Advantest Corp
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Advantest Corp
Earnings Call Analysis
Q2-2024 Analysis
Advantest Corp
In examining the earnings call transcript for the fiscal year 2023's second quarter, it is noted that sales and profit metrics surpassed first-quarter figures due to factors including the depreciation of the Japanese Yen. However, it's not all rosy; gross profit margin took a hit, attributed to a less favorable product mix, even as operating income margin managed an uptick, assisted partly by currency depreciation. The company maintained its interim dividend at JPY 65 per share, persisting through a share split.
Dissecting sales by segment unveils a mixed scene. The SoC (System on Chip) tester sales witnessed a modest increase, with higher demand in mature processes like automotive and industrial equipment, although high-performance computing semiconductors experienced a decline. On the brighter side, memory tester sales rose significantly, thanks to a surge in high-performance DRAM sales, particularly for applications driven by generative AI, overshadowing the persistent weakness in nonvolatile memory sales. Regionally, South Korea illustrated substantial growth in memory testers, China elevated in both SoC and memory testers, while Taiwan saw a slump in high-end SoC tester sales.
Looking ahead, the company outlines a semiconductor market conundrum; while stable demand persists in sectors like automotive and industrial equipment, the smartphone and consumer electronics segments are dragging their feet, prompting semiconductor manufacturers to apply the brakes on capital investments. There's an air of caution as several headwinds loom—geopolitical risks, commodity price hikes, and currency volatility. Despite these challenges, the company adjusted its SoC tester market size estimate upwardly, displaying cautious optimism based on the stable progress in segments such as automotive and industrial equipment, albeit acknowledging potential demand weaknesses in advanced processes linked to smartphones. In line with this, memory tester demand is also slightly more hopeful, buoyed by high-performance memory investments, particularly evident as the world gears up for the generative AI era.
The company adjusts their financial sails as they navigate murky waters. Anticipating a slack in SoC tester demand due to a lull in advanced processor products, they've trimmed their sales forecast by JPY 20 billion. Contrarily, memory tester sales projections are painted with a tad more color, having been raised by JPY 6 billion, as anticipation builds for a bump in high-performance memory tester investments. With an eye on the long game, R&D investments will persist to court future technologies, while efforts are doubled down to smooth out supply chain wrinkles and pivot dynamically to demand changes. The overarching strategy comprises boosting gross margins, scrutinizing sales prices, paring costs prudently, and judiciously trimming the workforce. Furthermore, systemic operational efficiency is on the workbench, as the company sets about honing its efficiency through strategic measures.
With a full-year sales forecast that dips by JPY 10 billion from a prior JPY 480 billion estimation to JPY 470 billion, the company is bedding down for a longer-than-anticipated period of sluggish market conditions. This revision reflects a more tempered speed of recovery in smartphone-related demand and a longer duration required for the absorption of excess tester capacity. Nevertheless, there's an unmistakable thread of optimism woven through the fabric, as the company sights the emerging business frontier that generative AI presents. Positioned for the middle-distance, the company's lens is fixed on eventual market recovery, backed by a solid R&D foundation and strategic maneuvers to refine profits in line with the shifting economic and technological landscape.
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Thank you very much for taking your time to attend FY 2023 Q2 earnings call for Advantest today.
I would like to introduce our attendees today, Mr. Yoshida, the Representative Director and President, Group CEO. This is Douglas Lefever, Representative Director, Corporate Vice President and Group COO; And this is Mihashi, Senior Executive Officer, CFO and CSO, Executive Vice President of Corporate Strategy Group; Nakahara, Senior Executive Officer and CCR Executive Vice President of Sales Group. I'm Kobayashi from the Investor Relations Department of the Corporate Strategy Headquarters, I'll be the moderator for today.
