Ladies and gentlemen, thank you for joining us for FY 2018 Advantest Corporation information meeting. Since it is time, let us begin the meeting. First, Mr. Fujita, the Managing Executive Officer, will provide the financial results for FY 2018. Next, President Yoshida will provide the FY 2019 outlook and the mid-term business plan progress report. We'll take questions. The meeting is expected to end at 5:00 P.M. Now, Mr. Fujita, please.
Ladies and gentlemen, good afternoon. Let me provide you with the FY 2018 results. In response to the increase in demand for higher semiconductor performance and stronger reliability assurance, robust tester demand continued throughout the year. Supported by these trends, the business environment deteriorated in the second half, with semiconductor inventory adjustments appearing. Yet, we were able to post record-high orders. We achieved record-high sales by strengthening our production and support system to meet high demand.
As a result of efforts to improve operational efficiency, net income, ROE, and annual dividends also reached record highs. Let me give the FY 2018 result numbers. Orders, +11.1% year-on-year, JPY 275.2 billion. Sales up by 36.3% to JPY 282.5 billion. Operating income, 2.6 times, JPY 64.7 billion. Net income, 3.1 times, JPY 57.0 billion. Smartphone-related tester demand remained at a higher-than-expected level in Q4, pushing the full-year results higher than our January forecast. Influenced by our February acquisition of the system-level test business of U.S. company Astronics, backlog increased by JPY 2.4 billion. FY 2018 Q4 result summaries. Three months ago, Q4 orders were expected to decrease compared to Q3, but strong SoC tester demand drove orders higher than Q3. FY 2018 Q4 orders by segment. Semiconductor and component test systems, JPY 46.1 billion, minus 5.8% QOQ.
In SoC testers, demand for semiconductors used in smartphones, such as Application Processors, Display Driver ICs, and Image Sensors, pushed orders to JPY 38.3 billion. In memory testers, orders for high-speed DRAM and NAND flash testers drove overall orders to JPY 7.8 billion, up by JPY 2.1 billion QOQ. Mechatronics systems, JPY 9.2 billion, up by 37.0% QOQ. Orders for nanotechnology products for advanced processes grew. Services, support, and others, JPY 10.4 billion, up by 45.6% QOQ. Orders for maintenance contracts grew. Sales by segment. Semiconductor and component test systems, JPY 49.8 billion, minus 12.1% QOQ. SoC tester sales were JPY 42.8 billion, another quarterly sales record. Memory tester sales stay at JPY 7.0 billion due to declining orders in Q3. Mechatronics system, JPY 6.8 billion, minus 35.8% QOQ. Device interface sales shrank instead with memory tester sales. Services support orders, JPY 7.3 billion, flat QOQ.
Orders by regions. South Korea, China, and Taiwan. Events such as the ramp-up of advanced processors and the rise of a local semiconductor supply chain in China overlapped, made this quarter having some changes in overall situations. Orders in China are growing. South Korea could be associated with memory semiconductors, but with the backdrop of higher performance of smartphones, SoC testers were stronger than memory testers as far as FY 2018 full year is concerned. Q4 sales by regions. Sales side, sales in Taiwan shrunk primarily in memory. Gross margin was 53.8%. Product mix was slightly worse than Q3, and the period and inventory evaluation also contributed to the decline over Q3. SG&A was JPY 24.2 billion. The substantial, or the real SG&A was flat.
SG&A increased by JPY 2.4 billion from the third quarter when we posted a profit of JPY 2.5 billion due to the shifting of a portion of the company's pension system to the defined contribution system. That is what happened. This could explain the overall situations. Operating income was JPY 10.2 billion, down by JPY 10.5 billion quarter-on-quarter due to the declines in sales and the gross margin, as well as the one-time profit effect due to the pension plan transition. Operating margin was down 11.7 points, becoming 15.9% quarter-on-quarter. As for the full year on operating income for FY 2018, as shown in the table on the right-hand side, the operating income went up significantly by reducing the growth of SG&A expense despite the increased sales. The so-called core operating income, deducting the temporary operating profit loss, was JPY 60.9 billion. Core operating margin was 21.6%.
