Thank you very much for joining Advantest Corporation's FY 2022 First Quarter Financial Briefing. Please allow me to introduce the participants from our company. To secure the clear voice, our participants will not be wearing masks. Please understand the situation. First of all, President and CEO Yoshida. CFO and CCO Fujita. CCRO Sakamoto. Co-CSO Mihashi. I will be your moderator. I am the head of IR Kobayashi. First of all, Fujita will give a presentation about the FY 2022 first quarter, followed by Yoshida giving the presentation about the FY 2022 business outlook and the update of the second midterm management plan. After that, we will be receiving questions from you. We are planning to end this meeting by 4:45 P.M. Today's presentation materials will be posted on the TDnet and our website.
For those who are participating via telephone, please download our material and prepare it. Before we go into the presentation briefing, there are some matters I have to mention. This presentation contains forward-looking statements that are subject to risks and uncertainties. Please understand that there may be a difference between the actual results and the projections. Fujita will start his explanation.
This is Fujita. From my side, I would like to explain about the financial results for fiscal year 2022 first quarter. Please turn to page four of our presentation material. Today, there are growing concerns about the deterioration in the global economy, but thanks to the progress of the digital transformation, our business environment in the first quarter of the current fiscal year remained favorable.
Compared to the same period in the previous fiscal year, sales increased 40% to JPY 135.9 billion. Operating income increased 71.4% to JPY 44.8 billion. Income before income taxes increased 88.1% to JPY 48.4 billion. Net income increased 88.7% to JPY 36.5 billion, all recording quarterly highs. Mainly driven by expanding investment in data centers and 5G smartphone performance gains, strong demand for Advantest testers continued principally from SoC semiconductor manufacturers. The shortage of semiconductors and other components has not improved dramatically, and production difficulties continued, but we made great efforts to stabilize parts procurement. As a result, we were able to achieve our internal sales forecast of three months ago. Please go to the next slide. This is the first quarter sales by segment.
First of all, for the semiconductor and component test systems, it has increased by 18.3% quarter-on-quarter to JPY 96.1 billion. Sales of SoC testers reached JPY 78.8 billion, an increase of JPY 14.7 billion from the previous quarter. Sales for the high-end SoC device tests, especially of high performance computing devices and application processors, APUs, which are the key components of smartphones, grew significantly, lifting up the overall sales growth. Memory tester sales had a high level of JPY 17.3 billion, similar to the previous quarter. For the mechatronics systems, it has increased by 47.5% quarter-on-quarter to JPY 15.4 billion.
Sales of device interface products, test handlers, and nanotechnology products increased due to strong customer motivation to invest in testers and more widespread adaptation of EUV lithography technology. In services and support and others, the sales was flat against the previous quarter and JPY 24.5 billion. Supported by the strong demand for semiconductor testers, recurring sales, maintenance revenues, and SLT sales also stayed at a high level. Please go to the next slide. This is the sales by region. Sales grew quarter-over-quarter in all regions except Japan, raising a percentage of sales to overseas customers to 97.3%. In Taiwan, sales of SoC testers increased significantly, principally for smartphones and SoC related products. Next slide, please. For the first quarter sales related numbers. First off, in terms of gross margin, it was 58.1%.
Although gross profit margin experienced some impact coming from the rising procurement cost, a shift to a more profitable sales mix compensated that. In terms of SG&A, et cetera, was JPY 34.1 billion. We rolled over a portion of our first quarter budget, so SG&A increased only slightly from the previous term. Operating income was JPY 44.8 billion. Operating margin was 32.9%. Exceeding the 30% has been achieved since the fourth quarter of 2005. Going to the next slide, please. This is about the R&D expenses, et cetera. In terms of R&D expenses, it was JPY 13.3 billion. CapEx was JPY 4.4 billion. Depreciation and amortization was JPY 4.9 billion.
Following the acquisition of R&D Altanova, Inc., purchase price allocation was completed in the first quarter, and amortization of intangible assets has begun. In terms of the situation of the cash flow, the free cash flow was the outflow of JPY 0.3 billion. It decreased by JPY 11.8 billion year-on-year due to an increase in inventories, income tax payments, and other expenditures. Next slide, please. For the balance sheet for the period ending June 30th, 2022, total assets, JPY 531.1 billion. Cash and cash equivalents, JPY 107.5 billion. Goodwill and intangible assets, JPY 96 billion. Equity attributable to owners of the parent, JPY 327.9 billion. Ratio of equity attributable to owners of the parent, 61.7%.
