Advantest Corp
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Advantest Corp
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Good afternoon. Thank you very much for joining us in this Fiscal Year 2019 Third Quarter Financial Briefing Conference Call of Advantest Corporation. Today's participants are: Yoshiaki Yoshida, President and CEO; Atsushi Fujita, CFO; Kimiya Sakamoto, Managing Executive Officer, Executive Vice President, Sales Group; and myself, Yasuo Mihashi, from the Corporate Relations group.
We will first have Atsushi Fujita to brief you on the financial results for fiscal year 2019 third quarter, to be followed by a presentation by President Yoshiaki Yoshida on fiscal year 2019 outlook. We will then take your questions. The end time of this conference call is scheduled to be 5 p.m. Materials used are available from the TDNet and our company website.
In relation to the earnings briefing, we have made timely disclosure on revisions on earnings forecast for this fiscal year and the year-end dividend forecast. We also issued a press release on the completion of the new business acquisition this morning. We would appreciate it if you could access and review them through our website.
Before we start, a cautionary statement with regard to forward-looking statements. 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 by such forward-looking statements. We will now begin our briefing.
Good afternoon. This is Fujita speaking. I will brief you on the third quarter financial results.
Please turn to Slide 4. Looking back on the business environment in the third quarter. Given the uncertainty in the global economy, prolonged trade friction between the U.S. and China and stagnation in the semiconductor market, we expected orders for the third quarter to decline quarter to -- quarter-on-quarter. However, towards the end of 2019, inquiries for memory and storage-related testers came in earlier than expected and system-level test-related inquiries received under the umbrella of our Services, Support and Others segment grew much more than expected. In fact, orders increased to JPY 72.9 billion, a JPY 14.6 billion gain over the second quarter. Supported by this increase in orders, memory tester sales grew, boosting sales in the third quarter to JPY 69.9 billion and operating income to JPY 14.2 billion, both of which were higher than we expected 3 months ago. Details of orders, sales and profits will be explained on the next and subsequent slides.
Please turn to the next slide. Looking at the third quarter orders by segment. For Semiconductor and Component Test Systems, orders totaled JPY 47.4 billion, up 10.1% quarter-on-quarter. SoC testers accounted for JPY 31.5 billion and memory testers, JPY 15.9 billion. SoC tester orders decreased slightly from the second quarter, but aggressive orders for the testers for next-generation advanced SoCs used in 5G smartphones continued in the third quarter, just as in the first half. In memory testers, earlier-than-expected inquiries for LPDDR5 testers used for memory to be installed in flagship 5G smartphone models and rebounding investment in flash memory resulted in better results than expected 3 months ago.
For Mechatronics Systems, orders totaled JPY 9.6 billion, up 41.6% quarter-on-quarter. Thanks to greater-than-expected growth of memory tester orders, orders for this segment were also higher than expected. For Services, Support and Others, orders totaled JPY 15.9 billion, up 88.9% quarter-on-quarter. In addition to a seasonal increase in annual maintenance contracts, orders related to system-level test for both SSDs and SoCs exceeded expectations, leading to results significantly higher than initially expected.
Next slide, please. This slide shows FY 2019 third quarter sales by segment. Semiconductor and Component Test Systems declined 5.2% quarter-on-quarter to JPY 49.3 billion. SoC tester sales were JPY 37.9 billion. As with orders, third quarter saw a high number of customers moving toward mass production of SoC products in preparation for full-scale sales of 5G smartphones. Memory tester sales were JPY 11.4 billion. Sales to Chinese and Taiwanese memory manufacturers were strong. Mechatronics Systems were up 8.0% quarter-on-quarter to JPY 10.1 billion. Services, Support and Others were JPY 10.5 billion, and the sales were flat quarter-on-quarter.
