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Strategy to Improve Profitability


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Strategy to Improve Profitability

  1. 1. A Message from the Management Strategy to Improve Profitability Differentiate Create Added Value Boost Efficiency The year ended March 31, 2003 (“fiscal 2002”), presented another challenging year for Advantest Corporation. Worldwide economic conditions remained uncertain, and the promise of a recovery in semiconductor and semiconductor test system demand dangled elusively on the horizon. Despite the introduction of new products tailored to market needs, our net sales and orders received were sluggish, as customers continued scaling back on capital investment. True to our Hiroshi Oura, Chairman of the Board and CEO (seated) Toshio Maruyama, President and COO corporate mission, however, customer satisfaction remained a priority for Advantest, and, though hard times prevailed, we never lost sight of this imperative; and, daunting as it was, Advantest continued the restructuring programs initiated during fiscal 2001 and remained committed to meeting head- on the complexities inherent in this challenging operating environment. Initiatives to Restore Profitability In fiscal 2001, faced with sudden changes in its operating environment, Advantest posted a precipitous drop in the results of its operations. Though steep, the loss was mitigated somewhat by gains made through cost reduction measures 1
  2. 2. employed throughout the Company. In an effort to bring ¥307.6 billion at the previous year-end. To make more effi- fixed expenses down from the prior year, Advantest selectively cient use of capital, consolidated stockholders’ equity was reallocated management resources and optimized personnel, reduced from ¥240.7 billion at the prior year-end, to ¥210.7 scaling back staff to approximately 3,900 employees by the billion, through the acquisition of treasury stock and other end of fiscal 2002, down 600 from September 2002. Overall, measures. The stockholders’ equity ratio edged down 3.4 per- Advantest believes cost reduction measures should yield centage points from the previous year-end but remained high, future savings of approximately ¥10.0 billion. at 74.9%. Net loss per share improved from ¥240.38 in fiscal Improving sales and earnings and lowering the break-even 2001, to ¥131.99. The Company paid a dividend of ¥30 per point are the principal objectives of Advantest in its ongoing share in fiscal 2002. commitment to progress and are the impetus behind a renewed focus on generating profits from businesses aligned Initiating a New Business Model with core competencies. This renewed focus is the principal While Advantest believes it has implemented policies to build reason behind our withdrawal from the business of electron a strong management framework capable of withstanding beam testers, for which demand had contracted sizably, our harsh business conditions, the Company’s operating environ- reorganization of the measuring instruments business to con- ment has continued to face adverse pressure. To counter centrate on new technologies, and the consolidation of several these unfavorable circumstances, Companywide initiatives business offices for greater efficiency. focusing on differentiation, value-added business, and efficiency In fiscal 2002, although our financial position was relative- have been initiated. ly sound, we worked to reduce inventories to optimal levels, decreasing overall inventories from ¥52.9 billion at fiscal Differentiation in the New Marketplace 2001 year-end, to ¥35.0 billion at fiscal 2002 year-end. In fis- Advantest has defined four approaches to help differentiate cal 2002, net sales increased 2.6% year on year, to ¥97.7 bil- itself from its competitors and grow earnings. They entail the lion, and the operating loss improved dramatically, from strategic integration of new product introductions, the antici- ¥37.1 billion to ¥16.7 billion. The fiscal 2002 net loss pation of customer needs, a focus on growing markets, and amounted to ¥13.0 billion, improving from a loss of ¥23.9 bil- selective entrance into new markets. In April 2003, Advantest lion during the previous year. Consolidated total assets at began shipping the T5593 Memory Tester. This new system fiscal 2002 year-end, owing in large part to the reduction boasts the world’s fastest test speeds for testing DRAM of inventories, amounted to ¥281.2 billion, down from devices of the next generation such as DDR2 devices. In T5593 Memory Tester, boasting the world’s fastest test speeds for testing DDR2 devices 2
