Advantest Corp Ord

Thank you very much for joining Advanced Desk Corporation's financial briefing for the first quarter for FY2025, despite your busy schedule. I'd like to introduce attendees from my side today, from the left side of the slide. Mr. Douglas LaFever, Representative Director, Senior Executive Officer, and Group CEO. Mr. Koichi Tsukui, representative director, senior executive officer, and president group COO. Mr. Sanvi Mohan, appointed SCCRO, chief customer relations officer as of July 1st this year. And he is Hisako Takada, senior executive officer and CFO. I am Simba from the IR department serving as your moderator of today's session. In this financial briefing, Douglas will first report the financial summary. After that, Ms. Takada will report financial result for FY25 first quarter, and then Douglas will present FY2025 outlook before entertaining questions from the audience. We plan to close this session at 5.30 p.m. Japan time. In today's financial briefing, we will use Japanese-English-Japanese simultaneous interpretation. If you prefer to hear the original audio of both Japanese and English, you don't need to change the setting. Please join us with the default setting. globe icon on the lower left of the WebEx screen and select Japanese in the menu that says My Interpretation Language. If you slide the bar of the balance to the right and to the interpreter, you'll hear interpretation into Japanese when the original language is English. Today's presentation materials are available on TDNet and on our company website. The audience joining us from the telephone line is kindly requested to download the materials. Before we begin, we would like to remind you that today's briefing contains four looking statements. all of which are subject to risks and uncertainties that may cause our actual results to differ from those in such forward-looking statements. Now, Doug will present the summary of this quarter. Doug, please. Good afternoon, everyone.

Thank you for joining our financial briefing for the first quarter of fiscal year 2025. We've delivered an outstanding start to the fiscal year, posting highest ever quarterly sales, operating income, and net income. Our first quarter performance underscores the sustained strength of AI-related demand and is a testament to our ability and commitment to scale supplies capabilities. This result could not have been achieved without the dedication of our production partners and suppliers. I want to extend my sincere appreciation to all of them for their continued support and collaboration. We also achieved a notable expansion in both gross and operating profit margins. This performance was made possible by a unique alignment of numerous factors. Economies of scale driven by higher sales, including pull-ins, a favorable product mix, disciplined cost management models, absence of one-off losses, and the fruits of prior investments, particularly in capacity expansion. Looking ahead, we are raising our full-year guidance to reflect the stronger-than-expected performance in the first quarter. I will give details of this later in the presentation. While we anticipate a temporary digestion period in the latter half of the year, we expect growth to reaccelerate in FY2026. This lumpiness is largely driven by the timing of next-generation device transitions. Since customer demand does not flow evenly throughout the year and can shift abruptly, we have been strengthening our operational agility and supply chain resilience to better respond to these fluctuations. As we move forward, the central thesis we laid out in the third midterm plan of complexity-driven growth remains firmly on track. and is expected to unfold for the remainder of the midterm plan period. With that, let me turn the call over to Takada-san to provide details on our first quarter results. Takada-san?