Next page, please. This slide is about FY 2019 third quarter orders by region. Please look at the graph on the left. South Korea is indicated by pink. Continuing the trend of recent quarters, smartphone-related SoC orders were strong. Memory tester orders, formerly sluggish, were also up, thanks to orders for LPDDR5 volume production testers. Taiwan is in orange. Orders for testers for volume production of advanced SoCs for 5G smartphones continued at a high level. Yellow is China. Local semiconductor companies in China continued their active investment in both SoC testers and memory testers.
The graph on the right shows sales by region. For South Korea, sales of memory testers declined due to accelerated customer investment in the second quarter. For Taiwan and China, sales continued to be robust in both regions, with strong SoC testers and increased demand for memory testers.
Next page, please. This page is about operating income in the third quarter. Gross margin was 56.4%. Our product mix was slightly worse than the second quarter. But we were able to maintain a gross margin of above 55%. SG&A was JPY 25.2 billion. Since the first quarter, we have been actively increasing our employee headcount as an investment for future growth. Compared to the first half, costs have increased slightly. Operating income was JPY 14.2 billion. Operating margin was 20.4%. The year-on-year difference looks large, but this is because of the onetime profit of approximately JPY 2.5 billion in the third quarter of FY '18. This was due to changes to our pension system, and it boosted operating income for the quarter.
Next page, please. Next page is about investments and cash flow. R&D expenses were JPY 10.5 billion to recognize an increase of new hiring. R&D-to-sales ratio was 14.9%. CapEx was JPY 1.8 billion. Depreciation and amortization were JPY 2.2 billion. As mentioned earlier, the application of the new IFRS lease accounting standard from this fiscal year and amortization of intangible assets in the system-level test business acquired from Astronics in February caused depreciation and amortization to increase year-on-year.
Cash flow is shown on the right graph. Free cash flow was JPY 21.6 billion. Collection of trade receivables continued to progress since the second quarter to generate a high level of cash flow.
Please turn to the next page. This slide shows our financial position. As of the end of December 2019, total assets were JPY 329.8 billion. Cash and cash equivalents were JPY 149.8 billion, up JPY 15.0 billion from the end of the previous quarter. Equity attributable to owners of the parent was JPY 220.3 billion. Ratio of equity attributable to owners of the parent was 66.8%, up 0.8 point from the end of the previous quarter.
That is all for the explanation of the financial results of the third quarter. Thank you.
This is Yoshida speaking. I will go over the fiscal year 2019 outlook.
Please turn to Slide 12. As usual, I would like to start with the semiconductor tester market trends. As for calendar year 2019 actual, on provisional basis, demand for testers for the development and production of high-end SoCs, mainly for 5G, grew, more so than we had expected. The SoC tester market expanded year-on-year. The memory tester market also picked up, supported by higher performance memory device and volume production ramp-ups by Chinese memory companies to pick up over the outlook as of October.
As for calendar year 2020 estimate, given the greater-than-expected growth of the SoC tester market in calendar year 2019, it is presently expected to be flat in calendar year 2020, but the market structure is unchanged, with semiconductor evolution driving investments in test capacity enhancement and stimulating further growth. Going back to calendar year 2019 again, regarding Advantest's market share, we estimate that we maintained a share of more than 50% of the total tester market for the second consecutive year, around 55% in SoC and 50% in memory.
Looking ahead to calendar year 2020, our current view is that the SoC tester market will be flat, and the memory tester market will grow by slightly more than 20%. Demand for 5G-related SoC testers was initially expected to get off to a slow start. In fact, in calendar year 2019, significant demand arrived sooner than expected. Therefore, the calendar year 2020 SoC tester market is now expected to be at the same level as in calendar year 2019. The memory tester market is recovering, but a full-scale recovery is still some time off. As the DRAM market improves, we expect customer motivation for tester investment to increase.
