Advantest Aktie

[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.

Thank you very much for joining Advantest Corporation's Financial Briefing for the first quarter for FY 2025 despite your busy schedule. I'd like to introduce attendees from our side today from the left side of the slide, 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, appointed as CCRO, Chief Customer Relations Officer as of July 1 this year; and Ms. Hisako Takada, Senior Executive Officer and CFO. I am Simba from the IR department, serving as your moderator of today's session.

In this financial briefing, Douglas will first report the financial summary. After that, Ms. Takada will report financial results for FY '25 first quarter, and then Douglas will present FY 2025 outlook before entertaining questions from the audience. We plan to close this session at 5:30 p.m. Japan time.

In today's financial briefing, we will use Japanese, English, Japanese simultaneous interpretation. [Operator Instructions] Today's presentation materials are available on TDnet and our company website. The audience joining us from the telephone line is kindly requested to download the materials. 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 our actual results to differ from those in such forward-looking statements. Now Doug 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 first quarter of fiscal year 2025. We've delivered an outstanding start to the fiscal year, posting highest ever quarterly sales, operating income and net income. Our first quarter performance underscores the sustained strength of AI-related demand and is a testament to our ability and commitment to scale supply capabilities. This result could not have been achieved without the dedication of our production partners and suppliers. I want to extend my sincere appreciation to all of them for their continued support and collaboration. We also achieved a notable expansion in both gross and operating profit margins. This performance was made possible by a unique alignment of numerous factors: economies of scale driven by higher sales, including pull-ins, a favorable product mix, disciplined cost management, absence of one-off losses and the fruits of prior investments, particularly in capacity expansion.

Looking ahead, we are raising our full year guidance to reflect the stronger-than-expected performance in the first quarter. I will give details of this later in the presentation. While we anticipate a temporary digestion period in the latter half of the year, we expect growth to reaccelerate in FY 2026. This lumpiness is largely driven by the timing of next-generation device transitions. Since customer demand does not flow evenly throughout the year and can shift abruptly, we have been strengthening our operational agility and supply chain resilience to better respond to these fluctuations.

As we move forward, the central thesis we laid out in the third midterm plan of complexity-driven growth remains firmly on track and is expected to unfold for the remainder of the midterm plan period.

With that, let me turn the call over to Takada-san to provide details on our first quarter results. Takada-san?

I will now explain the summary of results for the first quarter of FY '25. In the first quarter, we achieved our highest-ever sales and profit on a quarterly basis. Continuing from the previous fiscal year, amid growing customer demand for AI-related product deliveries, we worked to expand the procurement of parts and product supply capabilities in order to meet delivery time lines to the greatest extent possible and successfully carried out timely product deliveries. Despite the yen appreciating against the U.S. dollar compared to the previous quarter, we achieved record high quarterly results, driven by a significant increase in SoC tester shipments.

Now before going into the details of our performance, I would like to first explain the changes made to our reportable segments. In efforts to provide comprehensive test solutions that include not only test equipment but also peripherals, Advantest revised its reportable segments starting from FY '25 based on the management approach perspective. Specifically, the previously 3 segments have reorganized into 2 segments, Test Systems business and Services & Others.

The Test Systems business segment includes SoC testers and memory testers as well as other systems. Products that are highly correlated with tester demand such as test handlers and device interfaces. In addition, products related to the system-level test business acquired from Astronics Corporation in the U.S. in CY 2019 are also included in other systems.

Service & Others segment includes support services, nanotechnology products and consumables businesses such as test sockets and interface boards for testing, which were acquired in the past through acquisitions.

Now let me move on to the details of our financial performance. Now I'll talk about quarterly sales by segment. Test Systems business is displayed on the right-hand side. SoC tester sales were JPY 191.3 billion, an increase of JPY 42.4 billion quarter-on-quarter. We were able to increase product deliveries compared to the previous quarter, mainly for high-performance computing/AI-related semiconductors, which continue to grow in complexity and performance. Memory tester sales were JPY 33.5 billion, maintaining a higher level comparable to the previous quarter, mainly driven by high-performance DRAM.

