Thank you very much for joining the conference call for the briefing of the FY 2021 financial results of Advantest Corporation, despite your busy schedule. Today, we have four participants: President and CEO, Mr. Yoshida, CFO, Mr. Fujita, Chief Customer Relations Officer, Mr. Sakamoto, and Chief Stakeholder Relations Officer, Mr. Mihashi. First, Mr. Fujita will explain the financial results of FY 2021. Then Mr. Yoshida will talk about the second midterm business plan progress and FY 2022 outlook. After the presentation, we'll take your questions. We're scheduled to close the session at 4:30 P.M. The presentation material is available on the TDnet, as well as on our website for your reference. Before we start, let me give you a disclaimer statement. This presentation may contain forward-looking statements based on the current estimates, and they contain risks and uncertainties.
Please note in advance that actual results may be different from the estimate. Now, Mr. Fujita will start the presentation.
Good afternoon, everyone. I am Fujita. I'll explain the financial results for FY 2021. Please refer to page 4 of the presentation material. This page is about FY 21 results highlights. In FY 2021, we achieved record high results for orders, sales, operating income, and net income. We are deeply grateful to all the stakeholders, including our valued business partners who continuously support our growth, as well as our employees. Aggressive tester investment continued throughout the year, mainly by SoC semiconductor manufacturers. As social digitization drove growth of data center investment, performance gains of 5G smartphone functionalities, and semiconductors, such as miniaturization. We are seeing continuous trends of long-term expansion of semiconductor demand and performance improvement.
On the other hand, due to the shortage of a wide range of materials and parts, such as semiconductors, our product lead time has become longer. This led to earlier order placement by customers and orders doubled from the previous fiscal year to JPY 700 billion. Regarding sales, gross profit margin improved from the previous fiscal year due to the increased ratio of high value-added testers for high-performance semiconductors in the sales mix. ROE increased to 30.4% as a result of our efforts to increase profits, enhance shareholder returns, and improve capital efficiency. Please turn to page 5. This is the summary of results. FY 2021 results are as shown on the slide. Orders were JPY 700.3 billion. Sales were JPY 416.9 billion.
Operating income was JPY 114.7 billion, and net income was JPY 87.3 billion. Backlog was JPY 394.7 billion, owing to the significant increase in orders. The year-on-year growth of net income was relatively small because of lower tax burden due to the tax loss carried forward accounting adjustment in Japan and the recording of deferred tax assets in the previous fiscal year. The year-end dividend is forecasted at JPY 70, and together with the interim dividend of JPY 50, our annual dividend forecast is JPY 120. The total shareholder return ratio for FY 2021 is 107%, including share repurchasing and the dividend. Please turn to page six. This slide shows FY 2021 orders by segment and region. Annual orders by segment and region are as shown on the slide.
In FY 2021, orders increased year-on-year across all businesses. High-end SoC semiconductors, such as application processors, or APU, and high-performance computing, or HPC devices, underwent further miniaturization and performance gains, and semiconductor shortages triggered investments to increase supply capacity. This led to significant growth in orders for SoC testers. By region basis, orders increased in all regions, especially in Taiwan, China, and South Korea. Taiwan was the largest source of orders. Please turn to page 7. This is FY 21 sales by segment and region. While we were forced to extend the product lead time due to the semiconductor shortage, sales of SoC testers increased mainly for high-end SoC devices. By region basis, Taiwan generated the largest sales, same as orders.
Please turn to page eight. This is the summary of results for Q4 of FY2021. In the fourth quarter under review, sales, operating income, and income before tax achieved record highs since the company began quarterly disclosure. Each item will be explained in detail on the following pages. Page nine, please. It shows quarterly orders for Q4. As the shortage of semiconductors affects a large part of our supply chain, our product delivery is taking an increasingly longer time, and the customers are ordering testers based on an increasingly longer plans. Semiconductors and the component test systems recorded JPY 149.2 billion, up 45.5% quarter-on-quarter. Orders for SoC testers increased JPY 33.9 billion- JPY 119.6 billion. Orders increased significantly due to more types of devices, mainly HPC related, being manufactured with advanced processes.