Next slide, Slide 13. Fiscal year 2019 forecast. Based on our results through the third quarter and our forecast for the fourth quarter, we have revised our earnings forecast for the current fiscal year upward once again. In the fourth quarter, we forecast orders of JPY 72.9 billion, net sales of JPY 62.3 billion and operating income of JPY 8.9 billion and quarterly net income of JPY 10.3 billion. The assumed exchange rate for the fourth quarter are: JPY 105 to the U.S. dollar and JPY 120 to the euro. The new full year forecast raises orders by JPY 35 billion and sales by JPY 23 billion compared to October's forecast. Our full year gross profit margin forecast is approximately 57%, almost unchanged from our previous forecast. Our operating income forecast is up by JPY 11 billion, and our net income forecast is up by JPY 12.5 billion compared to October's forecast, respectively. Our new net income forecast includes the anticipated posting of deferred tax assets that are expected to reduce tax expenses in the future based on the calendar year 2020 market forecast as described earlier.
Slide 14. Fiscal year 2019 outlook by segment. First, the SoC tester business. In the SoC tester market, a sense of acceleration of investment in the testers for application processors and baseband processors for 5G handsets has developed. Our fourth quarter SoC tester sales forecast incorporates the possibility of a rebound slump. However, the fourth quarter demand has increased since 3 months ago. Based on these factors, we are raising our full year SoC tester sales forecast by JPY 12 billion. As the graph shows, this is likely to be a very strong fiscal year for our SoC tester business, exceeding its record-setting performance in fiscal year 2018, thanks to increased demand for high-end SoC testers.
As for memory tester business, the memory tester market is recovering, as mentioned earlier. Flash memory demand has started to perk up, and inventory adjustments have progressed, and tester investment has resumed. DRAM is likely to take a long time to recover fully. But as regards interface test processes, LPDDR5 for smartphones is ramping up faster than expected. Local flash memory and DRAM companies in China are also actively investing. As a result of the above, we have also increased our memory tester sales forecast for the current fiscal year by JPY 7 billion over the October forecast.
Please turn to Slide 15. Next page is about mechatronics and service business outlook for FY 2019. In line with the upward revision of our memory tester sales forecast, we raised our sales forecast for mechatronics by JPY 1.5 billion to JPY 34.5 billion. In our Services, Support and Others segment, we revised our sales forecast upward by JPY 2.5 billion. New businesses, such as our system-level test business, are growing.
On Page 16, let me touch upon measures for medium- to long-term growth. Advantest is promoting management, in line with the 10-year mid- to long-term management policy developed in April 2018. As part of our measures to focus on growth areas and enhance our partnerships with customers, we are increasing our SEs and development employee headcount in this fiscal year. We'll also expand our new businesses to achieve sales growth. We will develop solutions for areas around our current core business through M&A and partnership. In order to execute these measures, we have set M&A investment framework of JPY 100 billion for the entire period of midterm management plan. Acquisition of Essai was announced this morning in the press release, and this was executed as part of this M&A strategy.
Let me explain more details about this acquisition of Essai. Essai is a test-related company based in Silicon Valley whose main product is sockets that connect testers and semiconductor devices. Time to market and time to volume are becoming more and more important for semiconductor companies providing high-end applications. In this context, Essai's excellent design and manufacturing capabilities enable fast product delivery to customers. Advantest will leverage our global footprint, production expertise and customer base to further accelerate their business growth.
Also, by combining our solutions for final test and system-level test with their products, we will be able to offer accuracy guarantee solution from testers to devices. And this will be additional value for our solution. Moreover, Essai's products are consumables, so we can expect to increase sales from recurring business. We thought that Essai can significantly contribute to achieving our long-term management goals in terms of technology, marketability and sales synergies. Therefore, we decided to acquire the company. For your reference, Essai's recent annual sales was about $100 million, and they are expected to immediately start contributing to profit in FY '20.
This is a summary. We revised our full year forecast upward again based on the strong performance of high-end SoC testers and signs of recovery in the memory tester market. Though the adjustment in FY '19 was not as deep or long-lasting as we had experienced in the past, this was a year of market adjustments for the tester market. We expect FY '20 will be a year of recovery. In both SoC and memory, there is potential for gradual improvement in business environment. In addition, our business foundation is evolving and being enhanced steadily.
