Advantest looks beyond chip testers for earnings stability

KENTA KURIHARA, Nikkei staff writer
http://asia.nikkei.com/Markets/Tokyo-Market/Advantest-looks-beyond-chip-testers-for-earnings-stability

TOKYO -- Japan's Advantest is currently on a roll, with April-June orders for its chip-testing and other equipment expected to reach 45 billion yen to 50 billion yen ($436 million to $485 million), topping its forecast by some 5 billion yen.

     "Quarterly figures are the highest in the past five years," said President Haruo Matsuno.

     The increase in orders is being driven by the smartphone boom in China with the launch of high-speed LTE (Long Term Evolution) service. Chipmakers are eager to ramp up output, and their demand for devices to inspect processors and other parts is surging.

     Advantest has been busy since the January-March term, with outstanding orders coming to 32 billion yen as of the end of March, or twice the year-earlier level. This figure plus the April-June tally brings the total to around 80 billion yen.

     Because most of the orders are expected to be booked as fiscal 2014 sales, this means the company has already secured more than half of the 145 billion yen in projected sales for this fiscal year. It is shooting for a group net profit of 7.5 billion yen for the full year, swinging back to the black for the first time in four years.

     However, investors seem slow to buy in. Its stock price started rallying in mid-May, ending Wednesday at 1,277 yen, up more than 10% from the end of April. But it remains shy of a year-to-date high of 1,315 yen marked in January. "The outlook remains murky, and I'm not quite sure if the company can meet its earnings target," said Tetsuya Wadaki at Nomura Securities.

     At the root of the problem is the company's heavy dependence on the chip industry, where prices are susceptible to sharp demand swings. Advantest was forced to downgrade its forecast twice last fiscal year as demand for semiconductor-testing equipment cooled more than expected. Although it recovered this year, investors are not convinced the rebound can be sustained. This is why analysts see Advantest's sales and net profit falling short of its forecast by some 3 billion yen and 2 billion yen, respectively.

     Still, Matsuno is bullish given the growth of businesses outside of chip testers, such as terahertz imaging analysis systems. These devices are used in cutting-edge research to analyze substances' elemental makeup without destroying them. The main customers for the systems are pharmaceutical companies, automakers and university research institutions, a completely different market than its semiconductor business.

     Systems for testing chips and parts are projected to generate 90 billion yen in sales for Advantest this fiscal year, up 23%. Meanwhile, combined sales at the business that includes lithography systems and terahertz-related devices is expected to jump 40% to 55 billion yen. Having slashed fixed costs as part of its restructuring efforts, Advantest is "becoming a company that can generate a profit independent of fluctuations in chip-testing equipment," Matsuno said.

     Because the company has disappointed investors in the past by downgrading its earnings projections, Advantest needs to prove that it has transformed itself into a true moneymaker.