Advantest Aktie

This is Mio Shikanai from JPMorgan. First of all, congratulations on a very strong earnings. I had a question around the SoC tester market. How has your view of the SoC tester market changed with your prior outlook in terms of which applications are the demand? Is it GPU, ASIC? Or is it CPU? And how should we think about the relative contribution from higher chip volume, longer test times and increase in test conversions? I guess it's a bit early, but are you thinking about the sustainability of the demand into next year? [Foreign Language]

This is Doug. Thanks, Shikanai-san for the question. To answer on the SoC market, we're seeing very strong demand across all of those areas, GPU, custom ASIC and CPU. And I would say most of the increase in the SoC TAM that we just announced is coming from more inference applications. And so that's what's really driving that change more than anything, in particular, with the CPU business. We do see that to be sustainable throughout this year and into next year. As to kind of a test content, I think we're continuing to see additional test content increases through test times and additional insertions, in particular, for the accelerator market where 3D packaging is driving more complex devices. So that's going to continue to be a big driver for us, but a lot of the unit volume increase on the inferencing side and CPU side is driving some of the additional market TAM increases. [Foreign Language]

Just a quick follow-up. How the CPU testing compares to CPU ASIC in terms of test time and intensity? [Foreign Language]

Yes. The test time, particularly for the package test on CPU is going to be quite a bit lower than what we'd see on the accelerator just because of the complexities of an accelerator in a 3D package. At the wafer sort level, if you're testing a monolithic chip, they're relatively similar. You may see actually a little bit higher on the CPU. But in the back end, the final test package, definitely, it's higher. I'm not at liberty to give you clear numbers on that, but it's just -- it's fair to say that the accelerator side on the final test is higher. [Foreign Language]

[Interpreted] Our next question is from Mr. Yamamoto Mizuho Securities.

[Interpreted] This is Yamamoto from Mizuho Securities. I'm sorry for the very similar questions. I have a question for Page 12. This is regarding the tester market outlook for SoC. So now as for midpoint, you have revised your projection from $9.1 billion to $11 billion, $2 billion increase. So I'd like to know the breakdown of $2 billion among ASIC, CPU and GPU. How much impact will each one of the 3 applications have and how much upward revision is made? Also for the SoC tester sales, again, you have revised the sales projection. So I want to know the breakdown for ASIC, CPU and GPU for that upward revision.

Yes, that's a good question. The upward -- the change is mostly, as Doug said in the beginning of the call, due to the growth in inferencing and the compute segments. I think it's too complex, in my opinion, to divide it up into 3 different segments because a lot of these devices go together. And some of the applications are also interchangeable in terms of how they are used in the end. So -- but the upward projection, obviously, as Doug said, is due to the changes that we are seeing in the compute or the growth we are seeing in the compute and the inferencing market. We can also safely say that the custom ASIC market, the compute market, as some of the leaders in the industry have been saying are going to be significantly larger than the GPU market. So -- right now, I would say GPU market is still the largest. But as the time goes, we will see that the other markets are as large, if not significantly larger. [Foreign Language]

This is Doug. Yamamoto Let me add just one comment, which is, for us, since our 93000 platform is so prolific and being used across the industry, across all of the different compute applications, it really doesn't -- it doesn't matter where that growth comes from because we're positioned with the 93000 so that -- in fact, the configurations are very similar in some cases with our digital instruments and our power supplies. And so oftentimes, as Sanjeev mentioned, our customers will purchase capacity, and they'll be able to configure those for whatever type of application. So that's a strength that we have right now with that platform is the usability across all of those different high-performance compute subsegments. [Foreign Language]

[Interpreted] So I have one additional question. Is that because of the increase -- drastic increase of the number of chips, which drove the upward revision because I think that once people knew a lot about what sort of test will be conducted by customers. So I don't think there is no surprise. There is no -- I don't think there's any surprise in terms of test insertion or test time. So I wonder this kind of upward revision is driven by the number of chips. Is my understanding correct?

Yes, I think so. I think there are a lot more customers now doing custom ASICs. Most of the hyperscalers, as you know, have some type of a strategy of doing chips in-house. Those chips are obviously in addition to the GPUs that we have seen in the past. We have also seen significant increase in the compute market and the server space. So obviously, that's additional. One segment that we have not talked about before that we didn't use to split networking. We actually also have a significant market share in that space. We just didn't talk about it before. And that space also has grown significantly. So the answer to your question is absolutely yes, that there are a lot more chips now. And luckily or fortunately, we are a major player with dominant market share, as Doug mentioned, in all of those segments. So we are benefiting from the increase. [Foreign Language]

[Interpreted] Now we'd like to take the question from Mr. Nakamura from Goldman Sachs.

I wanted to ask you about the production capacity expansion plans. You mentioned that you're accelerating the efforts right now, but could you clarify whether you're accelerating your capacity expansion plans even compared to your commentary you made back in April. I think at that time, you mentioned for SoC testers, you're expanding it to roughly 5,000 units by the end of March '27 and then to 10,000 units by either end of '28 or early '29. So just wanted to understand where your capacity expansion plans are as of now. [Foreign Language]

Thank you, Nakamura. This is Doug. Yes, as you mentioned, we had stated a 10,000, 93000 per year by the end of 2028, early '29. And we're pulling that in, not prepared yet to say how much we're pulling that in with a new date. It's something that we're working on right now internally. What keeps happening is there's more wafer starts, more advanced packaging capacity being put in place. And so every time we think we've got locked in on where we need to be on the scaling side, we have to go back and look again as more capacity comes online.

The good news is our production systems are set up to allow us to scale like that. And so between our supply chain and long-term agreements we have with component suppliers and our relationship with our contract manufacturer, they can react quickly to our needs. In fact, our contract manufacturer is putting a second factory in Southeast Asia to help support the scaling that we're asking them to do for us. So that's a long answer to a short -- really a short question, which is we'll have to get back to you. We're scrubbing the information now, and I expect next quarter to have a more clear date for when we'll bring in that production expansion. [Foreign Language]

A follow-up. In terms of the 5,000 unit mark, are you approaching that number already? I think you used to say by the end of March '27. Is that being put in right now as well? And also, could you also touch upon your capacity expansion plans on the memory testers as well? [Foreign Language]

Yes. For 5000, it's safe to assume that we're going to flow right through that level at this point in time. So that our supply chain people have worked hard enough and have been able to find the capacity for us to be able to deliver at that level. And so we're on to the next step, which is that 10,000 level. As far as the memory goes, we also have expansion plans that are highly correlated to what we're doing on the 90000 side. There's not as many testers in the memory side as the 93000, but there's similar growth rates. And so there's lots of programs within the company right now to expand on the memory side. There is additional challenges there because we do more in-house production. And so there's things that we're looking at within our supply chain on the memory side to allow us to keep the pace with the SoC testers. [Foreign Language]

[Interpreted] Next question is from Shibano, from Citigroup Global Markets.

[Interpreted] I have a question regarding margin. On the first quarter, you recorded very high margin. But when I look at full year projection in the remaining 9 months, I think you have got a conservative outlook for -- in terms of margin. So second quarter and onwards in the second half of this year, I wonder there might be some margin pressure or some product mix, some concerns. Are there any unfavorable factors in terms of margin pressure or product mix? And second issue is actually demand is rather strong. So when it comes to next year, I think is -- I wonder whether the significant increase of top line might be necessary. If that's the case, do you expect also the margin pressure next year? Or do you see that sort of thing can be absorbable?

Yes. Thank you, Shibano-san. This is Doug. Yes, on the margin question, I think the company is hitting on all cylinders right now. And the product mix is favorable. I think we've had favorable exchange rates as well. And then as our volumes go higher and we've been able to really deploy our platform strategy, it's really yielding big economies of scale for us as well. The headwinds right now, obviously, are some inflationary things on our bill of materials. Of course, at the top of the list is memory and the memory pricing is a headwind for us as well as everybody. And so that's why I think we have to be conservative because we are subject to the pricing environment on the memory. And our testers do use a lot, lot, lot of DRAM. And so that's the biggest reason I think that we're still not ready to project a consistent level of margins like we have this quarter for the rest of the year.

Also, I think I would just note that we had some reversal of inventory obsolescence that was helpful to our margins in this particular quarter, and that's not something we would necessarily see as a consistent quarter-to-quarter basis. So going into next year, still, I think we're going to be facing some significant pricing pressure on memory, and we are working on certain areas where we can pass some of that along -- it's really case by case, application by application, customer by customer. That's a very sensitive topic, but I think there's going to be something we can do there. But hopefully, that answers the majority of the -- you had a lot of questions in your question. [Foreign Language]

[Interpreted] Next we are going to...

[Interpreted]

So my name is Wadaki from SBI Securities, and I'd like to ask Doug-san about the recent AI development. What's going on in the world of AI right now? I think you know a lot because you related to the leading-edge AI situation of the world. I know that your AI testers have geared up really another auction, so that you're up to speed. So what's going on there? Why is AI testers becoming so busy? Is it because of the Agentic AI? Is it physical AI? Or is it kind of like the AI coming from Stargate -- or I mean there's various trends. But what really do you think is driving this big trend of AI?

Thank you, Wadaki-san. I see mostly the Agentic AI right now driving a significant structural change in the business. I know that we, as a company, are deploying the use of agents in a lot of what we're doing for our development and on behalf of our customers. And as I talk with other executives in the industry, they're doing the same thing. And the level of efficiency gains that the companies are getting through the use of Agentic AI is really staggering.

And I think a lot of people on the outside of kind of businesses and companies don't always realize what's going on in the back offices and the development and R&D areas of the companies. And that's where the big bang for the buck is happening, I would say, is the use of the Agentic level where I can call upon all kinds of different software tools and on its own in a headless fashion, develop solutions. And so for me, that's what's really happening. I don't think that we're at the physical AI yet. It's coming. But I think there's going to be a wave of physical AI applications at the edge that are coming. We're seeing some of those. But I still believe that has got a little bit of time before it becomes mainstream. When it does, the volumes will be extremely high and will make a lot of the data center pale in comparison. So really a Agentic level now and into the future physical AI. [Foreign Language]

[Interpreted]

So just to follow up on a question of this trend here. So regarding AI, there's billions and billions of dollars of investment made in this whole area. But do you think the surprising concepts like AI and AGI will really come true in the future? What do you believe that?

