Anritsu’s main business is measuring equipment manufacturing and sales. In general terms, measuring equipment is used for measuring the physical properties of things that cannot be seen (such as length, weight, temperature, sound, gas, and electricity), attaching numerical values to these properties so they can be visualized. In industrial applications, measuring equipment is used to evaluate products in the research and development stage, manufacturing stage, and also in quality assurance stage. Among the fields for which Anritsu makes measuring equipment, its forte is measuring equipment used in the development and manufacturing of telecommunications equipment, including mobile phone handsets, wireless base stations, and optic fiber networks.

The company divides its businesses into three segments, Test and Measurement (T&M), Products Quality Assurance, and Others. In FY03/19, the Test and Measurement segment accounted for 68% of consolidated revenues and 84% of operating profit. The company’s product lineup in this area is quite broad, ranging from small, hand-held devices to large, rack-mounted equipment, and includes both general-purpose and specialty measuring equipment.

Barriers to entry to the measuring equipment area are high, as a company must possess the technical expertise in the specialty fields for which it is developing precision measuring equipment. New entrants would also need both the R&D and precision equipment manufacturing capabilities to produce measuring equipment meeting the technical needs of the specific areas of application. In the case of specialty measuring equipment, new entrants would also need technical expertise in mass production in order to compete against the well-established companies already in those fields. In the network communication field, for example, it would take several years just to build up sufficiently strong R&D capabilities, especially if one considers the specialized technology that incorporates new technology and multiple functions (which further adds to the complexity).

Users of measuring equipment do have the option of developing their own measuring equipment in-house, but there are different risks attached to this course. In the case of communication technology, for example, the final product must be able to interconnect with equipment made by other manufacturers that are built to standardized specifications. If a company’s products were tested using measuring equipment developed in-house, it would be more difficult to guarantee that product’s connectively with equipment made by other companies. By using measuring equipment from a third-party manufacturer like Anritsu, this uncertainty would be eliminated and the communication equipment maker could move ahead with product development without having to worry about whether the measuring equipment it is using conforms to industry protocols.

Trends and outlook

For FY03/21, the company reported consolidated revenue of JPY105.9bn (-1.0% YoY), operating profit of JPY19.7bn (+12.9% YoY), pre-tax profit of JPY19.8bn (+15.5% YoY), and profit attributable to owners of the parent of JPY16.1bn (+20.6% YoY). In the field of information and communication, 5G services are being launched around the world and operators are making steady progress in their 5G commercialization schedules. The company has focused on solutions development and the improvement of organizational structure, allowing it to capture development demand for 5G commercialization as well as development and production-related demand for higher-speed networks. The impact of the COVID-19 pandemic on some customers resulted in revenue dipping slightly, although profit improved on 5G-related gains.

Anritsu projects full-year FY03/22 consolidated revenue of JPY114.0bn (+7.6% YoY), operating profit of JPY20.5bn (+4.3% YoY), pre-tax profit of JPY20.5bn (+3.3% YoY), and profit attributable to owners of the parent of JPY16.2bn (+0.6% YoY). In the field of information and communication, 5G-related demand is expected to continue to expand thanks to ongoing technological innovation and increased utilization. Mainly in the 5G business, the group expects demand to grow in the field of 5G utilization and network acceleration. It also expects increased demand as operators move to expand network infrastructure, including at data centers. In the Test and Measurement (T&M) segment, the company forecasts revenue of JPY82.0bn (+9.6% YoY) and operating profit of JPY18.5bn (+4.5% YoY). For the Product Quality Assurance segment, citing deep-rooted demand for food safety, the company forecasts revenue of JPY23.0bn (+7.5% YoY) and operating profit of JPY1.8bn (+38.5% YoY).

Anritsu launched GLP2023, its new medium-term business plan, on April 27, 2021. The new plan is the successor plan to the GLP2020 plan, which ended in FY03/21. The company’s management vision is to expand the scale of its business to JPY200bn by FY2030 and become a company that produces stable earnings. In order to achieve this long-term vision, the company has targeted business growth focused on peak 5G demand during the three years covered by GLP2023. For FY03/24, the last year in the plan, the company targets revenue of JPY140.0bn, operating profit of JPY27.0bn, and OPM of 19%. For the Test and Measurement segment, the plan targets FY03/24 revenue of JPY100.0bn (CAGR over the three years of 10.2%), while for the Product Quality Assurance segment, the plan targets revenue of JPY27.0bn (CAGR over the three years of 8.1%). In the Test and Measurement segment, the company targets business growth in the areas of 5G utilization and network infrastructure, while in the Product Quality Assurance segment, it aims to expand the solutions business through improved sophistication in its X-ray inspection equipment, which will contribute to improved productivity as well as the enhanced safety and comfort of the company’s customers.

Strengths and weaknesses

The company’s strengths include its dominant position in certain fields, focus on profitability, and ability to adapt to change. Weaknesses include issues in its weak position in the general-purpose equipment market, the uneven strength of its sales channels, and its vulnerability to cyclical swings in investment spending by the telecommunications industry.

Key financial indicators

Income statement		FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
(JPYmn)		IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS Cons. Est.
Revenue		94,685	101,853	98,839	95,532	87,638	85,967	99,659	107,023	105,939	114,000
	YoY	1.1%	7.6%	-3.0%	-3.3%	-8.3%	-1.9%	15.9%	7.4%	-1.0%	7.6%
Gross profit		50,969	54,955	52,692	48,974	42,469	41,943	50,852	58,075	57,204	-
	YoY	3.5%	7.8%	-4.1%	-7.1%	-13.3%	-1.2%	21.2%	14.2%	-1.5%	-
	Gross profit margin	53.8%	54.0%	53.3%	51.3%	48.5%	48.8%	51.0%	54.3%	54.0%	-
Operating profit		15,714	14,123	10,882	5,897	4,234	4,912	11,246	17,413	19,651	20,500
	YoY	12.2%	-10.1%	-22.9%	-45.8%	-28.2%	16.0%	128.9%	54.8%	12.9%	4.3%
	Operating profit margin	16.6%	13.9%	11.0%	6.2%	4.8%	5.7%	11.3%	16.3%	18.5%	18.0%
Pre-tax profit		16,139	14,239	11,591	5,434	3,628	4,602	11,362	17,181	19,838	20,500
	YoY	23.3%	-11.8%	-18.6%	-53.1%	-33.2%	26.8%	146.9%	51.2%	15.5%	3.3%
	Pre-tax profit margin	17.0%	14.0%	11.7%	5.7%	4.1%	5.4%	11.4%	16.1%	18.7%	18.0%
Profit		13,896	9,305	7,857	3,760	2,698	2,880	8,956	13,355	16,105	16,200
	YoY	74.3%	-33.0%	-15.6%	-52.1%	-28.2%	6.7%	211.0%	49.1%	20.6%	0.6%
	Net margin	14.7%	9.1%	7.9%	3.9%	3.1%	3.4%	9.0%	12.5%	15.2%	14.2%
Per-share data
Shares issued (year-end; '000)		143,956	143,956	138,115	138,115	138,115	138,135	138,207	138,257	138,282	-
EPS		98.4	64.9	55.7	27.4	19.7	21.0	65.2	97.2	117.2	117.9
EPS (fully diluted)		97.0	64.9	55.7	27.4	19.7	21.0	65.2	97.2	117.1	-
Dividend per share		20.0	20.0	24.0	24.0	15.0	15.0	22.0	31.0	24.5	40.0
Book value per share		450.4	522.5	572.0	552.3	556.4	569.5	622.9	685.3	794.9	-
Balance sheet (JPYmn)
	Cash and cash equivalents	37,690	43,215	34,916	37,391	39,682	35,452	45,097	47,669	49,810	-
	Inventories	16,164	17,053	19,191	18,376	16,606	18,236	18,585	20,775	20,043	-
Total current assets		79,951	90,010	84,126	80,541	82,421	79,576	92,994	99,009	99,815	-
Tangible fixed assets		17,274	19,747	26,877	27,738	26,441	25,947	24,221	25,259	25,277	-
Goodwill and intangible assets		1,340	2,023	2,558	3,209	3,721	3,993	3,586	3,833	5,184	-
Real estate for investment		2,329	2,164	1,997	1,830	1,664	1,463	830	663	482	-
Total assets		115,095	127,149	126,893	124,624	125,054	121,190	130,467	138,873	144,100	-
	Trade and other payables	8,189	8,451	11,536	7,133	7,060	7,998	7,599	7,467	6,671	-
	Bonds and borrowings	2,472	6,898	6,585	1,590	7,565	4,467	5,270	9,882	4,131	-
Total current liabilities		25,960	33,796	34,516	21,550	28,394	26,803	30,251	37,346	31,220	-
	Bonds and borrowings	16,945	11,960	9,479	20,434	14,460	11,477	10,978	2,994	-	-
Non-current labilities		24,594	18,456	13,710	27,211	20,174	16,073	14,538	7,195	3,424	-
Total liabilities		50,554	52,252	48,227	48,761	48,568	42,876	44,789	44,541	34,645	-
Total equity attrib. to owners of the parent		64,542	74,886	78,639	75,811	76,398	78,230	85,560	94,172	109,258	-
Total liabilities and net assets		115,096	127,138	126,866	124,572	124,966	121,106	130,467	138,873	144,100	-
Total interest-bearing debt		20,281	19,210	16,253	22,165	22,240	16,170	16,442	14,644	5,898	-
Cash flow statement (JPYmn)
Cash flows from operating activities		11,771	13,792	7,582	10,195	9,246	7,946	12,247	14,721	20,481	-
Cash flows from investing activities		-5,030	-5,312	-6,049	-9,042	-3,665	-3,932	-616	-3,686	-5,029	-
Cash flows from financing activities		-10,035	-4,359	-11,234	2,450	-2,758	-8,201	-2,052	-7,592	-14,458	-
Financial ratios
ROA (RP-based)		14.3%	11.8%	9.1%	4.3%	2.9%	3.7%	9.0%	12.8%	14.0%	-
ROE		25.0%	13.3%	10.2%	4.9%	3.5%	3.7%	10.9%	14.9%	15.8%	-
Equity ratio		56.1%	58.9%	62.0%	60.8%	61.1%	64.6%	65.6%	67.8%	75.8%	-

