As filed with the Securities and Exchange Commission on June 26, 2008

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F⌧

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2008
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-15236

KABUSHIKI KAISHA ADVANTEST(Exact name of registrant as specified in its charter)

ADVANTEST CORPORATION(Translation of registrant’s name into English)

Japan(Jurisdiction of incorporation or organization)

Shin-Marunouchi Center Building
1-6-2, Marunouchi
Chiyoda-ku
Tokyo 100-0005
Japan(Address of principal executive offices)

Yuichi Kurita, (81-3) 3214-7500, (81-3) 3214-7711,
Shin-Marunouchi Center Building
1-6-2, Marunouchi
Chiyoda-ku
Tokyo 100-0005
Japan(Name, telephone, facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class:Name of each exchange on which registered:Common Stock
The New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period coveredby the annual report: 178,726,049 Common Stock at March 31, 2008
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Yes
No ⌧Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes ⌧ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ⌧Accelerated filer
Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ⌧OtherInternational Financial Reporting Standards as issued
By the International Accounting Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected tofollow. Item 17
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). YesNo ⌧

TABLE OF CONTENTS
PagePART IITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ..................................................

1

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE....................................................................................

1

ITEM 3.

KEY INFORMATION.........................................................................................................................................

1

SELECTED FINANCIAL DATA .......................................................................................................................
CAPITALIZATION AND INDEBTEDNESS.....................................................................................................
REASONS FOR THE OFFER AND USE OF PROCEEDS ...............................................................................
RISK FACTORS..................................................................................................................................................

1
4
4
4

INFORMATION ON THE COMPANY..............................................................................................................

12

4.A.
4.B.
4.C.
4.D.

HISTORY AND DEVELOPMENT OF THE COMPANY.................................................................................
BUSINESS OVERVIEW.....................................................................................................................................
ORGANIZATIONAL STRUCTURE ..................................................................................................................
PROPERTY, PLANTS AND EQUIPMENT.......................................................................................................

12
12
31
31

ITEM 4A.

UNRESOLVED STAFF COMMENTS...............................................................................................................

32

ITEM 5.

OPERATING AND FINANCIAL REVIEW.......................................................................................................

32

OPERATING RESULTS.....................................................................................................................................
LIQUIDITY AND CAPITAL RESOURCES ......................................................................................................
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES ................................................................
TREND INFORMATION....................................................................................................................................
OFF-BALANCE SHEET ARRANGEMENTS ...................................................................................................
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS .................................................................
SAFE HARBOR ..................................................................................................................................................

32
45
46
47
48
48
48

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES........................................................................

48

DIRECTORS AND SENIOR MANAGEMENT .................................................................................................
COMPENSATION ..............................................................................................................................................
BOARD PRACTICES .........................................................................................................................................
EMPLOYEES ......................................................................................................................................................
SHARE OWNERSHIP ........................................................................................................................................

48
57
57
60
61

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ......................................................

64

MAJOR SHAREHOLDERS................................................................................................................................
RELATED PARTY TRANSACTIONS ..............................................................................................................
INTERESTS OF EXPERTS AND COUNSEL ...................................................................................................

64
65
66

FINANCIAL INFORMATION ...........................................................................................................................

66

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION .........................................
SIGNIFICANT CHANGES .................................................................................................................................

66
66

THE OFFER AND LISTING...............................................................................................................................

67

LISTING DETAILS.............................................................................................................................................
PLAN OF DISTRIBUTION ................................................................................................................................
MARKETS...........................................................................................................................................................
SELLING SHAREHOLDERS.............................................................................................................................
DILUTION...........................................................................................................................................................
EXPENSES OF THE ISSUE ...............................................................................................................................

67
67
67
68
68
68

3.A.
3.B.
3.C.
3.D.
ITEM 4.

5.A.
5.B.
5.C.
5.D.
5.E.
5.F.
5.G.
ITEM 6.
6.A.
6.B.
6.C.
6.D.
6.E.
ITEM 7.
7.A.
7.B.
7.C.
ITEM 8.
8.A.
8.B.
ITEM 9.
9.A.
9.B.
9.C.
9.D.
9.E.
9.F.

i

Page

ADDITIONAL INFORMATION ..........................................................................................................................

68

SHARE CAPITAL.................................................................................................................................................
MEMORANDUM AND ARTICLES OF ASSOCIATION...................................................................................
MATERIAL CONTRACTS...................................................................................................................................
EXCHANGE CONTROLS....................................................................................................................................
TAXATION ...........................................................................................................................................................
DIVIDENDS AND PAYING AGENTS................................................................................................................
STATEMENT BY EXPERTS ...............................................................................................................................
DOCUMENTS ON DISPLAY ..............................................................................................................................
SUBSIDIARY INFORMATION ...........................................................................................................................

68
68
76
76
77
83
83
83
83

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................

83

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.......................................................

86

DEBT SECURITIES..............................................................................................................................................
WARRANTS AND RIGHTS ................................................................................................................................
OTHER SECURITIES...........................................................................................................................................
AMERICAN DEPOSITARY SHARES.................................................................................................................

86
86
86
86

ITEM 10.
10.A.
10.B.
10.C.
10.D.
10.E.
10.F.
10.G.
10.H.
10.I.

12.A.
12.B.
12.C.
12.D.

PART IIITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ................................................................

87

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS .

87

ITEM 15.

CONTROLS AND PROCEDURES ......................................................................................................................

87

ITEM 16.

[RESERVED] ........................................................................................................................................................

88

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT ....................................................................................................

88

ITEM 16B.

CODE OF ETHICS................................................................................................................................................

88

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES .......................................................................................

88

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES .......................................

89

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS .................

89

PART IIIITEM 17.

FINANCIAL STATEMENTS ...............................................................................................................................

91

ITEM 18.

FINANCIAL STATEMENTS ...............................................................................................................................

91

ITEM 19.

EXHIBITS..............................................................................................................................................................

92

As used in this annual report, the term “fiscal” preceding a year means the twelve-month period ended March 31 of the year
subsequent to the year referred to. For example, “fiscal 2007” refers to the twelve-month period ended March 31, 2008. All otherreferences to years refer to the applicable calendar year.
In parts of this annual report, amounts reported in Japanese yen have been translated into U.S. dollars for the convenience ofreaders. Unless otherwise noted, the rate used for this translation was $1.00 = ¥100.19. This was the approximate exchange rate inJapan on March 31, 2008.
Unless otherwise noted, all references and discussions of the financial position of Advantest Corporation (the “Company”) andits consolidated subsidiaries (collectively, “Advantest”), results of operations and cash flow in this annual report are made withreference to Advantest’s consolidated financial statements prepared in accordance with accounting principles generally accepted in the
United States, or U.S. GAAP. The segment sales figures included in this annual report are presented before eliminating intercompany
transactions.
iiSee “Information on the Company—Business Overview—Glossary” for a description of certain technical terms used in thisannual report.
Cautionary Statement with Respect to Forward-Looking Statements
This annual report contains “forward-looking statements” that are based on Advantest’s current expectations, estimates andprojections. These statements include, among other things, the discussion of Advantest’s business strategy, outlook and expectations
as to market and business developments, production and capacity plans. Generally, these forward-looking statements can be identified
by the use of forward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “should” andsimilar expressions. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may
cause Advantest’s actual results, levels of activity, performance or achievements to be materially different from those expressed or
implied by such forward-looking statements, including:•changes in demand for the products and services produced and offered by Advantest’s customers, including semiconductors,
communications services and electronic goods;•

circumstances relating to Advantest’s investment in technology, including its ability to timely develop products that meetthe changing needs of semiconductor manufacturers and communications network equipment and components makers andservice providers;•significant changes in the competitive environment in the major markets where Advantest purchases materials, components
and supplies for the production of its products or where its products are produced, distributed or sold; and•changes in economic conditions, currency exchange rates or political stability in the major markets where Advantest
procures materials, components and supplies for the production of its principal products or where its products are produced,
distributed or sold.

These risks, uncertainties and other factors also include those identified in “Operating and Financial Review and Prospects,”“Key Information—Risk Factors” and “Information on the Company” set forth elsewhere in this annual report.

iii

PART IITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3.A.

SELECTED FINANCIAL DATA

You should read the U.S. GAAP selected consolidated financial information presented below together with “Operating and
Financial Review and Prospects” and Advantest’s consolidated financial statements as of March 31, 2007 and 2008 and for each of theyears in the three year period ended March 31, 2008, together with the notes to such financial statements, included elsewhere in thisannual report.
U.S. GAAP Selected Consolidated Financial Data
The following selected financial data have been derived from Advantest’s audited consolidated financial statements. These
consolidated financial statements were prepared under U.S. GAAP. Advantest’s U.S. GAAP audited consolidated financial statements
for fiscal 2005, fiscal 2006 and fiscal 2007 were included in its Japanese Securities Reports filed with the Director General of the
Kanto Local Finance Bureau.
Year ended March 31,
2004

2005

2006

2007

2008

(in millions, except per share and share data)

Consolidated Statement of
Income Data:(4)Net sales ..............................
¥174,218¥239,439
Operating income ................
30,96060,719
Income before income taxes
and equity in earnings (loss)
28,87861,808of affiliated company ..........
38,078Net income...............................
17,329Net income per share:
Basic(1) .................................
88.19
194.7788.01
194.25
Diluted(1) ..............................
Basic weighted average
shares outstanding(1) ........ 196,501,660 195,500,690
Diluted weighted average
shares outstanding(1) ........ 196,892,272 196,021,478

2008(thousands, except
per share and share data)¥235,012
56,792¥182,767
22,716$1,824,204
226,729

67,45461,09035,55623,533
16,550234,884
165,186223.17221.98190.01
188.85

90.72
90.57

0.91
0.90

185,389,026

187,128,842

182,418,821

186,383,080

188,270,688

182,723,982

1

As of March 31,
2004

2005

2006

2007

2008

2008

(in millions)

Consolidated Balance Sheet Data:
Assets....................................................
Current portion of long-term debt .........
Long-term debt, less current portion.....
Common stock ......................................
Stockholders’ equity .............................

¥ 330,808
4,543
20,08332,363
221,768¥ 296,769
20,04340
32,363
206,749¥ 350,77630
1032,363257,927

2004

2005

2006

(in thousands)¥ 366,374
10—
32,363294,797¥ 298,684——
32,363
254,184$2,981,176——
323,016
2,537,020

As of March 31,
2007

2008

2008

(in millions, except per share data)

Other Data:
Capital expenditures..............................
Research and development expenses ....
Net cash provided by operating
activities ...........................................
Net cash used in investing activities .....
Net cash used in financing activities.....
Operating margin(2) (4) .............................
Net income margin(3) (4) ..........................
(1)
(2)
(3)
(4)

(in thousands)¥5,621
21,637¥9,34826,280¥8,32326,927¥8,336
29,509¥14,083
30,507$140,563
304,491

28,215(5,070)(6,376)17.77 %
9.95 %

90,327(8,250)(63,036)
25.36%
15.90%

59,480(8,542)(18,336)
25.38 %
16.29 %

48,951(8,013)(3,662)24.17%
15.13%

24,166(16,322)(46,770)
12.43%
9.06%

241,202(162,910)(466,813)

On October 1, 2006, the Company conducted a two for one stock split of shares of its common stock. Net income per share andaverage number of shares outstanding for each period presented have been restated to reflect the effects of the stock split.
Operating income as a percentage of net sales.
Net income as a percentage of net sales.
The Company and its domestic subsidiaries changed depreciation method effective April 1, 2007. See Item5.A. for further
discussion.

Dividends
Advantest normally pays cash dividends twice per year, at interim and at year-end. Pursuant to its articles of incorporation, theCompany can make dividend payments pursuant to the resolution of its Board of Directors, but the articles do not preclude theCompany from making dividend payments pursuant to a shareholders resolution. The year-end dividend is paid to shareholders ofrecord as of March 31 pursuant to the resolution of either the Board of Directors or the ordinary general shareholders’ meeting held
usually in June every year. The interim dividend is paid to shareholders of record as of September 30, pursuant to the resolution of theBoard of Directors, usually in December.
The following table sets forth the dividends paid by the Company for each of the periods shown. The periods shown are the six
months ended on that date. The U.S. dollar equivalents for the dividends shown are based on the exchange rate in Japan on eachrecord date shown. On October 1, 2006, the Company conducted a two for one stock split of shares of its common stock. Dividend pershare information has been restated to reflect the effects of the stock split.
Dividend per ShareSix months ended/Record date

September 30, 2003................................................................................................................
March 31, 2004 ......................................................................................................................
September 30, 2004................................................................................................................
March 31, 2005 ......................................................................................................................
September 30, 2005................................................................................................................
March 31, 2006 ......................................................................................................................
September 30, 2006................................................................................................................
March 31, 2007 ......................................................................................................................
September 30, 2007................................................................................................................
March 31, 2008 ......................................................................................................................

2

Yen

Dollars

¥ 7.5
12.5
12.5
12.5
12.5
22.5
17.5
32.5
25.0
25.0

$ 0.07
0.12
0.12
0.12
0.12
0.22
0.17
0.32
0.25
0.25

The payment and the amount of any future dividends are subject to the level of Advantest’s future earnings, its financial
condition and other factors, including statutory restrictions on the payment of dividends.
Exchange Rates
In parts of this annual report, yen amounts have been translated into U.S. dollars for the convenience of investors. Unlessotherwise noted, the rate used for the translation was $1.00 = ¥100.19. This was the approximate exchange rate in Japan on March 31,
2008.
The following table sets forth, for the periods and dates indicated, information concerning the noon buying rate for Japanese yenannounced by the Federal Reserve Bank of New York, expressed in Japanese yen per $1.00. The noon buying rate as of June 20, 2008
was $1.00 = 107.42. Advantest does not intend to imply that the Japanese yen or U.S. dollar amounts referred to in this annual report
could have been or could be converted into U.S. dollars or Japanese yen, as the case may be, at any particular rate, or at all.
At endof period

Fiscal year ended/ending March 31,

Average(of month-endrates)

High

Low

120.55114.30120.93121.81124.09108.19104.18102.26104.41110.0796.88
100.87(¥ per $1.00)

2004 ...............................................................................................................
2005 ...............................................................................................................
2006 ...............................................................................................................
2007 ...............................................................................................................
2008 ...............................................................................................................
2009 (through June 20, 2008) ........................................................................

¥ 104.18
107.22117.48117.5699.85
107.42Month ended

112.75107.28113.67116.55113.61105.80High

Low(¥ per $1.00)

December 31, 2007 .........................................................................................................
January 31, 2008.............................................................................................................
February 29, 2008...........................................................................................................
March 31, 2008...............................................................................................................
April 30, 2008.................................................................................................................
May 31, 2008 ..................................................................................................................
3.B.

¥ 114.45
109.70108.15103.99104.56105.52¥ 109.68
105.42104.1996.88
100.87103.01

CAPITALIZATION AND INDEBTEDNESS
Not applicable.

3.C.

REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.

3.D.

RISK FACTORS
Risks Related to Advantest’s Business

Advantest’s business and results of operations are subject to significant demand volatility in the semiconductor industry
Advantest’s business depends largely upon the capital expenditures of semiconductor manufacturers, foundries and test houses.
These companies, in turn, determine their capital expenditure and investment levels largely based on current and anticipated market
demand for semiconductors and demand for products incorporating semiconductors. Historically, the percentage reduction in capital
expenditures by semiconductor manufacturers during downturns in the semiconductor industry, including investment in test systems,
has typically been much greater than the percentage reduction in worldwide sales of semiconductors. The semiconductor industry has
been highly cyclical with recurring periods of excess inventory, which often have had a severe effect on the semiconductor industry’s
demand for test systems, including those of Advantest. In particular, the market for memory semiconductors shows higher demand
volatility as compared to non memory semiconductors. In fiscal 2007, 70.6% of Advantest’s net sales from semiconductor andcomponent test systems was derived from the sale of semiconductor test systems for memory semiconductors, a 5.3% increase from
65.3% in fiscal 2006. Accordingly, it still remains over 50%. Any downturns in the memory semiconductor market will therefore be
likely to adversely affect Advantest’s business.

3

The worldwide semiconductor market grew by 18.3% in 2003 as compared to 2002 and grew substantially by 28.0% in 2004.
Thereafter, the semiconductor market grew by 6.8%, 8.9% and 3.2% in 2005, 2006 and 2007, respectively. Worldwide sales ofmemory semiconductors increased by 20.2%, 45.0%, 2.9% and 20.5% in 2003, 2004, 2005 and 2006, respectively, on a year-to-yearbasis, primarily due to the increase in demand for flash memory semiconductors used in digital consumer products and for DRAM
semiconductors used in personal computers. Worldwide sales of memory semiconductors, however, declined slightly by 1.1% in 2007,
due to a substantial reduction in capital expenditure by semiconductor manufacturers reflecting a substantial decline in the price of
DRAM semiconductors and NAND-type flash memory semiconductors. Also, worldwide sales of non memory semiconductors
increased by 17.8% and 23.9% in 2003 and 2004, respectively. Net sales were sluggish after the summer of 2004 due to adjustmentsof excess inventory by semiconductor manufacturers. However, demand recovered as the adjustment of excess inventory stabilized
after the spring of 2005 and the market for personal computers (especially notebooks) and digital consumer devices expanded.
Accordingly, net sales of semiconductors increased by 7.9% in 2005, as compared with the previous year. Furthermore, in 2006 and2007, demand in the consumer market and automobile market stabilized and the data processing market were strong. Accordingly,
worldwide sales of non memory semiconductors grew by 5.7% and 4.5% in 2006 and 2007, respectively.
The significant demand volatility of the market for semiconductors is affected by various factors such as:•

the overall state of the global economy;•

the consumer demand for digital consumer products such as flat-panel TVs, DVD recorders, portable audio players andgame machines;•

the demand in personal computer and server industries;•

the levels of investment in communications infrastructure and trends in the mobile telecommunications industry; and•the change in the price of semiconductors.

Advantest recorded an increase of 78.2% in net sales for fiscal 2003 compared to fiscal 2002, and net sales for fiscal 2004 stoodat ¥239,439 million, representing a 37.4% increase over fiscal 2003. In fiscal 2005, the adjustment of excess inventory bysemiconductor manufacturers ended, net sales increased by 6.0% as compared with the previous fiscal year to ¥253,922 million, andnet income achieved ¥41,374 million. Although net sales for the first half of fiscal 2006 continued to remain strong as in fiscal 2005,
sales declined mainly as a result of a decrease in the price of semiconductors in the second half of fiscal 2006, and as a result, net sales
for the full fiscal 2006 were ¥235,012 million, representing a 7.4% decrease compared to fiscal 2005, and net income decreased by
14.1% as compared to fiscal 2005 to ¥35,556 million. The substantial decline in the price of semiconductors continued from thesecond half of fiscal 2006 through fiscal 2007 and many semiconductor manufacturers froze or postponed their capital expenditure
spending. Reflecting the foregoing, net sales in fiscal 2007 decreased by 22.2%, as compared to fiscal 2006, to ¥182,767 million, andnet income decreased by 53.5%, as compared to fiscal 2006, to ¥16,550 million
Accordingly, Advantest believes that its results are significantly impacted by the significant demand volatility of thesemiconductor industry. Significant downturns in, among others, the semiconductor industry are likely to therefore adversely affect
Advantest’s financial condition and results of operations.
If Advantest does not introduce new products meeting its customers’ technical requirements in a timely manner and at competitive
prices, its products will become obsolete and its financial condition and results of operations will suffer
Advantest sells its products to several industries that are characterized by rapid technological changes, the frequent introductionof new products and services, varying and unpredictable product lifecycles and evolving industry standards. Advantest anticipates that
future demand for its products will be driven, in large part, by technological innovation in semiconductor technology, which create
new testing requirements that are not adequately addressed by currently installed semiconductor test systems. Customer needs in
response to these technological innovations include:•

investment by memory semiconductor manufacturers in facilities that are used to produce memory semiconductors, such as
flash memory, DDR2-SDRAM, DDR3-SDRAM and the next generation DDR4-SDRAM;•

the introduction of non memory semiconductors that incorporate more advanced memory, logic and analog circuits;•investment by semiconductor manufacturers in mechatronics related products which transport devices faster, moreaccurately and more stably;•

the utilization of testing technologies that employ self-test circuit designs incorporated into semiconductor chips;•

introduction of mechatronics products that respond to reduced testing time resulting from advances in customers’ back-end
testing;4

•

prompt response and quick repair in the event of failure; and•total solutions that allow customers to reduce their testing costs.

Advantest also believes demand for its products, including semiconductor and component test systems, will continue to bestrongly affected by the level of demand for personal computers, high-speed wireless and wireline data services and digital consumer
products. It is likely that advances in technologies used in those products and services require new testing systems. Without the timely
introduction of semiconductor test systems capable of effectively testing and measuring equipment that use new technologies,
Advantest’s products and services will become technologically obsolete over time.
The failure of Advantest to meet its customers’ technical requirements at a competitive price or to deliver conforming
equipment in a timely manner can result in its products being replaced by equipment of a competitor or an alternative technology
solution. Accordingly, Advantest’s inability to provide a product that meets requested performance criteria at an acceptable pricewhen required by its customers would severely damage its reputation with that customer and may adversely affect future sales efforts
with respect to that customer.
Advantest faces substantial competition in its businesses and, if Advantest does not maintain or expand its market share, its
business may be harmed
Advantest faces substantial competition throughout the world. Advantest’s primary competitors in the semiconductor andcomponent test system market include, among others, Teradyne, Inc., Verigy Ltd., Credence Systems Corporation, Yokogawa
Electronic Corporation, EXICON Ltd. and UniTest Inc. In the mechatronics system related market, Advantest also competes with
Delta Design, Inc., Seiko Epson Corporation, Mirae Corporation and TechWing, Inc. in test handler devices, and with TSE Co., Ltd.
and Secron Co., Ltd. in device interfaces. In addition, in the services, support and others segment, Advantest has been competing withcompanies providing similar services. Some of Advantest’s competitors have greater financial and other resources than Advantest.
Advantest faces many challenges in its businesses, including increased pressure from customers to produce semiconductor andcomponent test systems and mechatronics systems that reduce testing costs. To compete effectively and maintain and expand its
market share, Advantest must continue to enhance its business processes to lower the cost of its products, as well as introduce
enhancements that lower overall testing costs. Advantest also expects its competitors to continue to introduce new products withimprovements in price and performance, as well as increase their customer service and support offerings. Significant increases incompetition may erode Advantest’s profit margin and weaken its earnings.
Advantest’s product lines are facing significant price pressure
Price pressure in Advantest’s businesses is adversely affecting Advantest’s operating margins. Price pressure with respect tosemiconductors continues to grow even during periods when demand, in terms of volume, for semiconductors is increasing, resulting
in continuous pressure on the market price for products in the Semiconductor and Component Test System Segment and Mechatronics
System Segment. During these periods, semiconductor manufacturers and test houses, which are Advantest’s customers, seek toincrease their production capacities while minimizing their capital expenditures. In addition, increased competition in the market for
digital consumer products and personal computers drove down prices of these goods, subsequently creating significant price pressure
on Advantest’s product lines. An increase in price pressure may adversely affect Advantest’s future financial condition and results ofoperations.
Advantest may not recoup costs incurred in the development of new products
Enhancements to existing products and the development of new generations of products are, in most cases, costly processes.
Furthermore, because the decision to purchase semiconductor and component test systems products and mechatronics systems
generally involves a significant commitment of capital, the sale of this equipment typically involves a lengthy sales period andrequires Advantest to expend substantial funds and sales efforts to secure the sale. Advantest’s enhancements or new generations of
products may not generate net sales in excess of development and sales costs if, for example, these new enhancements or products arequickly rendered obsolete by changing customer preferences, the introduction by Advantest’s competitors of products embodying newtechnologies or features, the introduction by Advantest’s customers of new products that require different testing functions or the
failure of the market for Advantest’s customer’s products to grow at the rate, or to the levels, anticipated by Advantest. This risk isbelieved to be particularly acute with respect to test systems for non memory semiconductors because, in general, new non memory
semiconductors product lines are introduced to market more frequently than new memory semiconductor product lines. In some cases,
Advantest must anticipate industry trends and develop products in advance of the commercialization of its customers’ products. Thisrequires Advantest to make significant investments in product development well before it determines the commercial viability of these
innovations. If Advantest’s customers fail to introduce their devices in a timely manner or the market rejects their devices, Advantest
may not recover its investments in product development through sales in significant volume.