Wow. That's really putting me in the spot Wadaki-san. Yes. I think ultimately, that's where we will get to, but I tend to think that's out pretty far in time. There are so many use cases just in front of us to utilize AI to do really wonderful things. And that's why personally, I hope that the world will start focusing on all the beneficial things of AI and not get caught up in a lot of the misuses of it. And so that's -- Advantest has an obligation in the position we're at now to make sure that we're pushing the applications that are doing very, very good things, whether it be medical research or agricultural things or even I was talking about the fires and the use of drones for putting out fires and seeing what they're going through in Europe right now, even as well as in the United States.

Those are the kind of things, I think, that the world needs to focus on rather than get caught up in the singularity concepts and things of that nature because I think those are out there. They're probably going to come eventually, but it might be far after you and I are around. So I gave you a philosophical answer to a philosophical question, Wadaki-san. [Foreign Language]

Next question is from Mr. Yoshida of CLSA Securities.

Congratulations on the strong results. My question is similar to the prior ones, but I would also like to clarify about SoC testers. I think there is a structural SoC tester demand growth driven by CPUs for inference AI, which is shifting from Intel to fabless design ones, creating additional third-party tester TAM taking shares from Intel's in-house testers. So you have just answered a kind of big comment about the impact by device types to the SoC tester TAM growth. But I guess CPUs contribution is the biggest one for the upward revision of this year TAM outlook, and this impact will get bigger towards the next year considering the increase in fabless design CPUs going forward. Do you agree with this view? [Foreign Language]

This is Sanjeev. So I wouldn't discount the size of custom AI market. I think it's definitely -- what you said is definitely correct, that CPU and server market is growing rapidly. And obviously, we are benefiting from that greatly. But I would say that the custom ASIC market and also the networking market, they're also growing at similar paces. So again, repeating my comment, I think we're fortunate that we have dominant position in all of these segments. So to some degree, we don't really care because as Doug mentioned, the configurations, the customers, the systems are very, very similar to each other. But if you really want to divide it up, yes, compute is growing very fast, but let's not, let's not discount custom ASIC. I think that market is definitely understated, and it's very large for us.[Foreign Language]

Let me add, Yoshida-san its Doug. On the CPU side, if it's x86 or ARM-based or if it's fabless or if it's IDM, we are positioned every single place with our 93000 system. And so we have full coverage of all of the CPU accounts globally. So we feel very, very good about our position there. And the market share swapping that might happen between these companies, again, is not really relevant since we have a de facto standard in the 90000 across the entire CPU industry. [Foreign Language]

Just a quick follow-up. Could you also please share your views on the current outlook of your market share of SoC and memory tester for this year and if you have next year as well? [Foreign Language]

Yes. So we will -- the numbers we share next year, April next year. But I can speak at least qualitatively on some trends. On the SoC side, we reported for 2025 that we had 66% share. And I think it's safe to assume that we're continuing a trajectory upward on that. We can see a path towards 70% plus on that in the future. And within the HPC market, we're far higher than that level. So we see the gap really widening in the SoC market. And so that's some qualitative looking at the SoC market. On the memory side, it's a busier area. There's more competition in the memory side. There are some areas such as NAND where we have not been a traditional incumbent and NAND is growing, as you may know. There are some transitions with device speeds and bandwidth right now also. So there's some insertions that we haven't necessarily captured.

And so on the memory side, I would say this year may represent a little bit of a downturn for the company, but we see that more than recovering as we go into the next year where our road maps are well aligned with devices. And so we are very, very confident in the future around our memory market share, but you'll see a little bit of a dip potentially in memory while we still grow on the SoC side. And for us, the SoC market is such a larger market than the memory. So when we have growth in the SoC, that's generally an aggregate positive for the company. [Foreign Language]

Yoshida-san, I just want to add one thing on the memory side. I think we -- when we look at our future and the reason we are confident is we are going to be releasing a couple of key products. And what's really amazing is that we already have customer commitments for those products. And I think those products are really game changers.

And what's also interesting is that the memory market, we expect also to grow significantly next few years as the new fabs come online. So yes, it's absolutely correct that we have some challenges this year due to the transition to new products. But I think the feedback from customers is that we are very well positioned for the future.

And any share loss that we will have this year, we are very confident that we will recover that loss over the next few years. [Foreign Language]

Thank you. I'm looking forward. [Foreign Language]

[Interpreted] So next question is from Mr. Yoshioka from Nomura Securities.

[Interpreted] So I want to look at this page, Page 7, and ask you to give us more color on the by-region SoC tester sales. You did very well in Q1. Which were the main drivers? If you can just explain by region as much as you could.

But some of my interest would be regarding Taiwan and China. For Taiwan, how about if we take SoC testers alone? Is that also growing as well, pushing the demand? And how about China, where they're nationally very much focused on developing their own semiconductors? Is your business channel also growing?

Okay. I think -- well, I think for our ship-to region, the reason that Taiwan is so large is because that's where most of the U.S. fabless SoC business is landing. And so that's why that has consistently been the largest part of our business. So again, this is where we're shipping to, but the business is really being driven out of U.S. fabless companies.

There is some memory in Taiwan as well. We don't necessarily disclose the breakout by region between our SoC and memory. The same goes for China. China is about 19% of our total sales, and that is both SoC and memory. It's pretty consistent with our overall ratio of SoC to memory in China.

So this past quarter, I think we were 80%, 85% SoC, 15% on memory. So you can apply that to most of both China as well as overall distribution. But Taiwan, for sure, is majority SoC. [Foreign Language]

[Interpreted] Great. If you can just give us more color on how you see that 19% China sales proportion will change going forward? Do you think it will expand?

It's been pretty consistent around 20%. There are new factories being built in China, a lot of them. I think those will likely come online in 2028 time frame. So there is potential for, I guess, in '28, maybe '29, where we'll see some expansion of the China business associated with that scaling of factories.

But until then, I would guess, just estimate that we would stay in that 20% or lower of overall sales. [Foreign Language]

[Interpreted] Next question is from Mr. Hanaya of SMBC Nikko Securities.

[Interpreted] So this is Hanaya from SMBC Securities. I have a question regarding capacity and sales. I'd like to understand the concept of those two things. You said in your presentation, you are accelerating capacity enhancement in your work. And do you think -- I think you always think about the buffer in the capacity when you try to build up the capacity.

This time, you have revised your outlook drastically. And do you think that is include the buffer as well? I think the demand has been expanding more than your expectations. So I wonder this kind of revision may include the buffer or not included -- and/or if you cannot have buffer, you may, say, lose your share or you may give the opportunity for your peers and competitors.

So I think your upward revision of sales is rather drastic. And I think you can achieve the projected sales for SoC with buffer or without buffer. What is the outlook?

Yes. Thank you, Hanaya-san. It's a really good question. And the short answer is we always have to have buffer. So when we start to impede from the demand side on our buffer, that triggers us to expand further. And right now, what we look at very closely is what are the supply constraints in the semiconductor industry. For accelerators, for example, it's in the advanced packaging area.

So as the foundries and OSATs add packaging capacity, we then have to expand our capacity and not just on a 1:1 ratio because we have the test content generation-to-generation increasing. So we can't just scale at a unit volume level. We have to scale at a unit volume plus the additional test content generation to generation. And so that's how we model our capacity for our testers.

And definitely, we have to have buffer because what happens is there's unknowns, in particular, around test time. So oftentimes, our customers don't know what the test times and test insertions are going to look at until they've taped out the device and gone through a characterization cycle. And so there's a lot of unknowns, and we have to be prepared to be able to supply against those unknowns.

So we always will build in buffer into our production capacity planning and make sure we stay above that kind of danger zone. We never want to be the critical path for our customers' businesses. [Foreign Language]

[Interpreted] Now we would like to take the last question.

[Interpreted] And the last question from Ms. Tamura from Morgan Stanley MUFG Research Japan.

I'm curious about the visibility Advantest shares with the customers. Like how long will the demand discussion with the customers extending? Historically been, I think, 6 months, but how much visibility does Advantest have specifically into 2026 and beyond? And what's driving this unprecedented visibility, if that is the case? [Foreign Language]

Tamura-san, this is Doug. Yes, historically, we were never given really much more than a 6-month forecast. But just because of the scale now in the industry and because of the constraints in advanced packaging and wafer starts, it's much easier for us to see out, I would say, about 18 months, and so we have conversations with our close partners for 18-month visibility so that we can do the planning.

And obviously, it helps us because we can scale our capacity plans when we have that kind of a lead time. 6 months is not enough for us to trigger supply chain scaling. So again, the short answer is, in a lot of cases now, we're seeing 18 months, and that's because the industry has realized that they need to give their supply chain that kind of heads-up.

And we learned the hard way in the past that 6 months can lead to some constraints. And we all work together now collectively to try to get at least an 18-month forecast. [Foreign Language]

Just a quick follow-up from the previous answers. You mentioned that the -- you expect accelerating the capacity expansion going forward and you mentioned pulling in the 10,000-unit capacity target by 2028. Should we assume that there should be some upside to the 10,000 numbers in 2028, the target numbers? [Foreign Language]

Thank you. Yes, I think step by step, but you're likely to see us look at the next step beyond 10,000. So right now, we're focused with pulling that in, in the near term. But in the midterm, I think it's highly likely that we'll do another step on the capacity expansion.

Just to give people an idea, though, in -- around 2020, we were producing maybe 1,000, 93,000s. And those were smaller configurations. If you use that configuration for our 10,000, it's about the equivalent of 20,000 of the 2020 size.

So we've done 20x in 7 years, 8 years. And so I don't know that there's been that level of expansion for anything in our industry. So it's really quite an achievement for us to get to that 10,000, but we have high confidence that we can take that next step function. It may be 15, it may be higher, but we'll try to clarify that in the coming quarters. We're just not ready to do that yet. [Foreign Language]

[Interpreted] So although we have received further more questions, we would now like to conclude this session.

