Earnings Call: Q4 2018

Apr 26, 2018

I am going to present the financial results for fiscal year 2017 and business outlook for fiscal year 2018. Let me start with the summary of the financial results. The order received grew year on year by 50.5 percent to 1000000000. Sales increased by 32.9 percent from the previous year to 1000000000. Thanks to positive development of the tester market, especially growth of the memory tester market. For the first time since 2006, we have seen good results of the order received. Our internal dedicating efforts contributed to the 4th quarter sales, which exceeded our initial forecast. Sales has passed the billion mark again, for the first time since 2006. Operating income grew by 76.1% year on year. Reaching 1,000,000,000. Because of the product mix impact, gross profit margin declined year on year However, operating income margin exceeded 10% for the first time since 2007, thanks to revenue increase. Net income was 1,000,000,000, increased by 27.5 percent year on year. Regarding annual dividend per share, in January, our forecast called for per share. However, Since our fourth quarter performance was better than expected, we have increased the dividend payout by And for the second half of the year, it is order received by business segment and by region? Same conductor and component test the system business, grew by 60% year on year to 1000000000. Investment in data centers have become robust, which resulted in growth of memory business, and memory functionality is going up toward high end such as 3d NAND. Such market trends led to higher demand for memory testers. No memory tester business has been also solid thanks to strong performance of the automotive and display application markets throughout the year and recovery of mobile business in the second half. Mechatronics System Business grew by 64 percent year on year to 1,000,000,000. As the memory market has performed well, investment in device interface has been active accordingly. Service and other business increased by 8% year on year to 1000000000. By region, which is on the right of the slide, the pink colour represents South Korea, Orange is Taiwan, yellow represent China and other regions including Southeast Asia, where semiconductor manufacturing locations are concentrated in those areas, we see increase. Next, sales by segment and by region. Sales development is based upon the same reasons as the order received. Same conductor and component of Test System Business grew by 39% year on year to 1,000,000,000. Megatronics, the system business increased by 43 percent to 1,000,000,000. Service and Other business showed 30% growth year on year reaching 1,000,000,000. Non Japanese semiconductor players that have been aggressively investing in Teslas and our overseas sales accounts for 93.2% now. Let me share with you the quarterly order received has reached 1,000,000,000. Close to the record high, we are shipped in the second quarter in 2000. Early in 2000s, demands are dependent largely on PC market. But this time, we have seen growth in tester demands due to expansion of semiconductor applications ranging from consumer electronics to infrastructure. And the device types from memory to sensors. Sales increased And we have recognized better gross profit margin. As a result, operating income margin has exceeded 20% for the first time since the second quarter 2007, the best quarterly result in recent years. And this is to quarterly orders by segment. Same conductor and component tester system business grew by 54% quarter on quarter to 1,000,000,000 out of which No memory testers generated 1,000,000,000 and memory test was 1,000,000,000. In non memory testers, demands in the area of display driver increased since the previous quarter. In memory testers, DRAM and flash memory have seen equally strong demands. There have also been some inquiries for advanced orders to be booked in the first quarter in 2018, pushing up total orders by about 1000000000. Mechatronics System Business grew by 80 percent quarteronquarter to 1,000,000,000. In accordance with the positive trend of the memory test market, it shows strong growth. Service and Other Business grew 14 percent quartertoquarterto11.1000000000. And the next quarterly orders by region. In South Korea, Orders in the areas of DRAM and flash memories have increased, resulting in total number of 1,000,000,000. In Taiwan, demands for high performance logic ICs and display driver have grown steadily and the result was 1,000,000,000. Next, quarterly sales by segment. Semiconductor And Components System Business grew by 47 percent quarteronquarterto49.5000000000. Out of which non memory test business amounted to 1,000,000,000 and memory test business was 1,000,000,000. In non memory, mobile and computing sectors are main growth drivers. In memory test business, as I mentioned