18, and the

company looks for strong corresponding growth in various products. In FY03/19, it should start seeing contributions from

expanded facilities over the full year, and apparently plans to further raise capacity. Although the startup of new plants is

expected to lift upfront spending and depreciation accompanying facility operations, semiconductor materials carry high margins

and the company expects this to be an offsetting factor that will support profit growth.

In silicon wafer processing, the company is planning to enter the 8-inch wafer market. This will entail substantial capital

investment of just over JPY9.0bn, and we intend to closely watch the state of client approvals and whether production gets off to

a solid start in terms of yields. The company plans to allocate nearly JPY5.0bn for 8-inch wafer production in China (cumulative

total of just over JPY9.0bn), an additional JPY1.0bn-plus for ceramic products, as well as JPY2.0–3.0bn for equipment-related

items.

Vacuum feedthroughs robust

Strategies for vacuum feedthroughs include 1) continuing joint development with SPE manufacturers; 2) making capital

investments in large processing machinery; 3) continuing sub-assembly contracts; and 4) strengthening sales activities and

increased aftermarket sales in China, South Korea, and Taiwan.

In relation to sales, the company forecasts growth in vacuum feedthroughs used in vacuum processes and dustproof sealing used

in robots, supported by a) increasingly strong capital investment amid rising 3D NAND demand on a shift to exclusive use of flash

storage in data centers, and b) expanded investment in organic EL. In c) consignment processing and assembly operations, the

company looks for marginal growth on firm orders in China, and consignment processing and consignment assembly are

apparently both seeing steady progress.

5.8 5.4 3.97.8 6.8 4.7 5.4 7.5 7.2 8.2

9.37.2

3.8 3.5

6.5 5.53.4 4.5

5.2 7.68.2

11.5

1.9 2.5

3.8 4.54.1 4.0

5.26.1 6.3

8.11.7 1.9

3.3

2.91.9 1.2

4.1 4.1

2.73.2

3.9

4.5 3.8

4.8

7.04.5

3.9

5.54.0

3.94.5

4.8

4.3 3.9

4.4

22.9

17.515.0

27.724.9

18.921.6

26.6

31.4 32.2

41.3

-30%-20%-10%0%10%20%30%40%50%60%

05

1015202530354045


Vacuum feedthroughs Quartz products Ceramics CVD-SiC EB-gun, others Silicon wafer processing YoY (right axis)(JPYbn)

3.4 2.0 1.6 2.33.6 4.1 4.4 2.4 2.4 2.3 2.5 3.0 4.1 3.4 3.5 3.6 4.0

4.2 4.9 4.4

2.71.1 1.1

2.43.0 3.5 3.3

2.2 1.7 1.7 2.12.4

2.4 2.8 3.6 4.04.1 4.1

5.5 6.0

1.9 1.11.4

1.82.0 2.3

2.2 2.1 2.0 1.82.1

2.5 2.73.3 2.9 3.0

3.3

4.1 4.00.5 1.2

1.2 0.7

1.6 1.8

1.10.7

0.50.6

1.82.4 2.3

1.8 1.3 1.4 1.61.6

1.5 2.41.9

2.5 1.9 1.9

2.2 2.6

2.21.1

1.2

2.0

2.42.3 2.5

1.5 1.9 2.0 2.22.3

2.4 2.42.6 1.7 1.9

1.9

2.2 2.2

10.1

7.56.0

9.0

13.014.7 14.7

10.2 9.5 9.4 10.211.4

12.9 13.615.5 15.9 16.0 16.2

20.4 20.9

-1

0

1

2

3

0

5

10

15

20

1HFY03/09

1HFY03/10

1HFY03/11

1HFY03/12

1HFY03/13

1HFY03/14

1HFY03/15

1HFY03/16

1HFY03/17

1H EstFY03/18

Vacuum feedthroughs Quartz products Ceramics CVD-SiC EB-gun, others Silicon wafer processing Operating profit (right axis)(JPYbn)


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Semiconductor materials: Quartz products firm, effects from increased production capacity materialize

The company’s policy on quartz products is to 1) maintain and increase its production structure in response to rapid growth in

demand from major OEM manufacturers, and 2) strengthen its capacity to handle development projects.

The company expects sales to increase a sharp 39% YoY, for a fifth year of sales growth. In OEM sales, which account for the bulk

of total sales, the company sees booming demand from large US and Japanese OEM manufacturers to expand sales further. It

looks for major domestic OEM manufacturers to increase production of next-generation devices, and since investment in 3D

NAND products is also trending upward, the company expects major manufacturers to continue investment in the foreseeable

future. In sales to end users, Ferrotec’s policy is to expand production to meet demand in light of strong capacity utilization rates

of clients in Asia and surging demand in China.

Production capacity expansion: boost of roughly 50% by end-2017

Ferrotec is currently expanding production capacity by adding facilities in the space vacated by the transfer of ceramics

production to the new plant (building completed in December 2016). Securing the necessary approvals ordinarily takes 3–6

months, but the process may be shortened given the high demand. The company plans to increase capacity by about 50% by

the end of 2017 given that capacity expansion is ahead of schedule. The initial plan seems to factor in an expansion of roughly

40%. Since the products carry high margins, increased shipments are likely to absorb the investment burden and upfront

spending, and accordingly support profit growth. Assuming capacity increases, and client approvals and volume shipments

proceed smoothly, we expect to see an improvement in profitability.


Semiconductor materials: in ceramics products, both fine and machinable ceramics expected to deliver strong performance

The company’s policy for ceramics products consists of the following items: 1) fine ceramics: boost production structure by

adding plant facilities and increase sales in response to requests for increased production of components amid rapidly expanding

domestic and overseas SPE production; and 2) machinable ceramics: as demand for wafer circuit inspections is shifting to new

jigs in tandem with semiconductor miniaturization, capture further demand for high-precision products, build manufacturing

structure, and expand sales.

