6857.T FY2026 Q1 Earnings Call Transcript
Date: 2026-07-29
Source: Financial Modeling Prep

Mio Shikanai : This is Mio Shikanai from JPMorgan. First of all, congratulations on a very strong earnings. I had a question around the SoC tester market. How has your view of the SoC tester market changed with your prior outlook in terms of which applications are the demand? Is it GPU, ASIC? Or is it CPU? And how should we think about the relative contribution from higher chip volume, longer test times and increase in test conversions? I guess it's a bit early, but are you thinking about the sustainability of the demand into next year?  Douglas Lefever : This is Doug. Thanks, Shikanai-san for the question. To answer on the SoC market, we're seeing very strong demand across all of those areas, GPU, custom ASIC and CPU. And I would say most of the increase in the SoC TAM that we just announced is coming from more inference applications. And so that's what's really driving that change more than anything, in particular, with the CPU business. We do see that to be sustainable throughout this year and into next year. As to kind of a test content, I think we're continuing to see additional test content increases through test times and additional insertions, in particular, for the accelerator market where 3D packaging is driving more complex devices. So that's going to continue to be a big driver for us, but a lot of the unit volume increase on the inferencing side and CPU side is driving some of the additional market TAM increases.  Mio Shikanai : Just a quick follow-up. How the CPU testing compares to CPU ASIC in terms of test time and intensity?  Douglas Lefever : Yes. The test time, particularly for the package test on CPU is going to be quite a bit lower than what we'd see on the accelerator just because of the complexities of an accelerator in a 3D package. At the wafer sort level, if you're testing a monolithic chip, they're relatively similar. You may see actually a little bit higher on the CPU. But in the back end, the final test package, definitely, it's higher. I'm not at liberty to give you clear numbers on that, but it's just -- it's fair to say that the accelerator side on the final test is higher.  Operator : [Interpreted] Our next question is from Mr. Yamamoto Mizuho Securities.  Yoshitsugu Yamamoto : [Interpreted] This is Yamamoto from Mizuho Securities. I'm sorry for the very similar questions. I have a question for Page 12. This is regarding the tester market outlook for SoC. So now as for midpoint, you have revised your projection from $9.1 billion to $11 billion, $2 billion increase. So I'd like to know the breakdown of $2 billion among ASIC, CPU and GPU. How much impact will each one of the 3 applications have and how much upward revision is made? Also for the SoC tester sales, again, you have revised the sales projection. So I want to know the breakdown for ASIC, CPU and GPU for that upward revision.  Unknown Executive : Yes, that's a good question. The upward -- the change is mostly, as Doug said in the beginning of the call, due to the growth in inferencing and the compute segments. I think it's too complex, in my opinion, to divide it up into 3 different segments because a lot of these devices go together. And some of the applications are also interchangeable in terms of how they are used in the end. So -- but the upward projection, obviously, as Doug said, is due to the changes that we are seeing in the compute or the growth we are seeing in the compute and the inferencing market. We can also safely say that the custom ASIC market, the compute market, as some of the leaders in the industry have been saying are going to be significantly larger than the GPU market. So -- right now, I would say GPU market is still the largest. But as the time goes, we will see that the other markets are as large, if not significantly larger.  Douglas Lefever : This is Doug. Yamamoto Let me add just one comment, which is, for us, since our 93000 platform is so prolific and being used across the industry, across all of the different compute applications, it really doesn't -- it doesn't matter where that growth comes from because we're positioned with the 93000 so that -- in fact, the configurations are very similar in some cases with our digital instruments and our power supplies. And so oftentimes, as Sanjeev mentioned, our customers will purchase capacity, and they'll be able to configure those for whatever type of application. So that's a strength that we have right now with that platform is the usability across all of those different high-performance compute subsegments.  Yoshitsugu Yamamoto : [Interpreted] So I have one additional question. Is that because of the increase -- drastic increase of the number of chips, which drove the upward revision because I think that once people knew a lot about what sort of test will be conducted by customers. So I don't think there is no surprise. There is no -- I don't think there's any surprise in terms of test insertion or test time. So I wonder this kind of upward revision is driven by the number of chips. Is my understanding correct?  