Today, thank you very much for taking the time to attend Advantest 2023 financial briefing. Let me introduce today's speakers. Representative Director, Senior Executive Officer, Group CEO, Mr. Douglas Lefever. Representative Director, Senior Executive Officer, and President, Group COO, Mr. Tsukui. Senior Executive Officer, CFO and CSO, Executive Vice President, Corporate Strategy Group, Mr. Mihashi.
Senior Executive Officer, CCRO, Executive Vice President, Sales Group, Mr. Nakahara. Serving as the moderator for today, I am Kobayashi, IR Department Manager, Corporate Management Group. Today, first, Mr. Mihashi will present financial results for FY 2023, and then Mr. Lefever will present the FY 2024 outlook. First, shortly, in January this year, Group CEO position was assumed by Mr. Lefever, who will give opening remarks, and then Mr. Mihashi will present 2023 financial results. Over to you, Mr. Lefever.
Okay, thank you, Kobayashi-san. First of all, I'm very honored to take on the responsibility of CEO. I want to first acknowledge Yoshiaki Yoshida and the leadership he has provided and the results he's delivered during his tenure. I also want to emphasize the importance of the role of Tsukui-san in the company. In his position as COO, he will oversee many critical operations of the company and provide critical support, both globally and domestically in Japan. Tsukui-san and I have worked many years together in Advantest.
I also should mention that Mihashi-san, our CFO and CSO, also grew up together with me in Advantest. Mihashi-san today will go through our FY 2023 fourth quarter and full year results first. He'll also report on results of our second midterm management plan, which covered our last fiscal three years.
Then in the second part, as Kobayashi-san mentioned, I will cover our outlook for the fiscal 2024 and share some assumptions and market share positions looking forward. With that, I'll hand it over to Mihashi-san.
Thank you very much. Now, let me go through the financial results for FY 2023. At the outset, I'd like to give the overview about the results of FY 2023. First off, there are uncertain economic environments that continue at this point. I'd like to first appreciate and thank all of our suppliers, employees, and all of our stakeholders for their continued support of our business.
Now, compared to the record results of FY 2022, sales, operating income, and net income in FY 2023 were reduced. But we'd like to highlight that we gained market share in both SoC and the memory testers market. Despite a significant increase in sales for high-performance DRAM related to generative AI, as the SoC tester sales declined due to factors such as softer smartphone market conditions and a slowdown in the server investment.
Despite such softer market conditions, the degree of the decline in sales was within the range of our guidance, as announced in July 2022 when we revised the second midterm management plan, MTP2. However, in terms of profitability, the product mix changed significantly due to lower-than-expected sales of SoC testers for leading-edge processes. FY 2023 was the final year of MTP2.
We will discuss the results of MTP2 later in today's presentation. Turning to the next page, on page 5, this is the FY 2023 summary of results. Sales, operating income, and net income decreased significantly year-over-year. Compared to the full year guidance as of January 2024, sales were slightly higher due to the higher-than-expected product deliveries to customers, in particular for memory testers.
However, operating income fell short of the full year guidance due to an impairment loss for a portion of goodwill of approximately JPY 9 billion posted in other expenses in the fourth quarter. However, core operating income, excluding one-off items, was JPY 87.1 billion, and the core operating income margin was 17.9%. Net income for the year was also below the full year guidance.
Tax expenses for the year include approximately JPY 3.8 billion of deferred tax assets in the fourth quarter, which are likely to be realized within a certain period in the future, resulting in a slightly lower effective tax rate of approximately 20%. Combining our year-end dividend forecast of JPY 18 and the interim dividend of JPY 16.25 already paid out, our annual dividend forecast is JPY 34.25. On page 6, which shows FY 2023 sales actuals by segment per region.
Over the three consecutive years until then, we've delivered many products, and because of the higher demand, we faced a decline in the demand for our products due to excess capacity, and therefore we had the lower numbers. Now, by business segment, although sales for SoC testers for mature process devices such as automotive industrial was solid, sales for advanced process devices for major consumer applications such as smartphones and PCs for the data center as well as for the data center-related applications declined.
Memory tester sales exceeded the previous year due to strong tester demand for high-performance DRAM and growth in sales to Chinese memory companies. By region, on a ship-to basis, sales to Taiwan fell sharply, particularly for high-end SoCs. Page 7, which is about the fourth quarter FY 2023 summary of results.
