Thank you for your participation today. This is the results briefing for the first quarter of the fiscal year ending December 2025. Before starting the presentation, allow me to confirm today's materials, which consist of four items, the brief statement on consolidated financial results for first quarter fiscal 2025 and the presentation deck entitled Results for Q1 fiscal 2025. The announcement concerning difference between forecast and actual figures for the first quarter of fiscal 2025 and the announcement regarding revision to dividend forecast. Next, a disclaimer. The estimates, expectations, forecasts, and other future information discussed here and shown in today's materials were prepared based on the information available to the company as of today and on certain assumptions and qualifications, including our subjective judgment. Actual financial performance or results may differ substantially from the future information contained in this material due to risk factors including domestic and global economic conditions, trends in the semiconductor market, and foreign exchange rates. We will have presentations today from Representative Director, Chairman, and CEO, Mayuki Hashimoto, and Representative Director and Vice President, CFO, Shinichi Kubozoe. Chairman and CEO Hashimoto will discuss our forecast and operating environment to be followed by an explanation of the financial results by CFO, Kubozoe. We have set aside time for a Q&A session as well. I will now hand over to Chairman Hashimoto.

I am Chairman Hashimoto. Please turn to Slide 5 for the overview. This is a summary of the results for the first quarter of fiscal year 2025. Q1 sales were largely in line with our forecast, but we were able to solidly exceed our forecast for operating profit and ordinary profit. The overshoot was primarily the result of delays in incurring depreciation. Turning to the earnings forecast for the second quarter of 2025, we project sales to be unchanged Q-on-Q but are guiding for breakeven at the operating profit level, a loss of ¥1 billion for ordinary profit, and a loss of ¥2 billion in net profit. This makes the question of why the decline in profitability if sales are largely unchanged. Firstly, depreciation is projected to increase ¥4.3 billion Q-on-Q. Also, with the Yen strengthening significantly, we expect a negative Q-on-Q impact of ¥2.7 billion from Forex. These two factors combined represent a Q-on-Q negative of ¥7 billion. In terms of sales related variance, although sales is unchanged, we expect an increase in the proportion of 300 mm wafer shipments, which will slightly mitigate this negative. As a result of these factors, we project a net Q-on-Q negative of ¥6 billion. Next slide, please. This slide shows our dividend guidance. Traditionally, we based our dividend guidance on earnings forecast for the next quarter and other factors. This time, we took a comprehensive view in determining the dividend level, including the forecast for EBITDA and cash available for dividend payments. We are guiding for an interim dividend of ¥10. Next page, please. This is the trend for 200 mm wafers. The result for Q1 was unfortunate. We note that this slide does not reflect China as the data is not available. As such, this isn't really a reflection of the global market. However, to the best of our knowledge, it appears likely that the weakness will persist for some time. Even in speaking with our customers, they say that the market will not recover and will not return to 2022 levels. Furthermore, they say that the best we could probably hope for, if things go well, is perhaps 70% to 80% of the 2022 level. Effectively, this would be at a level that is not too far from current conditions. Obviously, an ongoing transition to 300 mm wafers is a factor, but there has been a further shift towards buying China by Chinese chipmakers. The government has been pushing chipmakers to buy China made 200 mm wafers as much as possible. As a result, the volume of wafers for which we have data is not growing. I think that is what is happening. Next slide, please. This is the trend for 300 mm wafers. AI is a key driver for 300 mm which is supporting a gradual recovery. However, there have been no signs of a recovery in legacy applications effectively resulting in a modest overall pace of recovery. That said, I would expect overall volume to increase albeit at a very gradual pace. You may be aware, however, that in Q1, even 300 mm wafers declined Q-on-Q. It is still too early to say whether this was simply a blip or a fundamental change in the market. It is true that NAND memory is increasingly weak, although AI related demand is unchanged. Legacy logic is also weak, although DRAM is not bad. In other words, it is only AI that is doing well. Next slide, please. I have already talked about market conditions during Q1. The outlook for 300 mm in Q2 is largely unchanged with AI driving strong trends in leading edge, but the other segments of the market facing elevated levels of inventory with customers struggling to return to more normal levels through inventory adjustments. It appears that even if wafer inputs have risen slightly, customers are not buying more wafers, but focusing on working down inventory. Obviously, having customers reduce their purchases significantly is suboptimal, so it is a tug of war between ourselves and our customers. 