In February last year, we acquired the SLT or system-level test division of Astronics, and in this January, we acquired Essai as M&As aligned with tester market trends. As described in mid- to long-term management policy Grand Design, we're expanding the scope and scale of our business beyond testing semiconductor chips for volume production. Although uncertainty in business environment will continue, we will strive to exceed the strong performance of FY '18 in the next fiscal year by leveraging the recovery of semiconductor market and the change of our business structure.
That is all for my explanation.
We will now take questions. The first question is from Mr. Wadaki from Nomura Securities.
Two questions per person, I understand. My first question is on the system-level test, SLT, which was now mentioned. Within the industry, a lot of people are taking a very positive view, and we have great expectation. And in fact, you reported strong orders. What is your expectation regarding the potential of SLT for the next fiscal year and beyond? Could be that you deliberately refrain from giving us the details, but can you at least talk about the potential applications, for instance?
Thank you for your question. This is Mihashi speaking. On SLT, application area-wise, we are expecting higher-end SoC system-level testing requirements to grow steadily going forward, with increased complexity in semiconductor processing. We expect this to continue to grow. As for other applications, regarding automotive applications, due to need to ensure reliability, further testing will be required. So that's one of the growth areas we expect to see.
As for the size of growth of this business, for the time being, we don't think the size will be big enough to warrant sharing with you any specific figures. It is accounted for as one of the minor businesses. But on the other hand, considering the future growth potential, we expect the business opportunity for us will be around JPY 10 billion on a full year basis.
I see. Let me move on to my second question. Your competitors are saying various products are doing well. Now among the products that you did not cover in your presentation are: driver IC tester, burn-in tester and probe card. Can you comment on those?
This is Sakamoto speaking. Driver IC, as you know, performed very strongly in fiscal year 2018, resulting in high sales figures for us. In fiscal year 2018, we saw an increase in customers and in OSAT used by customers, which resulted in a large growth in volume. Consequently, in fiscal year 2019, our DDI sales decreased significantly year-on-year. Looking ahead into fiscal year 2020, considering the current rate of operation, we do not expect a large growth in demand comparable to that in fiscal year 2018. But trend-wise, we expect TDDI and COF requirements to continue. So JPY 10 billion business per year, we believe, could be sustained basically.
What about others, burn-in test and probe card?
This is Mihashi speaking. As for burn-in test, DRAM, core plus something else as burn-in test requirement. We expect growth in that into the future, and that is our target. And we have already completed the product launches for that. And this will be the area where we will continue to focus.
As for EB, electron beam, and probe card?
For EB, we are providing products mask CD-SEM. And with the growth in the EUV process in the foundry business, we are seeing the business opportunity presenting itself for us. But as you know, for mask CD-SEM, the TAM, or the total addressable market, itself is not that large. So we can't say that it will make a large contribution to our business results. Having said that, with growth in the EUV process, we expect business opportunity to present itself.
This is Sakamoto speaking. As for probe card, we do have business for DRAM and NAND, although we cannot mention specific customer names. As you know, we were late to enter the probe card business. So we are focusing on a limited number of customers, with a greater chance of success, to build our track record before expanding horizontally. That's our marketing strategy.
Next is Mr. Yoshida from CLSA Securities Japan.
My first question, President Yoshida commented earlier that for fiscal year 2020, you will take up the challenge of achieving the highest-ever profit. You did share with us your forecast for the market size for calendar year 2020, but what about the market share outlook for memory and SoCs, respectively? And how confident are you in achieving the highest-ever profit?
Thank you for your question. This is Yoshida speaking. In terms of market size, compared to fiscal year 2018, it might not reach that level, but comparable size is expected in terms of market condition. So in that sense, in areas where we already have a market share of 50%, we do not expect a rapid growth from that level. As for SoCs, of course, on a customer-to-customer basis, there could be fluctuations in the market share. But as far as we are concerned, maintaining our current market share, we believe, would be most important. We do not expect a significant increase from here.
