HOYA Corp. (OTCPK:HOCPY) Q1 2023 Earnings Conference Call August 4, 2022 3:00 AM ET
Company Participants
Ryo Hirooka – Chief Financial Officer
Eiichiro Ikeda – President & Chief Executive Officer
Conference Call Participants
Makiko Morita – SMBC Nikko
Ava Rae Mora – Goldman Sachs
Nako Miyon – Jefferies
Operator
Recording in progress. It will be in Japanese and those of you who would like to look at the English version of the presentation material, please access to our best website. Now, it is now time to start the Q1 Financial Results Briefing for the Fiscal Year Ending March 2023 of Hoya.
Just as we did with the previous briefing, there’s going to be Japanese and English simultaneous interpretation available. Those of you who would like to listen in Japanese, please choose Japanese using the interpretation button at the bottom of the screen and choose English, if you want to listening English. The speakers of Hoya, Eiichiro Ikeda, it will be, Director and Representative Executive Officer and CEO, Eiichiro Ikeda; Director and Representative Executive officer and CEO — CFO, Ryo Hirooka.
Today, our CFO, Hirooka is going to explain the results for the first quarter and third to share with you the overview of the main business and then I would like to explain that the new composition of the Board and the remaining time will be spent to entertain your questions and we plan to finish at 4:45 A.M. Those of you of you who are attending the session at through PC, please look at the screen for the presentation material.
I would like to hand over to our CFO, Hirooka to explain the results for the first quarter. Hirooka sir, over to you please.
Ryo Hirooka
Thank you. My name is Ryo Hirooka, CFO of the company. Now, let me share with you the results for the first quarter. Here are the key takeaways for the first quarter results. There four points I would like to talk about. First is that because of the would major impacts from the end depreciation for the quarterly basis, and we were able to achieve record high quarterly sales and profit. And the second point is for the life care business, as you know, China. In China, there was a long-lasting lockdown in Shanghai.
And I will explain that later on. But we were impacted however under because the lockdown lasted more than we had expected. But even under that situation, other regions and other businesses were able to grow strongly and even though there was a negative impact from the lockdown we were able to grow our business. And the third point I would like to share with you is that for the information technology business overall our sales increased.
As you know HDD market is not very good. And especially 2.5 inches last year or there was a special demand it was an abnormal situation but we are experiencing a rebound and even such even with that external situation overall LSI blanks and FTD masks performed strongly and overall, we were able to increase ourselves. And fourth point is something that was resolved in today’s BOD meeting. We decided on additional share buyback program. So those are the four points that I wanted to share with you for the results of the first quarter. Let me explain in details. Next page please.
Okay, I would like to talk about the numbers of financials for the whole group for the first quarter revenue was JPY100 — JPY188.2 billion and pretax profits was JPY61.5 billion, ‘21. It presents an increase against why or why net profit was JPY48.4 billion an increase of 70% y-o-y.
And this is only for your reference operating profit was JPY54.2 billion which is a 10% increase against the previous year. And as I mentioned a during the key takeaways, there was the Yen depreciation which had pushed up our performance on Japanese yen basis. And that’s written at the bottom because of the depreciation of the Yen, the Japanese yen revenue increased by JPY13.3 billion and PDP increased by JPY4.3 billion.
So excluding the impact, as written on the second bullet point, our growth rates was 6% year-on-year revenue and 12% increase year on year in PDP. And the operating profit and the pretax profit, there’s a major difference in terms of numbers. Those are a — those differences caused by FX gains are basically from the Yen, yen deposit and dollar deposit. So that is a reason why there is a huge difference between pretax profit and operating profit.
I would like to explain our performance for each segment. Next page, please. First of all, for the Life Care business, the result was JPY110.8 billion for the revenue which was 14% increase against the previous year. And as written at the bottom, on constant currency basis, revenue increased by 7%. So 7% increase without the FX impact. Pretax profits was JPY25 billion, which was again a 15% increase year-on-year. But 8% increase on constant currency basis, operating profit was JPY21.6 billion, which was a 5% increase against the previous year.
