Earnings call transcript: Advantest’s record Q1 2025 sales and growth strategy

Advantest Corporation reported its highest-ever quarterly sales, operating income, and net income in Q1 FY2025. The company achieved JPY 191.3 billion in sales for SoC testers and JPY 33.5 billion for memory testers, with an operating profit margin of 47%. Advantest’s strategic focus on AI-related semiconductor testing and expanded production capacity are key drivers of this performance. The company anticipates temporary digestion in the second half of FY2025 but expects growth to re-accelerate in FY2026.

Key Takeaways

• Advantest posted record-high sales and operating margins in Q1 FY2025.
• AI-related semiconductor testing is a significant growth driver.
• The company plans a 70% capacity expansion compared to FY2024.
• Temporary market digestion is expected in H2 FY2025, with growth resuming in FY2026.

Company Performance

Advantest’s performance in Q1 FY2025 was marked by record sales and profitability. The company has capitalized on the growing demand for AI-related semiconductor testing, which has bolstered its market position. Despite challenges in the automotive and industrial segments, Advantest’s ability to scale its supply capabilities has been a key differentiator in the competitive semiconductor testing market.

Financial Highlights

• Revenue: JPY 191.3 billion for SoC testers, JPY 33.5 billion for memory testers
• Operating profit margin: 47%
• Gross margin: Increased due to high-end SoC tester sales
• Cash and cash equivalents: JPY 273.4 billion
• Equity ratio: 64.5%

Outlook & Guidance

Advantest has raised its full-year forecast, expecting sales of JPY 835 billion, operating income of JPY 300 billion, and net income of JPY 221.5 billion. The company targets a gross margin of approximately 60% and an operating margin of around 36%. While a temporary slowdown is anticipated in the latter half of FY2025, Advantest remains optimistic about growth in FY2026, driven by continued demand for AI-related testing solutions.

Executive Commentary

"We’ve delivered an outstanding start to the fiscal year, posting highest-ever quarterly sales, operating income, and net income," said Douglas Lefever, CEO. He emphasized the company’s strategic focus on scaling capacity in response to a growing semiconductor market. Lefever also noted, "While the second half of the fiscal year may see a temporary digestion, we expect growth to re-accelerate in fiscal year 2026."

Risks and Challenges

• Potential supply chain disruptions could impact production schedules.
• Market saturation in certain segments may limit growth opportunities.
• Macroeconomic pressures, such as currency fluctuations, could affect profitability.
• Subdued demand in automotive and industrial sectors poses a challenge.
• The rapid pace of technological advancements requires continuous innovation.

Advantest’s strong Q1 performance underscores its strategic positioning in the semiconductor testing market, with a clear focus on AI-driven growth and capacity expansion. Despite anticipated near-term challenges, the company’s long-term outlook remains positive.

Full transcript - Advantest Corp (6857) Q1 2026:

IR Moderator, Advantest Corporation: Thank you very much for joining Advantest Corporation’s financial briefing for the first quarter for FY 2025, despite your busy schedule. I’d like to introduce attendees from our side today from the left side of the slide. Mr. Douglas Lefever, Representative Director, Senior Executive Officer, and Group CEO. Mr. Koichi Tsukui, Representative Director, Senior Executive Officer, and President Group COO. Mr. Sanjeev Mohan, appointed as CCRO, Chief Customer Relations Officer as of July 1 this year. Ms. 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 results for FY 2025 first quarter, and then Douglas will present FY 2025 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 and English. 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. If you prefer the Japanese language channel, you are kindly requested to click on the 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 in 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 forward-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 go ahead.

Douglas Lefever, Representative Director, Senior Executive Officer, Group CEO, Advantest Corporation: Good morning and 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 supply 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, 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 re-accelerate in fiscal year 2026. 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.

IR Moderator, Advantest Corporation: I will now explain the summary of results for the first quarter of FY 2025. 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 test shipments. Now, 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 comparative test solutions that include not only test equipment but also peripherals, Advantest revised its reportable segments, starting from FY 2025, based on the management approach perspective. Specifically, the previous three segments have reorganized into two segments: test systems business and services and others. The test systems business segment includes SoC testers and memory testers, as well as other systems. Products that are highly correlated with tester demand, such as test handlers and device interfaces. In addition, products related to the system-level test business acquired from Astronics Corporation in the US in CY 2019 are also included in other systems. Service and other segments include support services, nanotechnology products, and consumables businesses, 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. SoC tester sales were JPY 191.3 billion, an increase of JPY 42.4 billion quarter on quarter. We were able to increase product deliveries compared to the previous quarter, mainly for high-performance computing such as AI-related semiconductors, which continue to grow in complexity and performance. Memory tester sales were JPY 33.5 billion, maintaining a higher level comparable to the previous quarter, mainly driven by high-performance demand. Now, I’ll talk about services and others. While sales for support services maintained a steady level, sales for nanotechnology products declined compared to the previous quarter. Next. Sales by region, ship to region. Starting with Taiwan, sales increased significantly quarter on quarter, primarily driven by SoC testers. This is mainly due to higher quality assurance requirements for high-end semiconductors at several US fabless companies.

This resulted in an increase in sales to the related foundries and OSATs. South Korea, sales of memory testers and related device interfaces increased. Now on to sales, gross profit, and operating income. Gross margin increased quarter on quarter, primarily driven by the growth in sales of high-end SoC testers with high profitability. SG&A, including the total of other income and expenses, decreased by JPY 27.5 billion quarter on quarter. As written in the footnote, in the previous quarter, an impairment loss of approximately JPY 21.4 billion was recorded for goodwill and intangible assets. Also, in the first quarter, we recorded a gain of approximately JPY 22.5 billion 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 JPY 17.1 billion, and CapEx was JPY 6.1 billion.

On the right-hand side, you can see our cash flow. In the first quarter, there was a decline in operating cash flow quarter on 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 JPY 273.4 billion, and inventories were JPY 209.3 billion as of the end of June. The ratio of equity attributable to owners of the parent 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.

Douglas Lefever, Representative Director, Senior Executive Officer, Group CEO, Advantest Corporation: Thank you, Takada-san. Let me now share our perspective on the business environment and our outlook for the tester 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 billion-$6.3 billion, up from our April estimate of $4.2 billion-$4.8 billion.

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 billion-$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 in 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 the numbers stated all in JPY. Sales of JPY 835 billion. Operating income of JPY 300 billion.

Income before taxes of JPY 297 billion, net income of JPY 221.5 billion, and basic earnings per share of JPY 302.71 per share. The upward revision of JPY 80 billion 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 re-accelerate in fiscal year 2026. 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 from fiscal year 2026 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 JPY 140 to the $1 and JPY 155 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 in 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 JPY 88 billion 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 re-accelerate 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. As we look ahead, we are encouraged by the evolving industry dynamics and confident in the position we are in. At our Q2 fiscal year 2025 financial briefing scheduled for the end of October, we plan to elaborate further on these topics, as a third midterm plan is well due for an update. This concludes my presentation. Thank you for your attention.

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