As for R&D and expense and others, R&D expense for Q4 was JPY 9.5 billion. R&D to sales ratio was 14.8%, and CapEx was JPY 2.6 billion. Depreciation and amortization was JPY 1.3 billion. As for the full year R&D, the investments were in line with our plans. As for the cash flow situations, with the acquisition of the Astronics SLT business, cash flow expenditure in the fourth quarter increased, thus making the free cash flow negative. As for the balance sheet, as of March end 2019, our total assets, JPY 304.6 billion, cash and cash equivalents, JPY 119.9 billion, up JPY 16 billion from the end of the previous fiscal year. Goodwill and intangible assets, JPY 26.1 billion, up JPY 10.8 billion. This was caused by the acquisitions of the Astronics SLT business, which I explained to you earlier.
May I remind you that the numbers are yet to be finalized since we are still working on the allocation of the cost needed for the deal. Bonds and current liabilities, convertible bonds maturing in February 2019 were fully converted. Equity attributable to owners of the parent was JPY 198.7 billion. The ratio of equity attributable to owners of the parent was 65.2%, up 16.2 points from the previous year. This concludes my presentation. Thank you, indeed.
Welcome, ladies and gentlemen. This is President Yoshida. Let me provide you with the FY 2019 outlook and the midterm business plan progress report. CY 2019 tester market outlook. Semiconductor performance will evolve in CY 2019 as well. As a result, it is expected that various semiconductor manufacturers will continue to strengthen their test capabilities. However, the trade friction between the U.S. and China has not been resolved, and inventory adjustments continue in the supply chain of many products. For the time being, we expect a slowdown in tester demand to continue. Each customer will differ, but we are currently assuming a recovery in the tester market from October. Recovery in terms of orders. Our SoC tester market forecast is about $2.0 billion, the same as the estimate three months ago. This is CY calendar year. We estimate $2.0 billion is the market size between January and December.
Our memory tester market forecast has been lowered since January. Based on the present conditions, we estimate it at $550 million-$650 million. In addition, we studied the size of the market in CY 2018 and revised our January SoC and memory tester market estimates upward. As a result, the rate of the decline year-on-year has increased compared with our previous January estimate. We forecast a 20% year-on-year decline for SoC and 40%-50% for memories. This illustrates how high the CY 2018 demand for testers was, both for Advantest and for our competitors. We do not see CY 2018 as a peak. The trend towards strengthening testing and reliability assurance in line with higher semiconductor performance will continue. The adoption of 5G and AI will push the tester market in CY 2020 higher than in CY 2019.
We expect the demand for testers to expand in line with this trend, while there may be ups and downs along the way. Based on such market assumptions, here is our FY 2019 forecast. Affected by the market slowdown, FY 2019 results are expected to decline compared to FY 2018. Orders are expected to hit bottom in the first half and recover in the second half. Due to our backlog, we expect that the sales will be higher in the first half than in the second half. Despite headwinds, our forecast is still higher than the FY 2017 results. The development of higher performance semiconductors will buttress our performance. The semiconductor market is expected to enter a major growth cycle from 2020, driven by 5G. The tester market will slow down this year, but it is expected to recover in 2020. 5G, AI, IoT will continue to support mid-to long-term expansion.
Our mid-term management plan targets are three-year averages. We take a mid-to long-term perspective, not influenced by the environmental changes and performance fluctuations from year-to-year. Our FY 2018 sales reached an 18-year high, but our business was very different back in 2000, when we last set a sales record, than it is now. We have transitioned from a structure reliant on memory testers to one that emphasizes SoC testers. For your reference, in FY 2000, memory tester sales was about JPY 126 billion and SoC sales was JPY 38.5 billion. The ratio has reversed since then. Advantest has responded to the market environmental changes and transformed its management and business structures over the past 18 years. Compared to the memory tester business, the SoC tester business addresses more customers and more diverse device types, and the supply chain, composed of the fabless foundry OSAT companies, is more complex.