So today, we'll begin with FY 2023 Q2 financial results by Mihashi followed by FY 2023 business outlook by Yoshida. After that, we'll take any questions you may have. The scheduled end time is 17:00 and please note that today's financial results briefing will be streamed with simultaneously Japanese-English interpretation. [Operator Instructions]
Today's presentation materials are posted on TDNet and our website. If you are participating via phone line, please download them separately. Also, only Japanese materials will be projected on the screen at today's briefing session. If you need to view the English materials, please download the English version separately.
Prior to the briefing session, we have some information to share. [ following ] explanation may include future outlooks based on current expectations, but all these involve risks and uncertainties. Please note that accurate results may differ from the forecasts.
Now I'd like to pass the floor over to Mihashi. Thank you.
Now I would like to share with you the financial results for FY 2023 2nd quarter. Please look at Page 4 in your materials.
The second quarter sales and profit. As you can see on the screen, exceeded those at the first quarter. Although the JPY's depreciation against the USD also boosted our performance, the business environment remained challenging as in the previous quarter as customers continue to curb investment, especially in smartphone-related applications.
Gross profit margin fell below the previous quarter's level due to the deteriorating product mix. Operating income margin was higher than the previous quarter, partly due to the impact of JPY depreciation.
Regarding the interim dividend, the Board of Directors today, October 31 approved JPY 65 per share, the same as the forecast as of July. JPY 65 is the dividend amount per share before the 4-4-1 share split as of October 1. Details will be explained sequentially in the following pages from Page 10 onwards. Please go to Page 5.
Sales by segment. Semiconductor and Component Test Systems, SoC tester sales were JPY 62.5 billion, an increase of JPY 1.3 billion quarter-on-quarter. Sales for semiconductors mainly related to mature processes, such as for automotive, industrial equipment increased. On the other hand, sales for application processors, which have been weak, decreased. Although sales for high-performance computing semiconductors where demand is solid, also decreased. Deliveries of new tester equipment continued to be moderate, while excess capacity and customer supply chain is being digested.
Memory tester sales were JPY 18.7 billion, an increase of JPY 9.4 billion quarter-on-quarter. Although sales for nonvolatile memory continued to be weak as in the previous quarter, sales for high-performance DRAM, including generative AI increased markedly.
Mechatronics Systems, sales of device interface products and test handlers increased quarter-on-quarter in tandem with an increase in tester sales. Sales of SEM metrology products also increased. Service, support and others sales were on par with the previous quarter. Please go to the next page, Page 8 -- Page 6.
Sales by region. As you can see, for South Korea, sales of memory testers grew substantially with marked growth or DRAM. In addition, SoC tester sales were solid.
Next, will be about China. Sales increased in SoC testers and memory testers respectively, due to delivery of testers for a variety of semiconductors.
As for Taiwan, the orange colored bar area, sales decreased mainly for high-end SoC due to continuation of excess tester capacity related to smartphones. Testers, as I mentioned, testers that have been configured to test smartphones are now being converted to test HPC. As such, we expect Taiwan sales to increase along with an improvement of utilization ratio going forward. Next page, please.
This will be sales, gross profit and operating income. At the time of the first quarter results announcement in July, we had expected gross profit margin will show improvement in the second quarter and beyond, with the first quarter being the bottom. However, sales for high-end SoC did not pick up as much as expected, resulting in a deteriorated sales product mix. In addition, higher parts procurement costs resulted in a lower gross profit margin than in the previous quarter.
SG&A was JPY 37 billion, on par with the last quarter. This includes other income of approximately JPY 3.2 billion. This is mainly due to a settlement of a dispute with a counterparty. As a result, operating income was JPY 21 billion, as you see here. Next page, please.
This is regarding investments and cash flow. R&D, CapEx and depreciation were largely in line with expectations. As for the cash flow, in the first quarter, there was an investment cash outflow due to acquisition of [ Xingu ], in the second quarter, free cash flow increased by JPY 16.8 billion quarter-on-quarter. Please go to the next page.