Source: Shared Research based on company materials
Note: Profit refers to profit attributable to owners of the parent.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Due to a change in accounting standards under revision to IAS No.19, FY03/13 figures are retroactively restated.

Recent updates

1H FY03/22 Report Update

2021-11-22

Shared Research updated the report following interviews with Anritsu Corporation.

Trends and outlook

Quarterly trends and results

Earnings (cumulative)		FY03/20				FY03/21				FY03/22		FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	% of Est.	FY Est.
Revenue		23,236	49,808	76,418	107,023	25,693	52,161	76,564	105,939	23,788	51,231	44.9%	114,000
	YoY	10.8%	12.3%	7.4%	7.4%	10.6%	4.7%	0.2%	-1.0%	-7.4%	-1.8%		6.5%
Gross profit		12,557	26,628	41,447	58,075	14,450	28,378	41,706	57,204	12,470	27,011
	YoY	16.3%	20.2%	13.3%	14.2%	15.1%	6.6%	0.6%	-1.5%	-13.7%	-4.8%
	Gross profit margin	54.0%	53.5%	54.2%	54.3%	56.2%	54.4%	54.5%	54.0%	52.4%	52.7%
SG&A expenses		9,862	19,996	30,133	40,662	9,329	18,532	27,646	37,553	9,387	19,528
	YoY	7.6%	7.1%	4.4%	2.7%	-5.4%	-7.3%	-8.3%	-7.6%	0.6%	5.4%
	SG&A ratio	42.4%	40.1%	39.4%	38.0%	36.3%	35.5%	36.1%	35.4%	39.5%	38.1%
Operating profit		2,695	6,632	11,314	17,413	5,121	9,846	14,060	19,651	3,083	7,483	36.5%	20,500
	YoY	65.3%	90.5%	46.6%	54.8%	90.0%	48.5%	24.3%	12.9%	-39.8%	-24.0%		17.7%
	Operating profit margin	11.6%	13.3%	14.8%	16.3%	19.9%	18.9%	18.4%	18.5%	13.0%	14.6%		18.0%
Pre-tax profit		2,531	6,371	11,235	17,181	5,115	9,725	13,933	19,838	3,085	7,513	36.6%	20,500
	YoY	44.5%	73.2%	43.1%	51.2%	102.1%	52.6%	24.0%	15.5%	-39.7%	-22.7%		19.3%
	Pre-tax profit margin	10.9%	12.8%	14.7%	16.1%	19.9%	18.6%	18.2%	18.7%	13.0%	14.7%		18.0%
Profit		1,776	4,656	8,306	13,355	3,515	7,061	10,445	16,105	2,083	5,464	33.7%	16,200
	YoY	5.1%	48.2%	32.7%	49.1%	97.9%	51.7%	25.8%	20.6%	-40.7%	-22.6%		21.3%
	Profit margin	7.6%	9.3%	10.9%	12.5%	13.7%	13.5%	13.6%	15.2%	8.8%	10.7%		14.2%
Earnings (quarterly)		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Revenue		23,236	26,572	26,610	30,605	25,693	26,468	24,403	29,375	23,788	27,443
	YoY	10.8%	13.7%	-0.7%	7.2%	10.6%	-0.4%	-8.3%	-4.0%	-7.4%	3.7%
Gross profit		12,557	14,071	14,819	16,628	14,450	13,928	13,328	15,498	12,470	14,541
	YoY	16.3%	23.9%	2.7%	16.5%	15.1%	-1.0%	-10.1%	-6.8%	-13.7%	4.4%
	Gross profit margin	54.0%	53.0%	55.7%	54.3%	56.2%	52.6%	54.6%	52.8%	52.4%	53.0%
SG&A expenses		9,862	10,134	10,137	10,529	9,329	9,203	9,114	9,907	9,387	10,141
	YoY	7.6%	6.7%	-0.6%	-2.0%	-5.4%	-9.2%	-10.1%	-5.9%	0.6%	10.2%
	SG&A ratio	42.4%	38.1%	38.1%	34.4%	36.3%	34.8%	37.3%	33.7%	39.5%	37.0%
Operating profit		2,695	3,937	4,682	6,099	5,121	4,725	4,214	5,591	3,083	4,400
	YoY	65.3%	112.6%	10.6%	72.8%	90.0%	20.0%	-10.0%	-8.3%	-39.8%	-6.9%
	Operating profit margin	11.6%	14.8%	17.6%	19.9%	19.9%	17.9%	17.3%	19.0%	13.0%	16.0%
Pre-tax profit		2,531	3,840	4,864	5,946	5,115	4,610	4,208	5,905	3,085	4,428
	YoY	44.5%	99.4%	16.6%	69.3%	102.1%	20.1%	-13.5%	-0.7%	-39.7%	-3.9%
	Pre-tax profit margin	10.9%	14.5%	18.3%	19.4%	19.9%	17.4%	17.2%	20.1%	13.0%	16.1%
Profit		1,776	2,880	3,650	5,049	3,515	3,546	3,384	5,660	2,083	3,381
	YoY	5.1%	98.5%	16.5%	87.1%	97.9%	23.1%	-7.3%	12.1%	-40.7%	-4.7%
	Profit margin	7.6%	10.8%	13.7%	16.5%	13.7%	13.4%	13.9%	19.3%	8.8%	12.3%

Source: Shared Research based on company materials
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Profit refers to profit attributable to owners of the parent.
Note: Until Q2 FY03/16, the company included basic research expenses in adjusted operating profit, but from Q3 on, it moved these expenses to the Test and Measurement segment, impacting figures by about JPY200mn on a quarterly basis.
Note: In FY03/19, Anritsu changed its method of distributing head office management expenses across the various segments. Figures for Q1 FY03/18 onward have been retroactively adjusted.