5

The market for Advantest’s major products is highly concentrated, and Advantest may not be able to increase sales of its products
because of limited opportunities
The market for test systems for memory semiconductors in the semiconductor and component test system segment is highly
concentrated, with a small number of large semiconductor manufacturers, foundries and test houses accounting for a large portion of
total sales in the semiconductor test system industry. Advantest believes that this market concentration will become even more severein the future as larger semiconductor device manufacturers, foundries and test houses acquire smaller semiconductor market
participants, and as corporate restructuring, such as elimination and consolidation of businesses, progresses. Advantest’s ability toincrease sales will depend in large part upon its ability to obtain or increase orders from large-volume customers.
Advantest’s largest customers currently account for a significant part of its net sales, and the loss of one or more of thesecustomers or changes in their capital expenditures could harm its business
Advantest’s success depends on its continued ability to develop and manage relationships with its major customers, a small
number of which currently accounts for a significant portion of its net sales. Sales to Advantest’s largest customer as a percentage ofits total sales were approximately 17% in fiscal 2005, approximately 11% in fiscal 2006, and approximately 9% in fiscal 2007. Sales
to Advantest’s five largest customers accounted for approximately 41% of total net sales in fiscal 2005, approximately 35% in fiscal
2006 and approximately 32% in fiscal 2007. The loss of one or more of these major customers or changes in their capital expenditures
could materially harm Advantest’s business.
Advantest’s dependence on subcontractors and on sole source or a limited number of suppliers for its components and parts may
prevent it from delivering an acceptable product on a timely basis
Advantest relies on subcontractors to perform some of the assembly requirements for its products. In addition, many of thecomponents used in Advantest’s semiconductor and component test systems and mechatronics systems are produced by suppliers
based on Advantest’s specifications. Advantest’s reliance on these subcontractors and suppliers gives it less control over the
manufacturing process and exposes it to significant risks, especially inadequate manufacturing capacity, late delivery, substandard
quality, lack of labor availability and high costs. In addition, Advantest depends on sole source or a limited number of suppliers for a
portion of its components and parts. Advantest does not maintain long-term supply agreements with most of its suppliers, and it
purchases most of its components and parts through individual purchase orders. If suppliers become unable to provide components orparts in the volumes needed and at acceptable prices, Advantest would have to identify and procure acceptable replacements.
Furthermore, the markets for semiconductors and other specialized components have, in the past, experienced periods of inadequate
supply to meet demand. The process of selecting subcontractors or suppliers and of identifying suitable replacement components andparts is a lengthy process and can result in Advantest being unable to deliver products meeting customer requirements on a timely
basis. Advantest has, in the past, been unable to deliver its products according to production schedules due to the inability of suppliers
to supply components and parts based on Advantest’s specifications and due to other shortages in components and parts.
®

Advantest may not fully benefit from the industry-wide adoption of OPENSTAR®

Advantest
is encouraging the adoption of OPENSTAR , an industry-wide, open architecture, because Advantest believes that®
OPENSTAR will provide an opportunity for late entrants, such as Advantest, to achieve a stronger entry into the test systems of nonmemory semiconductors market. This would help increase Advantest’s market share, improve its operation results and expand its
customer base.
®

®

Even if OPENSTAR is broadly accepted by the semiconductor
industry, the effects of the adoption of OPENSTAR on®
Advantest’s business are uncertain. Because OPENSTAR is an open architecture that can be used by all semiconductor industry
participants, ®an increase in the number of market participants could result in a loss of market share for Advantest. In addition,
Advantest, to re-design their
OPENSTAR is a standard which, if adopted, will require all test system manufacturers, including®
products. These and other uncertainties that can result from the broad acceptance of OPENSTAR could adversely affect Advantest’s
test systems for non memory semiconductors business.
Fluctuations in exchange rates could reduce Advantest’s profitability
The majority of Advantest’s net sales derive from products sold to customers located outside of Japan. Approximately 69% ofAdvantest’s fiscal 2007 net sales were from products sold to overseas customers. Most of Advantest’s products are manufactured inJapan, but approximately 11% of Advantest’s net sales in fiscal 2007 were made in currencies other than the yen, predominantly the
U.S. dollar. A strengthening in the yen relative to foreign currencies (mostly U.S. dollar and in other currencies to a much lesser
extent) would increase the prices of Advantest products as stated in U.S. dollars and in those other currencies which could hurt sales inthose countries. In addition, significant fluctuations in the exchange rate between the yen and foreign currencies, especially relative to
the U.S. dollar, could require Advantest to lower its prices with respect to foreign sales of its products that are priced in yen, andreduce the yen equivalent amounts of its foreign sales for products that are based in U.S. dollars or other foreign currencies, andoverall reducing its profitability. These fluctuations could also cause prospective customers to push out or delay orders because of theincreased relative cost of Advantest’s products. In the past, there have been significant fluctuations in the exchange rate between the
yen and the foreign currencies of countries in which Advantest does business.
6

The failure by Advantest to meet demand for its products upon a significant expansion in the semiconductor and component test
systems and mechatronics system markets may adversely affect its future market share and financial results
If the market for semiconductor and component test systems and mechatronics systems were to suddenly expand, Advantest
would require a significant increase in production capabilities, including personnel, in order to fully capitalize on such expansion. The
failure of Advantest to adjust to such unanticipated increases in demand for its products during the period of recovery in demand could
result in Advantest losing one or more of its existing large-volume customers or losing the opportunity to establish a strong
relationship with large-volume customers with which it currently does little or no business. Such failure may adversely affect
Advantest’s future market share and its financial results.
If Advantest’s main facilities for research and development, production or information technology systems for all of its businesses,or the facilities of its subcontractors and suppliers, were to experience catastrophic loss, its results of operations would be seriously
harmedAdvantest’s main facilities for research and development for its semiconductor and component test systems and mechatronics
system segments production, as well as many of Advantest’s service bases, are located in Japan and particularly concentrated in
Saitama Prefecture and Gunma Prefecture. In addition, the main system server and parts of the network hub are maintained in systemcenters approved by the Information System Management System, or ISMS, and local network servers are located in certain
operations offices in Japan. Japan suffers from relatively frequent earthquakes.
If Advantest’s facilities, particularly its semiconductor and component test system manufacturing factories, were to experience a
catastrophic loss, it would materially disrupt Advantest’s operations, delay production, shipments and revenue, and result in large
expenses to repair or replace the facilities. Advantest has insurance to cover most potential losses at its manufacturing facilities, otherthan those that result from earthquakes. However, this insurance may not be adequate to cover all possible losses. Similar disruptions
to Advantest’s business may occur if the facilities of Advantest’s subcontractors and suppliers or if the facilities of Advantest’s
information system network were to experience a catastrophic loss.
Advantest has prepared itself for crises such as large-scale natural disasters, and each department of Advantest has documented
its own disaster procedures and manuals. Furthermore, in order to prevent any disruption of its core businesses, or in case ofsuspension, to re-start the suspended businesses, including the recovery of important facilities, in the shortest possible time, Advantest
has formulated and is implementing a “Business Continuity Plan.” However, if Advantest cannot implement such Business Continuity
Plan, or if upon implementation such Business Continuity Plan is not effective, Advantest’s core businesses could be disrupted at atime of crisis, such as large-scale natural disasters, and could take a substantial amount of time to recover.
Advantest’s business is subject to economic, political and other risks associated with international operations and sales
Advantest’s business is subject to risks associated with doing business internationally because it sells its products, and purchases
parts and components from, around the world. In fiscal 2007, 59.2% of Advantest’s total net sales came from Asia (excluding Japan),a majority of which consisted of sales in Taiwan, the People’s Republic of China and Korea, 5.3% from the Americas and 4.8% from
Europe. Advantest anticipates that net sales from international operations will continue to represent a substantial portion of its total net
sales. In addition, some of Advantest’s distribution and support subsidiaries are located in the Americas, Europe, and Asian countries
including Singapore, Taiwan, the People’s Republic of China and Korea and some of Advantest’s suppliers are also located overseas.
Accordingly, Advantest’s future results could be harmed by a variety of factors, including:•political and economic instability, natural calamities or other risks related to countries where Advantest procures its
components and parts or sells its products;•

trade protection measures and import or export licensing requirements;•

potentially negative consequences from changes in tax laws;•

risks with respect to international taxation, including transfer pricing regulations;•difficulty in staffing and managing widespread operations;•differing protection of intellectual property;•

difficulties in collecting accounts receivable because of distance and different legal rules; and•risks with respect to social and political crises resulting from terrorism and war, among others.

7

Advantest’s financial condition and results of operations are subject to factors relating to its marketing and sales capabilities andits branding
Advantest’s financial condition and results of operations may be negatively affected by factors relating to its marketing andsales capabilities and its branding, including:•the long selling process involved in the sale of semiconductor and component test systems;•

the relatively small number of total units sold in the semiconductor and component test system market;•

order cancellations or delays by customers;•

delays in collection of, or increases in provisions for, accounts receivable due to the financial condition of customers;•

increases in required provisions for product warranty costs and write-downs of inventory; and•any real or perceived decrease in performance and reliability of Advantest products, which leads to a decline in Advantest’s
reputation.

Chemicals used by Advantest may become subject to more stringent regulations, and Advantest may be required to incur
significant costs in adapting to new requirements
Advantest uses chemicals in the manufacturing of its products, the manufacture, processing and distribution of which are subject
to environmental related laws, regulations and rules of Japanese governmental agencies, as well as by various industry organizations
and other regulatory bodies in other countries. These regulatory bodies may strengthen existing regulations governing chemicals used
by Advantest and may also begin to regulate other chemicals used by Advantest. While Advantest is taking measures to eliminate
toxic substances included in parts used to manufacture its products, Advantest uses solder which contains lead for mounting electronicparts and components for its products in order to ensure the reliability of its products as a matter of priority. Further, as a method tocool some of its semiconductor and component test systems, Advantest uses a type of perfluorocarbon, or PFC, that is not currently
regulated by laws related to the ozone layer protection and global warming. Advantest believes that it is in compliance withregulations with respect to the use of chemicals, by promoting environmental policies for its products with the focus on ensuring thesafety and the reliability of its products; however, Advantest must be prepared to adapt to regulatory requirements in all relevant
countries as requirements change. Advantest may be required to incur significant cost in adapting to new requirements. Any failure by
Advantest to comply with applicable government or industry regulations could result in restrictions on its ability to carry on or expand
its operations, including being unable to sell its products.
Advantest could suffer significant liabilities, litigation costs or licensing expenses or be prevented from selling its products if it isinfringing the intellectual property of third parties
Advantest may be unknowingly infringing the intellectual property rights of third parties and may be held responsible for that
infringement. To date, Advantest has not been the subject of a material intellectual property claim. However, any future litigation
regarding patents or other intellectual property infringement could be costly and time consuming and divert management and key
personnel from Advantest’s business operations. If Advantest loses a claim, it might be forced to pay significant damages, pay license
fees, modify its products or processes, stop making products or stop using processes. A license could be very expensive to obtain or
may not be available at all. Changing Advantest’s products or processes to avoid infringing the rights of third parties may be costly or
impractical.
Advantest may be unable to protect its proprietary rights due to the difficulty of Advantest gaining access to, and investigating, theproducts believed to infringe Advantest’s intellectual property rights
Advantest relies on patents, utility model rights, design rights, trademarks and copyrights obtained in various countries toactively protect its proprietary rights. For instance, with respect to the device interface market, Advantest has taken legal action basedon its patent and utility model rights against manufacturers that sell replicas of Advantest’s products and, in some instances, has
obtained injunctions against sales of such replicas. However, in general, it is difficult for Advantest to gain access to, and investigate,
the products believed to infringe its intellectual property rights. Therefore, Advantest cannot ensure that its intellectual property rights
will provide meaningful protection of its proprietary rights. Nevertheless, Advantest is focused on protecting its intellectual property
rights from third party infringement and will continue to monitor and enforce its rights.

8

The technology labor market is very competitive, and Advantest’s business will suffer if Advantest is unable to hire and retain
engineers and other key personnel
Advantest’s future success depends partly on its ability to attract and retain highly qualified engineers for its research anddevelopment and customer service and support divisions. If Advantest fails to hire and retain a sufficient number of these personnel, it
will not be able to maintain and expand its business. Advantest may need to revise its compensation and other personnel related
policies to retain its existing officers and employees and attract and retain the additional personnel that it expects to require.
Confidential information could be inadvertently disclosed, through unauthorized access or use, which could lead to substantial
costs or harm Advantest’s reputation
Advantest uses both paper documents and electronic data in managing confidential information. Although Advantest hasestablished the Information Security Committee and is taking measures to keep information confidential through procedures designed
to prevent accidental release of information through unauthorized access or use, such information may be inadvertently disclosed
without Advantest’s knowledge. If this occurs, Advantest could harm its reputation and incur substantial costs to remedy the situation.
Accordingly, inadvertent disclosure of confidential information could have a material adverse effect upon Advantest’s business results
and financial condition.
Product defects and any damages caused by Advantest in respect of product liability could harm Advantest’s reputation among
existing and potential customers and could have a material adverse effect upon Advantest’s business results and financial
condition
Advantest manufactures its products in accordance with internationally accepted quality control standards such as ISO 9000.
However, Advantest cannot guarantee that there are no defects in its products. Advantest maintains product liability insurance, butcannot guarantee that such insurance will sufficiently cover the ultimate amount of damages with respect to Advantest’s liabilities.
Large scale accidents or any discovery of defects in its products could harm Advantest’s reputation for not adequately addressing
defects, could cause Advantest to incur higher costs and could have a material adverse effect upon Advantest’s business results andfinancial condition if Advantest is liable for claims for damages.
Risks Related to Ownership of ADSs or Common StockYen-dollar fluctuations could cause the market price of the ADSs to decline and reduce dividend amounts payable to ADS holders
as expressed in U.S. dollars
Fluctuations in the exchange rate between the Japanese yen and the U.S. dollar will affect the U.S. dollar equivalent of theJapanese yen price of the shares on the Tokyo Stock Exchange and, as a result, are likely to affect the market price of the ADSs.
Advantest has historically paid dividends on its shares twice a year. If Advantest declares cash dividends, dividends on the shares
represented by the ADSs will be paid to the depositary in Japanese yen and then converted by the depositary into U.S. dollars.
Therefore, exchange rate fluctuations will also affect the dividend amounts payable to ADS holders following conversion into U.S.
dollars of dividends paid in Japanese yen on the shares represented by the ADSs.
As a holder of ADSs, you will have fewer rights than a shareholder has, and you must act through the depositary to exercise thoserights
The rights of shareholders under Japanese law to take actions, including voting their shares, receiving dividends anddistributions, bringing derivative actions, examining Advantest’s accounting books and records and exercising appraisal rights, areavailable only to holders of record on Advantest’s register of shareholders or Advantest’s register of beneficial shareholders. Because
the depositary, through its custodian agents, is the registered holder of the shares underlying the ADSs, only the depositary can
exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying a holder’s
ADSs as instructed by the holder and will pay to the holder the dividends and distributions collected from Advantest. However, in theholder’s capacity as an ADS holder, that holder will not be able to bring a derivative action, examine Advantest’s accounting books
and records or exercise appraisal rights through the depositary.
There are restrictions on the withdrawal of shares from Advantest’s depositary receipt facility
Under Advantest’s ADS program, each ADS represents the right to receive one share. To withdraw any shares, a holder of
ADSs has to surrender for cancellation American Depositary Receipts, or ADRs, evidencing 100 ADSs or any integral multiple
thereof. Each ADR bears a legend to that effect. As a result, holders of ADSs are unable to withdraw fractions of shares or units orreceive any cash settlement from the depositary in lieu of withdrawal of fractions of shares or units. Holders of shares representing
less than one unit, or 100 shares, may require Advantest to repurchase those shares, whereas holders of ADSs representing less than
one unit of shares are unable to exercise this right because the holders of these ADSs are unable to withdraw the underlying shares.
Under Advantest’s ADS program, an ADS holder cannot cause the depositary to require Advantest to repurchase fractions of shares or9

units on its behalf. For a further discussion of the ADSs and the ADS program, see “Description of American Depositary Receipts” set
forth in Advantest’s registration statement on Form F-1 filed with the Securities and Exchange Commission on July 22, 2002. For afurther discussion of the Japanese unit share system, see “Additional Information—Memorandum and Articles of Association—The
Unit Share System.”
Enforcement of Civil Liabilities
Advantest is a limited liability, joint-stock corporation incorporated under the laws of Japan. Almost all of Advantest’s directors,
executive officers and corporate auditors reside in Japan. Substantially all of Advantest’s assets and the assets of these persons arelocated in Japan. It may not be possible, therefore, for investors to effect service of process within the U.S. upon Advantest or these
persons or to enforce against Advantest or these persons judgments obtained in U.S. courts predicated upon the civil liability
provisions of the federal securities laws of the U.S. Advantest’s Japanese counsel, Nagashima Ohno & Tsunematsu, has advised
Advantest that there is doubt as to the enforceability in Japan, in original actions or in actions for enforcement of judgments of U.S.
courts, of liabilities predicated solely upon the federal securities laws of the U.S.
ITEM 4.
4.A.

INFORMATION ON THE COMPANYHISTORY AND DEVELOPMENT OF THE COMPANY

Advantest commenced operations in July 1954, and was incorporated in December 1954 under the name Takeda Riken Industry
Co., Ltd. as a limited liability, joint-stock company in Japan under the Commercial Code of Japan. At the time of incorporation,
Takeda Riken’s primary business was the design, manufacture and sale of measuring instruments for Japanese electronics
manufacturers. Takeda Riken started focusing on semiconductor test equipment for the semiconductor industry in 1968 and was thefirst to domestically produce semiconductor test equipment in 1972. In 1971, Takeda Riken entered into its first distribution agreementwith a foreign distributor and, in 1973, established its first representative office in the U.S. to gather information on technology anddistribution and to establish dealer relationships. These two milestones launched the company’s long-term goal of becoming a global
manufacturer of testing and measuring products. Takeda Riken has been listed on the Tokyo Stock Exchange since February 1983.
Takeda Riken changed its registered name to Advantest Corporation in October 1985.
Advantest applies its capital expenditures chiefly to the streamlining of development, production of new products, energy saving
initiatives and the expansion of production capacity. Advantest’s capital expenditures were ¥8.3 billion, ¥8.3 billion and ¥14.1 billion
in fiscal 2005, 2006 and 2007, respectively. In fiscal 2007, Advantest’s capital expenditure included the construction of Sendai
Factory A, a factory with clean room facilities for production.
Advantest’s principal executive offices are located at Shin-Marunouchi Center Building, 1-6-2, Marunouchi, Chiyoda-ku,
Tokyo 100-0005 Japan. Advantest’s telephone number in Japan is (81-3) 3214-7500.
4.B.

BUSINESS OVERVIEW

Overview
The Advantest group is comprised of Advantest Corporation and its 40 consolidated subsidiaries and one investee which isaccounted for by the equity method and conducts its business in the following segments:•

semiconductor and component test system segment;•

mechatronics system segment focusing on peripheral devices including test handlers and device interfaces; and•services, support and others.

Semiconductor and Component Test System Segment
The semiconductor and component test system segment provides customers with test system products for the semiconductor
industry and the electronic component industry. The products in this segment include test systems for memory semiconductors andtest systems for non memory semiconductors. The test systems for non memory semiconductors are divided into test systems for SoC
semiconductors, LCD driver ICs and semiconductors used in car electronics.
Mechatronics System Segment
The mechatronics system segment focuses on peripheral devices to the semiconductor and component test systems. Thisbusiness includes test handlers applying mechatronics technologies, which handle semiconductor devices and automate the tests,
device interfaces with measured devices, and operations related to nano-technology.

10Services, Support and Others Segment
The services, support and others segment consists of comprehensive customer solutions provided in connection with thesemiconductor and component test system and mechatronics system segments, support services and an equipment lease business.
Sales by Segment
The following table illustrates net sales by each segment for the last three fiscal years.
Fiscal 2005

Fiscal 2006

Fiscal 2007

Segment

Sales(in millions)

%

Sales
(in millions)

%

Sales
(in millions)%

Semiconductor and Component Test System
Segment .................................................................
Mechatronics System Segment ...................................
Services, Support and Others Segment .......................
Intercompany transactions elimination .......................

¥ 191,415
48,26019,062(4,815)

75.4
19.0
7.5
(1.9)

¥ 167,815
52,025
18,312(3,140)

71.4
22.1
7.8
(1.3)

¥ 131,608
34,944
19,344(3,129)

72.0
19.1
10.6
(1.7)

Total Net Sales............................................................

¥ 253,922

100.0%¥ 235,012

100.0%¥ 182,767

100.0%

Industry Overview
Advantest offers products in semiconductor and component test systems, mechatronics systems, and services, support and others.
Advantest’s main customers are semiconductor manufacturers, foundries and test houses. Advantest believes that the following factors
will promote growth of the business carried out by its main customers.
•

the move to lower-cost, smaller, faster and more powerful and energy efficient semiconductors and electronic components;•

the increase in demand for higher performance servers and personal computers;•

the increase in demand for digital consumer products such as flat-panel TVs, DVD recorders, portable audio players andnew models of high-performance game machines;•

the increasing levels of wireless communications penetration worldwide due to the expansion of the mobile
telecommunications industry;•

the development of higher speed and high capacity communications infrastructure;•

the increasing demand for electronic devices that incorporate semiconductor and communications technologies; and•the increase in demand for electronic components including semiconductors and sensors, in response to technologicaladvancement of automobiles.

Advantest believes that these factors will continue to provide it with long-term growth opportunities because they should lead to
additional capital expenditures by its customers, resulting in an expansion of businesses for Advantest. However, the capital
expenditures of Advantest’s customers may be adversely affected by the following factors:•

the level of demand for semiconductors and electronic components;•

advancements in semiconductor and electronic components technology; and•changes in semiconductor and electronic components manufacturing processes.

Demand for Semiconductors and Electronic Components
Demand for semiconductor and component test systems and mechatronics systems is closely related to the volume ofsemiconductors and electronic components produced and the resulting capital expenditure of semiconductor manufacturers and others.
Semiconductors are generally classified as either memory semiconductors or non memory semiconductors. Memory
semiconductors are used in electronic systems to store data and programs. Non memory semiconductors include various
semiconductors that incorporate non memory circuits, which include logic and analog circuits. Logic circuits process digital data tocontrol the operations of electronic systems. Analog circuits process analog signals translated from real world phenomena such as
sound, light, heat and motion. SoC semiconductors are a subset of non memory semiconductors that combine digital circuits withanalog, memory and RF circuits, among others, on a single semiconductor chip. SoC semiconductors are used in a variety ofsophisticated products, including wireless communications, fiber optic equipments and digital consumer products.
11

Semiconductor sales have increased significantly over the long-term. However, semiconductors, particularly memory
semiconductors, have experienced significant cyclical variations in growth rates. According to World Semiconductor Trade Statistics(WSTS), worldwide semiconductor sales were approximately $139.0 billion in 2001, and while sales in 2002 increased only
marginally compared to the previous year, sales climbed sharply by approximately $25.0 billion or 18.0% compared to the previous
year to approximately $166.0 billion in 2003. Sales in 2004 increased by approximately $47.0 billion or 28.0% to approximately$213.0 billion, and sales in 2005 increased by approximately $14.5 billion or 6.8% to approximately $227.5 billion, compared to theprevious year. Sales in 2006 increased by approximately $20.2 billion or 8.9% to approximately $247.7 billion, and this upward trend
continued into 2007, with sales in 2007 increasing by $7.9 billion or 3.2% to $255.6 billion, due to the strong performance of digitalconsumer devices, among others, including flat-panel TVs and portable audio players. The following table sets forth the size of themarket for memory semiconductors, non memory semiconductors and all semiconductors between 2001 and 2007 and the projectedmarket size between 2008 and 2010 as compiled and estimated by WSTS as of May 2008.
Actual Year ended December 31,
2001

2002

2003

2004

$ 48,519
178,965$ 58,473
189,243$ 57,854
197,791$$ 227,484$ 247,716$ 255,645

Memory ............
Non memory.....

$ 24,875
114,088$ 27,041
113,672$ 32,506
133,920(in millions)$ 47,136
165,891

Total .................

