MICRONICS JAPAN CO.,LTD. Q4 FY2024 earnings call

• Overall Financial Performance

  • Q4 2024 (Oct-Dec) total company revenue was 16.659 billion yen, up 30.0% quarter-over-quarter and 30.5% year-over-year; operating profit was 3.928 billion yen, up 36.5% quarter-over-quarter and 48.3% year-over-year, hitting a new quarterly record high revenue. Full year 2024 total revenue was 55.643 billion yen, up 45.3% year-over-year, with operating profit of 12.572 billion yen, more than doubling year-over-year, and all profit lines grew over 100% year-over-year. Results beat the prior November full year guidance by 643 million yen in revenue and 972 million yen in operating profit. Operating margin stayed above 20% for all quarters in 2024, hitting 23.6% in Q4.
  • A 5 yen increase in dividend to 70 yen per share was approved, to be submitted to the shareholder meeting. The company maintains a very strong balance sheet with total assets of ~80 billion yen, cash and equivalents of 23.949 billion yen (30% of total assets), interest-bearing debt of only 1.175 billion yen (less than 1.5% debt ratio), and equity ratio of 62%. Q4 2024 free cash flow was positive 2.863 billion yen.

• Capacity Expansion and Operational Milestones

  • Handover of the new Aomori Factory building was completed in December 2024, with the completion ceremony held in January 2025, and equipment installation for full operation is now underway. ~90% of planned equipment installation is complete, scheduled to finish in the first half of 2025, with ramping continuing into the second half. The company targets early full operation of the new facility in 2025.
  • Capacity expansion at the Korean MEK facility completed in 2023 already contributed to Q4 2024 results. The company has also expanded repair centers and service capabilities at overseas locations.

• Investment Plans

  • Full year 2024 capital expenditure was 15.444 billion yen, with 5.14 billion yen in R&D spending. For full year 2025, the company plans 16.9 billion yen in capital expenditure and 70 billion yen in R&D spending. Q4 2024 capital expenditure was 8.161 billion yen, including ~5 billion yen for the new Aomori facility and ~3 billion yen for other capacity expansion. 2025 full year depreciation is expected to double to ~6 billion yen from 2024's 2.8 billion yen.

• Mid-term Strategy (FV26 Mid-term Plan Update)

  • The company upwardly revised 2026 December fiscal year targets in November 2024: revenue to 80 billion yen (15 billion yen increase), operating profit to 20 billion yen (5 billion yen increase), operating margin to 25% (2 percentage point increase), ROE to 23% (3 percentage point increase). Total planned investment through 2026 was increased by 200 billion yen to 700 billion yen, with 480 billion yen for capital expenditure (+180 billion yen) and 220 billion yen for R&D (+20 billion yen), with investment pulled forward to meet faster-than-expected demand growth.
  • For memory probe cards: The company continues aggressive capacity expansion, building on MEK Korea expansion and the new Aomori facility to meet growing HBM demand. For non-memory probe cards: MEMS vertical probe card models MEMS-V and MEMS-VP have started contributing to revenue, and the company is expanding customer qualification evaluations. For TE business: The company is pushing sales of semiconductor testers and manual probers, and expanding R&D for new applications.

1. Probe Card Business: Q4 2024 revenue hit 14.736 billion yen (88% of total company revenue), with non-memory probe cards accounting for 1.924 billion yen (12% of total company revenue). The segment achieved record high revenue and profit for both the quarter and full year, with a Q4 segment profit margin of 36.1%. Q4 2024 orders hit a quarterly record of 22.165 billion yen, and order backlog reached 28.684 billion yen. Memory probe cards outperformed revenue forecasts driven by capacity expansion at Korea's MEK, while non-memory probe cards saw expanding new adoption for automotive semiconductors, with non-memory revenue doubling year-over-year. Full year 2024 probe card revenue for the 2025 December fiscal year first half forecast is 32.7 billion yen.
2. Test Equipment (TE) Business: Q4 2024 saw revenue growth quarter-over-quarter, with semiconductor test sockets showing a recovery trend. However, increased product warranty reserves for some semiconductor inspection equipment led to an expanded segment loss of 830 million yen. The 2025 December fiscal year first half revenue forecast for TE is 900 million yen, a 253 million yen decrease year-over-year.