Source: Shared Research based on company data

1H FY03/22 results (out October 28, 2021)

1H FY03/22 results (April–September 2021)

Orders: JPY54.8bn (+1.4% YoY)
Revenue: JPY51.2bn (-1.8% YoY)
Operating profit: JPY7.5bn (-24.0% YoY)
Pre-tax profit: JPY7.5bn (-22.7% YoY)
Profit attributable to owners of the parent: JPY5.5bn (-22.6% YoY)

Operating environment

In the telecommunications industry, operators in various countries made steady progress in their commercialization schedules, with 5G services being launched in each. Regarding 3GPP—a project for developing mobile telephony protocols, consisting of telecommunications standard development organizations from Japan, the US, Europe, South Korea, and China—standardization for ultra-low latency and multiple access technologies (Release 16), where use cases are expected to expand, was completed in July 2020. Standards (Release 17) for expansion of high-frequency bands, expansion of communication areas, and low-power and low-cost communications are under consideration. In the US, where widespread commercialization of 5G based on mmWave has been delayed, there is also a growing movement towards using C-band (the name for the 4-8 GHz frequency band in the spectrum allocation), a sub6GHz band. Relevant R&D for the use of 5G in the automotive field, as well as survey work and demonstration testing for the creation of 5G networks in the private domain, including local 5G, were underway. R&D on 6G, the next-generation telecommunication standard, has already begun.

In 5G networks, O-RAN (Open Radio Access Network) Alliance has been working to open up radio access networks to allow operators more flexibility in
building wireless networks. The construction of multi-vendor radio access networks has been facilitated through the application of O-RAN standard specifications to base station equipment, which has up till now been configured with manufacturer-specific interfaces. As a result, operators around the world are introducing O-RAN, and the 5G base station market is expanding. With the expansion of multi-vendor radio access networks, it became necessary to test coordination between interfaces to ensure effective operation of the networks, creating demand for measuring equipment for this purpose. The increasing sophistication of cloud services and the development of 5G services have led to rapid growth in data traffic, which is straining network infrastructure. Service providers are pushing for higher network speeds and starting to introduce 100Gbps services at scale, and network equipment manufacturers are also making progress in developing 400Gbps network equipment.

Business strategy and performance overview

Anritsu’s Test and Measurement business group made organizational changes and developed solutions to win orders related to 5G commercialization-related development work. The company also captured development and production-related demand for high-speed networks.

In the Products Quality Assurance business, the company saw steady growth in demand associated with automation of quality control processes such as using X-ray for contamination inspection systems and packaging quality inspections as automation progressed in the production lines of processed foods. The company intends to continue working on improving the competitiveness of its X-ray centered solutions and revamping its sales structure.

In 1H, revenue was JPY51.2bn (-1.8% YoY), gross profit was JPY27.0bn (-4.1% YoY), and GPM was 52.7% (-1.8pp YoY). These declines were mainly due to a JPY360mn loss on retirement of fixed assets incurred by the company's US subsidiary. SG&A expenses came to JPY13.8bn (+5.1% YoY) and R&D expenses to JPY5.6bn (+2.0% YoY) as the company hired more personnel following business recovery and continued investing in R&D with an eye to sustainable growth in the medium term. As a result, operating profit fell 24.0% YoY to JPY7.5bn, with OPM at 14.6% (-4.3pp YoY). Regarding the impact of semiconductor shortages on revenue, the company said it was working to resolve shortages through negotiating with suppliers.

Results by segment　

Test and Measurement

Test and Measurement		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2
Orders (cumulative)		19,751	37,252	58,148	75,577	22,047	38,811	56,792	76,389	19,937	38,733
	YoY	35.5%	16.4%	16.3%	9.8%	11.6%	4.2%	-2.3%	1.1%	-9.6%	-0.2%
Revenue (cumulative)		17,315	35,176	54,175	75,165	19,260	37,522	54,442	74,809	16,791	36,361
	YoY	20.3%	20.6%	11.5%	10.3%	11.2%	6.7%	0.5%	-0.5%	-12.8%	-3.1%
Operating profit (cumulative)		2,761	5,907	9,939	15,148	4,946	8,999	12,549	17,714	2,851	7,069
	YoY	82.1%	132.3%	52.6%	60.9%	79.1%	52.3%	26.3%	16.9%	-42.4%	-21.4%
	Operating profit margin	15.9%	16.8%	18.3%	20.2%	25.7%	24.0%	23.1%	23.7%	17.0%	19.4%
Quarterly		FY03/20				FY03/21				FY03/22
		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Orders		19,751	17,501	20,896	17,429	22,047	16,764	17,981	19,597	19,937	18,796
	YoY	35.5%	0.5%	16.2%	-7.4%	11.6%	-4.2%	-14.0%	12.4%	-9.6%	12.1%
Revenue		17,315	17,861	18,999	20,990	19,260	18,262	16,920	20,367	16,791	19,570
	YoY	20.3%	20.9%	-2.3%	7.3%	11.2%	2.2%	-10.9%	-3.0%	-12.8%	7.2%
Operating profit		2,761	3,146	4,032	5,209	4,946	4,053	3,550	5,165	2,851	4,217
	YoY	82.1%	206.3%	1.6%	79.6%	79.1%	28.8%	-12.0%	-0.8%	-42.4%	4.0%
	Operating profit margin	15.9%	17.6%	21.2%	24.8%	25.7%	22.2%	21.0%	25.4%	17.0%	21.5%

Source: Shared Research based on company data

1H segment revenue: JPY36.4bn (-3.1% YoY)

Operating profit: JPY7.1bn (-21.4% YoY)

Revenue fell 3.1% YoY. The company saw steady growth in demand related to the development of 5G chipsets and handsets. The company also captured development and production-related demand for high-speed networks such as for data centers. However, due to the global shortage in semiconductors, Q1 revenue was down JPY1.0bn on a shortage of LCD-related parts, and Q2 (three months) revenue was down JPY1.5bn on a shortage of logic devices and electronic parts. Revenue breakdown by business category was 57% for mobile, 26% for network infrastructure, and 17% for electronics. In the mobile category, demand for the company's products for use in device development increased in Asia and the US, while in the network infrastructure category, LTE-related demand fell. On the profit front, a US subsidiary booked a JPY355mn loss on retirement of fixed assets, leading to a 21.4% decline in segment operating profit, with OPM down 4.6pp at 19.4%.

