1. Business Results
(1) Analysis of Business Results
| 1) | Consolidated Financial Results of FY2011 (April 1, 2011 through March 31, 2012) |
| | | (in billion yen) | |
| | FY2010 | FY2011 | As compared to the previous fiscal year Increase (decrease) | |
| Orders received | 109.0 | 126.2 | 15.8% | |
| Net sales | 99.6 | 141.0 | 41.6% | |
| Operating income | 6.1 | 0.8 | (86.3%) | |
| Income (loss) before income taxes and equity in earnings (loss) of affiliated company | 5.6 | (3.4) | － | |
| Net income (loss) | 3.2 | (2.2) | － | |
The pace of economic recovery worldwide slowed in FY2011, held back by the worsening sovereign debt crisis in parts of Europe and by America’s housing and employment problems, but the global economy maintained a gradually improving trend, supported by emerging countries, whose growth rates have remained high.
Semiconductor-related markets also registered lower growth than expected at the beginning of the period. Many chipmakers moved to trim production in the summer of 2011, when lethargic demand of PCs and LCD televisions, the twin pillars of semiconductor consumption, fell even further.
As a result semiconductor test equipment sales declined for the period. Although customer interest in test equipment for non-memory semiconductors, used in smartphones and tablet PCs, was brisk, dramatic price declines in DRAM semiconductors for PCs, beginning in the summer of 2011, curtailed capital investment in memory testers.
Advantest consequently devoted its greatest efforts to expand sales of test equipment for application processors, CMOS image sensors, and other non-memory semiconductor sectors. After completion of the acquisition of Verigy Ltd. on July 2011, Advantest tried to gain additional market share by reinforcing its sales promotions to US and European customers and launching products in the communications semiconductor market. These efforts enabled Advantest to achieve a higher share of the semiconductor test equipment market in 2011.
As a result, both orders received and net sales showed significant year-on-year growth, with orders totaling (Y)126.2 billion (a 15.8% increase in comparison to FY2010), and net sales of (Y)141.0 billion (a 41.6% increase in comparison to FY2010). However, cumulative costs associated with the Verigy acquisition, which totaled (Y) 8.3 billion in FY2011 combined with impairment losses on investment securities and bad debt expenses of (Y) 2.6 billion led to a year-on-year decline in earnings. The company posted an operating income of (Y) 0.8 billion (a 86.3% decrease in comparison to FY2010), loss before income taxes and equity in earnings of affiliated company of (Y) 3.4 billion, and a net loss of (Y) 2.2 billion. In FY2011, the percentage of net sales to overseas customers was 88.6%, compared to 77.5% in FY2010.
Advantest Corporation (FY2011)
Conditions of business by segment are described below. Note that the operating income of each business division is influenced by costs related to the integration of Verigy.
<Semiconductor and Component Test System Segment>
| | | | (in billion yen) | |
| | FY2010 | FY2011 | As compared to the previous fiscal year Increase (decrease) | |
| Orders received | 76.5 | 97.0 | 26.8% | |
| Net sales | 69.3 | 105.6 | 52.3% | |
| Operating income | 9.9 | 9.8 | (0.1%) | |
The Semiconductor and Component Test System segment was supported by aggressive capital investment by major chipmakers.
In the non-memory test system, sales expanded significantly, due to the Verigy acquisition and a number of large orders for microprocessor (MPU) test equipment. Test systems for non-memory semiconductors such as application processors used in tablet PCs and smartphones also posted solid growth.
Memory test systems, however, continued to fare poorly, despite active capital investment by DRAM makers in spring and early summer 2011, as weaker PC demand in the second half of the year forced manufacturers to freeze their DRAM capex programs.
As a result of the above, orders received were (Y) 97.0 billion (a 26.8% increase in comparison to FY2010), net sales were (Y) 105.6 billion (a 52.3% increase in comparison to FY2010), and operating income was (Y) 9.8 billion (a 0.1% decrease in comparison to FY2010).
<Mechatronics System Segment>
| (in billion yen) | |
| | FY2010 | FY2011 | As compared to the previous fiscal year Increase (decrease) | |
| Orders received | 20.8 | 16.6 | (19.8%) | |
| Net sales | 18.5 | 20.6 | 11.3% | |
| Operating loss | (0.3) | (1.3) | － | |
In the Mechatronics System segment, a greater numbers of unit of the Multi Vision Metrology Scanning Electron Microscope measurement system for photomasks were sold, benefiting from semiconductor process dropped significantly that create demand for more advanced technology. Conversely, sales of test handlers shrank, reflecting production adjustments, principally in the DRAM sector, from the second quarter onwards.
As a result of the above, orders input received was (Y) 16.6 billion (a 19.8% decrease in comparison to FY2010), net sales were (Y) 20.6 billion (a 11.3% increase in comparison to FY2010) and operating loss was (Y) 1.3 billion.