For us, it is a more stable business in a large market, but compared to the memory, SoC customers require more comprehensive support. For FY 2019, we forecast a year-on-year rate of decline in profit exceeding that of our sales. This is because our forecast factors in broad personnel investments in R&D, SE, and sales support and industry academic partnerships, as well as other research costs focused on the topics relevant to the future of the test business, including the utilization of AI and the IoT, which will enable Advantest to maintain and expand our market share in 2020 and thereafter. Let me provide the outlook for each business. First, the SoC tester business outlook. Although the impact of inventory adjustments will restrain the demand below the level of FY 2018, FY 2019 will still see advances in semiconductor performance that support SoC tester demand.
Sales will hinge on the testers for semiconductors, such as Application Processors and Image Sensors that support new, higher performance smartphone models. Although there are concerns about smartphone market slowdown, demands for testers do not necessarily correlate with the smartphone unit growth. As seen in the FY 2018 results, the smartphone-embedded semiconductors grow more complex, with more items to be tested, resulting in higher demand for testers. In FY 2019, the full-scale launch of EUV will also support high-end processor tester demand. Display Driver IC tester demand will also continue, even if not at the level of FY 2018. 5G related test business has already emerged, and meaningful demand is expected in CY 2020 and thereafter. This will be discussed later, since you may be interested. Memory tester business outlook. Under the influence of memory inventory adjustments, demand for memory testers is sluggish, but we expect it to recover in the second half.
In DRAM, we anticipate opportunities related to miniaturization, the shift to DDR5, an increased demand for high-speed products for high-performance computing. Non-volatile memory is expected to be primarily driven by demand related to multilayer NAND investment. A Chinese NAND manufacturer is in the operation, and we have been receiving orders.
Next, mechatronics and services and others. Due to the slowdown in memory investment, DI products are expected to decline. However, with the launch of EUV, nanotechnology and products are projected to see higher sales. Mechatronics-related businesses are expected to decline slightly year-over-year. Regarding the services and other businesses, we anticipate a revenue growth in light of the expected solid sales in the field services and the effect of incorporating the System-Level Test business of Astronics Inc., acquired in February. Here, I would like to briefly go through the mid and long-term management policy we announced last year, which direction we plan to go from the mid and long-term perspectives. Last year, we formulated a 10-year long-term plan, as well as a three-year midterm plan starting from 2018. We are now working on them for the entire company united.
FY 2019 is the second year of this midterm management plan. We undertook initiatives on targeting mid to long-term growth, as described here. This is what we did in FY 2018. As a result, we received orders from major customers and for business related to 5G Application Processors and 5G modems. Going forward, our customers are asking for a big cooperation from us because those technologies are quite challenging for customers. We and the customers are having the joint engagement in the space of development. To ensure the growth of our tester business, this year, we will focus on reinforcing our engagement with particularly the leading customers in the industry, and our top priority is to maintain and expand our market share. In parallel, we will also establish foundations for growth.
In addition to strengthen our personnel in terms of mid-term and long-term growth, yes, we will strengthen our human resources development, and furthermore, would like to improve and maximize the efficiency of business operations by utilizing ROIC. Talking about the headcount increase, since the end of FY 2017, we already now increased the headcount by about 200, and we intend to go for the same number, if I'm not wrong, for FY 2019. Even in FY 2018, when sales have grown strongly, our investment in factories and production equipments remained minimal. Although we do not plan to make large-scale production capacity investment in FY 2019 either, but we plan to upgrade our factories and IT systems in order to improve production and development efficiency. It will be about JPY 10 billion from the previous year.
