Earnings Call: Q1 2021

Jul 30, 2020

Thank you for attending the earnings conference call of Adventist Corporation for fiscal 2020 first quarter ended June 30, 2020. Participants from Adventists are Yoshiya Piyoshida, Representative Director, President and CEO at Tsushi Fujita Managing Executive Officer, CFO Kimiya Sacamoto Managing Executive Officer, Executive Vice President of Sales Group and YasO Mihashi Managing Executive Officer, Executive Vice President of Corporate Relations group. First CFO, Chita will go over the financial results for the first quarter followed by a presentation on the full year outlook by CEO, Yoshida. We will then take your questions. The entire conference call is scheduled for an hour. Materials are available from TDNet as well as the company website. Before we start a cautionary statement, this presentation contains forward looking statements that are based on Adventist's current expectations, estimates and projections. Forward looking statements are subject to known and unknown risks uncertainties and other factors that may cause Adventist's actual results to be materially different from those expressed or implied. Without further ado, CFO, Frigida. Good evening. Frigida speaking. I will go over the financial results for the first quarter. Amidst the unprecedented changes in our business environment caused by COVID-nineteen, Adventist employees have made heroic efforts to support the company's business as have our business partners, suppliers and others I would like to express our sincerest appreciation. Unfortunately, both orders and sales in the first quarter came below our April forecast. On the other hand operating income exceeded estimates due to cost controls. Regarding the business impact of the COVID-nineteen pandemic, the impact on material procurement was minimal. But restrictions on movement caused sales delays delivery postponements for some products such as testers for chips used in smartphones and other consumer electronics. In addition to impact of COVID-nineteen, the U. S. Restrictions imposed in May on certain Chinese companies have begun to affect our business environment. COVID-nineteen has increased uncertainty about future prospects for end user products such as smartphones, automobiles and industrial equipment and the investment attitude of major OSATs has changed to a wait and see stance as these companies attempt to discern the impact of the new trade restrictions. As a result demand for SOC testers has fallen below expectations. On the other hand, in the memory sector, we captured strong demand related to data center applications. And orders were higher than expected, but this could not compensate for the decline in SoC. Details of orders sales and profits will be explained in the slides that follow. Next slide. Orders by segment. In semiconductor and component test systems, down 18.8% quarter on quarter, at 1000000000. SSE tester orders came in at 1,000,000,000 a decrease of JPY 7,900,000,000 from the fourth quarter. Although demand for HPC applications was strong, the sector overall stagnated due to the cautious stance as smartphone related customers amidst COVID-nineteen and U. S.-China trade friction. Although memory tester orders decreased by 1,000,000,000 compared to the previous quarter, inquiries continue to be strong that by server DRAM test applications resulting in a total of 1,000,000,000, which is high considering the volume of orders that were pulled forward into the previous quarter. It was 1,000,000,000, down 32.7 percent quarter on quarter. In conjunction with the decrease in orders for testers, orders for electronics declined as well. Services and support and others It was 1,000,000,000, down 58.1 percent quarter on quarter. Orders declined in reference to the large volume of orders related to the system level tests received in the previous quarter. And there was also an seasonal decrease in annual maintenance contract renewals. Please turn to the next page. Showing quarterly sales by segment. 1st, semiconductor and component test systems. 1,000,000,000, down 5.9 percent quarter on quarter. In associate test terms, some smartphone related customers requested a delivery postponement. Sales of memory test has increased steadily in response to the rising orders. We've had TRONEX Assistance 1,000,000,000, down 13.1 percent quarter on quarter. Our nanotechnology business experienced installation delay due to the impact of COVID-nineteen. Services support and others 1,000,000,000 up 21% quarter on quarter. The order backlog of our systems level hold test business settling converted into sales. Please turn to the next page. This shows quarterly orders and sales and by region. First, orders by region, China, mobile related orders showed weakness. America and other regions. System level of test orders shrunk in North American And Southeast Asia. Taiwan and Japan. There was a seasonal decline in service orders. As for sales by region, there was no significant change in any region. Next page, please. This is showing our sales and operating income. Our faster gross margin 56.9%. Although our product mix deteriorated slightly, gross and profit margin increased as amortization of intangible assets related to the order backlog of Eisai, which advantage acquired in January decreased. Question on A being 1,000,000,000 operating income 