That was about the financial performance.
This is Yoshida speaking. For myself, I would like to provide you detail about the FY 2022 outlook and the revision and review of the MTP2. Please turn to page 11 of the material. First, business environment and semiconductor tester market trends. Compared to three months ago, we believe that our business environment is now affected by greater uncertainty in the future of the global economy. In addition to concerns such as the spread of new COVID-19 variants and increasing geopolitical risks, rising inflation and tightening monetary policy around the world have raised fears of recession. As these factors impact the semiconductor market, final demand for some consumer product such as smartphones, PCs, and televisions, is expected to weaken further, and devices for these products have entered into an inventory adjustment phase.
On the other hand, the digital transformation is continuing, and chip makers continue to actively mass produce HPC high-performance computing devices for data centers and AI related semiconductors and develop new devices of this type. In addition, there are still shortage of semiconductors for automobiles, more and more of which are EVs and industrial equipment. There are also concerns about falling tester utilization rates, but we believe that the trend for higher functionality and stronger quality guarantees for high-end semiconductors such as data center HPC devices and high-end memory to support tester demand remains very solid. Compared to our estimate three months ago, the expected range of growth in the SoC tester market has been adjusted due to actual and expected product sales and large chip makers tester installations. We expect year-on-year growth in the high single digits percentage wise on a dollar basis.
Our outlook for the memory tester market has shrunk in USD terms due to yen depreciation. If the effect of yen depreciation is removed, the actual outlook remains the same as it was three months ago. Please turn to page 12. This is a forecast for the whole fiscal year 2022. Based on our first quarter results and future outlook, we have raised our full year forecast to JPY 550 billion in sales, JPY 170 billion in operating income, JPY 174 billion in income before income taxes, and JPY 130 billion in net income. Around 60% of our JPY 40 billion upward revision of our sales forecast is the effect of yen depreciation tailwinds. Three months ago, our earnings forecast assumed that the ongoing parts and component shortage would be mitigated in the second half of the fiscal year.
At the present time, the difficult procurement situation shows no prospect of resolving within the fiscal year. Full year gross profit margin is expected to be about 58%, unchanged from our previous outlook. This forecast is based on exchange rate assumptions of USD to JPY 130 and EUR 1 to JPY 140 . For the nine months from the second quarter of the current fiscal year, our latest forecast for the impact of exchange rate fluctuation on fiscal 2022 operating income is +JPY 1.3 billion per JPY 1 of yen depreciation versus U.S. dollar and -JPY 0.2 billion per yen for JPY depreciation versus the euro.
We will continue to make the greatest possible efforts to secure parts responsibly, flexibly to external changes such as geopolitical risk and macroeconomic risks, and aim to set new records for both sales and profits for a third consecutive year. Page 13, please. This is the outlook by the businesses. SoC testers, our full year fiscal 2022 sales forecast has been raised by JPY 28.5 billion from the forecast published in April to JPY 314.5 billion. SoC tester revenue are strongly influenced by yen depreciation compared to some of our other businesses. Test demand from some customers for consumer products such as smartphones and PC is trending weaker. However, amidst further miniaturization and performance improvements in HPC devices and application processors, advanced SoC semiconductors are increasingly being manufactured at advanced nodes.
In addition, increasing semiconductor production volumes due to wider adoption of EV is expected to continue to drive demand for testers. Our full year fiscal 2022 sales forecast for memory testers has been raised to JPY 70.5 billion, an increase of JPY 1.5 billion from the forecast published in April. Demand for higher speed DRAM and wider bandwidth is steadily increasing in response to strong demand for data center HPC devices. DRAM test demand is expanding faster than non-volatile memory at present due to technological changes. DRAM accounts for a larger portion of our sales breakdown by application in this forecast than it did three months ago. Page 14, please. This is about mechatronics service and other businesses outlook for fiscal 2022.
Our full year fiscal 2022 sales forecast for mechatronics has been raised by JPY 4 billion from the forecast published in April to JPY 54 billion. We anticipate that continued demand for our high-level device interface products, which are correlated with our tester business, the wider adoption of EUV lithography and increased demand for masks for mature processes, will drive demand for SEM metrology products. Our full year fiscal 2022 sales forecast for service support and others has been raised by JPY 6 billion from the forecast published in April to JPY 111 billion. Increasing needs for device reliability are driving an increase in the number of product types that require system-level tests and an increase in demand for high precision consumables. Demand for maintenance service is also increasing due to steady growth in our installation bases.
