Advantest Corp
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Advantest Corp
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Thank you for attending the earnings conference call of Advantest Corporation for Fiscal 2020 First Quarter ended June 30, 2020. Participants from Advantest are Yoshiaki Yoshida, Representative Director, President and CEO; Atsushi Fujita, Managing Executive Officer, CFO; Kimiya Sakamoto, Managing Executive Officer, Executive Vice President of Sales Group; and Yasuo Mihashi, Managing Executive Officer, Executive Vice President of Corporate Relations Group.
First, CFO Fujita, will go over the financial results for the first quarter, followed by a presentation on the full year outlook by CEO Yoshida. We will then take your questions. The entire conference call is scheduled for an hour. Materials are available from TDNet as well as the company website.
Before we start, a cautionary statement. This presentation contains forward-looking statements that are based on Advantest's current expectations, estimates and projections. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause Advantest's actual results to be materially different from those expressed or implied.
Without further ado, CFO Fujita.
Good evening. Fujita speaking. I will go over the financial results for the first quarter. Please turn to Slide 3. Amidst the unprecedented changes in our business environment caused by COVID-19, Advantest's employees have made heroic efforts to support the company's business as have our business partners, suppliers and others. I would like to express our sincerest appreciation. Unfortunately, both orders and sales in the first quarter came below our April forecast. On the other hand, operating income exceeded estimates due to cost controls.
Regarding the business impact of the COVID-19 pandemic, the impact on material procurement was minimal, but restrictions on movement caused sales delays for some products. In addition, customers requested delivery postponements for some products, such as testers for chips used in smartphones and other consumer electronics. In addition to impact of COVID-19, the U.S. restrictions imposed in May on certain Chinese companies have begun to affect our business environment.
COVID-19 has increased uncertainty about future prospects for end-user products, such as smartphones, automobiles and industrial equipment. And the investment attitude of major OSATs has changed to a wait-and-see stance as these companies attempt to discern the impact of the new trade restrictions. As a result, demand for SoC testers has fallen below expectations.
On the other hand, in the memory sector, we captured strong demand related to data center applications, and orders were higher than expected, but this could not compensate for the decline in SoC. Details of orders, sales and profits will be explained in the slides that follow.
Next slide, orders by segment, in Semiconductor and Component Test Systems, down 18.8% quarter-on-quarter at JPY 42.4 billion. SoC tester orders came in at JPY 25 billion, a decrease of JPY 7.9 billion from the fourth quarter. Although demand for HPC applications was strong, the sector overall stagnated due to the cautious stance as smartphone-related customers amidst COVID-19 and U.S.-China trade friction. Although Memory tester orders decreased by JPY 1.9 billion compared to the previous quarter, inquiries continued to be strong, led by server DRAM test applications, resulting in a total of JPY 17.4 billion, which is high considering the volume of orders that were pulled forward into the previous quarter.
Mechatronics Systems business, it was JPY 8.5 billion, down 32.7% quarter-on-quarter. In conjunction with the decrease in orders for testers, orders for mechatronics declined as well.
Services, Support and Others, it was JPY 10.9 billion, down 58.1% quarter-on-quarter. Orders declined in reaction to the large volume of orders related to the system-level tests received in the previous quarter. And there was also a seasonal decrease in annual maintenance contract renewals.
Please turn to the next page, showing our quarterly sales by segment. And first, Semiconductor and Component Test Systems, JPY 42.3 billion, down 5.9% quarter-on-quarter. In SoC testers, some smartphone-related customers requested delivery postponement. Sales of Memory testers increased steadily in response to the rising orders. Mechatronics Systems, JPY 8.9 billion, down 13.1% quarter-on-quarter. Our nanotechnology business experienced installation delays due to the impact of COVID-19. Services, Support and Others, JPY 15.9 billion, up 21% quarter-on-quarter. The order backlog of our system-level test business steadily converted into sales.
Please turn to the next page. This shows quarterly orders and sales by region. First, orders by region. China mobile-related orders showed weakness. Americas and other regions, system-level test orders shrunk in North America and Southeast Asia. Taiwan and Japan, there was a seasonal decline in service orders. As for sales by region, there was no significant change in any region.