This is the consolidated financial position. Trade and other receivables increased by JPY 12.6 billion -- JPY 12.6 billion from the previous quarter due to an increase in sales. Inventories are at a similar level as in the previous quarter despite the incoming delivery of strategically procured long lead time parts. We are currently working to establish a delivery system to meet customers' delivery deadlines in order to monetize and returns as quickly as possible, we will make further efforts to strengthen inventory management.
Next from my side, I would like to talk about the 2023 outlook. Please turn to Page 11. The current business environment is characterized by a slow recovery of the global economy, including the economic slowdown in China. In addition, business environment remains highly uncertain due to factors such as expansion of geopolitical risks, rising prices of natural resources and other commodities and the risk of sharp exchange rate fluctuations.
In the semiconductor market, despite resilient and stable demand in certain areas such as automotive and industrial equipment, data center investment has slowed in addition to a decline in semiconductor demand in smartphones and other major consumer electronics applications, leading to continued capital investment restraints related to semiconductor manufacturers.
For the calendar year 2023 SoC tester market, we adjust our SoC tester market size estimate range to between USD 3.3 billion and $3.4 billion. We raised the lower end of the range compared to our estimates 3 months ago, as tester for automotive, industrial equipment and DDIC showed steady delivery progress while lowering the compound of the range has retried the potential for upside.
As for the capacity ramped-up during COVID-19, we believe it will still take some time before it is used. For the calendar year 2023 memory tester market, we adjust our estimate range to between USD 1 billion to USD 1.1 billion by raising the lower end of the range. While signs of demand recovery for nonvolatile memory remain uncertain, tester demand for high-performance memory is growing as customers' investment appetite is increasing due to plans to increase production and strengthen quality assurance.
For high-performance semiconductors, such as those for HPC and AI, the efforts to increase assembly capacity is going into full swing, leading to an expectation for an increase in production volume from 2024 onwards. There is also a stronger trend toward increasing test volume driven by the demand for higher performance in order to add value to semiconductors and for higher reliability. This trend is currently utilizing excess capacity in our customers and supply chains. But we are also seeing our customers materialize their investment plans towards 2024 to 2025 based on medium-term plans for demand growth.
Please turn to Page 12. This is our financial year 2023 forecast. In light of the first half results and the outlook going forward, we are revising down full year consolidated forecasts. Sales forecast is revised down to JPY 470 billion, which is JPY 10 billion below the July forecast. Recovery of sales of testers for high-end SoC is expected to take longer than originally anticipated due to the delay in recovery of demand for semiconductors, for smartphones and other major customer electronic devices.
Gross profit margin forecast, which was originally projected at around 55% has been revised down to around 50% due to lower sales, a deteriorating product mix and higher material procurement costs. Operating margin is revised down to a level below 20% although we are working to reduce nonessential costs.
Exchange rate assumptions for the second half of the fiscal year are JPY 145 for the USD and JPY 155 for the EUR, respectively, to reflect JPY depreciation. Our latest forecast for the impact of exchange rate fluctuations on FY 2023, operating income is plus JPY 0.9 billion per JPY 1 of JPY depreciation versus USD and minus JPY 0.3 billion, JPY 1 depreciation versus the EUR due to the exchange expected decrease in sales from USD-based transactions. We have lowered our estimate of the impact for the USD by JPY 0.2 billion from July.
Regarding the tightening restrictions on the export controls of semiconductor reduction equipment to China by the United States and its allies, the direct impact on our FY 2023 earnings is currently expected to be limited but we will continue to closely monitor the situation.
Please turn to Page 13. This is outlook by segment. First, FY 2023 Semiconductor and Component Test Systems outlook. For the year FY '20 '23 SoC tester sales forecast is JPY 248 billion, which is JPY 20 billion lower compared to the July forecast. For mature processor products, customers' investment is expected to trend solidly for applications such as DDIC in addition to automotive and industrial. On the other hand, demand for advanced process products is expected to fall more than expected against the backdrop of weak demand for smartphones and other factors. As a result, SoC tester sales for the current fiscal year are expected to decrease significantly year-on-year.