Regarding our efforts to expand recurring sales such as field services, we aim to reach the JPY 100 billion sales milestone in fiscal 2022. Next, I'd like to talk about second midterm management plan updates. Turning to page 16, please. This Advantest purpose, mission, and growth strategy. Our corporate purpose and mission is to enable leading-edge technologies. To continue to be a company that embodies this policy, we formulated a ten-year medium to long-term management policy, our Grand Design, in fiscal 2018. At the same time, we codified our corporate vision of adding customer value in an evolving semiconductor value chain. To realize this vision, since fiscal 2018, we have consistently striven to expand our business domains to related markets, while identifying semiconductor wafer test and final test as our core business domain. Page 17, please. This is MTP2 first year progress.
In addition, we have formulated consecutive three-year midterm management plan to achieve our Grand Design goals. In fiscal 2021, we updated our Grand Design in line with our business performance in evolving external environment, and at the same time formulated our second midterm management plan from fiscal 2021 through fiscal 2023, or so-called MTP2, we call it. The entire company has been working together to implement this plan. This slide shows MTP2 fiscal 2021, the Grand Design five strategies and its progress. Last year, throughout the year, securing materials and responding to support for expanding customer demand became our highest priority. In addition, the prolonged COVID-19 pandemic gave rise to various difficulties. However, even in such an environment, as you can see, all group employees were able to make progress on various mid- and long-term efforts. That was our year. Turning to page 18.
As was mentioned earlier, this is the figure of the Grand Design, renewed, upgraded. Since fiscal 2018, we have been proactively engaging in M&A and alliances in line with our Grand Design vision. As explained at the beginning, this graphic shows how these steps are organized. By expanding into the SLT field, starting from our core businesses and strengthening recurring business. Our business domains have expanded both horizontally and vertically. In the vertical direction, we are currently in the process of acquiring CREA of Italy in preparation for the future growth of the test demand for high power analog ICs such as SiCs and GaN, which are currently attracting great interest. In addition to strengthening these hardware businesses, we have also developed and expanded our Advantest Cloud Solutions business in the upward direction, that is, in the area of cloud services and data analytics.
Next, page 19 please. This slide is unchanged from when we announced MTP2 last year. We explained that the role of testers will become even more important in the future as the semiconductor market continues to grow. Even now, that view remains unchanged. The number of semiconductors produced continues to grow. In parallel, the technological evolution of semiconductors continues. Their increasing complexity will increase test needs both qualitatively and quantitatively. These two factors ensure that the demand for semiconductor testing will continue to grow. Page 20 please. I will talk about the future focus of MTP2. There's just over a year and a half remaining in MTP2, our 3-year medium term management plan. We will aggressively develop growth measures.
In SoC testers, we believe that the progress of miniaturization, advanced packaging and the rollout of 5G millimeter wave devices will provide greater opportunities, and we will work to expand sales of the V93000, mainly for the HPC applications. In addition to cutting-edge space, SoC tester market has many growth themes. We will promote designing activities to the leaders in each area and build a structure that will ensure we can capture future demand opportunities. In memory testers, we will continue to claim a majority share of the market by leveraging our position as the only tester vendor that can provide solutions for all players in all testing processes.
In the mechatronics business, we will expand sales opportunities by providing tester environments that deliver better test quality by leveraging the technological resources we have cultivated over many years, such as high precision thermal control and signal transmission technologies. In the services support and others business, the number of applications that require SLT continues to increase. We will work to increase the number of application and the customers. In the area of data and analytics, we will work with customers to develop innovative solutions that integrate hardware and software based on ACS. Page 21, please. We now turn to the financial side of the story. The momentum of the semiconductor market is rapidly changing. Despite our efforts to gather information, we must say that the visibility of the FY 2023 tester market outlook is currently low.