1,000,000,000 Operating margin, it was 20.2 percent. Next page please. In regard to R and D and expenses and others, R and D expenses and being 1,000,000,000. This R and D to sales ratio was 14.8 percent. As on CapEx, it was 1,000,000,000. Depreciation and amortization, the same 1,000,000,000. Acquisition in price and allocation relating the acquisition of Eisai was completed in the first quarter and amortization of intangible assets, other than order backlog has begun. As for the 1st quarter cash flow, free cash flow also became 1,000,000,000, Next page, please. This shows our financial position. Total assets being 1,000,000,000. Cash and cash equivalents being 1,000,000,000 Equity attributable to owners now of the parent being 1,000,000,000. Up 0.100 points from the end of the previous fiscal year, becoming 65.2%. This concludes my explanation on about the first quarter results. This is Yoshida speaking. I will go over the fiscal 2020 outlook. Slide 11. 1st calendar year 2020, semiconductor tester market trends, especially the Adventist Business Environment. OfAD investment stances have changed dramatically since the U. S. Announced shints on certain Chinese companies in May. Adventist estimates that semiconductor production volume for data center related demands are high. But OSAT investment is expected to remain sluggish for the time being given the risk that demand from major fabless companies affected by the restrictions may disappear. It may take 6 months to a year for the equipment market adjustment that may occur due to fluctuations in the supply chain to be completed. In addition, the end product demand slowdown associated with COVID-nineteen is restraining tester demand across a wide range of sectors including automotive and displays. Given these circumstances, we have reduced our outlook for calendar year 2020 SoC tester market to approximately $2,400,000,000. Enventest SoC market share is expected to decrease this year due to our customer mix. In the memory sector, lifestyle changes imposed by COVID-nineteen in the first half of calendar year twenty twenty such as remote work and systems learning stimulated data center investment, leading to strong orders for memory tester demand is expected to drop in the second half of calendar year twenty twenty but the forecast for the calendar year is estimated to be around 1,000,000,000. Adventist has not changed your view that increased needs for test and reliability assurance stemming from higher semiconductor performance will drive future demand for testers. We believe that from expansion of 5G commercialization, millimeter wave development and the expansion of HPC high performance computing and AI demand. However, the consequences of the U. S.-China economic decoupling are very hard to predict. So the company will seek to deal cautiously with this situation without underestimating its potential impact. Slide 12, again, such a backdrop. This is our forecast for fiscal 2020. FY2020 sales and profits are expected to decline due to slumping final demand amidst extrabated U. S.-China friction and COVID-nineteen. For the second quarter, we forecast orders of 1,000,000,000. Sales of 1,000,000,000 operating income of 1,000,000,000 income before tax at 1,000,000,000 and net income of 1,000,000,000. In the full year, we forecast orders of 1,000,000,000, sales of 1,000,000,000 operating income of 1,000,000,000 income before tax of 1,000,000,000 and net income of 1,000,000,000. As mentioned earlier, Adventist believes that the impact of U. S.-China friction should not be underestimated. And that it will take time for SoC demand to recover. This forecast assumes change rates for the second quarter and beyond of JPY 105 to the U. S. Dollar and JPY 120 to the euro in each quarter. For the full year, we assume rates of JPY 106 1,000,000 to the euro. We expect orders Gross profit margin for the full year is expected to drop from the previous year's 56.7% to about 53%. This is due to an increased manufacturing headcount associated with the consolidation of Eisai. And the impact of lower demand for operating income margin is also expected to decline from the previous fiscal year. However, we expect to achieve 17% of the operating profit target slide 13, SSE Tester Business Outlook. The technology roadmap driving higher semiconductor performance, greater complexity and higher capacities will continue to be favorable to Adventist in 2020. Customer positivity towards investment in Advanced Products is unchanged. In addition, semiconductor production is currently strong partly because suppliers are building up inventory due to the U. S.