MT8000A and OTA anechoic chamber MA8171A

Source: Shared Research based on company data

Products Quality Assurance

Products Quality Assurance		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2
Orders (cumulative)		5,330	11,954	17,399	22,998	4,696	10,341	15,561	21,569	5,867	11,609
	YoY	-6.9%	2.8%	0.7%	-1.4%	-11.9%	-13.5%	-10.6%	-6.2%	24.9%	12.3%
Revenue (cumulative)		4,088	10,698	15,852	22,575	4,416	10,376	15,348	21,419	5,103	10,954
	YoY	-16.5%	-6.5%	-4.6%	-2.2%	8.0%	-3.0%	-3.2%	-5.1%	15.6%	5.6%
Operating profit (cumulative)		-158	460	674	1,287	138	704	978	1,340	377	738
	YoY	-	-45.9%	-34.6%	-20.0%	-	53.0%	45.1%	4.1%	173.2%	4.8%
	Operating profit margin	-3.9%	4.3%	4.3%	5.7%	3.1%	6.8%	6.4%	6.3%	7.4%	6.7%
Quarterly		FY03/20				FY03/21				FY03/22
		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Orders		5,330	6,624	5,445	5,599	4,696	5,645	5,220	6,008	5,867	5,742
	YoY	-6.9%	12.1%	-3.4%	-7.3%	-11.9%	-14.8%	-4.1%	7.3%	24.9%	1.7%
Revenue		4,088	6,610	5,154	6,723	4,416	5,960	4,972	6,071	5,103	5,850
	YoY	-16.5%	1.0%	-0.4%	4.1%	8.0%	-9.8%	-3.5%	-9.7%	15.6%	-1.8%
Operating profit		-158	618	214	613	138	566	274	362	377	360
	YoY	-	-11.8%	18.9%	6.1%	-	-8.4%	28.0%	-40.9%	173.2%	-36.4%
	Operating profit margin	-3.9%	9.3%	4.2%	9.1%	3.1%	9.5%	5.5%	6.0%	7.4%	6.2%

Source: Shared Research based on company data

1H segment revenue: JPY11.0bn (+5.6% YoY)

Operating profit: JPY738mn (+4.8% YoY)

Revenue grew 5.6% YoY. While the business continued to be impacted by the COVID-19 pandemic in Japan, in regions where the pandemic is easing, such as Asia and the US, capital expenditures aimed at labor saving and automation of quality assurance processes in the food industry have been robust. Operating profit was up 4.8% YoY supported by higher revenue. OPM fell 0.1pp YoY to 6.7% in 1H, as the company continued investing in development notwithstanding a revenue decline in Q2 (three months).

Others

Other		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2
Orders (cumulative)		2,083	4,424	7,056	9,129	2,276	4,888	7,440	9,605	2,282	4,438
	YoY	-9.0%	3.5%	6.3%	5.0%	9.3%	10.5%	5.4%	5.2%	0.3%	-9.2%
Revenue (cumulative)		1,832	3,932	6,390	9,282	2,016	4,262	6,773	9,709	1,893	3,914
	YoY	9.3%	5.2%	8.3%	10.3%	10.0%	8.4%	6.0%	4.6%	-6.1%	-8.2%
Operating profit (cumulative)		286	661	1,307	1,900	194	522	1,116	1,797	49	164
	YoY	177.7%	52.0%	81.3%	65.9%	-32.2%	-21.0%	-14.6%	-5.4%	-74.7%	-68.6%
	Operating profit margin	15.6%	16.8%	20.5%	20.5%	9.6%	12.2%	16.5%	18.5%	2.6%	4.2%
Quarterly		FY03/20				FY03/21				FY03/22
		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Orders		2,083	2,341	2,632	2,073	2,276	2,612	2,552	2,165	2,282	2,156
	YoY	-9.0%	18.0%	11.3%	0.7%	9.3%	11.6%	-3.0%	4.4%	0.3%	-17.5%
Revenue		1,832	2,100	2,458	2,892	2,016	2,246	2,511	2,936	1,893	2,021
	YoY	9.3%	1.8%	13.7%	14.9%	10.0%	7.0%	2.2%	1.5%	-6.1%	-10.0%
Operating profit		286	375	646	593	194	328	594	681	49	115
	YoY	177.7%	13.0%	125.9%	39.9%	-32.2%	-12.5%	-8.0%	14.8%	-74.7%	-64.9%
	Operating profit margin	15.6%	17.9%	26.3%	20.5%	9.6%	14.6%	23.7%	23.2%	2.6%	5.7%

Source: Shared Research based on company data

1H segment revenue: JPY3.9bn (-8.2% YoY)

Operating profit: JPY164mn (-68.6% YoY)

The Others segment includes an array of different business, including information and communications business, devices business, logistics business, welfare service business, and real estate leasing business. In Q1, revenue fell due to intensifying price competition facing the devices business.

Full-year forecast for FY03/22

Performance		FY03/20			FY03/21			FY03/22
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	1H Act.	2H Est.	FY Est.
Revenue		49,808	57,215	107,023	25,693	80,246	105,939	51,231	62,769	114,000
	YoY	12.3%	3.4%	7.4%	-48.4%	40.3%	-1.0%	99.4%	-21.8%	7.6%
Operating profit		6,632	10,781	17,413	5,121	14,530	19,651	7,483	13,017	20,500
	YoY	90.5%	38.9%	54.8%	-22.8%	34.8%	12.9%	46.1%	-10.4%	4.3%
	Operating profit margin	13.3%	18.8%	16.3%	19.9%	18.1%	18.5%	14.6%	20.7%	18.0%
Pre-tax profit		6,371	10,810	17,181	5,115	14,723	19,838	7,513	12,987	20,500
	YoY	73.2%	40.7%	51.2%	-19.7%	36.2%	15.5%	46.9%	-11.8%	3.3%
	Pre-tax profit margin	12.8%	18.9%	16.1%	19.9%	18.3%	18.7%	14.7%	20.7%	18.0%
Profit		4,656	8,699	13,355	3,515	12,590	16,105	5,464	10,736	16,200
	YoY	48.2%	49.6%	49.1%	-24.5%	44.7%	20.6%	55.4%	-14.7%	0.6%
	Profit margin	9.3%	15.2%	12.5%	13.7%	15.7%	15.2%	10.7%	17.1%	14.2%

Source: Shared Research based on company data

Company forecast for full-year FY03/22 (announced on April 27, 2021)

Revenue: JPY114.0bn (+7.6% YoY)
Operating profit: JPY20.5bn (+4.3% YoY)
Pre-tax profit: JPY20.5bn (+3.3% YoY)
Profit attributable to owners of the parent*: JPY16.2bn (+0.6% YoY)
Basic EPS: JPY117.85 (JPY117.18 in FY03/21)
No change had been made to the full-year forecast at the time of 1H results announcement (October 28, 2021).

Forecast by segment is as follows.

Test and Measurement

In the field of information and communication, 5G-related demand is expected to continue to expand thanks to ongoing technological innovation and increased utilization. Mainly in the 5G business, the group expects demand to grow in the field of 5G utilization such as automotive-related businesses and network acceleration. It also expects increased demand as operators move to expand network infrastructure, including at data centers. By region, the company looks for an increase in demand for 5G products amid an expansion in the 5G service areas of the major carriers in North America and enhanced investment related to 5G commercialization in Asia.

Although sales activities were restricted in FY03/21 due to the pandemic, the company has indicated that it intends to make up for the delays in those sales activities in FY03/22. Backed by improved 5G-related sales, management forecasts Test and Measurement business revenue of JPY82.0bn (+9.6% YoY), and operating profit of JPY18.5bn (+4.5% YoY). In 2H, the company is paying close attention to C-band related demand in the US expected to materialize in full scale from Q3 onward and to continued development-related demand in Asia.

Trends and business opportunities in the measurement equipment market

Source: Company data

Products Quality Assurance

For the Product Quality Assurance segment, citing deep-rooted demand for food safety, the company forecasts revenue of JPY23.0bn (+7.5% YoY) and operating profit of JPY1.8bn (+38.5% YoY) on anticipated recovery of demand in Japan in 2H, which contracted in FY03/21.

M&A with the goal of achieving medium-term plan targets

The medium-term business plan GLP2023 identifies four new business areas for growth: medical and pharmaceutical, optical sensing, local 5G, and EV/batteries. Among these, the company did not include EV/batteries as a core technology when it announced its medium-term plan, though management did mention the potential for it being introduced from outside the company.