Orders for memory testers increased JPY 12.8 billion- JPY 29.6 billion. DRAM related orders grew significantly, primarily for wafer testing. Mechatronics systems was JPY 15.6 billion, up 37.5% quarter-on-quarter. Orders in this segment increased due to the strong linkage of device interfaces and test handlers with the tester business. Services support and others was JPY 34.2 billion, up 52.3% quarter-on-quarter. In addition to a significant increase in system level test related orders, annual maintenance contract renewables increased, with seasonality as one of the factors. Page ten, please. It shows FY2021 Q4 sales by segment. Although parts shortage is still in place, our efforts to procure and necessary parts led to higher sales compared with our initial forecast.
Semiconductor and component test systems had JPY 81.3 billion in sales, flat from the previous quarter. As for breakdown, SoC testers were JPY 64.1 billion, and memory testers was JPY 17.2 billion. Mechatronics systems was JPY 10.5 billion, a slight decrease from the previous quarter. Services support and others was up 20.1% quarter on quarter to JPY 25.1 billion, thanks to an increase in SLT related sales. Page 11 shows FY2021 Q4 orders and sales by region. In Taiwan, orders grew significantly, mostly for SoC testers that utilized advanced processes, primarily related to HPC. In South Korea, in addition to the increase in orders for memory testers, smartphone related orders for SoC testers also increased. As for FY2021 Q4 sales by region, with some variation by region, sales expanded across the board. Page 12, please.
For OP and others, gross margin was 56.7%. It stayed at a high level, although it was slightly down from Q3. SG&A, including total other income and expenses, was JPY 32.6 billion. Operating income was JPY 33.7 billion, and operating margin was 28.8%. FY2021 full year operating income was up 60.22% year-on-year to JPY 114.7 billion. Increased sales of high-end SoC semiconductor testers for smartphone and data center related devices improved our product mix and boosted gross profit margin. Operating income also increased significantly. Page thirteen, please. FY2021 Q4 R&D expenses, it was JPY 13.1 billion and 11.2% as a percentage of sales. CapEx was JPY 5.9 billion.
We began to invest in the capacity expansion in United States from Q2 and made further investment in Q4. Depreciation and amortization was JPY 4.1 billion. The Q4 cash flow was a net cash positive in terms of free cash flow of JPY 16.9 billion. Page 14, please. It shows the balance sheet factors as of the end of March 2022. Total assets was JPY 494.7 billion. Cash and cash equivalents, JPY 116.6 billion. Goodwill and intangible assets, JPY 85.3 billion. Equity attributable to owners of the parent, JPY 294.6 billion. Net profit margin, 59.6%.
In FY21, we acquired a total of 7.17 million own shares for JPY 70 billion, while raising approximately JPY 30 billion for business expansion. We will continue to work on the balance sheet management, while optimally balancing between growth investment and capital efficiency. This concludes my presentation. Thank you.
This is Yoshida. I'll talk about the progress of the second midterm business plan and FY 2022 outlook. Please turn to page 16. Results for the first year of our second midterm business plan exceeded all the management metrics targets set as averages for the period of the midterm plan to make a good start. We increased sales across a wide range of applications due to increased demand of testing for devices related to smartphones and HPC, in which we have a competitive advantage, as well as increased presence in automotive, industrial, and consumer sectors. This was successfully achieved because of our measures to strengthen our customer base that we had been steadily working on and our product strategy. Furthermore, the SLT, or system level test division, which is being bolstered through M&A, has steadily expanded to contribute to the improvement of performance.
As a result, we achieved the sales target of JPY 400 billion set forth in our grand design before FY 2027, which we originally planned. The trends and the major direction of business environment described in our grand design remain unchanged, and we will continue to pursue our strategy, and we will aim to increase our corporate value further with this achievement of the sales target. We will review our financial model of the second midterm business plan based on FY 2021 results and FY 2022 forecast. This will be explained in another briefing as soon as we finalize the review. Please turn to page 17 for market share report. The calendar year 2021 tester market grew by over 30% year-on-year, higher than the 25% growth in 2020.