Last year, we started with the sales forecast of JPY 230 billion, and we had our production capacity becoming quite tight. We did almost no hard investment. May I remind you again, going forward, we intend to do the same. Here, I would like to emphasize that the most important investment we can ever make is the investment into people and critical technologies. Next, I would like to briefly go through our market share. Our grand design and midterm and long-term plan are aiming at an annual increase of as small as 1% in market share. To give a conclusion first, we achieved a significant growth in calendar year 2018. This was mainly driven by SoC testers. Our share of SoC testers market was about 74.30% in calendar year the 2017, but we jumped up to almost 50% in calendar year 2018.
In the memory tester markets, customers' investment in all devices and the processes has increased, particularly in the first half. We are able to maintain our market share as high as 50% plus. We are so happy being able to do so. In calendar year 2019, we aim to retain our share gains and expand our share even further over calendar year 2018. The competition has not disappeared, competition among the major players and also competition coming from emerging markets. We have to be careful as to the competitive factors. When it comes to the calendar year 2020, we believe that test demand for the communication semiconductors will expand in conjunction with the growth of 5G. It is also highly probable that demand for the semiconductor tests in these areas means we will get significant opportunities for us to further increase our share.
Here, I would like to expand on the benefits we may get out of 5G. What's this 5G meaning to us? It is said that 5G is not just another advancement of communication technologies. Rather, it is here to stay as a true technological foundation to redefine our information-oriented society. With its high speed, low latency, and large capacity, 5G will definitely advance the progress of the digital transformation, as symbolized by keywords like ADAS or autonomous driving, IoT, smart devices, and AI. As a result, it will continue to boost semiconductor demand over the next 10 years to come. It will definitely have a spillover effect on the tester market. This slide depicts the relationship between 5G and the tester demand based upon the study we have conducted internally. It is in the area of communication semiconductors test that the introduction of 5G is directly related to tester demand.
Compared to 4G and 5G, the increased transmission speeds and the transmission distance becoming much shorter and directivity becomes much stronger. 5G is multi-channel. This will lead to an increase in communication semiconductor production volume. In terms of direct impact on the tester market, it is estimated that the 5G transition will boost the market from $200 million up to $400 million per year. This is our estimation. We will then gain 50% in market share, so we would like to get one half out of this space. The impact of the 5G transition on the tester does not end there. Due to 5G, our smartphones and data centers now will need a higher performance in order to process higher volumes of data. This will spur the further geometry and shrinkage of processors and DRAM.
In addition to the speed and capacities of DRAM and non-volatile memories, we need to have further increased capabilities. This is a must. In response to these future test challenges, customers are already increasing their requests for tester solutions with us. Starting from this early in the 5G era, we believe it is necessary for us to make investment into our workforce. We believe that our capabilities, to what extent we can support customers, is going to give us the determinant differentiation factor for years to come, particularly for next 10 years to come. Finally, I would like to summarize the progress of our midterm management plan in its first year, starting from FY 2018 to last three years.
We were able to deliver the results that exceeded the target value for all KPIs in the base scenario of our midterm management plan, thanks to the expansion of the tester markets and our significant share gains. I believe we had good track record of one year in our journey to our goals. We expect to have declines both in revenue and profit in FY 2019, which may disappoint you to some extent. As of now, we have those forecasts which indicate all the KPIs are going to be below the target values of the plan. Customers and CapEx and budget will not increase in a stable fashion. When figures increase more so than we had estimated, there is going to be always a rebound decrease.
This is why we believe that we need to have the target values for our midterm plan as three years on average. The market trends that support our mid- to long-term growth with our grand design, including higher semiconductor performance and increasing importance of testing, remain unchanged. We expect there will be a recovery in FY 2020. We have not changed our numerical targets of our midterm management plan, and we will continue to further strive to achieve them. This concludes my explanation. Thank you again for your kind attention.
Now we'll take questions. If you have a question, please raise your hand, and please first state your name and the name of the company you work for.
Thank you. I'm Wadaki with Nomura Securities. Let me ask you one or two questions. The industry has been going through kaleidoscopic changes. Have you seen any recent signs of recovery? I heard that a certain company received a huge order from the Chinese company. I also heard a couple of days ago that sizable inquiries came for a Taiwanese memory manufacturer, also from a Korean equipment manufacturer. I hope that the semiconductor market is picking up. Maybe the testers start picking up half a year later, but do you see any signs of a recovery these days?