The company on July 30 announced the planned acquisition of shares in unlisted firm Takasago Ltd. and plans to make that company a subsidiary. Takasago's main business is the manufacture and sale of power supplies for automobiles and other applications. The company also possesses power supply (battery) measuring technologies. Anritsu has made a positive assessment in regard to the relevancy of those technologies and the customers in the field. Management aims to develop a business fusing its test and measurement technologies with Takasago’s battery measuring technologies to create a foothold in the test and measuring business for EVs and batteries.

Historical company forecasts vs results

(JPYmn)		FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
(JPYmn)		IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.
Revenue	Initial Est.	94,500	94,500	109,000	103,000	97,000	91,000	98,000	102,000	110,000
	Results	94,685	101,853	98,839	95,532	87,638	85,967	99,659	107,023	105,939
	Results vs. Initial Est.	0.2%	7.8%	-9.3%	-7.3%	-9.7%	-5.5%	1.7%	4.9%	-3.7%
Operating profit	Initial Est.	15,500	15,500	16,000	11,000	7,200	4,400	11,000	10,000	17,500
	Results	15,714	14,123	10,882	5,897	4,234	4,912	11,246	17,413	19,651
	Results vs. Initial Est.	1.4%	-8.9%	-32.0%	-46.4%	-41.2%	11.6%	2.2%	74.1%	12.3%
Pre-tax profit	Initial Est.	14,500	14,500	16,000	10,900	7,100	4,200	11,000	10,000	17,500
	Results	16,139	14,239	11,591	5,434	3,628	4,602	11,362	17,181	19,838
	Results vs. Initial Est.	11.3%	-1.8%	-27.6%	-50.1%	-48.9%	9.6%	3.3%	71.8%	13.4%
Profit	Initial Est.	10,000	10,000	11,000	8,000	5,300	3,000	8,500	7,500	13,500
	Results	13,896	9,305	7,857	3,760	2,698	2,880	8,956	13,355	16,105
	Results vs. Initial Est.	39.0%	-7.0%	-28.6%	-53.0%	-49.1%	-4.0%	5.4%	78.1%	19.3%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Profit refers to profit attributable to owners of the parent.

Medium- to long-term strategy

New medium-term business plan GLP2023 (FY03/22–FY03/24）

On April 27, 2021 the company announced its new medium-term business plan “GLP2023” (FY03/22–FY03/24) and management vision “FY2030,” which ends in FY03/31.

Long-term vision FY2030

During the previous long-term vision (2020VISION) announced in April 2012, Anritsu sought sustainable profit growth and to strengthen its financial structure over the 10-year period. The management vision for the next long-term vision FY2030 is “Beyond testing, beyond limits, for a sustainable future together.” The company has positioned the next 10 years as a period of growth and excellence, targeting revenue of JPY200bn in the final year (FY03/31). In FY2030, the company plans to restructure the group into four companies and one research laboratory, aiming for stable earnings under this new structure.

Priority businesses in GLP2023

The medium-term business plan GLP2023 aims to grow the company’s business during the peak period of 5G-related demand and accelerate investment in new business areas as a step toward attaining the goals set out in FY2030.

The four proposed companies in the new group structure are Test & Measurement Company, Environmental Measurement Company, Sensing & Devices Company, and Infivis Company (to promote the Products Quality Assurance business) and the one research laboratory is the Advanced Research Laboratory. Four new priority business areas that it plans to develop in addition to the existing 5G, 5G utilization, monitoring, 6G, Nano Electro Mechanical Systems (NEMS), optical products, cloud, and food are medical and pharmaceutical, optical sensing, local 5G, and EV/batteries.

Revenue and operating profit plan for GLP2023

			FY03/21	FY03/22	MTP CAGR	FY03/24
Revenue			105,939	114,000		140,000
		YoY	-1.0%	7.6%	9.7%
	Test and Measurement		74,809	82,000		100,000
		YoY	-0.5%	9.6%	10.2%
	Products Quality Assurance		21,419	23,000		27,000
		YoY	-5.1%	7.4%	8.0%
Operating profit			19,651	20,500		27,000
		YoY	12.9%	4.3%	11.2%
		Operating profit margin	18.5%	18.0%		19.3%
	Test and Measurement		17,714	18,500		23,000
		YoY	16.9%	4.4%	9.1%
		Operating profit margin	23.7%	22.6%		23.0%
	Products Quality Assurance		1,340	1,800		2,700
		YoY	4.1%	34.3%	26.3%
		Operating profit margin	6.3%	7.8%		10.0%
Profit			16,143	16,200		20,000
		YoY	20.5%	0.4%	7.4%
		Operating profit margin	15.2%	14.2%		14.3%
	ROE		16%	14%		15%

Source: Shared Research based on company data

Sustainability targets (SDGs)

As stated in the FY2030 management vision (“sustainable future”), the company describes initiatives for SDGs in GLP2023. It has set KPIs for six sustainability targets.

Long-term plan and initiatives for reducing greenhouse gas emissions

In FY2030, Anritsu targets reductions in greenhouse gas emissions of 23% versus FY2015 and 13% versus FY2018, and 30% in FY2030.

Increase share of private power generation

In April 2020, the company formulated Anritsu Climate Change Action PGRE 30 as a new greenhouse gas reduction initiative. This plan aims to increase the share of private solar power generation (a renewable energy source) from around 1% to 30% by 2030. This target exceeds the Japanese government’s 2030 target for the share of renewable energy of 22 to 24% (of which solar power accounts for 7%). Anritsu plans to install and extend solar power generation facilities for its own use in three locations (Atsugi, Kanagawa Prefecture; Koriyama, Fukushima Prefecture; and Morgan Hill, California) to attain its target. A KPI in GLP2023 is a minimum 13% share.

Promote diversity management

During the GLP2023 period, the company will work on three initiatives. First, it plans to increase women’s participation in management with a target of women accounting for a minimum of 15% of executives. Second, it plans to establish a new system of pay and conditions for employees to work until the age of 70 to attract and retain older workers. Third, it plans to promote the employment of disabled people. Anritsu aims to attain the statutory employment rate of 2.3% by developing more occupational categories for disabled people.

Promote global CSR purchasing

Anritsu will apply selection criteria to suppliers and purchase conditions based on whether they are fulfilling their corporate social responsibility (CSR). KPIs for the medium-term business plan period are to strengthen supply chain due diligence by a total of at least 10 companies over the three-year period, communicating CSR purchasing-related information to suppliers at least twice a year, and providing education at least once a year.

Improve global governance capability

Anritsu intends to make its board of directors more diverse. Specifically, it plans to increase the number of outside directors with a KPI of outside directors accounting for at least 50% of the total.

Promote provision of internal control systems in overseas subsidiaries

The company aims to have all overseas subsidiaries satisfy Control Self-Assessment (a method for business units to assess its own internal controls) standards.

To establish AK Radio Design

The company plans to build a structure for providing one-stop services that combine actual measuring service using measuring equipment and analysis service using simulation software. AK Radio Design is to be established in Anritsu’s head office premises in June 2021 to provide this service, with Anritsu and Kozo Keikaku Engineering Inc. each holding a 50% stake. AK Radio Design will combine Anritsu’s communications measuring equipment and actual measuring service with Kozo Keikaku Engineering’s simulators and analysis service. Expected services include network delay measurement and failure analysis, coverage area design and assessment service (measuring strength of electromagnetic field in communication area), and radio frequency interference simulation and measurement.

Breakdown by segment

Test and Measurement

Test and Measurement		FY03/21	FY03/22	MTP CAGR	FY03/24
Revenue		74,809	82,000		100,000
	YoY	-0.5%	9.6%	10.2%	33.7%
Operating profit		17,714	18,500		23,000
	YoY	16.9%	4.4%	9.1%	29.8%
	Operating profit margin	23.7%	22.6%		23.0%

Source: Shared Research based on company data

Revenue and operating profit targets

Anritsu sees the three-year medium-term business plan period as heading toward peak 5G demand. The company aims to capture 5G-related demand and expand its business in the smartphone, 5G utilization, and network infrastructure markets.