Next page, please. This is showing our sales and operating income. First, gross margin, 56.9%. Although our product mix deteriorated slightly, gross profit margin increased as amortization of intangible assets related to the order backlog of Essai, which Advantest acquired in January, decreased. SG&A, being JPY 24.5 billion. Operating income, JPY 13.5 billion. Operating margin, it was 20.2%.
Next page, please. In regard to R&D expense and others, R&D expenses, being JPY 9.9 billion. This R&D to sales ratio was 14.8%. As for Capex, it was JPY 2.6 billion. Depreciation and amortization, the same, JPY 2.6 billion. Acquisition and price allocation relating to the acquisition of Essai was completed in the first quarter. And amortization of intangible assets, other than the order backlog, has begun. As for the first quarter in cash flow, free cash flow became JPY 6.8 billion.
Next page, please. This shows our financial position. Total assets, being JPY 359.1 billion. Cash and cash equivalents, being JPY 126.2 billion. Equity attributable to owners of the parent, being JPY 234.2 billion, up 0.1 point from the end of the previous fiscal year, becoming 65.2%.
This concludes my explanation about the first quarter results.
This is Yoshida speaking. I will go over the fiscal 2020 outlook.
Slide 11. First, calendar year 2020 semiconductor tester market trends, especially in the Advantest business environment. OSAT investment stances have changed dramatically since the U.S. announced tighter restrictions on certain Chinese companies in May. Advantest estimates that semiconductor production volume for data center-related demand are high, but OSAT investment is expected to remain sluggish for the time being, given the risk that demand from major fabless companies affected by the restrictions may disappear. It may take 6 months to a year for the equipment market adjustment that may occur due to fluctuations in the supply chain to be completed. In addition, the end product demand slowdown associated with COVID-19 is restraining tester demand across a wide range of sectors, including automotive and displays. Given these circumstances, we have reduced our outlook for calendar year 2020 SoC tester market to approximately $2.4 billion. Advantest's SoC market share is expected to decrease this year due to our customer mix.
In the memory sector, lifestyle changes imposed by COVID-19 in the first half of calendar year 2020, such as remote work and distance learning, stimulated data center investment, leading to strong orders for Memory testers. Demand is expected to drop in the second half of calendar year 2020, but the forecast for the calendar year is estimated to be around $1 billion.
Advantest has not changed our view that increased needs for test and reliability assurance, stemming from higher semiconductor performance, will drive future demand for testers. We believe that from next year, the tester market will enter into medium-term growth amid the expansion of 5G commercialization, millimeter wave development and the expansion of HPC, high-performance computing, and AI demand. However, the consequences of the U.S.-China economic decoupling are very hard to predict. So the company will seek deal cautiously with this situation without underestimating its potential impact.
Slide 12. Against such a backdrop, this is our forecast for fiscal 2020. FY '20 sales and profits are expected to decline due to slumping final demand amidst exacerbated U.S.-China friction and COVID-19. For the second quarter, we forecast orders of JPY 55.5 billion, sales of JPY 73.3 billion, operating income of JPY 14.2 billion, income before tax at JPY 14.2 billion and net income of JPY 11.3 billion. In the full year, we forecast orders of JPY 240 billion, sales of JPY 260 billion, operating income of JPY 45 billion, income before tax of JPY 44.4 billion and net income of JPY 35.8 billion.
As mentioned earlier, Advantest believes that the impact of U.S.-China friction should not be underestimated, and that it will take time for SoC demand to recover. This forecast assumes exchange rates for the second quarter and beyond of JPY 105 to the U.S. dollar and JPY 120 to the euro in each quarter. For the full year, we assume rates of JPY 106 to the dollar and JPY 119 to the euro. We expect orders to bottom out in the second quarter.
Gross profit margin for the full year is expected to drop from the previous year's 56.7%, to about 53%. This is due to an increased manufacturing headcount associated with the consolidation of Essai and the impact of lower demand for high-end SoC testers.
Operating income margin is also expected to decline from the previous fiscal year. However, we expect to achieve 17% of the operating profit target of the current midterm management plan.