[Interpreted] Thank you all very much for taking time to join our financial briefing despite your busy schedules today.

[Interpreted] Thank you very much for joining Advantest Corporation's financial briefing despite your busy schedule.

I would like to introduce today's speakers.

From the left side of the slide on the screen, Mr. Douglas Lefever, Representative Director, Senior Executive Officer and Group CEO; Mr. Koichi Tsukui, Representative Director, Senior Executive Officer and President, Group COO; Mr. Sanjeev Mohan, Senior Executive Officer and CCRO; and Ms. Hisako Takada, Senior Executive Officer and CFO.

I am [ Senba ] from the IR department serving as the moderator of today's session.

In today's financial briefing, Douglas will first provide a summary. After that, we will entertain questions from the audience. We plan to close this session at 6:00 p.m. Japan Time.

Today's session will be delivered with Japanese/English consecutive interpretation.

The briefing slides for today along with the Japanese and English scripts providing detailed explanations are available on TDnet and our corporate website.

Before we begin, we would like to remind you that today's briefing contains forward-looking statements, all of which are subject to risks and uncertainties that may cause actual results to differ from those forward-looking statements.

Please note that today's financial briefing is being recorded for the purpose of accurate recordkeeping and distribution on our corporate website.

Now let me give you some instructions on the Q&A session. [Operator Instructions]

Now Douglas will present the summary. Doug, please go ahead.

Okay. Thank you. Hello, everyone. This is Doug. Thank you for joining our financial briefing.

Today, I will focus on key highlights and updates on our business performance and strategy. For details, please refer to the presentation materials and script, which are disclosed on our website today.

Let me begin with a summary of our financial results.

We are pleased to report that our consolidated fiscal 2025 results delivered new records in sales, operating profit and net income.

The growing demand for AI-related semiconductors continues to drive expansion in the semiconductor tester market. With the tester market expanding for the second consecutive year in 2025, we are able to achieve market share gains.

We attribute this performance to our ability to meet growing demand from key customers, successfully capturing new customer demand and utilizing strategic production capacity expansion implemented in anticipation of sustained high demand.

In fiscal 2026, supported by AI-related investment, we expect our results to post further record highs.

There are 3 key highlights defining our business today. First, sustained leadership in the SoC tester market; second, technological leadership in next-generation semiconductor testing; and third, robust progress in capacity expansion.

First, let us address our leading position in the SoC tester market.

The total semiconductor tester market size in 2025 was approximately USD 9 billion. This exceeds the previous market size peak recorded in 2024.

We estimate that the global SoC tester market expanded to approximately USD 6.9 billion in 2025, marking about 68% year-on-year growth.

With increasing test demand driven by AI-related high-performance semiconductors, the market expanded significantly, and our market share is estimated to have risen to 66%, an increase of around 10 percentage points from the prior year.

In the AI accelerator market, we have expanded our customer base and captured a majority share of the market globally.

Meanwhile, in the memory tester market, although our market share declined by approximately 2 percentage points, it remained at around 60%. We will continue to enhance and advance our product development by proactively addressing evolving customer needs.

Next, let me move on to the tester market trend for 2026.

First, I'd like to talk about our view of the business environment.

Alongside uncertainties in the macroeconomic environment, including growing geopolitical risk, the semiconductor industry faces industry-specific risk factors such as supply constraints.

However, driven by the rapidly and dynamically evolving AI market, AI-related applications continue to be a key growth driver for the semiconductor market, and robust growth is expected to persist.

Based on these factors and reflecting stronger-than-expected demand at the beginning of the year as well as a favorable full year outlook, we revised the SoC market size forecast to USD 8.7 billion to USD 9.5 billion. We raised the lower end by $200 million from the January forecast.

We are keeping our memory tester market size forecast unchanged at USD 2.2 billion to USD 2.7 billion, as projected in January.

Now let's look at our fiscal 2026 forecast.

Based on the business environment surrounding Advantest and demand trends, we expect both sales and profits to reach record highs in fiscal 2026, as shown on this slide.

In terms of profits, the consolidated gross profit margin is expected to be around 63% for the full year.

And the operating profit margin is expected to remain at a comparable level year-over-year, reflecting continued proactive investments in R&D and other mid to long-term growth initiatives.

Now let me return to the highlights.

The second highlight is that on the technology front, we also see ourselves as holding a superior position.

Supported by our global customer base, measurement technologies developed and enhanced in close collaboration with customers, and partnerships with a broad range of industry partners, we have the capability to introduce high-value test solutions for next-generation semiconductors in a timely manner.

And this is not limited to SoC testers. Development of solutions for next-generation DRAM is also progressing according to plan.

Furthermore, in silicon photonics, we are strengthening engagement with key customers and received the industry's first large ATE order for high-volume production.

Moreover, through initiatives such as the opening of the Advantest Innovation Center in Silicon Valley, announced earlier this month, and our participation in Applied Materials' EPIC platform, the company will strengthen collaboration between front-end and back-end testing through cross-industry partnerships, thereby accelerating the creation of advanced test solutions for next-generation semiconductors.

Finally, I'd like to discuss the third highlight, our steady progress in expanding production capacity.

Our production capacity expansion efforts have been progressing ahead of our original plan.

As we expand our engagement with a growing number of customers, while its complexity is rising across the semiconductor value chain, our ability to reliably supply and deliver at scale is ever more critical.

Increasing semiconductor complexity requires us to offer an expanded lineup of tester modules and richer system configurations. This allows us to better support upgrades across customers' installed base. In addition, we are also expanding our production capacity for new systems with built-in buffers to meet customer demand.

By accelerating our capacity expansion plan of SoC test systems to around 10,000 systems per year ahead of our original projection, we are positioning ourselves to support future growth in close coordination with customers and supply chain.

In a fluid business environment, demand can fluctuate. We will be diligent in assessing near-term customer demand as well as supply chain availability and endeavor to exercise acceleration or restraint as appropriate.

Just as a note, our annual production capacity targets, of course, do not directly equate to our sales.

We will continue to drive strategic supply chain transformation for potential future growth. We believe our scale is a competitive advantage for Advantest.

This concludes my prepared remarks. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good afternoon. First, I'll present a summary of the financial results for this period, as shown on Slide 3 of the presentation. [Foreign Language]

We are pleased to report that our Q3 results exceeded our internal projections set in October, delivering a new record for quarterly sales. Thanks to demand pull-in for SoC and memory test systems serving AI-related applications, the temporary digestion we had anticipated did not occur, resulting in stronger-than-expected top line performance. [Foreign Language]

Q3 operating income and net income also outperformed projections, supported by product mix improvement and only moderate increases in SG&A. [Foreign Language]

Given the solid performance through the first 9 months period and solid visibility into Q4, we are raising our full year FY 2025 guidance as follows: sales of JPY 1.07 trillion, operating income of JPY 454 billion, net income of JPY 328.5 billion and EPS of JPY 452.34. [Foreign Language]

Looking ahead, with AI-related demand remaining strong, we anticipate sustained growth in the tester market in calendar year 2026. [Foreign Language]

We continue to advance our capacity expansion initiatives to meet robust demand and are executing strategic priorities outlined in our midterm plan to evolve into an integrated test solutions provider. Through growth investments, particularly in strengthening our R&D capabilities, we are positioning the company for continued long-term leadership. [Foreign Language]

Next, I will walk you through the business environment surrounding our company and the outlook for the tester market, as shown on Slide 12. [Foreign Language]

Before providing a tester market size update, I would like to first address our view of the business environment. While uncertainty lingers due to ongoing geopolitical risks and the possible risk of sharp exchange rate fluctuations, AI applications continue to be the main growth driver of the semiconductor market amid a rapidly and dynamically evolving AI market. [Foreign Language]

For calendar year 2026, we estimate an SoC tester market size of $8.5 billion to $9.5 billion, representing year-on-year growth of approximately 30% at the midpoint. Growth is expected to be fueled primarily by continued momentum in AI applications, boosting unit volumes and greater device complexity, both of which drive stronger SoC tester demand. [Foreign Language]

For memory testers, we estimate its calendar year 2026 market size to be $2.2 billion to $2.7 billion, which represents year-on-year growth of approximately 20% at the midpoint. We expect continued solid investment appetite for testers across a broad range of memory devices. Thank you. [Foreign Language]

[Interpreted] Thank you very much, Doug. I would like to start the question-and-answer session. Mr. Yoshida of CLSA Securities Japan.

This is Yoshida from CLSA. Congratulations on the very strong results and also the guidance. Could you please provide a bit more detail of the breakdown of the SoC tester market TAM? For example, for the exposure to AI area comparing to 2025 and '26? Can we expect the order growth is just from AI towards '26? And also, is this AI demand can be broken down to the volume contribution and also the intensity, the test hour contribution? And additionally, I'd also like to ask you about your market share assumptions in 2025 and 2026. [Foreign Language]

Thank you for the question, Yoshida-san. This is Doug. So first of all, from an SoC perspective, we continue to see the largest subsegment, obviously, to be in the high-performance compute or AI area. Roughly in '25, we see that as around 80% of our SoC business, and we see that continuing into 2026. So that, as I said in my prepared remarks, will continue to be the main driver. From a test content or test intensity perspective, we continue to see the complexities drive more test insertions and higher test times. So we see that trend continuing. [Foreign Language]

And then finally, on the market share part of your question, we will release the final calendar year '25 market share information in April. But I can say in broad strokes that we do believe we picked up a fairly substantial market share in SoC, and we see that trend continuing into '26 as well. [Foreign Language]

[Interpreted] Next Mr. Yamamoto of Mizuho Securities.

[Interpreted] So you mentioned that for SoC business, 80%, around 80% comes from HPC/AI-related business. And I'm wondering if you could break it down further between GPU versus ASIC for 2025? And also if you could share your outlook toward 2026 would be appreciated.

Okay. Yes. Thank you, Yamamoto-san. This is Doug again. We don't disclose beyond just the categories with the computing and communications. So that basically the 80% really is inclusive of the high-performance compute, the AI accelerators plus most typically the application processors. And I think it's fairly obvious that the majority of that is in the HPC side of things right now, and we see that continuing. [Foreign Language]

And then as to the GPU ASIC part of your question, I'm actually going to ask Sanjeev to answer that part of the question.