Now I'll talk about servicing others. While sales for support services maintained a steady level, sales for nanotechnology products declined compared to the previous quarter. Next, sales by region, ship to region. Starting with Taiwan. Sales increased significantly quarter-on-quarter, primarily driven by SoC testers. This is mainly due to higher quality assurance requirements for high-end semiconductors at several U.S. fabless companies. This resulted in an increase in sales to the related foundries and OSATs. South Korea, sales of memory testers and related device interfaces increased.

Now on to sales, gross profit and operating income. Gross margin increased quarter-on-quarter, primarily driven by the growth in sales of high-end SoC testers with high profitability. SG&A, including the total of other income and expenses decreased by JPY 27.5 billion quarter-on-quarter. As written in the footnote, in the previous quarter, an impairment loss of approximately JPY 21.4 billion was recorded for goodwill and intangible assets. Also in the first quarter, we recorded a gain of approximately JPY 2.5 billion from the partial transfer of a business. As a result, the operating profit margin for the first quarter reached 47%, marking a record high.

Now R&D expenses, CapEx and D&A. R&D expenses were JPY 17.1 billion and CapEx was JPY 6.1 billion. On the right-hand side, you can see our cash flow. In the first quarter, there was a decline in operating cash flow quarter-on-quarter due to an outflow associated with corporate tax, bonus payments and other items. Finally, balance sheet for the period ended June 30. Cash and cash equivalents were JPY 273.4 billion and inventories were JPY 209.3 billion as of the end of June. Ratio of equity attributable to owners of the parent was 64.5%. As our business continues to perform strongly, we will continue to work on cash allocation and balance sheet management while optimally balancing growth investment and capital efficiency.

This concludes my presentation. Now I will hand it over to Doug.

Thank you, Takada-san. Let me now share our perspective on the business environment and our outlook for the tester market in calendar year 2025. 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 remains relatively subdued.

Although the overall level of uncertainty has eased somewhat compared to 3 months ago, some risks persist. These include potential and 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 5.7 billion to USD 6.3 billion, up from our April estimate of USD 4.2 billion to USD 4.8 billion. Back in April, although we had observed robust demand, we maintained our January TAM estimate due to prevailing macroeconomic uncertainties. Now 3 months later, visibility has improved, and we have revised our forecast to reflect stronger-than-expected AI-related demand and our enhanced supply capabilities.

For the memory tester market in calendar year 2025, we are maintaining the market size estimate range of USD 1.7 billion to USD 2.2 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 33% year-over-year at the midpoint in calendar year 2025.

In light of the first quarter results and the outlook for the remainder of the fiscal year, we are raising our full year forecast as shown on the slide, with the numbers stated all in Japanese yen. Sales of JPY 835 billion, operating income of JPY 300 billion, income before taxes of JPY 297 billion, net income of JPY 221.5 billion and basic earnings per share of JPY 302.71 per share.

The upward revision of JPY 80 billion in sales is primarily driven by SoC testers with better-than-expected progress, particularly in the first quarter of the fiscal year. We expect a temporary digestion phase in the second half of the fiscal year for SoC testers due to the timing of next-generation device transitions with the growth projected to reaccelerate in FY 2026.

We now expect fiscal 2025 full year gross margins to reach approximately 60% and operating margins to reach approximately 36%, marking a historical high on an annual basis. As mentioned in my opening remarks, the strong margin profile in the first quarter was driven by a combination of factors. economies of scale, a favorable product mix, disciplined cost management and the benefits of past investments. Among these, economies of scale are particularly amplified, supported by demand pull-ins that boosted sales. While these factors are likely to be less pronounced in the remainder of the fiscal year, we will continue to invest in further capacity expansion and in other key areas as the anticipated ramp of next-generation devices from FY 2026 is expected to reaccelerate our growth trajectory following the temporary digestion period in the second half of fiscal 2025.

The exchange rate assumptions from the second quarter onward are JPY 140 to the U.S. dollar and JPY 155 for the euro. Please refer to the footnote #2, which shows the effect of exchange rate fluctuations on our operating income.