However, some consumer semiconductors whose end market is consumer electronics, have already entered an inventory adjustment phase, and some customers have revised their aggressive stance towards the future accordingly. Under such circumstances, it is necessary to consider the possibility of a slowdown in our sales in FY 2023. On the other hand, the degree of adjustment varies from customer to customer and application to application. Demand for testers is expected to remain constant in the businesses related to the automotive and industrial equipment areas, where semiconductor shortages continue, and in the businesses for high-end SoC and memory semiconductors, where customers have a strong appetite for technology investment. In addition, our business structure has changed over the past several years, and we do not currently anticipate a large-scale decline in sales as we have seen in the past.
We may also continue to benefit from strong investment in advanced technology without the significant deterioration in utilization rates at our major customers. Based on these factors, we currently expect FY 2023 year-on-year sales growth to be in the range of approximately -15% to +10%. Given this market outlook and our past performance, we have revised our MTP2 targets and the related indicators. Page 22, please. As I described, this is the outlook for FY 2023 sales outlook. In order to evaluate the growth of the plan from a mid- to long-term perspective, we use three-year averages for our management metrics to minimize the impact of a single-year performance fluctuations. We summarize our sales trend on a year-over-year basis.
At the time of forming MTP2, we initially forecasted JPY 350 billion-JPY 380 billion of average sales during MTP2, a three-year period beginning in FY 2021. However, based on the results from FY 2021, upward revision of FY 2022 forecast as disclosed today, and current sales assumptions for FY 2023, in a range of -15% to +10% on a year-over-year basis. Our MTP2 sales target has been revised to be JPY 450 billion-JPY 520 billion on a three-year average base, as can be seen in the graph. Next page, please. Based on the previous page's sales size, we revised management metrics as shown on the slide. The numbers have changed significantly since last year.
We believe that operating margin net income, ROE, EPS are moving upward. We believe that stronger growth in the semiconductor tester related market than expected in the past, our share gains and the reinforcement of recurring sales will contribute to growth of our financial results. Next page, please. MTP2 is positioned as a phase of strengthening our foundation for further growth. Since semiconductor tester demand is expected to grow over the mid to long term, we will further boost our R&D investment, the source of our growth from our previous plan. On the other hand, future uncertainties in the global economy and our business environment are rising due to the spread of COVID-19 variants, prolonged shortages of semiconductors and other components, geopolitical risks, inflation and the declining consumption. In the event of an emergency such as macro scale deterioration in our external environment, we may flexibly implement cost controls.
Next page, please. I will talk about the revised growth investment and the shareholder returns policy. Based on our mid to long-term market outlook, we have reviewed the scale of our growth investments other than R&D. We will increase capital investment, the foundation for business expansion, to JPY 70 billion, and we have already started making some of these investments. Strategic investments such as M&A are expected to total JPY 100 billion, same as what we have announced last year. Regarding shareholder returns, we will maintain our returns policy for the MTP 2 period as revised and announced last year. Initially, we expected shareholder returns for the MTP 2 period to total JPY 150 billion or more, but we now expect total returns to be JPY 210 billion or more. Next page, please.
I will talk about capital policy and capital allocation outlook revision. First, regarding balance sheet management. We are using a shareholder equity ratio of 50% or more as a benchmark for financial soundness. Our capital efficiency target is ROE of 30%-35%. Cumulative operating cash flow for the MTP2 period is currently expected to range from JPY 280 billion-JPY 360 billion. It really depends on the range of the 2023 revenue. Treating this as a basic resource, we will allocate funds to growth investment in the shareholder returns as appropriate. Regarding cash management, our minimum cash holding level is expected to be around JPY 100 billion for the MTP2 period going forward, barring unforeseen developments. With greater business expansion, we have increased from previous JPY 80 billion by JPY 20 billion.
Next page, please. Given the newly revised MTP2, let me explain our shareholder returns policy. First, regarding a dividend. Regarding our partial interim dividend, we expect it to be JPY 65, an increase of JPY 15 from last fiscal year. We will acquire up to JPY 50 billion of treasury stock in the five-month period from August to December 2022. The maximum number of shares to be acquired is 10 million, which is about 3.5% of outstanding shares. With dividend and treasury stock, based on the above, we plan to have a total return ratio of 50% or more for the full year as set forth in the MTP2. Finally, we will cancel 8 million shares of the treasury stock that we acquired in the past to improve shareholder return.