This is Sanjeev Mohan. Thank you for your question. As Doug mentioned, our market share is very strong, and we believe it's continuing to grow. In FY '25, there was clearly a shift more towards custom ASICs. So obviously, because of our market share and presence, our business with those customers also grew. But having said that, GPU continues to be very, very strong and still the #1 driver for the business. As far as the forecast is concerned, we expect that trend to continue. We will see more business with custom ASIC providers, but the GPU business should remain very healthy. I think that's to the extent that I would comment at this point. [Foreign Language]

[Interpreted] Next, Mr. Wadaki of Morgan Stanley MUFG.

[Interpreted] Well, you announced strong earnings every quarter, and I'm surprised each time. My question is somewhat similar. So you mentioned that TAM for '26 will grow by about 30%. And I just want to understand how reasons can be broken down, let's say, the 3 factors: GPU test time, growth of ASIC, custom ASIC business and volume growth. So if you have these 3 breakdowns, how would you rank the contributions for potential TAM growth for '26?

Thank you, Wadaki-san. I think the biggest driver is just going to be the additional unit volumes for the custom ASIC. We've said before that the test content between sort of the typical custom ASIC architecture is very similar to that of the GPU accelerator products. So they also have a lot of test content. But in terms of what's driving the trajectory is really the unit volume and the more adoption of the custom silicon versus traditional GPU. [Foreign Language]

[Interpreted] Next, Mr. Nakamura of Goldman Sachs Japan.

Congratulations once again on the strong results. I just wanted to also ask about your calendar '26 market outlook for both SoC and memory. What kind of scenarios are you assuming for both the low end and also the high end of your guidance for both SoC and memory? And it looks like the strength will continue, especially on the AI side for a while. So based on the conversations that you're having with your customers, is there any visibility that you can discuss on calendar '27 and beyond? [Foreign Language]

Okay. Thank you, Nakamura-san. This is Doug. Starting with the SoC market, on the demand side, it's very strong. And so when we look at the assumptions on the low and high side, a lot of that is driven by the sheer supply side economics. And I would say that from wafer starts to CoWoS capacity, to memory availability is really going to dictate the low and high range. And so it's a little bit out of the control of our company. And so long as there's enough wafers and advanced packaging and memory, there could be a scenario at the higher end of that. [Foreign Language]

And then on the memory side, it's a little bit different. It's still going to be supply related in terms of how much memory can be supplied. But in this case, there are new factories, as you know, being built and those really by all of the DRAM suppliers. And those are coming online later in '27 and into '28. And until that time, there's a lot of just reshuffling of wafer starts reallocation towards the AI market. And so depending upon how well the memory suppliers are able to optimize those wafer starts toward the high-end areas, that's going to really dictate where we wind up in this range. [Foreign Language]

Is there any visibility into calendar '27 and beyond? [Foreign Language]

Yes. I mean it's too early, but kind of in general thinking, a lot of the customers have, as you know, have talked about being sold out all the way through this year and into next year. So that bodes well for the test capacity that they'll need. And coupling that with an increasing complexity year after year, that also bodes well for '27, but a little too early to say at this point, Nakamura-san. [Foreign Language]

[Interpreted] So next, Mr. Hirakawa of BofA Securities.

[Interpreted] So my question has to do with test production capacity. So I think originally, your comment was that toward the end of FY '26, the year ending March '27, you would aim for capacity increase of between 60% to 70% versus 2025. And I think that the number, the unit number that you gave out in November last year was 5,000 units. Hearing you speak about TAM today for 2026, which suggests almost like doubling pace, and just doing the math of market share, which could reach high 60% in 2025, I think that 5,000 units won't be sufficient. So what's your current thoughts on capacity? And also where are you currently in terms of the capacity ramp? Where do you think you'll be at the end of March? Do you think that you'll be running at full utilization or full capacity?

Thank you, Hiraka-san. Yes, very good question. I think we recently held a fireside chat, and I mentioned that we were going to target capacity of at least 5,000 systems by the end of our fiscal year 2026. And we're definitely on track for that and actually now are looking at expanding that even further because of some of the demand that we showed in the TAM that you recognized. So we said at least 5,000, meaning that, that would be the low minimum area, and we have the scalability to go beyond that certainly. We also mentioned that we were going to then take a step towards 7,500 systems within a couple of years. and then beyond that to 10,000. So we may be in a position to have to accelerate that build-out faster than we had originally planned. But that's just a matter of executing faster than we had anticipated. [Foreign Language]

[Interpreted] The next question is from Mr. Shimamoto of Okasan Securities.

[Interpreted] Well, so my question has to do with your outlook for FY '26, the period that will end in March 2027. The TAM figure that you disclosed actually suggests that FY '26 revenue could grow between 30% to 40% year-on-year. Is my assumption correct? Is there a possibility that you could actually beat this grow even higher? And you gave an MTP update before, but I think it might be likely that your FY '26 could outperform your revised MTP figures. So I want to know what's happened like in the last 3 months, what's changed? What's different?

Okay. Thank you, Shimamoto-san. So obviously, we don't do any FY '26 guidance until April. But certainly, looking at our TAM projections and using assumptions around market share, there is a case where there could be that kind of growth, which actually is in line with many other companies who are projecting into '26 right now. [Foreign Language]

Okay. And then as for the midterm plan, yes, certainly, we're surpassing lots of the goals we had set for the 3 years, and we'll be revisiting those numbers as we go into fiscal '26, which will be the final year of our third midterm plan. So please wait for that. [Foreign Language]

And then for the final part about what's really changed the last quarter, I'm going to ask Sanjeev to comment on that.

Yes. I think that's a really good question. I think, first of all, in the last 3 months, what we saw was a lot of pull-ins from customers in terms of their devices coming and ramping more quickly than we had thought. So some of the digestion period and the new product launches that we thought would happen early this year, they were actually pulled in. So I think that was one of the big factors.

As we look at the next year, we talked about this a little bit earlier. I think we can really point to the growth in custom ASICs as being one of the big reasons. In '25, there were a lot of new designs that were being launched. And now it seems that in '26, they're going to be moving into high-volume manufacturing, and that is going to directly contribute to our business. [Foreign Language]

[Interpreted] Next, Mr. Shibano from Citigroup Global Markets Japan.

[Interpreted] So I think your second half performance beat your original expectation 3 months ago, not just third quarter, but fourth quarter will probably beat your prior assumptions. And is it mainly GPU driven? Or is it the case that custom ASIC has already contributed to your better-than-expected performance in Q3 and beyond?

This is Sanjeev again. It's many factors. We were able to expand our production capacity much sooner than we thought. That was one of the big reasons, and we were able to resolve some of the constraints Beyond that, the business across the board is strong. It's not just one application that I can point to and say this is what led to the second half beat. The whole high-performance compute market, whether it's GPUs or custom ASICs or inferencing devices, they're all doing very, very well. And given our market position, we benefited from the growth. [Foreign Language]

[Interpreted] Mr. Yasui of UBS Securities, please.

My question is about China. And you are talking about very strong demand, the ploying demand in December quarter and the China revenue went up Q-on-Q nicely. So you've been talking about very strong demand, customer demand. Does it include China, the customer? And what is the outlook for the '26 China demand for the SoC? [Foreign Language]

Thank you for the question, Yasui-san. Yes, our China business remains quite healthy, around 20%, 25% of the overall revenue. It's an important region for us, both on the SoC side as well as memory. And without getting into specific segments, I'll just say that it has a very robust fabless community in China. So there's literally thousands of fabless companies, and we're leveraging our platform strategy on the 90k, which has served that market very, very well and has led to some of the good revenue figures that you're seeing. [Foreign Language]

A little bit of a follow-up question. Does that '26 demand includes the AI customer in China, is it going to be expanded into the '26? That's my last question. [Foreign Language]

I think for that part, I think the most we could say is that there is a variety of device segments in the SoC side in China. So they serve everything from the consumer electronics and mobility and high-performance compute. So that's all baked in also into our overall global TAM numbers, but nothing out of the ordinary when it comes to China. [Foreign Language]

Although we have received additional questions, I would like now to conclude today's session. [Foreign Language]

Thank you very much for taking your time to join us in our financial briefing despite a very busy schedule today.

[ Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call ]

Thank you very much for joining Advantest Corporation's IR Fireside Chat despite your busy schedule. We are excited to present this session and would like to introduce our panelists and our moderator. From the left side of the slide, Mr. Douglas Lefever, Representative Director, Senior Executive Officer and Group CEO; Mr. Juergen Serrer, Senior Executive Officer and Chief Technology Officer; Mr. Yasuo Mihashi, Senior Executive Officer and Chief Stakeholder Relations Officer. Mr. Mihashi will serve as the moderator for today's fireside chat session. I am Oike from the IR department, and I will be serving as your facilitator today.

The theme of the discussion is be the most trusted and valued test solution company in the semiconductor value chain. This is Advantest's vision statement, which we defined last year. Following the fireside chat, we will open the floor for questions from the audience. We plan to close this session at 6 p.m. Japan Time. Before we begin, we would like to remind you that today's session contains forward-looking statements, all of which are subject to risks and uncertainties that may cause our actual results to be different from those in such forward-looking statements.

Good morning, good afternoon and good evening. Thank you for joining Advantest Fireside Chat today. Let me introduce my -- or our CEO, Douglas Lefever, sitting beside of me; and also our CTO, Juergen Serrer. We will conduct today's fireside with all of us three.

Yes. Thank you, Yas. Great to be here. We're in a beautiful setting today. It's autumn here in Germany, and we're amongst the Mercedes-Benz area where many things started in the automotive industry. Myself, I came from a family in the automotive industry, not in Germany, but in the Detroit area. And that's how I started my career, but I quickly moved to semiconductors, and I have been in that industry now for 27, 28 years now. So happy to be here. Yes.

Hello, I'm Juergen. Here, Boeblingen was the first site of Hewlett Packard outside of United States. And I'm now 34 years in the ATE industry, Hewlett Packard, Agilent, Verigy, and since 2011 with Advantest. And yes, I'm happy that now the entire team is still in Boeblingen, and they can show everything what we are doing.