I will now explain the summary of results for the first quarter of FY25. In the first quarter, we achieved our highest ever sales and profit on a quarterly basis. Continuing from the previous fiscal year amid growing customer demand for AI-related product deliveries, we worked to expand the procurement of parts and product supply capabilities in order to meet delivery timelines to the greatest extent possible and successfully carried out timely product deliveries. Despite the yen appreciating against the US dollar compared to the previous quarter, we achieved record high quarterly results, driven by a significant increase in SOC tester shipments. Before going into the details of our performance, I would like to first explain the changes made to our reportable segments. In efforts to provide comprehensive test solutions that include not only test equipment but also peripherals, Advanced Test revised its importable segments, starting from FY25 based on the management approach perspective. Specifically, the previously three segments have reorganized into two segments, Test Systems Business and Services and others. The Test Systems Business segment includes associate testers and memory testers, as well as other systems. products that are highly correlated with tester demand, such as test and loads and device interfaces. In addition, products related to the system-level test business acquired from Astronix Corporation in the U.S. in CY 2019 are also included in other systems. Service and other segments include support services, nanotechnology products, and consumables such as test sockets and interface boards for testing, which were acquired in the past through acquisitions. Now, let me move on to the details of our financial performance. Now, I'll talk about quarterly sales by segment. Test systems business is displayed on the right-hand side. Associate tester sales were 191.3 billion yen, an increase of 42.4 billion yen quarter-in-quarter. We were able to increase product deliveries compared to the previous quarter, mainly for high-performance computing slash AI-related semiconductors, which continue to grow in complexity and performance. Memory tester sales were 33.5 billion yen, maintaining a higher level comparable to the previous quarter, mainly driven by high-performance DRAM. Now I will talk about service in others. While sales for support services maintained a steady level, sales for technology further declined compared to the previous quarter. Next, sales by region, shifted region. Starting with Taiwan, Sales increased significantly quarter in quarter primarily driven by those testers. This is mainly due to higher quality assurance requirements for high-end semiconductors at several U.S. fabless companies. This resulted in an increase in sales to the related foundries and onsets. South Korea. Sales of memory testers and related device interfaces increased. Now, on to sales, gross profit, and operating income. Gross margin increase quarter-and-quarter, primarily driven by the growth in sales of high-end associate testers with high profitability. SG&A, including the total of other income and expenses, decreased by 27.5 billion yen quarter-and-quarter. As written in the note in the previous quarter, an impairment loss of approximately 21.4 billion yen was recorded for goodwill and intangible assets. Also in the first quarter, we recorded a gain of approximately 22.5 billion yen from the partial transfer of a business. As a result, the operating profit margin for the first quarter reached 47%, marking a record high. Now, R&D expenses, CapEx and DNA. R&D expenses were 17.1 billion yen, and CapEx was 6.1 billion yen. On the right-hand side, you can see our cash flow. In the first quarter, there was a decline in approaching cash flow quarter-in-quarter due to an outflow associated with corporate tax, bonus payments, and other items. Finally, balance sheet for the period ended June 30th. Cash and cash equivalents were 273.4 billion yen and inventories were 29.3 billion yen because of the end of June. Ratio of equity attributable to owners of the pair was 64.5%. As our business continues to perform strongly, we will continue to work on cash allocation and balance sheet management while optimally balancing growth investment and capital efficiency. This concludes my presentation. Now I will hand it over to Doug.