Our marketing department estimate that the SoC tester market was worth about $4.3 billion, and the memory tester market was $1.3 billion, to make a total of about $5.6 billion. This was much higher than our expectation at the beginning of the year. This market size is indicated for a calendar year. Our market share was about 47%, increased by about four percentage points from the previous year in the growing market. We assume that we could take No. 1 market share with 45% for SoC testers and 51% for memory testers. Please turn to page 18 for semiconductor tester market in calendar year 2022. In calendar year 2022, the tester market is expected to grow even more from the market size already increased in 2021.
We have slightly decreased the lower limit of the forecast range from that of three months ago to incorporate the supply risk scenario for the entire industry affected by the increasingly tighter parts procurement conditions. In the SoC tester market, we expect further growth in demand for automotive, industrial, and consumer applications in HPC related devices, which are adopting advanced process technology, mainly by performance gains of semiconductors and increased production volume. In the memory tester market, numeric growth of market looks shrinking affected by exchange rate fluctuations, but in reality, we have not changed our view from three months ago that higher memory performance will drive tester market expansion. There are many uncertainties in the tester market beyond 2023 with little visibility.
However, with a backdrop of social demand for improvement of energy efficiency, the scale of integration in the HPC-related semiconductor is making a steady progress through miniaturization and adoption of advanced packaging technologies. This requires more advanced and integrated test solutions and is expected to drive the growth of the test market in the long run. Please turn to page 19 for the review of disclosure items. Disclosure of orders and backlog ends in Q4 of FY 2021. For many years, we have disclosed orders as a leading indicator of business performance, but recent actual order figures cannot offer useful comparison with the past. Therefore, we're concerned if we continue the disclosure as is, it may provide misleading information to market participants. Going forward, we'll enhance our explanations with longer-term view on business environment and growth strategies.
Have deeper dialogues with the stock market participants so that they can properly evaluate our corporate value. We appreciate your understanding. Please turn to page 20 for FY 2022 forecast. Our forecast is as follows. Sales are JPY 510 billion. Operating income is JPY 150 billion. Income before tax is JPY 150 billion, and net income is JPY 112.5 billion. Gross profit margin for the full year is expected to be approximately 58%. Our FY 2022 earnings forecast incorporates a certain level of parts shortages and rising procurement costs, but we anticipate that the shortages will ease in the second half. We will do our best to secure necessary parts, aiming to set new sales and profit records for the third consecutive year.
However, this is undeniably an environment in which geopolitical risks and changes in the global economy may occur out of the blue on top of the difficult procurement situation. We expect that FY 2022 will be a year when our risk management capability will be again tested. The FX assumptions are 120 yen to the dollar and 135 yen to the euro. Page 21, please. It shows the outlook by segment. For semiconductor and component test systems, as shown on the right-hand side, we have started to disclose full year sales by application starting this time. Our full year FY 2022 SoC tester sales forecast is JPY 286 billion. Regarding advanced SoC semiconductors, further adoption of advanced processes during calendar year 2022 will boost tester demand further throughout the year due to increased complexity of semiconductors and the manufacturing processes.
For the past 10 years, smartphone APUs have been the main source of tester demand, but HPC devices are expected to take over in calendar year 2022. In the automotive, industrial, and consumer-related sectors, customers' capacity utilization should remain high, supporting tester demand at a level equivalent to FY 2021. Our full year FY 2022 memory tester sales forecast is JPY 69 billion. Changes in memory technology, such as miniaturization, greater densities, and higher speeds and bandwidth will support tester demand. NAND and DDR4 and DDR5 demand is expected to remain firm, supported by the strong demand for HPC devices for data centers. We expect increased sales of DRAM testers, which are one of our strengths. Page 22, please. Our full year FY 2022 mechatronics related sales forecast is JPY 50 billion.
We expect sales of nanotechnology products to increase due to the continued high level demand for device interface products, which are closely linked with our tester business and increasing adoption of EUV lithography. Full year forecast for the services, support, and other segment is JPY 105 billion. In addition to the steady growth of our system-level test business and the increase in recurring business revenues as a result of M&A, a steady increase is expected in the demand for our services and maintenance businesses. For the system-level test business, full year sales is disclosed from this time onwards. Moving to page 23, I would like to conclude by touching on some key measures for FY 2022. The difficulty of procuring semiconductors and other parts continues. Implementing measures to ensure stable supply of our products remains our top priority.