Slide 13. SoC tester business outlook. The technology road map driving higher semiconductor performance, greater complexity and higher capacities will continue to be favorable to Advantest in 2020. Customer positivity towards investments in Advantest products is unchanged. In addition, semiconductor production is currently strong, partly because suppliers are building up inventory due to the U.S.-China friction. However, from May onward, we have seen growing concern that OSAT utilization ratios will decrease in future due to the full implementation of U.S. trade restrictions on Chinese companies in September, and investment appetite is likely to decline. In addition, demand for testers for automotive, industrial machinery and consumer products is expected to be weak due to the slumping, end product decline associated with COVID-19.
Demand for SoC testers for HPC is growing due to data center investment expansion. But downwards pressure on tester demand is expected to exceed growth for the time being, so we expect a significant decline in sales this fiscal year. Although 5G demand has temporarily stagnated due to the effects of COVID-19 and the reinforcement of trade restrictions on Chinese companies, we expect it to recover from the fourth quarter onwards as the supply chain stabilizes.
Slide 14. Memory tester business outlook. In the first half of calendar year 2020, work-from-home policies were implemented around the world. And investment in Memory testers for data centers gained momentum. Advantest benefited from DRAM and 3D NAND CapEx addressing server capacity growth. Tester sales are expected to slow down in the second half of fiscal year 2020 due to a pause in demand for memory for servers and fears of slowdown in smartphone demand. With data traffic volume growth expected to continue, demand for memory should keep growing from fiscal year 2021. Technological drivers, such as DRAM node shrinks, the shift to LPDDR5 and DDR5, expanding demand for HPC and increasing 3D NAND capacities, will create tester demand that Advantest is poised to capture from every direction.
Slide 15, Mechatronics, Services and Other business outlook. Strong demand for Memory testers underpins our expectation of increased sales of device interface products. We forecast sales of JPY 38 billion this fiscal year. In the Services and Other business, we expect solid field service sales. In addition to the consolidation effect of the Essai acquisition, sales of SoC system-level test products to new customers acquired in fiscal 2019 will contribute to a significant increase in sales. Therefore, we forecast total segment sales of JPY 61 billion.
Allow me to move to Page 16. Since the present business environment remains uncertain up to the present point, Advantest will strive to respond flexibly to urgent expenses and restrict unnecessary expenditures. On the other hand, we will maintain a certain level of R&D spending. Even from calendar year 2021, there will be no change in customer road maps targeting higher semiconductor performance and functionality. To secure every opportunity to expand our business by leveraging our comprehensive technological capabilities, Advantest will boost engagement with customers and implement measures to maintain and expand our market share. Specifically, we are providing technical support for device development and evaluation of support in fields, such as 5G millimeter waves, high-performance compute and artificial intelligence high-end memory and system-level test. These ongoing initiatives will lead us to future business expansion. At present, we believe that these measures are progressing rather well.
Next page, Page 17, please. This is somewhat a new information. We plan to have a press release today about this. In order to achieve the vision laid out in our grand design, Advantest has partnered with and invested in PDF Solutions. For your information, this company, PDF Solutions, is the semiconductor industry's largest provider of database platforms and data analysis solutions for manufacturing data and test data. Through this partnership, the companies will jointly develop Advantest Cloud based on the PDF Solutions' extension data and analysis solution platform. This will be a new platform for big data analysis, comprehensively covering workflows from IC design to wafer manufacturing, wafer test assembly, final test and system-level test. As customer devices evolve, we will provide an environment for yield management and online monitoring that also employs artificial intelligence and machine learning to add and create customer values.
In terms of sales, Advantest will strive to further expand recurring business by a mutual sales arrangement, whereby both companies will sell one another's software. Advantest is also cementing this partnership with PDF Solutions through the acquisition of approximately 9% of PDF Solutions' common shares through the third-party allotment, representing a capital investment of about $65 million. This alliance is the first step to generate synergies with our hardware-dependent business model and to further grow the recurring business.
The diagram on Page 17 was the one we used when we announced our grand design. This is going to be on a solid foundation for our cloud software and data analytics business. As you see, with this, we can move from the system-level test process as shown in the bottom right, into the cloud traction. This is going to be our strategic investment for the journey.
Next, please turn to Page 18. This is explaining our plan for the share repurchase. This has been already press-released. Since we announced our MTP, only 2 years and the 3 months had passed, and in this period, free cash flow has been trending at a faster pace than initially expected, supported by higher-than-expected earnings growth. As a result, based on the present levels of cash on hand, our outlook for growth investments as well as the state of our external environments, we will conduct a share repurchase in order to improve capital efficiency. This may include exercise of stock options. Anyway, we would like to implement this in order to improve the capital efficiency. By the end of October, we will acquire 2.5 million shares or up to JPY 15 billion worth.