$ 138,963$ 140,713$ 166,426$ 213,027

2005

Projected Year ending December 31,
2006

2007

2008

2009

54,651
213,045(in millions)$ 59,946
223,2932010$$ 267,696$ 283,239$ 308,182

68,267
239,915

The non memory semiconductor market is less volatile than the memory semiconductor market because these semiconductors
are used in a larger variety of consumer products and equipment. In periods of rapid decline in the semiconductor market, the capital
expenditures of semiconductor manufacturers, including their purchases of test systems, generally decline at a faster pace than the
decline in semiconductor sales. In addition, following a downturn in the semiconductor market or a decline in the price ofsemiconductors, sales of test systems generally do not experience significant increases and investment is generally restrained until
semiconductor manufacturers determine that the market for semiconductors is experiencing a real recovery. Advantest believes thesetrends will continue in the future.
The semiconductor market bottomed out in the second half of fiscal 2001 and then improved from fiscal 2002 to the first half offiscal 2004. However, the market slowed down beginning in the second half of fiscal 2004 due to the adjustment of excess inventories
by semiconductor manufacturers. The market recovered sooner than expected, improving in the first half of 2005, expanding further inthe second half of 2005, and remaining steady in 2006 and 2007. According to data published by WSTS as of May 2008, the market
for memory semiconductors will grow at a compound annual growth rate of approximately 6.0% over the next three years toapproximately $68.3 billion in 2010. Advantest believes that demand for memory semiconductors will be generated in the foreseeable
future by the prevalence of DDR3-SDRAM, the next generation DDR4-SDRAM, flash memory and other high-end semiconductors.
While WSTS estimates that the non memory semiconductor market will grow at a compound annual growth rate of approximately
6.7% over the next three years to approximately $239.9 billion in 2010 as expected. Advantest believes that the demand for non
memory semiconductors will generally grow in the foreseeable future, led by the further prevalence of, and new developments in,digital consumer products and personal computers.
Advancements in Semiconductor and Electronic Component Technology
Advantest believes that demand for semiconductor and component test systems and mechatronics systems is also affected by therate of change and development in semiconductor and electronic component technology. Current changes in the semiconductor andelectronic component industry relate to the innovation of digital consumer products and communications technologies. Demand forfaster semiconductors and electronic components that are smaller in size, incorporate more functions and require less power to operate
is being driven by:•

growing demand for, and continuous improvements in, personal computers and digital consumer products, such as flatpanel TVs, DVD recorders, digital cameras, television game consoles and mobile phone handsets; and•requirements of communications network equipment, such as network routers, switches and base stations, as well as
wireless handsets and other Internet access devices, to enable advances in Internet hardware and software applications,increases in infrastructure performance and simplification and miniaturization of Internet access devices.

Demand for personal computers and servers with higher performance and capabilities is also driving changes in the memory
semiconductor sector. This demand is causing manufacturers to shift from the production of memory semiconductors, including
memory semiconductors that allow high-speed data transfer such as DDR2-SDRAM to the DDR3-SDRAM with higher speeds, andflash memory that feature large capacity and nonvolatility. Advantest believes that this shift is creating demand for test systems formemory semiconductors capable of handling these new types of memory semiconductors, as well as contributing to a reduction in
testing costs. In addition, Advantest believes that additional demand for mechatronics systems, including test handlers and device
interfaces connecting semiconductor devices and test systems, will be created and will grow in line with advances in semiconductor
technologies.
12

The development of SoC semiconductors with smaller size, higher performance and lower power consumption has createddemand for sophisticated semiconductor and component test systems that can simultaneously test SoC semiconductors’ logic, analog
and memory circuits. Further innovations in non memory semiconductor technologies including SoC semiconductor technology are
expected, and Advantest believes these innovations will create demand for new, high-performance semiconductor and component test
systems optimized for use with these advanced semiconductors.
Advantest believes that the integration of non memory semiconductors into a range of digital consumer products will drive
demand for test systems for non memory semiconductors which contribute to the reduction of testing costs. Non memory
semiconductors are often customized for applications in specific products, which results in a large variety of non memory
semiconductors that are often produced in relatively smaller volumes.
Changes in Semiconductor and Electronic Component Manufacturing Technologies
Semiconductor and electronic component manufacturers are promoting production outsourcing, technological innovation in
manufacturing processes and testing technology to improve productivity.
Production Outsourcing
In recent years, semiconductor manufacturing and testing processes have become more complex and capital intensive. As aresult, an increasing portion of the manufacturing and testing functions are being subcontracted out, not only by fabless companies,
but also by industrial, design and manufacturing companies which had previously designed and manufactured semiconductors, inorder to reduce capital expenditures. This trend has resulted in an increase in the number of test houses that accept test process
outsourcing and foundries that accept manufacturing process outsourcing. Foundries either perform testing in-house or outsource their
testing needs to test houses. This trend towards production outsourcing, particularly to test houses, has increased the number ofpotential customers for semiconductor and component test system manufacturers, although it has not significantly affected the total
demand for Advantest’s products. In addition, Advantest believes that it is most appropriate to use semiconductor and component test
systems which have been designed using open architecture, which enables the formation of test systems that can meet the multiple
needs of the customers of test houses and foundries. Outsourcing has also been utilized for electronic component manufacturing.
Technological Innovation in Manufacturing Processes
One of the recent innovations in semiconductor manufacturing processes is the production of semiconductors using 300
millimeter wafers. Wafers are circular flat pieces of silicon from which multiple semiconductor chips are constructed using photoetching and other manufacturing processes. The use of 300 millimeter wafers will allow manufacturers to increase semiconductor
production per wafer twofold or more when compared to production using conventional 200 millimeter wafers. Although many
manufacturers announced delays in investment in 300 millimeter wafer factories beginning in the second half of 2000 due to negative
trends in the semiconductor market, investment in these factories by some manufacturers resumed at the end of 2002, and investment
increased from 2003 to 2006. In 2007, investment remained at low levels due to factors such as excess supply and increased pricecompetition. While this trend may continue throughout 2008, inventory adjustments by semiconductor manufacturers and appropriate
pricing of semiconductors may result in renewed capital expenditure, especially with respect to 300 millimeter wafers and increased
demand for new semiconductor and component test systems and test handlers.
New Testing Technologies
Semiconductor designers and manufacturers are striving to further reduce costs in connection with manufacturing
semiconductors, especially the cost of testing semiconductors. Thus, there is a stronger demand for test systems that cansimultaneously test more semiconductors and accommodate a larger number of pins at higher speeds and with high throughput
capabilities. On the other hand, there is an increasing pressure on test systems to be energy efficient, smaller in size and less expensive.
In order to respond to this demand, test system manufacturers are taking measures to reduce test system costs by making thedevelopment and manufacturing process of test systems more efficient, strengthening peripheral devices such as test handlers anddevice interfaces and improving service and support systems. Furthermore, although certain semiconductors are now tested in a
simplified manner in which self-test technologies are designed into circuits or even sold without being tested, Advantest believes thatit has become increasingly important for test systems to ensure the reliability of semiconductors since semiconductors are expected to
become more complex and advanced going forward.

13

Advantest believes that semiconductor and electronic component manufacturing processes will continue to evolve. The
introduction of new manufacturing processes will likely cause test costs to occupy a higher percentage of the total cost of
manufacturing and, therefore, increase price pressure on the test system industry. Furthermore, advances in the semiconductor andelectronic component industry will require test systems with new and more sophisticated testing functions. Advantest believes thatthese trends provide it with an opportunity to distinguish itself from its competitors through the delivery of new products that are
priced and designed to meet the specific needs of its customers.
Business Strategy
Advantest’s core business goals include:•

focusing on the development of test systems which can respond to changes in memory and non memory semiconductors;•

growing its market share for test systems for non memory semiconductors and maintaining high market share for test
systems for memory semiconductors;•

expanding its market share for test handlers for memory and non memory semiconductors;•

developing, designing and supplying high quality device interfaces in a shorter period of time;•enhancing its operating efficiency to improve profitability, through promotion of production innovations; and•strengthening its ability to provide comprehensive solutions to satisfy customer needs.

To achieve these goals, Advantest plans to:Continue to address industry trends, identify customer needs and deliver new products ahead of its competitors
Advantest will continue to work closely with major semiconductor manufacturers from their product design stage ofsemiconductor and component test systems to understand customer needs relating to emerging technologies and applications. Basedon this knowledge and its technological expertise, Advantest seeks to develop more advanced semiconductor and component test
systems, test handlers, device interfaces and comprehensive solutions ahead of its competitors. For example, Advantest is pursuing thefollowing strategies:•

developing semiconductor and component test systems with increased test speeds and throughput capabilities and test
handlers in line with the technological development of memory semiconductors and non memory semiconductors;•

proactively developing products to address the recent shift in emphasis in the semiconductor industry toward front-end
testing of dies;•

actively applying analog technology developed for measuring instruments for wireless communications market to test
systems for non memory semiconductors including test systems for SoC semiconductors;•

offering semiconductor and component test systems and device interfaces with high throughput in order to test recent
devices incorporating interfaces with data rates of several gigabits per second; and•developing device interfaces that can optimize the performance of semiconductor and component test systems and test
handlers in responding to the semiconductors with higher speed and large pin counts.

Strengthen the test system business for non memory semiconductors
Advantest believes that in 2007 the market for test systems for non memory semiconductors, was approximately one and a halftimes the size of the market for test systems for memory semiconductors. Advantest has therefore devoted its resources to develop test
systems for non memory semiconductors to meet the demands of a large number of manufacturers for the testing of a wide variety of
non memory semiconductors.
®

Advantest continues to promote the adoption of OPENSTAR , an industry-wide,
open architecture for test systems for non®
memory semiconductors. Advantest believes that the primary benefits of OPENSTAR for users of semiconductor and component test
systems will be reduced testing costs and greater procurement options. In addition, Advantest hopes that the reduction in testing costs,
and thus the lowering of overall manufacturing costs of non memory semiconductors, will help foster further demand for non memory
semiconductors to be used in digital consumer products and other products. Finally, Advantest believes that the adoption of a new
open architecture will result in opportunities for late entrants to the test systems for non memory semiconductors market, such as
Advantest, to increase their market share.

14

Focus sales and support efforts on key customer accounts
Advantest believes that a small number of large semiconductor manufacturers, foundries and test houses account for a large
portion of total sales in the semiconductor and component test system industry. Advantest sells semiconductor and component test
systems and mechatronics systems to many of these customers and supports them on a regular basis. Advantest is seeking to expand
its business with these key customers and develop new relationships with the remaining potential major customers. Many ofAdvantest’s sales and support offices are located near the corporate headquarters or main research and development andmanufacturing facilities of these key customers. These offices facilitate Advantest’s efforts to continue conducting collaborative
development activities with leading semiconductor manufacturers.
Products
As of fiscal 2007, Advantest’s main products are products developed, manufactured and sold in the semiconductor andcomponent test system segment and mechatronics system segment. They are as follows:
Semiconductor and Component Test Systems Segment
Semiconductor and Component Test Systems
Semiconductor and component test systems are used during the semiconductor and electronic component manufacturing process
to confirm that a semiconductor functions properly. Semiconductor and component test systems consist of test systems for memory
semiconductors and test systems for non memory semiconductors.
The following table sets forth the amount of net sales of Advantest’s semiconductor and component test systems, for memoryand non memory semiconductors for the periods presented.
Category

Fiscal 2005

Fiscal 2006

Fiscal 2007

(in millions)

Test systems for memory semiconductors .....................................................
Test systems for non memory semiconductors ..............................................

¥ 100,311
91,104¥ 109,541
58,274¥ 92,896
38,712

Total ...............................................................................................................

¥ 191,415¥ 167,815¥ 131,608

Test Systems for Memory Semiconductors
Advantest’s test systems for memory semiconductors are test systems designed to test high-speed/high performance DRAM
semiconductors used in applications such as personal computers and servers, as well as flash memory semiconductors used in digitalconsumer products.
Test systems for memory semiconductors consist of a mainframe and one or more test heads. During testing, a device interface
is attached to the test head. During the front-end testing process, wafers are connected to the device interface by a prober. Electric
signals between the die and the test systems for memory semiconductors are transmitted through probe pins located in the device
interface and tested. After front-end testing is completed, the wafer is diced into separate dies and properly functioning dies arepackaged. During back-end testing, test handlers are used to load these packaged devices onto the test heads, and electric signals aretransmitted between the devices and the test heads via the device interface and tested. The test results are analyzed by the test systems
for memory semiconductors’ hardware circuits and software programs. Customized software programs for each semiconductor are
required to analyze the semiconductor tests and test data.
Characteristics of the performance and other characteristics of test systems for memory semiconductors that are important tocustomers include:
Throughput. Throughput is measured by the number of semiconductors that can be tested by test systems for memory
semiconductors during a specified time.
Test Speed. Test speed is the speed at which the test systems for memory semiconductors test semiconductors during testing.
Test speed is measured in terms of hertz (Hz), or Bits Per Second (bps).
Timing Accuracy. Timing accuracy is the test system for memory semiconductors’ accuracy of control over the timing of testing
signals generated.
Maximum Pin Count. Maximum pin count is the number of channels for test signals (at the maximum) used by test systems formemory semiconductors.
15

Size. Smaller machines reduce the amount of floor space occupied and electricity consumed by the test systems for memory
semiconductors.
Temperature. Semiconductor manufacturers perform tests on semiconductors at varying temperatures to ensure proper operation
under extreme conditions.
Compatibility. Test systems for memory semiconductors that are compatible with predecessor systems cut down on the timerequired to develop new test programs and otherwise allow for effective utilization by customers of existing resources.
Quality. Quality is determined by the reliability of test results produced and whether the equipment can maintain stable
operation under different testing environments.
Advantest estimates that its market share in test systems for memory semiconductors was approximately 69% in fiscal 2007 ascompared with approximately 64% in fiscal 2006. Advantest believes that it maintained its overall market share for test systems formemory semiconductors primarily by increasing sales of its test systems for DRAM semiconductors and flash memory
semiconductors. Advantest has a substantially larger market share in back-end test systems for memory semiconductors than in frontend test systems for memory semiconductors. Advantest is currently seeking to increase its market share in front-end test systems formemory semiconductors.
Advantest’s main product lines of test systems for memory semiconductors are the T5500 series, the T5300 series and theT5700 series.
T5500 Series. The T5593 is a test system targeted at the market for high speed memory semiconductors such as the DDR2SDRAM and SGRAM. SGRAM is a memory semiconductor for use in graphical processor units. The T5588, introduced in fiscal
2005, makes possible simultaneous measurement of up to 512 DDR2-SDRAM devices, twice that of the T5593, and is the latest test
system for mass production. Advantest can also accommodate a greater variety of memory semiconductors by using testing functions
for flash memory—which are already long used in connection with the T5370 series—and its newly developed throughputs
enhancement functions. The top-of-the-line device in the T5500 series is the T5501, a memory semiconductor test system mostsuitable for testing and production of ultra high-speed memory semiconductors such as the next generation SGRAM. This modelallows twice as much spectrum band to be covered in terms of testing speed as the T5593 and thus enhances the measurement
accuracy.
T5300 Series. The T5377 is a multi-functional test system for memory semiconductors that reduces testing costs forsemiconductor manufacturers. The T5377 is used for the front-end testing of DRAM semiconductors and for back-end testing of flash
memory semiconductors. By increasing the functions of the system, Advantest has succeeded in broadening its customer base. The
T5377 can test up to 256 devices at one time. The T5377 is aimed at capturing an increased market share in front-end DRAM
semiconductor testing and has twice the throughputs capabilities of its predecessor, thereby lowering overall testing costs for
Advantest’s customers. In particular, the T5377 optimizes its memory repair analytical structure to a user’s memory repair algorithm
and, due to its higher throughput capabilities, is suited for the production of semiconductors in manufacturing facilities that use 300
millimeter wafers. The T5377S, which Advantest introduced in response to customers’ needs for a smaller sized model of the T5377,
and the T5372, which meets demand for 200mm wafer production lines, contribute to a higher share of the front-end testing market.
The T5383, which is capable of simultaneously testing up to 384 devices and has the same footprint as the T5377S with the capacity
to test up to 50% more devices at one time, is a test system with a maximum testing rate is 286 MHz/572 Mbps, which is twice thetesting rate of Advantest’s previous model. This allows for DRAM wafer testing “at speed” testing, or testing for KGD, and package
testing for flash memory semiconductors, at high-speed and with high-throughputs capabilities. The T5300 series is Advantest’s best
selling test systems for memory semiconductors product line for front-end testing of DRAM semiconductors and for back-end testingof flash memory semiconductors.
T5700 Series. Because variations in cell characteristics must be kept within a defined range, front-end testing for flash memory
semiconductors require more types of testing than is required in front-end testing for DRAM semiconductors. Accordingly, front-end
testing for flash memory semiconductors contributes to higher testing costs. Furthermore, although the volume of production withrespect to NAND-type flash memory semiconductors is rapidly growing, prices have fallen substantially and there is a demand forhigher efficiency for test systems. The T5761/T5761ES are test systems which have been designed to respond to this demand. The
T5761 covers the full range of testing, from NAND-type flash memory testing to package testing. The T5761 is capable ofsimultaneous testing up to 512 devices, which is twice the capability of Advantest’s previous model, and allows for lower testing costs
through its improved ability to detect failures. The T5761ES is designed for use in engineering and retains the same basic capabilities
and functions as the T5761, with a substantially smaller size and at lower testing costs. Furthermore, Advantest introduced the T5781
memory test system, which is capable of testing Multiple Chip Package (MCP)-type memories which combine multiple memory types,
such as NAND-type flash memories, which are used in mobile phones, NOR-type flash memories and SDRAMs, at speeds of up to
266 MHz, and the T5781ES, which is designed to develop programs for evaluation and mass production. Because the T5781 andT5781ES have diverse memory semiconductor testing capabilities and can test single-handedly many different types of memory
semiconductors which are incorporated into MCPs testing efficiency can be improved. Through the T5700 series, effective solutions
can be provided, from the design of flash memories and MCPs to mass production.
16

Test Systems for Non Memory Semiconductors
Advantest’s main line of test systems for non memory semiconductors relates to test systems for SoC semiconductors, test
systems for LCD driver ICs and test systems for semiconductors used in car electronics. Test systems for SoC semiconductors test
SoC semiconductors that combine circuits such as digital, analog, memory and RF circuits on a single semiconductor chip. Test
systems for LCD driver ICs test semiconductors with specific functions, such as LCD driver ICs that display images on LCD panels.
The factors that are important to customers in the performance and other characteristics of test systems for memory semiconductors
described above also apply to test systems for non memory semiconductors. Advantest’s market share in test systems for non memory
semiconductors decreased from approximately 23% in fiscal 2006 to approximately 16% in fiscal 2007.
T2000. In 2003, Advantest
brought to market a test system for non memory semiconductors that is basedon component modules®
®
compatible with OPENSTAR open architecture. Advantest believes that the development of OPENSTAR compatible semiconductor
test systems for non memory semiconductors
will increase Advantest’s market share in test systems for non memory semiconductors.
®
Currently, Advantest’s OPENSTAR compatible test systems for non memory semiconductors is the T2000. Main compatible
component modules for the T2000 include the 250 Mbps Digital Module A designed for digital testing, 800 Mbps Digital Module and6.5Gbps Digital Module, the Low Current DPS designed for power transmission, the High Current DPS, DPS 500mA Module, AudioAWD/DGT Module designed for analog testing, Base Band AWG/DGT Module and the 12GHz Wideband Signal Generator/Analyzer
designed for RF testing. Furthermore, mainframes for the T2000 may be chosen to meet customers’ needs.
T6500 Series. The T6577 test systems for SoC semiconductors in the T6500 series are primarily developed to test MCU and
SoC semiconductors that control digital consumer products at the production lines. The T6500 series are approximately one-third insize, and uses approximately 50% less power, as compared to Advantest’s predecessor product line.
T6300 Series. The T6300 series are test systems for LCD driver ICs used with high-definition LCD displays. A maximum of
1,536 LCD testing pins may be used with the T6362 and T6372 systems and a maximum of 3,072 LCD testing pins may be used with
the T6373 system. Each of these systems can simultaneously test multiple LCD driver ICs.
T7720 Series. The T7721 and T7722 are test systems for non memory semiconductors for mixed signal integrated circuits. The
T7721 targets highly complex semiconductors used in car electronics and results from the development of Advantest’s constituent
technology that measures analog signals. The T7721 uses a direct current signal generator with a range of 150V to 64V and utilizes up
to a maximum of 256 pins, and the T7721 has the capacity to simultaneously measure multiple devices.
T8571A. The T8571A is a test system for non memory semiconductors that is primarily used to evaluate and analyze CCDs thatare image sensors. These semiconductors are used in digital consumer products, such as high-resolution digital cameras, mobile phonehandset cameras and digital video cameras.
Mechatronics System Segment
Main products in the mechatronics system segment are test handlers which handle semiconductor devices and automate thetesting, and device interfaces which are the interfaces with devices being tested.
Test Handlers
Test handlers are used with semiconductor and component test systems to handle, thermally condition, contact and sort
semiconductors and other electronic components during the back-end testing of the semiconductor manufacturing process.
Advantest’s test handlers are sold primarily in conjunction with the sale of its semiconductor and component test systems. A
majority of Advantest’s test handlers, measured in units, are sold to customers of Advantest’s semiconductor and component test
systems. Advantest’s test handlers are compatible with the semiconductor and component test systems of its competitors.
Test handlers are designed with different characteristics for memory and non memory semiconductors. Memory semiconductors
require relatively long test times. Advantest’s test handler for memory semiconductors handle up to 512 semiconductors per test headat a time. Non memory semiconductors, including SoC semiconductors, require relatively short test times and Advantest’s test
handlers handle up to 16 semiconductors at a time.
Test Handlers for Memory Semiconductors. The M6300 test handler for test systems for memory semiconductors can handle up
to 256 semiconductors at a time. The M6300’s maximum throughput is 12,000 semiconductors per hour through the use of a new
high-speed handling technology that shortens the time between tests to approximately half of the time associated with Advantest’s
ordinary model. The M6542AD can handle up to 128 semiconductors at a time and is designed to prevent the generation of excessive
heat during simultaneous measuring by employing a newly developed temperature control technology. The new M6241 can handle up
to 512 memory semiconductors simultaneously, including DDR2-SDRAM or DDR3-SDRAM memory semiconductors, and has
achieved a maximum throughput of 20,000 semiconductors per hour. Advantest also has other test handler product line-up for test
systems for memory semiconductors that meet varying cost and functional needs of its customers.
Test Handlers for Non Memory Semiconductors. Advantest’s test handlers for non memory semiconductors, including SoC
semiconductors, are the M4841 and the M7521A, among others.
17

The M4841 can handle approximately twice as many semiconductors at a time, compared to Advantest’s previous model with arate of 16 semiconductors at a time. The M4841’s maximum throughput of up to 18,500 semiconductors per hour is triple themaximum throughput of the previous model. Furthermore, the M4841 is also capable of testing in a wide range of temperatures, fromas low as -40°C or as high as 125°C.
The M7521A is a test handler that can be used for chip on film, or COF, and tape automated bonding, or TAB, of integrated
circuit drivers used in flat panel displays. The M7521A can test devices used in 35 millimeter, 48 millimeter, 70 millimeter, wide andsuperwide tapes.
Device Interfaces
Device interfaces are components which transmit test signals between the device being tested and the semiconductor andcomponent test system. These components are divided into motherboards, socket boards, performance boards and sockets which alltransmit signals to compatible components of a device under test; components compatible with a test handler device; device interfaces
and change kits with a device handling mechanisms and contact mechanisms.
Advantest develops and manufactures device interfaces for semiconductor and component test systems and supplies device
interfaces such as high performance and high density connectors, socket boards and sockets to meet the demands of next- generation
semiconductors that are becoming more high-speed and more diversified. Advantest believes that the rate at which new semiconductor
designs are introduced to market will continue to increase in the long term, and customers’ requests to accelerate development of mainparts of device interfaces that are compatible with such new semiconductor designs will increase accordingly.
Motherboards: For test systems for memory semiconductors, Advantest provides motherboards capable of handling a maximumof 512 semiconductors at a time. For test systems for non memory semiconductors, Advantest provides motherboards that arecompatible with a maximum of 2,048 signals. Advantest also provides motherboards designed for use in front-end testing.
Socket Boards and Performance Boards: Advantest provides custom manufacturing of socket boards and performance boards
for each device under test in accordance with customers’ specifications.
Sockets: Advantest provides sockets for test systems for memory semiconductors. Advantest provides low-inductance (0.4nH)
sockets and fine pitch (0.4mm) sockets for semiconductors that are becoming more high-speed and more compact in size.
Change Kits: Advantest provides carrying and contacting mechanism components compatible with each device under test fortest handlers for memory semiconductors and test handlers for non memory semiconductors.
Advantest competes with numerous small and independent electronics manufacturers in providing device interfaces for its
semiconductor and component test systems. However, Advantest believes that as the complexity of the testing requirements of nextgeneration semiconductors increases, Advantest will enjoy competitive advantages by applying its technical knowledge, such as highspeed signal transmission derived from designing and manufacturing semiconductor and component test systems to device interfaces.
Customers
Advantest’s semiconductor and component test systems and mechatronics systems are shipped and delivered to many of theworld’s leading semiconductor manufacturers, as well as a number of foundries and test houses. Advantest’s largest customer
accounted for approximately 17% of net sales in fiscal 2005, approximately 11% in fiscal 2006 and approximately 9% in fiscal 2007.
Advantest’s five largest customers, all of which are semiconductor and component test system customers, accounted forapproximately 41% of net sales in fiscal 2005, approximately 35% in fiscal 2006 and approximately 32% in fiscal 2007.