-China friction. However, from May onward, we have seen growing concern that OSAT utilization ratios will decrease in future due to the full implementation of U. S. Trade restrictions on Chinese companies in September and investment appetite is likely to decline. In addition, demand for testers for Automotive Industrial Machinery And Consumer Products is expected to be weak due to the slumping and product decline associated with COVID-nineteen. Demand for SNC testers for HPC is growing due to data center investment expansion. But downwards pressure on tester demand is expected to exceed growth for the time being. Decline in sales this fiscal year. Although 5G demand has temporarily stagnated due to the effect of COVID-nineteen and the reinforcement of trade restrictions on Chinese companies, we expected to recover from the fourth quarter onwards as the supply chain stabilizes. Slide 14 memorytester business outlook. In the first half of calendar year twenty twenty, Work from home policies were implemented around the world and investment in memory testers for data centers gained momentum. Advantage benefited from DRAM and 3 d NAND CapEx addressing server capacity growth. Tester sales are expected to slow down in the second half of fiscal year twenty twenty due to a pause in demand for memory for servers and fears of slowdown in smartphone demand. With data traffic volume growth expected to continue, demand for memory should keep growing from fiscal year 2021. Technological drivers such as DRAM node shrinks the shift to LP DDR5 and DDR5, expanding demand for HPC and increasing 3 d NAND capacities will create tester demand that Adventist is poised to capture from every direction. Slide 15, Ecotronics Services and Other Business Outlook. Strong demand for memory testers underpins our expectation of increased sales F device interface products. We forecast sales of JPY 38,000,000,000 this fiscal year. In our services and other business, we expect solid field service sales in addition to the consolidation effect of the Eisai acquisition sales of SoC system level test products to new customers acquired in fiscal 2019 will contribute to a significant increase in sales. Therefore, we forecast total segment sales of 1,000,000,000 Allow me to move to Page 16. Since the present business environment remains an uncertain up to the present point, Adventist will strive to respond flexibly to urgent expenses and restrict unnecessary expenditures. On the other hand, we will maintain a certain level of around deal spending Even from calendar year 2021, there will be no change in customer roadmaps targeting higher semiconductor performance and functionality. To secure every opportunity to expand our business by leveraging our comprehensive technological capabilities, advantage will boost engagement with customers and implement measures to maintain and expand our market share. Specifically, we are providing technical support for device development and evaluation to support in fields such as 5G millimeter waves high performance computer and artificial intelligence, high end memory and system level test. These ongoing initiatives will lead us to future business expansion. At present, we believe that these measures are progressing rather well. Next page, Page 17, please. This is some of the new information. We plan to have a press release today about this. In order to achieve the vision laid out in our grant design, Advantage has partnered with and invested in the PDF solutions. For information on this company, PDF solutions and is the Semcon Technology is the largest provider of database platforms and data analysis solutions. For manufacturing data and test data. Through this partnership, the companies will jointly develop Advantage Cloud, based on the PDF solutions extension data analysis solution platform, This will be a new platform for big data analysis comprehensively covering the workflows from IC Design to waveform Manufacturing with our test assembly, final test and the system level test. As customer devices evolve, we will provide an environment for yield management and online monitoring that also employs artificial intelligence and machine learning to add and create customer values. In terms of sales, Adevantas and the Willers strive to further expand recurring the business by a mutual sales arrangement whereby both companies will sell 1 another software. Advantis is also cementing this partnership with a PDF solutions through the acquisition of approximately 9% of PDF Solutions common shares through the 3rd party allotment. Representing a capital investment of about 1,000,000. This alliance is a 1st step to generate synergies with our hardware dependent business model and further grow the recurring business. The diagram on Page 17 was the one we used when we announced our grant design. This is going to be on the solid foundation for our cloud software and data analytics business. As you see, with this, we can move from the system level test process as shown in the bottom right into the cloud jection. This is going to be our strategic of the investment for the journey. Next, please turn to Page 18. This is explaining our plan for the share repurchase. This has been already press released. Since we announced our MTP, the 2 years 3 months have passed. And in this on the period, free cash flow has been trending at a faster pace than initially expected supported by higher than expected earnings growth. As a result, based on the present levels of cash on hand, our outlook for growth investments and as well as the state of our external environments we will conduct a share repurchase in order to improve capital efficiency. This may include exercise of stock options. Anyway, we would like to implement this in order to improve the capital efficiency. By the end of October, we will acquire 2,500,000 shares on up to 1,000,000,000 worth. Page 19, this is today's summary. FY 20 sales and profits are expected to decline due to the slumping final demand amidst exacerbated U. S.