Similarly, for memory, our current goal is to achieve a market share of over 50% and secure a #1 position. Should the market shrink, the sales might not reach the fiscal 2018 level, you might say. But system-level test, SLT, that was mentioned earlier is seeing steady progress in orders received and growth is expected. In addition, the socket business, the acquisition of which we announced today, is expected to make an immediate contribution in terms of sales improvement of around $100 million, as was mentioned earlier. So even if the tester market was to shrink somewhat, we would like to keep the aspiration of exceeding fiscal year 2018 in terms of business results.
I have a follow-up question. Your competitor claims it won the design in business in the area of DRAM interface testing. Even with that, you hope to achieve an over 50% market share in the memory area. Am I correct?
On a customer-by-customer basis, they are winning and losing, and therefore, it varies. While we are confident of our absolute strength, as for flash memory, where we haven't been strong, we feel we can win business. And as for burn-in test for memory, we are confident that we can win. So winning a market share of over 50% in memory, we believe, is achievable.
My second question is on SLT, service and other segment. In the third quarter, order level was high. How sustainable is this do you think? And can you talk about the cost related to the acquisition of Essai and profit contribution? You said sales of about $100 million. What is the expected profit contribution?
I take it that you are asking about the visibility of SLT.
That is correct.
The platforms that we have for system-level test, SLT, is for SSDs and what we acquired last year, the SLT for SoC test. Currently, both are performing strongly. Now how sustainable is this? As for SSDs, data volume is expected to grow going forward, and further replacement of some of the hard disk market is expected. Albeit with some ups and downs along the way, we expect sustained growth to continue.
As for SLT for SoCs, as was mentioned earlier, with increased complexity in the semiconductor processing, chip-level testing alone would not suffice. Additional system-level test would be preferred to ensure better reliability. Markets with that type of requirement, we believe, will increase going forward. And we expect these types of markets to grow. And therefore, we expect growth for fiscal year 2020. And we expect that growth to be rather stable, not a bumpy one with much ups and downs.
What about the cost associated with Essai acquisition and its profit contribution?
We cannot disclose the acquisition amount due to the contractual constraints. But of course, there are other M&A-associated costs, which will be accounted for in the fourth quarter, which is already incorporated in our guidance.
The next questioner is Mr. Hirakawa of Merrill Lynch Japan Securities.
Hirakawa of Merrill Lynch Japan Securities. I have 2 questions. First is on the SoC tester market. The market grew significantly in fiscal year 2019. After bottoming out in fiscal year 2015, market has been expanding continuously. Going forward, as President Yoshida said earlier, while the original forecast was that there would be some fluctuations, it now seems that the level of fluctuations will be more moderate. Any thoughts on that? And if you agree, what do you think are the reasons for that? That's my first question.
You're right. Since fiscal year 2015, market has been growing steadily and continuously. On the other hand, we believe that in this industry, in this testing market overall, there would be fluctuations. Market growth associated with the advancement of technology plus the market growth associated with the growth in semiconductor volume, these are the 2 factors that constitute the size of the market. So when the balance is lost in either of these factors, fluctuation follows. That's the way we see it.
This is Yoshida speaking. As mentioned, we do expect fluctuations could take place. But overall, the market growth appears stable. In retrospect, that's the case. But when you look closely, you would find that, for example, slowdown in LCD driver tester is made up for by 5G and the like. That's what's been happening.
The fact that the scope of applications is widening, I believe, is moderating the size or the level of fluctuations. As was mentioned earlier, the more advanced the technology, the wider the application areas. For example, currently, CMOS image sensor has continued to grow, doesn't seem to slow down, which makes up for the slowdown in LCD driver. So by having multiple applications, we see one complementing or compensating for the others, thus, smaller fluctuations.