  3. 3. hopes of capturing a greater share of the steadily growing (Open Semiconductor Test Architecture), the STC is pro- market for front-end flash memory test systems, with which moting a set of standards and certification requirements that devices used in such products as mobile phones and digital we believe will offer the industry the highest and most flexible cameras are often tested, Advantest plans to introduce a testing technology available. Based upon published standards, system dedicated to front-end flash memory testing. We are Advantest is nearing the completion and debut of its OPEN- also working to differentiate our test handler products from STAR™ test system and will use this concept to support a those of our competitors by providing greater throughput, broad range of products. reliability, and lower cost of test. Within our line of electron- On the service front, in October 2002, Advantest moved ic measuring instruments, we look to differentiate our prod- its software support operations to Advantest Customer ucts through the Wizard of Module Test (WMT) concept. Support Corporation. Advantest believes this will help to New market penetration represents the greatest opportuni- integrate postdelivery test system support and increase cus- ty for Advantest’s growth. Targeted areas of new business for tomer satisfaction. In addition, the Company has strength- Advantest include the manufacture of probe cards, which, we ened its test system rental and leasing business to meet its believe, will help to expand our share of the front-end wafer customers’ financial needs. test market, and of application-specific (AS) test systems. Demand for AS test systems is expected to increase in use in Efficiency through Reform the testing of automobile analog ICs, laser diodes, and To ensure that the Company remains highly competitive, CCD/CMOS image sensors. Advantest is reforming processes in every aspect of its busi- ness, from development through manufacturing and sales. In Focus on High-Value-Added Businesses July 2003, as part of its ongoing structural reform efforts, In March 2003, responding to the need for test systems for Advantest spun off the back-end manufacturing of ATE and increasingly complex system-on-a-chip (SoC) semiconductors, part of its measuring instrument production to a manufac- Advantest, along with over 30 semiconductor, equipment, and turing subsidiary that performs the front-end manufacturing instrumentation companies worldwide, established the of ATE. It also merged the subsidiary with another manufac- Semiconductor Test Consortium, Inc. (STC), an organization turing subsidiary that produces measuring instruments. dedicated to the promotion of an open automatic test equip- Advantest believes that integrating the Company’s manufac- ment (ATE) standard for the testing of SoCs and other complex turing systems will impact the efficiency and soundness of its logic devices. Based upon a platform called OPENSTAR™ manufacturing processes. Kitakyushu R&D Center, the strategic location for AS test systems development, opened in June 2002 3
  4. 4. A Message from the Management Corporate Governance and Restructuring of Management To strengthen our corporate governance and establish man- agement systems capable of adapting to rapid changes in our business environment, in June 2003, we implemented an executive officer system and restructured our board of direc- tors. By doing so, we hope to not only fortify our corporate governance practices but also expedite our decision-making processes and increase the accountability and transparency of our board members. The board of directors will continue to shape the strategic Opening bell on the first anniversary of NYSE listing direction of the Company and lead its operations, yet the board’s membership has been reduced to enable meet- ings that are more streamlined and responsive. Combined In 2004, Advantest will celebrate its 50th anniversary. with the new executive officer system, Advantest is poised Over this past half-century, we have grown from a regional to delegate authority more broadly and able to effect more business to a worldwide force and have developed a reputa- rapid and efficient corporate administration throughout the tion built on innovation and technology. Now, with this organization. landmark date clearly in our sights, we rededicate ourselves to Furthermore, in keeping with the recent reforms aimed at our technical heritage and following the initiatives set forth increasing auditor independence, beginning this year, above to strengthen our corporation and create a new profit Advantest has added an outside corporate auditor to its board model. Backed by the continued support and cooperation of auditors. of our stockholders, we are committed to improvement throughout our business operations. Future Prospects Economic uncertainty remains worldwide as concern over the economic impact of the SARS virus continuing to exist, compounded by stagnant consumer spending and unemploy- ment levels. In the electronics sector, despite a partial recovery in invest- ment in cutting-edge, next-generation research and production, general capital investment by manufacturers of semiconductors, communications equipment, and other products is expected to remain lackluster, with significant increases in demand not Hiroshi Oura foreseen until at least the second half of fiscal 2003. Chairman of the Board and CEO On balance, although Advantest believes that a full recov- ery is on the horizon, difficult and uncertain conditions are likely to persist for the short term. To overcome such challenges, Advantest will steadfastly work to expand sales through the introduction of new products, improve earnings, Toshio Maruyama reduce costs, and reform business processes. President and COO 4