Memory tester sales forecast for the full year is raised by JPY 6 billion from the July forecast to JPY 76 billion. In high performance, memory applications such as DDR5 and HBM, including those related to generative AI, a substantial increase in tester investment from customers can be expected going forward. as they set to increase production capacity against above shop or medium-term demand growth and high reliability requirements.
Please turn to Page 14. Mechatronics and Services, Support and Others. We have raised our full year forecast of FY '23 mechatronic system sales by JPY 6 billion from the July forecast. And sales of device -- interface products and test handlers are expected to increase in conjunction with an increase in the full year sales forecast for memory testers. We have cut our full year FY '23 services support and other sales forecast by JPY 2 billion.
For Maintenance Services, solid demand is expected due to the steady growth of our installed base. System-level test business is expected to see our year-on-year decline in sales due to the impact of customers' investment trends affected by the sluggish semiconductor market conditions.
Please turn to Page 15. So, we have been talking about the business forecast for this fiscal year compared to 3 months ago. Demand recovery is lower than expected compared to 3 months ago and ramp-up is delayed. At the same time, in the past 3 months, we also saw concrete progress in our business opportunities arising from generative AI.
There are 2 [ axes ] when it comes to factors which drive tester demand. One is enhancement of testing in response to technological changes, such as increased semiconductor complexity and greater quality assurance. The other is increase in semiconductor production and volume. And that's what we are trying to show in one slide.
As semiconductor technology evolves, demand for testing is increasing in response to the adoption of advance technologies such as the migration to 3-nanometer processes and other miniaturization advances which require more testing time to address new failure models and the increased importance of testing to enhance quality assurance for advanced packages that are stacked and mounted at the [ die ] level.
In terms of semiconductor production volume growth, major semiconductor foundries are expected to gradually increase their advanced package assembly capacity from calendar year 2024 onwards. In addition, customers that are developing and mass-producing high-performance memories such as HBM, are working to increase their production capacity in response to midterm demand growth and high reliability requirements. Concrete discussions with customers about their plans for future tester demand growth are ever increasing.
In addition, the raise concrete progress for projects by several new players working on the design of semiconductors with diverse functions from service to end applications related to generative AI. The progress of those multiple projects is expected to increase the demand for testers over the medium term starting in 2024.
Please turn to Page 16. So we've explained this several times in the past, we have drawn the ground design as you see on this slide. For AI-related semiconductors, with the diffusion of advanced packages, test insertions in various stages to enhance quality of semiconductors is becoming important. And these include wafer testing in a front-end process, package testing after packaging and system-level testing. Furthermore, for our customers to improve the yield of semiconductors, it is important to pursue quality improvement by utilizing our extensive testing expertise accumulated all for the years in a series of processes from design to manufacturing.
In the future, we believe it is highly likely that generative AI technology will change the very process of semiconductor development and manufacturing for our customers. We will contribute to our customers' time to market, time to volume and time to quality by providing new solutions through advanced cloud solutions, ACS, for their efforts to utilize various data and utilize them in their development and manufacturing.
Please turn to Page 17. Here is the summary. We have lowered our full year sales forecast by JPY 10 billion from the July forecast of JPY 480 billion to JPY 470 billion. Customers continue to curb capital investment due to the slower recovery of smartphone-related demand and digestion of excess tester capacity is likely to take longer than what we expected back in July. As mentioned earlier, there has been steady progress of business opportunities arising from generative AI. As such, our view remains intact for tester demand growth over the medium term.
Against this backdrop, we will sustain R&D investment to address future technologies. However, in the current fiscal year, the business environment has remained sluggish longer than expected. We'll strengthen our ability to respond to demand fluctuation by establishing a delivery system to meet customers' delivery deadlines through advancement of a supply chain management.
Furthermore, in light of soaring parts procurement costs, we'll execute actions to improve gross margin by reviewing sales prices and implementing COGS reduction activities as well as to set up a commensurate cost reductions by reducing nonessential costs cutting down headcounts. Part of this is already done and the reviewing business processes.