Given the continuous growth of the semiconductor tester market during calendar year 2022, our R&D and sales are continuing to focus on the provision of leading-edge test solutions. We will collaborate with customers who are developing leading-edge semiconductor technologies so that we can develop advanced test technologies. Moreover, given the test market expanding further in the mid to long term, we need to further improve our business execution capabilities. To that end, we plan to make upfront investments to secure talent and expand production capacity.
We will reinforce our data analytics business to support digital transformation in the digital society. Increased circuit integration and greater manufacturing complexity are increasing device reliability requirements. In addition to the demand for semiconductor testing, the demand for system-level testing is increasing, which is accompanied by the demand for high precision consumables required throughout the testing processes. We will also make investments to expand such recurring businesses. We will also try to enhance ESG related initiatives, including the acquisition of SBT certification, as we did in the previous year when we launched our climate change initiatives. Please refer to our website, which was updated today, for the detailed achievement during FY 2021. Finally, we will respond flexibly to changes in our business environment amid the uncertainties stemming from geopolitical risks, logistics disruptions, and inflation, among other factors. That's all from myself. Thank you very much for your attention.
We'll start the Q&A session.
Mr. Wadaki from Nomura Securities, please start your questions.
Thank you. I'm Wadaki from Nomura Securities. Thank you for presenting the excellent financial results. My first question is about the business environment. Recently, sales of consumer PCs and smartphones have been slowing down, and orders for semiconductors and other components used in those devices have also been decreasing significantly. On the other hand, demand is strong in the area of military and the servers. Do you feel any impact on your business from such a change in the product mix? For instance, are there any cancellations, pushouts, or conversely, further increase in orders?
The orders received in the fourth quarter increased further from the third quarter, and we do not recognize a significant slowdown at this moment. Rather, our supply is getting extremely difficult.
Our testers for high-performance semiconductors are still under development, but the demand for those testers is already strong. Therefore, we are not seeing a slowdown in this area. We believe we did our best to announce an aggressive full year forecast. Advantest is said to be conservative, but global supply of semiconductors will not increase unless we fulfill our responsibility of supply. This forecast reflects our intention to manage to achieve that level of supply for the sake of the industry. To answer your question about the slowdown, we have not felt it yet.
Thank you. Let me ask a follow-up question. You mentioned you see more difficulty supplying of testers, and I assume FPGA has become a bottleneck in many areas in causing this problem.
I heard news the other day that TSMC and Samsung had organized negotiation teams to visit semiconductor manufacturers, and I thought they may increase the production of FPGA, and supply constraints might be eased a little. What do you think about it?
We have been making various efforts since last year, but it is not so easy to ask semiconductor factories already operating at full capacity to make new or special semiconductors. We are a customer as well as a supplier in this industry, so we are trying our best to explain that we cannot increase production volume without manufacturing equipment or testers, and have barely managed to survive so far. The global economy outlook is extremely uncertain, and it might be possible to decline slightly.
In that sense, we are planning to increase sales more in the second half than the first half, with the expectation that our supply concerns will be eased a little in the second half. If the situation will be eased, it will not happen soon. Rather, it will be in the latter half of this year or second half of our fiscal year.
Thank you. I appreciate your explanation in detail.
Thank you for your question. Next, Mr. Yoshida from CLSA Securities. Please start your questions.
Thank you. I am Yoshida from CLSA Securities. I am referring to slide 18. You mentioned that you have decreased the lower limit of the forecast range for SoC testers to incorporate the risk of parts shortage further. Can I assume you did not specifically factor in any other factors?
Also, sales exceeded the plan in the fourth quarter, but at the same time. You have been talking about parts procurement difficulties. Has the procurement environment got worsened than that of three months ago?
First, the reason we lowered the lower limit of the forecast range for SoC testers was the parts shortage. We have not included any other factors. As to whether the procurement environment has improved compared to three months ago, my impression is it has not improved at all. On the contrary, we are enduring various problems coming up every day and manage to continue a constant supply. Sales growth may look negligible from the third quarter to the fourth quarter, and this is not because of production capacity, but because of the limitation in procurement capacity.