Let me start touching about our MTP3, I think. So it's been 1.5 years after we initiated this, the mid-term plan 3. I think kind of maybe we should start touching about what is the highlights about MTP3. And we still have 1.5 years more, and we will focus to expand or to extend our businesses. Doug?

Yes, I can start, Yas. But maybe before we even talk about the mid-term plan 3, we can just go back even a couple of years further. When we started talking about mid-term management plans, we did that around 2017 when Yoshida-san became CEO, we implemented these 3-year management plans, realizing that we needed to start planning not just 1 year out but take into account all the cycle effects. And so we started putting some strategies in place along with some key performance indicators to measure ourselves over a 3-year period rather than single years. And so we did that from '18 to '20 and then '21 to '23. And now we're in our third 3-year tranche and halfway through that. And each of those plants has been very successful. I think we've built new strategies upon ones that are still core to our success. And so as we look into the second half of this third plan, we're doing a lot of things right. And I think -- and the company has executed in a way that the management really was expecting, and we've been able to grow from plan to plan at a very high rate.

So as we look into this third plan, a couple of the themes now that we're having to adapt even more is around the concept of velocity and scale in our industry, that the time-to-market aspect is becoming more and more critical. The device generations are at a cadence of 1 year now as opposed to a couple of years or even longer in some cases in the past. And so we're having to shorten our development cycles. I'm sure Juergen can speak to that. But then we're also having to scale out at a level in our production that we never had assumed in the previous plans. And so we've done a good job. I think in the first part of this mid-term plan, and the second half is going to be a lot more of that scale, investing in our supply chain, investing in our production capacity. And as we reported in our last disclosure, we've upped the full year numbers, and we've updated the 3-year plan numbers now significantly, and that's a result of all the growth that we're experiencing along with our ability to respond to that growth.

I see. So as you know, we are doing many things, where -- it could lead our business to be -- or our position to be extended to a success, I think. But our success coming from its complexities, that's what we are talking in the market, I think. So what you can say about these complexities?

Well, it's a complex question, I've to think correct. So the AI market is enormously driven by performance and power. So all our customers are pushing all technologies to the limits, whether that's high bandwidth memory now becoming very fast, even more stacks, whether that's the I/O speed going 224 gigabit, now moving to optical integration, whether that's new process technology, whether that's 3.5 D packaging technology. And this is all stacking up and combined with what Doug said that velocity, the time to market pressure and the increased quality levels, this comes altogether and generates an enormous test challenge or an industry challenge. We call it industry problem. And that's where we are focusing it and where we are investing to resolve it.

So used to be testing has been caught as a cost because we're going to need to judge whether a device is okay or not. But now testing becoming something different than where we are, I think. And I think we are showing more volumes than what original testing is, I think. So is this trend that will be kept for at least in the next few years?

Yes. I'm very sure because the technology which is used, they always move to the edge. So our job in the meantime is not just no, no go, but we have to trim and calibrate every device, sometimes even subsections of every device to its optimal performance point, and having enough margins to the individual circuit. And that's not something we are here doing since many years, and it will continue that we trim and calibrate, that we make device better and that's a necessary step.

Yes. I would just add, yes, agree with Juergen. And kind of the equation has changed a little bit now with these very complex high-performance computing, AI devices and the packaging technology. And the cost of that packaging technology now is driving a focus on yield and quality. And that -- there's always that aspect in the past, but now these devices have such high ASPs and they're so costly in terms of the packaging, that the test content naturally is going up to make sure they're getting high-yield devices because it's just too expensive to throw away these expensive packages now.

I mean, another example is power pairing. So the process variation is so such -- and everybody wants to squeeze out the last piece of power. People want to pair chiplets in regard to best combination for power. And that's where we help. That's one of the areas where we are really good to provide that data to optimize the yield and the performance level of the bins.

It is really good for us, I think, test becoming so much of a value on the way to produce very complicated devices, including miniaturization technologies and heterogeneously integrated technologies. But, meanwhile, efficiency is always a requirement, is being required on testing, I think. So what is our approach to efficiency gain with such a complicated testing philosophy or testing methodologies in the future?

I mean let's start with a couple of things. And first of all, we are convinced that you have to extend towards a design because that is where the DFTs are being set. So that's part of the reason why we engage in our new initiative for our new initiative or product called SiConic, so close -- to close the gap between EDA and ATE, to prepare, to have a good sign off, to also allow that the designers can talk to the test engineers, test engineers can move the results back much better and that flow is closed. Second, we certainly invest tremendously into automation tooling, ATE software, AI tools ourselves to make our users much more productive. And third, and I think that's what we call as distribution of test. Sometimes, our customers don't know where to put what content and what content they have to add. And there will be -- we have a strategy of allowing the distribution of tests along all test insertions, whether that's engineering at wafer sort, hot/cold package test, burn in, system level test. So that's just a few highlights.

Yes, I would -- the other thing to add is I think in -- on the previous mid-term plans, we've done a good job of adding some of those pieces in that back-end flow. So to Juergen's point, as the distribution of test moves around depending upon the type of device or where it is in its life cycle, our approach is being able to cover those different insertions. And so I can remember actually -- just going back to the 2017 time frame, I still have a picture of the whiteboard that we made of this kind of moving to the left and integrating EDA to ATE and going right with system-level test and having cloud-based data analytics to tie them together. And that was all the way back now 8 or 9 years ago. And throughout that first and second plan, we've made some inorganic moves and acquisitions. We've done some organic development on things like die-level probe. And now we're putting those things together, and we're seeing the effects of those investments and strategies.

Yes. Indeed, we are making good kind of progress, I think. So I think my next question is since we've been doing great, I think. But meanwhile, we must consider where the risk is hidden so that we better do consider some risk factor on the way over our company growth and our company strategies. Juergen, where you see some risks we should think about. So we are doing right on our production capacity up, which is one of the biggest risks what we are having, so that we are working in. So what are the risks?

Yes, I get this question a lot, because everyone want to talk about bubble and what happens in a downturn. And I think this is -- for one thing, I believe this is different. In some ways, it's just a bigger wave. In some ways, it's similar to what we've seen in the past, where initially with a wave of technology change, there's initially an infrastructure or enterprise level growth and that typically gets followed up with something more at the consumer level or in this case, people talk about the edge. And I firmly believe that, that will happen, the timing of when the handoff from enterprise to edge is still a question, I think, that's debatable but not about if it's going to happen, it's about when. And so we're fairly comfortable in that, that will happen. And those volumes could be orders of magnitude higher than what we're seeing at the data center level. So we have high confidence that the future will kind of track with what we've seen historically.

That being said, we've done a couple of things, and maybe Juergen can talk about maybe the platform approach, which the company has really been disciplined about, that helps us through kind of the ebb and flows of the industry. But from a structure standpoint, we're being very disciplined in our cost, particularly in our fixed cost level. So I think we're pretty well prepared for any kind of change in the market temporarily. And then the last thing I'll say is that while AI and HPC have driven the market, our portfolio solutions can adapt to wherever there is good segments and -- especially when the consumer comes back, we have a very, very robust portfolio of test and measurement products to address those segments.

Yes. And let me maybe interject here. So I think the risk of capacity, I think, is even an opportunity also. So meaning we have been investing so much in our flexible supply chain so that we can scale and handle the uncertainty that we believe that our capacity or manufacturing and supply chain in the meantime is the competitive advantage.

Sure. And in the materials on the way of revised MTP3, we stated we will increase our R&D expenditures because so many different technologies is coming up and so many complex test flow so that we need to build something really surprising in the market, I guess. So CTO, you're having so many plans, I think.

Yes. Well, I think that's the nature of AI right now, that everything is so fast. They are various technology options the market may take. And so it's answered. So what you have to do is, I think, multiple things. First of all, you have to find out what's coming, what's not coming. And we have established a really tight relationship to industry experts, customers but also to leading partners to find it out. And if you need to develop, a new technology may take 5-plus years. If you start a product, it may take 3 years. If it's a software enhancement, 0.5 year.

So the most critical one is the ones where are far out and you need a long lead time. So our ability to predict trends, I think, is really good, and we have a good hit rate. And then you need to invest into the different technology options. Third, that's more the scaling aspect, as Doug mentioned. You also have to then think if you identified the industry product, how to map that on our platform in a scaling way. So that at the end, everything has to fit together and become effective. That's usually the second step that we build scalable solutions which are compatible to what's already installed. That's a big value for our customers so they can flexibly shift capacity, and we use the assets, but also allow that platform to be extended and scaled to future needs.

Yes. I would add to that, too. I'm always challenging Juergen on the R&D because I think more right now is better. But the other thing we can't do it all ourselves is another point, especially now we have to approach things not from just a tester, but a test cell perspective. And so we've engaged with very critical partners in the industry. And a lot of times, we are kind of co-investing with those partners to develop that full test cell solution. And so sometimes, I view that as R&D dollars or yen or euro in those cases, that doesn't necessarily show up in our direct R&D, but it's certainly focused on development of critical solutions to address these industry problems that Juergen spoke about.

Yes. So I think we are really extending through your CTO networks, and Dough, your networks, on how we can expand the area and the technologies that needs to be combined with all the technology which is coming, I think. But internally, our operation is getting bigger along with our business size. So I think we have some challenges internally too. How we should try to further engage? So from internal CTO viewpoint, what are you focusing?

A couple of areas. First of all, we are continuously investing into what we call refreshing the platform and the architecture. And those things take a long time, so you have step-by-step continuously invest. Second is we run programs that we can run now our projects for V93000 in various R&D labs. I mean it started all here in Germany, but now we also -- we have extended that to China, to Japan, and we're also now starting some projects together in U.S. So this gives us the flexibility to allocate resources. And combine things and leverage and get these synergies out of it. And next is most likely also -- most likely is investment into more software, automation and AI to make us internally more productive. That's not only on software area, but also on ASIC design, thermal simulations, mechanical simulations, and those are just a few points.