Advantest Corporation (FY2011)
<Services, Support and Others Segment>
| | | | (in billion yen) | |
| | FY2010 | FY2011 | As compared to the previous fiscal year Increase (decrease) | |
| Orders received | 14.0 | 17.8 | 27.0% | |
| Net sales | 14.2 | 18.8 | 32.8% | |
| Operating income | 2.1 | 1.6 | (24.3%) | |
In the Services, Support and Others segment, orders and revenues expanded as a result of overall increased sales of test systems, as well as benefits from consolidating the Verigy services division into Advantest’s.
As a result, orders received was (Y) 17.8 billion (a 27.0% increase in comparison to FY2010), net sales were (Y) 18.8 billion (a 32.8% increase in comparison to FY2010) and operating income was (Y) 1.6 billion (a 24.3% decrease in comparison to FY2010).
2) Prospects for the Upcoming Fiscal Year
On April 1st 2012, Advantest reinforced its overseas business development push and its synergistic benefits from the Verigy acquisition by finalizing the integration of Verigy, which had previously been a fully-owned subsidiary, into Advantest Corporation. The company also completed a reorganization of its overseas subsidiaries—renewing the Advantest Group as a single entity including the former Verigy. Underlining its commitment to generating future innovation, Advantest has launched a new corporate initiative starting in FY2012: “ACT2014.” The acronym ACT — Advantest Culture Transformation — designates total integration of Verigy businesses and personnel and fusion of the two corporate cultures as an ongoing top priority. By FY2014, Advantest aims to achieve three discrete goals under ACT2014: “Revenues of (Y) 250.0 billion”, “Over 20.0% operating margin”, and “Over 50.0% total market share of semiconductor test systems and test handlers”.
In the semiconductor test equipment sector, the company will innovate on all fronts, exploiting synergies from the Verigy integration. Operations are expected to expand through the development of groundbreaking products incorporating technology from both companies, new service offerings with greater added value, products utilizing cloud-computing technology, the adoption of flexible manufacturing processes, global marketing activities, and the further globalization of Advantest’s corporate organization, helping the company to respond to the needs of the world’s chipmakers with precisely targeted solutions.
As a further measure to reinforce Advantest’s potential for sustainable growth, the company intends to aggressively expand beyond the semiconductor test equipment sector. Advantest will seek to grow sales of its scanning electron microscopes, electron-beam lithography tools, RF measurement instruments, MEMS relays, terahertz imaging systems, and other products targeting non-semiconductor markets where the company’s core competence — measuring technology expertise — can contribute to the development of trailblazing solutions that uphold and reinvent Advantest’s mission to support leading edge technology.
In FY2012, the first year of Advantest’s three-year corporate initiative “ACT2014”, continued strong growth in the smartphone and tablet PC markets is anticipated to define demand for the semiconductors used in these devices as a key driver of the company’s revenue and earnings growth. Moving ahead towards the midterm milestone goals of ACT2014, the company intends to ramp up its presence in new markets among other measures to reinforce its platform for extended growth. For the fiscal year of 2012, Advantest forecasts net sales of (Y) 150.0 billion ~ (Y) 170.0 billion and operating income of (Y) 12.0 billion ~ (Y) 20.0 billion.
Advantest Corporation (FY2011)
(2) Analysis of Financial Condition
Total assets at the end of FY2011 was (Y) 219.2 billion, an increase of (Y) 38.9 billion compared to the previous fiscal year, primarily due to the Verigy acquisition as evidenced by an increase of (Y) 35.9 billion and (Y) 14.9 billion in goodwill and intangible assets, respectively, and a decrease of (Y) 12.7 billion in short-term investments. Likewise, the amount of total liabilities was (Y) 87.7 billion, an increase of (Y) 45.5 billion compared to the previous fiscal year, primarily due to an increase of (Y) 25.0 billion in short term debt, an increase of (Y) 9.4 billion in accrued pension and severance costs and an increase of (Y) 4.7 billion in accrued expenses, respectively . Stockholders’ equity was (Y) 131.6 billion. Equity to assets ratio was 60.0%, a decrease of 16.6 percentage points compared to the previous fiscal year.
(Cash Flow Condition)
Cash and cash equivalents held at the end of FY2011 were (Y) 58.2 billion, a decrease of (Y) 17.1 billion from the previous fiscal year.
Significant cash flows during this fiscal year and their causes are described below.
Net cash provided by operating activities was (Y) 12.3 billion (Net cash outflow (Y) 0.7 billion in FY2010). This amount was primarily attributable to a decrease of (Y) 4.6 billion in inventories and an adjustment of noncash items such as depreciation and amortization, despite the net loss being (Y) 2.2 billion.
Net cash used in investing activities was (Y) 37.7 billion (Net cash outflow (Y) 5.8 billion in FY2010). This amount was primarily attributable to payments for the acquisition of Verigy in the amount of (Y) 57.1 billion, a decrease of (Y) 14.4 billion in short-term investments and proceeds from sale of available-for-sale securities in the amount of (Y) 10.7 billion.