So, in terms of operating margin, I would like to make a comment. This fiscal quarter was 19.5%. So better it was an improvement from Q4. But compared to Q1 last year, there was a decline in terms of margin. And this is something I’ve said during the briefing for the results for Q4. For Q4, there was a one-off cost. So, for overall a segment around 20% is the target operating profit margin that was a comment made in our previous briefing.
So, it is I believe within the range the results for the first quarter. So, which means that while we’re making investments, we were able to generate an operating profit margin. So we are a little bit close to the bottom of the range. But I will explain when I talk about the business segments, but the sales in China was lower than we had expected when we were below what we have achieved in the previous year due to product mix mainly. So we wanted the operating profit margin to be a bit higher than this.
The difference in terms of operating profit margin against the previous year. Last year 21.3% was achieved in Q1 but it was higher than we had expected. So there was an expansion of a section in Q1 and FY ‘21. And we really didn’t know where we are to, we were to accelerate or decelerate. And because of the characteristics of the company, we were more like decelerating. So Q4 FY ‘21 was a bit too high, we didn’t make any investment, we didn’t make a lot of investments. And later on, R&D and SG&A. Such investments increased later. And that is probably the reason why we’re close to 20%, which is our target. So we would like to continue with that. But at the same time, we will like to increase the margin. That’s something oh, excuse me increase the top line. That’s something that we believe is important for us. Let me explain by business segment.
So I would like to explain each business segment that if I were to supplement. It says constant, a constant currency basis. So JPY103.6 billion is the based on the constant currency. The page three is are the numbers on in Japanese yen. And wondering JPY3.6 billion is calculated using the constant currency. So please understand that they are some differences in terms of the figures. For medical products compared to last year, there was an increase of JPY26.1 billion, a small increase of JPY900 million. I guess the previous year in Endoscope business in year a decline of 3%. So in terms of fundamentals, queued — since Q2 of last year, things have not changed. We have been able to receive orders to a certain extent.
However, we are struggling to procure semiconductors and we haven’t been able to clear backlogs and we haven’t been able to increase the shipment of processors which overall is decelerating our sales. And this phenomenon continued. And in the first quarter, I said, as I said, the impact of China, the biggest impact was experienced or seen in an endoscope business and also logistics.
It is located in Shanghai. And in April in May. The Company Entity our Chinese entity was not able to operate and they were not able to record any sales. From June a little by little, we were able to start rethought of operations. And we were able to post sales or record sales in June. And because of that, in this in the first quarter, the sales in China, I was significantly lower compared to last year, which had negative impact for the whole business.
As I said, currently, we are able to sell products in China and the sales is recovering. So I believe that it wasn’t a one-off thing what happened in in the first quarter. However, semiconductor issue, we don’t see any visibility in resolving that problem, which I believe is going to continue for this fiscal year, or there’s going to be a kind of cap in terms of supply of semiconductors for. So we would like to produce as much as possible in terms of processors, we do have a huge backlog. And I think it will take time, but we would like to do our best to clear backlogs.
Now moving on to Intra Ocular Lenses, year-on-year on constant currency basis increase of 8%. So we have been able to grow steadily. And the positive thing was that oh, again, this business was impacted by the Chinese situation compared to last year. Number of surgeries are we declined in this quarter, compared to last year, China alone, or there was a decline in sales of about 30%. But even with that, we were able to grow in other areas, we were not able to achieve double digit growth however, we were able to grow by 8%.
And the Q1 for Japan, we were able to recover to a certain extent and not only in clinics, but also in hospitals, we were we saw an increase in the number of surgeries. In now that we are in July, now the number of infections is increasing and we need to monitor carefully. However, I do believe that if you look at the full fiscal year, we will continue to grow. So we have been able to increase ourselves and grow the business, we would like to continue to launch new products in different markets so that we can achieve a stable growth for the business.