Vision

To become a leading company that supports the connected society formed by 5G

Business policy

Anritsu plans to increase the weighting of the 5G utilization and network infrastructure businesses, evolving from a model of providing solutions that deliver measuring tools to one that delivers value by measuring to solve problems. The company plans to increase investment in growth businesses such as 5GBeyond, self-driving cars, Open Radio Access Network (ORAN, a wireless access network based on open interface specifications with separated features), and Innovative Optical and Wireless Network (IOWN), an innovative network concept using optical and wireless technologies.

Products Quality Assurance segment

Products Quality Assurance		FY03/21	FY03/22	MTP CAGR	FY03/24
Revenue		21,419	23,000		27,000
	YoY	-5.1%	7.4%	8.0%
Operating profit		1,340	1,800		2,700
	YoY	4.1%	34.3%	26.3%
	Operating profit margin	6.3%	7.8%		10.0%

Source: Shared Research based on company data

Revenue and operating profit targets

The company aims to create solutions that solve customers’ priority issues and deliver services quickly. Specifically, the company aims to make its x-ray inspection equipment more sophisticated and expand its track record in the pharmaceutical market, developing a new field of business. It also seeks to make its business more profitable through business process reforms.

Vision

Anritsu aspires to be the first-to-call company in quality assurance most trusted by customers worldwide as it works toward a sustainable future.

Business policy

Anritsu will create solutions that resolve customers’ priority issues, facilitate the quest for safety and security, and improve productivity and food loss. The company aims to maintain and increase its market share (world market share of 10% and domestic market share of 40%, based on company data). It plans to achieve this goal by creating values which is more than just about measuring, providing most reliable products and services, and adequately and promptly responding to global needs through localization. In terms of services provided, it plans to expand high value-added solutions with more advanced x-ray inspection equipment. It also aims to expand global business in the pharmaceutical market, which it considers a priority. Profit wise, the company aims to strengthen its profit structure by improving business processes.

Reference: Overview of GLP2020 medium-term business plan (FY03/19–FY03/21)

2020 VISION strategy for achieving profitable and sustainable growth

In April 2018, the company announced GLP2020, its medium-term management plan that ends in FY03/21. The two pillars of the long-term strategy, 2020 VISION, which was unveiled in April 2014, were to achieve profitable, sustainable growth to become a global market leader and create new businesses. As stepping stones towards the realization of those goals, the company put together medium-term business plans every three years, starting with GLP2014 (covering FY03/13–FY03/15), then GLP2017 (FY03/16–FY03/18), and ending with GLP2020 (covering FY03/19–FY03/21).

While keeping the same management policies, under GLP2020 Anritsu aims to revisit its basic strategies of focusing on profitable, sustainable growth as it fully commits to achieving the goals set under 2020 VISION.

Numerical targets for final year of GLP2020

For FY03/21, the final year under GLP2020, the company is targeting revenue of JPY105.0bn (+JPY5.3bn versus FY03/19), operating profit of JPY14.5bn (+JPY3.3bn), an operating profit margin of 13.8% (+2.5pp), and ROE of 12.0% (+1.1pp). Of this, the Test and Measurement segment is expected to generate the bulk of sales and earnings, with FY03/21 sales coming in at JPY70.0bn (+JPY1.8bn) and operating profit at JPY10.0bn (+JPY587bn), representing an operating profit margin of 14.0% (+0.2pp versus FY03/19). Like its previous medium-term plan (GLP2017), the performance of the Test and Measurement segment will determine whether or not the company meets the quantitative targets set under GLP2020.

The FY03/21 forecast released with FY03/20 results assumes the COVID-19 situation will settle down by 1H FY03/21, and is still above final medium-term plan targets. Shared Research interprets this as a sign of the company’s commitment to the targets in the last year of GLP2020, despite prevailing uncertainties.

In this relation, we would also note that the performance targets under GLP2020 are lower than in prior plan GLP2017 (revenue JPY120.0bn, operating profit JPY17.0bn, and operating profit margin 14.0%). The reduction in the target for top-line revenues reflects the smaller size of the company’s mobile measuring equipment business at the time GLP2020 was put together as well as uncertainty surrounding the pace of growth in IoT-related demand. The company expects the 5G mobile market to peak around 2023–2024.

Aim to attain long-term targets of 2020 VISION in GLP2023

In 2020 VISION (formulated in 2012), Anritsu set out basic policies for long-term business strategy and targets for each segment (see above) that have served as guidelines in formulating medium-term plans (GLP2014, GLP2017, and GLP2020). Numerical targets include consolidated operating profit margin of over 18% (over 20% for the Test and Measurement segment and over 12% for the Products Quality Assurance segment) and annual revenue growth of at least 7% for both segments. The company commented that during the period covered by GLP2020 it will be working on building the foundation to achieve the goals under its next medium-term plan (GLP2023).

The operating profit margin target in FY03/21 under GLP2020 is 14.0% for the Test and Measurement segment and 12.0% for the Product Quality Assurance segment. The company is looking to get margins back to previous peak levels set in FY03/13–FY03/15, when the consolidated operating profit margin reached record-highs (16.6% in FY03/13, 13.9% in FY03/14, and 10.9% in FY03/15). The FY03/21 forecast announced with FY03/20 results calls for an operating profit margin of 20.1％ in the Test and Measurement business and 7.5% in the Products Quality Assurance business. Shared Research thinks that the forecast takes into account recent demand trends and that the company sees 5G demand in the Test and Measurement business growing more than anticipated when it developed GLP2020.

The company’s basic policy for its financial strategy under GLP2020 was to improve corporate value KPI (ACE and ROE) by investing in growth to generate returns exceeding 7% cost of shareholders’ equity. KPI targets are ACE (calculated as after-tax operating profit – weighted average cost of capital of 5%) of JPY5bn versus -JPY1.6bn in FY03/18 and ROE of over 12% (3.7%). The FY03/21 forecast announced with FY03/20 results targets an ACE of JPY7.5bn and ROE of 14.0%. The 2020 VISION targets an ACE of JPY8.0bn and ROE of over 15% are unchanged. The company aims to continue improving consolidated operating profit margin while following financial strategies that improve the total asset turnover rate and cost of capital as well as maintaining an equity ratio in the 60% range.

Anritsu Capital-cost Evaluation (ACE) and ROE

Source: Shared Research based on company data

Test and Measurement (T&M) segment

Basic strategy

Under GLP2020, Anritsu is looking to become a leading company that supports the move to 5G and the IoT, seeing this as being synonymous with its goal of becoming a global market leader under its long-term plan (2020 VISION). Towards this end, the company’s basic strategy has three key elements:

Become the top Test and Measurement vendor by moving ahead of 5G competitors while maintaining business in the 4G market

Nurture the IoT/automotive business expected to grow as an end-application for 5G into an earnings pillar

Create test solutions (IP data traffic/cloud services) that will underpin expanding cloud services

Outlook by subsegment

The company had expected sales growth in R&D applications for 5G, with sales staying flat for manufacturing applications during the period covered by GLP2020, when 5G manufacturing would just be getting underway, then taking off during the period covered by GLP2023, when handset production will be ramping up. However, handset demand had already taken off in FY03/20, primarily in Asia, defying these expectations, and the company saw 5G dominating demand in FY03/21 as well. Another one of the core elements of the company’s 2020 VISION is new businesses; here, the company saw sales increasing by more than JPY10bn by FY03/24.