Unknown Executive : Yes, I think so. I think there are a lot more customers now doing custom ASICs. Most of the hyperscalers, as you know, have some type of a strategy of doing chips in-house. Those chips are obviously in addition to the GPUs that we have seen in the past. We have also seen significant increase in the compute market and the server space. So obviously, that's additional. One segment that we have not talked about before that we didn't use to split networking. We actually also have a significant market share in that space. We just didn't talk about it before. And that space also has grown significantly. So the answer to your question is absolutely yes, that there are a lot more chips now. And luckily or fortunately, we are a major player with dominant market share, as Doug mentioned, in all of those segments. So we are benefiting from the increase.  Operator : [Interpreted] Now we'd like to take the question from Mr. Nakamura from Goldman Sachs.  Shuhei Nakamura : I wanted to ask you about the production capacity expansion plans. You mentioned that you're accelerating the efforts right now, but could you clarify whether you're accelerating your capacity expansion plans even compared to your commentary you made back in April. I think at that time, you mentioned for SoC testers, you're expanding it to roughly 5,000 units by the end of March '27 and then to 10,000 units by either end of '28 or early '29. So just wanted to understand where your capacity expansion plans are as of now.  Douglas Lefever : Thank you, Nakamura. This is Doug. Yes, as you mentioned, we had stated a 10,000, 93000 per year by the end of 2028, early '29. And we're pulling that in, not prepared yet to say how much we're pulling that in with a new date. It's something that we're working on right now internally. What keeps happening is there's more wafer starts, more advanced packaging capacity being put in place. And so every time we think we've got locked in on where we need to be on the scaling side, we have to go back and look again as more capacity comes online. The good news is our production systems are set up to allow us to scale like that. And so between our supply chain and long-term agreements we have with component suppliers and our relationship with our contract manufacturer, they can react quickly to our needs. In fact, our contract manufacturer is putting a second factory in Southeast Asia to help support the scaling that we're asking them to do for us. So that's a long answer to a short -- really a short question, which is we'll have to get back to you. We're scrubbing the information now, and I expect next quarter to have a more clear date for when we'll bring in that production expansion.  Shuhei Nakamura : A follow-up. In terms of the 5,000 unit mark, are you approaching that number already? I think you used to say by the end of March '27. Is that being put in right now as well? And also, could you also touch upon your capacity expansion plans on the memory testers as well?  Douglas Lefever : Yes. For 5000, it's safe to assume that we're going to flow right through that level at this point in time. So that our supply chain people have worked hard enough and have been able to find the capacity for us to be able to deliver at that level. And so we're on to the next step, which is that 10,000 level. As far as the memory goes, we also have expansion plans that are highly correlated to what we're doing on the 90000 side. There's not as many testers in the memory side as the 93000, but there's similar growth rates. And so there's lots of programs within the company right now to expand on the memory side. There is additional challenges there because we do more in-house production. And so there's things that we're looking at within our supply chain on the memory side to allow us to keep the pace with the SoC testers.  Operator : [Interpreted] Next question is from Shibano, from Citigroup Global Markets.  Masahiro Shibano : [Interpreted] I have a question regarding margin. On the first quarter, you recorded very high margin. But when I look at full year projection in the remaining 9 months, I think you have got a conservative outlook for -- in terms of margin. So second quarter and onwards in the second half of this year, I wonder there might be some margin pressure or some product mix, some concerns. Are there any unfavorable factors in terms of margin pressure or product mix? And second issue is actually demand is rather strong. So when it comes to next year, I think is -- I wonder whether the significant increase of top line might be necessary. If that's the case, do you expect also the margin pressure next year? Or do you see that sort of thing can be absorbable?  Douglas Lefever : Yes. Thank you, Shibano-san. This is Doug. Yes, on the margin question, I think the company is hitting on all cylinders right now. And the product mix is favorable. I think we've had favorable exchange rates as well. And then as our volumes go higher and we've been able to really deploy our platform strategy, it's really yielding big economies of scale for us as well. The headwinds right now, obviously, are some inflationary things on our bill of materials. Of course, at the top of the list is memory and the memory pricing is a headwind for us as well as everybody. And so that's why I think we have to be conservative because we are subject to the pricing environment on the memory. And our testers do use a lot, lot, lot of DRAM. And so that's the biggest reason I think that we're still not ready to project a consistent level of margins like we have this quarter for the rest of the year. Also, I think I would just note that we had some reversal of inventory obsolescence that was helpful to our margins in this particular quarter, and that's not something we would necessarily see as a consistent quarter-to-quarter basis. So going into next year, still, I think we're going to be facing some significant pricing pressure on memory, and we are working on certain areas where we can pass some of that along -- it's really case by case, application by application, customer by customer. That's a very sensitive topic, but I think there's going to be something we can do there. But hopefully, that answers the majority of the -- you had a lot of questions in your question.  