In the first half of this fiscal year, we'll work to increase this capacity a little, and we will increase it further to grow sales in the second half. This is the assumption for the sales target of JPY 510 billion for this fiscal year.
Thank you. I'd like to ask a follow-up question about slide 21. In the sales forecast for this fiscal year, you said the mainstay of SoC testers will be for HPC. I'd like to know the composition rate of testers for smartphones and for HPC in the computing and communications, if possible, for the previous and this fiscal years. Also, do you expect the situation in which HPC will continue to be the mainstay of your business and maintain high composition rate? If so, can I assume this is a favorable business environment for you? Thank you.
Let me ask our Chief Customer Relations Officer to take this question.
Okay. Thank you for your question. I'm Sakamoto from sales, and I'll explain about CY 2022. We are clearly aware of a trend of increasing total available market for SoC. In the computing and communications part of this TAM, we estimate smartphones will account for 50%-60%, and HPC will account for 40%-50%. There is a significant growth for HPC, and as mentioned several times so far, demand for servers is growing. HPC devices for which performance is a top priority are adopting cutting-edge semiconductor technology. In addition, the adoption of 3D packages and other technologies increase new testing processes leading to longer test time.
Based on this view, we expect even more favorable environment for us to increase the market share as we already have a very high market share for HPC. Excuse me, did you say HPC is 40%-50%, and what percentage for smartphones? 50%-60%. You mean in the entire computing and communications? Smartphones include RFs, so yes, that's what I mean.
Okay. That is why HPC will be larger this year compared to application processors only.
Yes. We expect that HPC will be larger than application processors for this year.
I understand. That is all for my questions. Thank you.
Thank you for your question. Next, Mr. Damian Thong from Macquarie Capital Securities, please start your questions.
I'm Damian Thong from Macquarie Capital Securities. First, I'd like to ask you to elaborate on the sales balance between the first and the second halves.
Considering the progress in the fourth quarter under review, do you think it is difficult to make a significant improvement in the first and the second quarters of this fiscal year due to difficulties in parts procurement? I would like to know roughly how much of the quarterly sales for testers from the first to the fourth quarter.
Excuse me, are you talking about fiscal year 2022?
Yes, this fiscal year.
We only disclose the full year figures, but as Mr. Yoshida said earlier, the current sales are approximately JPY 120 billion, and we plan to increase it gradually in the first half and increase it further in the second half with improvement of component environment. If we multiply JPY 120 billion by 4, it is JPY 480 billion.
You may think it cannot reach JPY 510 billion, but we expect parts procurement conditions will improve in the second half, and this will help us to achieve JPY 510 billion. If the situation of procurement becomes better than our expectation, we can even expect to achieve higher sales than JPY 510 billion. I understand. Thank you. Let me ask about the profit margin. In the second half of the fiscal year under review, the OP margin for the entire testers was over 38%. In the current fiscal year, of course, there may be ups and downs quarter-over-quarter, but if, for example, sales for the third quarter exceed JPY 100 billion, I think the OP margin will probably exceed 40%.
I know the parts procurement costs will also increase, but still, do you think it is an imaginable scenario?
Did you say OP margin?
Yes, OP margin for semiconductor testers.
Considering the plan to have higher sales in the second half, of course, we can say the OP margin will be higher in the second half than in the first half. However, I don't think the figure will be as large as you suggest.
I see. Thank you. My last question is about SLT. It seems to be expected to significantly grow in this fiscal year, as you say, 27%. Could you elaborate on this as well? Do you expect to take new customers' orders or increase business volume with existing customers? I appreciate if you could explain about it. Thank you.
Hello, Damian-san. I am Mihashi from Corporate Planning.
I think you are asking about a view on the SLT growth in FY 2022. In FY 2021, we recorded an increase of about 38%. For FY 2022, we estimate, or plan rather, 27% sales growth. First reason why we plan the growth of 27% is that our customers are developing a much wider variety of products. For example, SLT for baseband and APU of smartphones has been used by APU and baseband for so-called premium tier smartphones. But now, SLT is required for mid-tier, and in some cases, even for entry tier smartphones. We believe that the situation will drive market growth. In addition, as more types of devices are tested using SLT, we can expect sales growth of the recurring business, which we are expanding now through M&A. That is another reason for the growth. Thank you.