Let me now share our perspective on the business environment and our outlook for the Tesla market in calendar year 2025. The fundamental dynamics of the semiconductor industry remain largely unchanged. Growth continues to be driven primarily by AI-related applications, while demand in other segments, such as automotive and industrial, remains relatively subdued. Although the overall level of uncertainty has eased somewhat compared to three months ago, some risks persist. These include potential and ongoing geopolitical tensions and the possibilities of sharp fluctuations in foreign exchange rates. With these factors in mind, I will now update our market size forecast as follows. For the SOC tester market, In calendar year 2025, we are raising the market size estimate range to 5.7 to 6.3 billion U.S. dollars, up from our April estimate of 4.2 to 4.8 billion U.S. dollars. Back in April, although we had observed robust demand, we maintained our January TAM estimate due to prevailing macroeconomic uncertainties. Now, three months later, visibility has improved. and we have revised our forecast to reflect stronger-than-expected AI-related demand and our enhanced supply capabilities. For the memory tester market in calendar year 2025, we are maintaining the market size estimate range of $1.7 to $2.2 billion, a relatively high level by historical standards. Taking all these factors into account, we now expect the semiconductor tester market to grow by about 33% year-over-year at the midpoint, and calendar year 2025. In light of the first quarter results and the outlook for the remainder of the fiscal year, we are raising our full year forecast as shown on the slide with a number stated all in Japanese yen. Sales of 835 billion, operating income 300 billion, income before taxes of 297 billion, net income of 221.5 billion, and basic earnings per share of 302.71 yen per share. The upward revision of 80 billion Japanese yen in sales is primarily driven by SOC testers, with better than expected progress, particularly in the first quarter of the fiscal year. We expect a temporary digestion phase in the second half of the fiscal year for SOC testers due to the timing of next-generation device transitions, with the growth projected to reaccelerate in FY2026. We now expect fiscal 2025 full-year gross margins to reach approximately 60% and operating margins to reach approximately 36%, marking a historical high on an annual basis. As mentioned in my opening remarks, the strong margin profile in the first quarter was driven by a combination of factors, economies of scale, a favorable product mix, disciplined cost management, and the benefits of past investments. Among these, economies of scale were particularly amplified, supported by demand pull-ins that boosted sales. While these factors are likely to be less pronounced in the remainder of the fiscal year, we will continue to invest in further capacity expansion and in other key areas as the anticipated ramp of next-generation devices increases from FY2026 is expected to re-accelerate our growth trajectory following the temporary digestion period in the second half of fiscal 2025. The exchange rate assumptions from the second quarter onward are 140 Japanese yen to the U.S. dollar and 155 Japanese yen for the euro. Please refer to the footnote number two, which shows the effect of exchange rate fluctuations on our operating income. Now, I'd like to specifically speak about our ongoing efforts to expand production capacity in anticipation of further growth and tester demand. Over the past several years, we have increased our production capacity by approximately three times. This has enabled us to shorten lead times and respond effectively to rising demand. As we look ahead to a trillion-dollar semiconductor market, we will continue scaling our capacity. both in SOC and memory testers. Going forward, we plan to expand capacity by more than 70% compared to fiscal year 2024. To support this, we will be adding production capacity with our partners. Furthermore, we will be investing in strategic inventories to maintain quick response times. Next, I will explain the details of our sales forecast. For SOC testers, we revised our fiscal year 2025 sales forecast up by 88 billion Japanese yen from the April projection. In the first three months of this fiscal year, we successfully capitalized on the sustained growth of AI-related demand by scaling up our supply capabilities. While we expect lumpiness in sales and deliveries in the second half, we're also preparing for what we expect to be a re-acceleration of complexity-driven growth in fiscal year 2026, as new devices currently under development go into volume production. Meanwhile, demand in non-AI segments remains soft. For memory testers, our fiscal 2025 memory tester sales outlook remains largely unchanged from the April forecast. As our customers continue to advance their technology roadmaps, we are placing the highest priority on expanding our supply capabilities in this segment as well, ensuring that we are well positioned to support their evolving needs. For support services, we expect steady demand due to the continued growth of our install base. Sales of test interface boards and test sockets remain on plan, while the nanotechnology business is experiencing some delays in demand. Finally, I would like to close with the following remarks. We are pleased with a strong start to FY 2025, While the second half of the fiscal year may see a temporary digestion, we expect growth to reaccelerate in fiscal year 2026. Therefore, scaling our capabilities in our supply chain remains our highest priority. At the same time, we remain fully focused on executing on our four key strategies of outpace the growth in our market, expand adjacently into new businesses, drive operational excellence, and enhance sustainability. Thank you for your attention. Thank you for your attention.

Thank you for your attention.

We would now like to start the questions and answer session. We will receive questions in the following way. You are currently requested to click on the participant icon on the Webex screen and click raise hand. When the moderator calls your name, unmute button will pop up on the screen. Please unmute and identify yourself with your affiliation and name before asking questions. After your question is answered, please mute your microphone and cancel raise hand button. As we would like to take questions from as many participants as possible, we'll take one question per person. If time allows, we will receive questions until the planned closing time. As we use the Japanese-English simultaneous interpretation, you are currently requested to speak slowly and concisely to help the session continue. It is highly appreciated if you could refrain from asking questions regarding specific companies. We will now begin the Q&A session. CLSA Securities, Yoshida-san, please go ahead.