Additionally, we will focus on measures to improve profitability over medium, long term by strengthening efforts to improve company-wide operational efficiency through active utilization of DF and other initiatives.
Let me move on to the last page, 18. Other topics. We have published the integrated annual report 2023 as well as the sustainability data book 2023 on October 20. I hope you can refer to them for your reference. Also, we are planning to conduct the IR technical briefing, again this year on November 29 to facilitate deeper understanding of our business. I hope you can participate in this meeting.
That is all. This concludes my presentation.
We will now like to go into the Q&A session. From CLSA Securities. Mr. Yoshida, please go ahead.
This time, FY '23, where the product mix change that had an impact towards the downward trend of the profit. But the SoC tester and memory testers and market outlook towards FY 2024. And if possible, if you think about the product mix, I'd like to receive your comment, including the breakdown of it as well. And although for memory, towards HBM. If we just extract that part this year and next year's way of thinking also if you can share that will be appreciated.
FY '24, Nakahara in charge of sales would like to answer that question.
As we have explained previously, this fiscal year in terms of profit, we are struggling. What we have an outlook for the next year's end market situation is that the high-performance device is probably going to lead the market. That is because, as mentioned in the presentation as well, the generative AI-related device that we are focusing on. This is a high performance, and it is a large-sized logic device, and that requires a high-performance memory, HBM and the generative AI HBM number per generative AI is going to increase. So it is a challenging and difficult device.
However, for us in terms of product mix on the memory side and also on the SoC side, we believe the situation is going to work in the positive direction for us. So we have high expectations towards this. Does this answer your questions?
By the way, regarding the market size, from this year's perspective, is it going to increase? If you have a certain image, can you share that as well?
This is Yoshida speaking. As of July or even before that, FY 2023 is the bottom year and we believe that, that was going to recover towards '24. And for that, we were expecting to recover to the level of FY '22. However, this time, FY 2023 degree of recovery is under what you have -- under what we have expected is it's about 6 to 9 months behind what we had expected. Therefore, whether we're going to immediately recover in the new fiscal year or not.
In the calendar year basis, I think that is going to be in the latter half of the year. Of course, we haven't given up, but the number up to 2022 to come for the numbers to recover to that level, we do have a sense of crisis, maybe that is going to be difficult.
We ended size-wise, up to FY 2022, maybe we will not reach that as we have had expectations originally, but we believe that we will recover in a gradual pace.
The next question, please. [indiscernible] Morgan Stanley.
All this time around looking at the results, the gross profit. There has been a major reduction, JPY 20 and a 5% reduction. How much impact is coming from the product mix change? And what about the impact of material sourcing? And 3 months ago, you didn't have a clarity on that, was the case?
Well, thank you very much for your question. We made an announcement back in July. And this time around, we updated JPY 25 billion reduction in gross profit.
And what is the background to that? What sort of factors related to the duration of gross profit? That was your question, as I understand, based upon our exercise estimates, [indiscernible] as we discussed in the briefing presentation, SoC testers sales was down by JPY 20 billion. Memory sales of [indiscernible] is compensating by JPY 6.6 billion. So this product mix impact is approximately 35% in terms of gross profit margin.
And on top of that, the sales itself has come down. And because of that profitability, our margin has declined by 25% and FX impact -- operation cost impact is about 10%. And our processing cost has increased, and it's about 25%. That is the breakdown of the impact.
You're talking about operating income, I'm talking about operating income, though I was saying the growth [indiscernible]. My apologies. For gross profit of 5% decline has happened this time. So could you talk about the breakdown of that?
If you could wait a moment. So the reason why gross profit has come down by 5%, I cannot discuss numbers.
In principle, since the sales came down, and also product and mix. As I mentioned earlier, JPY 20 billion for SoC tester reduction and memory tester was up by JPY 6 billion. So highly profitable, 93,000 sales was down by JPY 20 billion and memory DRAM pre-processing facilities or equipment sales has been made, but there has been a degeneration of profitability. That is why gross profit margin was down from 55% to 50%. So the gross profit number has changed so much. I believe that's because of the material cost and processing cost and so on.