-China friction and COVID-nineteen. As of now. Vessels in the same conduct and test customers are particularly in ensuring about the near future. But we believe that the strong trends toward higher semiconductor and performance and reliability, which will drive advantage of future growth remain unchanged. In Adventist And Core Business, which is a pillar of medium to the long term growth, The company is making steady progress with the measures to strengthen its foundation in areas such as 5G, RF and Memory. With regard to expansion into adjacent business domains, which is considered a medium to long term priority, In addition to reinforcing the company's system level test business through M And A over the last 2 years, Advantage is also expanding our cloud and data solutions, utilizing Semiconductor and test data. I have already touched upon this. It's not necessarily the pure M and A rather than I would like to leverage a partnership in order to strengthen our technological capabilities. Lastly, Advantage will improve capital efficiency by conducting a share repurchase. Last page on Page 20, please. This is an excellent information I can share with you. Concerning ESG and external evaluation information. I have listed up the highlights of the activities in 2024 points. Advantis was ranked number 1 Global SPE suppliers among all the in house suppliers by VLSI, the research customer satisfaction survey. Advantage announced its support for no task force on climate related financial disclosures, TCFD recommendations. Advantage is now adopted as a constant stock of the MS see either Japan empowering women index, win and the win select index. Advantage is planning to donate. It's money in multiple countries and both at home and abroad. For relief of COVID-nineteen victims and those affected by the latest disasters such as the 2020 QSU flats this month. I would like to undertake this moment to offer our sincere sympathy for those who are affected by the natural disasters. Japan is also going through on a tough time because of COVID-nineteen pandemic. We are truly grateful for the efforts made and offered by the health care and medical coworkers. This concludes my explanations. We will now take questions. The first questioner is Mr. Wadaki from Nomura Securities. Wadaki from Nomura Securities. Given the current environment, I can understand why your outlook will have to be rather conservative. And in fact, compared to the outlook that you have made at the beginning of last fiscal year, this is far more bullish and I'm hoping Things will turn out like it did last year. My first question is on the market environment. Regarding the very current semiconductor market, listening to other earnings briefings so far, DRAM has slowed down over a couple of weeks or so, while foundries are suddenly picking up. And you have referred to the U. S.-China issue. And it's becoming difficult to use OSAT in China and alternatively Taiwan, which is becoming more bullish in front end possible OSAT investments. That is the expectation. In light of these factors, could be that foundries in Taiwan might start to pick up earlier than expected. That's my view. But do I understand that you don't share that view? I think Taiwanese foundries are busy for sure. And OSATs in Taiwan are currently busy handling a large amount of wafers that are supplied. However, September 15th onward That workload is going to diminish and that is what OSATs are assuming. So unlike the busy foundries, they will have to build supply chain with new customers. So a certain level of redundancy in capacity, we believe will take place And our view is that it will take some time before that redundancy would be consumed or filled up. But of course, eventually there will be demand and all the capacity will be used. But it is hard to predict when exactly that will take place. And there is a difference in front and SP Manufacturers and back end companies in that the customers have fabrication plans. In the front end equipment customers. And they must be very busy right now, whereas our customers are in the business of processing the wafers that come out of that or pushing them. So the number of customers is rather large. And it will take some time before the distributors supply chain to be rebuild or reconfigured, and that is why we are taking a rather conservative view. I see. So you think that this is a temporary adjustment with decoupling in semiconductor supply chain is divided and on a macro scale, the investment efficiency will go down, which should be a plus for tester business. So over medium to long term tester business, I think will follow the front end investments. Am I correct? Yes, as far as the redundancy and supply chain is concerned, demand is going to inflate somewhat. That is what we imagine, but before things settle into that level, it may take some time. That's our view. The disappearing demand will be filled by someone anyway and that will start from the upstream and once the upstream portion is filled then that will spread into OSATs and everything will be absorbed. So we don't believe that the demand itself will disappear We are only concerned that it will take time. I see. My second question is on partnership with PDF Solutions. I was rather surprised by this. Can you talk about the specific effects or the output of this partnership that you expect to the extent possible. Some specific output or