• 2025 December fiscal year first half (Jan-Jun) guidance: Total revenue of 33.6 billion yen, with 32.7 billion yen from probe cards and 900 million yen from TE. Operating profit of 7.5 billion yen, ordinary profit of 7.5 billion yen, and net profit attributable to parent shareholders of 5.4 billion yen. This represents expected year-over-year revenue and profit growth, driven by HBM market growth and expanded production capacity. Average quarterly revenue is expected to be ~16.5 billion yen.
• Forecast assumptions: Assumed exchange rate of 150 JPY per USD and 0.11 JPY per KRW. A 1 JPY change in USD/JPY impacts first half profit by less than 20 million yen.
• Market outlook: Generative AI will continue driving strong growth in GPU and HBM related semiconductor markets, while automotive/industrial semiconductors are expected to see gradual recovery. The global probe card market is expected to grow at a 20% CAGR through 2026, driven by HBM demand growth and increasing importance of wafer testing from chiplet adoption. The HBM market itself is expected to grow at over 100% year-over-year from a 2023 base.
• Second half 2025 capacity outlook: After Aomori new facility ramps in the first half, production capacity will be higher in the second half of 2025 than in the first half, though no formal full year guidance was provided.

• Geopolitical and macroeconomic risks: Uncertainty from the new US administration, persistent inflation and interest rate uncertainty in Western markets, escalating US-China tensions, and prolonged conflicts in Ukraine and the Middle East create ongoing downside risk for the global economy and semiconductor demand.
• Competitive risk: A strategic partnership between Advantest, Technoprobe, and FFI could increase competition in the high-end non-memory probe card market, which Japan Micronics targets for future growth. Competitors are also expected to aggressively enter the growing HBM probe card market in 2025, increasing pressure on market share.
• Operational risk: TE business has recorded expanded losses due to product warranty reserves for quality issues on older generation inspection equipment sold before 2021, though the company expects this to be a one-time charge.
• Capacity constraint risk: Current strong demand outpaces existing production capacity, leading to extended lead times and a growing backlog, which could lead customers to place orders earlier than needed and create delivery timing risks.

Q: What is the impact of the strategic partnership between Advantest, Technoprobe and FFI on your business, and will you pursue a counter-partnership with Teradyne? / A: Management believes the partnership is primarily focused on the non-memory segment. It will not have an immediate near-term impact, but it will increase competitive pressure in the high-end non-memory space that the company is targeting for growth. The company already has existing working relationships with both Advantest and Teradyne for product development, even without a large public alliance. The company will focus on delivering strong products (its new MEMS probe cards) rather than rushing into a new public partnership, and is open to future alliance discussions if they make strategic sense.

Q: What is your current share penetration at SK Hynix, and what is your growth outlook there? / A: Management says the company has gained roughly 10% share at SK Hynix so far, up from near zero. The company's key competitive advantage is its single probe card design that supports both high and low temperature testing, compared to competitors that require two separate cards. This value proposition is gaining traction with SK Hynix, and the company views expanding share at SK Hynix as a key growth driver for its memory probe card business, with plans to continue aggressively pursuing further share gains.

Q: What is the timeline for expected HBM4 volume orders, and how will competitive entry affect your revenue? / A: HBM4 development and qualification is already underway across memory makers, but volume production has not started. Management expects qualification to complete and orders to be included in customer budgets in 2025. While competition will increase in the HBM probe card market, overall demand is growing so rapidly that even if share slightly declines, total revenue volume will still increase significantly. The company will continue investing in capacity and R&D to maintain and expand its market position.

Q: Why is the 221.65 billion yen Q4 2024 probe card order backlog higher than the projected average 165 billion yen quarterly sales for H1 2025, and what is the H2 2025 sales outlook? / A: The gap is entirely due to current production capacity constraints. The Korean factory expansion was completed in late 2024, so its full capacity contribution will start in Q1 2025, and the Aomori new facility will gradually add capacity starting in Q2 2025. The projections already incorporate this gradual capacity ramp-up. While no full H2 guidance is given, capacity will be higher in H2 than H1 after Aomori ramps, so higher sales are expected in the second half.