Thank you for taking my question. I'd like to ask you about the quarterly sales momentum trend of I know that you are seeing an adjustment phase in the second half of the fiscal year, but could you please give us the current color of the quarterly outlook for the rest of the quarters in this fiscal year? Also, I think Douglas talked about the market outlook for 2026 in the last quarter as an optimistic view, but do you have any clearer view for the next year growth pace at present? Thank you very much.

Okay, thank you, Yoshida-san, for your question. So first question was about the color of the remaining quarters for the year. So clearly our first quarter was a banner quarter, and there is going to be some digestion. We see that the lowest quarter for the year will be in the third quarter. with the fourth quarter resuming some growth trajectory that will then continue into FY26. So that's sort of the profile that you can think about for the sales on a quarterly basis. As far as 26 goes, you know, what we've been able to say is just more qualitatively that we're very optimistic about 2026. With the additional wafer capacity and advanced packaging being added into the market, that's going to drive additional unit volume and test capacity needs. We've also seen that the hyperscale CapEx growth is remaining intact, and that's also a very encouraging signal for 2026. And then as the device complexities continue to become more sophisticated, that requires additional test content. And all those things continue to give us optimism about 2026. And then we're hopeful at some point in time that the consumer and automotive segments also return to some level of growth. For those reasons, without giving actual numbers, we do feel more and more confident about 2026.

Thank you. Just for the clarification, you mentioned about the capacity addition of the 70% capacity addition, but when will be the time to fulfill this new capacity in future? Thank you.

Yeah, thank you for the follow-up. I would say, number one, we're able with our current capacity to meet all the current needs of our customers, which we've put a lot of effort into over the last several years and expanding. As I mentioned in the prepared remarks, we have tripled the capacity in the last several years. But as to this next step function in capacity additions, we're targeting for the end of 2026. to add both of this for our SOC platform as well as our memory platforms.

Thank you. That's very helpful.

Thank you very much.

Thank you for your question, Yoshida-san. Next, we'll take a question from Damien Tuan, Macquarie Securities. Please go ahead.

on the quarter. Just want to follow up on the capacity increase. A baseline year then is the last fiscal year. So can I understand that you are targeting for SOC testing, for instance, revenue somewhere in the ballpark in the mid 700 billion? Is that the capacity amount we will be looking at? And then on top of this, a second part of the question I'd like to ask is maybe you can get a hint on on where you see the growth in the adjacencies that you talked about earlier, for instance, I presume including in services as well as, for instance, in design support activities. Thank you.

Thanks for the questions, Damian. Let me make sure I understand the two questions. just on the level of expansion for SOC testers with our production capacity expansion. And the second one, I believe, was about the engineering and test services business that we're developing. I'll answer the first one, and then I'm going to ask Sanjeev Mohan to answer the second one. On the first one, on the SOC side, the range of expansion is going to be in the 60% to 70% range based on our 2025 levels. And so we're having a significant expansion of the capacity. And one thing to keep in mind is we're just not building to the capacity that's necessary to only meet the next wave of demand. Obviously, we're going to put additional capacity in place in order to handle some of the volatility that we've seen in the past couple of years with unforecasted business. We've learned that it's very difficult for our customers to forecast some of the spikes in these AI-related waves. And for us to be able to respond quickly to those demands, we have to build in some additional buffer levels of capacity in order to to meet those spikes. So, you know, that's the basic number is about 60 to 70% on the SOC from 25 to end of 26, where we see that being put in place. And then I'm not sure I caught, so we may have to clarify a little bit more on the second question, but I do want to introduce Sanjeev Mohan. So Sanjeev, you know, is taking over for Mack Nakahara, who for many years led our global sales and support activities in the company. Mac is continuing with the company as a close advisor to me in the CEO office. But Sanjeev now, who's been overseeing all of the U.S., North America, as well as European sales, is taking over the global sales role for the company. And so I'm going to have Sanjeev answer the second part of the question.