This slide is describing the results, and the details of the performance will be explained in the subsequent slides. On the next page, page 8, this is the quarterly sales by segment. Semiconductor and component test systems, the SoC testers, sales were JPY 58.7 billion, a decrease of JPY 4.7 billion quarter-on-quarter. For application processors, sales declined partly due to small pull forward in the previous quarter.
On the other hand, sales for advanced process devices was down only slightly quarter-on-quarter, owing to the sales growth for high-performance computing and AI-related semiconductors. On the other hand, sales for mature process devices such as automotive and industrial, which was solid in the first half, however, it softened in the second half, resulting in a decline in sales for two consecutive quarters.
Sales of memory testers were JPY 32.8 billion, an increase of JPY 7.9 billion quarter-on-quarter. In addition to strong demand for high-performance DRAM related to generative AI, sales to Chinese DRAM companies also increased. Mechatronic systems, sales increased due to a healthy number of shipments in SoC and memory products . Service support and others. In the system-level test businesses, which has high sales exposure to specific customers, sales decreased due to a high comparison base following high level of product deliveries in the previous year.
On page 9, this is the fourth quarter sales by region. As is expected in the previous page, there was the sales pull forward in the third quarter, as explained, and sales of SoC testers decreased significantly on quarter-on-quarter basis. Moreover, sales of system-level test business decreased as well. For China, sales increased in SoC testers and memory testers, respectively.
In South Korea, robust customer investment continued and memory tester sales increased. Page 10, this is the fourth quarter sales, gross profit, and operating income. Gross margin increased slightly quarter-over-quarter. SG&A increased by JPY 9.5 billion quarter-over-quarter. This is due to the impairment of a portion of goodwill of approximately JPY 9 billion in other expenses item, as is mentioned previously. The impairment is related to Essai, Inc. ,
which we acquired in FY 2019 due to a lower-than-expected sales outlook of their test socket business to a major customer. The future cash flow projection was deteriorated. The core SG&A was almost flat quarter-over-quarter. On page 11, FY 2023, fourth quarter, R&D expenses and others. This chart shows, as is, and because this is the end of the year, R&D capital expenditure increased quarter-over-quarter.
The fourth quarter, FY 2023, operating cash flow increased because of the absence of the income tax and bonus payments in the previous quarter, as well as a slight decrease in inventory levels. On page 12. Now, as for the balance sheet for the period ended March 31, 2024, on asset side, inventory decreased slightly compared to the previous quarter.
On the liability side, short-term borrowing was refinanced into a long-term borrowing in the view of the working capital. Throughout FY 2023, we worked to strategically build up inventory levels with a medium- to long-term view and to increase supply capacity in the areas where demand is strong, and particularly for high-performance DRAM. In addition, inventory levels increased significantly compared to the previous year, partly in response to push-out requests from customers, especially for SoC testers.
To address declining capital efficiency, we will drive our efforts to upgrade supply chain management and seek to monetize inventory in a timely manner. Lastly, I would like to discuss the results of the second midterm plan, MTP2. Regarding the results of the second midterm plan, MTP2, as shown in this slide, while we were able to meet all the original targets set in May 2021, we did not meet the revised targets set in July 2022, with the exception of sales.
Looking back over the past three years, the business environment has changed significantly in a short period of time. In the first half of the period, the increasing digitalization of society drove advancement of semiconductors, while simultaneously pushing for increased semiconductor supply capacity.
In the second half, however, the semiconductor market for major consumer applications entered a correction phase, and the tester market, which had experienced rapid expansion previously, ended up slowing down, although there were areas of strength such as high-performance semiconductors related to Generative AI.
Even under such an environment, we have increased our market share for three consecutive years in the MTP2 period by successfully capturing the test demands of leading customers and new entrants working on advanced technology development in the area of high-
performance semiconductors of increasing complexity such as HPC, AI, and HBM. Regarding this part, Doug will thoroughly explain it in his presentation part. Despite the short-term cyclicality of semiconductor supply and demand, we see a continuing trend of increasing complexity in the pursuit of higher-performance semiconductors.
Including the emergence of new semiconductor market entrants, the semiconductor tester market is likely to continue to grow in the mid-long term, just as MTP2 results exceeded those of MTP1. We recognize that the key challenge for us going forward is how to ensure strong profitability, which can withstand changes in the product mix.
With regards to shareholder returns after taking into account the company's minimum cash holding level of JPY 100 billion, working capital requirements, and growth investment opportunities, we decided to implement shareholder return based solely on dividends for FY 2023.