Now I'd like to specifically speak about our ongoing efforts to expand production capacity in anticipation of further growth in tester demand. Over the past several years, we have increased our production capacity by approximately 3x. This has enabled us to shorten lead times and respond effectively to rising demand. As we look ahead to a $1 trillion semiconductor market, we will continue scaling our capacity, both in SoC and memory testers. Going forward, we plan to expand capacity by more than 70% compared to fiscal year 2024. To support this, we will be adding production capacity with our partners. Furthermore, we will be investing in strategic inventories to maintain quick response times.

Next, I will explain the details of our sales forecast. For SoC testers, we revised our fiscal year 2025 sales forecast up by JPY 88 billion from the April projection. In the first 3 months of this fiscal year, we successfully capitalized on the sustained growth of AI-related demand by scaling up our supply capabilities. While we expect lumpiness in sales and deliveries in the second half, we are also preparing for what we expect to be a reacceleration of complexity-driven growth in fiscal year 2026 as new devices currently under development go into volume production. Meanwhile, demand in non-AI segments remains soft.

For memory testers, our fiscal 2025 memory tester sales outlook remains largely unchanged from the April forecast. As our customers continue to advance their technology road maps, we are placing the highest priority on expanding our supply capabilities in this segment as well, ensuring that we are well-positioned to support their evolving needs. For support services, we expect steady demand due to the continued growth of our installed base. Sales of test interface boards and test sockets remain on plan, while the nanotechnology business is experiencing some delays in demand.

Finally, I would like to close with the following remarks. We are pleased with a strong start to FY 2025. While the second half of the fiscal year may see a temporary digestion, we expect growth to reaccelerate in fiscal year 2026. Therefore, scaling our capabilities in our supply chain remains our highest priority. At the same time, we remain fully focused on executing on our 4 key strategies of outpace the growth in our market, expand adjacently into new businesses, drive operational excellence and enhance sustainability.

As we look ahead, we are encouraged by the evolving industry dynamics and confident in the position we are in. At our Q2 fiscal year 2025 financial briefing scheduled for the end of October, we plan to elaborate further on these topics as the third midterm plan is well due for an update.

This concludes my presentation. Thank you for your attention.

Asking questions regarding specific companies. CLSA Securities, Yoshida-san.

Yoshida from CLSA. I'd like to ask you about the quarterly sales momentum trend. I know that you are seeing an adjustment phase in the second half of the fiscal year, but could you please give us the current color of the quarterly outlook for the rest of the quarters in this fiscal year? Also I think Takada-san talked about the market outlook for 2026 in the last quarter as an optimistic view. But do you have any clearer view for the next year growth pace at present?

Okay. Thank you, Yoshida-san for your question. So first question was about the color of the remaining quarters for the year. So clearly, our first quarter was a banner quarter, and there is going to be some digestion. We see that the lowest quarter for the year will be in the third quarter with the fourth quarter resuming some growth trajectory that will then continue into FY '26. So that's sort of the profile that you can think about for the sales on a quarterly basis.

As far as '26 goes, what we've been able to say is just more qualitatively that we're very optimistic about 2026. With the additional wafer capacity and advanced packaging being added into the market, that's going to drive additional unit volume and test capacity needs. We've also seen that the hyperscale CapEx growth is remaining intact, and that's also a very encouraging signal for 2026. And then as the device complexities continue to become more sophisticated, that requires additional test content. And all those things continue to give us optimism about 2026.

And then we're hopeful at some point in time that the consumer and automotive segments also return to some level of growth. So for those reasons, without giving actual numbers, we do feel more and more confident about 2026.

Just for the clarification. You mentioned about the capacity addition of the -- 70% capacity addition. But when will be the time to fulfill this new capacity in the future?

Yes. Thank you for the follow-up. I would say, number one, we're able with our current capacity to meet all the current needs of our customers, which we've put a lot of effort into over the last several years and expanding. As I mentioned in the prepared remarks, we have tripled the capacity in the last several years. But as to this next step function in capacity additions, we're targeting for the end of 2026 to add both of this for our SoC platform as well as our memory platforms.

Next. We will take a question from Damian Thong, Macquarie Securities.