expectations that you have? First, I would like to ask you to take a longer term view. Already with IDMs, there are successful tester sales. And I would like to give the floor to Mr. Mihashi, for some technical explanation. Good evening. This is Mihashi from the Corporate Relations Group. It may take some time before you get a clearer picture of this, I'm afraid, but specifically PDFs, data analytic tools, or market environment which connect a wide range of SPEs. And PDF has the capability to consolidate a wide range of data and is doing a business in that realm. And within that environment, we are to build Adventist cloud. And various data and parameters per process are to be put together or overlaid so as to improve efficiency of the operation of the semiconductor production process. That is the long term goal that we have in mind. But over a short term, aside from that long term goal, through the cloud environment that we are to build, Adventist and PDF are jointly working on improvements to be provided to the customer's applications and that is already taking place. And that being a kickoff case, we will continue to expand the market base. If I may, this is Yoshida speaking. I'm afraid we can't really give you the details because that's related to our strategy. Having said that, basically that data that will come out of our testers will enable you to trace all the way or a bad quality semiconductor, for example, and these data can be analyzed to contribute to improved yield or improvement in design. These are the things that customers are already doing. And we want to build a platform that will allow our tester to become the key element of that process. I hope that helps. Yes, thank you. That gave me some ideas and I will get back to you later. Thank you. The next questioner is from Mitsubishi UFJ Morgan Stanley Security, Mr. Hassegawa. Thank you. I have a question on the segment profit changes, January, March versus April, June Services, Echatronics, semiconductors and component test systems in each of these segments. Can I get a recap of the reasons for respective increase or decrease? As for services, I'm assuming that profit increase, thanks to smaller amortization or were there one time expenses or profit And for mechatronics solutions compared to the size of the decline in sales, the decline in profit seems rather large So can you give us the reason why? And for semiconductor and component, profit ratio is declining. Again, what are the reasons for that? This is Fruta, CFO. First, I'd like to check if I understood your question. You are comparing the fourth quarter of the previous year and the first quarter, correct, a quarter on quarter comparison. Yes, that is correct. For services and others, during the first quarter, as you have indicated, burden of amortization of intangible assets has lessened, which pushed up the profit rather significantly And for the first quarter, profit from Eisai was included for the full 3 months. Which served to increase profit. As for mechatronics, During the first quarter, the DI related business following the Tesro business increased. And that was part of partly due to the impact of COVID-nineteen, there was a time lag in recognizing some of the sales. Which accounted for the quarter on quarter difference. As for a semiconductor, the mainstay tester business SoC, which is the greatest profit contributor accounted for smaller portion in terms of product mix. During the first quarter. And accordingly profit turned out to be sluggish. I see a question for clarification, services and others. Profit level seems to have been rather high. Do you consider this to be a normal level? In other words, no special factors? During the first quarter, the portion of Eisai business results was higher than usual. And therefore, the first quarter results should be considered to be Now I ask how much Eisai accounted for in terms of sales? I'm afraid we don't disclose the breakdown of sales for services and others. Understand. My second question, earlier you indicated that the demand for SoC tester is to bottom out in the 2nd quarter some adjustment during the second and third quarters before recovering in the fourth quarter. That's your expectation. And that scenario is based on the assumption that adjustment will complete is that though correct understanding, can you explain your quarterly projection? Can you also talk about the testers for DRAM memory again on a quarterly basis. This is Sakamuto from sales. 1st, on SoC as Yoshida briefly explained earlier due to COVID-nineteen and U. S.