This amounts to approximately 4% of outstanding shares out of the treasury stock we currently hold. We will retain the number of shares required for stock compensation and cancel as many of the rest as possible. Next page, please. This is my last slide. I will talk about the ESG and external evaluation for fiscal year, for the current fiscal year. Finally, the first enhancement of ESG initiatives is one of the five strategies set forth in our Grand Design. Through further enhancement of ESG initiatives, we aim to grow our corporate value and at the same time contribute to the development of the semiconductor industry and the global sustainability, while meeting the expectations of our stakeholders. This slide shows our most recent major achievements. We will continue to enhance our efforts in the future. Thank you for your attention.
We will go into a Q&A session. First, from Nomura Securities, Mr. Wadaki, please.
This is Wadaki from Nomura. Thank you very much for your very powerful results. The first question is that, but that said, I think basically there's a lot of noise in the market because there's a lot of cancellations coming from the semiconductor makers, and you have not changed your outlook about the memory testers. Is there any impact? Is there any cancels? We have heard that there's a cancellation for the testers, but what about you? Are you having that kind of situation?
Hello, Wadaki-san. This is Sakamoto, and I'd like to respond to your question. Please let me respond to your question. Yes, Mr. Yoshida talked about the situation in terms of the consumer electronics application and semiconductor inventory adjustment, and the end market demand is declining.
I think there are some factors in play. In terms of cancellation, basically, there has been some coming from the customers, cancellation and, for instance, some a delay in the testers. That it will be coming from the SoC customers. It has not actually been realized. As you know, our lead time of the products is very long. From the customer's point of view, if they cancel, they will have to wait a long time to be able to capture the next slot. I think there's a lot of customers who are very hesitant or very cautious about canceling. You pointed out the memory customers. Well, in terms of memory customers, there's no talk of cancellation.
Because our lead time is not, there's a wide gap between our lead time and their request for the shipment. They are asking for an early shipment as possible, and we're trying to improve the situation as much as possible. In that sense, going forward, going to the second half of this year, we do think that there is a risk in that area, but in practicality, we do not think that this will have a major impact on our sales, at least at this point. That is our idea. If you look at the whole lead time of our system, and it's a mismatch between the requirement from the customers. If there are some cancellations and requests for delay, maybe we can change where we ship our products.
We can do that. Meaning that the impact towards our sales is limited. That is my idea right now. Thank you.
Thank you very much. This is a follow-up question related to this question. The chip makers who are putting cancellations, I think basically they are saying that the testers should be delivered more quickly. Maybe next year that will happen. Between memory and SoC testers, what is the outlook that you have roughly for 2023?
For 2023, I think this has been mentioned briefly. I think the visibility is very clear, but because our lead time is long and depending on the customers, it's 9 months or 12 months in the future, and we are conducting business negotiations for that level of lead time.
In terms of SoC, maybe mobile, in terms of the, I think the outlook is a bit weak for that market, but more than offsetting that is that the HPC business, excuse me, that business is very strong or robust, and it's growing very strongly, and will grow strongly. This will be the cutting-edge node is going to be used. This business is going to drive the SoC business very strongly. In terms of the memory business, I think there are some news that the price is going down, the CapEx is going to be delayed. There has been some reports surrounding that type of situation. When we talk with the customers, we do not get that impression at all.
From 2023 onwards, for 2024, even 2024, I think there's a strong CapEx appetite from the customers. 2023, well, compared to SoC, the memory growth this year may seem a bit weak, but this is because of our supply situation. For 2023, in both SoC and memory, we don't think that there will be a major decline in these businesses. Thank you.
Thank you very much. We would like to now entertain next question. Yes. CLSA. Sorry. From CLSA. Yoshida-san, please.
This is Yoshida from CLSA. It's related to earlier question. Next year's sales -15% to +10%, the midpoint is going to be small reduction. You mentioned about it, but from the quantitative point by product, what is a mean or median and sales and making this range? I think there are product mix. What would be the driver and what would be a big mover of a product out of our other products?
Hello, Yoshida-san. Thank you very much for your question. Yes, for fiscal 2023 figure, our sense, how do we feel about it, is that, as for SoC, yes, we think that, advanced semiconductor technology is advancing. Of course, the automobiles semiconductors are very strong, and that is added.
Earlier I mentioned I think maybe in the first range of 10% or so would be the growth. That is a market growth, I believe. That's what we see. On the other hand, as for the consumer electronics are weakening, that is incorporated, and we are giving that figure with that 10% in the mid, still then we can expect mid to 10% growth. As for memory, unit price and the market seems to be a bit darker. From what we feel is that basically HBM and DDR5 transfer. The technological evolution for memory semiconductor, I think, will be the driver for our testers. In this respect, a single-digit growth is expected. That's the current outlook for us.