Another Medical business, the amount is still very small. And it’s not sizable to have an impact for the whole business. But other than endoscopes and IOLs, we do have artificial bones and auto metal impact — implants. And we also doing bio ceramics business. The markets may be small or some of the products we are only selling in Japan. So the scale of business is quite small, but we are doing different businesses, we are selling different products. And then in this area, we were able to grow quite significantly by double digit. So we would like to make sure that the business can make contributions to the performance of the company.
Moving on to Health Care. For overall health care, JPY77.5 billion and we were able to grow quite significantly for eyeglass lenses on constant currency basis, positive growth of 7%. Again, impact of China the impact was not as large as those in endoscopes or IOL is because our lab was located in a different location. So other than Shanghai, other than the areas where there was a lockdown, we were able to receive orders and we were able to supply our products.
However, China grew last year quite significantly, there was a momentum so Q1, we I believe was quite unfortunate. And, but we were able to grow a well or strongly in June and July. I believe that and for Eyeglass Lens business we were able to grow against the previous year and the market is recovering. Even though there was a slowdown in China, we were able to grow in other areas, especially in Southeast Asia. Last year, Southeast Asia, Hong Kong, Korea, there was an impact of COVID. And the recovery, there was only a very slow recovery. But today in all of the markets, we are seeing growth. And there was also a rebound from last year where our sales was slow, and we were able to grow year-on-year by double digits for those markets.
Now moving on to Contact Lenses. Contact Lenses grew by 12% year-on-year. So, it’s been a while to achieve double digit growth for contact lenses. In Q1, there were no COVID restrictions. For last year, there were a lot of COVID restrictions. And so therefore, compared to last year, we saw a recovery and demand. If there are no COVID restrictions, and people started traveling around move around the frequency of wearing contacts recovered.
We were able to see it see that which it was positive to our Contact Lens business, Eyeglass Lenses, IOL over the past two weeks. There has been an increase in COVID infections. So therefore, the moment we haven’t been able to go back to the momentum we had in the first quarter. So we need to monitor carefully how long this situation is going to continue. And if there are opportunities that we would like to execute there our sales expansion activities to increase our sales. Next slide please.
Now moving on to the Information Technology segment, I will just read out the numbers. Revenue was JPY62.3 billion, which was a 14% increase year-on-year and constant currency basis revenue increased by 4%. And pretax profits for the first quarter was JPY35.6 billion, a 90% increase against the previous year’s and on constant currency basis 9% growth, operating profits was JPY33.5 billion, a 13% increase against the previous year. Operating profit margin was 49.1%. So not much of a growth mainly because of HDD. However, we were able to maintain our margin for the first quarter.
Now on to page eight. So this is the breakdown by product. Again, this is on the constant currency basis. So it’s just the JPY62.3 billion figure is different from the number that I explained in a previous slide. First, for the imaging, year-on-year down by 1%. For the mirrorless camera lens, the sales was pretty steady, I would say. There was no drop year-on-year, we’re not seeing any sudden decrease. However, we do have many customers for this business in China. And when there is a lockdown in China, the sales were stopped.
So as a result, we saw year-on-year decline for the Imaging business. So this is a business that we need to keep a close eye on including the Camera business as well as the Economic Trends. However, are this is not a business where we expect high growth but rather, we would like to continue to keep this as a Cash Con business. With other sales goes down or not, we would like to continue to boost the operating profit margin. So from that perspective, we like to keep a tight control on the cost to continue to make the imaging business profitable.
Next for the masks and blanks, semiconductor and the large panels. For the Semiconductor business, the EUV blanks continue to perform very well. Semiconductor market overall has some opaqueness; however, our focus is on leading, cutting-edge R&D. So in that sense, we were largely unaffected and demand remains strong and we expect this strong demand to continue throughout the year. For the EUV is about a 20% growth year-on-year. So, we would like to continue to capture the customers strong demands and make the right investments at the right timing to continue the growth for the EUV business.
