Bernstein: Advantest raises full-year guidance: CPUs become a new pillar of test demand, but second-half margins will come under pressure

How large was the earnings beat?

In the second quarter of the fiscal year ending March 2027, Advantest reported revenue of 477.7 billion yen, up 30% quarter on quarter and 11.1% above market consensus; net profit was 193.3 billion yen, 20.5% above consensus.
Growth came mainly from SoC test equipment: revenue from the business was 353.3 billion yen, up 36% quarter on quarter and 103.4% year on year. Memory test equipment revenue was 53.4 billion yen, up 11% quarter on quarter but 2.3% below market consensus.
The company raised its revenue guidance for the fiscal year ending March 2027 from 1.714 trillion yen to 1.863 trillion yen and its operating profit guidance from 846 billion yen to 967 billion yen, increases of 8.7% and 14.3%, respectively, from its previous guidance.

Management identified CPUs as the third major pillar after other applications and said agentic workloads are driving CPU demand. Although the test time per CPU chip is shorter than for a GPU or ASIC, it is still considerable; the ratio of CPUs to GPUs in inference applications is also rising. Together, these factors support test demand.
The company said it has a high share of CPU testing for both x86 and Arm architectures. Customer expansion and efforts to win share at customers it did not previously supply are helping expand the business. The company has set a 70% share target for SoC test equipment but has given no timeline.
The company expects the total serviceable market for test equipment in 2026 to be close to 11.5 billion dollars, the upper end of its previous guidance range, and said the current trend of more than 50% compound annual growth in the test equipment market shows no signs of slowing.

The company said it has reached its capacity target of 5000 units and will achieve its target of 10 thousand units significantly ahead of schedule; it had previously planned to reach that level in the fiscal year ending March 2029. At the same time, it is accelerating capacity expansion for memory test equipment to keep pace with SoC test equipment.
Management also mentioned that the next step could be to double capacity again to 20 thousand units, but gave no timeline. The company plans to update the timing for reaching capacity of 10 thousand units and its estimate of the 2027 test equipment market size when it releases third-quarter results.

The company’s guidance puts second-half operating margin at 50.1%, below the 54.0% recorded in the first half. The main reason is that lower-cost inventory was exhausted in the first half, after which component costs rose, particularly for DRAM.
The company is attempting to reprice through new product configurations and licensing arrangements to ease cost pressure. Bernstein maintained its Outperform rating and price target of 45800 yen, implying upside of approximately 31% from the closing price of 34930 yen listed in the report.