Thank you very much. Let me confirm. SoC tester, 10%, mid-10% growth, and memory, single-digit growth. The mean of the average is lesser. I think it's stronger than what you had identified here.
Yes, as you say. Yes, as was mentioned by Yoshida earlier, that macroeconomy, how is the market going to deteriorate? We don't have a clear answer or clear outlook here. Earlier, for fiscal 2023, that we had reported to you, upside 10% and downside 15%, plus macroeconomic viewpoint and the inflations. We had incorporated those effects more than the actual thing. This figure itself, I think is quite good and rather conservative.
In that sense, downside scenario is incorporating the macro risks. Upside scenario is a basic scenario or I think ideal scenario, right?
Yes. Yes. That is the sense. Yes. Thank you very much indeed. That's all my question. Thank you.
Thank you very much. Next, we'd like to move to the next question. From Goldman Sachs, Nakamura-san, please, raise your question.
Thank you very much. I am Nakamura from Goldman Sachs. Thank you very much. Can you hear me? Yes, I can hear you. Thank you very much. Regarding CY 2022, your outlook is unchanged in most of the companies, but you made a upward revision. What's the reason behind that? You mentioned that 60% of upward revision is due to yen depreciation. Are there any other factors for that? That's my first question.
Well, our original outlook was JPY 510 billion, and actual volume is the order backlog to be consumed or delivered. As long as we can produce, we can deliver that. Considering that, exchange rate impact could be fairly good, and that is a JPY 40 billion increase. Of 60% of the JPY 40 billion is due to exchange rate. As we have seen in the efforts made in the production site in the first quarter, we have already been doing this, which is already reaching JPY 10 billion or so in the first quarter. If we are able to continue this, there could be some additional upward possibility. For the time being, procurement for production is still uncertain.
As I explained, we still have certain risks behind that. Considering that, we decided not to make a significant change from our initial projection. Exchange rate plus additional revenue increase is also anticipated. That is true.
Thank you very much. I have a follow-up question. You talked about the 2023 outlook is in the range of -15% to +10%. You
Is this range reflecting up to what point in time recently? Because your U.S. competitor last year had an earnings results meeting yesterday, and over the past several weeks, the business environment has changed dramatically. Are you observing similar situation?
Well, our competitors made an earnings results announcement yesterday, and we have watched it. Calendar year 2022, starting from the first quarter, between us and our competitors, a sense of market share has quite changed. Our view is looking at our customer base and also product portfolio to support the customer, and requirements is quite broad, which is our source of strength. The - 15%, where this number coming from? Well, within the semiconductor tester market, we have experienced many ups and downs.
However, based on our historical 20 years of experience, save the special factors of the Lehman crisis, the biggest drop was experienced in 2013, -15% drop in our revenue. Other than that, since I became the president, over the past six years, sales decline only occurred in 2020, when the sales drop was a little over 2%. Our portfolio is also having the recurring businesses and field support, stable source of revenue. We have been stepping up in this side of the businesses. Memory tester was main driver of our business in the early part of the 2000s. With SoC, where market is big, we can also secure good market share.
Given all that, - 15% of the sales revenue would be sufficient or adequate for potential deterioration of the global macro economy.
Thank you very much for your detailed explanation.
Thank you very much. Going to the next question. Hirakawa-san from Bank of America Securities.
Thank you very much for taking my question. I'm Hirakawa from BofA Securities, so thank you. You're talking about 2023 plan and your idea behind that. For 2024, you have said that with the memory testers, you have the sense that it'll have a strong demand. For 2024, in terms of what you can see in 2024, maybe not as clear as 2023. Can you talk about what you are thinking about 2024? What seems to be visible for 2024? I would like to hear your view.
Hirakawa-san, thank you very much. Well, for 2024 market outlook. If by 2023 second half and onwards, with the TSMC's miniaturization and 3 nm mass production is going to be continued. I think basically the products is going to come into the market. If you consider that for FY 2024, for the cutting-edge products, the tester demand is going to be quite solid. I think it depends in how the macroeconomic situation looks in 2024. To, say, foresee about that currently is very difficult. From a technological front, I think that's the trend that we're going to see, and I think that's a major focus for 2024.