You see mobile devices as the main driver of the growth in this fiscal year. At the same time, I understand semiconductor testers are benefiting quite a lot from HPC. Do you think it is possible that HPC related needs will increase also for SLT in the future?
Yes, I earlier talked about the mobility space, but we consider HPC is also a growing segment in the future, like smartphones.
Thank you. That is all from me.
Thank you for your question. Next, Mr. Nakamura from Goldman Sachs, please start your questions.
Thank you for taking my questions. I understand that orders received during the period from January to March were considerably higher than originally planned. Can you tell me what is the reason for it?
Thank you, Nakamura-san. This is Sakamoto in charge of sales. Your question was about orders, I understand.
Orders are JPY 50 billion, higher than the latest guidance for Q4. As for breakdown, JPY 34 billion comes from SoC testers with CC or computing and communication accounting for 60%, while 30% was DDIC, and 10% was automotive, industrial, and consumer devices. The outperformance was mainly driven by devices using leading-edge processes. On the other hand, memory testers accounted for JPY 6 billion. The business for DRAM outperformed mainly for wafer testing, while mechatronics grew JPY 7 billion related to the tester business. The service support and others outperformed by JPY 3 billion due to the seasonality of maintenance contract renewal. That's the breakdown.
Understood. What was the main factor behind it? Is it longer delivery lead time due to parts shortage, or is it a higher demand compared with the original expectation?
Right now, the lead time is longer than where it was when we had the previous financial results meeting. It is today about 9 or 10 months. Customers are anticipating a longer lead time as well, not only with us, but also with front-end suppliers of semiconductor equipment as well, I believe.
When they place orders, in order to secure enough supply of products, customers are placing orders based on longer time production planning compared with what they were doing in the past. There are many customers who are using similar approaches. From that perspective, we are seeing a sort of front-loading of order inflow. Nevertheless, right now, our customers are trying to secure wafers and others for a longer time, and they are actually shipping more products. That's why they are also securing production equipment. When we talk with our customers, they are negotiating for and ordering for tester capacities for next 6 months, 9 months, or even 12 months. We believe their production plan is supported by the actual demand. There may be some market participants who may be concerned about possible cancellation. In our perception, however, the risk of such cancellation is very low, if not zero.
Understood. Thank you very much. One follow-up question is about possible improvement in parts shortage in the second half mentioned by the president earlier. How high is your conviction at this point in time? As you talk with your suppliers, what is your view of parts availability towards the second half? Could you give us some additional color?
The most difficult parts to procure at the moment are semiconductor parts. For them, we have had various negotiations since the first half of last year. In such a situation, we have been making various efforts to help increasing the yields by dispatching our personnel to semiconductor plants as part of our joint development and so forth. Semiconductor manufacturers are announcing aggressive investment plans since one year ago.
Based on such investment, they should be able to see an increase in their capacity gradually towards the end of this year or the beginning of next fiscal year. That's what we are expecting. In that sense, in collaboration with our suppliers, on one hand, we are trying to help increasing both productivity and capacity. The benefit of capacity expansion should be seen by the end of this year or beginning of next year. That's what we expect.
Thank you for the detailed explanation.
Thank you for your question. The next question is from Mr. Hasegawa of Mitsubishi UFJ Morgan Stanley Securities.
Thank you. This is Hasegawa of Mitsubishi UFJ Morgan Stanley Securities. There was a comment about order-taking lead time earlier. You mentioned about 6 months, 9 months, or even 12 months.
Does that mean you have visibility into next 12 months until the end of this fiscal year? Is my understanding correct? Am I also correct in assuming that you have several times more inquiries compared with orders? That's generally the case, not only with your company, but with other companies as well. In other words, were you talking about expected orders rather than inquiries all year? Could you clarify between orders and inquiries? Also, between front-end process and back-end process? I believe it is normal for front-end process to negotiate for a longer term. Having said that, demand for your products should also increase, and you will negotiate for a longer term. What is the level of inquiries and negotiations, and how is it different from the level of orders? Could you share more details?
Mr. Hasegawa, thank you for your questions.
