Financial Review

For the fiscal second quarter ended September 30, 2019

Overview of Business Results

October 30th, 2019 (¥B)
  Six months ended
September 30, 2018
Six months ended
September 30, 2019
As compared to the corresponding period of the previous fiscal year increase (decrease)
Orders received 146.8 124.2 (15.4%)
Net sales 143.6 137.8 (4.1%)
Operating income 33.8 32.9 (2.6%)
Income before income taxes 35.1 33.3 (5.2%)
Net income 30.1 26.8 (11.2%)

In Advantest's first half of fiscal year 2019, the worldwide economic slowdown was accentuated by the effects of prolonged and expanded trade friction caused by protectionist trade policies.
Under the uncertain economic circumstances, demand for end-products and capital investment declined in a wide range of fields including electronics, automobiles, and industrial equipment. The lack of visibility in smartphone-related markets, which are directly affected by trade disputes between the United States and China, grew more pronounced. Due to this softening of demand, the semiconductor market has exhibited negative growth in 2019, and many semiconductor manufacturers have adjusted production and reviewed their investment plans, especially in the memory sector, where there seems to be situations of excess inventory.
In other circumstances, the demand for semiconductor test equipment is influenced not only by fluctuations in device production volumes, but also by technological evolution trends in semiconductors. Advanced chip-making processes that enable the integration of more circuits on semiconductors also improve performance and reduce power consumption, resulting in increased test time and more complex functional tests, which expands demand for test equipment. During the first half of fiscal year 2019, demand for SoC test systems increased due to expanding production of high-end devices utilizing advanced processes such as 5G-related semiconductors. This compensated for a slowdown in demand for other applications.
As a result, orders received were (Y) 124.2 billion (15.4% decrease in comparison to the corresponding period in the previous fiscal year) and sales were (Y) 137.8 billion (4.1% decrease in comparison to the corresponding period in the previous fiscal year). In terms of profit, operating income was (Y) 32.9 billion (2.6% decrease in comparison to the corresponding period in the previous fiscal year ), income before income taxes was (Y) 33.3 billion (5.2% decrease in comparison to the corresponding period in the previous fiscal year ), and net income was (Y) 26.8 billion (11.2% decrease in comparison to the corresponding period in the previous fiscal year). Operating income for the same period of the previous fiscal year included a temporary gain of approximately (Y) 1.0 billion associated with the sale of fixed assets.
The average exchange rate for the first half of the current fiscal year was 1 USD to 109 JPY (109 JPY in the same period of the previous year), and 1 EUR to 123 JPY (130 JPY in the same period of the previous year). Our overseas sales ratio in the period was 95.8% (94.7% in the same period of the previous year).

Semiconductor and Component Test System Segment

(¥B)
  Six months ended
September 30, 2018
Six months ended
September 30, 2019
As compared to the corresponding period of the previous fiscal year increase (decrease)
Orders received 111.9 93.0 (16.9%)
Net sales 105.1 102.9 (2.1%)
Segment income 32.2 36.4 12.7%

In this segment, many customers, including memory semiconductor manufacturers, reduced their tester investment as final demand remained broadly low. However, major semiconductor manufacturers producing application processors and baseband processors, which are core semiconductors for smartphones, have been actively developing high-end SoC devices for 5G and preparing them for mass production, which sustained SoC test system demand at a high level. Profitability improved as high-end SoC test systems became more prominent in our sales mix.

Mechatronics System Segment

(¥B)
  Six months ended
September 30, 2018
Six months ended
September 30, 2019
As compared to the corresponding period of the previous fiscal year increase (decrease)
Orders received 21.7 14.0 (35.6%)
Net sales 21.8 16.0 (26.5%)
Segment income (loss) 0.5 (1.6)

In this segment, due to the impact of the deteriorating memory semiconductor market, overall demand lagged for peripheral devices such as device interface products, which are highly correlated with memory test.

Services, Support and Others Segment

(¥B)
  Six months ended
September 30, 2018
Six months ended
September 30, 2019
As compared to the corresponding period of the previous fiscal year increase (decrease)
Orders received 13.2 17.2 31.0%
Net sales 16.7 18.9 (12.9%)
Segment income 3.6 2.1 (42.0%)

In this segment, business grew due to the consolidated effect of Advantest's acquisition of the system-level test business of Astronics in February 2019. However, this acquisition also caused amortization of intangible assets to increase temporarily. Sales of SSD test systems and second-hand products were sluggish.

Overview of Financial Condition

Total assets at September 30, 2019 amounted to (Y) 323.6 billion, an increase of (Y) 19.0 billion compared to the fiscal year ended March 31, 2019, primarily due to an increase of (Y) 14.9 billion in cash and cash equivalents, and (Y) 9.2 billion in right-of-use-assets, offsetting by a decrease of (Y) 1.6 billion in trade and other receivables, and (Y) 1.4 billion in inventories. The amount of total liabilities was (Y) 110.0 billion, an increase of (Y) 4.2 billion compared to the fiscal year ended March 31, 2019, primarily due to an increase of (Y) 9.2 billion in lease liabilities, and (Y) 1.4 billion in other current liabilities primarily due to an increase of advance receipt, offsetting by a decrease of (Y) 5.8 billion in trade and other payables. Total equity was (Y) 213.6 billion. Ratio of equity attributable to owners of the parent was 66.0%, an increase of 0.8 percentage points from March 31, 2019.