Next for the ESPD, this also showed steady growth. In the previous quarter or Q4, we started to introduce the new mask writer. And we are winning orders based on the new mask writer from Q1 and this has contributed to sales including OLED and last the HDD subjects. I think this is one of the key aspects of today’s presentation. As I mentioned in the key takeaways, the 2.5 inch is showing the correction and lower demand. On a year-on-year currency neutral basis, our Q1 was down 6% for the HDD substrates. 2.5 inches really is not doing well. So minus 6% is the actual and from Q2 onwards, we expect that the drop will be even larger, especially in 2.5 inch is showing a very dyer trend. It could be half of what we had last year for the 2.5 inches.
And as I mentioned at the onset, if FY ‘21 was rather extraordinary year from the perspective of 2.5 inch. From about 2018 or so 2.5-inch drop was something that we forecasted year-on-year. Around the 20% drop year-on-year was our forecast and we have the explaining that the 2.5 will continue to decrease and we will cover that by the increase in 3.5. However, because of the COVID, suddenly there was a surge in the demand for 2.5 inches.
And against 2020, it was a positive 2.5 grew. So from that perspective, this was a really special situation, but 20% drop year-on-year. Our initial forecast was correct. So in that sense, the drop is larger in ‘22 because of the special situation in ‘21. So if you look at the year-on-year comparison of the drops seems very large. But if you look at it over a period of several years, then it is actually going exactly as we had forecasted.
Now for 3.5 inch. Our expectation was that this will cover the drop in 2.5. However, this year, customers — customer meaning the data centers are seeing some opaqueness in terms of the economic outlook and they seem to be quite cautious in making decisions. This is what we are seeing at the moment. So for this fiscal year 3.5 is not going to fully cover the drop from 2.5. And this is how we see the full year trends for HDD substrates.
I do believe that for this year we will be struggling in terms of the HDD substrates in terms of numbers, but actually there is no change in our medium-term outlook that 2.5 will continue to decrease and the 3.5 will continue to grow and in the long term, we will be going back to the growth scenario. So, there is no change to this and we will continue to develop new customers. And so in that sense our strategy has not changed. This year or may be quite tough, but in the long term, our growth scenario has not changed. Now on to the next page please.
I will be brief. So I announced the share buybacks previously and we have completed JPY60 billion share buyback and we decided to cancel shares as of today’s board meeting and we also announced a new round of the share buybacks. So, we are conducting these buybacks rather consecutively, but a large amount of our cash and deposits are in dollars. So on a yen basis, our deposits are continuing to grow. And so, this is rather difficult balance to strike, but we will like to return to the shareholders or whenever there are opportunities. So, we have decided to go ahead with the share repurchase.
For the CapEx and the Depreciation and Amortization. Basically no change from what was announced previously. So on the next slide, please. I like to talk about the guidance. Q2 expectations around JPY180 billion in revenue for Q2 and pretax profits JPY53.5 billion. Let me comments several points. So, FX rate assumption is JPY125 to $1, which is stronger yen compared to the current level and it is very difficult to predict the future currency rate. But we have agreed to utilize this rate that based on the initial budget.
And as mentioned, we expect that HDD, it will be weaker in Q2 compared to Q1. So, that has of course been incorporated. On the other hand, we don’t plan to have any other lockdowns in China. So, the drop in HDD, it will be covered by the other businesses. That is also a key point in the guidance. Our concern in HDD is the Japanese markets. So the increase in COVID cases is currently happening and whether or not the government restricts people’s movements. The people may a restrained from going out. So that could have a fundamental impact on the business. And in terms of a profit. It’s very difficult to assume deal in FX intact. So this is a currency neutral basis. So it is highly likely that there could be FX fluctuations, but we didn’t incorporate that in the profit expectations.
Now predicts profits is down year-on-year. But last year, we had JPY3 billion in the FX gain as well as disposal of some of the assets which led pushed up the non-operating profit. So that is reflected in the higher pretax profit compared to this year. Sorry, and that this concludes my presentation. Thank you very much.