The company is forecasting January-to-December sales of JPY8.1bn, up 28.5% versus last year. In machinable ceramics, it looks for

expansion in inspection jigs for logic chips in the automotive sector, and sees memory applications growing in 2H driven by

impact from a shift to 3D memory. In fine ceramics, the company projects order growth fueled by a surge in demand for

components in accordance with the miniaturization trend in the domestic and overseas semiconductor sectors and the migration

to 3D memory.

3.4

2.01.6

2.3

3.6

4.14.4

2.4 2.4 2.32.5

3.0

4.1

3.4 3.53.6

4.04.2

4.9

4.4

-53.0%

15.8%

128.6%

77.1%

19.8%

-41.6%-44.2%

-6.3%1.0%

31.5%

66.8%

15.5%

-13.8%

6.0%12.4%15.3%

23.6%

4.9%

0

1

2

3

4

5

-60%-40%-20%

0%20%40%60%80%

100%120%140%

1HFY03/09

1HFY03/10

1HFY03/11

1HFY03/12

1HFY03/13

1HFY03/14

1HFY03/15

1HFY03/16

1HFY03/17

1H EstFY03/18

Vacuum feedthroughs (right axis) YoY

(JPYbn)

Semiconductor28%

LED6%

FPD30%

PV11%

Others25%

FY03/17 sales by application

Semiconductor27%

LED11%

FPD11%

PV27%

Others24%


2.7

1.1 1.1

2.4

3.03.5 3.3

2.21.7 1.7

2.12.4 2.4

2.8

3.64.0 4.1 4.1

5.56.0

-58.6%

111.2%

176.6%

45.9%

7.3%

-35.1%-46.6%

-25.3%

21.7%40.9%

14.0%16.4%

49.9%45.4%

13.2%3.5%

32.8%45.0%

0

1

2

3

4

5

6

-80%

-40%

0%

40%

80%

120%

160%

1HFY03/09

1HFY03/10

1HFY03/11

1HFY03/12

1HFY03/13

1HFY03/14

1HFY03/15

1HFY03/16

1HFY03/17

1H EstFY03/18

Quartz products (right axis) YoY

(JPYbn)

OEM66%

End user23%

FPD1%

PV1%

LCD2% Others

4%


OEM68%

End user23%

FPD1%

PV2%

LCD1% Others

4%



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Production capacity expansion: new plant operation to boost output; plans to double capacity in 2018

The company plans to start operating its new plant in Hangzhou, China from June, followed by full-scale mass production from

October. It aims to raise output capacity by 30%. Depending on additional investment in furnaces, it may boost capacity further

from October, and intends to double total production capacity by FY03/19 (2018). For machinable ceramics in Japan, the

company also plans to expand its production structure by adding facilities. Like quartz, machinable ceramics deliver solid margins,

and higher shipments are likely to absorb the investment burden and upfront spending, thus supporting profit growth. Assuming

production capacity increases, and client approvals and volume shipments proceed smoothly, we are likely to see an

improvement in profitability.


Semiconductor materials: CVD-SiC

In the area of CVD-SiC products, the company is looking to 1) put in place a production structure that can accommodate rapid

growth in component demand from major domestic and overseas SPE manufacturers; 2) build a mass production structure for its

SPE component manufacturing company established in Dangjin, South Korea; 3) aggressively move into non-semiconductor

fields; and 4) establish a structure capable of swiftly handling development and strategic projects.

The company is forecasting CVD-SiC sales of JPY3.3bn. (This compares with JPY1.7bn for the nine months of CVD-SiC sales

included in FY03/16 consolidated results; April-to-December sales totaled JPY1.9bn in FY03/17). The company anticipates steady

growth in demand from major US manufacturers as well as from Japan and the rest of Asia, and decided to build a new factory in

South Korea so that it will be able to handle new orders for OEM parts from major equipment manufacturers. The factory is slated

to start operations from June, handle approval work from July, and begin mass production in Q4. The company expects

significant reduction in production costs, which translates to increased cost competitiveness, but related effects are hardly

factored into the full-year plan. In FY03/18, the company forecasts the start of mass-production of components for new

equipment will contribute to sales growth. It also expects to shift to mass-production of CVD coating for new large materials, and

move into non-semiconductor fields. The plan is to double group sales by FY03/19 to over JPY5.0bn.


Semiconductor materials: wafer processing sees start of operations at 8-inch wafer plant

In the area of wafer processing, Ferrotec will establish mass production infrastructure for 8-inch wafers for the Chinese market.

The company started production in January 2017, and targets monthly output of 100,000 units within FY03/18 (For details, see

Outlook). It is forecasting a 14.2% rise in FY03/18 sales to JPY4.4bn, based on two factors: a) 6-inch and below: price hikes and

production uptrend based on a strong market from the start of the year (December closing); 8-inch wafer plant: full-scale mass

production beginning in Q3.

1.9

1.11.4

1.82.0

2.3 2.2 2.12.0 1.8

2.12.5

2.7

3.3

2.9 3.03.3

4.1 4.0

-28.6%

56.7%

46.9%

30.8%

6.9%

-7.6%-10.2%-14.3%

8.4%

35.5%

26.5%31.1%

7.1%

-8.5%

13.8%

37.0%

20.7%

0

1

2

3

4

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1HFY03/09

1HFY03/10

1HFY03/11

1HFY03/12

1HFY03/13

1HFY03/14

1HFY03/15

1HFY03/16

1HFY03/17

1H EstFY03/18

Ceramics (right axis) YoY

(JPYbn)

MC Semiconductor testing18%

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