Thank you.
Hirakawa-san, this is Sakamoto from the sales division, and I just went ahead of myself and talked about 2024. Basically, like in terms of the memory market, through miniaturization, the CPW, chip per wafer, is going to increase. The volume is going to increase. If you look at the fab situation and the high-end memory products and the ensuring quality and the coverage this time is increasing. I think these are elements to point that way. On top of that, specifically for DRAM. We have been seeing the increase of the speed. I think basically we are going, hitting the ceiling. In terms of increasing, the speed has been more and more difficult.
If that is the case, so the test time is going to increase, the coverage is increasing, the device number is going to increase.
It means that the number of testers that are necessary is going to continue. It means that the demand for testers will continue to be there. That is what I have meant through our opinions. Thank you.
With this office, thank you very much. Next question from Nakanomyo-san from Jefferies. Hello, nice to have you.
I'd like to know about the utilization of the customers, utilization and operation on page 13 and SoC category. You mentioned that the momentum is weak and in the commercial DDIC but SoC tester 15%, maybe that's a volume. Those customers, how are they doing their work, the actual operation? What is the image like for testers? The reason why I'm asking this question is that these products are weak. Honda, I think the utilization and operation is down now, especially tester. Commercial, though it's mobile, I think test steps, stages are increasing, phases. Compared to all, the utilization and operation is not declining. Although you have adjustment phase for inventory, it will not last long, I believe. That's the reason why I'm asking this question.
Yes. Thank you for your question. Yes, as for the operation and utilization of the testers, we don't know actual figures, though. For example, smartphone-related drivers, display drivers, compared to the maximum level, it is declining. Mobile-related items, the actual number of smartphones are being declining, so that is also weakening. Other than that, HPC utilization rate, operation is increasing and is enhanced, and offsetting that weakening point. Also for the automotive, they have a very high utilization, and they need more testers, so they are asking us for earlier delivery. Memory, high utilization we can see. Thank you. In addition, HPC originally based on strong demand assumption, and I think tester procurement plan was very strong there.
By slowing down, is there any adjustment seen in the market, and would that happen actually? Yes. As for HPC, currently and the future outlook is very strong. More than now, we will have more numbers, and I think that may change a bit. According to our outlook, HPC-related business is very steady and growing. I forgot to mention earlier, DDI's utilization rate is down. For OSAT Taiwan, it's still low, but for China, OSAT is very high.
Thank you.
Thank you very much. We'd like to move to the next question. Mitsubishi UFJ Morgan Stanley Securities, Hasegawa -san, please state your question.
Regarding next year, top line will be in a range of -15% to +10%. Your expenses, such as R&D, capital investment, and workforce, the direction for expenses, what view should we have? As business as usual, you will be increasing your revenue, but if you might lose some revenue, but what is your stance towards the fixed cost?
Our outlook for 2022 into 2023, during the period MTP 2, I only explained for the period of MTP 2, but we need to also look at our business in a long-term perspective, because semiconductor sales is now making towards JPY 1 trillion of sales in the midterm. Our growth opportunity varies, but in order to capture that, we have a shortage of workforce or advancement in AI deployment, and not only using experts, but we have a shortage of engineers. That is not only happening to us, but happening across the world. Continuous investment in people is absolutely required. Next year's revenue
If it becomes visible, the potential decline of our revenue by 10% or so, at this point in time, we are not thinking of cutting our personnel. If the decline in the revenue is greater than 10%, and aside from another demand crisis might occur in the future, but we need to develop our growth foundation with a longer-term perspective. We are not thinking about reducing our expenses. Of course, with the weaker businesses, the travel expenses and the entertainment expenses, there's room for cutting the small expenses, but we are not thinking about cutting personnel.
Thank you very much for your answer. I am impressed with that. You are really sticking to your policy. That is my understanding. Thank you very much.
Thank you. Let's go into the next question. From Macquarie Capital Securities, Damian Thong-san, please.
You have announced conducting a buyback in the second half of this fiscal year. In the three-year period, in terms of the ROE target for these three years, it's between 30%-35%. That's your current target. Next year, for instance, if you hit the low end for the terms of the sales and the profit for next fiscal year in terms of the shareholders' return, are you going to secure the 30% of ROE? Is that the message that you're trying to send out today? What I want to say is that the 30%, ROE of 30%, this range that you're talking about, this 30% is the lower range. It's the minimum. Is that the lowest minimum range that you want to achieve? I want to confirm that.