Congrats on the quarter. I just want to follow up on the capacity increase. The baseline here then is the last fiscal year. So I can understand that you are targeting for SoC tester, for instance, revenue somewhere in the ballpark of the [ mid-$700 billion ]. Is that the capacity amount we will be looking at? And then on top of this, the second part of the question I'd like to ask is maybe you can get a hint on where you see the growth in the adjacencies that you talked about earlier, in, I presume including in services as well as, for instance, in -- how you call it, in design support activities.

Thanks for the questions, Damian. Let me make sure I understand the 2 questions. One was just on the level of expansion for SoC testers with our production capacity expansion. And the second one, I believe, was about the engineering and test services business that we're developing.

I'll answer the first one, and I'm going to ask Sanjeev Mohan to answer the second one. On the first one, on the SoC side, the range of expansion is going to be in the 60% to 70% range based on our 2025 levels. And so we're having a significant expansion of the capacity. And one thing to keep in mind is we're just not building to the capacity that's necessary to only meet the next wave of demand. Obviously, we're going to put additional capacity in place in order to handle some of the volatility that we've seen in the past couple of years with unforecasted business. We've learned that it's very difficult for our customers to forecast some of the spikes in these AI-related waves. And for us to be able to respond quickly to those demands, we have to build in some additional buffer levels of capacity in order to meet those spikes. So that's -- the basic number is about 60% to 70% on the SoC from '25 to end of '26 where we see that being put in place.

And then I'm not sure I caught, so we may have to clarify a little bit more on the second question. But I do want to introduce Sanjeev Mohan. So Sanjeev is taking over for Mak Nakahara, who for many years, led our global sales and support activities in the company. Mak is continuing with the company as a close adviser to me in the CEO office. But Sanjeev now, who's been overseeing all of the U.S. and North America as well as European sales is taking over the global sales role for the company. And so I'm going to have Sanjeev answer the second part of the question.

As far as the adjacent growth, I mean, there are a few areas that we have been investing in. the SLT, System Level Test, we expect that business to grow in the future as the nodes get smaller, the demand for System Level Test will continue to increase. And as a company, we continue to invest heavily in that area. So that's going to be one significant business that we expect to grow.

We also have invested in our DI, Device Interface business. And we expect that business to continue to do well as more and more customers are asking for turnkey applications. And then there is engineering services or warranty support. As you can tell by our results, we are shipping more and more systems and that helps provide organic growth for warranty support. So that's another area that we expect in the future to do well and continue to grow.

In regards to other services, as a company, we have understood that our customers want more from us. And I think that provides opportunity for us to get into some services areas that we have not done in the future. I don't want to get into details of that because it is something that we are developing, but that's another area that we hope will add to our business results.

Can I just make one follow-up, small one? For the 60%, 70% increase, can I just clarify the baseline for that? Is that the average for 2025? Or should we think of it from the, say, the end of 2025? Sorry, from the end of 2024, early...

Yes. I mean from a baseline level, we're -- I would say, without quoting an exact number for our [indiscernible], we can ship more than 3,000 systems in a year. So you can kind of use that as a reference point then to build off of, if that's helpful.

Next question will come from Wadaki-san, Morgan Stanley MUFG Securities.

This is Wadaki speaking. So my question is, I guess, the focus really is the earnings, the sustainability earnings, whether it's special demand or temporary demand. So I think what I want to know is that was there an element of special demand in first quarter sales? And also, I want to know if there's upside to the second half forecast. And for the first quarter, SoC testers, like if you break it down between GPU and ASIC, can you give colors? So that would help me kind of explore how sustainable the current momentum is.

Thank you, Wadaki-san. So for the first part of your question about sustainability of some of the large numbers we saw in the first quarter. On the sales side, to a large degree, there was many pull-ins. And so we had originally not expected to have such a large quarter. We thought it would be spread out a little bit more. So there was a large degree of pull-ins. At the same time, the demand also was a bit higher than we had originally expected. So that's kind of the top line theme there.

On the profitability side, it's really the stars sort of aligned perfectly for us in the first quarter. So there is a really good product mix. There is a good degree of upgrades and licensing that always drive higher profits. As I mentioned in the prepared remarks, there were also some economies of scale and efficiencies. And then we didn't have any onetime write-downs. So that all led to this really, really great result in Q1.