Operator : [Interpreted] Next we are going to...  Tetsuya Wadaki : [Interpreted] So my name is Wadaki from SBI Securities, and I'd like to ask Doug-san about the recent AI development. What's going on in the world of AI right now? I think you know a lot because you related to the leading-edge AI situation of the world. I know that your AI testers have geared up really another auction, so that you're up to speed. So what's going on there? Why is AI testers becoming so busy? Is it because of the Agentic AI? Is it physical AI? Or is it kind of like the AI coming from Stargate -- or I mean there's various trends. But what really do you think is driving this big trend of AI?  Douglas Lefever : Thank you, Wadaki-san. I see mostly the Agentic AI right now driving a significant structural change in the business. I know that we, as a company, are deploying the use of agents in a lot of what we're doing for our development and on behalf of our customers. And as I talk with other executives in the industry, they're doing the same thing. And the level of efficiency gains that the companies are getting through the use of Agentic AI is really staggering. And I think a lot of people on the outside of kind of businesses and companies don't always realize what's going on in the back offices and the development and R&D areas of the companies. And that's where the big bang for the buck is happening, I would say, is the use of the Agentic level where I can call upon all kinds of different software tools and on its own in a headless fashion, develop solutions. And so for me, that's what's really happening. I don't think that we're at the physical AI yet. It's coming. But I think there's going to be a wave of physical AI applications at the edge that are coming. We're seeing some of those. But I still believe that has got a little bit of time before it becomes mainstream. When it does, the volumes will be extremely high and will make a lot of the data center pale in comparison. So really a Agentic level now and into the future physical AI.  Tetsuya Wadaki : [Interpreted] So just to follow up on a question of this trend here. So regarding AI, there's billions and billions of dollars of investment made in this whole area. But do you think the surprising concepts like AI and AGI will really come true in the future? What do you believe that?  Douglas Lefever : Wow. That's really putting me in the spot Wadaki-san. Yes. I think ultimately, that's where we will get to, but I tend to think that's out pretty far in time. There are so many use cases just in front of us to utilize AI to do really wonderful things. And that's why personally, I hope that the world will start focusing on all the beneficial things of AI and not get caught up in a lot of the misuses of it. And so that's -- Advantest has an obligation in the position we're at now to make sure that we're pushing the applications that are doing very, very good things, whether it be medical research or agricultural things or even I was talking about the fires and the use of drones for putting out fires and seeing what they're going through in Europe right now, even as well as in the United States. Those are the kind of things, I think, that the world needs to focus on rather than get caught up in the singularity concepts and things of that nature because I think those are out there. They're probably going to come eventually, but it might be far after you and I are around. So I gave you a philosophical answer to a philosophical question, Wadaki-san.  Operator : Next question is from Mr. Yoshida of CLSA Securities.  Yu Yoshida : Congratulations on the strong results. My question is similar to the prior ones, but I would also like to clarify about SoC testers. I think there is a structural SoC tester demand growth driven by CPUs for inference AI, which is shifting from Intel to fabless design ones, creating additional third-party tester TAM taking shares from Intel's in-house testers. So you have just answered a kind of big comment about the impact by device types to the SoC tester TAM growth. But I guess CPUs contribution is the biggest one for the upward revision of this year TAM outlook, and this impact will get bigger towards the next year considering the increase in fabless design CPUs going forward. Do you agree with this view?  