-China friction and others, we do not expect significant increase for the 3rd And Fourth quarters. But toward fiscal 2021 HPC, which is our strength being the primary area, we hear our customers are planning latest node mass production. And that should contribute to higher utilization ratio of OSATs And therefore, from the fourth quarter to fiscal 2021 improvement is expected. That is our current view. As for memory, as was mentioned earlier, during the first half, it was very strong. With strong orders and sales. As for the second half, 3rd And Fourth quarters, some slowdown is expected. Having said that, here again, toward fiscal 2021, starting in the fourth quarter, data center related demand is expecting growth. Coming in relation to work at home practice, which was mentioned earlier, and we believe that this is going to expand further globally. And also next year in memory, for example, LPDDR5 for smartphones expects full fledged mass production and for DDR5, of which the full fledged mass production may have to wait until fiscal 2022. Pilot production is expected in 2021. And the fabrication plants in China and Korea for DRAM and NAND we hear are planning their capacity expansion, which will result in an increase in chips. So these are the key elements that we are looking at. And here again, from the 4th quarter to fiscal 2021, we expect recovery. I see. Thank you. On SLC, could you repeat that part? The connection was rather choppy. Sure. For SoC from the fourth quarter to fiscal 2021, customers related to HPC, which is our stronghold are planning latest node production. Accordingly, we expect the OSAT tester utilization ratio to go up, which could translate into new business for us. That is the expectation and that is what we hope to see. I see The level would be comparable to 2019 in terms of market size. Is that your expectation? Yes, we have such an expectation, but with COVID-nineteen and U. S.-China conflict going on, with those 2 uncertainties in place, I believe we need to be somewhat careful there on our side. Thank you. For FY21, there will be a variety of technologies coming up. Though it may depend upon COVID pandemic, Each country may launch its own economic stimulus policies. So not only smartphones, but others may increase our semiconductor opportunities going forward. So for FY 2021 and onwards, we can expect to have a brighter future. You may say, well, that's just an expectation on your side, but I think we can have such an expectation. That's all from me. Thank you, Mr. Hassagawa. Next, Mr. Yoshida from CLSA Securities. Yes, this is Yoshida from CLSA Securities. If I may, I have a question concerning Tesla Market. This time, you lower SLC and increase the memory of the business. I would like to inquire as for the breakdown between Adventist versus your biggest competitor, Appreciate if you kindly expand on your outlook for particularly the next year for SLC and the Memory Tester business. I'm sure that you have your own thoughts and ideas in these market segmentations, including your hope or expectations, say in terms of scale and the direction you would like to follow, please. Well, Our biggest competitor has announced its financial results last week. We are quite impressed with its remarkable contents in light of COVID-nineteen situations. Yes, we are quite impressed. Well, one thing for sure is that they were able to get all the investment made by the major smartphone customers this time. We do not have that segment. So this can be explained by different customer mix. We are having, respectively, Instead of you told us, we have lost. May I remind you that we had a high unshare and over them last year and the year before. And this year now, they will have a higher share. As for your question on scale, Well, we assume our associate business will decline this year. So it will go up next year. So we believe Furthermore, we had the first thought SOC would decline in FY 2019 and then it would go up in FY 2020. However, what happened was It did not decline as much as we had expected in FY2019. It turned out to be a rather good market That said, I personally am quite concerned about the conflict between the U. S. And China. I am sure our competitor is also concerned about it because they have those transactions affected by it. But they were able to absorb the possible impact by having a big order coming from one company. Resourcing market, I believe, is not going to change drastically going forward. It may go up and down. We may lose or gain market share. So now we should be sharing this market. As for memory, we are still a winner in terms of market share. We have never lost in this regard. But may I remind you that the total number of the customers in memory is not that large. Memory customers are to procure from the 2 companies. So it will become quite difficult for one company to get them all. That said, though, since we have developed a deep engagement with our customers, historically, We believe we should memory had an adjustment last year. And this year, they are making a strong investment in order to make a recovery. So there could be a little dip in the second half of this year, but we do expect good recovery in our next year. LPDD in R5 DDL5 will come up this year So the business will not decline. I do expect it to be the same level as this year's. Thank you. My second question, looking at the overall orders for gas it will hit the bottom. In the second quarter, I'm talking about SOCA market. In terms of the orders and guidance, the 3rd quarter may see a little growth, but you expect to have a bit recovery in the 4th quarter. That's, and I would like to inquire when you created a plan. Generally speaking, things seem to be coming down or if I may quote you being somewhat conservative. I'm just wondering if you believe the environment in itself and has changed since you made the plan. Hope you're with me concerning these endpoints. So appreciate if you could hear about those factors, that's all. In April, we explained that due to the uncertainties we did not make our full year forecast back in April, we had a much higher plan. The numbers you