But why can't you trust this 3 months back when you made the previous announcement?
So FX, at the beginning, JPY 135 was the assumption, but it became JPY 145. And because of the FX situation and looking at the U.S. interest rate this time around, our plant rate has become JPY 145. So now JPY is a weakening and because of our processing cost has been partially impacted. That is for sure.
Currency sensitivity, I believe it is natural that the gross profit comes down because of the JPY weakening. So because of the JPY depreciation, improvement is happening, but we have a processing cost in the operating income. We talked about 25% impact. And this is also impacting the gross profit margin or more than I thought that the sales should go up even more. So there is a currency sensitivity working positively for you because of the JPY depreciation. I wonder why this is happening around gross profit.
Ms. [ Yoshida ] speaking. Well, of course, cost itself has been going up. More than we had expected the impact is larger than what we had anticipated. So time is limited, so I don't want to take up too much of your time. You could respond to this question later on. But gross profit when it comes to that, maybe there is some impact other than the currency exchange, perhaps parts cost increase and so on. So I wonder if you could elaborate on this.
[ indiscernible ] Moment. So I will contact you later. I am Kobayashi from IR. Part of the sales of break down details and cannot be disclosed on a foreign currency, SoC tester, especially 93,000 the sales has been high, but the ratio of that has come down.
And what about yen-denominated sales as far as the parts are consulted, some of the parts are sourced in foreign currency of dollar?
So that's impacted us.
Next question [indiscernible] from BofA Securities.
This is [ Hirakawa ] from BofA Securities. So having heard in your presentation about the HBM, the new business opportunities in that area. The -- currently, I want to know what your market share is in the business? And for gross margin, so if this business grows, what will be the impact on the overall gross margin? And within memory tester business, currently, how much of that is coming from this new business? And what is expected for next year?
So we'll have [indiscernible] to answer this question.
Okay. Thank you for the question. As far as HBM goes, we can't disclose our market share exactly, but I think it's fair to say that we're in a very good position. And we've worked very hard at this market for a long time to establish this position. As we go into next year, we're going to continue to see very large growth in HBM and we should benefit from our market position as there's other entrants into HBM.
From a gross profit standpoint, we also expect to have improved margins as we continue to improve our marginal profit levels and other actions we're taking.
Let me ask you a follow-up question. About the gross margin. I have a concern. Like mentioned earlier, in the front-end process, the wafer testing will be coming in, right? So from the margin perspective, it may not be that strong. I am concerned about it. Well that be -- that's not true. So it's still being a high value-added process. So overall, gross margin level, you can sustain a high level of gross margin. Is that correct or not?
Yes. As you -- yes. I'll say, for sure, the wafer test margins also are usually squeezed more than the final test but our actions for margin improvement across both the wafer soar as well as the final test and as these stacks become larger as we go into HBM3 and beyond, there's going to be even additional yield requirements in order to have a final yield level that is acceptable for the end stack.
And let me also elaborate for HBM major manufacturers, we are positioned in a good -- well, we have a very good position. I think you may already know this. And they are doubling or tripling the capacity into next year. So that's what they have. So that's what they're planning. So a large amount of volume is expected from next year beyond. So such a mass production impact will benefit us as well.
So to improve margin as a manufacturer, we have been brushing up a way of improving margins, so we can benefit from that to improve the margin. So we will see a substantial improvement in margin profitability from the current level.
We would like to take the next question. Tokai Tokyo [indiscernible] Center, Mr. Ishino, please go ahead.
Regarding the previous question, HBM3, with your existing tester, I think the speed is not enough. And also, other companies have already made the announcement of their road map. And according to that, it seems that you will have to launch many products. And previously, you're saying that the manufacturing side, HBM manufacturing capacity in order to respond to that, are you having a sufficient level of manufacturing capacity or not is what I would like to know?