Page 19. This is today's summary. FY '20 sales and profits are expected to decline due to the slumping final demand amidst exacerbated U.S.-China friction and COVID-19 as of now. SoC semiconductor test customers are particularly uncertain about the near future. But we believe that the strong trends toward higher semiconductor performance and reliability, which will drive Advantest's future growth, remain unchanged. In Advantest's core business, which is a pillar of medium- to long-term growth, the company is making steady progress, with measures to strengthen its foundation in areas such as 5G, RF and memory.
With regard to expansion into adjacent business domains, which is considered a medium- to long-term priority, in addition to reinforcing the company's system-level test business through M&A over the last 2 years, Advantest is also expanding our cloud and data solutions, utilizing semiconductor test data. I have already touched upon this. It's not necessarily a pure M&A, rather I would like to leverage our partnerships in order to strengthen our technological capabilities. Lastly, Advantest will improve capital efficiency by conducting a share repurchase.
Last page, Page 20, please. This is actual information I can share with you concerning ESG and external evaluation information. I have listed up the highlights of the activities in 2020. 4 points: Advantest was ranked #1 Global SPE Supplier among all the in-house suppliers, by VLSIresearch Customer Satisfaction Survey. Advantest announced its support for Task Force on Climate-related Financial Disclosures, TCFD, recommendations. Advantest is now adopted as a constituent stock of the MSCI Japan Empowering Women Index, WIN, and the Win Select Index. Advantest is planning to donate its money in multiple countries, both at home and abroad, for relief of COVID-19 victims and those affected by the latest disasters, such as the 2020 Kyushu floods this month. I would like to take this moment to offer our sincere sympathy for those who are affected by the natural disasters. Japan is also going through a tough time because of the COVID-19 pandemic. We are truly grateful for the efforts made and offered by the health care and medical workers.
This concludes my explanations. Thank you for your kind attention.
We will now take questions. The first questioner is Mr. Wadaki from Nomura Securities.
Wadaki from Nomura Securities. Given the current environment, I can understand why your outlook will have to be rather conservative. And in fact, compared to the outlook that you have made at the beginning of last fiscal year, this is far more bullish, and I'm hoping things will turn out like it did last year. My first question is on the market environment. Regarding the very current semiconductor market, listening to other earnings briefings so far, DRAM has slowed down over a couple of weeks or so, while foundries are suddenly picking up.
And you have referred to the U.S.-China issue, and it's becoming difficult to use OSAT in China and alternatively, Taiwan, which is becoming more bullish in front-end, possible OSAT investments. That is the expectation. In light of these factors, could it be that foundries in Taiwan might start to pick up earlier than expected? That's my view. But do I understand that you don't share that view?
I think Taiwanese foundries are busy for sure. And OSATs in Taiwan are currently busy handling a large amount of wafers that are supplied. However, September 15 onward, that workload is going to diminish, and that is what OSATs are assuming. So unlike the busy foundries, they will have to build supply chain with new customers. I think that is what is going to happen. So a certain level of redundancy in capacity, we believe, will take place, and our view is that it will take some time before that redundancy would be consumed or filled up. But of course, eventually, there will be demand and all the capacity will be used. But it is hard to predict when exactly that will take place.
And there is a difference in front-end SPE manufacturers and back-end companies, in that the customers have fabrication plants in the front-end equipment customers. And they must be very busy right now. Whereas our customers are in the business of processing the wafers that come out of that or packaging them. So the number of customers is rather large. And it will take some time before the distributed supply chain to be rebuilt or reconfigured, and that is why we are taking a rather conservative view.
I see. So you think that this is a temporary adjustment. With decoupling in semiconductor, supply chain is divided. And on a macro scale, the investment efficiency will go down, which should be a plus for the tester business. So over medium to long term, the tester business, I think, will follow the front-end investment. Am I correct?
Yes, as far as the redundancy and supply chain is concerned, demand is going to inflate somewhat. That is what we imagine. But before things settle into that level, it may take some time. That's our view. The disappearing demand will be filled by someone anyway, and that will start from the upstream, and once the upstream portion is filled, then that will spread into OSATs and everything will be absorbed. So we don't believe that the demand itself will disappear. We are only concerned that it will take time.