Therefore, the total return ratio was below 50%. However, the total return ratio for the three-year cumulative period of MTP2 exceeds 50%. That concludes the presentation from my side.
Thank you, Mihashi-san. Let me begin by touching about some of the semiconductor market trends. From our first midterm plan to our second midterm management plan, the tester market size in terms of a 3-year average increase by 35%. The market size assumption for our third midterm plan is currently under formulation. After hitting a bottom in the calendar 2023, tester demand will be driven by complexity growth of semiconductors triggered by AI from 2024 onwards, and we expect it to be cyclically up.
With the solid high-performance compute and AI demand starting to expand, this year's overall tester market size is expected to be slightly up year on year. Due to a slow recovery in end markets such as smartphones and PCs and softness in automotive and industrial equipment markets, it should only be slightly up.
In calendar 2025, overall demand for semiconductors is expected to pick up and reach a new record peak, underpinned by a strong demand for advanced logic devices, including those used in high-performance compute, demand recovery for mature SoC nodes, and further growth in demand for high-end memory devices.
Driven by solid HPC AI-related demand, semiconductor tester demand is expected to hit consecutive record peaks in calendar 2025 and possibly again in 2026. In both years, further volume growth and performance improvement, advanced logic, and high-end memory will also drive demand for our system-level test equipment and test peripherals, particularly for high-end SoC.
Now, let's look at our sales trend over the past two midterm management cycles. From the first midterm plan to the second midterm plan, our sales, in terms of a three-year average, increased by 68%.
Our sales growth outpaced the tester market due to market share gains and some partial foreign exchange impact. The overall market expansion is an opportunity for us as we leverage our historical strength in high-end applications such as high-performance compute, as well as the all-around capability of our solutions portfolio.
Our midterm baseline is to secure greater than 50% of the semiconductor test market share, but we'll aim for even greater heights as we have in the past. Now, let me turn to our market share position. In calendar 2023, total semiconductor tester market is estimated to have finished around $4.4 billion. This is down approximately 15% year-over-year, with the SOC tester market accounting for about $3.3 billion and the memory tester market accounting for $1.1 billion.
While technology advances in high-performance semiconductors drove demand for testers, the market size shrank for the second consecutive year due to the digestion of excess capacity and so some prolonged effects of the decline in demand for semiconductors in key consumer electronics applications. We estimate our market share was 58%, an increase of about 1 percentage point year-over-year.
We believe we have won the number one market share for the third year in a row, including a 59% share of the SoC tester market and 56% of the memory tester market. In calendar year 2023, despite the market contraction, we expanded our sales and gained market share in the tester market, especially for high-performance semiconductors such as HPC, AI, and HBM, which are critical markets for our future. Looking forward now into 2024, let me provide some comments on the business environment and test market trend.
In 2024, uncertainty remains over the timing of a recovery, as demand from key consumer electronics applications such as smartphones and PCs has remained sluggish for a prolonged period, while expectations for an increase in demand remain intact for high-performance semiconductors, including high-performance compute and high-performance DRAM such as HBM.
The SoC market tester size in calendar 2024 is estimated to be in the range of $2.9 billion-$3.2 billion, a downward revision of approximately $400 million from our estimate three months ago. In the automotive industrial equipment applications, given the high levels of CapEx spending until recently, we anticipated a slowdown in customer CapEx spending for mature semiconductors and weaker demand for new testers as existing test capacity gets digested.
In calendar 2024, memory tester market is expected to be in the range of $1.4 billion-$1.7 billion, an upward revision of about $100 million. In the area of high-performance DRAM, robust customer demand is expected to continue through 2025 in conjunction with increased customer production plans and higher quality assurance, leading to high growth rates.
Demand for testers for non-volatile memory is expected to recover gradually in the second half of the year. Taking all these factors into account, the semiconductor tester market is expected to increase by 5% year-over-year at the midpoint in 2024. Looking beyond 2024 into 2025, we can say with relatively high confidence that the market size will grow. Now, moving to our fiscal 2024 forecast.
In light of the tester market recovery, our FY 2024 forecast calls for an increase in sales and profits with sales of JPY 525 billion, operating income of JPY 90 billion, and net income of JPY 67 billion. In the first half of FY 2024, sales are expected to decline on a half-over-half basis due to soft CapEx appetite of customers in the traditional automotive, industrial, and consumer applications, despite robust high-performance DRAM demand such as HBM.