Sanjeev Mohan : This is Sanjeev. So I wouldn't discount the size of custom AI market. I think it's definitely -- what you said is definitely correct, that CPU and server market is growing rapidly. And obviously, we are benefiting from that greatly. But I would say that the custom ASIC market and also the networking market, they're also growing at similar paces. So again, repeating my comment, I think we're fortunate that we have dominant position in all of these segments. So to some degree, we don't really care because as Doug mentioned, the configurations, the customers, the systems are very, very similar to each other. But if you really want to divide it up, yes, compute is growing very fast, but let's not, let's not discount custom ASIC. I think that market is definitely understated, and it's very large for us.  Douglas Lefever : Let me add, Yoshida-san its Doug. On the CPU side, if it's x86 or ARM-based or if it's fabless or if it's IDM, we are positioned every single place with our 93000 system. And so we have full coverage of all of the CPU accounts globally. So we feel very, very good about our position there. And the market share swapping that might happen between these companies, again, is not really relevant since we have a de facto standard in the 90000 across the entire CPU industry.  Yu Yoshida : Just a quick follow-up. Could you also please share your views on the current outlook of your market share of SoC and memory tester for this year and if you have next year as well?  Douglas Lefever : Yes. So we will -- the numbers we share next year, April next year. But I can speak at least qualitatively on some trends. On the SoC side, we reported for 2025 that we had 66% share. And I think it's safe to assume that we're continuing a trajectory upward on that. We can see a path towards 70% plus on that in the future. And within the HPC market, we're far higher than that level. So we see the gap really widening in the SoC market. And so that's some qualitative looking at the SoC market. On the memory side, it's a busier area. There's more competition in the memory side. There are some areas such as NAND where we have not been a traditional incumbent and NAND is growing, as you may know. There are some transitions with device speeds and bandwidth right now also. So there's some insertions that we haven't necessarily captured. And so on the memory side, I would say this year may represent a little bit of a downturn for the company, but we see that more than recovering as we go into the next year where our road maps are well aligned with devices. And so we are very, very confident in the future around our memory market share, but you'll see a little bit of a dip potentially in memory while we still grow on the SoC side. And for us, the SoC market is such a larger market than the memory. So when we have growth in the SoC, that's generally an aggregate positive for the company.  Sanjeev Mohan : Yoshida-san, I just want to add one thing on the memory side. I think we -- when we look at our future and the reason we are confident is we are going to be releasing a couple of key products. And what's really amazing is that we already have customer commitments for those products. And I think those products are really game changers. And what's also interesting is that the memory market, we expect also to grow significantly next few years as the new fabs come online. So yes, it's absolutely correct that we have some challenges this year due to the transition to new products. But I think the feedback from customers is that we are very well positioned for the future. And any share loss that we will have this year, we are very confident that we will recover that loss over the next few years.  Yu Yoshida : Thank you. I'm looking forward.  Operator : [Interpreted] So next question is from Mr. Yoshioka from Nomura Securities.  Atsushi Yoshioka : [Interpreted] So I want to look at this page, Page 7, and ask you to give us more color on the by-region SoC tester sales. You did very well in Q1. Which were the main drivers? If you can just explain by region as much as you could. But some of my interest would be regarding Taiwan and China. For Taiwan, how about if we take SoC testers alone? Is that also growing as well, pushing the demand? And how about China, where they're nationally very much focused on developing their own semiconductors? Is your business channel also growing?  Douglas Lefever : Okay. I think -- well, I think for our ship-to region, the reason that Taiwan is so large is because that's where most of the U.S. fabless SoC business is landing. And so that's why that has consistently been the largest part of our business. So again, this is where we're shipping to, but the business is really being driven out of U.S. fabless companies. There is some memory in Taiwan as well. We don't necessarily disclose the breakout by region between our SoC and memory. The same goes for China. China is about 19% of our total sales, and that is both SoC and memory. It's pretty consistent with our overall ratio of SoC to memory in China. So this past quarter, I think we were 80%, 85% SoC, 15% on memory. So you can apply that to most of both China as well as overall distribution. But Taiwan, for sure, is majority SoC.  Atsushi Yoshioka : [Interpreted] Great. If you can just give us more color on how you see that 19% China sales proportion will change going forward? Do you think it will expand?  Douglas Lefever : It's been pretty consistent around 20%. There are new factories being built in China, a lot of them. I think those will likely come online in 2028 time frame. So there is potential for, I guess, in '28, maybe '29, where we'll see some expansion of the China business associated with that scaling of factories. But until then, I would guess, just estimate that we would stay in that 20% or lower of overall sales.  