Damian Thong-san, I think you were cut off at the beginning of your question. Could you repeat?
Next fiscal, the ROE target between 30%-35%, I think on average, you'll be able to achieve more than 35%. Miss, if next year the market declines, and if there's a risk that you go under 30%, are you going to return more to the shareholders to support the 30% ROE? I just want to ask your commitment.
This is Yoshida speaking. This range of 30%-35% of ROE target, that is the. If we were able to achieve the lowest level of sales of 2023, we can achieve this. This is what means that for 30%. FY 2023 sales is, if it's not -15%, is if it's -25% or if it's -30%, then to be able to maintain the ROE, will we conduct share buybacks or not? Currently, we are not thinking that way. We do not think that that would be the kind of a commitment we've had to make for ROE. We think that just doing business as usual, we'll be able to go over 30%, between the range of 30%-35%.
If JPY 550 billion, if we are able to achieve that this fiscal year, I think the ROE will be close to 40%. This 40% and looking at 40% last year's results, and even if it go down for 2023, if it's within -15%, I think we'll be able to achieve an average of 30%.
Thank you very much for your detailed explanation.
Thank you. Did that suffice?
Yes. Thank you.
The next question. Tokai Tokyo Research Center, Ishino-san, please. D o you hear us?
Yes. Thank you. Yes, there are some very harsh or difficult situation for other companies. Towards next year, what would be a brighter story for us? Is there anything brighter story for us? SoC, clearly, I think, it is in a trend to, like, make a lower investment.
The advanced, I think, semiconductors investment is strong. You have new smartphones, to DDR5, there will be more demand. The demand, according to TSMC's explanation, the demand is a decline on a decline, on a natural decline.
In that sense, looking towards the future, towards the next cycle, what would be something that would bring us growth? Can you elaborate on this? Yes, that is going to be just a qualitative type of story for us. Technology-wise, we have 2 GHz, mmWave, sorry, and 3D very complex semiconductors. If they come and be launched, then it's going to be difficult for us to provide right testers. Who are the participant in that market? As you can assume, yes, Korea, Taiwan, USA, not just those large companies, but the hyperscalers who use them, including them. There will be lots of research going on, and it is already been done. Hyperscalers or ultimate related device manufacturers, I think that's very complex.
For quality-wise, they are very cautious. I think there will be more and more of such products coming out into the market. From the perspective of test, or test flow or on, some portion of the semiconductor, then in that, world, together with those innovators in the world, we have to test new devices. I think we should be able to be prepared to get into that new field together with them. New innovations. Rather than Japan, it would probably happen in U.S. or maybe in Europe, or maybe partially China. To those, leading customers, advanced customers, we need to be prepared, human resources-wise and technology-wise, being able to be involved and do those researches together with them. I think we need to be prepared.
Of course, short-term, well, the economy seems to be darker and the stock price, U.S. IT-related stocks, is too high now, price. I think there may be longer adjustment period. I think technological evolution will occur more and more in the coming years. I think we should believe in that brightness, and we should grow together with them. That, I think will be support for us and motivation for us. Maybe it's too abstract. I'm sorry about it, but that was the answer. Thank you. That was a difficult question. The next cycle, so do you think that it will be in 2023 or 2024 to bottom out and get into another cycle? Which do you think? Well, from the world economy-wise, 2023 probably will be the bottom.
The new evolution and initiatives that we're participating with our customers, that has already started. The volume-wise, it may not be a big one, but it may lead to new customers or amongst the existing customers, we may come up with a new possibilities. There is a wave or cycle. We are already in there. When? Maybe now underway may happen next year, and it could happen two years later. That's what we are prepared for. Of course, the world economy, we cannot go against it. Not just ourselves, but our customers and the customer's customers. I think we have wide range of customers now, so we have to see what would be the influence of those to our customers.
It's difficult to predict, but relatively speaking, tester demand, we believe it will not dip or decline, I believe.
Yes. Thank you very much, for your detailed answers. Thank you.
Thank you very much for your question. Our apologies, we are still getting other questions, but we are approaching towards the end of the meeting, so with that, we'd like to end the Q&A session. With that, we'd like to end Advantest FY 2022 first quarter financial briefing. Thank you very much for joining us.