200 mm and smaller diameter wafers remained weak partly as a result of a transition to 300 mm wafers as mentioned earlier. 200 mm wafers are more impacted by macro conditions because of the higher exposure to applications like consumer electronics and autos. I don't have high expectations for 200 mm wafers going forward. Even if we do see a recovery, at best, I think we can only get to around 70% to 80% of the peak levels of 2022. On LTAs, given that wafer makers have been increasing production capacity based on these LTAs, prices must be respected. However, in terms of volume, we have been accommodating request to delay shipments to a certain extent. That said, there are limits. And given the wafer makers have committed to investments, I think the wafer industry has been focused on holding firm on prices. For spot prices, the picture is mixed. Prices aren't necessarily holding firm. That said, it is necessary to bear in mind that spot only accounts for a very small proportion of the market in considering its impact. On the outlook for 300 mm wafers going forward, demand for leading edge applications driven by AI will continue to be strong, but the other segments of the market are expected to remain weak and inventory adjustments are likely to take time. On the topic that is of the most interest to everyone, the impact of the tariff policy, we don't really have a clear picture. Not only have the tariff rates to be applied to silicon wafers directly shipped to the U.S. not been determined yet, we don't know what is going to happen when the tariffs are applied. However, the proportion of silicon wafers being imported into the U.S. is not that high. If we assume that there is no secondary damage as a consequence of the tariffs and no changes to current market conditions, then the impact is likely to be not that big. That said, we are assuming that if the tariffs lead to a higher cost of living and an economic slowdown, then the secondary consequences could be very significant for silicon wafers. At this point, we only have qualitative assumptions and no quantitative data. Next page, please. This slide shows customer wafer inventory levels. Inventory levels had stabilized at one point, but more recently, we have seen inventory rising slightly again. NAND memory, in particular is weak. Next page, please. When you look at the wafer inventory trend for logic, optically, inventory appears to be rising. The increases in inventory are happening in legacy logic applications. For memory, NAND is weak, although DRAM is relatively solid. So legacy logic and NAND continue to show weak trends. Next slide, please. The topic at the front of everyone's minds is the impact of U.S. tariffs. On the upper right, we show the breakdown for wafer consumption by application. As you can see, servers and PCs and telecom and smartphone applications account for close to 70% of wafer consumption. Consumer, industrial, and automotive account for the remainder, but all three are weak. Of the applications shown here, servers are showing the strongest trends. We are seeing a slight recovery in smartphones, but demand is not that strong. The two largest categories consume 300 mm wafers. AI data servers use DRAM or more specifically, HBM. If we think about potential secondary effects, rising prices would have a dampening effect on consumption with tariffs pushing up product prices. If we see a deterioration in consumption, it would have an impact on smartphones, for example. For industrial and automotive demand, a recession could have a significant impact. It could impact customer production volumes and for autos, auto production as well. It isn't possible to quantify the impact at this time, but there will likely be an impact. Additionally, the tariff rates being valued about are also changing, and the tariff to be applied to semiconductors has yet to be determined. For now, it is difficult to estimate the impact. However, the direct impact, if we assume no change to economic conditions or volumes, the proportion of silicon wafers being imported into the U.S. is not large, so the direct impact is unlikely to be huge. In terms of our strategy as we try to navigate this situation, we will focus on elevating our already strong capabilities in areas of strength. We will upgrade our existing plants to