Advantest Corp Sp/Adr

for taking the time today to participate in the Adventist Corporation financial briefing for the first quarter of fiscal year 2023. Let me introduce the attendees of our company. Yoshiaki Yoshida, Representative Director, President and Group CEO. Thank you. Yasuo Mihashi, senior executive officer, CFO and CSO, executive vice president, corporate strategy group. Makoto Nakahara, Senior Executive Officer, CCRO, Executive Vice President, Sales Group. I'm Kobayashi from the Investor Relations Department of the Corporate Strategy Division and I'll be the moderator for today's session. Today, Mr. Mihashi will first represent financial results for the first quarter of fiscal year 2023, followed by Mr. Yoshida's presentation on business outlook for fiscal year 2023. Then we will take your questions. The session is scheduled to end at 17. Today's presentation materials are available on TDNet and our website. If you are attending via telephone, please download the presentation materials separately. Prior to the briefing, we would like to remind you of the following. In this presentation, we may state forward-looking statements based on our current expectations, which are subject to risks and uncertainties. We would like to remind everyone that actual results may differ from the forecast. Now, Mr. Mihashi will give an explanation.

This is Mihashi. From my side, I would like to explain the financial results for the first quarter of fiscal year 2023. Please turn to page 4 of the presentation material. This is the summary of results for the first quarter of fiscal year 2023. Business environment in the first quarter was challenging as we had predicted in April. As recessionary concerns continue to intensify from the previous year, end demand remains sluggish with a slowdown in data center investments combined with demand weakness in major consumer applications such as smartphones and PCs. In the semiconductor market as a whole, there was a growing sense of deceleration as semiconductor manufacturers continued to adjust inventories and control capex in areas such as memory semiconductors for major consumer applications. With the semiconductor market weakening, demand also fell in our business. as investment by customers, which continued over the past three years, has caused excess capacity in some of our customers' supply chains. As a result, both sales and profits fell significantly in the first quarter year over year as well as quarter over quarter. Details of the results will be explained in turn in the following pages. Please turn to page 5. These are the sales by segment in the first quarter of fiscal year 2023. Sales in the first quarter fell substantially compared to the previous quarter, which recorded historical high quarterly sales. Semiconductor and component test systems, ¥70.5 billion, minus 36.3% quarter-on-quarter. SoC tester sales were ¥61.1 billion, a decrease of ¥25.7 billion quarter-on-quarter. Sales for application processors and chips for high-performance computing decreased. Memory tester sales were ¥9.4 billion, a decrease of ¥14.5 billion quarter on quarter. Sales for both DRAM and non-volatile memory testers decreased amid weak memory semiconductor market. In the mechatronics systems business, The results were 8.5 billion yen down by 51.3% quarter on quarter. Sales of device interface products and test handlers decreased in tandem with lower sales of testers. Sales of SCM metrology products also decreased as product deliveries to customers progressed in the previous quarter. In services and others, the results were ¥22.2 billion plus 16.4% quarter on quarter. Sales increased quarter on quarter in the system level test business. Please turn to page 6, which shows the sales by region in the first quarter. In the first quarter, all regions saw its sales decrease quarter on quarter. In South Korea, sales of memory testers and related device interfaces fell sharply. In China and Taiwan, sales decreased in SOC testers and memory testers, respectively. Please turn to page 7. In the first quarter of fiscal year 2023, the slide shows the sales gross profit and operating income. Gross profit margin was 50.3%. In addition to a significant decline in sales, the gross margin fell due to a deteriorating mix, mainly due to a lower sales composition of testers for high-end SOCs. The gross profit margin is expected to improve from the second quarter onwards, with the first quarter being the bottom. SG&A, including all other income and expenses, was 36.7 billion yen. Operating income was 14.3 billion yen. Operating margin was 14.1%. Next is R&D, capex, and depreciation and amortization for the first quarter. R&D was 14.9 billion yen, capex 5.6 billion yen, DNA 6 billion yen. Regarding the cash flow of the first quarter, operating cash flow was negative in the first quarter due to an increase in inventories as well as an outflow associated with corporate tax, bonus payments, and other items. In addition, free cash flow was a negative 17.2 billion yen due to expenditure in investment cash flow such as the acquisition of Shimpu. Please turn to page 9. This is the balance sheet for period ending June 30, 2023. Total assets, 607.7 billion yen. Cash and cash equivalents, 78.9 billion yen. Trade and other receivables, 66 billion yen. Trade in other receivables decreased compared to the previous quarter as progress was made in the collection of receivables in the first quarter. Inventories were 190.2 billion yen. Inventories have increased quarter on quarter. This is because of an increase in the arrival of long lead time components which were procured strategically in anticipation of mid and long term sales. while there are some requests from customers to push out deliveries of our products against the backdrop of a slow recovery in demand for consumer application. In response to changing market conditions, we will promote measures to improve our ability to keep up with customer requirements and strengthen our inventory management. Goodwill and intangible assets were 105.9 billion yen. Short-term borrowings, 34.5 billion yen. Additional borrowing was carried out, taking into account the seasonal expenditure in the first quarter. Equity attributable to owners of the parent, 383.6 billion yen. Ratio of equity attributable to owners of the parent was 63.1%. This concludes my explanation.