Let me talk about different categories of memories. Regarding SoC products for the seven nanometer node semiconductors are becoming mainstream.
We've been receiving orders since Q3 last year. We expect the orders to keep increasing in Q1 this year. Regarding memories, to go with that, we hear things similar to what you just mentioned regarding equipment for the front-end processes, but not for the back-end processes. We're waiting for good news. After all, the Chinese NAND launch seems to be going smoothly, and we're receiving orders. When the next step, 64 stack product manufacturing launch goes well, we should receive additional orders. Furthermore, we see demands for LPDDR5 and DDR5 coming earlier, increasing the demand for their high-speed testers, as well as those for GDDR6, for which we're negotiating deals, and we expect to receive orders.
I'm Hirakawa, Merrill Lynch Japan Securities. I have two questions. A question on Q4 gross margin.
The product mix appears to have improved, but you mentioned that the inventory disposal loss impacted, it was all in Q4, which reduced the gross margin. How big was the impact in terms of the end amount or the gross margin percentage? How big was the impact in the previous period, the period ended March 31st, 2018? What is the forecast of your gross margin for the period ending at March 31st, 2020?
The first part of the question, how big was the impact of the inventory disposal loss? In FY 2018, it was about JPY 2 billion of valuation loss, not disposal loss of inventories. What was the other question?
Sir? JPY 2 billion that you mentioned appears to be a typical annual amount, and it was all in Q4. Is that right?
Yes, right. It was all in Q4, worsening the Q4 numbers.
What about the gross margin for the period ending at March 31st, 2020?
We don't expect FY 2019 gross margin to be a lot different from the FY 2018 number.
Thank you very much. Let me ask you another question. FY 2018, your SoC and memory market shares improved significantly. What is your forecast for them in FY 2019?
Well, let me add to Mr. Fujita's response about the gross margin. FY 2019 number may be slightly less than FY 2018, say by two points. Simply put, it's because of the product mix. The real answer is the competitive environment, pricing competitions against the competitors that wish to regain their market shares against the Korean emerging country manufacturers. We take them into consideration. About your question on the market shares, our plan assumes that we're able to maintain our FY 2018 market shares in both SoC and memories.
Thank you very much for the presentation. I'm Sugiura, Daiwa Securities. Let me ask a question about your comment on the recovery of orders. Recovery to begin in October, you mentioned. Does the recovery begin at the same time in the second half for both SoC testers and memory testers, or in different timings?
Well, for memories, we estimate our back-end orders based on front-end players' order situation. Based on the current situation, we anticipate some recovery to begin between this June and September. For SoC, in conjunction with the 7 nanometer EUV launch, we expect the new 5G baseband to launch around October, leading to recovery of our business.
Let me ask a confirmatory question on SoC. I understand that you expect major foundries' operation rate to bottom out between April and June, and recover between July and September. Do you expect that your orders should follow with slight delay?
Yes, we do.
Let me also add two questions on 5G. Chip makers and your competitors, tester makers, say that they see some moves around base stations. You mentioned no demand for such. What is your current situation in this regard? You also talked about test demand, sized at JPY 200 million to JPY 400 million, with a 50% market share. When it comes to FPGA for base stations and baseband, I thought your market share could be a bit higher than that. Are you going to lose some share? Would you elaborate, please?
Regarding FPGA and SoC chips used for base stations, major FPGA companies have our systems installed, and we expect increasing orders from them. Regarding RF chips for base station transceivers and baseband transceivers, the top two to three manufacturers are using Advantest systems as well as competitors' systems. We assume our shares within such customers to be 50%.
Then all in all, do you expect to have more than 50% market share if you maintain the current share?
Our target is more than 50%.
I see. Thank you.