Yeah, thank you for the question, Maraki-san. As far as the adjacent growth, I mean, there are a few areas. The SLT system level test, we expect that business to grow in the future. As the nodes get smaller, the demand for system level tests will continue to increase and And as a company, we continue to invest heavily in that area. So that's going to be one significant business that we expect to grow. We also have invested in our DI, device interface business. And we expect that business to continue to do well as more and more customers are asking for turnkey applications. And then there is engineering services or warranty support. As you can tell by our results, we're shipping more and more systems, and that helps provide organic growth for warranty support. So that's another area that we expect in the future to do well and continue to grow. In regards to other services, as a company, we have understood that our customers want more from us, and I think that provides opportunity for us to get into some services areas that we have not done in the future. I don't want to get into details of that because it is something that we are developing, but that's another area that we hope will add to our business results.

Oh, thank you very much. Can I just make one follow-up, small one? For the 60, 70% increase, can I just clarify the baseline for that? Is that the average for 2025, or should we think of it from, say, the end of 2025? Oh, sorry, from the end of 2024, early 2020.

Yeah, I mean, from a baseline level, we're, I would say without quoting an exact number, you know, for our 93Ks, we can ship more than 3,000 systems in a year. So you can kind of use that as a reference point then to build off of, if that's helpful.

Thank you, Damien.

Next question will come from Watagi-san, Morgan Stanley and UFJ Securities. Please go ahead. This is Maraki speaking. So my question is, I guess, that the focus really is the earnings, the sustainability earnings, whether it's special demand or temporary demand. I think what I want to know is that what they're an element of special demand in first quarter sales. And also I want to know if there's upside to the second half forecast. And for the first quarter, associate testers, like if you break it down between a GPU and ASIC, can you give colors? So that would help me kind of explore how sustainable the current momentum is.

So for the first part of your question about sustainability of some of the large numbers we saw in the first quarter, On the sales side, to a large degree, there's many pull ins. And so we had originally not expected to to have such a large quarter. We thought it would be spread out a little bit more. So there was a large degree of pull ins. At the same time, the demand also was a bit higher than we had originally expected. So that's kind of the top line theme there on a profitability side. You know, it's really, you know, the stars sort of aligned perfectly for us in the first quarter. So there is a really good product mix. There is a good degree of upgrades and licensing that always drive higher profits. As I mentioned in the prepared remarks, there were also some economies of scale and efficiencies. And then we didn't have any one-time write-downs. So that all led to this really, really great result in Q1. Now, some of those things are sustainable, and some of them are not. And the things that are sustainable are things like, as we look into the future, probably the product mix may not be quite as good, but still going to be very rich with the SOC versus memory, we feel like some of the efficiencies that we're driving are going to continue, but certainly we're not going to expect the lumpiness over time to be perpetual across all of these different quarters. So I think as we look into Q3 and Q4, you know, some of the effect of those pull-ins are felt in the lower sales. And also there's a lot of device transitions that are happening right now. So as some of the big AI accelerator, both on merchant GPU as well as the custom ASICs are coming up, as well as the memory side with HBM transitions, there's a lot of work being done, investment being done to bring up those new types of devices that will show up later on. more likely an FY26. Um, as far as the breakdown between, um, kind of traditional GPU based accelerators and the custom ASICs, we, yeah, we're, we're not, um, able to, to really give you that split, um, because it gets into, uh, customer specific things that we like to stay away from. But I mean, as you can guess, it's, it's still largely on the traditional, you know, GPU basis. Um, and, uh, We see the custom ASIC stuff growing now with a much larger portion coming in 26.

Thank you.

That was very helpful. Thank you for your question. Next, Goldman Sachs. Nakamura-san, please go ahead.

Thank you very much for taking my question. I just wanted to also touch upon the second half guidance or maybe your September quarter guide as well as the second half guidance. I understand that there was a lot about falling into June quarter, but nonetheless, it seems like your guidance implies a significant decline into September quarter as well as second half. Is it a reflection of already a fixed sort of negotiation with your customers? Is it mostly a done deal, you know, to think about? Or is there some conservatism, you know, also baked into their guidance, you know, given the lead time? I mean, my first question.