18

Geographic Sales
Approximately 69% of Advantest’s fiscal 2007 net sales were derived from products sold to customers located outside Japan.
The following table sets forth Advantest’s net sales by geographic area, as well as net sales by geographic area as a percentage of total
net sales, for Advantest’s last three fiscal years. Net sales are classified into geographic areas based on the location to which the
products are shipped.
Fiscal 2005
MarketNet Sales(in millions)Japan .........................................
Asia (excluding Japan)..............
Americas ...................................
Europe.......................................

¥ 81,140
132,708
25,516
14,558

Total ..........................................

¥ 253,922

Fiscal 2006%

Net Sales(in millions)

32.0
52.3
10.0
5.7

¥ 72,834
140,782
10,158
11,238100.0%¥ 235,012

Fiscal 2007%

Net Sales(in millions)

%

31.0
59.9
4.3
4.8

¥ 56,032
108,260
9,616
8,859

30.7
59.2
5.3
4.8

100.0%¥ 182,767

100.0%

Japan. Advantest enjoys a significant market position in Japanese markets for test systems for memory semiconductors, with amarket share of approximately 77% in 2007. In addition, Advantest had an approximately 47% market share in the Japanese test
systems for non memory semiconductors market in 2007. Sales of test systems for SoC semiconductors used in DVD recorders andflat-panel TVs and sales of test systems for LCD driver ICs for LCD driver ICs used to display images on LCD panels comprised a
substantial portion of total sales of test systems for non memory semiconductors in Japan in fiscal 2007. Advantest is working tomaintain and expand its high market share in Japan by continuing to work closely with its major customers to identify their needs
during the early stages of their product development cycles.
Asia (excluding Japan). Asia is the largest market for semiconductor and component test systems and mechatronics systems,with semiconductor manufacturers located in Taiwan, Korea, the People’s Republic of China, and Singapore accounting for a majority
of semiconductor production in Asia. Advantest views its relationships with these companies as critical to its semiconductor andcomponent test system and mechatronics system business. Many Japanese, U.S. and European semiconductor manufacturers haveshifted production to Asia, either to subsidiaries or foundries and test houses. Capital expenditure decisions for subsidiaries are usually
made at the company’s headquarters. Foundries and test houses, a majority of which are located in Taiwan, often consult with theircustomers before investing in semiconductor and component test systems. Therefore, Advantest’s performance in Asia will also
depend on its ability to maintain strong relationships with customers in Japan, the U.S. and Europe. In addition, some of Advantest’s
customers have partnered with semiconductor manufacturers in Asia and outsourced manufacturing processes, thus shifting net sales
to the Asia geographic market.
Americas. Advantest’s marketing efforts in this region are centered in the United States, which accounted for approximately 5%of its total sales in fiscal 2007. Advantest’s market share of semiconductor and component test systems sold in the U.S. wasapproximately 16% in 2006 and decreased to approximately 6% in 2007 due to decreased sales to a major U.S. semiconductor
manufacturer. Semiconductor and component test systems are marketed and sold in the Americas through Advantest’s subsidiary,
Advantest America Inc.
Europe. Sales in Europe constituted approximately 5% of Advantest’s sales in fiscal 2007. Advantest’s market share ofsemiconductor and component test systems sold in Europe increased to approximately 20% in 2007 from approximately 18% in 2006.
Advantest’s principal European markets are Germany, Italy and France.
Sales and Marketing
Advantest sells its semiconductor and component test systems and mechatronics systems globally through direct sales channels.
Advantest’s direct sales department includes engineers who have in-depth knowledge of the customer’s business and technology needs.
Currently, Advantest has sales offices in Japan, Taiwan, Singapore and other parts of Asia, the Americas and Europe. Advantest
maintains its sales and support centers in close physical proximity to key customer sites to identify its customers’ needs in the earlystage of product development and to provide required support in a timely fashion. Advantest is also strengthening its relationships
with test houses through limited minority investments as a part of its sales and marketing strategy. In addition, Advantest offers
operating lease contracts for semiconductor and component test systems through its subsidiary, Advantest Finance Inc.
Advantest believes that the best marketing strategy is to demonstrate the ability to develop products that meet the customer’s
specific needs, produce and deliver them in the required time and quantity, and support the customer and the product with sufficienttechnical and maintenance support. Advantest holds exhibitions from time to time to demonstrate and market its products to target
customers. Advantest also markets by participating in industry trade shows and advertising in trade magazines.

19

Support and Customer Service
Advantest’s support and customer service programs are designed to respond to all of the semiconductor testing-related needs of
its customers. Advantest provides its services through its worldwide network of sales and customer support offices. These services
consist of the following elements:•

Semiconductor Design Phase Support. Advantest engineers work with semiconductor manufacturing companies during thedesign phase of new semiconductor product lines and provide support to enable the use of semiconductor and component
test systems for large-scale production.

•

Application Software Support. Each different semiconductor design requires customized software programs for analysis oftest data. Advantest engineers assist customers in designing application software and test programs that optimize production
throughput, reliability and capacity.

•

Procurement Support. The procurement process for semiconductor and component test systems and mechatronics systems
is time consuming and complicated. Semiconductor and component test systems consist of a combination of multiple
components, including test handlers or probers, device interfaces and software. Advantest sales personnel and engineers
work with customers to identify the semiconductor and component test systems and mechactronics systems and related
optional functions that best address their needs.

•

Installation and Warranty Support. The introduction of a new line of semiconductors by a manufacturer typically requires
either the purchase of new semiconductor and component test systems and mechatronics systems or warranty support forthe customer’s existing system. Upon the sale of a new system, Advantest’s engineers provide installation services andwork with the customer to integrate the purchased system with the customer’s existing manufacturing infrastructure.

•

Training Support. Advantest offers on-site training, as well as training at Advantest’s facilities, on the operation andmaintenance of its semiconductor and component test systems and mechatronics systems.

•

Maintenance Support. Advantest’s maintenance support services consist of:•Call Center Support. Advantest currently offers call center support services for hardware and software in Japan. This
call center also offers support to the customer support centers that Advantest has overseas.

•Internet Support. The Advantest customer support website offers maintenance tips and access to a database withpossible solutions to semiconductor and component test system problems. Advantest customers can also make on-line
requests for maintenance work and check the status of equipment sent in for repair through Advantest’s web page.

•

Repairs and Parts. Requests for repairs or parts can be made through the Advantest website or by phone. Advantest
has established a system under which it endeavors to deliver requested parts to customers in Japan within 24 hours ofrequest, and for customers in Asia (excluding Japan), the Americas and Europe within 48 hours.

•

Remote Surveillance. Advantest can equip its semiconductor and component test systems with a remote surveillance
function. This function allows Advantest engineers to remotely monitor the performance of its customers’
semiconductor and component test systems for more timely and effective maintenance.

•

Worldwide Presence. Advantest provides maintenance support through customer support centers in Japan, other partsof Asia, including Korea, China, Taiwan and Singapore, the Americas and Europe.

Manufacturing and Supplies
Advantest’s principal factories at which semiconductors and component test systems are manufactured are its Kumagaya
Factory located in Saitama Prefecture, Japan and its Gunma Factory located in Gunma Prefecture, Japan. Printed circuit boards, on
which electronic parts and other components are mounted, for use in these products are manufactured at the Kumagaya Factory. The
Gunma Factory assembles the final products and conducts tests. The production base for mechatronics systems is the Otone R&D
Center located in Saitama Prefecture, Japan. The Gunma Factory is highly automated and testing and production systems within thefactory are interconnected by a sophisticated local area network using advanced data management software. This network allows
Advantest factory managers to check on the status of systems under production at any given time.
Advantest uses a sophisticated enterprise resource planning (ERP) system that processes new information on a real time basis
and converts sales order information into production specifications and manufacturing plans. This system also interconnects
Advantest’s multiple production and warehousing facilities to its information network.

20

Advantest has integrated many production processes in an effort to introduce a new production system based on the just-in-time
production system and to improve upon the existing production system with a view to attaining a shorter production cycle, cost
reduction and reduction of inventories.
Advantest purchases substantially all of its components and parts from outside suppliers.
The average costs of components and parts used by Advantest during the last three fiscal years have remained relatively stable.
Advantest believes this relative price stability results from the fact that Advantest negotiates the terms of the purchase orders directlywith its suppliers and the fact that the prices of the made-to-order components set forth in the purchase orders are primarily influenced
by the technical specifications of the relevant components and parts.
Device interfaces, one of Advantest’s products in its mechatronics system segment, are manufactured in Japan as well as
overseas, including in Germany, Korea, Taiwan and Malaysia, in order to reduce lead time and reduce manufacturing costs.
Seasonality
As Advantest’s sales levels of semiconductor and component test systems and mechatronics systems are not dependent on any
particular season and are subject, in large part, to sales levels of the semiconductors in the market that can fluctuate significantly fromyear to year, Advantest does not traditionally experience seasonality in the sense of higher sales during any certain period of the year
as compared to other periods of the year.
Competition
Advantest faces substantial competition throughout the world in all of its business segments. Advantest believes that the
principal factors of competition are:•Performance. The performance of products is determined by its accuracy, test speed, throughput and ability to test
semiconductors with large pin counts. High performance products reduce the customer’s cost of testing.

•Reliability. Products that operate with minimal downtime allow semiconductor production and engineering work to proceedwithout frequent intervention and provides more cost-effective operation.

•

Delivery Time. Semiconductor manufacturers require timely delivery of products, especially in periods of high demand.

•

Price. The need for more sophisticated products often translates into higher testing costs for semiconductor manufacturers.
In addition, as a result of increased efficiency of the fabrication process and lower market prices for semiconductors, test
costs have come to represent a higher proportion of the total cost of manufacturing. Advantest currently faces significant
price pressure in its semiconductor and component test system segment.

•

System Architecture. Product architecture that is modular expands the product life because the system can be adapted tomeet the customer’s new requirements, while largely retaining compatibility with existing test programs.

•

Software. Products that use software that is easier to use and more powerful reduce the amount of engineering resources
needed to develop and operate test programs.

•

Customer Support. Customer specific applications programs, worldwide service and customer training contribute to theefficient use of products and minimize the customer’s cost of testing.

•

Qualified Technical Personnel. Having in place a team of highly qualified engineers and other customer service and support
personnel is essential for securing sales and maintaining and developing strong relationships with key customers.

According to a report issued by a research company, Advantest has maintained the highest share in the semiconductor test
system market in the previous five years. Other companies following Advantest include, among others, Teradyne, Inc., Verigy Ltd.,
Credence Systems Corporation, Yokogawa Electronic Corporation, EXICON Ltd., and UniTest Inc. In addition, Advantest also
competes in the mechatronics system market with, among others, Delta Design, Inc., Seiko Epson Corporation, Mirae Corporation and
TechWing Inc. for test handlers, and TSE Co., Ltd. and Secron Co., Ltd. for device interfaces. Advantest also has been suggested byits customers to compete with start-up companies with newer technologies or products in the market for both the test systems formemory semiconductors and test systems for non memory semiconductors.

21

Licenses and Intellectual Property Rights
Advantest has a policy of seeking licenses and intellectual property rights worldwide on technology considered of particular
strategic importance. While Advantest does not consider any one or group of licenses and intellectual property rights to be soimportant that their expiration or termination would materially affect Advantest’s business, Advantest considers all of its licenses andintellectual property rights to be important.
Legal Proceedings
Based on information currently available to Advantest, Advantest believes that its losses from any pending legal proceedings
would not have a material adverse effect on Advantest’s financial position, operating results or cash flows.
Environmental
Since fiscal 2007, Advantest has established and developed its “Fourth Advantest Group Environmental Management Plan”.
Under this management plan, in addition to improving environmental management systems within the Advantest Group, Advantest is
supporting its customers’ environmental management by developing new products with low power consumption and engaging in toppriority environmental issues, such as measures to prevent global warming.
Advantest’s primary environmental activities during fiscal 2007 are as follows:•

ISO 14001 Certification. Advantest has received ISO 14001 Uniform Certification for all seven of its domestic
manufacturing and research and development facilities. With respect to its overseas manufacturing and research anddevelopment activities, a subsidiary in Taiwan and a subsidiary in Europe have received ISO 14001 Uniform Certification.

•

Environmental Measures for Products. Advantest is actively involved in the development of environmentally friendly
product lines. Advantest conducts environmental assessments of all its new products from their development stages.

•

Reduce Waste. Advantest continues to retain less than 1% industrial output at all seven of its domestic research anddevelopment and manufacturing facilities. In January 2008, Advantest installed a liquid waste disposal facility at its Sendai
Factory. Through the use of this facility, Advantest expects to reduce its yearly amount of liquid waste by approximately
450 tons.

•

Use of Safe Components. Advantest has established an internal procurement standard for parts and components and has
procured parts and components for its new products that do not contain specified toxic substances. As a result, Advantest
has eliminated most regulated toxic substances from approximately 95% of the surface-mounted components on its new
products in 2007, except lead solder, which is used for mounting parts and components for its products.

•

Prevention of Global Warming. Through usage of energy efficient equipment and the re-evaluation of manufacturing
processes, Advantest strives to reduce levels of carbon dioxide emissions resulting from energy consumption relating to its
business activities. Advantest’s carbon dioxide emissions resulting from its seven business facilities decreased byapproximately 10% in fiscal 2007, as compared with fiscal 2006, to a total of 24,500-CO2 tons, as a result of energy saving
effects and a decrease in production.

As one of its activities designed to contribute to society and to the environment, Advantest has implemented the reforestation of
seedlings, both in Japan and overseas.
Advantest spent approximately ¥928 million during fiscal 2007 to further implement its environmental protection activities.
Advantest has been addressing issues of corporate management, social activities and environmental issues from a global
perspective. With increased attention in recent years on corporate ethics, Advantest believes that it should focus more on the issue ofCSR (Corporate Social Responsibility). Accordingly, Advantest has established a CSR Management Group and nine subcommittees
concerning CSR, (Disclosure Committee, Personnel Mediation Committee, Human Rights Protection Committee, Information
Security Committee, Committee on Environmental Conservation, Internal Control Committee, Corporate Ethics Committee, Product
Liability Committee and Safety and Health Committee), and engages in corporate social responsibility efforts.

22

Glossary
Analog circuits ....................................................... Circuits on a semiconductor that monitor, condition, amplify or transform analog
signals, which are signals that vary continuously over a wide range of values.
Analog circuits process analog signals translated from real world phenomena
such as sound, light, heat and motion.
COF ........................................................................ Chip on Film. A technology that allows for integrated circuits to be imprinted
onto a tape film.
DDR-SDRAM ....................................................... Double Data Rate Synchronous Dynamic Random Access Memory. Memory
semiconductor that can be read from, or written to, at double the rate of
traditional SDRAM semiconductors.
DDR2-SDRAM ..................................................... Advanced DDR-SDRAM semiconductors that can be read from, or written to, ata significantly higher rate than DDR-SDRAM semiconductors.
DDR3-SDRAM ..................................................... DDR-SDRAM semiconductors that be read from, or written to, at a significantly
higher rate than DDR2-SDRAM semiconductors.
DDR4-SDRAM ..................................................... The next generation DDR-SDRAM semiconductors that can be read from, or
written to, at a significantly higher rate than DDR3-SDRAM semiconductors.
Digital circuits ........................................................ Circuits that perform binary arithmetic functions on data represented by a seriesof on/off states.
DRAM ................................................................... Dynamic Random Access Memory. Devices that store a large volume of data andcan read and write data freely. Because of their volatile characteristics, periodic
re-writing of data is required to maintain memory information.
Foundries ............................................................... Semiconductor
manufacturingserviceprovidersthat
semiconductors based on their customers’ semiconductor designs.

manufacture

Fabless ................................................................... Manufacturers that outsource their entire production to external entities, insteadof having their own manufacturing facilities.
Flash memory ........................................................ Memory devices that electrically erase or write data freely. Devices with
nonvolatile memory which is maintained even when the power is turned off.
Integrated circuit .................................................... An electric part made of a combination of many transistors on a silicon wafer.
LCD driver integrated circuits ............................... Integrated circuits that operate LCD (Liquid Crystal Display).
Logic circuits ......................................................... Circuits that perform binary arithmetic functions.
Memory circuits ..................................................... Circuits that store data and programs.
MCP ....................................................................... Multi Chip Package. A package which combines multiple chips with different
functions.
MCU ...................................................................... Micro Controller Unit. An integrated circuit that contains all necessary functions
required for a small-scale computer system.
NAND .................................................................... A type of flash memory that is primarily used for data storage due to its large
storage capability.
NOR ....................................................................... A type of flash memory that is primarily used for memorization of programs due
to its random access capability.
®

OPENSTAR ......................................................... OPENSTAR is the name of the open architecture standard made publicly
available by STC (Semiconductor Test Consortium, Inc.). It is a registered trade
mark or brand name in the U.S., Japan, and other countries.

23

SGRAM ................................................................. Synchronous Graphics Random Access Memory—SDRAM with added graphics
functions.
SoC ........................................................................ System on a Chip. A chip that integrates functions, including logic, memory andsignaling, that are conventionally executed with multiple chips and requires
smaller space and significantly less electricity.
TAB ....................................................................... Tape-Automated Bonding. A technology that allows integrated circuit chips to bethinly mounted using tape film.
Test houses ............................................................. Providers of semiconductor test services.
Testing for KGD .................................................... Known Good Die. Testing for KGD is conducted to guarantee that
semiconductor bare chips are in good quality.
4.C.

ORGANIZATIONAL STRUCTURE

As of June 1, 2008, Advantest had 23 Japanese subsidiaries, 17 overseas subsidiaries and one investee which is accounted for by
the equity method. The following table sets forth for each of Advantest’s principal subsidiaries, the country of incorporation and theprincipal activities of the subsidiary.
Name of Subsidiary

Country ofIncorporation

Principal Activities

Advantest Laboratories Ltd. .....................................................

Japan

Research and development of measuring andtesting technologies

Advantest Customer Support Corporation................................

Japan

Maintenance service of Advantest’s products

Advanmechatec Co., Ltd. .........................................................

Japan

Manufacture of Advantest’s products

Advantest Manufacturing, Inc. .................................................

Japan

Manufacture of Advantest’s products

Advantest DI Corporation.........................................................

Japan

Manufacture of Advantest’s products

Japan Engineering Co., Ltd.......................................................

Japan

Development, manufacture and sales ofAdvantest’s products

Advantest Finance Inc. .............................................................

Japan

Leasing of Advantest’s products

Advantest America, Inc. ...........................................................

U.S.

Sales of Advantest’s products

Advantest (Europe) GmbH .......................................................

Germany

Sales of Advantest’s products

Advantest Taiwan Inc. ..............................................................

TaiwanSales of Advantest’s products

Advantest (Singapore) Pte. Ltd.................................................

Singapore

Sales of Advantest’s products

Advantest Korea Co., Ltd. ........................................................

Korea

Sales support of Advantest’s products

Advantest (Suzhou) Co., Ltd. ...................................................

China

Sales support of Advantest’s products

Each of the subsidiaries listed above is a direct or indirect wholly-owned subsidiary of Advantest.

24

4.D.

PROPERTY, PLANTS AND EQUIPMENT

Set forth below is a list of each of Advantest’s material properties, the use and location of the property and the approximate sizeof the property on which the facility is located.
Location

Approximate
Size (m2)Gunma R&D Center .................................................

Gunma, Japan

250,887

Research and development ofsemiconductor and component test systems
and device interfaces

Otone R&D Center ...................................................

Saitama, Japan

85,817

Research and development for andmanufacturing of mechatronics systems

Advantest Laboratory and Sendai Factory................

Miyagi, Japan

66,904

Basic technology research, and research forand manufacturing of key devices installed
in semiconductor and component test
systems

Gunma Factory .........................................................

Gunma, Japan

88,512

Manufacture of semiconductors andcomponent test systems

Gunma Factory 2 ......................................................

Gunma, Japan

93,112

Manufacture of device interfaces

Kumagaya Factory....................................................

Saitama, Japan

63,788Manufacture of interim phase products forsemiconductors and component test systems

Name

Use

In addition to the above-mentioned manufacturing facilities, Advantest has manufacturing facilities in Korea and Malaysia, sales
offices and customer support centers throughout the world, and owned or leased research facilities in Japan and the U.S. Advantest
owns each of its significant properties.
Advantest considers all of its principal manufacturing facilities and other significant properties to be in good condition andadequate to meet the needs of its operations. Advantest does not maintain internal records of the exact productive capacity and extent
of utilization of its manufacturing facilities. It would require unreasonable effort and expense to determine this information because
Advantest alters the volume, quantity and nature of its manufactured products as necessary in response to changes in demand andother market conditions, and revamps its manufacturing processes to take advantage of technological innovations. However,Advantest believes that its manufacturing facilities are currently operating at utilization levels that are substantially in line withprevailing market demand for its products.
Advantest believes that there are no material environmental issues that may affect utilization of its assets.
In fiscal 2007, Advantest constructed Sendai Factory A with clean room facilities for production on the premises of theAdvantest Laboratory in Miyagi, Japan. In addition, Advantest implemented a reorganization of its production facilities in Japan.
Advantest has prepared itself for crises such as large-scale natural disasters, and each department of Advantest has drafted its
own disaster procedures and manuals. Furthermore, in order to prevent any disruption of its core businesses, or in case of suspension,
to re-start the suspended businesses, including the recovery of important facilities, in the shortest possible time, Advantest hasdeveloped its “Business Continuity Plan” and is promoting the implementation of the Business Continuity Plan. However, if
Advantest is not successful in implementing such Business Continuity Plan, or if upon implementation, such Business Continuity Plan
is not effective, Advantest’s core businesses could be disrupted at time of crisis, such as large-scale natural disasters, and could take a
substantial amount of time to recover.
ITEM 4A.

UNRESOLVED STAFF COMMENTS

None.
ITEM 5. OPERATING AND FINANCIAL REVIEW
5.A.

OPERATING RESULTS

The following discussion and analysis of Advantest’s financial condition and results of operations should be read with “KeyInformation—Selected Financial Data” and its audited consolidated financial statements for fiscal 2005, fiscal 2006 and fiscal 2007,
as well as the notes to such consolidated financial statements appearing elsewhere in this annual report. These consolidated financial
statements have been prepared in accordance with U.S. GAAP.
25

Overview
Advantest manufactures and sells semiconductor and component test systems and mechatronics-related products such as test
handlers and device interfaces. Advantest also engages in research and development activities and provides maintenance and support
services associated with these products.
The semiconductor and component test system segment provides customers with test system products for the semiconductor
industry and the electronic parts industry. Product lines in the semiconductor and component test system segment include test systems
for memory semiconductors and non memory semiconductors. Test systems for non memory semiconductors include test systems for
SoC semiconductors, test systems for LCD driver ICs and test systems for semiconductors used in car electronics. This businesssegment is the most important segment, accounting for 72.0% of Advantest’s net sales in fiscal 2007.
The mechatronics system segment provides product lines such as test handlers, mechatronic-applied products, for handlingsemiconductor devices, device interfaces that serve as interfaces with the devices that are measured and operations related to nanotechnology products. This business segment accounted for 19.1% of Advantest’s net sales in fiscal 2007.
The services, support and others segment consists of comprehensive customer solutions provided in connection with thesemiconductor and component test systems and mechatronics system segments, support services, equipment lease business and others.
This segment accounted for 10.6% of Advantest’s net sales in fiscal 2007.
Semiconductor and Component Test System Segment
The market for semiconductor and component test systems is subject to high demand volatility and is competitive, and depends
on the appetite for capital expenditures of customers. Their capital expenditures depend, to a large extent, on:•demand for semiconductors and electronic components;•

innovation in semiconductor and electronic component technology; and•changes in semiconductor and electronic component manufacturing processes.