convert to leading edge production for 300 mm. It is possible that we might also choose to shrink some areas. For 200 mm and smaller diameters, we have no other choice but to consolidate production given that volumes are falling in order to improve profitability. Next slide, please. Over the last one to two years, we have been seeing a divergence in wafer demand trends from our estimates based on PPP-GDP. This is because Chinese chipmakers are increasingly being pressured to consume China made wafers from a wave of new local players. Yields are poor, but nonetheless, the Chinese chipmakers are using China made wafers. As a result, the volume of such wafers is quite high. Near term, Chinese domestic consumption of such wafers, such as test wafers or prime wafers for memory applications is estimated to be close to 1 million wafers per month, although it doesn't appear that many China made wafers are being used for logic. So if you take this into account, on a global basis, it suggests worldwide demand is close to 8 million wafers per month. Based on the available statistics, wafer demand is around 7 million, but in reality we believe demand is close to 8 million wafers. The yellow portion of the bars represents demand from China chipmakers. We have many customers in China. What we show here is based on many conversations with our Chinese customers. Although, it isn't an official statistic, it gives a rough sense for wafer consumption. Adjusting for this actually brings the demand forecast into line with the PPP GDP based forecast. This suggests that worldwide CAGR is around 5.3%. But for China, backed by the Buy China policy, the growth rate is much higher. Given that China represents 20% of the world's population, if China stops buying non-China waivers, the impact would be very significant. If we look at our territory, which is everywhere with China, demand growth is around 3% to 4% in my view. Related to this growth, I believe the key is quality rather than volume. Next slide, please. We put together a simple simulation of the potential impact of U.S. tariffs. We looked specifically at the automotive area where the tariff rate has been set at 25% for autos and auto parts. Semiconductor devices are incorporated in a wide range of auto parts. We examined the magnitude of exports from major countries and regions. Looking at 300 mm wafer consumption in automotive applications, we arrived at an estimate of 88,000 wafers per month. The data may be incomplete, but I believe the scale is of this order. Looking at 200 mm wafers, there are many automotive applications that use 200 mm wafers at an estimated 524,000 wafers per month. Of this figure, the volume of wafers being imported into the U.S. is not that large. However, if we apply an assumption that the volume of semiconductors being imported into the U.S. is halved, that would lead to a decrease in 200 mm wafers of 32,000 wafers per month or 6%. If we think about what would happen to that 6% of wafer import that drops out, it would likely be replaced with domestic U.S. produced wafers, although there may be a slight time lag. If you try to quantify what might happen, the simulation suggests that the impact as a result of tariffs on autos may not be that large, although this is only a simple simulation. But if auto sales drop off shortly, and that is a possibility, then the impact would be much larger. For instance, 500,000 wafers could drop to 200,000 wafers per month. Although this would be an extreme case, we cannot rule it out completely. So attempts to quantify the impact currently suggest that the impact may not be that large, but we don't really have any idea. The biggest potential negative would be if auto sales collapse. That is particularly the case for EVs, which China produces in large volumes, given the high semiconductor content per vehicle. If EV production falls off, then global demand for semiconductors would also likely fall. For the figure shown here before the impact of U.S. tariffs, a lot of the wafer volume is going into China at this point. Versus the U.S. population of 330 million, China's population is 1.23 trillion. The sheer difference in scale is significant. The standard of living for goods that consume wafers is also high in China as well. Everyone has a smartphone. It is similar for autos as well, so consumption of products that consume wafers is high. If you take this into account and the fact that there are exports from China that are being rerouted through other countries as well, the figures we show here are no more than a simple simulation. Although, we can do the calculations, we don't have much clarity on the actual impact at this stage. All we can do is to monitor the trends. This completes my section of the presentation. I will hand over to CFO Kubozoe to talk about the details of our Q1 earnings.