Yeah. So this is Sanjeev Mohan, Nakamura-san. So as far as, you know, so long term, I mean, if we if we just step back for for a minute, the business, the AI boom will continue. So this goes back to the sustainability question. We think the 26 will be strong and the business will continue to be very good. Q1 just happened to be much stronger than we anticipated. So it is, from our perspective, it isn't that there is a significant decline in the second half. It's more that Q1 was much stronger, and then there were some pull-ins. As you also might know from just checking the industry data, that a lot of the capacity gets placed during the first half or first few months of the year, and our customers asked us to pull in. As now we look into the calendar year, there's only a few months left And the preparation is really now started for the ramps next year. So this is why Doug mentioned that we expect Q3 to be kind of the – our Q3 fiscal year to be kind of the bottom and then the business to pick back up again and accelerate going into Q4 and then into 2026. Okay.

Thank you very much. Just a quick follow up. Could you also speak about the competitive dynamics for your SOC tester side, especially vis-a-vis your closest competitor in the US and in, you know, you know, in the market such as, you know, GPU as well as the custom ASICs market?

Yeah, I think we are positioned very, very well right now. I would say that we should continue to hold our market position that we currently have. It's also very difficult for customers to switch test platforms in the middle of the ramps. So for the foreseeable future, we believe we have a very strong market position and competitive position, both in the GPUs and custom ASICs.

Thank you very much.

That's very clear.

Thank you. Next, B of A Securities, Hirakawa-san. Please go ahead.

You raised SOC tester market for 4.5 at the midpoint to 6 billion, about 30%. Could you give us a sense how you split this increase between the increase of quantity or number of chips and the increase of the testing time?

Thank you, Mayor Kawasan. That's a good question, difficult question, I'd say. Before I talk about the test content or unit volume, I think I want to just go back and remind everyone that when we were putting back in January our forecast for TAM 425, This was right on the backdrop of the deep seek events, and there was a lot of uncertainty. And then when we reiterated that TAM in April, that was on the backdrop of the deliberation day, the tariff discussions that happened in April. And so. Many companies at that point didn't offer any kind of market sizing. Many companies pulled their full year guidance, and we didn't want to do that. We wanted to put our best estimate forward even though there was a ton of uncertainty. So some of the 30% increase is a direct effect of us just being a little bit cautious given the uncertainties at the time. So that's probably at least half of the 30% was just the uncertainty factor. As far as test content or unit volume, I think it's probably without, you know, trying to give a number, you know, I would lean towards more of the unit volume basis. as there was adjustments in wafer starts or advanced packaging capacity that moved around, that would suddenly create some demand that was unforecasted, and we were able to respond to those demand fluctuations. So hopefully that helps you. Thanks. Thank you very much.

Thank you very much for your question. Next, Jeffries Securities Nakano Mio-san, please go ahead. This is Nakano Mio speaking from Jeffries. Can you hear me? Maybe you can speak up a little bit louder. Can you hear me? Yes, we can. Sorry, maybe my question is a bit technical. With regards to the upward revision of SOC time. So SOC time is going to grow by like 40% at midpoint maybe. But then your sales growth is only 20 some percent. So what's the difference between time growth rate versus associate revenue growth rate, is it – what accounts for the discrepancy between sales upward region versus time upward revision for associate testers?

Yeah, thank you, Nakano – sorry, Nakanomyo. Sorry, sorry. I think one thing that gets difficult is that our sales numbers we quote on a fiscal year basis and the TAN numbers we quote on a calendar basis. So that often leads to some discrepancy. But we have in our midterm plan, we have overall market share KPI being greater than 58%. And so, you know, I can report that on SOC, we continue to be well above that metric. And we're also well above that metric for the memory test. But yeah, I apologize. But certainly the calendar versus the fiscal year creates some confusion. Yes, sorry. Sanjeev also just mentioned exchange rate fluctuations because we wish to know the TAM and dollars and our savings.

Okay. Nakano Miwa-sama.

Yes, sir.