earlier, Sales has exceeded our initial forecast. Mechatronics grew by 10% quarter to quarter to 1,000,000,000. Service and other business has grown 5 percent quarter on quarter to 1,000,000,000. And the next quarterly sales by region, In Taiwan, sales has been driven by high end SoC, which uses leading edge process. Sales has reached 1,000,000,000. In South Korea and China, sales has grown driven by DRAM and Flash. In 4th quarter alone, our overseas sales accounts for 94.6%. And the next is operating income. Gross profitmargin has been improved by 9.9 points to 55.7%. We have booked 1,000,000,000 inventory write down from nanotechnology business in the 3rd quarter, so no impact on the fourth quarter anymore and increased sales of highly profitable logic IC business. As a result, profitability has been improved SG and A has increased quarter on quarter by 1,000,000,000, resulting in 1,000,000,000. Due to increase of a performance based bonus payout. Operating income has grown by 1,000,000,000 to 1000000000. Operating margin has increased by 14 points to achieve 20.4%. Now full year results of operating income. Gross Margin has decreased by 6.2 points year on year, resulting in 51.4%. Due to write down of nanotechnology business and product mix change to higher ratio of memory tester and mechatronics. Operating margin has been improved by 2.9 points to achieve 11.8%. SG and A efficiency has been improved. Next, R and D and Other For the quarter. R and D expenses were at 1,000,000,000. CapEx was 1,000,000,000. Depreciation and amortization was 1,000,000,000. Full year results, R and D expenses were 1,000,000,000. CapEx was 1000000000. Depreciation and amortization was 1,000,000,000. This is the last slide of this chapter. This is the financial status. Total assets is 1000000000. Cash and cash equivalents are 1,000,000,000. 8.6000000000 increase since the end of the previous fiscal year. Inventories were 1,000,000,000 up since the end of the previous fiscal year to reach 1000000000. Equity attributable to owners of the pairing was 1,000,000,000 accounting for 49%. That is Financial Results for Fiscal Year 2017. Next, fiscal year 'eighteen business outlook. First, 2018 market forecast calendar year. In non memory tester market, AI servers and cryptocurrency mining will consume more and more high performance logic IC and that will drive demands for us. A smartphone business, high end SoC will be installed in some smartphones However, overall, the Tesla market will be flat due to stagnant unit Volume And Sales. In 2017, Automotive And LCD And OLED performed well. And we based on these, our forecasts of the non memory tester market stayed the same since the initial forecast that is $2,200,000,000 to $2,300,000,000 in size. In memory business, which is short term demands driven fluctuates significantly So our forecast is not fixed accordingly. However, we see demands for data center will continuously strong and memory tester market will keep expanding. We expect our customers will increase investment in premium DRAM and non volatile memory for service going forward. So we currently estimate the Memory Tesla market size to be about $900,000,000 staying at the upper side of the range of 3 months ago. This is business forecast of our company for fiscal year 'eighteen. Although we expect the market will grow, we estimate our order volume will decrease to 1,000,000,000. Because we have carried forward 1000000000 equivalent orders to fiscal year 2017. If we adjust for it, fiscal year 'eighteen order forecasted would be the same level as fiscal year 'seventeen. Year 2018. Gross profit margin is expected to remain at the same level year on year in fiscal year 2018. We will work to increase profit while also remaining conscious of SG And A efficiency this fiscal year. Operating income is forecast to be 1,000,000,000 an increase of 1,000,000,000. Operating margin is forecast to be 15%. Our forecast assumes foreign exchange rates of US1 dollars to equivalent to While orders received continues to grow, we will further reinforce our parts procurement capacity. In addition, we have formulated a long term management policy for the next 10 years and a midterm management plan for the next 3 years. These policies will shape our drive for growth. It's mid to long term policies to be described later, call for R and D expenses of 1,000,000,000, capital investment, of 1,000,000,000 and depreciation costs of 1,000,000,000 in fiscal year 2018. Outlook by segment, 1st non memory testers, high end SOCs and logic ICs used for smartphones and AI servers we see sharp improvements in performance and greater mutualization this year. As a result, test times will become longer and test itself will become more complicated. We anticipate increased sales of testers due to these technological evolutionary factors, demand from the automotive and