I see. My second question is on partnership with PDF Solutions. I was rather surprised by this. Can you talk about the specific effects or the output of this partnership that you expect to the extent possible? Some specific output or expectations that you have?
First, I would like to ask you to take a longer-term view. Already, with IDMs, there are successful tester sales. And I would like to give the floor to Mr. Mihashi for some technical explanation.
Good evening. This is Mihashi from the Corporate Relations Group. It may take some time before you get a clearer picture of this, I'm afraid, but specifically, PDF's data analytic tools or market environment, which connects a wide range of SPEs. And PDF has the capability to consolidate a wide range of data and is doing a business in that realm. And within that environment, we are to build Advantest Cloud, and various data and parameters per process are to be put together or relayed so as to improve efficiency of the operation of the semiconductor production process. That is the long-term goal that we have in mind.
But over a short term, aside from that long-term goal, through the cloud environment that we are to build, Advantest and PDF are jointly working on improvements to be provided to the customers' applications. And that is already taking place. And that being a kickoff case, we will continue to expand the market base.
If I may, this is Yoshida speaking. I'm afraid we can't really give you the details because that's related to our strategy. Having said that, basically, the data that will come out of our testers will enable you to trace all the way back to the design phase of the semiconductor. So you can figure out reasons for a good quality semiconductor or a bad quality semiconductor, for example. And these data can be analyzed to contribute to improved yield or improvement in design. These are the things that customers are already doing. And we want to build a platform that will allow our tester to become the key element of that process. I hope that helps.
The next questioner is from Mitsubishi UFJ Morgan Stanley Securities, Mr. Hasegawa.
I have a question on the segment profit changes. January, March versus April, June, Services, Mechatronics, Semiconductor and Component Test Systems, in each of these segments, can I get a recap of the reasons for a respective increase or a decrease? As for Services, I'm assuming that profit increase, thanks to smaller amortization, were their onetime expenses or profit. And for mechatronic solutions, compared to the size of the decline in sales, the decline in profit seems rather large. So can you give us the reason why? And for Semiconductor and Component, profit ratio is declining. Again, what are the reasons for that?
This is Fujita, CFO. First, I would like to check if I understood your question. You are comparing the fourth quarter of the previous year and the first quarter, correct, a quarter-on-quarter comparison?
Yes. That is correct.
For Services and Others, during the first quarter, as you have indicated, burden of amortization of intangible assets has lessened, which pushed up the profit rather significantly. And for the first quarter, profit from Essai was included for the full 3 months, which served to increase profit. As for Mechatronics, during the first quarter, the DI-related business following the tester business increased. And that was part of the factor. But in the nanotech-related area, partly due to the impact of COVID-19, there was a time lag in recognizing some of the sales, which accounted for the quarter-on-quarter difference. As for semiconductor, the mainstay tester business, SoC, which is the greatest profit contributor, accounted for a smaller portion in terms of product mix during the first quarter. And accordingly, profit turned out to be sluggish.
I see. A question for clarification, Services and Others. Profit level seems to have been rather high. Do you consider this to be a normal level, in other words, no special factors?
During the first quarter, the portion of Essai business results was higher than usual. And therefore, the first quarter results should be considered to be higher than normal somewhat.
May I ask how much Essai accounted for in terms of sales?
I'm afraid we don't disclose the breakdown of sales for Services and Others.
Understand. My second question, earlier, you indicated that the demand for SoC tester is to bottom out in the second quarter, some adjustment during the second and third quarters before recovering in the fourth quarter. That's your expectation. And that scenario is based on the assumption that adjustment will complete. Is that the correct understanding? Can you explain your quarterly projection? Can you also talk about the testers for DRAM, memory, again on a quarterly basis?
This is Sakamoto from Sales. First, on SoC. As Yoshida briefly explained earlier, due to COVID-19 and U.S.-China friction and others, we do not expect significant increase for the third and fourth quarters. But toward fiscal 2021, HPC, which is our strength, being the primary area, we hear our customers are planning latest node mass production. And that business should contribute to higher utilization ratio of OSATs. And therefore, from the fourth quarter to fiscal 2021, improvement is expected. That is our current view.