I see. My second question is on the market outlook. For calendar years 2019 and 2020, what was and what is the assumed market size of the 5G-related market? If possible, can you break it down to infrastructure versus handsets? And what about your market share? That's my second question.
Thank you for your question. I recognize we have not been able to provide good explanations about 5G-related business volume, and I think that's why you raised this question. For calendar year 2019, we originally estimated the expected market growth by 5G as USD 200 million to USD 400 million, but we are aware, actual growth was more than that. I'm sorry to say this, but we do not have data about the itemized market share for devices for base stations and for handsets. What I can say here is additional contribution by 5G rollout was around USD 500 million to USD 600 million out of total SoC market in calendar year 2019.
This is a follow-up question. From 2019 to '20, how much growth is expected for the 5G-related market? Or do you expect flat growth due to the strong performance in 2019? Can you share your thoughts about it?
For 2019 and 2020, we currently estimate flat growth.
Next, Mr. Hanaya from SMBC Nikko, please.
I am Hanaya from SMBC Nikko. I have 2 questions. My first question is related to the earlier question by Mr. Hirakawa. In the previous quarter, you mentioned a possible slowdown of 5G tester market. Can you provide updates on your market outlook on this area? You said you expect flat year-on-year growth from CY '19 to CY '20. Can I assume you estimate flat growth even only for 5G market as well?
I am Sakamoto. As explained earlier, in FY '19, customer demand in 5G market is increasing faster than our expectation, and that is significantly contributing to our business. And your question is if this trend will continue in 2020. As we are seeing customer investment accelerated earlier than we expected in FY 2019, we estimate flat growth in FY 2020. Having said that, the growth trend of 5G handsets will surely be obvious in FY '20 than FY '19, and we expect to see increase of applications related to 5G handsets, in which we have competitive advantage. Our sales organization are determined to capture such opportunities in the market.
You said there will be flat year-on-year growth in CY '20, and is this applicable to both the entire SoC market as well as 5G-related market? Or do you expect to see growth of 5G market?
We expect flat growth for 5G market as well.
My second question is about your outlook on memory testers. You expect over 20% year-on-year growth in CY '20 and mentioned competitors started to come into the LPDDR5 market. Will this over 20% growth in CY '20 be driven by flash memory? If so, can you share your view on LPDDR5 testers if this growth should be considered as a onetime event? Or is it going to affect the full year business next year?
I'm Sakamoto. LPDDR5 testers started to increase earlier than we expected, and we are seeing growing demand in its initial phase. We assume this growth will continue over time. Regarding flash memory, business is recovering in client and enterprise SSDs, and they will become the growth driver in FY 2020.
Follow-up question. Can you tell me which one will be the stronger driver for the growth in 2020?
DRAM will be the stronger driver in terms of value. Although it is rather difficult to present an outlook for second half of FY 2020, our business is anticipated to improve as we expect ramping up of DDR5.
Next, Mr. Nishiyama from Citigroup, please.
I am Nishiyama from Citigroup. I have 2 questions. Regarding 5G, I assume orders from April to June were for engineering applications, and orders from July to September were for preliminary phase of volume production. What do you think the orders from October to December are used for? And when do you expect to receive orders for full-scale volume production?
I am Mihashi. I understand your question is about the purpose of use for the orders. April to June for engineering applications, July to September for preliminary phase of volume production, and how about October to December orders? Customers have not reached the phase of large-scale volume production as the growth is not big enough yet. Still, volume production has already started among our customers, and the orders in October to December period were to address such move. We expect another growth in AP for smartphone in the first quarter or later.
Can I assume the orders are expected in April, June period or later?
That is correct.
Okay. And you suggested the market for 5G will make flat growth from '19 to '20. How about your market share, can you expect growth in 2020?
Do you mean for 5G-related market?
Yes.
Customer mix significantly affects the market share. For 2020, there might be some difficulties in the first half. But towards the second half, we estimate situations will become favorable for us.