So there's no market share fluctuation, is that correct? Sorry.

Yeah, on a general level, our share in SOC has gone up. And in the memory tester, we remain relatively steady.

Thank you for your question. Next, Mizuho Securities, Yamamoto-san, please go ahead. Can you hear us, Yamamoto-san? Please unmute yourself. This is Yamamoto from Missile Securities. Can you hear me now? Apologies. I have a quick question. So for FY26, can we expect an increase in sales next year? That's FY26.

Yeah, thank you, Yamamoto-san. I think I'll just repeat earlier without talking numbers, but we say we're very optimistic and we're seeing reacceleration into 2026. So You know, we'll be able to talk more about that as we get further into the year and have a little bit more visibility. But right now, there's no reason to believe that 26 is going to be a down year.

So this Q1 sale is very strong. Can we expect a similar big number in Q1?

Yeah, I mean, the Q1 number, like I mentioned, was very special. Everything was aligning perfectly for us. Certain things that happened in this quarter are certainly things that we would hope as a company to be able to repeat long term. But it would be irresponsible for me to suggest that we can have a quarter this big in the future.

Of course, I know Q3 will be bottom. So from Q4, can we expect sequential growth toward the end of March 27?

Yeah, I think it's fair to say that Q3 will kind of be the lowest part of the year and Q4 will come up. And we would expect that trend to potentially continue into the first quarter of FY26. That's our expectation right now.

Thank you very much.

Arigatou gozaimashita.

Yamamoto-san, thank you. Next, Citi Group, Global Markets, Shibano-san, please go ahead.

Hi, thanks so much for taking my question. My name is Masahiro Shibano from Citi. I have one quick question to you, Doug, about your 2027 Outlook. I know it's really early to tell, however, you've showcased your very constructive Outlook into current 2026. So what do you make of 2027 Outlook based on what you are hearing in the street? And also, the question in the same context about the capacity, do you think the capacity you are adding right now is a permanent one, or is it going to be more like a temporary addition? Thank you.

Okay. Yeah, thank you, Shibano-san. As far as we look out beyond 26 to 2027, the only thing that I would mention is that the The areas that we look at as signals would be wafer starts and advanced packaging capacity that's being put in place by our customers. And then we'd also look at the end market, for example, the hyperscale capital budgets. And in both those cases, I think there's been enough public discussion around continuation of the current trends. If those trends continue, then there's optimism that this growth cycle will continue beyond 26 and into 27. However, we know from our experience that there can be cycles that happen quickly, so we don't assume that's going to be the case in how we run the company. As to the production that we're putting in place, because we have a long-term belief in the industry, as I mentioned, getting to a trillion dollars in semiconductor revenue, we know that we're going to have to add this type of capacity in a permanent fashion. So this would not be temporary capacity. In fact, even longer term, we probably will have to expand further. and we have some of those plans that we have initiated already. Thank you.

Thank you so much.

Thank you. Next, Okasan Securities, Shimamoto-san. Please go ahead. This is Shimamoto speaking from Okasan Securities. So Q, first quarter was very strong, and so I just want to understand the strength behind the first quarter sales again. Does it have to do with any impacts on tariffs from Trump administration, or is it just that strong sales for one specific customer, or was the strength seen across the board, across many customers? How is it that your sales, deviated so much from your expectation.

Yeah, thank you, Shimamoto-san. As far as why, the second question about why our sales deviated so much is mostly because of the pull-ins. If you were to spread some of the first quarter and even second quarter expectations across the year, it would look, you know, different. So it's not that, you know, as Sanji said, it's not that the second half is so bad. We just pulled from second half into the first half and even to the first quarter. As far as the other factors, as I mentioned earlier, too, there were, additional unit volumes that came into play that allowed our customers to ship more semiconductors that they did not even forecast. And so we were able to respond quickly to those scenarios and capture that business in the first quarter. Did I answer your question?

Thank you. The pull-in, the reason for the pull-in, did it have anything to do with the tariff impact or any political aspect to that pull-in? Or is it just good demand and you being able to supply me that demand?