During fiscal 2007, in the semiconductor-related market, there was a substantial decline in the price of semiconductors due tothe excess of supply over demand in the semiconductor market, as well as concerns over the dwindling consumption of products using
semiconductors, which resulted in semiconductor manufacturers freezing or postponing their capital expenditure. Accordingly,
Advantest’s business environment was extremely challenging. For a detailed discussion of these factors, see “Information on the
Company—Business Overview—Industry Overview.”
During fiscal 2007 in the test systems for memory semiconductor market of this segment, due to excess supply there was asubstantial decline in the price of DDR2-SDRAM semiconductors for use in personal computers and semiconductor manufacturers
restrained their capital expenditure in test systems for DRAM semiconductors. In addition, demand for flash memory semiconductors
was weak as the momentum in demand for products such as new mobile phones was not sustained, and the price of semiconductors
declined from the middle of the fiscal year. Accordingly, as with DRAM semiconductors, capital expenditure in test systems for flash
memory semiconductors remained weak.
In the test systems for non memory semiconductor market of this segment, although demand for the SoC test systems for digitalconsumer electronic ICs remained strong in the first half of fiscal 2007, capital expenditure by semiconductor manufacturers remained
low in the latter half of the fiscal year due to concerns over the future prospects of the economy. With respect to the non memory test
system T2000 based on open architecture, although efforts were made to expand sales by attracting new customers in Japan, capital
expenditure by Advantest’s major U.S. customers was at a standstill. Despite some indication of improvements towards the end of the
fiscal year, a full-scale improvement in demand for test systems failed to materialize, and results remained weak throughout the fiscal
year. Furthermore, in test systems for LCD driver ICs, Advantest introduced new products expecting an upturn in demand; howeverwith a delay in an upturn in demand for multi-tone liquid crystal panel driver ICs, which were the focus of such new products, among
others, capital expenditure in the test systems remained low.
As a result of the above, net sales of the semiconductor and component test system segment decreased by 21.6% to¥131,608 million in fiscal 2007, as compared to the previous fiscal year.

26

Advantest’s net sales, results of operations and financial condition in fiscal 2007 decreased as compared with fiscal 2006. Net
sales of test systems for memory semiconductors in fiscal 2007 decreased by 15.2% as compared to the previous fiscal year, while net
sales for test systems for non memory semiconductors decreased by 33.6% as compared to the previous fiscal year. Capital
expenditure was restricted in the market for digital consumer electronics such as mobile phones and flat-panel TVs, and market for
personal computers due to increased price competition and the need to adjust of inventories, which lead to the decline in sales of test
systems for memory semiconductors and test systems for non-memory semiconductors.
Advantest believes that price pressure with respect to semiconductor and component test systems tends to be strongest during
periods when demand, in terms of volume, for semiconductors is increasing, but there is nevertheless pressure on the market price forsemiconductors. Advantest faced significant price pressure from fiscal 2001 to 2003. Price pressure continued to exist since fiscal
2004. Even when the semiconductor industry experienced a recovery, increased competition in the market for digital consumer
products and personal computers drove down prices of these goods, subsequently creating significant price pressure on its products
and restriction on capital expenditure. Advantest believes that despite this significant price pressure and new market entrants of test
system manufacturers, Advantest was able to increase its competitiveness by bringing to market new products.
Mechatronics System Segment
In accordance with the weak results from test systems for memory and non memory semiconductors, demand for test handlers
and device interface products, which connect to such test systems, was also weak.
As a result of the above, net sales of the mechatronics system segment decreased by 32.8% compared to fiscal 2006 to¥34,944 million in fiscal 2007.
Services, Support and Others Segment
In the services, support and others segment, Advantest has focused on maintenance services such as installation and repair ofAdvantest’s products and lease and rental services of its products as a part of Advantest’s effort to provide customers withcomprehensive solutions. Net sales of this segment increased by 5.6% compared to fiscal 2006 to ¥19,344 million in fiscal 2007.
Research and Development
Research and development expenses represent a significant portion of Advantest’s annual operating expenses. Advantest’s
research and development expenses were ¥26,927 million, ¥29,509 million and ¥30,507 million, or 10.6%, 12.6% and 16.7% of net
sales, in fiscal 2005, 2006 and 2007, respectively.
Personnel
As of March 31, 2008, Advantest had a total of 3,666 full-time employees, an increase of 29 persons, or 0.8%, over March 31,
2007.
Advantest plans to continue its periodic recruitment of new graduates as part of its mid- to long-term growth strategy. Advantest
expects that a majority of these new hires will join the semiconductor and component test system segment and mechatronics systemsegment to support the growth of Advantest’s businesses. Other new hires are expected to join Advantest’s maintenance support
division or administrative divisions. The addition of these new hires may increase Advantest’s future selling, general andadministrative expenses and its research and development expenses.
Currency Fluctuations
Advantest is affected to some extent by fluctuations in foreign currency exchange rates. Advantest is principally exposed tofluctuations in the value of the Japanese yen against the U.S. dollar and other currencies of countries where Advantest does business.
Advantest’s consolidated financial statements, which are presented in Japanese yen, are affected by foreign currency exchange
fluctuations through both translation risk and transaction risk.
Translation risk is the risk that Advantest’s consolidated financial statements for a particular period or for a particular date will
be affected by changes in the prevailing exchange rates of the currencies in which subsidiaries of the Company prepare their financial
statements against the Japanese yen. Even though the fluctuations of currencies against the Japanese yen can be substantial and,
therefore, significantly impact comparisons with prior accounting periods and among various geographic markets, the translation
effect is a reporting consideration and does not reflect Advantest’s underlying results of operations. Advantest does not hedge against
translation risk.

27

Transaction risk is the risk that the currency structure of Advantest’s costs and liabilities will deviate from the currency structureof sales proceeds and assets. Advantest produces substantially all of its products, including all semiconductor and component test
systems, in Japan. A small portion of the components and parts used in Advantest’s semiconductor and component test systems ispurchased in currencies other than the yen, predominantly the U.S. dollar.
Advantest enters into foreign exchange forward contracts to reduce its transaction risk. This has reduced, but not eliminated, theeffects of foreign currency exchange rate fluctuations against the Japanese yen, which in some years can be significant.
Generally, a weakening of the Japanese yen against other foreign currencies, particularly the U.S. dollar, has a positive effect on
Advantest’s operating income and net income. A strengthening of the Japanese yen against other foreign currencies, particularly the
U.S. dollar, has the opposite effect. The Japanese yen generally weakened against the U.S. dollar from fiscal 2005 to fiscal 2006, butbecame quite strong with the rate changing from the ¥120 mark to around ¥100 for fiscal 2007.
Advantest’s business is subject to risks associated with doing business internationally, and its business could be impacted bycertain governmental, economic, fiscal, monetary, taxation or political policies or factors, including trade protection measures andimport or export licensing requirements, that may materially affect, directly or indirectly, Advantest’s operations or its future results.
Critical Accounting Policies and Estimates
Advantest has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosureof contingent assets and liabilities in preparing its consolidated financial statements in conformity with U.S. GAAP. Criticalaccounting policies are accounting policies that require the application of management’s most difficult, subjective or complex
judgments and often require management to make estimates about the effect of matters that are inherently uncertain and may change
in subsequent periods. The following is not intended to be a comprehensive list of all of Advantest’s accounting policies. Advantest’ssignificant accounting policies are more fully described in note 1 to Advantest’s consolidated financial statements included elsewherein this annual report. In many cases, U.S. GAAP specifically dictates the accounting treatment of a particular transaction, with no needfor judgment in its application. There are also areas in which management’s judgment in selecting an available alternative could
produce materially different results. Set forth below is a description of accounting policies under U.S. GAAP that Advantest has
identified as critical to understanding its business and the reported financial results and condition of the company.
Revenue Recognition
Advantest recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred or the services havebeen rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured in accordance withthe guidance provided by the Securities and Exchange Commission’s Staff Accounting Bulletin No.104, “Revenue Recognition”.
For equipment sales involving software that is more than incidental to the product, revenue is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection of the related
receivable is probable in accordance with American Institute of Certified Public Accountant (“AICPA”) Statement of Position(“SOP”) No.97-2, “Software Revenue Recognition”, as amended by SOP No.98-9, “Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions”. Revenue for the separate elements is only recognized when the functionality of
the undelivered element is not essential to the delivered element.
Sales of Products
Sales of products which require installation are recognized when the related installation is completed and other sales recognition
criteria are met since the installation is essential to the functionality of the equipment. When customer acceptance is uncertain,
revenue is deferred until customer acceptance has been received. When the final payment is subject to customer acceptance, a portionof revenue for the final payment is deferred until an enforceable claim has become effective.
Sales of products and component which do not require installation service by Advantest is recognized upon shipment if theterms of the sale are free on board (FOB) shipping point or upon delivery if the terms are FOB destination which coincide with thepassage of title and risk of loss.
Long-term Service contracts
Revenue from fixed-price, long-term service contracts is recognized on the straight-line basis over the contract term.
Leasing Income
Revenue from operating leases is primarily recognized on the straight-line basis over the lease term.
Multiple deliverables
28

Multiple Deliverables are accounted for under the Emerging Issues Task Force Issue No. 00-21 (“EITF 00-21”), “Revenue
Arrangements with Multiple Deliverables” or SOP 97-2, “Software Revenue Recognition”.
Advantest obtains and utilizes objective evidence (Vendor-Specific Objective Evidence (VSOE) under SOP 97-2) of fair value
to allocate revenue to elements in multiple element arrangements and recognizes revenue when the criteria for revenue recognition
have been met for each element. If the criteria are not met, then revenue is deferred until such criteria are met or until the period(s)over which the last undelivered element is delivered. In the absence of objective evidence of fair value of a delivered element,
Advantest allocates revenue to the fair value of the undelivered constituent elements and the residual revenue to the delivered
elements. The price charged when an element is sold separately generally determines fair value.
Income Taxes
Effective April 1, 2007, Advantest adopted FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes, aninterpretation of SFAS No.109 (“FIN 48”)”. Advantest recognizes the financial statement effects of tax positions when they are more
likely than not, based on technical merits, that the tax positions will be sustained upon examination by the tax authorities. Benefits
from tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of benefit that isgreater than 50 percent likely of being realized upon settlement. Advantest recognizes interest and penalty accruals related tounrecognized tax benefits in income taxes in the consolidated statement of income. The adoption of FIN 48 did not have an impact on
Advantest’s consolidated results of operations and financial condition.
Inventories
Advantest’s inventories consist of on-hand inventory, including inventory located at customer sites, and inventory that is onorder and subject to a contract that is non-cancelable. Advantest states its inventories at the lower of cost or market. Cost is determinedusing the average cost method. Advantest determines the market for finished goods by determining net realizable value and for raw
materials by identifying replacement cost. Advantest reviews its inventories and determines the appropriate amount of any inventory
write-downs periodically based on these reviews. Write-downs occur from the discontinuation of product lines, inventory in excess of
estimated usage, the release of new products which renders inventory obsolete and declines in net realizable value of Advantest’s
inventory leased to customers. Advantest recognizes inventory write-downs in cost of sales.
Advantest’s inventories decreased by ¥5,153 million, or 16.1%, during fiscal 2007 to ¥26,823 million as of March 31, 2008.
Advantest recorded inventory write-downs in the amount of ¥5,711 million in fiscal 2007, ¥3,112 million in fiscal 2006 and¥1,287 million in fiscal 2005. Advantest may be required to take additional charges for excess and obsolete inventory in fiscal 2008 orother future periods if future weakness in its businesses causes further reductions to Advantest’s inventory valuations. In addition,
unexpected changes in testing technology can render Advantest’s inventories obsolete. Advantest evaluates its inventory levels basedon its estimates and forecasts of demand for its products.
Property, Plant and Equipment
Property, plant and equipment is stated at cost.
Depreciation has been computed principally using the declining-balance method for the Company and its domestic subsidiaries.
The straight-line method over estimated useful lives of the assets is used for foreign subsidiaries.
On April 1, 2007, the Company and its domestic subsidiaries elected to change the declining-balance method of depreciatingmachinery and equipment as well as furniture and fixtures from the fixed-percentage-on-declining base application to the 250%
declining balance application. Estimated salvage values have also been reduced in conjunction with this change. The Company and its
domestic subsidiaries believe that the 250% declining balance application is preferable because it provides a better matching of
allocation of cost of machinery and equipment as well as furniture and fixtures with associated revenue in light of product life cycles.
In accordance with SFAS No. 154 “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and SFAS
No.3”, this change in depreciation method represents a change in accounting estimate effected by a change in accounting principle.
Accordingly, the effects of the change are accounted for prospectively beginning with the period of change and prior period results
have not been restated. The change in depreciation method caused decreases in income before income taxes and equity in earnings ofaffiliated company and net income by ¥861 million and ¥513 million, respectively, for the year ended March 31, 2008. Basic net
income per share and diluted net income per share decreased by ¥2.82 and ¥2.81, respectively, for the year ended March 31, 2008.
The depreciation period for significant assets ranges from 15 years to 50 years for buildings, 4 years to 10 years for machineryand equipment, and 2 years to 5 years for furniture and fixtures.
Depreciation expense was ¥7,517 million, ¥7,583 million and ¥8,216 million for the years ended March 31, 2006, 2007 and2008, respectively.
29

Trade Receivables
Advantest’s trade receivables, less allowance for doubtful accounts was ¥30,124 million as of March 31, 2008, as comparedwith ¥54,264 million as of March 31, 2007. Advantest maintains allowances for doubtful accounts for estimated losses resulting fromthe inability of its customers to make required payments. Advantest provides an allowance for doubtful accounts for all specificaccounts receivable that it judges are probable of not being collected. Advantest has not recorded any allowances for trade receivables
for its major customers, a majority of which are large, well-capitalized semiconductor manufacturers, foundries and test houses.
Advantest receives deposits from most of its distributors for its other test systems. Advantest believes that the amounts of these
deposits are sufficient to offset the amounts of any possible defaults on accounts receivable of these customers.
Advantest periodically reviews its estimated allowances for doubtful accounts taking into account the customer’s payment
history, assessing the customer’s current financial position and considering other information that is publicly available and thecustomer’s credit worthiness. Additional reviews are undertaken upon significant changes in the financial condition of Advantest’s
customers and the semiconductor industry.
At the end of fiscal 2007, Advantest decreased its allowance for doubtful accounts by ¥160 million from fiscal 2006 to¥45 million. Increases in allowance for doubtful accounts are charged to selling, general and administrative expenses. However,additional allowances may be necessary if conditions in the industries of some of Advantest’s customers do not improve in the nearterm. Conversely, a reversal of allowances made for accounts receivable that are later collected, depending upon the recovered
financial status of its customers and Advantest’s collection efforts, will decrease the selling, general and administrative expenses forthe accounting period during which such collection takes place.
Accrued Warranty Expenses
Advantest’s products are generally subject to a product warranty. In addition, under certain circumstances, Advantest is
responsible for the repair of defective components and parts. Advantest provides an allowance for estimated product warranty
expenses when product revenue is recognized as part of its selling, general and administrative expenses. The allowance for estimatedproduct warranty expenses represents management’s best estimate at the time of sale of the total costs that Advantest will incur torepair or replace components or parts that fail while still under warranty. Advantest records its allowance for estimated productwarranty expenses based on the historical ratio of actual repair expense to corresponding sales. The foregoing evaluations are
inherently uncertain as they require estimates as to maintenance costs and failure rates related to different product lines. Consequently,
actual warranty costs may differ from the estimated amounts and could result in additional product warranty expenses. If actual
warranty costs significantly exceed the amount of Advantest’s allowance for product warranty expenses, it would negatively affect the
future results of operations of Advantest. Accrued warranty expenses were ¥3,143 million at March 31, 2008, a decrease of¥992 million from ¥4,135 million at March 31, 2007.
Stock-Based Compensation
Advantest applies the fair value recognition provision of SFAS No. 123 (revised 2004) (SFAS 123R), “Share Based Payments”,
and recognizes stock based compensation expense in the consolidated statements of income. The fair values of the option are
estimated using a Black Scholes option pricing model and amortized to expense over the requisite service period.
Expected dividend yield is determined by the Company’s dividend ratio of the past and other associated factors. Risk freeinterest rate is determined by Japanese government bond yield for the period corresponding to expected life. Expected volatility isdetermined by historical volatility and trend of the Company’s share prices, and other associated factors. Expected life is determinedby the Company’s option exercise history, post vesting employment termination behavior for similar grants, and other pertinent
factors.
Advantest has recorded ¥858 million as stock-based compensation expense in fiscal 2007.
Accrued Pension and Severance Cost
The Company and certain of its subsidiaries have unfunded retirement and severance plans (point-based benefits system). Undera point-based benefits system, the benefits are calculated based on accumulated points allocated to employees each year according totheir job classification and their performance.
The Company and its subsidiaries also have a defined benefit corporate pension plan covering substantially all employees.
Under the cash balance pension plan, the benefits are calculated based on accumulated points allocated to employees each year
according to their job classification and their performance with a certain interest rate calculated based on the upper and lower limit ofa market interest rate.

30

The retirement benefit costs are estimated from actuarial valuations. Inherent in these valuations are key assumptions inestimating pension costs including mortality, withdrawal, retirement, changes in compensation, discount rate and expected return onplan assets. Advantest is required to estimate the key assumptions by taking into account various factors including personnel
demographics, current market conditions and expected trends in interest rates. Advantest determines the discount rate by looking toavailable information about rates implicit in return on high-quality fixed-income governmental and corporate bonds. Accordingly, thediscount rate is likely to change from period to period based on these ratings. A decrease in the discount rate results in an increase inactuarial pension benefit obligations. Increases and decreases in the pension benefit obligation affect the amount of the actuarial gainor loss which is amortized into income over the service lives of employees. Changes in the key assumptions may have a material
effect on Advantest’s financial position and results of operations. Management believes that estimation of the key assumptions isreasonable under the various underlying factors.
Deferred Tax Assets
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. Management considers thescheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
At March 31, 2007, Advantest has recorded on its consolidated balance sheet, net deferred tax assets of ¥11,569 million of which¥421 million represents net operating losses, or NOL, carryforwards available to offset future taxable income. Net operating loss
carryforwards utilized during the years ended March 31, 2006, 2007 and 2008 were ¥777 million, ¥486 million and ¥1,046 million,
respectively.
At March 31, 2008, Advantest has recorded on its consolidated balance sheet, net deferred tax assets of ¥18,910 million. Basedupon projections for future taxable income over the periods in which the deferred tax assets are deductible including management’s
expectations of future semiconductor market and semiconductor and component test systems market prospects and other factors,
management believes it is more likely than not that Advantest will realize the benefits of these deductible differences.
Results of Operations—Fiscal 2007 Compared with Fiscal 2006
Net Sales
Advantest’s net sales decreased by ¥52,245 million, or 22.2%, compared with fiscal 2006, to ¥182,767 million in fiscal 2007.
This decrease was primarily due to the restraint in capital expenditures within the semiconductor and component test system segment
resulting from the significant decline of prices of DRAM semiconductors reflecting weak sales of products such as personal computersagainst the speculation of semiconductor manufacturers. The estimated effect of changes in exchange rates during fiscal 2007 was todecrease Advantest’s net sales by ¥427 million.
The following is a discussion of net sales for Advantest’s semiconductor and component test system, mechatronics system andservices, support and others segments. Net sales amounts discussed include intercompany sales between segments.
Semiconductor and Component Test System Segment
In fiscal 2007, net sales of Advantest’s semiconductor and component test system segment accounted for 72.0% of total net
sales. Net sales of Advantest’s semiconductor and component test system segment decreased by ¥36,207 million, or 21.6%, comparedwith fiscal 2006, to ¥131,608 million in fiscal 2007. The estimated effect of changes in exchange rates during fiscal 2007 was todecrease Advantest’s net sales from its semiconductor and component test system segment by ¥277 million.
Net sales of test systems for memory semiconductors decreased by ¥16,645 million, or 15.2%, compared with fiscal 2006 to¥92,896 million in fiscal 2007. This decrease was mainly due to lower than expected demand for Advantest’s DRAM semiconductor
test systems for super high-speed memory devices, the T5500 series test systems, and the front-end testing systems, T5300 series test
systems, mainly due to lower capital expenditures by semiconductor manufacturers resulting from falling DRAM semiconductors
prices. Test systems for flash memory semiconductors also suffered from weak sales, led by lower capital expenditures bysemiconductor manufacturers resulting from a substantial decline of flash memory semiconductors prices.
Net sales of test systems for non memory semiconductors decreased by ¥19,562 million, or 33.6%, compared with fiscal 2006 to¥38,712 million in fiscal 2007. This decrease
was mainly due to a decrease in sales of T2000 series test systems for non memory®
semiconductors, based on OPENSTAR , primarily in the U.S. throughout fiscal 2007. This decrease was also due to weak sales,
primarily in Japan, Korea and Taiwan, of T6500 series test systems for SoC semiconductors and the T6300 series test systems for non
memory semiconductors used for LCD driver ICs, affected by price competition of digital consumer devices.

31

Mechatronics System Segment
Net sales of the mechatronics system segment such as test handlers and device interfaces decreased by ¥17,081 million, or
32.8%, compared to fiscal 2006 to ¥34,944 million in fiscal 2007.
The sales of test handlers for memory semiconductors were weak due to lower market demand for DRAM semiconductors andflash memory semiconductors. Sales of test handlers for non memory semiconductors were also weak due to the lower sales of test
systems aimed at digital consumer devices.
Services, Support and Other Segment
Net sales of the services, support and other segment increased by ¥1,032 million, or 5.6%, compared with fiscal 2006 to¥19,344 million in fiscal 2007. Main businesses in the services, support and others segment for fiscal 2007 include maintenanceservices and leases and rentals.
Geographic Markets
Advantest experienced a decrease of 22.2% in its net sales in fiscal 2007, which was greatly affected by decline in sales,
especially in Japan and Korea.
Net sales in Japan decreased by ¥16,802 million, or 23.1%, compared with fiscal 2006 to ¥56,032 million in fiscal 2007. Thisdecrease was due to weak sales of T6500 series test systems for SoC semiconductors and test systems for non memory semiconductors
used for LCD driver ICs, affected by price competition of digital consumer devices.
Net sales in the Americas decreased by ¥542 million, or 5.3%, compared with fiscal 2006 to ¥9,616 million in fiscal 2007. Thisdecrease was due to lower sales of test systems for memory semiconductors and test systems for non-memory semiconductors tomajor semiconductor manufactures throughout fiscal 2007, as well as the impact of a strong yen. The estimated effect of changes inexchange rates during fiscal 2007 was to decrease Advantest’s net sales from sales in the Americas by approximately ¥242 million.
Net sales in Europe decreased by ¥2,379 million, or 21.2%, compared to fiscal 2006 to ¥8,859 million in fiscal 2007. The salesof test systems for memory semiconductors and non memory semiconductors decreased in Europe. The estimated effect of changes inexchange rates during fiscal 2007 was to increase Advantest’s net sales from sales in Europe by approximately ¥25 million.
Net sales in Asia (excluding Japan) decreased by ¥32,522 million, or 23.1%, compared with fiscal 2006 to ¥108,260 million in
fiscal 2007. Net sales in Korea and Taiwan decreased by ¥15,210 million, or 29.7%, by ¥6,976 million, or 11.1%, compared withfiscal 2006, respectively. This decrease was primarily due to restraint in capital expenditures by semiconductor manufacturers
resulting from decline of prices of DRAM semiconductors. Net sales in China and the rest of Asia (excluding Japan, Taiwan and
Korea) decreased by ¥10,336 million, or 39.0%, compared with fiscal 2006. This decrease is the result of lower sales of test systems
for non memory semiconductors to major semiconductor manufacturers in Singapore and Malaysia. The estimated effect of changes inexchange rates during fiscal 2007 was to decrease Advantest’s net sales from sales in Asia by approximately ¥50 million.
Advantest’s overseas sales as a percentage of total sales became 69.3% for fiscal 2007, compared with 69.0% for fiscal 2006.
Operating Expenses
Advantest’s operating expenses decreased by ¥18,169 million, or 10.2%, compared with fiscal 2006 to ¥160,051 million in
fiscal 2007.
Cost of sales decreased by ¥19,881 million, or 18.3%, compared to fiscal 2006 to ¥88,837 million in fiscal 2007. This decrease
was attributed to the decrease of ¥52,245 million in net sales which was partially offset because of decline of sales cost ratio resulting
from deterioration of capacity utilization caused by product mix and drop in sales.
Research and development expenses increased by ¥998 million, or 3.4%, when compared to fiscal 2006, to ¥30,507 million in
fiscal 2007. This rise in research and development expenses reflects additional resources required for the increased research anddevelopment themes for future products as well as to increased expenses for research and development subcontractors.
Selling, general and administrative expenses increased by ¥714 million, or 1.8%, compared to fiscal 2006 to ¥40,707 million in
fiscal 2007. This increase was due to an increase of expenses for maintenance and support.
Operating Income
Operating income decreased by ¥34,076 million, compared to fiscal 2006, to ¥22,716 million in fiscal 2007.