As for memory, as was mentioned earlier, during the first half, it was very strong, with strong orders and sales. As for the second half, third and fourth quarters, some slowdown is expected. Having said that, here again, toward fiscal 2021, starting in the fourth quarter, data center-related demand is expecting growth coming in relation to work-at-home practice, which was mentioned earlier, and we believe that this is going to expand further globally. And also, next year, in memory, for example, LPDDR5 for smartphones expects full-fledged mass production. And for DDR5, which the full-fledged mass production may have to wait until fiscal 2022, pilot production is expected in 2021. And the fabrication plants in China and Korea for DRAM and NAND, we hear are planning their capacity expansion, which will result in an increase in chips. So these are the key elements that we are looking at. And here again, from the fourth quarter to fiscal 2021, we expect recovery.
I see. Your response on SoC, could you repeat that part? The connection was rather choppy.
Sure. As for SoC, from the fourth quarter to fiscal 2021, customers related to HPC, which is our stronghold, are planning latest node production. Accordingly, we expect the OSAT tester utilization ratio to go up, which could translate into new business for us. That is the expectation, and that is what we hope to see.
I see. The level would be comparable to 2019 in terms of market size. Is that your expectation?
Yes, we have such an expectation. But with COVID-19 and U.S.-China conflict going on, with those 2 uncertainties in place, I believe we need to be somewhat careful there on our side. For FY '21, there will be a variety of technologies coming up. Though it may depend upon the COVID pandemic, each country may launch its own economic stimulus policies. So not only smartphones, but others may increase semiconductor opportunities going forward. So for FY '21 and onwards, we can expect to have a brighter future. You may say, well that's just an expectation on your side, but I think we can have such an expectation.
Next, Mr. Yoshida from CLSA Securities, please?
Yes. This is Yoshida from CLSA Securities. If I may, I have a question concerning the tester market. This time, you lowered SoC and increased the memory business. I would like to inquire as for the breakdown between Advantest versus your biggest competitor. I appreciate if you kindly expand on your outlook for particularly the next year for SoC and the Memory tester business. I'm sure that you have your own thoughts and ideas in these market segmentations, including your hope or expectations, say, in terms of scale and the direction you would like to follow, please.
Well our biggest competitor has announced its financial results last week. We are quite impressed with its remarkable content in light of COVID-19 situations. Yes, we are quite impressed. Well one thing for sure is that they were able to get all the investment made by the major smartphone customers this time. We do not have that segment, so this can be explained by different customer mix we are not having, respectively, instead of -- you told us we have lost. May I remind you that we had a higher share over them last year and the year before. And this year, they will have a higher share.
As for your question on scale, well we assume our SoC business will decline this year. So it will go up next year. So we believe. Furthermore, we had the first thought associated with the decline in FY '19, and then it would go up in FY '20. However, what happened was it did not decline as much as we had expected in FY '19. It turned out to be a rather good market. That said, I personally am quite concerned about the conflict between the U.S. and China. I am sure our competitor is also concerned about it because they have those transactions affected by it. But they were able to absorb the possible impact by having a big order coming from one company. The SoC market, I believe, is not going to change drastically going forward. It may go up and down. We may lose or gain market share. So we should be sharing this market.
As for memory, we are still a winner in terms of market share. We have never lost in this regard. But may I remind you that the total number of the customers in memory is not that large. Memory customers are to procure from the 2 companies, so it would become quite difficult for one company to get them all. That said, though, since we have developed a deep engagement with our customers historically, we believe we should be able to maintain our share around 60% or so.
As for scale, memory had an adjustment last year, and this year, they are making a strong investment in order to make a recovery. So there could be a little dip in the second half of this year, but we do expect good recovery in next year. LPDDR5, DDR5 will come up this year, so the business will not decline. I do expect it to be the same level as this year's.
My second question, looking at the overall orders focus, it will hit the bottom in the second quarter, I'm talking about the SoC market. In terms of the orders guidance, the third quarter may see a little growth, but do you expect it to have a big recovery in the fourth quarter? That said, I would like to inquire, when you created the plan, generally speaking, things seemed to be coming down, or if I may, and I will quote you, being somewhat conservative. I'm just wondering if you believe the environment in itself has changed since you made the plan. Hope you're with me on how concerning are these points, so I appreciate if you could, talking about those factors. That's all.
