Advantest 6857
May 16, 2023 - 5:57am EST by
sediment
2023 2024
Price: 12,810.00 EPS 708 0
Shares Out. (in M): 184 P/E 17 0
Market Cap (in $M): 2,236K P/FCF 0 0
Net Debt (in $M): 50,844 EBIT 167,687 0
TEV (in $M): 2,202K TEV/EBIT 13 0

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Description

Advantest (TSE: 6857)

The semiconductor industry is volatile and cyclical, but certain sectors are predictable. There was a supply and logistics constraint due to covid, but the economy slowly recovered.

Semiconductor fabrication, assembly, testing and packaging, which costed billions are now commonly outsourced (OSAT). This allows chip manufacturers to focus on design and IP, so they can be less capital intensive and more resilient in downturns.   

Teradyne and Advantest are a duopoly (combined 60-75% of the market) for outsourced testing equipment with Cohu driving third wheel (5-15%). They all provide equipment to conduct tests for chips to reduce defects after the wafer is diced to ensure shorter design periods and higher production yields.

 

In my experience, Japanese companies have been known to keep sales domestic, hoard a crazy amount of cash for “safety”, and have a polite IR reception that lacks transparency. Advantest fits the stereotype with a strong net cash position with little debt, but they do deploy the cash for strategic acquisitions. Advantest also was once listed on the New York Stock Exchange and they have 88-90% of their total sales are international.

Advantest has an ROE of over 20%, with a goal of sustaining400bn (approx. USD 3B) in sales and would like to pay out dividends on a continuous basis.

 

 

Automatic Testing Equipment- operation and parts

Historically, manufacturers made their own semiconductor testing equipment, but it didn’t work out— if a semiconductor operated at 1 gigahertz, that operating speed for the testing equipment must be 30 to 50% faster at 1.3 or 1.5 gigahertz and developed in advance. In addition, tests for memory require hundreds of systems working simultaneously, which seems simple in principle, but the actual difficulty is insane.  

For example, a medium sized jet airliner has about 1 to 2 million parts, where as a semiconductor test system has 2-3 million parts. In comparison, a car only has 30,000 to 50,000 parts. With more computing power packed in smaller chips at an exponential rate— test systems will only require more parts— which is not feasible for chip manufacturers unless they outsource.

In a test, a signal which checks for disconnections and shorts is input to the semiconductor, and the signal output in return is compared with expected values— this is called a “parametric test.” Devices are then classified according to the test results in a “function test.” Testing classifies performance characteristics such as input and output voltages, current values, and timing. After the performance of the chip is assessed, the handler places each chip into a performance bin.

 

 

The illustration below shows the steps of semiconductor test.

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Intro to Advantest and competitors Teradyne and Cohu

Teradyne and Advantest have a semiconductor ATE market share with over 30% each. Both companies have incredibly long histories— Teradyne was founded in the 1960s and Advantest in 1954.  In the 1990s, the industry was still fragmented, but has since consolidated with high barriers to entry.

 

Advantest has a broad portfolio of semiconductor equipment testing solutions, spanning a wide range of semiconductor product categories including memory, logic, discrete, analogue, and optical semiconductors. Most of the growth is driven by servers and mobile phone electronics.

 

 

 

 

 

 

 

Semiconductor test systems are roughly divided into testers for SoC “System on Chip” and for memory.

 

Memory Testing (mass production, vertically integrated)

Memory (split into dynamic random access memory DRAM and NAND flash) is dominated by Advantest, with a lion’s share of 40-57% the testing market, as they have one of the fastest devices in production today with parallel testing capabilities.

Both Japanese companies Advantest and Cohu started in the memory space as testing providers for both DRAM (dynamic random-access memory typically used for the data needed by a computer processor to function) and NVM, or non-volatile memory (does not require a continuous power to retain data in the device).

Testers are optimized for mass production of memory semiconductors, such as DRAM and NAND flash. In the memory sector, device types are less diverse, and production volumes are huge; customers seek testers capable of hundreds of devices at once.

One of Advantest’s biggest customers is Samsung, while Cohu is close with Intel. Every investment from Samsung provides Advantest with an opportunity to open another factory or increase R&D. Teradyne has TSMC and Apple as its largest customers and entered the logics testing market earlier than Advantest. Apple is a big customer for Teradyne— Apple is developing their 3nm chip for their next line of iPhone through TSMC.

 

 

Silicon on Chip (diverse supply chain and products)

Advantest's rapid test systems for DRAM memory provide high margins, but not as high as some products for Silicon on Chip (SoC). While Silicon on Chip was originally dominated by Teradyne, Advantest was able to enter and penetrate the SoC market thanks to its acquisition of Verigy (ranked 3rd by size in the field at the time) in 2011, which is three to four times as large as the memory tester market.

With the acquisition of Verigy, the model V93000 tester became Advantest’s flagship SoC testing machine. Advantest's test equipment sales are now 80% SoC Testers and 20% Memory Testers (see below).

 

 

Advantest’s Silicon on Chip product— V93000 EXA scale test platform for high end devices

Advantest’s V93000 EXA Scale SoC Test Systems are designed with the latest generation of Advantest's test processors with 8 cores per chip, which targets advanced digital ICs up to the EXA scale with 256 channels on the Pin Scale 5000 digital card and XPS256 power supply cards which can be configurated to smaller physical systems, reducing infrastructure cost and floor-space requirements. The systems' new test heads incorporate Xtreme Link technology, and the EXA Scale that enable new test methodologies, lower cost-of-test and faster time-to-market.