Eiichiro Ikeda
Next allow me to talk about the new board structure starting from this year. Ended June, AGM, we put the resolution for the election of directors as well as the partial revision of the articles of incorporation to the shareholders and both were approved with overwhelming majority over 96%. So after the AGM, Mr. Suzuki, who has led the growth of HOYA as CEO for more than 20 years. As well as Yukako Uchinaga, who has provided multifaceted advice as independent director over nine years has retired
Now, Yukako, independent director, we have Ms. Takayo Hasegawa, who is the Representative Director and Group CEO of SWCC Showa Holdings, as well as the Operational Partner of Gilda Healthcare Partner, Mika Nishimura. And as a new Internal Director, Eichiro Ikeda, who is a CEO, as well as Mr. Hirooka, who is a CFO has been appointed. And we have eight members of the board. Next slide, please. This shows the skill matrix of the six independent directors based on the categories. So this may be a bit difficult to see. But we have a nominating committee comprised solely by independent directors. And the nominating committee is responsible for selecting the candidates for the independent directors.
So I will be speaking are based on the perspective of the nominating committee. So Takayo Hasegawa, the newly appointed as an independent director, or she has a strength in energy, infrastructure, communication and industrial device through her experience as a researcher, and in its SWCC Showa Holdings. And in 2018, she became the very first female president of from the R&D.
Ms. Hasegawa has a wealth of experience as a researcher or in R&D, and we would like to leverage her experience in management, as well through her work as independent director. Now Ms. Nishimura has over 30 years of experience in the medical field. And she has been very active in the healthcare commercialization strategy in many markets, including the North America and Europe. She also has abundant experience as a partner or in the Life Science Venture Fund. And she has wide ranging expertise in the latest technology and company trends. Therefore, we hope that she will contribute to enhancing the supervision function of her Life Care business as independent director.
Now with this change in the board, the ratio of female directors, including the executive officers, has been boosted from previous year 11.1% to 30%. So this was a very brief explanation about the new Board of Directors of Hoya. And going forward, we would like to share with you the latest topics from our business products as well as updates around ESG at the Financial Earnings Presentations.
So now we would like to move on to Q&A.
Question-and-Answer Session
Operator
Because we have the simultaneous interpretation. Those of us chose a Japanese please speak in Japanese. Those of you who chose English, please speak in English. If you have a question, please press the raise hand button on Zoom. And there are some who have already raised your hands. And please, those of you on the telephone please push star plus number nine. And please state your name and affiliation at the beginning. Also, because our time is limited, please keep it to two questions per person, including the follow up questions. Then please raise your hand if you have a question.
Unidentified Analyst
Shibanita [ph], please. Citigroup Securities. My name is Shibanita [ph]. I’m a little embarrassed as I was raising my hand even before the start of the Q&A session. My first question is related to page eight. You talked about the EUV brand and my question is related to that adjustment of semiconductors you are not impacted. You will not be impacted by the adjustment of the semiconductor market. So interpretation that text is the first quarter sells. I will not say the absolute demand but I can make estimates.
So compared to last year, basically it is the sales that is going to increase. And for the first quarter, Ryo, as you know because I mentioned that it was there was about the 20% increase can we expect a similar level of growth from July? That’s my first question.
Ryo Hirooka
So talked about growth that was limited to EUV. So if we include others that would not, we wouldn’t we did not experience such a big growth. EUV. Basically, we believe that the EUV is going to continue to grow about optical, we believe that the growth will be flat or a little bit of a positive growth.
Unidentified Analyst
That’s the major trend and that would remain unchanged. EUV growth of 20%. Is it achievable?
Ryo Hirooka
On quarterly basis, there will be ups and downs in terms of demand. So 20% is not impossible. However, I cannot say for sure that we’ll be able to grow by 20% on quarterly basis, I cannot say that for sure.
Unidentified Analyst
And our capacity is going to grow in the fourth quarter.
Ryo Hirooka
And up until then we may hit the ceiling, we are growing by 20% basis, but basically increasing the throughput. And there is also issue of product mix. So with the current production capacity of Q2, Q3 that’s going to be an obstacle, we will increase our capacity when we hit the ceiling, the maximum that’s the basic idea.