This is Yoshida speaking. From my side, I would like to share the FY 2023 outlook. Please turn to page 11 of the materials. This is the business environment as well as semiconductor tester market trends. Business environment remains highly uncertain with recessionary concerns due to inflation and rising interest rates, as well as risks around geopolitical factors and pronounced exchange rate fluctuations. Although there are potential signs of an upturn in investment for high-end semiconductors, driven by applications such as generative AI, production adjustment for semiconductors for areas such as consumer electronics applications is expected to continue for the time being. For the calendar year 2023 SOC tester market, we will revise down our market size estimate to 3.2 billion to 3.5 billion US dollars. While tester demand for automotive and industrial equipment is expected to be resilient, demand for testers for consumer applications such as smartphones is expected to be affected by continued weakness for the time being. For the calendar year 2023 memory tester market, we maintain our regional market size estimate of 0.9 billion to 1.1 billion US dollars as improving tester demand for high-performance memory is being offset by demand pushouts from worsening memory market conditions for consumer applications. While test volumes for high-performance semiconductors are increasing, the recovery in tester demand is likely to be milder than originally expected due to excess capacity in customers' supply chains. Please turn to page 12. This is FY 2023 forecast. In light of the first quarter results and the outlook going forward, we are maintaining the full-year consolidated focus announced in April. However, exchange rate assumptions from the second quarter onward are 1 USD to 135 JPY and 1 EUR to 150 JPY. Our forecast calls for sales of 480 billion yen, operating income of 105 billion yen, income before tax of 103.5 billion yen, and net income of 78 billion yen. Reduction adjustments by customers are expected to continue for the time being, and sales in the first half is expected to decrease HOH. However, we expect sales to gradually shift to an upward trend from the first half. We expect full year gross profit margin to be approximately 55%. We forecast a decline from the previous fiscal year primarily due to changes in product mix. Our latest forecast for the impact of exchange rate fluctuations on FY23 operating income is a plus 1.1 billion yen per 1 yen of JPY depreciation versus USD, and minus 0.3 billion yen per 1 yen of JPY depreciation versus EUR. Regarding the tightening of restrictions on the export controls of semiconductor-producing equipment to China by the United States and its allies, the direct impact on our FY2023 earnings is currently expected to be limited, but we will continue to closely monitor the situation. Please turn to page 13. This slide talks about the FI2023 Semiconductor and Component Test System's outlook. Our full year FI2023 SoC tester sales forecast is 268 billion yen. The forecast has been raised by 3 billion yen from the April forecast as the assumed exchange rate for the US dollar has been revised towards a weaker yen. Despite relative firmness of demand for automotive and industrial applications, we expect sales to decline year-on-year due to a decrease in demand for advanced processor applications against a backdrop of sluggish demand for smartphones. For the memory tester business, we are maintaining a full-year sales forecast at 70 billion yen. In high-performance memory applications such as DDR5 and HBM, customer investment in anticipation of long-term demand growth is expected to increase year-on-year. However, the impact of the worsening market conditions for memory semiconductors in the consumer applications is substantial, therefore sales are expected to decline. Please turn to page 14. This page is on FI2023 mechatronics service support and other business outlook. We have lowered our full-year FI2023 mechatronics system sales forecast by 3 billion yen from our April forecast to 42 billion Japanese yen. Sales of device interface products and test handlers are expected to decline. In step with the slowdown in tester investment. We are maintaining our full-year FY23 services support and other sales are focused at 100 billion yen. We expect a solid demand for maintenance services due to the steady growth of our installed base. In our system-level tester business, we expect sales to be flat year-on-year, although it is impacted by sluggish market conditions in consumer applications.