I, Kubozoe, will present the earnings and outlook in more detail. Please turn to slide 16. The results for Q1 fiscal 2025 in the middle of the table are as highlighted earlier by Chairman Hashimoto. In the middle of the table, we show CapEx for Q1, which was ¥32.7 billion down ¥14 billion from Q4. Depreciation for Q1 was ¥22.7 billion, largely unchanged Q-on-Q. An increase on the back of newly completed greenfield investments was effectively offset by the impact of the start of a new fiscal year. The OPM and other metrics are as shown further down the table. This covers the Q1 results. Next slide, please. In the analysis of sequential changes to quarterly operating profit, sales increased by ¥2.4 billion from fourth quarter, while operating profit fell ¥1.1 billion. The Forex rate was ¥153.9 to the dollar versus the ¥149.2 level of Q4, ¥4.7 weaker Q-on-Q. The waterfall chart below shows the breakdown of this ¥1.1 billion change. The only positive factor was Forex for a positive of ¥1.6 billion. There was a ¥1.2 billion increase in cost, the result of higher materials cost. Depreciation was largely unchanged Q-on-Q at the OP level, increasing only ¥0.3 billion. Q1 sales related variance was also slightly negative with fewer operating days in February, which led to a decline in production volumes. There was also a very slight impact from weaker spot prices. The increase in cost was the key factor behind the Q-on-Q decline of ¥1.1 billion in OP. On a year-on-year basis, sales rose ¥8.9 billion, but operating income fell ¥2.7 billion. Dollar yen was ¥6.9 weaker year-on-year. While Forex contributed a positive ¥2.8 billion. The ¥2.7 billion drop in OP was the result of higher costs related to ¥1.7 billion in increased cost for materials and an increase in electric power unit prices. Depreciation also increased a hefty ¥5.2 billion on greenfield investments. This was offset by a slight increase in 300 mm volume year-on-year for a positive contribution of ¥1.4 billion from sales related variance. The very heavy increase in depreciation and cost contributed to depressing OP on a year-on-year basis. Next slide, please. On this slide, I will cover the balance sheet. Please see the table on the left. Looking at the middle of the table, total assets as of the end of March were 1,161.3 trillion down a ¥11.3 billion compared to ¥1,172.6 billion at the December 2024. I will discuss the change in cash and deposits in covering cash flow in a moment. There was a slight decrease in notes and accounts receivable and a drop of ¥3.8 billion in tangible and intangible assets. Much of the decline in tangible and intangible assets is related to Forex valuations. Depreciation was largely unchanged as noted earlier, and there wasn't much change in terms of CapEx acceptance either. On the liability side, there was an increase in interest bearing debt of ¥9.9 billion. We chose to cover all of our refinancing needs for Japan in 2025 during Q1, similar to what we did last year. Hence, the increase in debt. We note debt levels declined at FST, which led to the net increase in interest bearing debt of ¥10 billion. Under net assets, retained earnings were largely unchanged. Total net assets declined by around ¥10 billion on the back of a reduction in non-controlling interest, et cetera. Based on this, the equity to asset ratio was unchanged Q-on-Q at 50.5%, and the DE ratio on a growth basis was 1.62x as of the end of March. On the right, we show cash flow. Operating cash flow was a positive ¥26.7 billion. However, the outflow of cash flow for investment activities was ¥39.4 billion reflecting payments on the back of acceptance of CapEx in Q1 and first half. The resulting free cash flow was a negative ¥12.7 billion. After factoring in dividends paid, net proceeds from borrowings, and the effect of changes in exchange rates and others, cash and deposits was largely unchanged with a modest decline of ¥1.9 billion to around ¥93 billion. Jumping forward to page 20, I will now discuss our earnings forecast. The projections for Q2 2025 are highlighted in the middle of the table as discussed earlier by Chairman, Hashimoto. We forecast sales of ¥100 billion, OP of zero, ordinary loss of ¥1 billion, and net loss attributable to owners of the parent of ¥2 billion. Q2 depreciation is projected to increase to ¥27.5 billion with the impact of Greenfield investments gradually starting to kick in, an increase of slightly less than ¥5 billion Q-on-Q. Our Forex assumption for Q2 is ¥145 to the dollar. Currently, the yen is trading around ¥143. But given we use a three month average and the rate for April was around ¥149 to the dollar, if the Forex rate remains at the current levels, we expect to end the quarter with an average of around ¥145. The various metrics shown at the bottom of the table are as presented. On this next slide, we show the analysis of changes in operating income. On a Q-on-Q basis, sales are projected to decline by ¥2.4 billion and operating income by ¥5.9 billion. The Forex assumption reflects an expectation of a stronger yen at ¥145 to the dollar, appreciating by ¥8.9. We expect a significant negative impact from an increase in depreciation expenses and Forex. Costs are also projected to rise slightly Q-on-Q, reflecting an increase in labor costs, the combination of annual raises from April, and increases in base salaries. On sales related variance, we project a positive of ¥1.9 billion. Despite the ongoing weakness of smaller diameter wafers, we expect a modest improvement from the mix with a slight increase in 300 mm epitaxial wafer volumes. Ultimately, however, it is the increase in depreciation expense and the impact of Forex that is depressing operating income to the breakeven level. On a year-on-year basis for first half on the right, the increase of ¥14.5 billion in depreciation expense is the major contributor to the lower OP. The rebound in sales related variance is weak, hence, the significant drop in OP. Finally, on Page 23 in the reference section, we show historical trends for earnings and EBITDA. Please review these items at your leisure. This completes my section of the presentation.