Yes, having those, we have very large R&D hubs here in Boeblingen and over in Japan. Those are our main, our 2 big hubs. But I think what we'll see in the future is, some level of local R&D, specifically placed around customers because the solutions are so complex that there has to be some touch of locality to help implement new solutions. And so I see us heading in that direction, into the next couple of years.

So next question is, it's been, I think, 14 years after company Verigy and then company Advantest has been together, I think. So there are lots of -- many discussions, I think, we've been through, and now we have really became big parties, one big family now. So on our way or from here to future, I think, so we really need to think about cultures inside of the companies, how we can -- how we should express as a management of our company cultures. So we -- you in as CTO taking care almost all BUs, so Juergen, you start, I think.

Well, I think we have this nice culture of teamwork and collaboration. And this is important because people need to talk, not just within R&D, but to our salespeople, to our application engineers to really find out what is important or not. And this is very important in this time to market at least. Second is this is also a collaboration with partners, that we are openly discussing what are the industry problems coming, and then turn it into, let's say, solutions. And as I mentioned, part of the solution to address this complexity is the distribution of test. So now we have to address that the different BUs or different products are linked together. Therefore, this collaboration or skill or culture of collaboration and teamwork gets more and more important, not just outside, but also inside. And this paired with curiosity, the passion, I think that's, I think, a unique characteristic of Advantest.

So I think, we have initiated our activities or our philosophy, integrity specifically. So it was -- I think we have communicated this in about 2018. And now it's been becoming an almost more than 5 years, and we have been expressing at how it's important to integrity is. This activity along with our daily communication operations, was it helping our commonality of what we care the most?

Well, I mean, the result show it, right?

Yes. I think this -- the concept that we started with integrity, each letter of integrity has its own meeting that we focus on for different parts of the company, is super important to Advantest. I mean our reputation is a company of high integrity, and our vision is to be the most trusted and valued suppliers. And I think we're living up to that. We're not perfect, but it's not because we don't ever have high integrity. I feel confident in saying that our culture is very well established, and it's something that we protect and hold very dear to us.

I mean, we're a 71-year-old company that now is a blend of Japan, who has this very long-term view, very service oriented, excellent engineering technology, the German precision capabilities and approach to platform discipline and the teamwork and then the Cowboys from the U.S. But we've -- honestly, we pulled this off as a company, a lot of people would have doubted. We've been able to take that -- the best parts of those 3 cultures and then you add into it the Southeast Asia, Taiwan, Korea and other parts of Europe. I think we've done an excellent job in the company of taking those different cultures and putting them together inside of the Advantest culture, again, which is built around this concept of integrity.

I can see. So, Doug, you've been a CEO like 1.5 years, I think. So I think what you said -- I think is supported after you became a CEO, I think. So our company passed more than 70 years, I think. So there are many Japanese culture-based philosophies, I think. So now 1.5 years and more in futures, I think. So I think we're really being diverse, like what you said, I think. But how we should expand our company cultures to be more aggressive or more humble, I think. Any comment?

Yes. Well, it has been 1.5 years, a little less hair and a few more kilos I'm sure, but I have enjoyed it. And one of the best parts of the job is going to the different offices around the world and spending time with our employees around the world. And for sure, the world -- it's not just device complexity. We often talk about the world that's more complex now in so many ways. And so, to have a network within Advantest that can communicate clearly and be on the same page strategically is not an easy undertaking. And so we spend a lot of time in our management team, and we have this really wonderful I would say, 3-way matrix where we have our business units, which are driving the P&L, we have the functional groups that are supporting the different functions, service support, sales, administration, operations, these things.

And then we have sort of a third layer, which is our regional-based entities that then all cooperate together and gives us the local blend on top of those business unit and functional unit matrices. And so I'm sure other companies have tried to do this, but I think it for us, it's really worked quite well to address how we scale if the business moves in one region versus the other, depending upon geopolitics. Our footprint is already in, I think, 16 or 17 countries. So it's easy for us to scale depending upon where the business ends up happening. So that's something I think we'll see more of, and we should be proud of, I think, that 3-way matrix that's really led to a lot of success.

Okay. Let me touch again about our automation of test, I think. So we are -- or what we need to do aiming for in future about these automations, Juergen?

Well, as I had already said, things become much more complex and the time-to-market pressure is continuing to dominate everything. We have to enable what we call automation or an entire flow. And that's where we are working on. And this also is our internal R&D, but also working with partners to have all pieces lined up and interacting efficiently. I think that's the main direction. And this means we need to work with EDA companies to prepare the front end, the test content, then we need to -- our solutions need to be able to efficiently manage and control the test content and move content around to the different insertions. And certainly, the results we need to feedback, to process, to design for improvement. This also includes test cells. I strongly believe that die level probing will need to come. The thermal is one of the key challenges in the industry. So you also have to think about the test cell spec, whether that's wafer wort or whether that's in a final test, if not kilowatts of the thermal control, vast thermal control, but also in SLT, the economics as a last quality gate. All those pieces have to interact and allow our customers to achieve the time to market, the quality levels and the productivity. So this is the main direction that we are heading.

Yes. I would just add. If you look at our history now going back again to the early mid-term planning, we basically been marching toward this ultimate goal. So we took the decision in 2017, 2018 to really double down on semiconductor tests. We felt like that was going to be a place there's enough there for us to focus on that. And then as we went forward, we picked up different pieces, the solutions. Right now, we've been integrating and enabling this automation of solutions. And ultimately, there'll be this back-end flow, and it'll be different for different devices and even different customers. But at that point, Advantest will have successfully put this capability in place where we can enable this automation. And so ultimately, the goal of the company is to really be able to provide this enablement of the back-end flow that is so much more complicated now than it was just 5 years ago.

Yes, I think -- well, we keep getting complex. It's been so compressed. So I think this complexity is really the thing -- well, it's going to keep driving our activities. But also, this is one of the biggest hurdles for our customers. So that we keep focusing on this kind of complexed semiconductor, I mean, technologies and the industries. Well, it was a good communications and any insight and inputs. Thank you so much. And I think we now moving to Q&A, but Dough, any other comment at the end?

Yes. I'll just say that there's never been a better time in our careers for test. And we've lived through some -- so we've seen lots of changes and ups and downs. And we never fully expected things to get to where they are already now. But the company has just been investing continuously for this time. And like I said, there's -- we're kind of in this period of accelerated growth where test is just going to continue to be a value-added part of the semiconductor value chain, and we feel positioned going forward as a company.

Let's now move to questions and Q&A.

Goldman Sachs Japan, Mr. Nakamura. [Foreign Language]

Thank you very much for taking my question and thank you very much for a wonderful session today. My question is regarding to the die-level probing. I think there were some remarks made several times during this session. And I just wanted to understand how you're looking at this opportunity going forward. We understand that the next device of the merchant GPU may potentially start to adopt the die-level prober. So I wanted to see when you would potentially see the contribution in terms of earnings and how we should quantify that impact?

[Foreign Language].

Okay. Yes. Thank you, Nakamura-san, good afternoon. Thank you for the question. So I'll go first and maybe between Juergen and I, we can expand on the die-level probe opportunity. We definitely -- from a high-level standpoint, we definitely are seeing traction built for die-level probe insertion for known good die and for known good CoW use. And so this is a very dynamic area because it's different. And the value proposition seems like it started to be fairly compelling around this insertion. In terms of timing, we see kind of later in next year, really there to be some definite ramping potential for this business, followed by several years of pretty high growth. And I'll just put a condition on that, that again the use case and the value add for this insertion has to be very clear for it to have that kind of aggressive ramp.

[Foreign Language]

Well, so let me give you some background why we believe that this is an opportunity for us. The power levels at the wafer test are so high that thermal control and warpage at the wafer level -- the entire wafer level is too high and difficult to manage. So people really want to do real known good die and want to do matching of chiplets later on. So they need to perform very precise and accurate known good die test at hot temperature.

[Foreign Language]

So going to a die level, whether it's die or CoW, enables our customers to do much more precise, the size of measurement, and that's the driver for this opportunity.

[Foreign Language]

So next question is from Morgan Stanley MUFG Research Japan, Mr. Wadaki. [Foreign Language].

I'm Tetsuya Wadaki. My question is about AI. How can I use AI to improve and enhance your semiconductor testing business?

[Foreign Language]

So certainly, we use AI to improve the efficiency in R&D. So just to give you a few examples, we use that for software development, code completion, another interesting case is automatic test case for software test generation. And that really helps us to improve time to market on the software development.

[Foreign Language]

Another interesting case is on the hardware side. You may know that ASIC design is one of our key technology and using the latest tool set from the EDA industry with AI really helps us to speed up the ASIC development, FPGA development which is -- will be used and is used in the hardware design.

[Foreign Language]

And we do not stop with R&D. So we also use this kind of technology to enable our customers and our sales and support people, so code completion for programming, software checking, debugging tooling. I mean, those is being rolled out now. And with that, we're going to be more effective in our -- supporting our customers and our customers themselves are gaining efficiency through AI.

[Foreign Language]

Let me add one last thing, which is one of the reasons we have a lot of confidence in just the industry and AI is because of what Juergen mentioned. On one hand, we're using it extensively for our development, we're using it in our own operations to drive velocity, productivity. And then also we're enabling it to be used with our testers. And we can see the effects of that. And so when we look at it just as Advantest, we see just the amazing power that this is enabling in the industry, and if all companies are doing what we're doing, there's a lot of reason for optimism for AI. So I just wanted to make mention of that.

[Foreign Language]

Then next question is BofA Securities Japan. Mr. Hirakawa, please? [Foreign Language].

My question. We know that Advantest is one of the most successful Japanese companies in terms of globalization, leveraging acquisitions and actually, I have a question to Doug. You've been in this position for more than a year. So what's the most difficult part for you to integrate this management at this company as a global company? And what have you changed the company in terms of the culture because Yoshida-san was a great CEO and you are doing great. So what is your achievement so far?

[Foreign Language]

Yes. Thank you very much, Hirakawa-san, for the question. I just want to say first that this -- our globalized company and the focus on teamwork across the entire company didn't start in the last year or 2. It started a long time ago in the company. Advantest has always been a company on the cutting edge in terms of its ability to be a global company and didn't start with me. It didn't even start with Yoshida-san. We are just building upon the legacy of a lot of different leaders in the company. And so I want to start by saying that.