32

Other Income and Expenses
Interest and dividend income increased by ¥773 million, or 25.5%, compared with fiscal 2006 to ¥3,799 million in fiscal 2007.
This increase was primarily due to the increase in interest income caused by an increase in interest rates in Japan.
Interest expense decreased by ¥4 million, or 25.0%, compared with fiscal 2006 to ¥12 million in fiscal 2007 due to payoff of the
debt.
Other, net decreased by ¥4,258 million, compared with fiscal 2006, to ¥2,970 million in fiscal 2007. This decrease in nonoperating income was primarily due to foreign currency exchange losses of ¥1,880 million in fiscal 2007, caused by the sharp
appreciation of the yen against the U.S. dollar, instead of ¥1,323 million foreign currency exchange gains in fiscal 2006 to¥1,880 million in fiscal 2007, and an increase in impairment of investment securities by ¥1,061 million compared with fiscal 2006 to¥1,331 million in fiscal 2007. This represents the difference between the value of foreign currency-denominated sales translated at
prevailing exchange rates and either (i) the value of sales amounts settled during the year, including those settled using foreignexchange forward contracts, or (ii) the value of accounts receivable and payables outstanding remeasured at the exchange rate in effectat March 31, 2008.
Income Taxes
Advantest’s effective tax rate was 41.8% in fiscal 2006 and 29.3% in fiscal 2007. The statutory tax rate of the Company and its
domestic consolidated subsidiaries was 40.4% for fiscal 2007. The difference between the statutory tax rate of 40.4% in fiscal 2007
and the effective tax rate of 29.3% in fiscal 2007 was due to the difference of applicable tax rate for overseas subsidiaries and theavailability of tax credits for research and development expenses. For a more detailed discussion of income taxes of Advantest in
fiscal 2007 and fiscal 2006, see note 13 to Advantest’s consolidated financial statements.
Net Income
Advantest’s net income decreased by ¥19,006 million, or 53.5%, compared to fiscal 2006, to ¥16,550 million in fiscal 2007. Thechange in net income for fiscal 2007 compared to fiscal 2006 reflects the factors discussed above.
Other Comprehensive Income (Loss)
Advantest’s other comprehensive income (loss), net of tax decreased by ¥12,028 million, compared to fiscal 2006, to a loss of¥11,267 million in fiscal 2007. This decrease was mainly due to a ¥7,968 million decrease in foreign currency translation adjustment
from a gain of ¥1,123 million in fiscal 2006 to a loss of ¥6,845 million in fiscal 2007 as the yen strengthened against the U.S. dollar, aloss of ¥2,362 million due to pension liability adjustments, as well as a net unrealized loss on marketable securities of ¥2,058 million
caused by credit crisis associated with subprime loans in the United States.
Results of Operations—Fiscal 2006 Compared with Fiscal 2005
Net Sales
Advantest’s net sales decreased by ¥18,910 million, or 7.4%, compared with fiscal 2005, to ¥235,012 million in fiscal 2006.
This decrease was primarily due to weak sales of test systems for SoC semiconductors for data processing and of test systems for non
memory semiconductors used for LCD driver ICs within the semiconductor and component test system segment throughout fiscal
2006. The estimated effect of changes in exchange rates during fiscal 2006 was to increase Advantest’s net sales by ¥1,145 million.
The following is a discussion of net sales for Advantest’s semiconductor and component test system, mechatronics system andservices, support and others segments. Net sales amounts discussed include intercompany sales between segments.
Semiconductor and Component Test System Segment
In fiscal 2006, net sales of Advantest’s semiconductor and component test system segment accounted for 71.4% of total net
sales. Net sales of Advantest’s semiconductor and component test system segment decreased by ¥23,600 million, or 12.3%, comparedwith fiscal 2005, to ¥167,815 million in fiscal 2006. Advantest’s net sales in this segment in the second half of fiscal 2006 were¥81,841 million, resulting in a decrease by ¥4,133 million, or 4.8%, compared to the first half of fiscal 2006. The estimated effect ofchanges in exchange rates during fiscal 2006 was to increase Advantest’s net sales from its semiconductor and component test systemsegment by ¥419 million.
Net sales of test systems for memory semiconductors increased by ¥9,230 million, or 9.2%, compared with fiscal 2005 to¥109,541 million in fiscal 2006. This increase was mainly due to strong demand for DRAM semiconductor test systems for superhigh-speed memory devices targeting the next-generation DRAM semiconductors, resulting from full-scale launch of the productionof DDR2-SDRAM by semiconductor manufacturers in the second half of fiscal 2006, despite lower than expected demand in the first33

half of fiscal 2006 for Advantest’s DRAM semiconductor test systems for super high-speed memory devices, the T5500 series test
systems, targeting the next-generation DRAM semiconductors, mainly due to lower capital expenditures by semiconductor
manufacturers resulting from falling DRAM prices and delay in shift of their production to DDR2-SDRAM, among other things. Test
systems for flash memory semiconductors, however, suffered from weak sales towards the second half of fiscal 2006, led by lower
capital expenditures by semiconductor manufacturers resulting from a substantial decline of DRAM prices.
Net sales of test systems for non memory semiconductors decreased by ¥32,830 million, or 36.0%, compared with fiscal 2005 to¥58,274 million in fiscal 2006. This decrease
was mainly due to a decrease in sales of T2000 series test systems for SoC®
semiconductors, based on OPENSTAR , primarily in the U.S. throughout fiscal 2006. This decrease was also due to weak sales,
primarily in Japan, Korea and Taiwan, of the T6300 series test systems for non memory semiconductors used for LCD driver ICs.
Mechatronics System Segment
Net sales of the mechatronics system segment such as test handlers and device interfaces increased by ¥3,765 million, or 7.8%,
compared to fiscal 2005 to ¥52,025 million in fiscal 2006, reflecting increased sales of test systems for memory semiconductors thatgenerated an increased need for test handlers and device interfaces.
The sales of test handlers for memory semiconductors were slow in the first half of the fiscal year primarily because the demandfor DDR2-SDRAM semiconductors picked up slowly, but sales recovered with the growth in sales of test systems for DRAM
semiconductors. Sales of test handlers for non memory semiconductors were steady in response to increased sales of test systems
aimed at digital consumer devices in the first half of fiscal 2006. Also, sales of device interface products were steady, reflecting strong
demand for DDR2-SDRAM semiconductors.
Services, Support and Other Segment
Net sales of the services, support and other segment decreased by ¥750 million, or 3.9%, compared with fiscal 2005 to¥18,312 million in fiscal 2006. Main businesses in the services, support and others segment for fiscal 2006 include maintenanceservices and leases and rentals, but sales were weak.
Geographic Markets
Advantest experienced a decrease of 7.4% in its net sales in fiscal 2006, with sales in the Americas experiencing the mostsubstantial decrease.
Net sales in Japan decreased by ¥8,306 million, or 10.2%, compared with fiscal 2005 to ¥72,834 million in fiscal 2006. Thisdecrease was due to weak sales of test systems for non memory semiconductors used for LCD driver ICs, despite increased sales oftest systems for SoC semiconductors used for digital consumer devices.
Net sales in the Americas decreased by ¥15,358 million, or 60.2%, compared with fiscal 2005 to ¥10,158 million in fiscal 2006.
This decrease was due to lower sales of test systems for memory semiconductors and test systems for non-memory semiconductors tomajor semiconductor manufactures throughout fiscal 2006. The estimated effect of changes in exchange rates during fiscal 2006 was
to increase Advantest’s net sales from sales in the Americas by approximately ¥204 million.
Net sales in Europe decreased by ¥3,320 million, or 22.8%, compared to fiscal 2005 to ¥11,238 million in fiscal 2006. The salesof test systems for DRAM semiconductors and test handlers for SoC semiconductors decreased in Europe. The estimated effect ofchanges in exchange rates during fiscal 2006 was to increase Advantest’s net sales from sales in Europe by approximately ¥88 million.
Net sales in Asia (excluding Japan) increased by ¥8,074 million, or 6.1%, compared with fiscal 2005 to ¥140,782 million. Net
sales in Korea and Taiwan increased by ¥15,423 million, or 43.1%, by ¥8,707 million, or 16.0%, compared with fiscal 2005,
respectively. This increase was primarily due to increased sales of test systems for DRAM semiconductors to major semiconductor
manufacturers and test houses in Korea and Taiwan. Net sales in China and the rest of Asia (excluding Japan, Taiwan and Korea)
decreased by ¥16,056 million, or 37.7%, compared with fiscal 2005. This decrease is the result of lower sales of test systems for
SoC semiconductors to major semiconductor manufacturers in Singapore and Malaysia. The estimated effect of changes in exchange
rates during fiscal 2006 was to increase Advantest’s net sales from sales in Asia by approximately ¥853 million.
Advantest’s overseas sales as a percentage of total sales became 69.0% for fiscal 2006, compared with 68.0% for fiscal 2005.

34

Operating Expenses
Advantest’s operating expenses decreased by ¥11,244 million, or 5.9%, compared with fiscal 2005 to ¥178,220 million in fiscal
2006.
Cost of sales decreased by ¥12,711 million, or 10.5%, compared to fiscal 2005 to ¥108,718 million in fiscal 2006. This decrease
was attributed to the decrease of ¥18,910 million in net sales and the improvement in sales cost ratio attained by cost reduction andimproved product mix.
Research and development expenses increased by ¥2,582 million, or 9.6%, when compared to fiscal 2005, to ¥29,509 million in
fiscal 2006. This rise in research and development expenses reflects additional resources required for the increased research anddevelopment themes for future products as well as increased expenses for research and development subcontractors.
Selling, general and administrative expenses decreased by ¥1,115 million, or 2.7%, compared to fiscal 2005 to ¥39,993 million
in fiscal 2006. This decrease was due to a decrease of ¥1,219 million in accrued warranty expenses that resulted from the decreased
sales.
Operating Income
Operating income decreased by ¥7,666 million, compared to ¥64,458 million in fiscal 2005, to ¥56,792 million in fiscal 2006.
Other Income and Expenses
Interest and dividend income increased by ¥1,266 million, or 71.9%, compared with fiscal 2005 to ¥3,026 million in fiscal 2006.
This increase was primarily due to the increase in interest rates in the U.S. and the Euro area.
Interest expense decreased by ¥274 million, or 94.5%, compared with fiscal 2005 to ¥16 million in fiscal 2006. This decrease
was primarily due to the repayment of bonds in the amount of ¥20,000 million during fiscal 2005.
Other income decreased by ¥238 million, compared with fiscal 2005, to ¥1,288 million in fiscal 2006. This decrease in nonoperating income was due to the gain on sale of investment securities in fiscal 2005 in the amount of ¥1,040 million that did not recurin fiscal 2006. This was partially offset by the weakening of the euro against the yen, which resulted in improving foreign currency
exchange gains by ¥566 million compared with fiscal 2005 to ¥1,323 million in fiscal 2006. This represents the difference between thevalue of foreign currency-denominated sales translated at prevailing exchange rates and either (i) the value of sales amounts settled
during the year, including those settled using foreign exchange forward contracts, or (ii) the value of accounts receivable and payables
outstanding remeasured at the exchange rate in effect at March 31, 2007.
Income Taxes
Advantest’s effective tax rate was 38.7% in fiscal 2005 and 41.8% in fiscal 2006. The statutory tax rate of the Company and its
domestic consolidated subsidiaries was 40.3% for fiscal 2006. The difference between the statutory tax rate of 40.3% in fiscal 2006
and the effective tax rate of 41.8% in fiscal 2006 was due to recognition of additional deferred tax liabilities on undistributed earningsof its foreign subsidiaries as a result of a change in the dividend policies of the foreign subsidiaries during fiscal 2006. This difference
was partially offset by the availability of tax credits earned for research and development expenses. For a more detailed discussion ofincome taxes of Advantest in fiscal 2006 and fiscal 2005, see note 13 to Advantest’s consolidated financial statements.
Net Income
Advantest’s net income decreased by ¥5,818 million, or 14.1%, compared to fiscal 2005, to ¥35,556 million in fiscal 2006. Thechange in net income for fiscal 2006 compared to fiscal 2005 reflects the factors discussed above.
Other Comprehensive Income (Loss)
Advantest’s other comprehensive income (loss) decreased by ¥5,461 million, compared to fiscal 2005, to ¥761 million in fiscal
2006. This decrease was mainly due to a ¥3,951 million decrease in foreign currency translation adjustment from an income of¥5,074 million in fiscal 2005 to an income of ¥1,123 million in fiscal 2006 as the yen did not weaken against the U.S. dollar to thesame extent as in fiscal 2005, as well as a ¥1,510 million decrease in net unrealized gain on marketable securities.
5.B.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities decreased by ¥24,785 million, compared to ¥48,951 million in fiscal 2006, to¥24,166 million in fiscal 2007. Net cash provided by operating activities in fiscal 2007 was increased primarily due to recording of¥16,550 million in net income and a decrease in trade receivables by ¥22,666 million which was partially offset by a decrease inaccounts payable by ¥16,239 million, resulted in a decrease of ¥24,166 million . This decrease of ¥24,785 million compared to fiscal
2006 was mainly due to the decrease in net income to ¥19,006 million in fiscal 2007.

35

Net cash used in investing activities was ¥16,322 million in fiscal 2007, a ¥8,309 million increase, compared to ¥8,013 million
in fiscal 2006. This increase was due to a ¥4,483 million increase in the purchase of property, plants and equipment compared to fiscal
2006, totaling ¥11,994 million in fiscal 2007, resulting from the construction of Sendai Factory A, as well as a ¥3,235 million increasein purchase of marketable securities in fiscal 2007 from ¥0 in fiscal 2006.
Net cash used in financing activities was ¥46,770 million in fiscal 2007, a ¥43,108 million increase compared to ¥3,662 million
in fiscal 2006. The main reason for the increase in fiscal 2007 was the acquisition of treasury stock at a cost of ¥36,564 million.
Net effect of exchange rate changes on cash and cash equivalents decreased to ¥10,121 million in fiscal 2007, a ¥11,315 million
decline compared to fiscal 2006.
Advantest has various retirement and severance plans for employees, including non-contributory defined benefit retirement andseverance plans consisting primarily of the EPF plan. As mentioned in Note 16 to the consolidated financial statements, in the balance
sheet as of March 31, 2008, the amount of ¥10,711 million has been recognized as accrued severance and pension costs. Advantest hascontributed to the EPF plan in accordance with the funding requirements of applicable Japanese governmental regulations. Although
there is presently no immediate or significant near-term increase expected in cash funding requirements, Advantest’s cash funding
requirements would be affected by any changes in interest rates, rate of returns on plan assets and government regulations. The
contributions paid by Advantest under the EPF were ¥1,927 million in fiscal 2006 and ¥2,227 million in fiscal 2007.
Advantest’s funding and treasury policy (including funding for capital expenditures), which is overseen and controlled by its
Finance Department, has funded and is expected to continue to fund substantially all of its cash needs through cash from operating
activities and cash and cash equivalents on hand. If conditions in the semiconductor industry, and thus the semiconductor andcomponent test system industry, experiences a downturn in the medium term, Advantest may need to fund future capital expendituresand other working capital needs through the incurrence of additional debt or dilutive issuances of equity securities.
Advantest’s cash and cash equivalents balance decreased by ¥49,047 million in fiscal 2007 to ¥147,348 million as of March 31,
2008. At March 31, 2008, 63.5% of Advantest’s cash and cash equivalents were held in Japanese yen.
5.C.

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

Research and Development and Product Enhancement
In order to support technology on the leading-edge, Advantest undertakes research and development initiatives to develop
products which play a central role in the area of measuring technologies to support electronics, information and communications, andsemiconductor manufacturing. Advantest’s research and development focuses on the developments of new products and theimprovements of existing products. In particular, in the semiconductor and component test system segment, a large and ongoinginvestment in research and development is necessary in order to maintain market competitiveness and to provide many types of
products that meet the various needs of the customers. Advantest also conducts research of basic technologies. Advantest’s
expenditures for research and development were approximately ¥26.9 billion in fiscal 2005, ¥29.5 billion in fiscal 2006 and¥30.5 billion in fiscal 2007. Advantest employs over 1,000 engineers and other personnel in its research and development division.
The contents and achievements to date of Advantest’s current research and development activities include:
Basic Technology•

development of constituent technologies in the field of terahertz;•

development of constituent technologies, including high speed, energy-saving micro switches and high speed samplers usedin semiconductor and component test systems and millimeter wave measuring instruments;•

development of methods to detect timing jitters in high bit-rate signals; and•development of compound semiconductors devices, including less-distortion devices used for test systems forsemiconductors and components.

Semiconductor and Component Test System Segment•

development of semiconductor and component test systems that enable testing of super high speed memory semiconductors
at actual motion speed;•

development of semiconductor and component test systems that enhance the functionality of testing of DRAM
semiconductors and flash memory semiconductors and requires less floor space;36•development of semiconductor and component test systems that have the capacity to simultaneously test multiple complex
SoC semiconductors with large pin counts and requires less floor space;•development of semiconductor and component test systems with specialized applications;•development of measurement modules for devices that operate at extremely high frequencies and for networks that carryextremely high density transmissions;•development of high speed transmission technologies for high speed large pin counts and high speed transmission signal
contact technologies; and•development of application software for interface between the semiconductor designing environment and semiconductor
and component test systems, as well as development of software to analyze defective semiconductors.

Mechatronics Systems Segment•

development of test handlers for memory semiconductors enabling measuring of multiple semiconductors for highthroughput testing; and•development of test handlers for SoC semiconductors that respond to diversified device types and packages.

Advantest has four research and development facilities in Japan and two in the U.S.
Advantest promotes joint development efforts between its various research facilities to capitalize on the capabilities of its
researchers worldwide. Advantest’s research and development team for semiconductor and component test systems in Japan works
closely with Advantest engineers in Santa Clara, California in the development of open architecture platforms.
Advantest has been carrying out research and development activities for its burn-in system, concentrating its development
resources on Japan Engineering Co., Ltd, a subsidiary of Advantest.
Advantest is currently engaged in the research and development of electron-beam, or e-beam, lithography technology used to
draw circuit patterns on semiconductors, as well as the research and development of electron-beam length measuring systems used tomeasure the microscopic size of photomask. Due to their throughput limitations, e-beam lithography systems are currently only usedin the production of high value-added semiconductors with limited production volumes and semiconductor prototypes. Advantest
believes that further research and development will be necessary in order to attain high precision technologies for the leading design
rule, in addition to the development of technologies for throughput responding to the demand for next generation equipment.
For a description of Advantest’s patents, licenses and other intellectual property, see “Information on the Company—Business
Overview—Licenses and Intellectual Property Rights.”
5.D.

TREND INFORMATION

For a discussion of the trends that affect Advantest’s business and financial condition and results of operations, see “Informationon the Company—Business Overview,” “Operating and Financial Review and Prospects—Operating Results” and “Operating and
Financial Review and Prospects—Liquidity and Capital Resources.”
5.E.

OFF-BALANCE SHEET ARRANGEMENTS
As of March 31, 2008, Advantest had no material off-balance sheet arrangements.

Advantest does not participate in transactions that derecognize assets or liabilities through unconsolidated entities, structured
finance or special purpose entities that were created for the purpose of facilitating off-balance sheet arrangements or other limited
purposes.

37

5.F.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table reflects Advantest’s current obligations and commitments to make future payments under contracts,
contractual obligations and commercial commitments at March 31, 2008.
Payments due by Period
Contractual Cash Obligation

Total

Less than
1 yearLong-Term Debt, including current portion ..............................................................
Operating Leases.......................................................................................................
Contractual Obligations ............................................................................................
Total Contractual Cash Obligations ..........................................................................

¥ —
778
182
¥ 960

¥ —
358
182
¥ 540

1-3
years

3-5
years

More than
5 years

¥ —
13
—
¥ 13

¥ —
28
—
¥ 28

(in millions)

5.G.