In April, we explained that due to the uncertainties, we did not make our full year forecast. But back in April, we had a much higher plan. The numbers you see here were made in around after the main whole decision, after the last financial briefing in light of the announcement from the U.S.A. that it will tighten its restrictions against Chinese companies. Also, the COVID situation is extremely difficult for us to see where it goes. The numbers you see here were adjusted in July.
Moving into the second half. We will revisit those numbers. So the numbers you see here are our best guess. I hope you're with me. With these uncertainties, it may go up or go down. But the numbers you see here are our best estimation as of the end of July. Hope you understand this.
How about orders in the second half, Q3 and Q4?
Just one possible observation. As we stated, the second quarter will hit the bottom in terms of orders, JPY 120 billion plus for the second half. We are hoping third quarter is slightly better than the second quarter. Hope we will see a further steady improvement in the fourth quarter, JPY 60 billion or less for Q3 and JPY 60 billion plus for Q4. We do hope that Q1 next year will further improve.
Next, I would like to have Mr. Hirakawa from Merrill Lynch Japan Securities.
This is Hirakawa from Merrill Lynch. I have 2 questions. My first question is about OSAT. You told us that you may need 6 to 12 months for adjustment. I would like to inquire about the rationale for that 6 months and up to 12 months, whether or not you have experienced similar situations in the past. Again, simply stated, I would like to ask you to give us good justification why you believe in 6 months and up to 12 months, again, on adjustment on the side of OSAT, 6 months and up to 12 months. I would like to inquire to give us the good elements on your assumption in making the latest business plan here. This is my first question.
May I remind you that we said that it may take from 6 months to 12 months, 1 year. It is a possibility we are talking about here. With the restrictions going on, of course, we do have the actual test volume number, which we simply cannot give to you, but this is the baseline for our assumption. We also keep an eye on the new supply chain opportunities.
What is the percentage of the idle products? And what is going to be the possible percentage for the use among the new suppliers?
Actually, we did not have similar cases in the past. Talking about the excessive products, some of that could play into strategic use cases. One, for that, we may be able to find those customers in OSAT and IDM or fabless customers. We may be able to deliver to them much earlier. So this is a part of our strategy. If it goes well, we may be able to minimize the adjustment period, not as long as 6 months. If not, it may take longer than 6 months.
So here, we are having a kind of grace period. Furthermore, if you think those idle products will eliminate all the other demand, no, we do not believe so. We do believe there is going to be a good match between the needed test specification and the customers who need the right products for them. So this kind of demand will not disappear. Some of the products for Chinese smartphone supply chain will become idle. For example, we are not having demand for the CMOS image sensors, display drivers. We will make further efforts in order to meet with such an expanded demand.
Sorry, I missed your answer to the other question, I would like to inquire here again, what is the length of the adjustment you have in mind when you made the latest business plan, 6 months or 9 months or 12 months? I wonder if you could be a bit more specific in this regard?
6 months.
I got it. What 6 months, but starting from when?
It's already started.
So with this assumption, it could be ending in December or in the beginning of the fourth quarter.
Again, this is a possibility.
Understood. My second question, you have revised your forecast for SoC market size for full year. The explanation you gave to us was clear to me. But I would like to know the rough breakdown in this segment. I appreciate if you could give me specific numbers for automotive and smartphones and others in this JPY 300 million. Another point is that your competitor Teradyne has not changed its number year-on-year since January. I'm talking about an SoC market size. It's been flat. You may say you have nothing to comment since this is a matter for another company. But I'm just wondering why there are some differences between you and Teradyne.
This is Sakamoto. Allow me here, JPY 300 million down. Behind is the impact coming from COVID-19, well, I would say, as much as JPY 300 million as well as the conflict and friction between the U.S. and China we are talking about, almost JPY 200 million, and also on the Advantest products as much as JPY 12 million or so. Put them together, we are assuming the decline of about JPY 300 million. Then break down between automotive and the consumer electronics segment, well I do not have details right now, but recently, as you may know this, automotive as well as smartphone business have both dropped significantly. So both of them are showing minus JPY 300 million or so. It is not the case, one segment is larger than the other, rather the both of them are dropping sharply.
Thank you for your participation. This concludes the Q&A session.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]