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

I would like to ask about recent near-term conditions. Frankly, two weeks ago, when your peer announced their results, the tone was very different with a suggestion of a recovery in demand for devices. Have there been significant developments in the last two weeks such as customers choosing to reduce inventory in response to the uncertainty related to tariffs? Also, if device demand decline slightly, typically, the impact upstream on wafers tends to be amplified, i.e. a 5% decline in device demand comes through as a 10% to 15% decline in wafer demand. Are there signs that this is leading customers to hold back on purchases? Was there something that happened in the last one to two weeks?

Nothing has changed in the last one to two weeks. We haven't seen any sort of actions being taken on the part of customers for now.

So you were saying conditions haven't gotten either better or worse. Is that right?

Yes.

Understood, thank you.

Thank you. Next is Mr. Watabe of Morgan Stanley MUFG Securities.

You said it is difficult at this time to get a read of the impact of tariffs. Can you talk about whether the current forecast incorporate direct or indirect impacts from tariffs? If you haven't factored in such impacts, what sort of impacts do you think might be likely?

First of all, our current forecast do not include any impact from tariffs. In terms of what sort of impact might be likely, I can only respond qualitatively. But with regard to 200 mm, Sumco has a plant in the U.S. So if tariffs are imposed, theoretically, this should be favorable for the U.S. plant. However, the U.S. plant is currently selling wafers to China, which would be negatively impacted by tariffs. If we factor all of this in, it suggests the impact is likely to be neutral. If we look at Japan, the majority of 200 mm wafers are sold domestically, so the impact won't be that large. In addition, 200 mm accounts for only a small proportion of the total now. So, I would not expect much of an impact. As well, we have already seen much of the 200 mm wafer market in China shift to Chinese players, so probably not much of an impact either. For 300 mm wafers, our sales to the U.S. are not that large now because Intel is struggling. So the impact won't be that big. We used to be the top supplier to Intel previously, and they were a significant consumer of wafers. So I wouldn't expect that the imposition of tariffs would lead to a significant decline in imports. Also, if you think about the alternative suppliers based in the U.S. that can provide wafers that meet Intel's demanding specs, I think it would be very challenging. Hypothetically, even if a U.S. based player were able to produce such wafers, it would probably take them three, four, five years to get there. Given this, I think that there won't be much of an impact here. If you think about it, it is hard to imagine a significant direct impact from the U.S. However, there could be a significant impact in China. The Chinese government is trying very hard to stop Chinese chipmakers from importing 300 mm wafers. But because local players don't have the capability, the chipmakers won't be able to halt imports of more difficult wafers. As you know, there are three big players in China, one each in the key areas of NAND memory, logic, and DRAM. If you look closely at these players, many Chinese chipmakers are being instructed to use China made wafers even if yields are very bad. The government has clearly stated its policy, so I think we could see a polarized situation where players from the free world will not be able to sell into China. But this is nothing new. Regardless of what happens with Forex, there aren't wafers being exported from the U.S. into China or vice versa, so the direct impact is not that large. My biggest concern is the secondary effects from the 25% tariffs being applied to autos. Previously, it was just the U.S., but now tariffs are being applied globally. This will make it impossible to route exports through other countries. It's possible that this could lead to a sharp drop in auto sales globally. Given the significant semiconductor and other content in autos, I think it could trigger a recession. So my impression is that the potential damage from indirect effects could be large.

Although the proportion of 200 mm has declined at Sumco, it hasn't gone away. So the indirect impact of a downturn in autos could be significant. In addition, there is also risk related to changes in Forex rates. These are the two risk factors. Is that correct?

Yes, the direct impact from a downturn in autos is not that large if current market conditions are maintained. But even on a qualitative basis, the sheer scale of tariffs being imposed will probably lead to consumers putting off buying cars. If that happens, the global economy will probably weaken sharply and semiconductor demand around the world will fall off. I think the damage could be wide ranging. For instance, smart cars use data center capacity, so weaker sales could hurt data centers. The implications for the economy could be very broad.

Understood. Thank you.

Next is Mr. Ikeda of Goldman Sachs Securities.

I would like to ask about the outlook for 300 mm wafer prices. Yesterday, there was talk of an unrealistic price adjustment request from Taiwan. I don't think anyone is taking this seriously, but there appear to be some concerns about wafer prices. Given concerns about a deteriorating macro back drop and Forex volatility, I would like to know if this will impact Sumco's LTA prices. I would also like to know about what happens to LTA prices after the delayed LTA shipments roll off. I assume that pushouts mean that the LTA prices will be in effect now until the end of 2027 but what will happen after 2027? I recognize that there are differences in wafer types and durations of LTAs. But to the extent possible, can you comment generally on the outlook for prices?