display related sectors will continue at the strong level of fiscal year 2017. Our non memory desktop business sales forecast for fiscal year 2018 is JPY 93,000,000,000 about 1,000,000,000, up from fiscal year 2017. Memory test outlook In the midst of current so called supercycle, the memory tester market continues to grow. Advantest will take advantage of our number one position in this market to further increase sales is expected to continue to grow. In flash memory, investment in testers for volume production of 64 layer 72 layer 3 DNAND and in burn in testers to guarantee. NAND reliability is also expected to continue at a robust pace. In fiscal year 2017, sales for testers for nonvolatile memory such as 3 d NAND and DRAM testers were about equal. A trend that is expected to continue this year. Our Memory tester business sales forecast for the current term is 1,000,000,000, an increase of approximately 1000000000 year on year. Mechatronics system, demand for memory hunters and automotive hunters is showing strong growth. Pointing to a sales increase. We estimate that our Nanotech business bottomed out in fiscal year 2017 as a result of this, 1,000,000,000 is our forecast of sales for mechatronics business. Our fiscal year 2018 sales forecast for services and other businesses While there will be some growth in 2nd hand sales and service contract revenue, SSD Tesler growth is expected to drive an overall increase in segment sales. Therefore, our forecast is 1,000,000,000. So fiscal year 2017 business result and outlook for fiscal year 2018. Now as for part 1, if you have any questions, we'd like to entertain them. Since time is limited, you can ask up to 2 questions. I will designate the person who can ask questions. So if you have any questions, please raise your hands and please mention your company name and your name please. Please bring the microphone. I'm Madaki from Nomura Securities. Thank you very much for strong forecast presentation. I have two questions. This call made a downward revision of business forecast for April through June quarter. So you might fear it's too high for demand, but myonsan Yoshida san, do you see any sign or negative secondal you're observing, Well, in March April, I visited customers in Asia, many of them. And our customer's perspective is that it's stable growth, truck, they are in, but looking at political situations, relationship between the U S and China trade war that's happening, how that kind of trade friction impact on our industry for the short term, it's negative. In China, we do have a very strong position. So for Chinese customers, their motivation for the short term, there might be some fluctuations on their part But looking at the mid to long term, if the situation continues that way, I believe China needs, semiconductors and their needs to make semiconductors. They have strong motivation. So it's not so unfavorable against us. And demand for memory itself it's now regarded as commodity. So it has been in the cyclical cycle of going up and down, And I'd like to touch upon this later, the growth for semiconductors made to long term it's stable, so I don't see any sudden dip in demand. Second question, Mionsan, I'd like you to talk about this loudly. Very strong forecast for fiscal year 2018. What are the products that drive this 1. Like a flash tester V 93,000 in DRAM flash high speed tester, I'd like to know about it. SoC is the first one I'd like to touch upon. High end smartphones, it has been sluggish, but looking at mid range, 7 nano, 10 nano, manualization is being done. So with shifting, test time becomes longer. So V93K business is on the recovery mode now. Next one, Automotive Products as you know, ADAS is included. This business just like fiscal year 2017, will have a good momentum. And next one, I see driver for this business segment, just like last year, this year, 2018 is positive. This year, it's even better than 2017 because of TDDI. They start production of TDDI, which requires longer testing time. So tester for these drivers, it's positive. And as for memory, NAND flash price, you see. So investment might not be so active, but 3 D and 72 stack and higher than that might be launched this year that requires longer test times that requires more investment. And premium product DRAM for servers. The production is on the right this requires longer tester time and tester environment would be a stringent T55503HS high speed tester and also T5833 core test tester, these are enjoying higher demand. Thank you very much. Person in the front seat Thank you. I'm Mauriana from JP Morgan. First question on Slide 8. N19. I'd like to know the breakdown on this slide. On page 8, memory tester, q312.6000000000to30.90000000001.5000000000 advanced order But if possible, so if it's memory DRAM and NAND, in HBC for non memory, could you tell me the breakdown for