Now some of those things are sustainable and some of them are not. And the things that are sustainable are things like as we look into the future, probably the product mix may not be quite as good, but still going to be very rich with the SoC versus memory. We feel like some of the efficiencies that we're driving are going to continue. But certainly, we're not going to expect the lumpiness over time to be perpetual across all of these different quarters. So I think as we look into Q3 and Q4, some of the effect of those pull-ins are felt in the lower sales.

And also, there's a lot of device transitions that are happening right now. So as some of the big AI accelerator, both on merchant GPU as well as the custom ASICs are coming up as well as the memory side with HBM transitions, there's a lot of work being done, investment being done to bring up those new types of devices that will show up later, more likely in FY '26. As far as the breakdown between kind of traditional GPU-based accelerators and the custom ASICs, we -- yes, we're not able to really give you that split because it gets into customer-specific things that we like to stay away from. But I mean, as you can guess, it's still largely on the traditional GPU basis. And we see the custom ASIC stuff growing now with a much larger portion coming in '26.

Next, Goldman Sachs, Nakamura-san.

I just wanted to also touch upon the second half guidance or maybe your September quarter guide as well as the second half guidance. I understand that there was a lot of pull-in into June quarter, but nonetheless, it seems like your guidance implies a significant decline into September quarter as well as second half. Is it a reflection of already a fixed sort of negotiation with your customers? Is it mostly a done deal should think about? Or is there some conservatism also baked into the guidance given the lead time? That will be my first question.

Yes. So this is Sanjeev Mohan, Nakamura-san. So as far as -- so long term, I mean, if we just step back for a minute, the business, the AI boom will continue. So this goes back to the sustainability question, we think the '26 will be strong and the business will continue to be very good. Q1 just happened to be much stronger than we anticipated. So it is -- from our perspective, it isn't that there is a significant decline in the second half. It's more that Q1 was much stronger and then there were some pull-ins. As you also might know from just checking the industry data that a lot of the capacity gets placed during the first half or first few months of the year. And our customers asked us to pull in.

As now we look into the calendar year, there's only a few months left and the preparation is really now started for the next year. So this is why Doug mentioned that we expect Q3 to be kind of the -- our Q3 fiscal year to be kind of the bottom and then the business to pick back up again and accelerate going into Q4 and then into 2026.

Just a quick follow-up. Could you also speak about the competitive dynamics for your SoC tester side, especially vis-a-vis your closest competitor in the U.S. in the markets such as GPU as well as the custom ASICs market?

Yes. I think we are positioned very, very well right now. I would say that we should hold -- continue to hold our market position that we currently have. It's also very difficult for customers to switch test platforms in the middle of the ramps. So for the foreseeable future, we believe we have a very strong market position and competitive position, both in the GPUs and custom ASICs.

Next, BofA Securities, Hirakawa-san.

You raised SoC tester market for calendar '25 from $4.5 billion at the midpoint to $6 billion, about over 30%. Could you give us a sense how you split this increase between the increase of quantity or number of chips and the increase of the testing time?

Thank you, Hirakawa-san. That's a good question, difficult question, I'd say. Before I talk about the test content or unit volume, I think I want to just go back and remind everyone that when we were putting back in January, our forecast for TAM for '25, this was right on the backdrop of the DeepSeek events, and there was a lot of uncertainty. And then when we reiterated that TAM in April, that was on the backdrop of the deliberation day, the tariff discussions that happened in April. And so many companies at that point didn't offer any kind of market sizing. Many companies pulled their full year guidance, and we didn't want to do that. We wanted to put our best estimate forward even though there was a ton of uncertainty. So some of the 30% increase is a direct effect of us just being a little bit cautious given the uncertainties at the time. So that's probably at least half of the 30% was just the uncertainty factor.

As far as test content or unit volume, I think it's probably without trying to give a number, I would lean towards more of the unit volume basis as there was adjustments in wafer starts or advanced packaging capacity that moved around, that would suddenly create some demand that was unforecasted, and we were able to respond to those demand fluctuations. So hopefully, that helps you.

Next, Jefferies Securities, Nakanomyo-san.