The challenge in terms of volume is the fact that wafers for legacy applications are not growing. The contracts put in place were based on assumptions by the customers that volumes for legacy applications would grow solidly. However, while the contracts are for a specified level of volume, there aren't specific volume commitments by application. Obviously, the market continues to transition to leading edge. So, the continued push outs on deliveries are because it isn't possible to force the customers to take volume and to simply continue to stockpile wafer they don't need. And customers are saying that their warehouses are full up. In this situation, both sides do need to give a little. But with regard to price, for the wafer makers being asked to not only reduce volumes, but also lower prices is unacceptable because the wafer makers have been making significant investments. I don't know about our peers, but we have reached a point where we will do what we have to do. I don't think anyone will accept lower prices. I think the wafer makers are negotiating hard to hold the line on prices. If you think about the impact of wafers on the bill of materials, typically, wafers account for around 5% of the cost of an end product. If you're talking about AI, the cost of a wafer as a proportion of cost is a fraction of a percentage point. So the impact of negotiating down the price of a wafer is limited, but wafers are essential to fabricate chips. It isn't clear how far the chipmakers might go, but at a minimum, we are not assuming price cuts.

If we look at current conditions compared to overall volume, is the right image that LTAs out to the end of 2026 have now been extended to the end of 2027? How should we think about this?

Deliveries have been pushed out beyond the end of 2027. That's because customers' plans were based on the assumption of strong growth. In fact, growth did not live up to expectations, particularly for legacy applications. Even if the customer shifted over to leading edge applications, it would be necessary to push out deliveries significantly. So I think the LTA deliveries go beyond the end of 2027.

From that perspective, prices are likely to remain flat or improve gradually over time. Is that right? Effectively, the way to think about prices is unchanged. Correct?

Yes.

Understood. Thank you.

Next is Mr. Yoshida of CLSA Securities.

I have a question about the Q1 results and the Q2 forecast for the Q-on-Q sales related variance that you show on pages 17 and 21. Could you provide the breakdown between volume and price? Also, there was a comment that depreciation was pushed out from Q1 into Q2. Please describe the expected cadence for depreciation by quarter for this and next year if there has been a change from three months ago.

For the ¥1.2 billion change in Q1 sales related variance, the majority of the Q-on-Q change is from volume. The price impact is very small. For Q2 on Page 21, almost all of the Q-on-Q sales related variance is volume.

Earlier, there was a mention of a negative impact from spot prices in Q1. But that was very small. Is that right?

Yes. A very small impact primarily from smaller diameter wafers. The Japan business is virtually all LTAs, so there isn't much change in prices. On CapEx, total CapEx in 2024 was ¥210 billion. We expect CapEx for 2025 will be roughly half of the 2024 level. There will be some greenfield CapEx carried over from 2024 on an acceptance basis in first half, mostly in Q1. For depreciation, we are still reviewing the timing of ramp ups, so I don't have numbers now. But as mentioned last time, depreciation is likely to be several 10s of billions of Yen lower than the previous figure of ¥150 billion.

For 2026, will CapEx drop further down to ¥50 billion, ¥60 billion as suggested three months ago? Is this also unchanged as well?

For 2026, that will depend on what we decide to do, which is currently under review, but that is probably in the ballpark.

Thank you. Understood.

Next is Mr. Miyamoto, SMBC NIKKO Securities.

I would like to ask about competition with Chinese wafer makers. As a result of the Buy China policy, Sumco saw its China sales fall sharply from the second half of 2022 into the end of 2023. However, since then, the level of China sales on a half year basis has not changed much. Why have you been able to maintain this level of sales? Is this because of the requirement for high quality leading edge wafers for logic? Is this sustainable? Also, is there a risk that Chinese wafer makers may export silicon wafers to developed countries?