Nakahara would like to answer that question.
Regarding HBM -- HBM or HBM2 or HBM3 that are launched in the market already. Regarding those devices, the testers that we are currently holding. The coverage is sufficient with existing products. So they are being used. And as you have pointed out, next year and onwards, HBM will evolve and HBM4 will be coming out the interface speed will be increasing as well. And in order to respond to that, our testers need to evolve as well. Therefore, within our daily R&D work, we are continuing the work to respond to that.
So at the timing that such tester is required, we are proceeding so that we will be able to respond to that in a timely manner.
And in regards to the production capacity, probably your question is related to how much -- is because you know very well how much of the volume is increasing on the HBM side in advance and quite a long time perspective we have received a long-term forecast. And we do -- that is because we have a long-term relationship with them. And this year, already, we have increased our manufacturing capacity.
However, as we go into next year, to get in line with their customer size capacity increase, we are working on to increase our capacity as well.
Goldman Sachs, Nakamura, please.
About the share [ Foreign Language ] -- for each -- in the previous explanation, it is something like 55% to 60% for this year, next year, what is your outlook about the share?
Yes, market share for us, we're forecasting to remain roughly flat year-over-year. So that's a simple explanation.
So from FY '23 to FY '24 it will be flat.
[Foreign Language] Thinking going forward, there will be more applications around generative AI and as a result, what about the evolution of our share?
Yes. So we're very well positioned in HPC, high-performance compute, specifically in AI at all of our traditional HPC customers as well as many of the system and hyperscalers and also some of the ASIC providers. So we are very comfortable with our leadership position there. And so you are correct. As those applications increase in volume, we expect to continue to do well in that area.
Next question, Nakanomyo-san from Jefferies Securities.
I know it can be a quite simple question. But HBM was brought up earlier. [ Foreign Language ] So we first have to see the utilization improvement of the existing testers to see the order recovery for the new orders. Would that be applicable for HBM, but -- or it's because of the new construction of factories, so HBM are separate? Are they moving already separately from the existing testers, which is it?
Okay. So let me answer that question. So the device is for generative AIs. There are basically the large logic devices and also surrounding HBMs memory devices. So there are those 2 groups. And the business models are slightly different between those 2 groups. As mentioned in the results briefing, SoC excess equipment in the market are not fully utilized at this point yet. SoC tester chips are not growing as much as we expected.
For the logic device manufacturers are using all such business model foundry also business model. In 2021 and '22, also had a huge installed base with our SoC testers, smartphone application processors, so they build such a huge installed base, and they saw the drop in utilization.
So now with the AI device customers, by making that change in configuration, they are using these equipments right now. So they haven't got to the full utilization yet at this point. So there's a still delay compared to the expectation. But HBM, this is the end business model customers. So they had a plan and they purchased equipment when they need them. So ahead of the SoC tester demand, we already see a recovery in demand in HBM.
So foundry majors, for 2.5 to 3D package, I think they have made plans for them. So they're procuring new testers for them.
So for logic devices for generative AIs exactly as mentioned. This is the cutting-edge processes and cutting-edge packaging needed 2D, 3D or chiplets and those are the packaging method. But testers themselves our SoC testers are utilized for such advanced technologies.
In addition, for the next-generation testers, 93,000, and we have a product or [indiscernible] and we can use them to be more efficient, interesting. So we can optimize this, and we're making those proposals as well.
So tester themselves, our SoC testers are able to accommodate those new technologies in the future. After packaging process, the measurements taking place after packaging, they're trying to measure the devices that with the memory together, those will be new measuring methodology that we have to discuss and come out with by talking to the customers. But the current tester needed at the wafer level insertion being increased to improve the quality. That's the method they are taking to accommodate.
Also wanted to ask about whether it's HBM or whether it's 2.5 or 3D packaging, logic foundries? So some specific new demand can be created. Can you identify them or how big that demand could grow into? Can you tell?