This is Nakanomyo speaking from Jefferies. Can you hear me? Well, sorry, maybe my question is a bit technical. With regards to the upward revision of SoC TAM, so SoC TAM is going to grow by like 40% at midpoint, maybe. But then your sales growth is only 20-some percent. So what's the difference between TAM growth rate versus SoC revenue growth rate? Is it -- what accounts for the discrepancy between sales upward revision versus TAM upward revision for SoC testers?

I think one thing that gets difficult is that our sales numbers we quote on a fiscal year basis and the TAM numbers we quote on a calendar basis. So that often leads to some discrepancy. But we have -- in our midterm plan, we have overall market share KPI of being greater than 58%. And so I can report that on SoC, we continue to be well above that metric, and we're also well above that metric for the memory test. But yes, I apologize, but certainly, the calendar versus the fiscal year creates some confusion. Yes, sorry. Sanjeev also just mentioned, exchange rate fluctuations because we show the TAM in dollars and our sales. Yes. On a general level, our share in SoC has gone up. And the memory tester, we remain relatively steady.

Next, Mizuho Securities. Yamamoto-san.

This is Yamamoto from Mizuho Securities. Can you hear me now? Apologies. I have a quick question. So for FY '26, can we expect an increase in sales in next year, that's FY '26?

Yes. Thank you, Yamamoto-san. I think I'll just repeat earlier without talking numbers, but we say we're very optimistic, and we're seeing reacceleration into 2026. So we'll be able to talk more about that as we get further into the year and have a little bit more visibility. But right now, there's no reason to believe that '26 is going to be a down year.

So this Q1 sales is very strong. So can we expect a similar big number in March '27?

Yes. I mean this is -- the Q1 number, like I mentioned, was very special. Everything was aligning perfectly for us. Certain things that happened in this quarter are certainly things that we would hope as a company to be able to repeat long term, but it would be irresponsible for me to suggest that we can have a quarter this big in the future.

Of course, I know also Q3 would be bottom. So from Q4, can we expect sequential growth toward the end March '27?

Yes. I think it's fair to say that Q3 will kind of be the lowest part of the year and Q4 will come up, and we would expect that trend to potentially continue into the first quarter of FY '26. That's our expectation right now.

Next, Citigroup Global Markets, Shibano-san.

My name is Masahiro Shibano from Citi. I have one quick question to you, Doug, about your '27 outlook. I know it's really early to tell. However, you've showcased your very constructive outlook into calendar 2026. So what do you make of 2027 outlook based on what you are hearing in the street? And also the question in the same context about the capacity. Do you think the capacity you're adding right now is a permanent one? Or is it going to be more like a temporary addition?

Okay. Yes. Thank you, Shibano-san. As far as we look out beyond '26 to 2027, the only thing that I would mention is that the areas that we look at as signals would be wafer starts and advanced packaging capacity that's being put in place by our customers. And then we'd also look at the end market, for example, the hyperscale capital budgets. And in both those cases, I think there has been enough public discussion around continuation of the current trends. If those trends continue, then there's optimism that this growth cycle will continue beyond '26 and into '27.

However, we know from our experience that there can be cycles that happen quickly. So we don't assume that's going to be the case in how we run the company. As to the production that we're putting in place, because we have a long-term belief in the industry, as I mentioned, getting to $1 trillion in semiconductor revenue, we know that we're going to have to add this type of capacity in a permanent fashion. So this would not be temporary capacity. In fact, even longer term, we probably will have to expand further, and we have some of those plans that we have initiated already. Thank you.

Next, Okasan Securities, Shimamoto-san.

This is Shimamoto speaking from Okasan Securities. So first quarter was very strong. And so I just want to understand the strength behind the first quarter sales again. Does it have to do with any impact on tariffs from Trump administration? Or is it just that strong sales for one specific customer? Or was the strength seen across the board, across many customers? How is it that your sales deviated so much from your expectation?