With regard to competition within China for wafers, it applies to test wafers and low grade prime wafers. FST supplies such wafers, but Sumco at the parent level does not. Where it is possible to offer wafers at attractive prices that lock in a certain level of marginal profitability, it isn't necessary to lower prices to the level of Chinese wafer makers. This would be in the spot market. This is where we have been able to offset some of the sales declines in China. Regardless of what the government is telling them to do, given the clear difference in yields, Chinese chipmakers are able to find a way to rationalize buying wafers from us, if there is a small price difference, but a 50% higher price point would not be acceptable. On the question of whether China made wafers can be sold in the developed countries, they can't. Our customers are very hesitant to buy China made wafers. Firstly, there is the issue of quality. In addition, the geopolitical risk is very high. At first glance, silicon wafers would appear to be available everywhere, but wafers are essential for fabricating semiconductors. Any interruption of supply would be a major issue. That is why customers committed to LTAs three to four years ago. Given all this, I don't think there are customers in the developed countries that would buy wafers from China.

I estimate Sumco sales in China in Q1 were more than ¥10 billion. Can you comment on whether you expect this to increase or decrease going forward? Given that geopolitical risk is intensifying, can you maintain this level of sales?

That's about right for China sales. In terms of where sales might go in future, sales are at the bottom so I think we can maintain this level. The Chinese don't want 100% made in China so I think our peer is also generating a certain level of sales in China as well, similar to us.

I understand. Thank you.

Next is Mr. Okazaki of Nomura Securities.

Very simply, I would like to confirm that Samco's 300mm epi wafer shipments will rise slightly on a Q-on-Q basis in Q2. That's what I understood, but am I correct? Also, I understand the situation is very difficult to read, but do you expect shipment volumes to be up half-on-half in second half? Three months ago, there was a suggestion that volumes would gradually recover into second half. The talk of tariffs makes it difficult to read, but please share your view.

It is true that spot is increasing with Q2 up Q-on-Q. Compared to Q4, 300mm shipments in Q1 were higher as well. But in terms of what is likely to happen in second half, given the weakness in NAND, it will depend upon the trend in NAND. For now, I am assuming that second half will be flat half-on-half. Unfortunately, it is difficult to read with lots of potential emerging risk. In this situation, the only thing we can do is to focus on building up our strength, continue to develop our technological expertise, and remain focused by exiting unprofitable businesses and executing on structural reforms.

I see. So your best guess is that second half shipments will be flat half-on-half, but that there are a lot of factors that are driving uncertainty. Is that right?

My best case scenario would be for a slight half-on-half increase in second half, but the wild card is memory. Given that memory is volatile by nature, it's hard to say for sure.

Understood. Thank you.

Next is Mr. Omura of UBS Securities.

My question is about SG&A expenses. In Q1, it was ¥13 billion up around ¥4.5 billion from the ¥8.5 billion of Q4. It is difficult to read what happened here using the waterfall charts. Please explain why SG&A expenses stepped up both on a Q-on-Q and year-on-year basis.

The reason for the increase is related to the new plant. Although commercial operations have not started yet, we have started customer certification activity and are conducting test runs, so are incurring depreciation. However, the depreciation on the new plant is currently being included in SG&A. So much of the big increase in depreciation we have been talking about is this increase in SG&A.

I see. So once commercial production begins, the depreciation currently included in SG&A will move over to COGS. Is that right?

Once commercial production starts, yes.

I understand. Thank you.

Next is Mr. Nakata of JPMorgan Securities.

Sumco had previously said that its target for EBITDA margin is 30% even in challenging times. But looking at Page 23, it has been trending below that level for more than a year now. Do you anticipate making further cuts to cost to get there? Sales seems to be relatively stable at around the ¥100 billion level, but the EBITDA margin has declined. When do you expect to get back to over 30%?

That's a tough question. We really need to see revenue to return to previous levels, because the wafer industry is about scale. When revenue was ¥104.7 billion, the EBITDA margin was 28.4%. But, the margin is currently 26.9%. The weakness reflects higher cost. Our target to date had been the 30% level. In the past, we did get close to the 40% level, but my own target has been the 30% level. But, I don't see the EBITDA margin improving unless we see top line growth. Given that depreciation is reflected in EBITDA, even when depreciation drops out and profitability improves, the EBITDA margin won't improve unless revenue increases.

Understood. With regard to cost reductions, have you largely exhausted the potential for significant cost reductions? Does the continued rise in cost mean that in the absence of top line growth, the EBITDA margin will keep falling?

Even if we were to reduce head count, the impact would be limited because we cannot cut head count by the thousands. Capacity utilization isn't as low as 50% with the exception of perhaps 150 mm. At that kind of level, we would take action such as closing down the plant, but that is not the case for 300 mm. So we can't reduce head count that much. So there isn't that much room for further cost reductions. One thing we could consider would be to retire facilities for 200 mm or older facilities, but already the book value is minimal because we use five year declining balance for depreciation, taking the value down to zero in five years. For the time being, therefore, the most important thing is that customers buy wafers as planned.