  5. 5. Board of Directors, Corporate Auditors, and Executive Officers As of June 27, 2003 Board of Directors Hiroji Agata Kiyoshi Miyasaka Junji Nishiura Hitoshi Owada Shinpei Takeshita Hiroshi Oura Toshio Maruyama Hiroshi Oura Toshio Maruyama Junji Nishiura Hitoshi Owada Chairman of the Board and CEO Representative Board Director Director Director Shinpei Takeshita Kiyoshi Miyasaka Hiroji Agata Vice Chairman of the Board Director Director Corporate Auditors Noboru Yamaguchi Tadahiko Hirano Keizo Fukagawa Takashi Takaya Corporate Standing Auditor Corporate Standing Auditor Corporate Auditor Corporate Auditor Executive Officers Toshio Maruyama* Managing Executive Executive Officers President and COO Officers Jiro Katoh Masao Araki Senior Vice President, Vice President, Hitoshi Owada* Corporate Affairs Group Technology Development Group Corporate Affairs Takao Tadokoro Yoshiaki Furuse Senior Executive Officers Kenichi Mitsuoka Senior Vice President, Senior Vice President, Senior Vice President, Instrument Sales and Marketing Kiyoshi Miyasaka* ATE Sales and Marketing Group FA Business Group Group Corporate Planning and Strategy Hiroyasu Sawai Takashi Tokuno Yuichi Kurita Junji Nishiura* Vice President, ATE SE Division, Senior Vice President, Vice President, Technology and Production ATE Business Group ATE Business Group Corporate Affairs Group Hiroji Agata* Hiroshi Tsukahara Norihito Kotani Yoshiro Yagi Sales and Marketing Senior Vice President, Senior Vice President, Vice President, DI Business Group Instruments Business Group ATE Sales and Marketing Group Masao Shimizu Yuri Morita Hideaki Imada Vice President, SoC Tester Products, Senior Vice President, Vice President, ATE Business Group Corporate Affairs Group ATE Sales and Marketing Group * Concurrently appointed as a Director 5
  6. 6. Special Feature One First Industrywide Consortium Open Architecture Supports with rapid technological development Today’s Rapid Technological in semiconductor manufacturing. The Development increasing cost of test was ominous to Advances in semiconductor technologies both IC manufacturers and suppliers of are fueling rapid progress in the creation ATE. Where investment in new test of sophisticated broadband networks of equipment is insufficient, chip manufac- multimedia consumer electronics for the turers often cannot guarantee total accu- burgeoning information technology (IT) racy in the testing of cutting-edge society. To help foster the growth of this devices, and end-markets are affected. mass market, Advantest is working with On the other hand, manufacturers of test chip manufacturers to provide optimized equipment are faced with unprecedented test systems for use in the development challenges in the form of increasing and manufacturing of cutting-edge R&D costs, strict manufacturing require- semiconductors. ments, and global marketing issues. Until recently, chip manufacturers The concept of an open architecture, were forced to replace their test systems accessible to all companies associated every two or three years to keep pace with semiconductor testing was born Handler Module EDA New Test ATE Maker A Environments ATE Maker B ATE Maker C Prober DI OPENSTAR™ Test Architecture Note: EDA = Electronic design automation DI = Device interface 6
  7. 7. of the need to reduce test costs while Semiconductor Test Consortium economic and technological benefits and maintaining high standards. With an Commencing operations amid extremely provide hardware and software inter- open architecture in place, capital equip- challenging economic conditions, the operability, the STC is now focusing on ment costs should decrease and IC mak- official launch of the STC took place in supporting the development of a semi- ers should be able to supply highly San Jose, California, in March 2003. At conductor test open architecture. With dependable devices at lower costs. Thus, this time, the STC redoubled its efforts more than 30 companies endorsing the with Advantest at its helm, in July 2002, toward the realization of OPENSTAR™ STC agenda, plans are on track to unveil an industrywide consortium, the and further intensified efforts to cut costs a tester that meets this open architecture’s Semiconductor Test Consortium (STC) and make processes more flexible. The Rev. 1 standards in fiscal 2003. was launched to promote and manage consortium is open to all companies this total open architecture and to help throughout the semiconductor supply an industrywide common test architec- chain with a vested interest in the test sec- ture proliferate. As this effort takes hold, tor and is the industry’s first collaborative Advantest, deeply committed to this con- effort to provide cost-effective testing of sortium, hopes to benefit significantly as SoCs and other complex logic devices. efficiencies develop and shortened deliv- Dedicated to enabling open test ery times emerge from this endeavor. solutions that generate unprecedented Open Architecture Leadership 1 Integration Majority of technology (and cost) shifts into board-level solutions Performance scaling window is widened Promotes infrastructure reuse 2 Modularity Common infrastructure Modularity extends to the tester software and allows incremental capability growth Promotes chassis/module reuse and flexible configurations Open Architecture 3 Multiple manufacturers creating compatible test modules No limits to capability scaling Lower barriers for second-tier manufacturers Stable environment to leverage long-term investment in application solutions and tool development Semiconductor Test Consortium : A founding member 7