¥ —
379
—
¥ 379

SAFE HARBOR

All information that is not historical in nature disclosed under “Item 5. Operating and Financial Review and Prospects—OffBalance Sheet Arrangements” and “—Tabular Disclosure of Contractual Obligations” is deemed to be a forward-looking statement.
See “Cautionary Statement with Respect to Forward-Looking Statements.”
ITEM 6.
6.A.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESDIRECTORS AND SENIOR MANAGEMENT

Directors, Corporate Auditors and Executive Officers
Directors, corporate auditors and executive officers of the Company as of June 25, 2008 and their respective business experience
are listed below.
Name (Date of birth)

Shimpei Takeshita(July 14, 1940)

Position(Group executive/function)

Date ofcommencement

Chairman of the Board

3/1964
6/1985
12/1990
6/1995
4/1997
6/1997
6/19996/20015/20056/20057/20055/2007
Toshio Maruyama(April 17, 1948)

Representative
Board Director, President
and CEO

4/1973
6/19896/1995
6/19996/20015/20036/20035/20056/20055/200638

Business experience

Joined Advantest Corporation
Director
Managing Director
Senior Managing Director
General Manager, Electron Beam Lithography Division
In Charge of Business Division
Representative Director and Executive Vice President
Senior Vice President, Business Support Group
Vice Chairman of the Board
Chairman of Japan Electric Measuring Instruments
Manufacturers’ Association
Chairman of the Board of Advantest Corporation (present
position)
Director of the Japan Business Federation (present
position)
Director of the Semiconductor Equipment Association ofJapan (present position)
Vice Chairman, Japan Electric Measuring Instruments
Manufacturers’ Association
Joined Advantest Corporation
Director
Managing Director
Senior Managing Director
Senior Vice President, ATE Sales Group
Representative Board Director and President
Director, Environmental Management Center (present
position)
Representative Board Director, President and COO
Director of Japan Electronics and Information Technology
Industries Association (present position)
Representative Board Director, President and CEO (present
position)
Director of the Association of Super-Advanced Electronics
Technologies (present position)

Name (Date of birth)

Naoyuki Akikusa(December 12, 1938)

Position(Group executive/function)

Director

Date ofcommencement

4/1961
6/1988
6/1991
6/1992
6/19986/20036/20056/20066/2008

Yasushige Hagio(November 24, 1947)

Director

4/1972
4/1982
4/1998
12/20036/20046/2006

Takashi Tokuno(October 9, 1948)

Director, Senior
Executive Officer
Products and Production

4/1971
6/19966/20006/20016/20036/20044/20056/2006
10/2007

Hiroshi Tsukahara(August 26, 1950)

Director, Managing
Executive Officer
Technology andDevelopment
ATE Related Businesses

4/19746/2001
11/2001
6/20036/20056/20066/20076/2008

Yuichi Kurita(July 28, 1949)

Director, Managing
Executive Officer
Corporate Administration

4/19733/2001
10/2001
4/20026/20036/20046/2005
11/2006
39

Business experience

Joined Fuji Communication Apparatus Mfg. Co., Ltd.
(currently Fujitsu Limited)
Director, Fujitsu Limited
Managing Director of Fujitsu Limited
Senior Managing Director, Fujitsu Limited
Representative Board Director and President, Fujitsu
LimitedRepresentative Board Director and Chairman of the Board,
Fujitsu Limited
Corporate Auditor of Advantest Corporation
Director, Advantest Corporation (present position)
Senior Executive Advisor and Director of Fujitsu Limited(present position)
Assistant Judge, Tokyo District Court
Judge, Tokyo District Court
Instructor, Legal Training and Research InstituteChief of the Shizuoka District Court
Registered as an attorney-at-Law
Joined Seiwa Patent office & Law (present position)
Director, Advantest Corporation (present position)
Joined Advantest Corporation
Director
General Manager, ATE Software Division
Managing Director
Vice President, ATE Business Group
Senior Vice President, ATE Business GroupManaging Executive Officer
Director, Managing Executive Officer
Product Development
Head of Test System BusinessDirector, Senior Executive Officer (present position)
Products
Products and Production (present position)
Joined Advantest Corporation
Director
Senior Vice President, DI Business Group
General Manager, DI Business Division
Executive Officer
Director, Fujitsu Interconnect Technologies Limited
Managing Executive Officer
Senior Vice President, 1st Test System Business Group
Director, Managing Executive Officer (present position)
Technology and Development (present position)
ATE Related Businesses (present position)
Joined Fujitsu Limited
Joined Advantest Corporation
General Manager, Investor Relations Office
Manager, Finance Department
Executive Officer
Vice President, Corporate Affairs Group
Vice President, Corporate Affairs Group (overseeing
Finance)
Senior Vice President, Corporate Relations Group
Senior Vice President, Corporate Planning Group
Director, e-Shuttle, Inc. (present position)

Name (Date of birth)

Position(Group executive/function)

Date ofcommencement

6/20076/2008

Takao Tadokoro(May 29, 1949)

Hiroyasu Sawai(May 23, 1950)

Director, Managing
Executive Officer
SE

Director, Managing
Executive Officer
Sales and Marketing

Joined Advantest Corporation
General Manager, ATE Systems Engineering Division

6/19996/20034/20046/20056/2008

Director
Executive Officer
Senior Vice President, ATE Sales Group
Senior Vice President, Sales and Marketing GroupManaging Executive Officer
Director, Managing Executive Officer (present position)
SE (present position)
Senior Vice President, SE Group (present position)
General Manager, CE Support Division (present position)

4/1974
6/1997

Joined Advantest Corporation
General Manager of International ATE Sales Department

6/199910/2000

Director
General Manager, ATE International Account Sales
Division
Vice President, ATE Sales GroupManager, ATE Fabless Outsourcing Solution Business
Department
Executive Officer
General Manager, ATE Systems Engineering Division
Vice President, ATE Business Group (overseeing SE)
Senior Vice President, SE GroupManaging Executive Officer
Director, Managing Executive Officer (present position)
Sales and Marketing (present position)
Senior Vice President, Sales and Marketing Group (present
position)
General Manager, Sales Division 2 (present position)

6/20036/20044/20056/20056/2008

Standing Corporate
Auditor

2/19706/1991
6/19976/20006/20016/20036/2007

Yuri Morita(July 15,1947)

Standing Corporate
AuditorDirector, Managing Executive Officer (present position)
Corporate Affairs
Corporate Administration (present position)
Senior Vice President, Corporate Administration Group(present position)
Assistant Director (Administration), Environmental
Management Center (present position)
In Charge of Corporate Ethics Office (present position)

4/1974
6/19976/20016/2002

Hitoshi Owada(March 26,1946)

Business experience

4/1972
1/1994
9/1995
4/19966/20006/20012/200340

Joined Advantest Corporation
Manager of Accounting Department
Director
Managing Director
Senior Vice President, Corporate Affairs Group
Senior Vice President, Auditing Group
Director, Managing Executive Officer Corporate Affairs
Standing Corporate Auditor (present position)
Joined Fujitsu Limited
Joined Benesse Corporation
Joined Advantest Corporation
Manager of Legal Department
Board Director
Senior Vice President, Export Control Division
Vice President, Corporate Affairs GroupManager, General Affairs Department

Name (Date of birth)

Position(Group executive/function)

Date ofcommencement

6/20033/20044/20056/2008Megumi Yamamuro(March 8,1948)

Corporate Auditor

4/1974
4/1984
4/1988
4/19977/2004

10/2004
6/20056/2006
Jiro Haneda(October 3,1943)

Corporate Auditor

4/1966
6/1996
6/19986/20003/20026/20033/20046/2007

Yoshiro Yagi
(July 26,1951)

Managing Executive
Officer

4/19706/20012/20036/20034/20046/2004
10/2004
4/20056/20074/20086/2008Masao Shimizu(February 24,1953)

Executive Officer

4/19734/20006/20014/20026/20036/20044/20056/2006

41

Business experience

Managing Executive Officer
Assistant Director, Environmental Management Center
Senior Vice President, Corporate Affairs Group
Assistant Director (overseeing Administration),
Environmental Management Center
In Charge of Corporate Ethics OfficeStanding Corporate Auditor (present position)
Assistant Judge, Tokyo District Court
Judge, Tokyo District Court
Instructor, Legal Training and Research Institute
Judge, Tokyo High Court
Registered as an attorney-at-Law
Joined CAST Law P.C. (currently CAST Itoga Law P.C)
(present position)
Professor, The University of Tokyo Graduate School of
Law and Politics (present position)
Corporate Auditor, Fujitsu Limited (present position)
Corporate Auditor, Advantest Corporation (present
position)
Joined Nihon Kangyou Bank, Limited
Director, Kanematsu Corporation
Representative Board Director and Managing Director
Corporate Auditor, Kanematsu Electronics Ltd.
Corporate Auditor, Nippon Office Systems Ltd.
Representative Board Director and Senior Managing
Director, Kanematsu Corporation
Standing Corporate Auditor, Nippon Office Systems Ltd.
Corporate Auditor, Advantest Corporation (present
position)
Joined Advantest Corporation
Manager, Account Sales Department 1
General Manager, ATE Domestic Sales Division
Executive Officer
Vice President, ATE Sales Group
General Manager, Domestic Sales Division 1
Vice President, Sales and Marketing Group (overseeing
ATE)
General Manager, Domestic Sales Division 1
General Manager, Sales Division 1 (present position)
Managing Executive Officer (present position)
Vice President, Sales and Marketing Group (overseeing
Sales)
Vice President, Sales and Marketing Group (present
position)
Joined Advantest Corporation
General Manager, SoC Tester Business Division
Director
General Manager, 1st SoC Tester Business Division
Executive Officer (present position)
Vice President, ATE Business Group (overseeing SoC
Tester product)
Senior Vice President, 1st Test System Business Group
Senior Vice President, DI Business Group (present
position)
General Manager, DI Business Division (present position)

Name (Date of birth)

Hideaki Imada(April 19,1955)

Position(Group executive/function)

Executive Officer

Date ofcommencement

6/2007

Director, Fujitsu Interconnect Technologies Limited(present position)

4/19784/20022/20036/2003Joined Advantest Corporation
General Manager, 2nd SoC Tester Business Division
Leader, OAI Business Initiatives
Executive Officer (present position)
Vice President, ATE Sales Group
Vice President, Sales and Marketing Group
Vice President, Sales and Marketing Group (overseeing
OAI)
Senior Vice President, 2nd Test System Business Group
General Manager, Product Design Initiatives 2
General Manager, Memory Tester Business Division
Senior Vice President, Memory Tester Business Group(present position)

4/20046/20044/20056/2008
Yasuhiro Kawata(October 5, 1953)

Executive Officer

4/19746/20014/20022/20036/20055/20076/2008

Takashi Sugiura(March 8, 1957)

Executive Officer

4/19799/19986/2001
10/2001
6/20022/20036/20056/2006

Shinichiro Kuroe(March 30, 1959)

Executive Officer

Business experience

4/1981
3/19986/20006/20014/20022/20036/20054/2007
12/2007
42

Joined Advantest Corporation
General Manager, ATE Product Engineering Division
General Manager, 2nd Memory Tester Business Division
General Manager, 2nd SoC Tester Business Division, ATE
Business Group
Executive Officer (present position)
General Manager, 2nd SoC Tester Business Division, 1st
Test System Business Group
Senior Vice President, Cost Planning Group
General Manager, Cost Planning Division
Senior Vice President, Quality Assurance Group (present
position)
General Manager, Quality Assurance Division (present
position)
Assistant Director (Technology), Environmental
Management Center (present position)
Joined Advantest Corporation
Manager, ATE Global Marketing Department
Manager, ATE SoC Solution Business Department
General Manager, Product Design Initiatives
General Manager, ATE Product Design Initiatives
General Manager, Product Design Initiatives
General Manager, Product Design Initiatives 1
Executive Officer (present position)
Senior Vice President, FA Business Group (present
position)
General Manager, Handler Division
Joined Advantest Corporation
Manager, 1st Product Development Department
Manager, Memory Tester Development Department
General Manager, Memory Tester Business Division
In Charge of Memory Tester Product, ATE BusinessGroup
General Manager, 1st Memory Tester Business Division
General Manager, Memory Tester Business Division
Executive Officer (present position)
Vice President, Sales and Marketing Group
General Manager, Solution Business Division
General Manager, Soc Strategic Sales Team
General Manager, 1st SoC Tester Business Division

Name (Date of birth)

Takashi Sekino(May 30, 1957)

Position(Group executive/function)

Executive Officer

Date ofcommencement

6/2008

Senior Vice President, SoC Tester Business Group (present
position)

4/1982
4/1998
6/1998Joined Advantest Corporation
Manager, 1st R&D Department, ATE Technology Division
Manager, 2nd R&D Department, ATE 1st Technology
DivisionManager, 3rd R&D Department, ATE 1st Technology
Division
General Manager, ATE 1st Technology Division
General Manager, 1st Technology Division
Executive Officer (present position)
Vice President, Technology Development Group
Senior Vice President, Technology Development Group(present position)

6/2001
11/2001
4/20056/20065/2007
Hiroshi Nakamura(December 4, 1957)

Executive Officer

4/1981
6/19986/20026/20066/20076/2008

Yoshiaki Yoshida(February 8, 1958)

Executive Officer

4/19996/20006/20066/20076/2008

Minoru Morishita(January 12, 1949)

Executive Officer

6/19736/20026/2007

Saebum Myung(September 16, 1954)

Executive Officer

4/19894/20046/20066/2008

Soich Tsukakoshi(February 1, 1960)

Executive Officer

4/19834/20086/2008Haruo Matsuno(February 14, 1960)

Executive Officer

Business experience

4/19846/20066/2007
43

Joined Advantest Corporation
Manager, Business Accounting Department, Corporate
Affairs GroupManager, Accounting Department, Corporate Affairs
Group
Executive Officer (present position)
Vice President, Corporate Affairs Group
Senior Vice President, Financial GroupManager, Accounting Department (present position)
Vice President, Corporate Administration Group (present
position)
General Manager, Accounting and Finance Division(present position)
Joined Advantest Corporation
Director, Advantest Finance Inc.
Representative Board Director, Advantest Finance Inc.
Executive Officer (present position)
Vice President, Corporate Planning Group
Senior Vice President, Corporate Planning Group (present
position)
Joined Advantest Corporation
General Manager, Nanotechnology 2nd Business Division(present position)
Executive Officer (present position)
Joined Advantest Corporation
Manager, International Sales Department 3
Representative Director and President, Advantest Korea
Co., Ltd. (present position)
Executive Officer (present position)
Asia Sales, Sales and Marketing Group (present position)
Joined Advantest Corporation
General Manager, Strategic Sales Division (present
position)
Executive Officer (present position)
Vice President, Sales and Marketing Group (present
position)
Joined Advantest Corporation
Senior Vice President, Procurement Group
Senior Vice President, Procurement & Logistics GroupName (Date of birth)

Position(Group executive/function)

Josef Schraetzenstaller(June 16, 1957)

Executive Officer

Date ofcommencement

1/20086/2008

Senior Vice President, Production Group (present position)
Executive Officer (present position)

11/1996
10/1997
4/2000Joined Advantest (Europe) GmbH
Prokurist, Advantest (Europe) GmbHManaging Director, Advantest (Europe) GmbH (present
position)
Executive Officer, Advantest Corporation (present
position)
Europe Sales, Sales and Marketing Group (present
position)

6/2008

R. Keith Lee(December 15, 1955)

Executive Officer

8/1984
7/19961/20046/2008

6.B.

Business experience

Joined Takeda Riken America, Inc. (currently Advantest
America, Inc.)
General Manager, Custom Design Engineering, Advantest
America, Inc.
President and CEO, Advantest America, Inc. (present
position)
President and CEO, Advantest America Corporation(present position)
Executive Officer, Advantest Corporation (present
position)
America Sales, Sales and Marketing Group (present
position)

COMPENSATION

Executive Compensation
The compensation of all of Company’s directors and corporate auditors was an aggregate of approximately ¥541 million* incompensation during the year ended March 31, 2008. Compensation for directors and corporate auditors must be authorized by the
resolutions of the general meetings of shareholders. For a description of the Company’s equity-based compensation plans, see “—Share Ownership.”*1. The amount of compensation set forth above includes ¥135 million, which was allocated as bonuses to be paid to directors
and corporate auditors this fiscal year.
2. Of the compensation set forth above, the aggregate amount of compensation of outside directors and outside corporate
auditors was ¥52 million.
3. Other than the above, an aggregate amount of ¥205 million, consisting of ¥185 million to directors and ¥20 million tocorporate auditors, was granted as the Company’s stock option-related compensation (of the ¥205 million above, an aggregate amountof ¥26 million was paid to outside directors and outside corporate auditors).
6.C.

BOARD PRACTICES

Directors
The Board of Directors has the ultimate responsibility for the administration of the affairs of the Company. The Company’s
articles of incorporation limit the number of directors to ten. Directors are elected at a general meeting of shareholders, and thestandard term of directors is one year. Directors may serve any number of consecutive terms. The Board of Directors elects one ormore representative directors from among its members, each of whom has the authority individually to represent the Company. Fromamong its members, the Board of Directors may elect the chairman and the vice chairman. None of the directors of the Company has aservice contract with the Company that provides for benefits upon termination of service.
Pursuant to the Company Law and the Company’s articles of incorporation, and to the extent permitted by the laws andregulations, the Company may, by resolution of the Board of Directors, exempt liabilities of its directors (including persons who havepreviously served as the Company’s directors) for failing to perform their duties. The Company may enter into contracts with outside
directors to limit their liabilities for a failure to perform their duties, provided that the maximum amount of liabilities under suchcontracts shall be the total of the amounts provided in each item of Article 425, Paragraph 1 of the Company Law.
44

Corporate Auditors
The Company’s articles of incorporation provide for no more than five corporate auditors and the Company currently has twoStanding Corporate Auditors and two outside corporate auditors. Corporate auditors are elected at the general meeting of shareholders
and the standard term of office of corporate auditors is four years. Under the Company Law, at least half of the corporate auditors are
required to be persons who have not been a director, accounting counselor (if an accounting counselor is a corporation, an employee
of such corporation who executes its duties), executive officer, manager, or employee of the Company or any of its subsidiaries at any
time in the past. Corporate auditors may not at the same time be directors, accounting counselors (if an accounting counselor is a
corporation, an employee who executes its duties), executive officers, managers, or employees of the Company or any of its
subsidiaries. The Company increased the number of required outside corporate auditors from one to two at the general meetings ofshareholders held in June 2003 in order to strengthen the auditing function of the board of corporate auditors. Corporate auditors areunder a statutory duty to oversee the administration of the Company’s affairs by its directors, to audit its financial statements to besubmitted by its Board of Directors to the general meetings of the shareholders and to report their opinions thereon. They are also
required to attend the meetings of the Board of Directors and to express their opinions, but are not entitled to vote.
Corporate auditors constitute the board of corporate auditors. The board of corporate auditors has a statutory duty to prepare andsubmit an audit report to the directors each year. A corporate auditor may note his or her opinion in the audit report if his or her
opinion is different from the opinion expressed in the audit report. The board of corporate auditors is empowered to establish audit
policy, methods to investigate the state of business operations and assets and other matters relating to the execution of duties bycorporate auditors.
Pursuant to the Company Law and the Company’s articles of incorporation, and to the extent permitted by the laws andregulations, the Company may, by resolution of the Board of Directors, exempt liabilities of its corporate auditors (including persons
who have previously served as the Company’s corporate auditors) for failing to perform their duties. The Company may enter into
contracts with outside corporate auditors to limit their liabilities for a failure to perform their duties, provided that the maximum
amount of liabilities under such contracts shall be the total of the amounts provided in each item of Article 425, Paragraph 1 of theCompany Law.
Significant Differences in Corporate Governance Practices between the Company and U.S. Companies Listed on the New
York Stock Exchange
Pursuant to home country practices exemptions granted by the New York Stock Exchange, or the NYSE, the Company ispermitted to follow certain corporate governance practices complying with Japanese laws, regulations and stock exchange rules in lieu
of NYSE’s listing standards. The United States Securities and Exchange Commission, or the SEC, approved changes to the NYSE’slisting standards related to corporate governance practices of listed companies in November 2003, as further amended in November
2004. The Company is exempted from the approved changes, except for requirements that (a) the Company’s board of corporate
auditors satisfy the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934 as amended, or the Exchange Act,(b) the Company must disclose significant differences in the corporate governance practices followed by the Company as compared tothose followed by domestic companies under the NYSE listing standards, (c) the Company’s CEO must notify the NYSE of material
non-compliance with (a) and (b), and (d) the Company must submit annual and interim written affirmations to the NYSE. The
Company’s corporate governance practices and those followed by domestic companies under the NYSE listing standards, or NYSE
Corporate Governance, have the following significant differences:
1. Directors. The Company currently has two outside directors on its Board of Directors. Unlike NYSE Corporate Governance,
the Company Law of Japan and related legislation (hereinafter in Item 6.C, the “Company Law”), do not require Japanese companies
with boards of corporate auditors such as the Company to have any outside directors on its Board of Directors. While NYSE
Corporate Governance requires that the non-management directors of each listed company meet at regularly scheduled executive
sessions without management, the Company currently has no non-management director on its Board of Directors. Unlike NYSE
Corporate Governance, the Company Law does not require, and accordingly the Company does not have, an internal corporate organ
or committee comprised of only outside directors.
2. Committees. The Company has not established committees responsible for director nomination, corporate governance andexecutive compensation as required by NYSE Corporate Governance, but it has adopted a system of corporate auditors based on the
Company Law and integrated such system into the Company’s corporate governance structure. In addition, in connection with such
system of corporate auditors, the Company has elected to establish a nomination and compensation committee, which is an optional
committee under the Company Law.
Pursuant to the Company Law, the Company’s Board of Directors nominates and submits a proposal for appointment of
directors for shareholder approval. The shareholders vote on such nomination at the Company’s general meeting of shareholders. The
Company Law requires that the respective total amount of remuneration, among others, (remuneration, bonus, and other consideration
for services related to employment) to be paid to all directors and all corporate auditors must be determined by a resolution of the45

general meeting of shareholders, unless their remuneration is provided for in the articles of incorporation. The distribution of
remuneration among directors is broadly delegated to the Company’s Board of Directors and the distribution of remuneration amongcorporate auditors is determined by the board of corporate auditors.
3. Audit Committee. The Company avails itself of paragraph (c)(3) of Rule 10A-3 of the Exchange Act, which provides a
general exemption from the audit committee requirements to a foreign private issuer with a board of corporate auditors, subject tocertain requirements which continue to be applicable under Rule 10A-3.
Consistent with the requirements of the Company Law, the Company elects its corporate auditors through a resolution adopted
at a general meeting of shareholders. The Company currently has four corporate auditors, which exceeds the minimum number ofcorporate auditors required pursuant to the Company Law.
Unlike NYSE Corporate Governance, the Company Law, among others, does not require corporate auditors to establish an
expertise in accounting nor are they required to present other special knowledge and experience. Under the Company Law, the boardof corporate auditors may determine audit policy, methods to investigate the state of business operations and assets and other mattersrelating to the execution of duties by corporate auditors, prepare corporate auditors’ reports and give consent to proposals of thenomination of corporate auditors and accounting auditors.
The Company currently has two corporate auditors who satisfy the requirements of “outside corporate auditor” under theCompany Law. Unlike NYSE Corporate Governance, under the Company Law, at least one-half of the corporate auditors of theCompany must be “outside corporate auditors,” which is a person who was not a director, an accounting counselor (if an accounting
counselor is a corporation, an employee of such corporation who carries out its duties), executive officer, general manager, or any
other employee of the Company or any of its subsidiaries at any time in the past. Corporate auditors may not at the same time bedirectors, an accounting counselor (if an accounting counselor is a corporation, an employee who carries out its duties), executive
officer, general manager, or any other employee of the Company or any of its subsidiaries.
4. Corporate Governance Guidelines. The Company is required to adopt or disclose corporate governance guidelines underJapanese laws and regulations, including the Company Law and the Financial Instruments and Exchange Law of Japan or rules ofTokyo stock exchange. Pursuant to the Company Law, the Company is required to decide to implement a structure as required by an
ordinance of the Ministry of Justice (the “Internal Control System”) in order to ensure directors’ compliance with applicable laws andregulations and the Company’s articles of incorporation while executing their duties and joint stock companies’ proper business
operation, and is required to disclose the decision to implement the Internal Control System, policies and the conditions of its
corporate governance in its business report, annual securities report and certain other disclosure documents in accordance with theCompany Law, the Financial Instruments and Exchange Law, and applicable Cabinet ordinances and rules of Tokyo stock exchange inrespect of timely disclosure.
5. Code of Business Conduct and Ethics. Unlike NYSE Corporate Governance, under Japanese law (including the Company
Law and the Financial Instruments and Exchange Law of Japan), and rules of Tokyo stock exchange, the Company is not required toadopt a code of business conduct and ethics for directors, officers and employees. Accordingly, the Company is not required to adopt
and disclose a code of business conduct and ethics for these individuals. However, in accordance with the Company Law, theCompany has decided to implement the Internal Control System as a structure to ensure that director’s execution of their duties atmeetings of the Board of Directors complies with applicable laws and regulations and the Company’s articles of incorporation.
Furthermore, the Company has established a code of ethics consistent with Section 406 of the Sarbanes-Oxley Act.
6. Shareholder Approval of Equity Compensation Plans. Unlike NYSE Corporate Governance, in which material revisions
to equity-compensation plans of the listed companies are subject to shareholder approval, pursuant to the Company Law, if a joint
stock company desires to adopt an equity-compensation plan for directors as compensation to directors other than cash, such company
is generally required to obtain shareholder approval by an “ordinary resolution.” In addition to the above approval, when the Company
previously desired to adopt an equity-compensation plan under which stock acquisition rights are granted on favorable terms to therecipient under the plan (except where such rights are granted to all of its shareholders on a pro-rata basis at the same time), then the
Company has obtained shareholder approval by a “special resolution” of a general meeting of shareholders, where the quorum is onethird of the total number of voting rights and the approval of at least two-thirds of the voting rights represented at the meeting isrequired.

46

6.D.

EMPLOYEES

Set forth below is a table listing the total number of full-time employees and a breakdown of persons employed by maincategory of activity and by geographic location, as of March 31, 2006, March 31, 2007 and March 31, 2008.
As of March 31,

Full-Time Employees.................................................................................................
By Category of Activity:
Administrative ..................................................................................................
Sales .................................................................................................................
Customer Support.............................................................................................
Manufacturing ..................................................................................................
Research and Development ..............................................................................
Other.................................................................................................................
By Geographic Location:
Japan.................................................................................................................
Asia (excluding Japan) .....................................................................................
Americas...........................................................................................................
Europe ..............................................................................................................

2006

2007

2008

3,595

3,637

3,666

403
299
884
798
1,120
91

385
334
869
836
1,128
85

394
285
885
832
1,144
126

2,800
441
235
119

2,832
454
234
117

2,898
463
205
100

Most regular employees of the Company and its subsidiaries in Japan are members of one of the seven labor unions. None ofAdvantest’s overseas employees is a member of a union. Advantest considers its labor relations with all of its workers to be good.
During the fiscal year ended March 31, 2008, Advantest averaged approximately 909 temporary employees at any one time.

47

6.E.