Operator : [Interpreted] Next question is from Mr. Hanaya of SMBC Nikko Securities.  Takeru Hanaya : [Interpreted] So this is Hanaya from SMBC Securities. I have a question regarding capacity and sales. I'd like to understand the concept of those two things. You said in your presentation, you are accelerating capacity enhancement in your work. And do you think -- I think you always think about the buffer in the capacity when you try to build up the capacity. This time, you have revised your outlook drastically. And do you think that is include the buffer as well? I think the demand has been expanding more than your expectations. So I wonder this kind of revision may include the buffer or not included -- and/or if you cannot have buffer, you may, say, lose your share or you may give the opportunity for your peers and competitors. So I think your upward revision of sales is rather drastic. And I think you can achieve the projected sales for SoC with buffer or without buffer. What is the outlook?  Douglas Lefever : Yes. Thank you, Hanaya-san. It's a really good question. And the short answer is we always have to have buffer. So when we start to impede from the demand side on our buffer, that triggers us to expand further. And right now, what we look at very closely is what are the supply constraints in the semiconductor industry. For accelerators, for example, it's in the advanced packaging area. So as the foundries and OSATs add packaging capacity, we then have to expand our capacity and not just on a 1:1 ratio because we have the test content generation-to-generation increasing. So we can't just scale at a unit volume level. We have to scale at a unit volume plus the additional test content generation to generation. And so that's how we model our capacity for our testers. And definitely, we have to have buffer because what happens is there's unknowns, in particular, around test time. So oftentimes, our customers don't know what the test times and test insertions are going to look at until they've taped out the device and gone through a characterization cycle. And so there's a lot of unknowns, and we have to be prepared to be able to supply against those unknowns. So we always will build in buffer into our production capacity planning and make sure we stay above that kind of danger zone. We never want to be the critical path for our customers' businesses.  Operator : [Interpreted] Now we would like to take the last question. [Interpreted] And the last question from Ms. Tamura from Morgan Stanley MUFG Research Japan.  Suzune Tamura : I'm curious about the visibility Advantest shares with the customers. Like how long will the demand discussion with the customers extending? Historically been, I think, 6 months, but how much visibility does Advantest have specifically into 2026 and beyond? And what's driving this unprecedented visibility, if that is the case?  Douglas Lefever : Tamura-san, this is Doug. Yes, historically, we were never given really much more than a 6-month forecast. But just because of the scale now in the industry and because of the constraints in advanced packaging and wafer starts, it's much easier for us to see out, I would say, about 18 months, and so we have conversations with our close partners for 18-month visibility so that we can do the planning. And obviously, it helps us because we can scale our capacity plans when we have that kind of a lead time. 6 months is not enough for us to trigger supply chain scaling. So again, the short answer is, in a lot of cases now, we're seeing 18 months, and that's because the industry has realized that they need to give their supply chain that kind of heads-up. And we learned the hard way in the past that 6 months can lead to some constraints. And we all work together now collectively to try to get at least an 18-month forecast.  Suzune Tamura : Just a quick follow-up from the previous answers. You mentioned that the -- you expect accelerating the capacity expansion going forward and you mentioned pulling in the 10,000-unit capacity target by 2028. Should we assume that there should be some upside to the 10,000 numbers in 2028, the target numbers?  Douglas Lefever : Thank you. Yes, I think step by step, but you're likely to see us look at the next step beyond 10,000. So right now, we're focused with pulling that in, in the near term. But in the midterm, I think it's highly likely that we'll do another step on the capacity expansion. Just to give people an idea, though, in -- around 2020, we were producing maybe 1,000, 93,000s. And those were smaller configurations. If you use that configuration for our 10,000, it's about the equivalent of 20,000 of the 2020 size. So we've done 20x in 7 years, 8 years. And so I don't know that there's been that level of expansion for anything in our industry. So it's really quite an achievement for us to get to that 10,000, but we have high confidence that we can take that next step function. It may be 15, it may be higher, but we'll try to clarify that in the coming quarters. We're just not ready to do that yet.  Operator : [Interpreted] So although we have received further more questions, we would now like to conclude this session. [Interpreted] Thank you all very much for taking time to join our financial briefing despite your busy schedules today.