  8. 8. Special Feature Two Digital Consumer Electronics Digitization in Electronics On the automotive front, until Digital technologies are fueling the rapid recently, conventional semiconductors digitization of electronic products. As were primarily used to control engine more and more consumer electronics are functions. However, the proliferation of digitized and linked into networks, Internet and mobile phone technologies semiconductor use is increasing in step has turned automobiles into information with the demand for cost-effective semi- terminals and is driving a rapid increase conductor manufacturing. In 2003, in the development of digital devices shipments of digital cameras surpassed adapted to electronic toll collection and those of conventional film-based intelligent transport system technologies. cameras, and this trend is predicted to continue. In fact, earlier this year, the Camera and Imaging Products Association forecast that shipments of digital cameras would reach 31.5 million units in 2003. T6575 VLSI Test System 8
  9. 9. Strategies to Distinguish We believe our T6500 series makes it opened the Kitakyushu R&D Center to Advantest’s Products easy to run a full range of tests on digital focus on application-specific (AS) test Demand for a full range of semiconduc- consumer electronics through one test equipment for such promising markets tors is rising as a result of the digitization system. Demand for color mobile phone as analog ICs for automobiles, laser of electronic products, and Advantest is displays and LCDs for personal comput- diodes, and CCD/CMOS sensors. working to secure the top position in the ers is expected to grow, influencing the Focusing on China and other rapidly semiconductor testing market by provid- growth of the market for LCD test growing Asian markets while drawing on ing semiconductor test systems that are instruments as well. Advantest’s T6371 local industries and human resources, not only more competitive but also tai- and T6361 high-speed test systems for the Kitakyushu R&D Center is serving lored to the individual specifications of increasingly fine-grained, multipin LCD as a development base for the AS test each semiconductor type. drivers with accelerated data transmis- system business. Established in April Determined to become the leading sion rates are targeted for this market. 2002, the center provides immediate, supplier of test systems for this new gen- Primary R&D activities are directed high-quality support for semiconductor eration of devices, Advantest is working by the Company’s R&D division and manufacturers and design centers in toward shrinking the lead time between are carried out at facilities in Japan, Kyushu and other regions throughout the introduction of new products and including Advantest Laboratories, and Asia. their delivery and expanding its presence overseas. To augment the work done at in the growing market for SoC testers. these locations, in June 2002, Advantest Demand for Digital Appliances (Million units) 30 T6371 LCD Driver Test System 25 20 15 10 5 0 2000 01 02 03* 04* 05* 06* Flat panel TVs DVD recorders * Projected Source: iSuppli 9
  10. 10. Special Feature Three Broadband Connectivity Ongoing Increases in Memory is declining, 60% of new subscribers are We are now entering an era in which choosing phones with digital cameras images and pictures can be easily that contain semiconductor media exchanged over the Internet. To under- cards (small memory cards). These score this point, driving this trend in cards enable one-megapixel resolution Japan is ADSL, the leading broadband image capturing, compared with communications platform, which had approximately three megapixels for logged more than 10 million subscribers cards used in standard digital cameras. as of the end of May 2003. With With users recording more and more demand for high-speed, high-volume sounds, photos, and images, demand transmissions increasing dramatically, for memory cards is expected to rise the market for fiber-to-the-home dramatically, driving up both card sales (FTTH) optical cables and wireless and the amount of data stored per card. LANs, which enable users to choose The spread of broadband services is their Internet environment regardless of increasing the data processing capacities physical location, is expected to grow. of personal computers and stimulating Although growth in the number of demand for enhanced memory speeds new mobile phone subscribers in Japan and capabilities and CPUs with more Demand for Image Sensors and Flash Memories 400 300 T5375 Memory Test System 200 100 0 2001 02 03* 04* 05* 06* 2001=100 Image sensors Flash memories * Projected 10 Source: World Semiconductor Trade Statistics
  11. 11. clocks. As a result, a shift to DDR2 multiple measuring instruments. memory tester market, Advantest is technologies is expected. However, Advantest is working to dis- uniquely able to accommodate a tribute multiple test functions among wide range of customer needs through New Products distinct modules that share a common its broad product line, including the In response to the previously mentioned interface, enabling the testing of com- T5585/T5586, which are extremely trends, Advantest is introducing elec- pound components with a single measur- dependable and have high throughput tronic measuring instruments for new ing instrument. By combining several for mass testing of DDR memory wireless and optical communications modules in a single framework, our aim is devices, and the T5375, which is tailored devices and cutting-edge semiconductor to reduce costs and shrink the time need- to the demands of 300mm