[Foreign Language]

But there are 2 areas, maybe I'm focused on continuing. One, we showed that slide about the matrix and the regional aspect of our business. And one of the key things right now because the device complexity is driving these very integrated solutions, Advantest is unique in that we have different kind of products and technologies across the company. And Juergen, 1 of his -- he's got 2 roles, but 1 of his key roles as CTO is to cut across those different product lines and technologies and begin to integrate them into the test cell and test cell solutions. So that's kind of going beyond what we had been in the past. And so I think encouraging the company to continue to integrate technology across our different domains is very critical.

[Foreign Language]

And the second thing just quickly is that Advantest has a history of having very strong local presence and because of the need to be tightly coupled with our customers as the speed of the industry continues to go beyond our expectations. The local Advantest entities become very critical in order to support that dialogue with customers and partners. And so that's something you'll see us continue to do is to empower the local Advantest entity in a very concerted approach with our business units and our functional units.

[Foreign Language]

So next question from Citigroup Global Markets Japan, Mr. Shibano. [Foreign Language]

[Foreign Language]

So my name is Shibano. My question is directed to Mr. Juergen Serrer in relation to SiConic. So I understand that SiConic is a solution that will bridge the gap between ATE and EDA. Is this meant to lock in existing customers, if I can put it that way? That's my first question.

My second question is that is this going to help draw in new customers, customers that were not doing business with Advantest previously?

And thirdly, in terms of your relationship with EDA, are there certain things that are unique to Advantest, for instance, the collaborative nature of your company of your relationship with EDA that cannot be matched or copied by others?

Okay. So it's 3 questions. So this is a new opportunity for the industry because in the past, EDA and ATE has been 2 different ecosystems in that sense. But now the complexity is so high that solutions are needed to bridge that gap. And our play, as I said, is SiConic. And so itself, it's a business opportunity for us, but it also helps certainly later on the following insertions because sign off pre- and post-validation is a big market. But also the DFT developed there is the basis for the later test.

[Foreign Language]

Okay. So what's unique? I think Doug and Yas already mentioned, it's, I think, our culture. We have good collaborations going with all EDA vendors, whether that's on executive level but also management level, engineers level and one joint projects. And that's needed for this to make it successful. And I think there, our open culture helps and certainly also our position in the HPC market that this is not only with EDA companies, but it's also with the design and DFT departments of our customers. So bringing those 3 parties together is the secret and make it happen and leverage it across the entire flow.

[Foreign Language]

So now we are already approaching the scheduled closing time. I'd like to pass the microphone to my boss Mihashi-san. Could you please wrap up by your side?

Yes. Thank you so much again. I mean it was a really a good communication here, but also communication with many people. Thank you so much. But at the end, I just want to have one point I'd like to bring it up, I think. So I think having a good circumstance in future, what we are seeing, I think we need to have further step for capacity, what I think we are establishing now, I think. And with that, I want you to speak out maybe a bit more what we are -- what is going, I think.

[Foreign Language]

Yes, thank you. And so I spoke about the velocity, time to market, and then this is the question about the scale. And we've been -- the last couple of quarters been intentionally talking about our production expansion. I didn't mean to cause any confusion with -- so this is a way for us just to give some numbers so that people are all on the same page. And let me first say that this -- the numbers I'll give you now are not intended to be extrapolated into sales or available market. They're purely the capacity that we are putting in place for the market.

[Foreign Language]

So if we speak just from our SoC platform in terms of our targeted capacity, our intention is to put in at least 5,000 system capacity by the end of fiscal '26. And then beyond that, we've already laid in place the plans to go to 7,500 within some period of time, a couple of years or if we need to do faster, it's possible. Then a third step of 10,000 systems out into a little further out in time. So you can see then we have a clear direction of capacity expansion with some actual figures to clear up any misconception about the size of our scaling.

[Foreign Language]

And then on the memory side, certainly, the memory systems have a smaller ratio to SoC, but the trajectory of scale is very similar.

[Foreign Language]

And so again, this is just our capacity, including buffer, and not intended for people to make any kind of correlation to sales or TAM. But I just felt it was a good opportunity to be very clear about our production plans. Thank you, Yas.

Well, thank you, Doug.

[Foreign Language]

Okay. Thank you so much, and thank you for -- and now let's close the meeting. Again, thank you so much. Have a good day at night and morning.

Thank you very much for taking time to join Advantest Corporation's IR fireside chat despite your busy schedule today. [Foreign Language]

Thank you very much for joining Advantest Corporation's financial briefing for the second quarter of FY 2025 despite your busy schedule. I'd like to introduce today's speakers. From the left side of the slide on the screen, Mr. Douglas Lefever, Representative Director, Senior Executive Officer and Group CEO; Mr. Koichi Tsukui, Representative Director, Senior Executive Officer and President, Group COO; Mr. Makoto Nakahara, Senior Executive Officer, Leader of CEO Office; and Ms. Hisako Takada, Senior Executive Officer and CFO. Mr. Sanjeev Mohan, Senior Executive Officer and CCRO, was scheduled to attend is unable to attend due to unforeseen circumstances. Mr. Makoto Nakahara will be attending on his behalf today. I'm Samba from IR Department serving as the moderator for today's session.

In today's financial briefing, Mr. Lefever will provide a summary first. After that, Ms. Takada will report Q2 FY '25 results and full year forecast. Mr. Lefever then will present the third midterm plan update before entertaining questions from the audience. We plan to close this session at 5:30 p.m. Japan time.

Before we begin, we'd like to remind you today's briefing contains forward-looking statements, all of which are subject to risks and uncertainties that may cause actual results to differ from those forward-looking statements.

Now Douglas will present the summary of this quarter. Doug, please go ahead.

Good morning, and good afternoon, everyone. Thank you for joining our financial briefing for the second quarter of FY 2025. We are pleased to report that our second quarter of FY '25 results exceeded expectations with sales surpassing our July forecast and remaining close to the quarterly record achieved in Q1. Operating income and net income also beat our July forecast. Although they declined quarter-over-quarter, the decrease is mostly due to changes in the product mix and an increase in SG&A associated with a onetime charge related to a small growth investment.

We are raising our full year guidance for FY '25. This reflects our stronger-than-expected first half results and the fact that the digestion we anticipated in the second half is offset by the acceleration of tester demand for next-generation devices. Takada-san will cover these details in her prepared remarks.

We are also raising our 3-year midterm plan financial targets. This reflects the robustness of AI-related demand, our enhanced supply capabilities and our market share outperformance. In light of a robust industry outlook and our commitment to maintaining our leadership position, we are strategically accelerating growth investments in technology development, automation of test, supply chain and expansion to adjacent areas.

Before we dive into the details of our financial results, I'd like to start by sharing our view of the business environment and our outlook for the tester market in calendar year 2025. We believe the fundamental dynamics of the semiconductor industry remain largely unchanged. Growth continues to be driven primarily by AI-related applications, while demand in other segments such as automotive and industrial remain relatively subdued. Overall, our visibility has improved compared to 3 months ago. We have grown confident that the favorable business environment supported by the ongoing build-out of global AI data center infrastructure will continue. However, there still remains some macro risks, including ongoing geopolitical tensions and the possibilities of sharp fluctuations in foreign exchange rates.

With these factors in mind, I will now update our market size forecast as follows. For the SoC tester market in calendar year 2025, we are raising the market size estimate range to USD 6.5 billion to USD 6.9 billion, up from our July estimate of USD 5.7 billion to USD 6.3 billion to reflect stronger-than-expected AI-related demand and our enhanced supply capabilities. For the memory test market in calendar year 2025, we are narrowing the range of the market estimate to USD 1.8 billion to USD 2.1 billion from USD 1.7 billion to USD 2.2 billion, with the midpoint unchanged at USD 1.95 billion, a relatively high level by historical standards. Taking all these factors into account, we now expect the semiconductor tester market to grow by about 44% year-over-year at the midpoint in calendar year 2025.

Takada-san will now provide an overview of the Q2 FY '25 financial results and the full year forecast. Takada-san?

From now on I will explain the Q2 results and the full year outlook. Starting with the Q2 results. In Q2 FY 2025, amid a favorable business environment, we recorded sales that were nearly flat Q-on-Q and delivered results exceeding our July forecast. This was mainly driven by increased tester sales for non HPC/AI devices. Additionally, the depreciation of the yen against the U.S. dollar compared to the exchange rate assumed in July also served as a tailwind. I'll go over details of the results in the subsequent slides.

Starting with sales by segment. Top right, Test System sales business. SoC Test System sales were JPY 173.7 billion, a decrease of JPY 17.6 billion Q-on-Q. Sales saw a decline, particularly for HPC/AI-related devices due to a pull-in of product deliveries in Q1. Meanwhile, sales for non-HPC/AI devices, including smartphone Application Processors increased quarter-over-quarter. Overall, SoC Test System sales remained elevated in the second quarter. Memory Test Systems sales were JPY 43.9 billion. Sales of high-performance DRAM, including high-bandwidth memory increased. For other systems, sales of device interfaces and test handlers have increased.

Next, bottom right, services and others. In addition to the growth in support services sales driven by an increasing installed base, sales of nanotechnology products also increased.

Next, sales by region -- ship to region. Taiwan, we saw sales decline Q-on-Q, mainly for high-end SoC applications. On the other hand, for Korea and China, in addition to the growth in SoC Test System sales, sales of memory test systems also increased. In the second quarter, the decline in sales in Taiwan was offset by growth in other regions. As the need for semiconductor quality assurance continues to grow, we believe our company is well positioned to benefit from the increasing global demand for testing.

Next, sales, growth and profits. Second quarter gross margin declined quarter-on-quarter due to a decrease in sales of highly profitable SoC Test Systems, but remained elevated at over 60%. SG&A, including the total of other income and expenses increased by JPY 7.5 billion Q-on-Q. This was mainly due to the recording of approximately JPY 2.5 billion from the partial transfer of business in Q1 as well as lower SG&A expenses in the previous quarter. In the second quarter, we booked approximately JPY 2 billion of expenses related to initiatives to enhance our mid- to long-term competitiveness. As a result, the operating profit margin in Q2 reached 41.3%, maintaining a level above 40%, consistent with the previous quarter.