Understood. Thank you.

Next is Mr. Nishiyama of Citigroup Securities.

In looking at the inventory levels shown on Page 10, many of your peers indicated that inventory levels had peaked out and are gradually falling, so I was a little surprised by this slide. I think many of your peers have been increasing shipments from April onward. Given this, should we expect that the rise in inventory will continue in Q2? Also, one of your peers suggested that some chipmakers were trying to build up a buffer in wafer inventory and highlighted rush orders. Over the last month, have you seen changes in customer inventory strategy, including rush orders?

We didn't see rush orders in key categories such as memory, data center, or smart phone related. It's true there were rush orders, but they were very small scale and not enough to move the needle for the overall market. That does not mean that Q2 will be better either. It is more a function of customer specific needs, and it might not be our customers, but some may have chosen to lower inventory in Q1 in favor of increases in Q2. However, this does not mean that the overall market conditions are improving. There are customers who chose to do the opposite by buying in Q1, but cutting back in Q2. The adjustments seem to be concentrated in memory players. I don't have a sense that Q2 will be stronger than Q1, especially given the talk of tariffs and signs of an economic downturn. Just because there were rush orders is not evidence of improvements in Q2. It is true that there were rush orders in a specific area, but it is unrelated to the overall trend for the market in my view.

Thank you. In terms of the direction of inventory, do you expect inventory to rise further in Q2 versus Q1? Also, in terms of customers' inventory strategy, is there an increase in customers wanting to carry more inventory compared to three to six months ago?

I don't think there are any customers that want to hold higher levels of inventory.

Understood. So do you think a normal level of inventory, although it likely varies by company, generally speaking, is around two to three months?

So there are customers that have four or five months of inventory. Two months is probably normal, but the vast majority of customers are not at normal levels of inventory.

Understood. Thank you.

Next is Mr. Yamada of Mizuho Securities.

Going back to the question on EBITDA margin on Page 17, can you provide more color on the waterfall charts for Q1? The year-on-year chart on the right shows significant positives from Forex and sales related variance that outweigh costs, but the EBITDA margin was flat. If we look at Page 21 in the first half year-on-year chart, if we net out cost, sales related variance in Forex, that leaves us with a negative of only ¥0.4 billion, but the EBITDA margin is forecast to be down significantly. Is this because of a deterioration in mix, Or is there a short term factor related to a specific leading edge item that is pushing up cost? Or is it because Sumco is undertaking structural reforms and is therefore incurring advance expenses? I understand the link between top line and the EBITDA margin, but these charts alone do not explain what is happening in my view. Please explain.

From last year, we had been hiring staff in advance for new capacity, including Greenfield investments. But because commercial operations have not started yet, the additional staff have been a slight drag on profits. This is one factor.

So because of this, while both Q1 and first half sales are up year-on-year even after adjusting for Forex, profits were down. Is that right? If that's the case, once normal operations begin, can we expect there will be an improvement in the EBITDA margin?

Yes. As noted earlier, once the new facilities begin operations and successfully capture leading edge demand, there will be an improvement in production levels. Also, as mentioned by Chairman Hashimoto, through the structural reforms, when we achieve a better balance in terms of the allocation of production capacity, we will better capitalize on the advanced resources we have put into place, and these resources will generate revenue. When that happens, we believe EBITDA should improve.

Will that happen in second half fiscal 2025?

We can't say when yet, but it will depend upon the timing of ramp ups.

I had hoped it would happen in 2026, but lots of things have changed dramatically. A lot of things are up in the air. If we were to see the economy deteriorate, a recession would impact sales of semiconductors negatively. There is lots of uncertainty, so maybe not 2026. Very difficult to read. I had hoped we could achieve this in 2026, but there is so much uncertainty. In particular, our largest client, where we are top supplier, has been building fabs around the world, as you know. I expect that the significant tariffs would disrupt their strategy significantly. The question is how will things play out? I think this customer is also bracing themselves, so it is very difficult to read the situation now.

Understood. I have expectations for an improvement. Thank you.

We will end the meeting here. Thank you to everyone for joining the Q1 fiscal 2025 results briefing. We are grateful for your participation today.