It'd be difficult to identify. Well, the last question -- sorry, can you repeat your question once again, sorry.
For HBM, I think you already know the plan, a customer will be making investment according to the plan that HBM-driven new tester demand. How can you quantify that business opportunity?
Let me confirm the HBM or high-performance computing-related HBM? So for memory?
Yes, the memory HBM and the same question for [indiscernible], if there are new law being built, any additional -- instead of utilizing existing equipment, there could be a demand for new equipments and how big the potential will be? That's what I wanted to ask.
For HBM, as in, DRAMs could be 8 to 16 DRAMs, could be stacked layers. The logic surface interface, logic controller will be implemented at the very bottom to create HBM. The biggest driver for demand will be the capacity for overall HBM will be larger. So the customers, those layered DRAMs, including logic, this half will need to be tested as HBM. So being a huge capacity that makes this balance to be much -- this time to be larger. This patterns to be also larger and the time takes longer. So that's why investment into HBM is expected to grow drastically.
And the growth for HBM itself, along with the growth of AI service, we expect a 30% to 40% per annum growth expected for HBM. Then along with the capacity increase, the necessary test capacity will be identified.
So the amount in terms -- can you quantify the increase? What do you mean by JPY amount? That's a tester market or...
So the shipment base is currently -- assuming what we're seeing from order taking, we cannot get the rough image what the size would be, the HBM3 towards HBM4. The capacity is going to be increased from 8 pieces up to 16 layers. So we need to consider that. So let me get back to you by looking into them thoroughly.
Let me add one more thing. So the mobile phones -- the testers prepared for those mobile phones and others, that could be used for AI right now. We are in that transition at this point. But the other restraints we see will be at the foundry side. If they are really producing the volume that is really needed by the demand, the Taiwanese foundry saying that for next year beyond the -- they have a plan to continue increasing the capacities. If that increases the total volume, the utilization is going to recover rapidly, and that will lead to a new tester demand. And it's going to be -- we are hoping that could happen in early next year.
We are running out of the schedule time. So the last question, from Macquarie Capital Securities, Mr. Damian Thong.
This is Damian from Macquarie Securities. You are [indiscernible] how should we, but -- it's the new area -- in a new area -- sorry, the audio is quite bad. The next fiscal year's outlook, what is it?
So your question is the system-level test businesses -- business outlook? Was that your question?
Yes.
Yes. Much of our system-level test business has been to address a lot of the high-volume mobility market. So to that extent, there is still softness for our traditional SLT business. What we do see now is with the growth in HPC and AI and as those volumes increase, we expect to see more demand for HPC level SLT. And that's something new. It still will be small for the foreseeable future compared against the traditional mobility SLT. But long term, we see that as a growth market.
We also see some use in ADAS for SLT and as that continues to grow, we expect to see some opportunity for SLT in that space as well. But for the next year, roughly, we expect things to be relatively flat until consumer and mobility comes back.
Could i have one. Could -- say -- just the [indiscernible] portion of the business will be as well -- mobility...
Damian-san, I'm sorry to say, but your voice is literally breaking. So that -- could you repeat any of your questions, okay?
Okay, sorry. Is it about [indiscernible].
So I think the question is whether the HPC market for SLT can grow to the size of mobility eventually?
The answer, I believe, is yes. It's just going to take time. One of the key aspects of SLT is that in order to take advantage of automation, you have to have high volumes and large test times. And so right now, as the applications are growing, there's a lot of use of native boards for SLT, but as those volumes cross a threshold, we'll see the use of automation to optimize equipment for SLT.
The other factor is as there's things like training model workloads that want to be used to fully do SLT that's going to put additional requirements for that insertion to guarantee good yield before those devices get shipped.
Thank you very much. I believe that we have received no more questions. But with this, we would like to conclude today's session.
Thank you very much for attending Advantest FY 2023 Second Quarter Financial Results briefing despite your busy schedules. Thank you.