Next, investment cash flow. As you can see on the left-hand side, in the second quarter, R&D expenses were JPY 18.3 billion and CapEx was JPY 9.4 billion. On right-hand side, you can see the cash flow. Free cash flow was JPY 79.3 billion.

Balance sheet. Cash and cash equivalents were JPY 298.2 billion, while inventories remained at the same level as the previous quarter at JPY 210 billion as of the end of September. Ratio of equity attributable to owners of the parent was 62.8%. The share repurchase program announced in April this year was completed in September. The total number of shares acquired was approximately 6.64 million shares for a total cost of approximately JPY 70 billion. We will continue to manage our balance sheet with a focus on maintaining optimal balance between growth investment and capital efficiency.

From here onward, I'll talk about the full year guidance for this year. In light of the first half results and the outlook for the second half of the fiscal year, we are raising our full year forecast. Sales, JPY 950 billion; operating income, JPY 374 billion; income before taxes, JPY 371.5 billion; net income, JPY 275 billion; and basic EPS, JPY 378.06.

We have raised our sales forecast by JPY 115 billion from the July projection. The trend among our customers to strengthen quality assurance, particularly for advanced semiconductors continues, and we expect this to drive further growth in testing demand. Amidst robust demand, we continue to focus on enhancing our product supply capabilities. We now expect FY '25 full year gross margins to reach approximately 61%, slightly higher compared to the July projection due to improved product mix.

Following the upward revision to our sales forecast, we expect the operating profit margin to rise to 39.4%, reflecting economies of scale and an improved product mix relative to the previous forecast. The exchange rate assumptions for the second half of FY '25 are JPY 140 for the U.S. dollar and JPY 155 for the euro. Our latest forecast for the impact of exchange rate fluctuation on FY '25 operating income is positive JPY 2.9 billion per JPY 1 depreciation against the U.S. dollar and negative JPY 0.3 billion per JPY 1 depreciation against the euro.

Next, segment sales for the year, starting with Test Systems. For SoC Test Systems, we have revised our FY '25 sales forecast upward by JPY 91 billion from the July projection. Customers' robust appetite for capital investment continues, fueled by growing complexity, performance improvements and production volume growth of HPC/AI devices. Now that we have better visibility into demand compared to 3 months ago, driven by the migration to next-generation devices beyond CY '26, we expect the temporary digestion phase in the second half to be more moderate than anticipated in the July projection.

Beyond HPC/AI devices, test demand outlook appears to be gradually improving heading into FY '26. This is supported by the Q-on-Q increase in sales for Application Processors in Q2 as well as early indications of bottoming out in the automotive and industrial equipment sector.

Memory Test Systems. We have revised our FY '25 sales forecast upward by JPY 14 billion from the July projection to JPY 153 billion. In addition to HBM, tester demand for high-performance DRAM such as DDR and GDDR is also expected to increase.

Finally, services and others. We have revised our forecast upward by JPY 5 billion from July projection to JPY 103 billion. This reflects the steady performance of support services and increased demand for tester interface boards associated with SoC Test Systems. With the second half of FY '25 already underway, we remain focused on execution in order to deliver recording high sales and profits.

That concludes my presentation. Next, Douglas will provide an update on MTP3.

Thank you, Takada-san. As we are now 50% of the way through our 3-year midterm management plan, I'd like to give an update on our progress and highlight some revisions we are making. First of all, as we experienced last year and continue to experience this year, the demand for semiconductor testers has surpassed initial projections established at the outset of our midterm plan 3, fueled by both rising volume, increasing complexity of high-performance compute AI semiconductors. In addition, our ATE market share has also outperformed prior assumptions, propelled by enhancements in our customer support infrastructure and continued improvements on our product supply capabilities.

We recognize that the AI industry is dynamically evolving, which makes forecasting future demand for our solutions inherently challenging. However, our customers indicate a likely continuation of a favorable business environment for the remainder of the midterm plan 3 period with test content continuing to grow.

After reviewing these factors, we have revised the previously disclosed management indicators. Meanwhile, we are making solid progress across the strategies and other key initiatives under our midterm plan 3. Accordingly, no major changes have been made as our strategies related to growing our core businesses, adjacent expansion, operational excellence and sustainability are serving us well. Therefore, we will only be updating the financial metrics today.

Also, while our existing shareholder return policy will remain unchanged, as a priority, we remain firmly committed to accelerating innovation-led growth by increasing R&D and strategic investments.

Now I'll explain the revised management metrics. FY 2024, the first year of our third midterm management plan delivered record-breaking results, driven by robust tester demand for AI-related semiconductors. In FY '25, robust demand from HPC/AI-related customers has sustained momentum, positioned us for another record-breaking result as noted by our CFO earlier.

Taking into account these developments and our current outlook for the business environment in FY '26, we are raising our midterm plan 3 management target ranges as follows: sales, JPY 835 billion to JPY 930 billion. And please note that we are leaning toward the higher end of the range, partly due to the exchange rate assumption for FY '26. Operating margin, 33% to 36%; net income, JPY 207 billion to JPY 248 billion; ROIC, 34% to 39%; and basic earnings per share, JPY 284 to JPY 341.

AI is gaining strategic importance across a wide range of industries and companies, driving intense competition among leading AI enablers and magnifying the influence of their capital investments on our business performance.

In order to account for potential demand fluctuations, we have formulated a range of our revised targets. Looking ahead through FY '26, our base case scenario anticipates continued robust tester demand, driven by high-performance logic and DRAM, although we may have -- we may experience demand fluctuations on a quarterly basis.

I will share our approach to shareholder returns before moving on to financial models and growth investments. Our shareholder return policy remains unchanged, reaffirming our commitment to shareholders. It is built on 2 pillars: First, stable and continuous dividends; and second, opportunistic share repurchases. In line with this policy, we will increase the interim dividend for the first half of FY '25 to JPY 29. Please note that our minimum annual dividend threshold is JPY 30 per share. We have executed 2 repurchase programs so far during the midterm plan 3 period. And today, our Board of Directors has authorized a new share repurchase program as outlined on this slide.

This slide shows our cost and profit target model, which provides a simulation of profitability at the JPY 1 trillion mark, an eventual milestone and also a nice round number. The increased complexity of both semiconductors and our industry at large presents us with a greater opportunity, yet it also poses a formidable challenge in the form of heightened uncertainties and new risks. To navigate this complex reality, I would like to reaffirm the 2 key priorities we have emphasized since the start of our Midterm Management Plan 3.

First, operational efficiency and resilience. Operating leverage improvements are materializing as projected in our plan 16 months ago, and we remain intensely focused on operational efficiency. By continuing to streamline operations and enforce cost discipline, we are building a more resilient and flexible cost structure that delivers stronger profitability across all phases of the business cycles, especially during downturns we may face in the cyclically up industry.

Secondly, R&D investments. Our R&D investments have powered sales growth and gross profit margin improvements. Our success today reflects years of sustained R&D investments. In the cyclically up industry, we firmly believe that continued investment will further fortify our position and enable us to reach new heights. To achieve this vision, our commitment to prioritizing R&D remains unwavering. We will continue to increase R&D spending for future growth through the Midterm Plan 3 and beyond, even during periods of market softness.

As our sales have expanded rapidly, our modeled R&D rate may appear modest. However, our R&D spend will increase by more than 40% from our last midterm plan. Over time, I would expect this rate to grow from the rate in the current model. Therefore, taken together, the operational efficiencies and continued R&D investment at JPY 1 trillion revenue level have us aiming for gross margin above 60% and operating margin in the high 30% range. I would highlight this model does not assume any inorganic growth.

Let me conclude by outlining the direction of our growth investments. From this year onward, we believe the semiconductor industry will see rapid adoption of new architectures and packaging technologies. For example, transitioning from FinFET to gate-all-around along with backside power delivery, panel-level packaging and silicon photonics. These changes will make devices far more complex. And as complexity of semiconductors rise, time to market pressure and the cost of design and manufacturing errors will heighten the importance of yield. We anticipate that our customers will intensify their search for better test environments and optimize test flows. They will require higher precision measurement, greater throughput and automation of test.

To lead this transformation, our growth investments focus on 4 priorities: first, fortify our core business in the high-performance compute AI area, enhancing competitiveness where growth potential is greatest. Secondly, continue to expand adjacently into areas that complement our core strengths. Third, fortify our supply chain with partners, suppliers to secure capacity, resilience and quality. Fourth, accelerate strategic partnerships to innovate in creating compelling test solutions.

We will actively reinvest cash in these themes alongside increasing R&D expenses. In the first half of the midterm plan 3, we have already invested several tens of billions of yen in strategic partnerships with leading probe card manufacturers and will accelerate seeking to further such partnering opportunities.

Advantest's long-term goal is clear. We will continue to promote initiatives that lead to sustainability while focusing on solving customer challenges, especially the increasing complexity in semiconductor testing. Through these efforts, we aim to expand the economic and social value we provide to each stakeholder in a well-balanced manner. We remain committed to creating greater value by relentlessly driving these growth investments through the Midterm Plan 3 and beyond.

Thank you.

Thank you, Doug. Finally, we would like to share the latest updates from Investor Relations department. First, we plan to publish the 2025 integrated annual report on our website next month. This report will cover our corporate philosophy, strategies, governance and more. It is designed to be a valuable resource for shareholders, investors and a wide range of stakeholders.

Second, we are planning to hold a virtual IR event on November 17 for institutional investors and securities analysts. In this event, our top management will present a fireside chat to discuss MTP3 updates and future growth strategies, followed by a Q&A session to address questions from participants. Further details of the event will be shared soon.

Last but not least, on the 7th of this month, Japan Exchange Group announced the results of its regular selection for the TOPIX New Index Series and the list of constituent stocks. Our company has been selected to be added to the TOPIX Core 30 index on October 31.

This concludes our presentation. Thank you for your attention.