the 50% of total sales, it's HBC And Computing. Is 50% for memory and non memory fifty-fifty. On page 8, from Q3 to Q4, memory tester 12,600,000,000 to 30,900,000,000 NAND DRAM, it's fifty-fifty? Yes, it's fifty-fifty. For the pull in to to 4 of 1,000,000,000. This includes both NAND and DRAM. That's right. Thank you. No memory. Let me confirm it's fifty-fifty, what's fifty-fifty? Computing and SOC 50 percent, MCU, analog, display driver 50%. Computing SoC 50%, and Watselata MCU power related device display 50%. And from 3rd quarter to 4th quarter, order received, it's flattish of 26,500,000,000, but it went up to 29,300,000,000 So AP went down and HBC goes up, that was a perception, but for AP, it's on the rise and also for HBC, it also went up. Yes, both of them went up. Okay. Thank you. My second question the annual capacity for the annual sales for this fiscal year and next year in terms of labor and material, how confident you are to secure these necessary resources. I know in the first half of last year, you struggled in this point, in the first half, we had difficulty in catching up in our production. While we have that difficulties as more ammo orders came in from 3rd quarters to fourth quarter or dollar level went up and also sales level went up as well. So we have seen a good effect out of our efforts for bigger capacity, but in the fourth quarter, capacity enhancement has been done to exceed 1,000,000,000 sales. So we have such good capacity. But as for material procurement, we still have some issues. So we haven't resolved this issue yet completely. The next participant in the middle On the 3rd row, I'm Damian Tong from Macquarie Capital. Regarding your order forecast of fiscal year 2018, which is 1,000,000,000, let me know split between the first half and the second half of the year. Are you asking about the first half and the second half Yes, is it 50% for the first half or more orders in the second half of the year? We estimate evenly between 1st half and the second half, 50% each. What about the split between Memory Tesla business non memory tester business. How do you see it? It is a difficult question but we assume 50% 50% as well. Thank you. I have an additional question. This fiscal year, you carried forward orders of memory to the 4th quarter. At this moment, are you conservative about the forecast for the second half Looking at trends, we are based on fiscal years. So next year, the 4th quarter That is from January to March. It means it is the beginning of the new budget period for our customers. Considering that and looking at the trends of usual years, it may appear to be conservative. However, there are many uncertainty that's why we tended to be conservative. I'm Nakonomio from Jefferies Securities. Two questions. First question is about your forecast on gross margin. You expect it to What do you think is positive factors and negative factors? For example, foreign exchange might be a negative woman but write down will turn positive and others such as product mix and capacity utilization. How do you see them? Is your question about our fiscal year 2018 forecast Yes. You previously said gross margin is expected to stay at the same level year on year. Almost at the same level as the actual result of fiscal year 2017. Excluding inventory write down of 1,000,000,000 which we recognized in fiscal year 2017. Did you say excluding that? Yes, because that negative impact will not affect fiscal year 2018 numbers. Does it mean gross margin will be better if excluding that negative impact of write down? Are you talking about fiscal year 2018 gross margin? Yes. Then it will be improved because there will be no more negative impact of 1,000,000,000 from inventory write down. And we expect the sales will increase, and it will result in compensating fixed cost. Well, then What's your forecast of SG And A? Fiscal year 2018 SG and A, we forecast it will be around 1,000,000,000 including R and D spending and other. Thank you. Thank you. Another question. The other day, Teradyne made announcement of their business of results. They said they would revise their outlook for a de no memory or logic tester market. Is your outlook different from theirs? If so, where does the difference come from? Is it because of a difference in product or customers? Fiscal year 2018 sales forecast. They revised downward by 1,000,000. That's my understanding. I think it is because they revise their outlook about their AP business, which is not in our business portfolio, therefore, nothing to do with our business. That's my understanding. They said it does not mean they have lost share in MCU or Automotive Sector. No, no. I think they referred specifically to a certain company to mobile AP. I think they said other business categories in Automotive Sector or PMIC will continue growing. Which resonates with our outlook.