Our presentation on the FY2021 fiscal financial results touched upon the order backlog as of March being JPY 395 billion. Out of that amount, nearly JPY 200 billion was booked during Q4 in terms of the orders. Now, for next fiscal year, sales target of JPY 510 billion was just announced today. Inquiries we received during Q4 should be materialized by the end of this fiscal year. Correction, order backlog is for this fiscal year, while inquiries are for next years as well. Summing up, all of the order backlog should be completely fulfilled this year, and a part of the orders to be placed this fiscal year should also be resulting in sales this fiscal year. Some of inquiries to be made from now should also result in sales next year.
We did not disclose order forecast at this time, but the trend is not slowing down at the moment. We will be working hard to receive orders this year, not only for sales this year, but also for sales next year.
Am I correct in assuming that firm orders can be placed only when delivery is secured and such cycle is supposed to continue longer?
Yes, that's correct. In view of that, CapEx and R&D expenses seem to be quite aggressive this year.
Could you give us more color on the increase in R&D expenses? What is the breakdown of CapEx? What is the general direction? Could you give us more details on the investment budget discussed on slide 20?
Regarding R&D expenses, this is basically for investment in R&D personnel. The investment in talent is increasing the R&D expenses.
Okay, thank you.
Development of testers does not incur so much material cost or design cost in our company. Development is carried out by people, so we are investing in people. That's our main plan. In terms of CapEx, this is for our recurring business or consumable business. We need to secure production capacity, otherwise we cannot get business from customers. Capacity expansion and equipment installation in Phoenix, United States, announced last year, will be in full swing. That's the main driver of the increase in CapEx. You may have noticed that our profit is not growing as much as our sales. This is because of the shortage of system engineers and application engineers who will be providing local support to our customers around the world. As we expand the size of business, that is happening, so hiring talent is to support business expansion.
It is a great challenge today, but despite the challenge, we would like to reinforce local workforce, otherwise we may miss out on opportunities. Some of the investment may be characterized as prior investment, but it is our intent to secure enough talent.
Thank you very much. What about the SG&A expense ratio and the growth margin this year? Could you give us some figures?
Do you mean for FY 2022?
Yes, your plan for the year ending March 2023. How much is growth margin for sales of JPY 510 billion? Do you mean OP margin?
No, I mean growth margin because OP margin is already disclosed as 29.4%. Can we give you the level of SG&A expenses?
Yes, please.
Okay. We are anticipating around 20% increase from JPY 120 billion or so recorded for FY 2021.
Okay, I understand. Thank you.
Thank you for your questions. Next speaker is Mr. Nakanomyo of Jefferies Japan. Thank you.
Can you hear me?
Yes, we can hear you.
May I ask you a question about gross profit, although I missed the first part of the presentation today? I was going to ask, gross profit for the fourth quarter was 56.7%, meaning GP is slightly down despite the slight increase in sales compared with the previous quarter. What were the factors behind that?
This is Fujita speaking. It's mainly due to higher prices of raw materials and the parts, as you may have anticipated. That's the main factor.
May I ask what the annualized gross profit margin was?
Sorry, I couldn't figure it out myself. You mean for FY 2021?
No, for FY 2022. The gross profit ratio is around 58%, so how much of that is because of higher material and parts prices?
Although we cannot give you the exact amount, the impact of higher material and parts prices is included. At the same time, the impact of increased volume is also expected. That's why we are expecting that the GP margin, gross margin, will be around 58% level for FY 2022.
How much can you pass on higher prices to customers?
This is a very delicate question that we may not be able to answer directly. Sorry for that.
Yes. To be frank, it is rather difficult for us to raise prices in the present situation when we are unable to meet the demands of customers. It would be a very tough negotiation if we try.
Having said that, our parts and material costs are increasing, and so are our logistics costs and energy costs. All of us are aware of that situation, so it should be reasonable and justifiable to implement a price hike. We feel it's a little bit too early to start full-fledged negotiations at this point in time. It would be difficult for us to raise the price for the next order when we have already received orders from customers, and we are unable to meet the required delivery dates.
Understood. Thank you very much.
Thank you for your questions. It is now time to conclude today's conference call. Thank you very much for your participation today.