wafers. test systems for memory semiconductors. ed for development and manufacturing. Driven by such products as mobile Manufacturers are demanding the sys- In April 2003, Advantest began phones and digital cameras, demand for temization of electronic measuring shipping the T5593 back-end tester for flash memory testers remains strong, but instruments to facilitate the testing of top-of-the-line DRAM devices. Boasting a shift toward front-end testers is under compound components. Responding to the world’s fastest test speeds and able to way. By introducing the T5771 and a this demand, Advantest is introducing test 256 devices simultaneously, number of additional testers in fiscal several products based on the new Advantest believes that the T5593 2003, Advantest hopes to increase its Wizard of Module Test (WMT) archi- system has strong sales prospects and is presence in the market and respond to tecture. In the past, compound compo- the optimal tester of DDR2 memory the call from chip manufacturers to nents could only be tested using devices. With more than 50% of the boost productivity. R3681 Signal Analyzer Based on WMT Architecture T5771 Memory Test System 11
  12. 12. Advantest’s Corporate Social Responsibilities Establishment of Committee on CSR In light of the changing business climate, regular reports on its activities to the and launched a program to exclude all corporations are becoming increasingly Committee on CSR. The Committee on specified toxic substances in our standard attentive to environmental matters and CSR then checks each activity and its and new parts. social responsibilities. Looking back on progress and provides comprehensive Advantest is tremendously proud of its Japan’s period of high economic growth guidance to enable the efficient imple- record on environmental activities and is during the bubble economy era, the mentation of more effective activities. By committed to forging ahead with even criteria used by the market to evaluate its establishment, the Committee on CSR greater attention to the preservation and corporations were heavily weighted has enabled the unification of informa- conservation of our precious ecosystem. toward economic factors. Many corpora- tion and activities regarding Advantest’s We will continue to build on our suc- tions aggressively pursued profits without corporate responsibilities and works to cesses, which include the creation of a regard to environmental issues and the assure that these activities are carried out. biotope at the Gunma R&D Center and impact their operations would have on On the corporate front, in 1999, the preservation of redwood pines at society. Today, around the world, a shift Advantest established its Behavior Advantest Laboratories in Sendai. in market initiative from the supply side Norms, a clear outline of the Company’s As a corporate citizen committed to of producers to the demand side of cus- philosophy, mission, and guiding princi- sustainable growth and the safeguarding tomers is occurring, spurring a move- ples. Moreover, with the management as of the environment, we hope that, by ment toward more globally conscious a driving force, the Advantest Group increasing awareness of our ongoing business practices. Following a series of rededicated itself to the vigorous pursuit activities, we can provide inspiration and highly publicized market scandals and of environmentally sound practices. incentive to others to become involved. misappropriations in Japan and else- We established the Environmental where, corporations and their manage- Management Center and appointed For a more detailed account of our envi- ments are now being held to a much the Committee on Environmental ronmental protection efforts, please refer higher standard of ethics and social Conservation to focus on the environ- to the Company’s Web site and environ- responsibility. mental impact of our business activities, mental report. It was against this background that the products, and solutions with a view to new Committee on Corporate Social conducting “green” operations. The CSR Organization Responsibility (CSR) was established in three central pillars of our ongoing pro- in Advantest July 2003. Corporate social responsibili- gram are energy saving, recycling, and Managing Directors Committee ty responds to various issues concerning eliminating toxic substances in the the market, environment, human course of our operations, and we remain Committee Corporate Social Responsibilities on CSR resources, including employees and man- steadfast in being at the vanguard of (Consists of 5 committees) agers, and society, and Advantest has up technological development that is high Market • Disclosure Committee to now embarked on various activities in in quality, environmentally sound, and Environ- • Committee on Environmental response to these issues independently of cognizant of social needs. ment Conservation each other. The Committee on CSR has To this end, in 2002, we instituted a People • Personnel Mediation Committee been organized to provide a leading hand Companywide recycling system and • Human Rights Protection Committee for the five committees that had previous- achieved a zero-emission rating in our ly carried out activities independently. four main factories in Japan. We also pub- Society • Information Security Committee (See figure.) Each committee delivers lished guidelines for green procurement 12