see here were made in Iran after the main whole decision after the last financial briefing in light of the announcement from the USA that it will tighten its restrictions against Chinese companies. Also, our COVID situation is extremely difficult for us to see where it goes. The numbers you'll see here were adjusted in July. Moving into the second half, we will revisit those numbers. So the numbers you'll see here on our best guess. I hope you're with me. With these uncertainties, it may go up or go down, but the numbers you see here are our best estimation as of the end of July. Hope you understand this. How about orders in the second half, Q3 and Q4? Just one possible observation. As we stated, the second quarter will hit the bottom in terms of orders. JPY 120,000,000,000 class for the second half, we are hoping 3rd quarter is slightly better than the 2nd quarter. Hope, we will see a further steady improvement in the 4th quarter, 1,000,000,000 or less for Q3. And 1,000,000,000 plus for Q4. We do hope that Q1 next year will further improve. Thanks. That's all. Mr. Yoshiran, thank you for your questions. Next, I would like to have Mr. Shahirakawa from Airline Securities. Please go ahead. Thank you. This is your covenant from Merrill Lynch. I have two questions. My first question is about OSAT. You told us that you may need 6 to 12 months for adjustment. I would like to inquire about the rationale for that 6 months and up to 12 months, whether or not you have experienced the similar situations in the past? Again, simply certain, I would like to ask you to give us good justification while you believe in 6 months and up to 12 months. Again, our adjustment on the side of Norsat 6 months and up to 12 months. I would like to inquire, to give us the good elements on in assumption in making the latest business plan here. This is my first question. I'll remind you that we said it may take from 6 months to 12 months, 1 year. It is a possibility we are talking about here. With the restrictions going on, of course, we do have the actual cash flow volume number, which we simply cannot give to you. But this is the baseline for our assumption. We also keep an eye on the new supply chain opportunities. What is the percentage of the hydro products and what is going to be the past presentation for the HEUs among the new suppliers? Actually, we did not have similar cases in the past. Talking about the excessive and products, some of that could be placed into strategic use cases. 1, for that, Mariana, we may be able to find those customers in the OSAT and IDM or fabless customers we may be able to deliver them much earlier. So this is a part of our strategy. If it goes well, we may be able to minimize the adjustment period not as long as 6 months. If not, it may take longer than 6 months. So here we are having a kind of grace period. Furthermore, if you think those hydro products will eliminate all the other No, we do not believe so. We do believe there is going to be on a good match between the needed Tesla specification and the customers who need the right products for them. So now this kind of demand will not disappear. Some of the products for Chinese smartphone supply chain will become idle. For example, we are now having demand for CMOS image sensors display drivers. We will make further efforts and they are now to meet with such an expanded demand. Thanks. Sorry. I'm still second to the question. I would like to inquire again, what is the length of the adjustment you have in mind when you make the latest business plan? 6 months or 9 months or 12 months. I wonder if you could be a bit more specific in this regard. 6 months. I got it. What? 6 months but starting from when? It's already started So with this assumption, it could be ending in December or in the beginning of the quarter. Again, this is a possibility. Thank you. Understood. My second question You have revised your focus for SOC market size and for full year. The explanation you gave to us was clear that too many. But I would like to know the rough breakdown in this segment. Appreciate if you could give me specific numbers for automotive and smartphones and others in this 1,000,000. Another point is that Your competitor Teradyne has not changed its number year on year since January. I'm talking about an SOC market size. It's been flat. You may say you have nothing to comment since this is Amaranha for another company. But I'm just wondering why there are some differences between you and Teradyne. This is Akamoto. Allow me here, 1,000,000 down behind is the impact coming from a COVID 2019, well, I would say as much as SEK 300,000,000 as well as the conflict and the friction between the U. S. And China, we are talking about almost 200,000,000 And also on the Advanced And CashStar products as much as 1,000,000 or so putting together, we are assuming the decline of about 1,000,000. Then breakdown between Automotive And Consumer Electronics segment? Well, I do not have details right now, but Recently, as you may know this, automotive and as well as smartphone business and have both dropped significantly. So both of them are showing minus 1,000,000 or so. It is not the case. One segment is larger than the other rather than both of them are dropping sharply. Yes, I think so. Thank you. Thank you for your participation. This concludes the Q And A session.