Okay. Let me clarify one thing. Earlier, you mentioned this expected 5G device rollout effect was originally from $200 million to $400 million, but it was actually from $500 million to $600 million. Is this statement for 2019?
Yes.
Okay. My second question is about DDR5, and it is related to questions made earlier. Your competitors are saying that they are obtaining more design wins for LPDDR5 than you. Do you recognize it as reality, that you're losing your market share to them?
As Mr. Yoshida mentioned earlier, we believe our test system has an advantage in LPDDR5, and we have long-term relationship with our customers, so we are not anxious about losing our market share. As we are aware that our customers will continue their policies to purchase from 2 vendors, we'll remain vigilant and make sure to maintain our market share.
Next, Mr. Maekawa from Crédit Suisse, please.
I am Maekawa from Crédit Suisse. I have 2 questions. First one is about your TAM outlook, that is in 2020, $2.7 billion for SoC and $800 million for memory. Can you tell me the breakdown for the first half and the second half in terms of year-on-year growth?
I am Mihashi. Your question is about the breakdown of TAM for the first and the second half. As for SoC, we estimate flat growth from first to second half. And for memory, business is expected to improve from first to second half.
If 5G market will remain flat, in other words, it continues to be reasonably strong from the second half of '19 to the first half of '20, then can I assume the 5G market will be weaker in the second half of '20 but that will be offset by recovery of other SoC-related market to make a flat growth between first and second half? I appreciate if you can tell me the estimated change from the second half of '19 to the first half of '20.
Computing and communication ICs account for about 60% of our SoC sales, and we estimate this percentage will remain unchanged from the second half of '19 to the first half of '20.
TAM will remain unchanged between those 2 periods as well?
Yes.
Okay. If that is the case, earlier, you mentioned annual market size in 2020 will be almost the same as 2019. Looking back in 2019, 5G market came into existence in April to June period or later. So its demand concentrated in the second half. So in 2020, the demand for 5G will be more in the first half, and it will subside in the second half. I know you cannot make a clear forecast for the second half of this year now, but can I assume that is the assumption you used to make this $2.7 billion TAM outlook?
I apologize if I couldn't answer your question properly so far. Business opportunities are generated for different use, such as engineering, volume production, validation, et cetera. In addition, reliability assurance for a new process node will also be required. As such, various factors will create a balance. Under such a circumstance, we will still not be able to review for making clear estimation yet.
Okay, that's fine. My second question is related to that point. Going forward, foundries and logic manufacturers will start adopting EUV lithography for 5- or 7-nanometer process nodes. I'm afraid this is a little difficult to mention, but in 2020, how will that yield affect the demand for your SoC testers? Do you expect the demand will increase as they will struggle more with yield compared to 2019? Can you share your view on the demand for your testers in relation to their yield?
I am Yoshida. We cannot directly mention yield of our customers. But generally speaking, more testers will be required when you need to ship a certain number of low-yield products. That can be considered as a general theory in our business. When starting to apply a new process node, the yield of new products tend to be worsened. But if you still need to secure a certain number of products, large initial investment in testers will be needed. The demand we saw in the first half of 2018 might have been generated in such a context.
So when 5-nanometer process node comes in, and customers' yield gets deteriorated, it is possible that demand for testers shoots up. However, customers are always trying to improve efficiency in testing, and it would take some time to fulfill the built-up capacity for testers. Therefore, we forecasted a slight decline in the second half of FY 2019, expecting a possible decrease after the quite strong demand we saw in the first half of that fiscal year.
However, it didn't decrease as much as we expected, and we assume this is because volume production started and the production volume gradually increased. So not only yield, but also production volume increase affects the demand for testers. I appreciate if you understand that TAM for our testers will vary depending on the production volume for 5G as well as 4G, which is still in production.
We received some more questions, but we have run out of time. This is the end of the Q&A session and the conference call today. Thank you very much for your participation. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]