Net cash provided by financing activities was (Y) 9.9 billion (Net cash outflow (Y) 12.0 billion in FY2010). This amount was primarily attributable to a net increase of (Y) 25.5 billion in short term debt, redemption of senior convertible notes of acquired subsidiary in the amount of (Y) 13.8 billion and dividends paid in the amount of (Y) 1.7 billion.
The following table illustrates the historical movements of certain cash flow indexes:
| | FY2007 | FY2008 | FY2009 | FY2010 | FY2011 |
| Stockholders’ equity ratio (%) | 85.1 | 81.0 | 79.6 | 76.6 | 60.0 |
| Stockholders’ equity ratio based on market prices (%) | 154.7 | 129.2 | 221.5 | 144.0 | 103.1 |
| Debt to annual cash flow ratio (%) | 0.0 | 0.2 | － | － | 203.2 |
| Interest coverage ratio (times) | 1,839.4 | 195.9 | － | － | 80.6 |
Stockholders’ equity ratio: stockholders’ equity / total assets
Stockholders’ equity ratio based on market prices: market capitalization / total assets
Debt to annual cash flow ratio: interest-bearing liabilities / operating cash flows
Interest coverage ratio: operating cash flows / interest payments
| (Notes) | 1. These indexes are calculated using U.S. GAAP figures. 2. Market capitalization is calculated based on issued and outstanding shares excluding treasury stock. 3. Operating cash flows are the cash flows provided by operating activities on the consolidated statements of cash flows. 4. Interest-bearing liabilities include all liabilities on the consolidated balance sheets that incur interest. |
Advantest Corporation (FY2011)
(3) Basic Policy on Distribution of Profits and Distribution for FY2011 and Distribution Forecast for FY2012
Based on the premise that long-term and continued growth in corporate value is fundamental to the creation of shareholder value, Advantest deems the consistent distribution of profits to be the most important management priority. Accordingly, Advantest engages in active distribution of profits based on consolidated business performance.
With respect to the distribution of retained earnings, Advantest makes payout decisions after taking into consideration consolidated business performance, financial conditions, as well as the need for strategic investment for mid-to-long-term business development. While aiming to make consistent distributions, because of the fluctuation of the market in which it operates, Advantest makes dividend payouts following a target payout ratio of 20% or more.
Retained earnings are devoted to research and development, streamlining efforts, overseas expansion, investments in new businesses and resources for M&A activities, with an aim to strengthen Advantest’s business position and enhance its corporate value.
In order to maintain capital strategies responsive to changes in the operating environment, Advantest plans to repurchase its own shares from time to time through taking into account factors such as trends in stock price, capital efficiency and cash flow.
In this fiscal year, Advantest decided to distribute a year-end dividend of (Y) 10 consistent with the revised forecast announced on January 27, 2012, with a payment date of June 4, 2012. Since Advantest paid an interim dividend of (Y) 5 on December 1, 2011, the total dividend per share for the fiscal year will be (Y) 15.
Advantest plans to distribute an interim dividend of (Y) 10 per share, a year-end dividend of (Y) 10 per share and annual total dividend of (Y) 20 per share since the uptrend of achievements is expected.
2. Management Policy
(1) Advantest’s Basic Management Policy
Advantest has established a corporate vision of “Technology Support on the Leading Edge”, and its corporate mission of “Quest for the Essence”. Guided by these principles, Advantest respects each of its stakeholders, strives to maintain harmony with society, and aims for the sustained development of the Company and the improvement of corporate value while contributing to the goal of a sustainable society.
(2) Target Financial Index
Advantest applies the “AVA” (Advantest Value Added), a financial index incorporating the concept of EVA® (Economic Value Added) *, as a significant management indicator, along with profit margin, ROE and cash flows. Specifically, Advantest will set the minimum return-on-investment ratio (“hurdle rate”) for evaluating AVA at 8% and a mid-term target at 12% or more with an aim to further enhance corporate value and shareholder value.
*“EVA®” is a registered trademark of Stern Stewart & Co.
(3) Mid-and-Long-Term Business Strategy and Issues to be addressed
While maintaining “Measurements” as our core competence in mid-and-long term, Advantest intends to improve its corporate value by establishing a management and financial structure that responds timely to changes in the global market, and by aiming to increase market share by introducing fine products that will inspire the market demands of the next generation. To achieve these objectives, Advantest intends to further strengthen its product development operations and improve production efficiency while strengthening its overseas operations and support system in the U.S., Europe and Asia.
Advantest Corporation (FY2011)
In FY2012, the first year of its new corporate initiative, ACT2014, the Advantest Group will commence company-wide activities targeting the mid-term goals set under the initiative:
・Revenues of (Y) 250.0 billion
・Over 20.0% operating margin
・Over 50.0% total market share of semiconductor test systems and test handlers
Starting in the semiconductor test equipment market, where the company’s core competence lies, Advantest will leverage the synergies realized by the full integration of the former Verigy’s assets and resources to expand its market share and the scope of its operations. In parallel, the company will aggressively develop the non-semiconductor businesses that are its future growth platform, while ceaselessly seeking to boost profitability and corporate value.