Profit margins are expected to improve during the current medium-term plan (GLP2020) because the company is looking for new products to be the main source of earnings, while mobile test and measurement earnings are flat for manufacturing applications and increase for R&D applications.

R&D investment

With regarding to investing in research and development, the company’s basic stance calls for investing the profits from LTE-Advanced-related demand in the next growth business. The company plans to continue investing 12–13% of revenue in R&D while keeping an eye on indicators of gross profit earned from R&D. Although it plans to increase the number of development personnel, it will do so by utilizing its development center in the Philippines and using outside help if required to keep costs low while keeping its technological prowess as a management resource, thereby maintain its robust earning structure. In this relation, the company noted that its Philippine facility is beginning to establish a core group of experienced personnel, having started hiring talented graduates from top universities in the country about 10 years ago.

With the FY03/20 results, Anritsu also announced the establishment of an Advanced Technology Research Lab. It will research technologies that will help solve societal problems 10 years hence from a measurement technology angle. The company intends to focus on two research themes:

Research for “Beyond 5G” (i.e. 6G)
a. Research into developing components that support measurements at frequencies above 100GHz
b. Research into the interference monitoring technologies thought to be necessary for the Full Duplex technologies currently being considered
Acquiring next-generation technologies

Research into NEMS* (promising for the creation of compact, low power consumption, ultra-sensitive sensors)

* Nano Electro Mechanical Systems (NEMS): Devices with nm-order mechanical structures, smaller still than Micro Electro Mechanical Systems (MEMS) based on semiconductor processing technology

Developing more optical/digital products to aid expansion in network infrastructure market

Previously, Anritsu had focused its management resources on the mobile devices market, which was the key area for growth. However, in FY03/17 the company shifted its position to focus on the network infrastructure market, particularly in optical and digital devices. Network infrastructure has seen a change stemming from the rise in data traffic and the need for even faster digital data transmission. Anritsu believed it could beat competitors by leveraging its strengths, and focused on the development of optical-digital products that combine both wireless and optical communication technologies.

Under GLP2020, the company changed the name of the business it was going after from “Network Reshaping” to “IP Data Traffic and Cloud Services” as the new name better defined the business. Since the GLP2017 plan the company has been more clearly defining its target markets and this along with the growth in network infrastructure demand (primarily data center-related) brought it to the conclusion that the much-hoped-for demand from the small cell-related market would come in ahead of 5G demand, which prompted it to add cloud services-related testing and measurement equipment under the current medium-term plan (GLP2020).

The company’s main products in the network infrastructure market are handheld field-testing devices, which are lower in unit prices and margins compared to measuring devices for the mobile development market. Despite this trend, Anritsu thinks it can improve profitability by moving into fields that are further upstream such as the development market. In addition, initiatives are also in place to respond to expanded demand for quality of service (QoS) equipment at data centers to provide an additional facet to the company’s efforts to create profits. The majority of network infrastructure revenues come from optical/digital and handheld related products.

In the handheld market, Anritsu slimmed down its organizational structure amid a slowdown in North American demand and introduced new products to capture demand related to common public ratio interface (CPRI) within the framework of mobile front haul testing in FY03/17. Most LTE base stations currently use networks called macro cells, but base stations that include small cells are needed in order to create a high-density network capable of handling more traffic. Also needed is technology for measuring whether the base station networks that use optical fiber cable to link small cells to baseband units (in order to mitigate CPRI) are accurately converting the wireless signals to optical signals, and it is here that the expertise of Anritsu in both wireless and optical technologies should be put to good use.

Products Quality Assurance segment: setting the stage for profitable growth, increasing global competitiveness

Strengthen position in overseas markets

With operating profit falling in the Test and Measurement segment during the years under GLP2017, the Products Quality Assurance segment increased its profile and generated a larger share of consolidated operating profit. By region, the segment aims to maintain solid sales growth in Japan, bolstered by a robust operating environment. The company also aims for higher sales overseas by discovering new clients, tapping into distributors, and deepening bonds with existing customers. However, the company is still in the process of constructing the sales and support structure for its overseas business, and upfront costs are expected to rise during GLP2020 as well. R&D costs, including investments to strengthen product lineup, will also rise, but higher sales are expected to offset these expenses. The company expected OPM to improve 2.8pp to 11.5% in FY03/21, the final year of GLP2020.

Under GLP2020 the company is looking to become a world-class quality assurance solution partner. To this end, the company is strategically pursuing the following measures: 1) pioneering developed markets in the US and Europe by offering x-ray inspection equipment as a key solution; 2) reforming its global business and responding precisely to market needs through localization; and 3) strengthening its profit structure by expanding high value-added solutions and overseas business.

Aims to secure position as quality assurance solutions partner in the global market; GLP2020 is mid-way goalpost for this objective

Although the FY03/21 OPM target of 11.5% is lower than the Test and Measurement target of 14.3%, it factors in upfront spending on strengthening its product lineup, building an overseas sales and service network, localization, and other global expansion measures. The company targets OPM over 12% for GLP2023, likely because it expects to continue bearing upfront investment expenses.

As part of its vision for the future, the company aims to secure a position as a quality assurance solutions partner in the global market for food and pharmaceutical manufacturing processes, in particular for packaging processes. GLP2020 is an interim stage in the process.

Targeting expansion primarily through x-ray inspection equipment with market and technology in growth phase; demand up in ready-made meal market; domestic market also nearing replacement cycle

One of the company’s strengths lies in providing products and solutions related to x-ray inspection equipment. (X-ray inspection equipment and metal detectors each account for about 30% of sales.) Since its entry into the market in 2000, the company has contributed to the safety of food and medical products via its x-ray inspection equipment along with other quality assurance solutions. Due to the recent labor shortage, companies have been increasingly demanding automation, labor-saving measures, and streamlining in the inspection process, while growing stricter in regards to quality. In the past, companies had only inspected for metals. However, in recent years, companies have had to inspect for contamination of other hard foreign objects, leading to higher demand for x-ray inspection equipment.

X-ray inspection equipment is used to identify foreign substance contamination, misshapen products, defects after packaging, and inferior packaging. Items placed through the equipment are scanned via continuous application of X-ray, after which the results are analyzed by an X-ray sensor. The equipment detects foreign substances by generating a transmission image of the product utilizing high-function sensor equipment, advanced image analysis technology, and line sensors. The company is striving to produce an even more advanced solution by incorporating AI processing, such as deep learning, into the core technology.

Overseas, Anritsu is seeing growing demand for meat inspection equipment in North America as well as demand for quality assurance applications in Asia and developing countries. In North America, the company first aims to increase its name recognition with a focus on meat inspection equipment. It also anticipates growing sales of inspection equipment outside of the food market, including from pharmaceutical drug and cosmetic manufacturers. Because products like drugs and cosmetics directly impact people, there is growing demand from these manufacturers for contamination inspection systems.

A large portion of the delivery of equipment is based on demand for replacements, but increasingly quality assurance solutions are provided when new food processing facilities are built or production lines added. In addition to the two mainstay products, demand is growing in the area of “measurement” in other parts of the production process (such as automatic electronic weighing machines that group food items of varying weights to achieve a designated total weight).

Anritsu sees further room for growth in this market, and as technologies remain immature, the company thinks that technological innovation (including in image processing and reducing inspection time) will continue, giving it room to differentiate its products. In Japan, demand from convenience stores, supermarkets, and other providers of ready-made meals (prepared side dishes, frozen foods, boxed lunches) is growing every year; meanwhile, inspection equipment that was purchased in past years is approaching the time for replacement. In 03/18, the company plans to increase R&D expenses and strengthen its lineup of x-ray inspection equipment.