I'm Miyamoto, Mitsubishi UFJ Morgan Stanley Securities. Let me ask you three questions. First, about FY 2019 operating margin. R&D expenses is down by JPY 900 million, depreciation and amortization up by JPY 1 billion, totaling almost zero, and there is a 9.9% decline, 2% of which is the gross margin. Then the remaining 7.9% comes from additional 200 human resources and additional costs associated. Could you provide the breakdown of the 7.9%?
Well, the most impactful is the personnel expenses and not the D&A. As I mentioned earlier, we had 200 new hires in a single year, which has been of significant impact.
If we wish to hire 200 or more and succeed in hiring them all as soon as we hope, then we should see the number that we're talking about. If the hiring gets delayed, the gross margin might slightly go up, but we do wish to secure necessary human resources who are in high demand worldwide. Therefore, if we plan accordingly, if we have an average 300, if not all 400 new hires, JPY 10 million per person, totaling JPY 3 billion approximately in additional expenses should be expected.
Let me ask another question on CY 2020. You said CY 2020 should be a better year than 2019. Would you be as good as you were in 2018 or clearly not as good as you were in 2018? What level of recovery would you expect for SoC or memories separately?
Earlier, I said we will try to achieve our midterm three-year plan. That's what I said, the number was JPY 250 billion on average, That is going to be my target, minimum target. After achieving JPY 280 billion, JPY 230 billion, next, if I could achieve JPY 250 billion, you may say, yes, I will be achieving the target. Yes, we are assuming the market would recover. I think you understand what I'm trying to indicate here. In the past, we always missed the assumptions. Actually, JPY 230 versus JPY 218, We started with the JPY 230, Whether or not we will get the JPY 218, again, these numbers are going to be the moving targets. However, on FY 2020, yes, we are sensing something based upon the recent experiences for FY 2019, We do believe that something is going to come up in FY as a kind of new generation.
In that sense, if you ask me whether or not I will not aim at JPY 280 billion, Definitely I would like to say, yes, I like to go for it. I simply cannot say that, yes, I will do that, because the market is moving. I simply cannot say something for sure with authority. This is my response. My apologies.
Thank you. My third and last question is about MRAM testers. I appreciate if you could share your thoughts with me on when the testers could be developed and ramped up and contribute to your revenue, please.
As for the MRAM, we are already measuring using our tester and our collaboration between the industry and academia. Once the market ramps up, there is no doubt that our tester should be able to make the measurement.
If you ask me if we need to have the special equipments for MRAM, since this is a device to test measuring memory functions, We do not need to have a special development. Of course, in regard to the interface and all around the consumable board, situation will be different. We do believe that the current tester, with its capability, we should be able to do the measurement fully. Once the product is launched, when the MRAM market is well-established, we should be able to do a good measurement. Thank you.
This is Maekawa, Credit Suisse. I have three questions. My first question is very simple. Please let me know, what is your visibility now for memory and SoC demands, please?
If you're asking me how surely or clearly we can get to see in terms of revenue basis, I would say definitely we can get to see three months ahead. In terms of orders, if you're asking if we can see clearly three months ahead, I have to say no. That is the case. That is my true gut answer. Having said that, there could be opportunities coming up six months ahead, Those opportunities may turn into the very specific deals possible for us to close. Yes, we have track record in the past, Based upon the track records, by referring to this past performance, we should be able to actually come up with a certain clarity. Probably six months, generally speaking, on the sales side. Of course, the earning side is looking into longer views.
I got it. Thank you.
My second question is about gross margin for the new fiscal year. You told us that it will come down by two points. You mentioned about the price competition. Looking at your focus for sales for FY 2019, memory would come down, but SoC side is still relatively showing a firm growth, if I'm not wrong. Having a firm SoC, that will improve overall positive effect on your operating income as a whole. If I'm not wrong, you are assuming for the somewhat lower gross margin for memory, particularly due to the competition vis-à-vis South Korea. You are telling us net that you are going to have down by two points. Does that mean that are you going to see any pain points in SoC as well?
May I remind you that our products do support diverse device types.
