Financial Review

For the fiscal third quarter ended December 31, 2019

Overview of Business Results

January 29th, 2020 (in billion yen)
  Nine months ended
December 31, 2018
Nine months ended
December 31, 2019
As compared to the corresponding period of the previous fiscal year increase (decrease)
Orders received 209.5 197.1 (5.9%)
Net sales 218.5 207.7 (5.0%)
Operating income 54.5 47.1 (13.5%)
Income before income taxes 55.7 47.8 (14.3%)
Net income 48.1 38.7 (19.4%)

During Advantest's nine-month period ended December 31, 2019, the upward trend of the lack of visibility in the global economy continued due to prolonged trade frictions against the backdrop of protectionist trade policies.
Amidst this economic uncertainty, end-product demand and capital investment in a wide range of industries including electronics, automobiles, and industrial equipment slumped, and semiconductor demand suffered the impact of these declines. The 2019 semiconductor market shrank, in an about-turn from the strong growth of 2018. As a result, many semiconductor manufacturers, especially in the memory sector, which has become more sensitive to inventory excesses, have been making production adjustments and reviewing their capital investment plans.
On the other hand, demand for semiconductor test equipment is influenced by not only device production volumes but also semiconductor technological evolution trends. As advanced processes enable the integration of more circuits on semiconductors, the performance of chips is improving and the importance of semiconductor reliability is increasing. As a result, semiconductor test time and the complexity of functional test are also increasing, and stimulating test equipment demand. During the nine-month period ended December 31, 2019, the accelerated movement towards development and volume production of 5G semiconductors utilizing advanced processes spurred demand for test equipment for these applications, compensating for the decline in orders and sales from other sectors that has resulted from the stagnation in the semiconductor market.
As a result, orders received were (Y) 197.1 billion (5.9% decrease in comparison to the corresponding period in the previous fiscal year) and sales were (Y) 207.7 billion (5.0% decrease in comparison to the corresponding period in the previous fiscal year). Profit also declined, mainly due to the decrease in sales: operating income was (Y) 47.1 billion (13.5% decrease in comparison to the corresponding period in the previous fiscal year), income before income taxes was (Y) 47.8 billion (14.3% decrease in comparison to the corresponding period in the previous fiscal year), and net income was (Y) 38.7 billion (19.4% decrease in comparison to the corresponding period in the previous fiscal year). Operating income in the corresponding period of the previous fiscal year included a one-time profit of approximately (Y) 3.5 billion due to the sale of fixed assets and the transition of a part of Advantest's pension system to a defined contribution pension plan.
Average currency exchange rates in the period were 1 USD to 109 JPY (110 JPY in the corresponding period of the previous fiscal year) and 1 EUR to 122 JPY (130 JPY in the corresponding period of the previous fiscal year). The percentage of net sales to overseas customers was 94.9% (95.0% in the corresponding period in the previous fiscal year).

Semiconductor and Component Test System Segment

(in billion yen)
  Nine months ended
December 31, 2018
Nine months ended
December 31, 2019
As compared to the corresponding period of the previous fiscal year increase (decrease)
Orders received 160.7 140.4 (12.7%)
Net sales 161.9 152.2 (6.0%)
Segment income 51.1 52.1 1.9%

In this segment, demand for new test equipment declined across many sectors, particularly memory, amid widespread declines in end-product demand. On the other hand, major manufacturers of application processors and baseband processors, which are core semiconductors for smartphones, have been actively developing next-generation products for 5G and preparing for their volume production. Demand for test equipment for high-end SoCs was higher than in the corresponding period of the previous year. The increased sales composition ratio of high-end SoC testers also improved profitability.

Mechatronics System Segment

(in billion yen)
  Nine months ended
December 31, 2018
Nine months ended
December 31, 2019
As compared to the corresponding period of the previous fiscal year increase (decrease)
Orders received 28.5 23.6 (17.2%)
Net sales 32.4 26.1 (19.5%)
Segment income (loss) 1.1 (1.6)

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

Services, Support and Others Segment

(in billion yen)
  Nine months ended
December 31, 2018
Nine months ended
December 31, 2019
As compared to the corresponding period of the previous fiscal year increase (decrease)
Orders received 20.3 33.1 63.3%
Net sales 24.2 29.4 (21.3%)
Segment income 4.4 3.7 (15.9%)

In this segment, orders increased due to the consolidated contribution of Astronics' system-level test business, which Advantest acquired in February 2019, and synergies stemming from the Q3 growth in customer demand for this business's core products. As solid-state drives (SSDs) have become more widely used, the demand for SSD test systems has also grown. On the other hand, amortization of intangible assets increased in the form of a one-time expense associated with the transfer of the said system-level test business.

Overview of Financial Condition

Total assets at December 31, 2019 were (Y) 329.8 billion, an increase of (Y) 25.3 billion compared to the fiscal year ended March 31, 2019, primarily due to an increase of (Y) 29.8 billion in cash and cash equivalents, and (Y) 8.9 billion in right-of-use assets, offsetting by a decrease of (Y) 11.2 billion in trade and other receivables, and (Y) 1.9 billion in inventories. The amount of total liabilities was (Y) 109.6 billion, an increase of (Y) 3.7 billion compared to the fiscal year ended March 31, 2019, primarily due to an increase of (Y) 8.9 billion in lease liabilities, and (Y) 1.9 billion in other current liabilities primarily due to an increase of advance receipt, offsetting by a decrease of (Y) 6.6 billion in trade and other payables. Total equity was (Y) 220.3 billion. Ratio of equity attributable to owners of the parent was 66.8%, an increase of 1.6 percentage points from March 31, 2019.