No, there's no tariff level factors really that presented themselves for this business. It was more just a very large AI-related demand.

Understood.

Thank you. Shimamoto-san, thank you. Next, Tokai Tokyo Intelligence Lab, Kamisaki-san, please go ahead. I'm Kamizaki from Tokai Tokyo Securities. My question is with regards to memory testers. So right now, I think HBM is driving your demand. Going forward, is it going to be big growth that will drive demand, or is it going to be HBM generation transition that will drive memory tester demand? Can you give color as to what will drive memory tester demand? Thank you.

Yeah, I think there are – this is Sanjeev Mohan again. So there are a lot of factors and a lot of – it's a really good question. So HBM is a growth driver for us, first of all. And as the customers transition to HBM4 and HBM4e and higher stacks, that will drive – more demand for us. Having said that, even though HBM is a growth driver, we have a very favorable product mix and dominance, particularly in the DRAM market. So we are very optimistic about our memory business as well. We think the growth should continue as the AI demand continues and the data center builds continues that will drive more and more product volumes and for the memory products as well. And I think there should be a good growth opportunity for us.

Thank you.

Understood. Thank you very much. Kamisaki-san, thank you. Well, we are almost at the end of the session. Maybe we'll just take one last question.

Next.

Aletheia Capital, Steven Liu-san, please go ahead.

So I just have a question regarding your product mix in terms of usage. So we do know that in previous, before AI, like wafer sorts and final tests was similar in terms of the ratio, but given the increasing usage of triplets in triplet architecture and more and more triplets in the future, do you have, could you please share some color in regards to your ratio in terms of wafer sort demand as well as final test demand? As well, can you also share some color in regards to partial assembly handlers, which you sell, as well as die-level tests and partial assembly tests. Could you just share some color regarding those? We don't need concrete numbers, but I think there should be a change in these sale trends. That's it.

Yes. No, I think you are hinting at it, and you are correct. I think the importance of wafer sort growths These packages are very expensive. With the chiplet strategy that most companies are adopting now, the value of a known good dye is increasing. So we expect the overall business for the wafer sort will continue to grow, probably faster than what we would see at final test. As you also mentioned, the partial die or die level prober, we also think that's a very exciting opportunity for us that we will be competing for.

So is that also like a reason why you changed your reporting segments, moving the test handlers and the system level tests into one big business? And why? And moving on, is it okay to assume that for next year's growth, because we talked about sequential growth moving on from the fourth quarter, that's actually also due to the increase of wafer sorts? Can we assume that?

Yeah. Hi, Steven. This is Doug. I think definitely there's going to be, as Sanjeev mentioned, there's going to be such an emphasis on known good dye and testing at the silicon level. And so for sure, there's going to be new solutions that have to be developed. And one of the key areas is to be able to do thermal control at that dye or partial assembly level, because that's something that typically can't be controlled at a monolithic wafer level. And so that does represent additional upside. There is likely to be a change in the test flow at the wafer and dye level, which could present some additional insertions. So we see that as upside. That's not the reason that we changed the reporting segment. The reporting segment that we had before was a little bit antiquated with the mechatronics system, and so we wanted to simplify it into kind of the capital equipment or the test system business and then the service and others more in line with what many other companies are doing in the industry. And so that's the reason for that. But, you know, very good questions. It doesn't mean that the final test on the first part of your question isn't going to go away. And system level test actually is an area where we see expansion as well. And so it's all additional content, additional insertions. And one thing that we talk a lot about with our customers is this distribution of test and the ability to move test content around in the back end to allow the optimization of test content. And we intend to play in nearly all of those insertions in order to service, you know, that distribution. Hope that helps. Thank you.

Yeah. Thank you very much. I'm done with my question. Thank you.

Thank you, Stephen.

Steven, thank you for your question. I see other hands being raised, but we will conclude this session. Thank you for attending our first quarter FY25 briefing despite your busy schedule.