Furthermore, customer side is moving to change their supply chains. By that, what I mean is that a customer so far has purchased a product from the supply chain, but now he's buying the product on his own. We are already seeing a certain change in the power balance. With that going on, even SoC margin would come down for sure. With all of these factors then taken into account, we have made our plan for profit with a slight decline.
I got it. Thank you. My third question is about your conservative number of JPY 230 billion you are showing in your midterm plan, operating margin being 15% or operating income itself being JPY 34.5 billion. This time you are showing your sales being JPY 230 billion and the profit being JPY 30 billion.
Does that mean you can achieve growth just through the entire mixture, or do you intend to make a further internal effort, such as in cost reductions as much as JPY 5 billion within your midterm plan? It is going to be in your intention, and furthermore, since you are seeing margin deteriorations including SoC, and if that's the case, are you planning to do any measures to cope with the situation?
Around this time last year, yes, we made our plan for JPY 230 billion and JPY 34.5 billion in profit. Yes, that was the plan we had assumed and we made. The biggest difference comes from the fact that we have become a lot more aggressive based upon our own observations in 2018.
If we are to experience a decline in the marketplace in 2019, and also a further decline in 2020, if that would be the case, we probably need drastic cost reduction efforts. We do not believe that will be the case. Rather, it's the other way around. This is the basis for the JPY 30 billion in scenario. If we are to take, well, how to put it, if we are to act naturally, we could reach for JPY 34.5 billion or around. Rather, unless we make some big investment now moving toward 2020 and onward, we may be missing to catch a bigger game. With this point in mind, we have come up with these numbers.
Understood. Thank you. Thank you for the explanation.
This is Yoshida with Deutsche Securities, Inc. I have two questions.
First, concerning the system-level test with Astronics, I would like to know if its numbers is included in the current numbers you are showing to us in terms of orders and sales?
You are asking about our sales forecast for the current fiscal year?
Right.
We are now expecting about $55 million-$68 million for the current fiscal year. Since the unit price is rather high, the volume is not going to be that large. We are here just looking at their existing customers in our booking for orders and sales. Going forward in our sales activities, we will definitely go for marketing activities with our customers, not their customers. I believe the orders number may increase from now on. We have expectations for increased sales for the next year and onward.
Any comments in regard to the profitability?
Well, compared with our gross margin, I think they are on par to us. That's the kind of level. If our sales level comes down, since we have to bear the fixed cost, well, when we bought it was on the positive side. Since we are going to put our resources in there, if the sales comes down greatly, or how to put it, if sales numbers decline, then we may end up with negative numbers.
Am I right assuming that for the current fiscal year, they are reflected as positive numbers in your latest plan?
Yes, you're right. Positive.
If you could give me more information in terms of scale.
Well, in terms of scale, since it is around $55 million or so in sales, it is not going to be above 10%.
Thank you. Moving on to my second question on 5G.
Moving on to my second question on 5G. On slide 23, I believe you are showing here both the beginning as well as the future demands. Could you elaborate on the timeline, so to speak? Whether or not you do believe that these things are going to develop as shown in this order, or you believe that some of the things may come up to the surface and all of a sudden, for example, in China, actually, they are planning to provide subsidies for 5G toward the end of the year. Some of the things may actually get started much earlier than you are expecting. Any thoughts in this regard, please?
Well, several points. Smartphones are to be launched this year need to both support 4G and 5G. The key here is going to be the base stations infrastructure.
Again, phones are to be launched this year as new phones. Again, those phones need to be supporting 4G and 5G. If that's the case, then our process business is expected to further grow. We should be able to actually get to see revitalizing the marketplace. It all depends upon the time required in order to advance the infrastructure on the side of base stations. It all depends upon the initiation in the specific country in question. I think we need to have a better insight in this regard.
Understood. Thank you.
You may have more questions, but we are running out of time, so allow me to conclude the session here now for Advantest FY 2018 information meeting. I would like to thank you again for your participation despite your busy schedule.