Unidentified Analyst
Thank you very much. My second question is related to page six, you talked about the eyeglass lenses and it says that you’re going to strengthen your organization to accelerate the growth and since get us on became the CEO of a company, you mentioned that eyeglass business is going to be a focused business for you can you explain more details more in details about this business? So I get Mr. Ikeda is going to answer to that question.
Eiichiro Ikeda
So there’s challenges related to growth in you in the US from March, our eyeglass lens organization has been changed in the US especially Salesforce windage and has been changed and we have a new structure in place not only to change stores, but we have somewhat revised the sales structure. And for major chain stores, we are some having some positive impact. The organizational structure has changed and we are seeing some results. So we would like to carefully monitor how that business is going to develop.
Unidentified Analyst
Thank you very much.
Operator
Thank you for the question. Next questions, please.
Makiko Morita
I am Makiko Morita from SMBC Nikko. I have a question for both, Ikeda and then to Ryo Hirooka. On phase three of the off-site you talked about the operating profit. So positive by JPY4.8 billion and what is the currency impact here and the what is the negative from the China lockdown if you have a further breakdown analysis of the operating profits, I would be very eager to hear that? So, the currency impact is quite large. And pretax profit alone makes it a bit difficult to see the impact of the currency. So I like to look at it on the operating profits level. And my second question is to Mr. Ikeda. And this may be a continuation from the previous discussion or looking at the EUV.
Eiichiro Ikeda
There are various concerns in the markets and we are seeing the market adjustment for other companies. So after three months have passed and looking toward the future.
Makiko Morita
I’d like to ask more about the demand side rather than the supply side if there are any updates with regards to the demand side, please let me know.
Eiichiro Ikeda
Thank you. Looking at the operating profits, the currency impact is JPY3.7 billion in the supplementary material. It is on page eight. So please refer to that material. It is broken down further into segments. But you will be able to see the currency impact on operating profit And the impact from China. There were impacts. But if you look at the life care as a whole, the impact was not huge. It wasn’t a surprisingly huge impact. So in terms of EUV, I don’t think it’s as high as JPY2 billion, I would say, for the life care side. So that’s the rough number that I can introduce.
Ryo Hirooka
And that’s the address your second question regarding the EUV demand. So, we have said that our EUV is not impacted by the semiconductor market adjustments, because our EUV is not used for the kind of the normal applications in the market. So our products are not impacted significantly by the what is happening in the markets. So what is our EUV impacted by? It’s based on the number of designs or the R&D activities that does have some bearing on the on our EUV lines. So we speak to different customers. It’s a few handful of customers for EUV. And of course, we have discussions in the next three year or four year our demand. And this is because the capacity in the panacea bar is not going to be sufficient. And we have to make our capital investments. So we are conducting interviews with the customers on a daily basis to capture their future demand.
For HDD. Every time we speak to their customers, it’s more of a downward revision. I’m talking only about 2.5. But on the other hand, for the EUV every time we speak to the customer, we don’t see any lower earning of the demand. Based on our discussions, we don’t see cases where they are revising downward, but rather are there are customers who are revising upwards. So that is how we are planning the CapEx. In that sense, we have to look at the volume that will be required in the next two years or three years. And based on our discussion with the customers, we don’t envision any drop in the demand.
Makiko Morita
Thank you very much.
Operator
Thank you very much, Ava Rae Mora. Over to you please.
Ava Rae Mora
My name is Ava Rae Mora. I’m from Goldman Sachs. I have two questions. First question is the plan for the full year sales increase in 10%. From Second quarter, I do believe that that you’re expecting a growth of about a little less than 10%. Excluding the currency, how much of a growth are you expecting, and currently, there are a lot of macro risks. And also, there is expansion and infection in Japan and also there is a lowering of consumer sentiment. So there are a lot of risks. So, are those risks already incorporated in your current plan?
Eiichiro Ikeda
To be honest, we did not disclose our yearly plan. We are focusing on the business performance of each quarter and make plans for the quarter and achieve results and that is the reason why we did not disclose a yearly plan. The reason why we are only furthering a plan is because of insider trading related and because of the currency impact we do believe that the amount or the numbers are going to increase. We can expect that there will be a major impact of FX and that is a reason why we decided to disclose our yearly plan.