Yes. Thank you Shimamoto-san. Sorry. As far as why -- the second question about why our sales deviated so much is mostly because of the pull-ins. If you were to spread some of the first quarter and even second quarter expectations across the year, it would look different. So it's not that -- as Sanjeev said, it's not that the second half is so bad. We just pulled from second half into the first half and even to the first quarter. As far as the other factors, as I mentioned earlier, too, there were additional unit volumes that came into play that allowed our customers to ship more semiconductors that they did not even forecast. And so we were able to respond quickly to those scenarios and capture that business in the first quarter. Did I answer your question?

So the pull-in, the reason for the pull-in, did it have anything to do with the tariff impact or any political aspect to that pull-in? Or like it just -- is it just like good demand and being able to supply and meet that demand?

Yes, I apologize for not answering that the first time. No, there was no tariff level factors really that presented themselves for this business. It was more just a very large AI-related demand.

Next, Tokai Tokyo Intelligence Lab, Kamisaki-san.

I'm Kamisaki from Tokai Tokyo Securities. My question is with regards to memory testers. So right now, I think HBM is driving your demand. Going forward, is it going to be bit growth that will drive demand? Or is it going to be HBM generation transition that will drive memory tester demand? Can you give color as to what will drive memory tester demand?

Yes, I think there -- this is Sanjeev Mohan again. So there are a lot of factors and a lot of -- I mean it's a really good question. So HBM is a growth driver for us, first of all. And as the customers transition to HBM4 and HBM4E and higher stacks, that will drive more demand for us. Having said that, even though HBM is a growth driver, we have a very favorable product mix and dominance in particularly in the DRAM market. So our -- we are very optimistic about our memory business as well. We think the growth should continue as the AI demand continues and the data center builds continues, that will drive more and more product volumes and for the memory products as well. And I think there should be a good growth opportunity for us.

Well, we are almost at the end of the session. Maybe we'll just take one last question. Next, Aletheia Capital, Steven Liu-san.

So I just have a question regarding like your product mix in terms of the usage. So we do know that in previous -- before AI, like wafer sorts and final test was similar in terms of the ratio. But given the increasing usage of chiplets in chiplet architecture and more and more chiplets in the future, do you have -- could you please share some color in regards to your ratio in terms of wafer sort demand as well as final test demand? As well, can you also share some color in regards to partial assembly handlers, which you sell as well as die-level test and partial assembly test. Could you just share some color regarding this? We don't need concrete numbers, but I think there should be a change in these sales trends. That's it.

Yes. So I think you are hinting at it, and you're correct. I think the importance of wafer sort grows. These packages are very expensive with the chiplet strategy that most companies are adopting now, the value of a known good die is increasing. So we expect the overall business for the wafer sort will continue to grow probably faster than what we would see at final test. As you also mentioned, the partial die or die level prober, we also think that's a very exciting opportunity for us that we will be competing for.

So is that also like a reason why you changed your reporting segments, moving the test handlers and the system-level test into one big business? And moving on, could that -- is it okay to assume that for next year's growth because we talked about sequential growth moving on from the fourth quarter, that's actually coming -- that's actually also due to the increase of wafer sorts? Is that -- can we assume that?

Yes. Steven, this is Doug. I think definitely, there's going to be -- as Sanjeev mentioned, there's going to be such an emphasis on known good die and testing at the silicon level. And so for sure, there's going to be new solutions that have to be developed. And one of the key areas is to be able to do thermal control at that die or partial assembly level because that's something that typically can't be controlled at a monolithic wafer level. And so that does represent additional upside. There is likely to be a change in the test flow at the wafer and die level, which could present some additional insertions. So we see that as upside.

That's not the reason that we changed the reporting segment. The reporting segment was a little bit that we had before is a little bit antiquated with the Mechatronics Systems. And so we wanted to simplify it into kind of the capital equipment or the Test System Business and then the service and others more in line with what many other companies are doing in the industry. And so that's the reason for that. But very good questions. It doesn't mean that the final test on the first part of your question isn't going to go away and System Level Test actually is an area where we see expansion as well. And so it's all additional content, additional insertions.

And one thing that we talk a lot about with our customers is this distribution of test and the ability to move test content around in the back end to allow the optimization of test content. And we intend to play in nearly all of those insertions in order to service that distribution. I hope that helps.

I see other hands being raised, but we will conclude this session. Thank you for attending our first quarter FY '25 briefing despite your busy schedule.