However, from the second half, demand for high-performance compute such as high-performance compute AI is likely to absorb excess capacity in the market and drive new tester demand. Gross margin for the full year is expected to decline a bit year-over-year to around 48%, mainly due to changes in our product mix. Operating margin is expected to be 17.1%.
With that, we will continue our R&D and investment efforts to enhance the added value of testing by evaluating new test solution offerings aimed at solving customer problems. We are targeting high-growth semiconductor areas that are driven by complexity. This forecast assumes exchange rates of 1 US dollar to 140 Japanese yen and 1 euro to 155 Japanese yen.
Our latest forecast for the impact of exchange rate fluctuations in FY 2024 is that operating income is affected positively JPY 700 million per yen of Japanese depreciation versus the US dollar and a negative JPY 300 million yen per depreciation of yen versus the euro. For our semiconductor and component test outlook, SoC tester sales are expected to be flat year-on-year. Within this segment, for HPC AI, we are sensing robust demand on the back of increasing production volume and complexity growth for generative AI.
Furthermore, demand from new customers is expected. As such, the product mix within SoC testers is likely to turn around. On the other hand, for smartphones, although we expect complexity growth such as 3-nanometer migration to increase test demand, recovery of the demand remains somewhat uncertain as smartphone conditions remain slow. For traditional industrial and consumer applications, demand is expected to remain somewhat weak this fiscal year.
With lead times for SoC testers running now back to normal to 3-4 months, visibility on tester demand is also getting shorter compared for information to us from our customers. This makes it a bit more challenging to formulate the full-year forecast accurately. We will continue to work more closely with customers and increase the certainty of our business pipeline. For a memory tester, sales growth is expected, driven by high-performance DRAM related to generative AI.
However, I should say the current profitability of the memory test business is not at a satisfactory level, and I recognize that improving and increasing its profitability is one of the most important issues I need to address as CEO, and confident we will do so. Now, turning to our mechatronics service support and others segment. In our mechatronics business, solid sales are expected for our device interfaces and handlers, supported by tester sales growth. Our nanotechnology product sales are expected to increase slightly as well.
For sales and service support and others, they're expected to be similar to the previous year. Within our service segment, in our traditional maintenance services, demand is likely to be firm due to the steady growth of our installed base. In the system-level test subsegment, sales are expected to decrease a bit year over year.
In FY 2024, despite the growing customer base adoption of SLT, this business is affected by certain customers involved in consumer electronics applications, specifically mobility, leading to some soft demand growth in recent times. The system-level test is still a nascent business area, and I've been working to expand this business, including through M&A. In FY 2023, we gained several new customers and new applications such as automotive and compute.
The system-level test business is critical for our strengthening of quality assurance for complex semiconductors, which is an area of high growth, and I remain confident about its future growth prospects. Next, I would like to address key measures for fiscal year 2024. The first key measure for 2024 is to deliver high-value-added solutions and expand our supply structure. We will further expand our supply for high-growth devices such as HBM to meet rapidly growing tester demand.
We aim to accelerate development of integrated test solutions to enable our leading-edge customers to overcome challenges in developing cutting-edge technology. We will create value through automation initiatives for end-to-end test processes, which coverages ranging from complex semiconductor design all the way to system-level test with the data analytics in between. The second key measure is to drive profitability improvement measures.
We will maintain our advantage in our already well-established position in the testing of high-performance semiconductors such as high-performance compute AI and leading-edge memory. Lastly, we will also continue with our work on upgrading our supply chain management to keep up with future demand fluctuation and enhance our production structure.
Through the Midterm Management Plan number one and two, which cover the last six years for Advantest, we have reinforced foundations for growth, including enhanced product portfolio, expanded business domain, and enriched engineering support.
We are currently formulating our mid to long-term management policy and growth paths that are underpinned by the aforementioned achievements. Some of the core strategies are outlined below. There are four strategies I would like to share with you today. Firstly, we aim to continue to outpace the future growth rate of our core market by providing greater efficiency through automation for increasingly complex semiconductor devices.
Secondly, we will drive operational excellence through the organization to ensure earnings growth. Third, we will continue to explore adjacent new businesses. And fourth, we will enhance sustainability initiatives with a focus on our net-zero transition. We plan to hold a briefing in June to explain our mid to long-term management policy and provide details, including targeted management metrics. Thank you very much.