New businesses

Creating new businesses is the second pillar of 2020 VISION. Contributions from new businesses were not included in GLP2017 forecasts and it appears results were not significant enough for disclosure. In GLP2020, the company sets out a long-term revenue target of over JPY10bn (to be attained in the next plan, GLP2023).

It appears that past measures are beginning to bear fruit. For example, initiatives in Electronics—previously part of the Other segment—have begun to produce results, and were included in the Test and Measurement segment from Q3 FY03/17. Specifically, this was due to a new management approach that views with importance the potential in test and measuring equipment used in production lines for high-frequency parts. This equipment was developed in North America, and although the initiative has yet to turn a profit, results so far have demonstrated promise. Other promising areas include products related to medical devices.

Business

Business model

Anritsu’s mainstay product is measurement equipment. Measurement equipment is used to make quantitative evaluations of products in the R&D, manufacturing, and performance testing stages. The company has strengths in measurement equipment used in the development and manufacture of communications devices, such as mobile phones, wireless base stations and optical fiber networks. The company has three segments: Test and Measurement, Industrial Automation and Others.

Measuring equipment accounts for the largest portion of group sales. Anritsu sells a wide range of measuring equipment, from small hand-held units to large rack-mounted units, and from general-purpose devices to specialty equipment.

Unit prices range from roughly JPY100,000 for hand-held measuring devices and simple portable systems for field use, to several hundred million yen or more for complex, custom-order systems. Discounts can reduce the price the customer pays (assuming the desired delivery schedule does not present any problems), but in large part the pricing normally depends on the number of units ordered and Anritsu’s overall relationship with the client company.

The company’s product sales mix (small versus large-sized units) will vary depending on the capital spending and product development schedules of client companies. The testing needs mobile phone chipset manufacturers, for example, will differ between the time they are in the product development stage and the time the finished chipset goes into mass production. Early-stage equipment is the most expensive and also has the highest margins, with operating profit margins usually running around 20%.

In the case of some products, Anritsu must order specialized parts six months in advance and carry the parts as work-in-progress before they are finally customized to meet a specific client’s needs. (This would include such things as the circuit boards included in large, rack-mounted systems, which must be tailored to the specific protocols of individual client companies.) Because the lead time for inventories (six months) can differ greatly from order lead times (typically four to six weeks), there is inventory carrying risk. The company’s practice is to mark down inventory valuations by 50% after 12 months and 100% after 24 months.

Performance by segment

			FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
(JPYmn)			IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.
Revenue			94,685	101,853	98,839	95,532	87,638	85,967	99,659	107,023	105,939
YoY			1.1%	7.6%	-3.0%	-3.3%	-8.3%	-1.9%	15.9%	7.4%	-1.0%
	Test and Measurement		71,232	75,962	73,443	67,729	59,333	54,433	68,168	75,165	74,809
		YoY	1.0%	6.6%	-3.3%	-7.8%	-12.4%	-8.3%	25.2%	10.3%	-0.5%
		% of total	75.2%	74.6%	74.3%	70.9%	67.7%	63.3%	68.4%	70.2%	70.6%
	Products Quality Assurance		14,439	16,919	16,198	18,891	19,588	22,549	23,074	22,575	21,419
		YoY	1.7%	17.2%	-4.3%	16.6%	3.7%	15.1%	2.3%	-2.2%	-5.1%
		% of total	15.2%	16.6%	16.4%	19.8%	22.4%	26.2%	23.2%	21.1%	20.2%
	Others		9,014	8,970	9,198	8,910	8,716	8,984	8,416	9,282	9,709
		YoY	1.7%	-0.5%	2.5%	-3.1%	-2.2%	3.1%	-6.3%	10.3%	4.6%
		% of total	9.5%	8.8%	9.3%	9.3%	9.9%	10.5%	8.4%	8.7%	9.2%
Operating profit			15,714	14,123	10,882	5,897	4,234	4,912	11,246	17,413	19,651
YoY			12.2%	-10.1%	-22.9%	-45.8%	-28.2%	16.0%	128.9%	54.8%	12.9%
Operating profit margin			16.6%	13.9%	11.0%	6.2%	4.8%	5.7%	11.3%	16.3%	18.5%
	Test and Measurement		15,048	13,011	8,943	4,706	2,130	2,147	9,413	15,148	17,714
		YoY	8.7%	-13.5%	-31.3%	-47.4%	-54.7%	0.8%	338.4%	60.9%	16.9%
		Operating profit margin	21.1%	17.1%	12.2%	6.9%	3.6%	3.9%	13.8%	20.2%	23.7%
	Products Quality Assurance		829	1,208	824	1,194	1,302	1,969	1,609	1,287	1,340
		YoY	45.4%	45.7%	-31.8%	44.9%	9.0%	51.2%	-18.3%	-20.0%	4.1%
		Operating profit margin	5.7%	7.1%	5.1%	6.3%	6.6%	8.7%	7.0%	5.7%	6.3%
	Others		650	941	1,963	575	992	1,458	1,145	1,900	1,797
		YoY	146.2%	44.8%	108.6%	-70.7%	72.5%	47.0%	-21.5%	65.9%	-5.4%
		Operating profit margin	7.2%	10.5%	21.3%	6.5%	11.4%	16.2%	13.6%	20.5%	18.5%

Revenue composition (FY03/21 Act.)

Source: Shared Research based on company materials
Note: Due to change in accounting standards under revision to IAS No.19, FY03/13 figures are retroactively restated.
Note: Figures may differ from company materials due to differences in rounding methods.

Test and Measurement segment

Test and Measurement		FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
(JPYmn)		IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.	IFRS cons.
Revenue		71,232	75,962	73,443	67,729	59,333	54,433	68,168	75,165	74,809
	YoY	1.0%	6.6%	-3.3%	-7.8%	-12.4%	-8.3%	25.2%	10.3%	-0.5%
Operating profit		15,048	13,011	8,943	4,706	2,130	2,147	9,413	15,148	17,714
	YoY	8.7%	-13.5%	-31.3%	-47.4%	-54.7%	0.8%	338.4%	60.9%	16.9%
	Operating profit margin	21.1%	17.1%	12.2%	6.9%	3.6%	3.9%	13.8%	20.2%	23.7%
% of cons. total	Revenue	75.2%	74.6%	74.3%	70.9%	67.7%	63.3%	68.4%	70.2%	70.6%
	Operating profit	95.8%	92.1%	82.2%	79.8%	50.3%	43.7%	83.7%	87.0%	90.1%

Source: Shared Research based on company data

This is the company’s main segment. There are three main products categories for test and measurement equipment according to client type and target market:

Mobile measuring equipment: testers for the development, manufacture and maintenance of mobile handsets and chipsets for Long Term Evolution (LTE), 3G and other protocols.

Network infrastructure: testers for development and manufacture of optical, digital and IP communication devices; testers for installation and maintenance of fixed-line and wireless networks; services assurance.

Electronics: testers for the development and manufacture of wireless facilities and electronic parts; general-purpose testers.

Test and Measurement: Revenue composition (FY03/21)

Source: Shared Research based on company materials

Mobile measuring equipment

This market includes testing devices for mobile phone handsets. Sales are split 60:40 between testing devices for the development of mobile phone handsets and those for manufacturing processes. Customers include chipset and mobile phone handset manufacturers, IT service providers, and telecom companies. The company’s main products are testing devices for the development, approval, and manufacture of mobile phone handsets.

Testing equipment for development also includes devices used by mobile phone handset and chipset manufacturers for R&D. In general, early R&D stages drive up demand for signaling testers (measurement equipment used in communication functions and service testing). Demand shifts to conformance testing systems (measurement equipment to make sure communication processes between mobile handsets and base stations are conforming to specific protocols) in later R&D stages.

Testing demand from the development to manufacture of mobile devices

Source: Shared Research based on company materials

Overview of the mobile measuring equipment market