Summary of Semiconductor Production Equipment Industry Conference Call Industry Overview - **Industry**: Semiconductor Production Equipment (SPE) in Japan - **Key Companies Mentioned**: Disco, Advantest, Tokyo Electron, Lasertec, Ulvac Core Insights - **Investor Sentiment**: There is strong interest in the SPE industry due to rising share prices, but investors are cautious about stock selection. Disco is recommended as a laggard compared to Advantest, which has seen a significant price increase of 76% since August 1, 2025, while Disco's share price rose only 22% in the same period [4][9] - **Market Drivers**: The growth in the SPE market is attributed to: 1. Increased demand for flash memory due to HDD shortages 2. Improved growth outlook for the High Bandwidth Memory (HBM) market 3. Increased foundry investment expected in 2026 [4][9] Company-Specific Insights - **Disco's Earnings Forecast**: Projected sales growth of 45% YoY and operating profit growth of 62% for F3/27. Key drivers include: 1. HBM demand driven by AI 2. Recovery in the smartphone market (OSAT) 3. VCS for edge AI 4. Transition to 12-inch SiC wafers 5. Adoption of hybrid bonding processes for flash memory 6. WMCM and PLP equipment [5][9] - **Advantest's Market Position**: Maintains a 90% market share in AI ASICs, with sales prices for its SoC testers being at least 30% higher than competitors [14] - **Tokyo Electron**: Positive outlook on cryo-etching equipment adoption, but risks exist due to potential market share loss from dry resist technology [15] - **Ulvac**: Notable interest in their front-end equipment, with growing sales of PLP and MHM systems to China [21] Market Trends and Risks - **HBM Market Growth**: Significant demand for DRAM in AI data centers, with OpenAI requiring production capacity equivalent to 900,000 wafers monthly. Global HBM production capacity is expected to reach 350KWPM by the end of 2025 [10] - **China's Impact**: Risks associated with US export restrictions on SPE to China could negatively affect the market. However, back-end equipment regulations may be less stringent due to China's advancements in domestic production [22][23] Valuation and Risks - **Disco Valuation**: Target P/E ratio set at 25.1x based on historical performance. Expected EPS for F3/28 is ¥2,799.6 [25] - **Upside Risks**: Growth in edge AI equipment demand and recovery in smartphone markets could drive further growth [26] - **Downside Risks**: Sluggish global electronics demand and prolonged replacement cycles for smartphones could hinder market recovery [27] Conclusion The Semiconductor Production Equipment industry in Japan is poised for growth driven by technological advancements and increased demand in various sectors, particularly AI. However, investors should remain cautious due to market volatility and geopolitical risks, particularly concerning China. Disco is highlighted as a strong investment opportunity amidst this landscape.

Summary of J.P. Morgan Semiconductor/SPE Conference Call Industry Overview - The focus is on the semiconductor production equipment (SPE) industry, particularly regarding the wafer fabrication equipment (WFE) market in China. - The outlook for WFE demand in China for calendar year 2025 is expected to show flat to single-digit growth year-over-year, which is more optimistic than the broader market expectations [1]. Key Insights - **Local SPE Growth**: The rise of local SPE manufacturers in China is gradually progressing, impacting non-Chinese SPEs depending on the type of equipment [1]. - **Demand Consistency**: There is a lack of strong consensus among SPE manufacturers regarding the outlook for Chinese demand, likely due to varying competitive environments across different equipment types [1]. - **Front-End Companies**: Demand from front-end companies in China has not declined as much as previously anticipated, indicating resilience in the market [1]. - **Investment Expectations**: Major players' investments, particularly in NAND technology, are expected to remain solid, with strong demand anticipated in areas with high exposure to major players and less competition from local SPEs [1]. Company-Specific Insights - **Disco (6146)**: Sales to China accounted for 30% of total sales in April–June, up 3 percentage points quarter-over-quarter. Memory demand from China has been robust since last year, although shipments have stabilized somewhat [5]. - **ULVAC (6728)**: Sales to China represented 34% of total sales in FY6/25, down 1 percentage point year-over-year. The company anticipates a recovery in investments in 8-inch SiC from major device manufacturers [5]. - **Advantest (6857)**: Sales to China accounted for 15% of total sales in April–June, down 4 percentage points quarter-over-quarter. The company aims to increase market share in high-end testing systems despite local competition in low-end products [5]. - **SCREEN Holdings (7735)**: Sales to China accounted for 33% of April–June SPE sales, down 5 percentage points quarter-over-quarter. The company expects demand growth for DRAM and anticipates a sales weighting of 54% in July–September [5]. - **Tokyo Electron (8035)**: Sales to China accounted for 39% of total sales in April–June, up 5 percentage points quarter-over-quarter. The company revised down its FY2025 guidance due to cautious investment from emerging manufacturers in legacy nodes [6]. - **Kokusai Electric (6525)**: Sales to China accounted for 45% of total sales in April–June, remaining flat quarter-over-quarter. The company expects demand growth in NAND technology to continue until FY2026 [6]. - **Applied Materials (AMAT)**: Sales to China accounted for 35% of total sales in May–July, down 8 percentage points quarter-over-quarter. The company expects a decline in China sales weighting due to uncertainties [8]. - **ASML**: The China sales weighting was 27% in April–June, remaining flat quarter-over-quarter, with healthy demand expected [8]. - **Lam Research (LRCX)**: Sales to China accounted for 35% of total sales in April–June, up 4 percentage points quarter-over-quarter, driven by investments in leading-edge processes [8]. - **KLA (KLAC)**: Sales to China accounted for 30% of total sales in April–June, up 4 percentage points quarter-over-quarter. The company anticipates a lean period for Chinese investments in CY2025 and CY2026 [8]. - **Teradyne (TER)**: Sales to China accounted for 16% of total sales in April–June, down 3 percentage points quarter-over-quarter, affected by export restrictions [8]. Additional Observations - The competitive landscape is evolving, with local manufacturers gaining strength in memory and power applications, although they currently do not pose a significant threat in advanced technology areas [5][6]. - The overall sentiment indicates cautious optimism regarding the Chinese semiconductor market, with expectations of continued investment and demand growth in specific segments [1][6].

Group 1 - Applied Materials, Inc. is a crucial player in semiconductor production, especially during the AI era, indicating strong future growth potential [1] - Despite the positive outlook, the stock price of Applied Materials has decreased by nearly 30% [1]