So I have no intention of making any comments any additional comments on the plan. But HDD is going to decline which is already incorporated in the plan and Life Care business, we would like to grow the business however. We do know that we are facing a very challenging environment. I know I’m not answering your question. The yearly forecast is not only a yearly forecast that we have disclosed, we just decided to disclose the plan because we’re going to be above 10%.
Ava Rae Mora
So follow up question, the 3.5 inches up until when inventory adjustment is going to last and do you know about when there’s going to be resolved reversal of the trend 3.5 inches meter long term data is going to increase and the investment cycle or cyclical? If we look at the cycle, we are in this, we are seeing deceleration. So within this fiscal year, I believe that the current trend current environment is going to continue. And where when do we expect the growth to come?
Eiichiro Ikeda
Unlikely to happen before the end of this fiscal year, the current status will continue. We have on two hands. So we would like to entertain those questions.
Operator
Danielle Sam, please.
Danielle Sam
Thank you, for the hard disk. So 2.5-inch utilization is dropping for that capacity. How do you plan to utilize that? So do you plan to shift that to 3.5 inch. For the 3.5 inch, you need to expand the capacity going forward? So is it possible to utilize the 2.5-inch capacity and convert that to 3.5 inch? That’s my first question.
Eiichiro Ikeda
With regards to the capacity for 2.5 inch, as you mentioned, yes, the plan is to convert that to 3.5 inch. We don’t see another growth in 2.5 inch. So we are proactively going to convert that to 3.5. However, in some cases, there may be some timing delays and so on. And we will like to continue to keep a eye on the operating profit margin. So if you have to stop the factory for some time, we will do so but we will definitely be converting them to 3.5 inch.
Danielle Sam
Understood. Thank you.
Operator
Danielle Sam, did you have another question?
Danielle Sam
Yes. My second question is about the roadmap going forward, for the 20 terabytes and so on. Any concerns you have?
Eiichiro Ikeda
No for the 3.5-inch development roadmap, no changes the 11 model, or is going to be a part of the developed model for all customers. And so we will be testing this going forward for the customers outside of HOYA as well. So no changes in the roadmap going forward.
Danielle Sam
Understood. Thank you very much.
Operator
Nako Miyon, please.
Nako Miyon
My name is Nako Miyon from Jeffries. 3.5 is strong. And it says here on the slide that it was strong. Were you. Did you see positive growth in the first quarter?
Eiichiro Ikeda
Yes.
Nako Miyon
And you will turn negative from the second quarter.
Eiichiro Ikeda
According to our forecast, yes. Which means that there will be a major adjustment in the second quarter. I mean, we’re talking we are comparing ourselves against the previous year. Yes.
Nako Miyon
So in the second quarter, there’s going to be a major adjustment in the third quarter in the fourth quarter, you’re not expecting a recovery?
Eiichiro Ikeda
I would say that procure to the top or in Q2, we will see. We believe it Q2 will be the bottom of 3.5. There will be a gradual increase but the speed will not be too fast. That’s how we see the situation currently. And the level of decline we saw in the previous year is quite different. And JPY60 billion of share buyback.
Nako Miyon
For three eight fiscal years in a low row or you’re going to implement a share buyback program. And I believe that you made this decision based on the current cash level. Are you trying to send a message to the capital market? Can you make a comment on that in terms?
Eiichiro Ikeda
In terms of share prices, I don’t make any comments. So we are thinking of different things as we made that decision, but one thing is that the we look at the cast level. And also, the we are looking at the investment plans as well. And as I said, a lot of our cash is held in foreign currency. We look at it in Japanese in basis and we do pay to our shareholders in Japanese yen as well. So since there is a yen depreciation, we decided one of the things. The reason why we decided is that we should be paying to our shareholders when we can.
Operator
Okay. So since all of the answers have been — all of the questions that’s been answered, I would like to conclude today’s briefing. Thank you very much for joining us, despite your busy schedules. Thank you very much.
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