SHARE OWNERSHIPThe following table sets forth the beneficial ownership of shares of common stock of the Company as of March 31, 2008 ofeach of the Company’s directors, corporate auditors and executive officers as of March 31, 2008. Also included is share ownership
information with respect to executive officers, newly appointed, as of June 2008.
Name of Record/Beneficial Owner

Number of Shares

Shimpei Takeshita .....................................
Toshio Maruyama......................................
Naoyuki Akikusa .......................................
Yasushige Hagio........................................
Junji Nishiura.............................................
Hiroji Agata ...............................................
Takashi Tokuno .........................................
Hiroshi Tsukahara......................................
Yuichi Kurita .............................................
Takashi Takaya..........................................
Hitoshi Owada ...........................................
Megumi Yamamuro...................................
Jiro Haneda ................................................
Yuri Morita ................................................
Jiro Katoh ..................................................
Takao Tadokoro.........................................
Hiroyasu Sawai..........................................
Yoshiro Yagi..............................................
Masao Shimizu ..........................................
Masao Araki ..............................................
Hideaki Imada............................................
Akira Hatakeyama .....................................
Yasuhiro Kawata .......................................
Takashi Sugiura .........................................
Shinichiro Kuroe........................................
Takashi Sekino ..........................................
Hiroshi Nakamura......................................
Yoshiaki Yoshida.......................................
Minoru Morishita.......................................
Saebum Myung..........................................
Soichi Tsukakoshi......................................
Haruo Matsuno ..........................................
Josef Schraetzenstaller...............................
R. Keith Lee...............................................

256,702
217,038
21,13915,238149,203145,862
101,976
109,634
92,65423,809116,286
11,0953,000
86,079134,500
108,085
86,392
93,17084,00074,86285,55678,652
66,21678,606
66,35945,86749,50942,29828,143
11,0009,000
6,000
70,00034,000Each of the persons listed above owns less than one percent of the issued and outstanding shares of common stock of theCompany.
The numbers of shares owned by the Company’s directors, corporate auditors and executive officers include options that are
currently exercisable for 2,438,000 shares of the Company’s common stock. For a description of these options, see “Stock Option
Plan” below. The number of shares of common stock owned by the Company’s directors, corporate auditors and executive officers
reflects the number of shares representing less than one unit (100 shares) that are owned through the director and corporate auditor
stock ownership association and allocated to an individual director, corporate auditor or executive officer. For a description of thisassociation, see “—Stock Ownership Associations.” For a description of the unit share system, see “Additional Information—The
Unit Share System.”48

Stock Option PlanAt the general ordinary meetings of shareholders held in June 2004, June 2005, June 2006, June 2007 and June 2008, theshareholders of the Company approved stock option plans for selected directors, corporate auditors, executive officers and employeesof Advantest. The shareholders of the Company also approved the compensation amount of stock acquisition rights to be granted as
stock options to directors and corporate auditors of the Company. The following table shows selected information related to thesestock options. On October 1, 2006, the Company conducted a two for one stock split of shares of its common stock. The number ofshares and exercise price have been restated to reflect the effects of the stock split.
Date of grant .......................................................................
Number of shares to be issued/ delivered............................
Exercise price per share ......................................................
Beginning of exercise period ..............................................
End of exercise period.........................................................
Number of directors, corporate auditors and executive
officers of the Company .................................................
Number of other employees ................................................

Seventh series

Eighth series

July 1, 2004
1,522,000¥3,732
April 1, 2005
March 31, 2009

November 15, 2004
8,000
¥3,732
April 1, 2005
March 31, 2009

April 1, 2005
8,000
¥3,732
April 1, 2005
March 31, 2009

26
179

0
2

0
2

Tenth series

Ninth series

Eleventh series

Twelfth series

Date of grant .......................................................................
Number of shares to be issued/ delivered............................
Exercise price per share ......................................................
Beginning of exercise period ..............................................
End of exercise period.........................................................
Number of directors, corporate auditors and executive
officers of the Company .................................................
Number of other employees ................................................

July 4, 2005
1,518,000¥4,300April 1, 2006
March 31, 2010

December 1, 2005
16,000¥4,300April 1, 2006
March 31, 2010

February 28, 2006
3,980
¥6,702
April 1, 2006
March 31, 2010

27
181

0
6

0
1

Date of grant .......................................................................
Number of shares to be issued/ delivered............................
Exercise price per share ......................................................
Beginning of exercise period ..............................................
End of exercise period.........................................................
Number of directors, corporate auditors and executive
officers of the Company .................................................
Number of other employees ................................................

July 12, 2006
360,000¥5,880April 1, 2007
March 31, 2011

July 12, 2006
1,218,000¥5,880April 1, 2007
March 31, 2011

December 1, 2006
8,000
¥6,218
April 1, 2007
March 31, 2011

13
0

18
184

0
3

Thirteenth series

Date of grant ......................................................................
Number of shares to be issued/ delivered...........................
Exercise price per share .....................................................
Beginning of exercise period .............................................
End of exercise period........................................................
Number of directors, corporate auditors and executive
officers of the Company ................................................
Number of other employees ...............................................

Fifteenth series

Sixteenth series

Seventeenth series

Eighteenth series

July 12, 2007
184,000¥5,563
April 1, 2008
March 31, 2012

July 12, 2007
593,000¥5,563
April 1, 2008
March 31, 2012

September 26, 2007
2,000
¥5,563
April 1, 2008
March 31, 2012

13
0

16
182

0
1

Nineteenth series

Date of grant ...................................................................... February 28, 2008
Number of shares to be issued/ delivered........................... 1,000
Exercise price per share ..................................................... ¥5,563
Beginning of exercise period .............................................
End of exercise period........................................................
Number of directors, corporate auditors and executive
officers of the Company ................................................
Number of other employees ...............................................

Fourteenth series

Twentieth series

Twenty-first series

July 10, 2008
523,000

April 1, 2008
March 31, 2012

July 10, 2008
182,000
To bedetermined
April 1, 2009
March 31, 2013

0
1

13
0

15
174

49

To be determined
April 1, 2009
March 31, 2013

Employee Stock Purchase Program
Since August 1, 2002, eligible employees of Advantest America Corporation and its U.S. subsidiaries are able to participate inan employee stock purchase program. Under the program, each eligible employee may authorize payroll deductions of up to 15% of
their base salary toward the purchase of ADRs representing shares of common stock of the Company. In addition, the Company will
make an additional contribution equal to 15% of each eligible employee’s payroll deductions toward the purchase of the ADRs.
Stock Ownership Associations
The Company’s director and corporate auditor stock ownership association is a partnership formed by the current and former
directors, executive officers and corporate auditors of the Company for the purpose of acquiring the Company’s shares of common
stock. Only current directors, executive officers and corporate auditors and company advisors that formerly were directors or
corporate auditors of the Company may join the director and corporate auditor stock ownership association. The Company established
its director and corporate auditor stock ownership association in 1983. Any member of the association may request that record
ownership of the stock held by that member be transferred, in lots of a single unit, to that member. As of March 31, 2008, 34 current
and former directors, executive officers, corporate auditors and company advisors were members of the director, executive officer andcorporate auditor stock ownership association, and the association held 6,816 shares of the Company’s common stock. The Company
also has an employee stock ownership association for other employees in Japan. As of March 31, 2008, the association had 555
members and held 308,016 shares of the Company’s common stock.
ITEM 7.
7.A.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSMAJOR SHAREHOLDERS

As of March 31, 2008, 178,726,049 shares of the Company’s common stock were outstanding. Beneficial ownership of theCompany’s common stock in the table below was prepared from publicly available records of the filings made by the Company’s
shareholders regarding their ownership of the Company’s common stock under the Financial Instruments and Exchange Law of Japan.
Under the Financial Instruments and Exchange Law of Japan, any person who becomes, beneficially and solely or jointly, aholder, including, but not limited to, a deemed holder who manages shares for another holder pursuant to a discretionary investment
agreement, of more than 5% of the shares with voting rights of a company listed on a Japanese stock exchange (including ADSs
representing such shares) must file a report concerning the shareholding with the Director of the relevant local finance bureau. A
similar report must be filed, with certain exceptions, if the percentage of shares held by a holder, solely or jointly, of more than 5% of
the total issued shares of a company increases or decreases by 1% or more, or if any change to a material matter set forth in any
previously filed reports occurs.
On October 1, 2006, the Company conducted a two for one stock split of shares of its common stock. The number of shares inthe table below has been restated to reflect the effects of the stock split.
Based on publicly available information, the following table sets forth the beneficial ownership of holders of more than 5% of
the Company’s common stock as of the dates indicated in the reports described below.
Name of Beneficial Owner

Fujitsu Limited........................................................................................................................
Nomura Securities Co., Ltd. and its related entities................................................................
Walter Scott & Partners Limited.............................................................................................

Number of Shares

Percentage of
Outstanding Shares

20,142,792
10,171,766
10,008,360

10.09%
5.10%
5.02%

The number of shares owned by Fujitsu Limited is based on a report filed under the Securities and Exchange Law of Japanstating that Fujitsu held or was deemed to hold beneficially, as of February 23, 2005, 20,142,792 shares of the Company’s common
stock. This figure includes 20,142,600 shares of the Company’s common stock held by the trustee of a retirement benefit plan of
Fujitsu. Fujitsu retained beneficial ownership of these 20,142,600 shares of common stock.
The number of shares owned by Nomura Securities Co., Ltd. and its related entities is based on reports filed under the Financial
Instruments and Exchange Law of Japan stating that Nomura Securities Co., Ltd. and its related entities held or were deemed to holdbeneficially, as of April 15, 2008, 10,171,766 shares of Advantest’s common stock.
The number of shares owned by Walter Scott & Partners Limited is based on reports filed under the Financial Instruments andExchange Law of Japan stating that Walter Scott & Partners Limited and its related entities held or were deemed to hold beneficially,
as of October 22, 2007, 10,008,360 shares of Advantest’s common stock.

50

Based on information made publicly available on or after April 1, 2005, the following table describes transactions resulting in a
1% or more change in the percentage ownership held by major beneficial owners of Advantest’s common stock.

Name of Shareholder
Nomura Securities Co., Ltd. and its related
entities .........................................................
Nomura Securities Co., Ltd. and its related
entities .........................................................
Nomura Securities Co., Ltd. and its related
entities .........................................................
Nomura Securities Co., Ltd. and its related
entities .........................................................
Nomura Securities Co., Ltd. and its related
entities .........................................................
Nomura Securities Co., Ltd. and its related
entities .........................................................
Nomura Securities Co., Ltd. and its related
entities .........................................................
Walter Scott & Partners Limited........................
Nomura Securities Co., Ltd. and its related
entities .........................................................
Nomura Securities Co., Ltd. and its related
entities .........................................................
Nomura Securities Co., Ltd. and its related
entities .........................................................
Deutsche Bank London Office and its related
entities .........................................................
Nomura Securities Co., Ltd. and its related
entities .........................................................
Deutsche Bank London Office and its related
entities .........................................................

Date ofTransaction

Shares Owned
Prior toTransaction

Percentage—

Numberof Shares
ChangedShares Owned
After theTransaction

Percentage—

10,966,798

5.50%

May 31, 2006—

August 31, 2006

10,966,798

5.50 %

4,412,596

15,379,394

7.71%

January 15, 2007

15,437,398

7.74 %(2,225,300)

13,212,098

6.62%

March 30, 2007

13,212,098

6.62 %(2,824,402)

10,387,696

5.21%

May 15, 2007

10,387,696

5.21 %

2,105,426

12,493,122

6.26%

June 29, 2007

12,493,122

6.26 %

2,055,956

14,549,078

7.29%

July 13, 2007
October 22, 2007

14,549,078—

7.29 %—(2,969,400)—

11,579,678
10,008,360

5.80%
5.02%

November 15, 2007

11,579,678

5.80 %(2,721,771)

8,857,907

4.44%

November 30, 2007——

10,767,725

5.40%

March 31, 2008

10,767,725

3,661,941

14,429,666

7.23%

March 31, 2008——

10,975,630

5.50%

April 15, 2008

14,429,666

7.23 %(4,257,900)

10,171,766

5.10%

April 15, 2008

10,975,630

5.50 %(2,455,703)

8,519,927

4.27%—
5.40 %—

As of March 31, 2008, the Company had 178,726,049 outstanding shares of common stock. According to JPMorgan Chase
Bank, depositary for the Company’s ADSs, as of March 31, 2008, 1,783,843 shares of the Company common stock were held in theform of ADRs and there was one ADR holder of record in the U.S. According to the Company’s register of shareholders and registerof beneficial owners, as of March 31, 2008, there were 49,344 holders of common stock of record worldwide. As of March 31, 2008,
there were 72 record holders of the Company’s common stock with addresses in the U.S., whose shareholdings represented 6.3% of
the outstanding common stock on that date. Because some of these shares were held by brokers or other nominees, the number ofrecord holders with addresses in the U.S. might not fully show the number of beneficial owners in the U.S.
None of the Company’s shares of common stock entitles the holder to any preferential voting rights.
Advantest knows of no arrangements the operation of which may at a later time result in a change of control.
7.B.

RELATED PARTY TRANSACTIONSBusiness Relationships
Advantest sells products to and purchases parts from Fujitsu Limited, which owns approximately 11% of the voting rights ofAdvantest, and its subsidiaries. Advantest sells products to Fujitsu and its subsidiaries in arm’s-length transactions. Advantest
purchases parts from Fujitsu and its subsidiaries after receiving competitive bids from several suppliers. Advantest derived net sales of¥5,395 million in fiscal 2007 from the sale of products to Fujitsu and its subsidiaries. Advantest purchased parts from Fujitsu and its
subsidiaries in the amount of ¥6,153 million in fiscal 2007. Advantest had receivables from Fujitsu and its subsidiaries in the amountof ¥1,515 million as of March 31, 2008. Advantest had payables to Fujitsu and its subsidiaries in the aggregate amount of¥1,964 million as of March 31, 2008. Advantest expects to continue to engage in arm’s-length transactions with Fujitsu and its
subsidiaries in the future.
Mr. Akikusa, a Director of the Company since 2006, currently serves as a Senior Executive Advisor and Director of Fujitsu
Limited. Mr. Yamamuro, a Corporate Auditor of the Company since 2006, currently serves as a corporate auditor of Fujitsu Limited.
Loans
As of March 31, 2008, the Company has no outstanding loans to its directors and executive officers.

51

7.C.

INTERESTS OF EXPERTS AND COUNSEL
Not applicable.

ITEM 8.
8.A.

FINANCIAL INFORMATIONCONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

1-4. Consolidated Financial Statements. Advantest’s audited consolidated financial statements are included under “Item 18—
Financial Statements.” Except for Advantest’s consolidated financial statements included under Item 18, no other information in thisannual report has been audited by Advantest’s independent registered public accounting firm.
5. Not applicable.
6. Export Sales. See “Information on the Company—Business Overview—Geographic Sales.”7. Legal and Arbitration Proceedings. See “Information on the Company—Business Overview—Legal Proceedings.”
8. Dividend Policy. See “Key Information—Selected Financial Data—Dividends.”
8.B.

SIGNIFICANT CHANGES

See “Operating and Financial Review and Prospects,” “Key Information—Risk Factors” and “Information on the Company—
Business Overview—Industry Overview” for a discussion of significant adverse changes since the date of Advantest’s latest annual
financial statements.
ITEM 9.
9.A.

THE OFFER AND LISTING

LISTING DETAILSThe following table sets forth for the periods shown the reported high and low sales prices of the Company’s common stock on
the Tokyo Stock Exchange and the ADSs on the New York Stock Exchange. The Company changed the ratio of ADSs to underlying
shares on October 1, 2006. The prices below reflect the change in ratio. Details are included in the Company’s press release dated
July 26, 2006.
Tokyo Stock Exchange
Price Per Share

New York Stock Exchange
Price Per ADS

High

Low

High

Low

¥ 4,720
4,665
7,715
7,605
5,750

¥ 1,875
3,090
3,700
5,100
2,100

$ 44.22
44.32
64.54
63.72
48.47

$ 15.98
28.36
34.72
44.70
19.45

7,605
6,065
6,820
6,720
5,750
5,450
3,850
2,975
3,030

5,160
5,185
5,640
5,100
5,120
3,410
2,855
2,100
2,460

63.72
52.78
57.40
57.31
48.47
45.27
32.45
28.26
29.71

44.70
45.30
48.09
43.93
41.76
29.63
25.92
19.45
22.46

3,500
2,975
2,820
2,695
3,030
2,920

3,040
2,220
2,100
2,175
2,625
2,555

31.53
28.26
26.29
27.18
29.71
28.11

27.14
21.06
19.45
21.66
25.76
24.69

Fiscal year ended March 31,

2004 .....................................................................................................................
2005 .....................................................................................................................
2006 .....................................................................................................................
2007 .....................................................................................................................
2008 .....................................................................................................................
Financial quarter ended/ending

June 30, 2006 .......................................................................................................
September 30, 2006 .............................................................................................
December 31, 2006 ..............................................................................................
March 31, 2007....................................................................................................
June 30, 2007 .......................................................................................................
September 30, 2007 .............................................................................................
December 31, 2007 ..............................................................................................
March 31, 2008....................................................................................................
June 30, 2008 (through June 20, 2008)................................................................
Month ended

December 31, 2007 ..............................................................................................
January 31, 2008..................................................................................................
February 29, 2008................................................................................................
March 31, 2008....................................................................................................
April 30, 2008......................................................................................................
May 31, 2008 .......................................................................................................

52

9.B.

PLAN OF DISTRIBUTION
Not applicable.

9.C.

MARKETSThe Company’s common stock is traded on the First Section of the Tokyo Stock Exchange. In April 2000, the Company’scommon stock was added to the Nikkei Stock Average, which is an index of 225 selected stocks from the First Section of the Tokyo
Stock Exchange.
Since September 17, 2001, American Depositary Shares evidenced by American Depositary Receipts have been traded andlisted on the New York Stock Exchange through a sponsored ADR facility operated by JPMorgan Chase Bank, as depositary. Each
American Depository Share represents one share of the Company’s common stock.
9.D.

SELLING SHAREHOLDERS
Not applicable.

9.E.

DILUTION
Not applicable.

9.F.

EXPENSES OF THE ISSUE
Not applicable.

ITEM 10.

ADDITIONAL INFORMATION

10.A. SHARE CAPITAL
Not applicable.
10.B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Set forth below is information relating to the Company’s common stock, including brief summaries of the relevant provisions of
the Company’s articles of incorporation and share handling regulations and of the Company Law of Japan (the “Company Law,”
hereinafter in Item 10.B. the same) and related legislation, all as currently in effect.
GeneralThe Company’s authorized number of shares to be issued is 440,000,000 shares. The number of the Company’s issued sharecapital as of March 31, 2008, including treasury shares, was 199,566,770. All of the issued shares are fully paid and non-assessable.
Under the Company Law, the transfer of shares is principally affected by delivery of share certificates. However, in order toassert shareholders’ rights against the Company, a shareholder must have its name and address registered on the Company’s register ofshareholders. For this purpose, shareholders are required to file their names, addresses and seals with the share registration agent. The
Company’s share registration agent is Tokyo Securities Transfer Agent Co., Ltd., located at 6-2, Otemachi 2-chome, Chiyoda-ku,
Tokyo 100-0004, Japan. The shares have no par value.
The registered holder of deposited shares underlying the ADSs is the depositary for the ADSs. Accordingly, holders of ADSs
will not be able to directly assert their shareholders’ rights against the Company.
A holder of shares may choose, at its discretion, to participate in the central clearing system for share certificates under the Law
Concerning Central Clearing of Share Certificates and Other Securities of Japan. Participating shareholders must deposit certificates
representing the shares to be included in this clearing system with Japan Securities Depository Center, Inc. (“JASDEC”). If a holder is
not a participating institution in JASDEC, it must participate through a participating institution, such as a securities company or bankhaving a clearing account with JASDEC. All shares deposited with JASDEC will be registered in the name of JASDEC on the
Company’s register of shareholders. Each participating shareholder will, in turn, be recorded in the register of beneficial owners
prepared by the Company based on information furnished to the share registration agent of the Company by the participating
institutions and JASDEC. These participating shareholders will be treated in the same way as shareholders registered on the
Company’s register of shareholders. The register of beneficial owners is updated as of the record date on which shareholders entitled
to rights pertaining to the shares are determined. The record date is usually March 31 and September 30 of each year. To transfer
deposited shares, delivery of share certificates is not required. Entry of the share transfer in the book maintained by JASDEC for
participating institutions, or in the book maintained by a participating institution for its customers, has the same effect as the delivery53

of share certificates. The registered beneficial owners may exercise the rights attached to the shares, such as voting rights, and will
receive dividends (if any) and will receive notices to shareholders directly from the Company. The shares held by a person as aregistered shareholder and those held by the same person as a registered beneficial owner are aggregated for these purposes. Beneficial
owners may at any time withdraw their shares from deposit and receive share certificates.
A new law to establish a new central clearing system for shares of listed companies and to eliminate the issuance and use ofcertificates for such shares was promulgated in June 2004 and the relevant part of the law will come into effect within five years of thedate of the promulgation. On the effective date, a new central clearing system will be established and the shares of all Japanesecompanies listed on any Japanese stock exchange, including the shares of common stock of the Company, will be subject to the newcentral clearing system. On the same day, all existing share certificates will become null and void and the companies are not required
to withdraw those share certificates from shareholders. The transfer of such shares will be affected through entry in the books
maintained under the new central clearing system.
Objects and Purposes
Article 2 of the Company’s articles of incorporation states that its objective is to engage in the following business activities:•

the manufacture and sale of electric, electronic and physicochemical appliances and their applied equipment;•

the manufacture and sale of appliances, equipment and software related to any of the foregoing items;•

the lease and rental of equipment, appliances and other products incidental to each of the foregoing items;•

the temporary personnel service business; and•any and all businesses incidental to any of the foregoing items.

Dividends
Dividends—General
Under its articles of incorporation, the Company’s fiscal year closes on March 31 of each year, and year-end dividends, if any,are paid to shareholders and beneficial owners (or registered pledgees thereof) of record at that date.
Under the Company Law, subject to certain limitation on the distributable surplus, dividends, if any, may be paid toshareholders, beneficial shareholders, and pledgees of shares of record as of a record date as set forth by the Company’s articles ofincorporation or as determined by the Board of Directors from time to time. Dividends shall be paid by way of distribution of surplus.
Dividends may be distributed in cash, or in kind subject to certain conditions being met. The Company may make distribution ofdividends by a resolution of a general meeting of shareholders or by a resolution of the Board of Directors.
Dividends—Interim cash dividends
In addition to year-end cash dividends, pursuant to Article 459, Paragraph 1, Item 4 of the Company Law, the Board of
Directors may by resolution declare, an interim cash surplus dividend to shareholders, beneficial shareholders, and pledges of record
at September 30 of each year.
Dividends—Legal reserve
When a stock company like the Company makes distribution of surplus, it shall set aside in its legal reserve or additional paid-in
capital an amount equal to 10 percent of the amount of the surplus to be decreased as a result of such distribution of surplus inaccordance with the provisions set forth in an ordinance of the Ministry of Justice.
Dividends—Distributable amountUnder the Company Law, the Company is permitted to make distribution of surplus to the extent that the aggregate book valueof the assets to be distributed to shareholders does not exceed the Distributable Amount (as defined below) as at the effective date ofsuch distribution of surplus.

54

The amount of surplus at any given time shall be the amount of the Company’s assets and the book value of the Company’streasury stock after subtracting the amounts of the following items (1) through (4) as they appear on the Company’s non-consolidatedbalance sheet as at the end of the Company’s last fiscal year, and after reflecting the changes in the Company’s surplus after the end of
the Company’s last fiscal year, by adding the amounts of the following items (5), (6) and (7) and/or subtracting the amounts of thefollowing items (8), (9) and (10):(1)

its liabilities;(2)

its stated capital;(3)

its additional paid-in capital and legal reserve;(4)other amounts as provided for by an ordinance of the Ministry of Justice;(5)(if the Company transferred its treasury stock after the end of the last fiscal year) the amount of the transfer price of its
treasury stock after subtracting the book value thereof;(6)(if the Company decreased its stated capital after the end of the last fiscal year) the amount of decrease in its stated capital(excluding the amount transferred to the additional paid-in capital or legal reserve);(7)(if the Company decreased its additional paid-in capital or legal reserve after the end of the last fiscal year) the amount ofdecrease in its additional paid-in capital or legal reserve (excluding the amount transferred to the stated capital);(8)(if the Company cancelled its treasury stock after the end of the last fiscal year) the book value of its treasury stock socancelled;(9)(if the Company distributed surplus to shareholders after the end of the last fiscal year) the amount of the assets distributed
to shareholders by way of such distribution of surplus; and(10) other amounts as provided for by an ordinance of the Ministry of Justice including (if the Company reduced the surplus
and increased its stated capital, additional paid-in capital or legal reserve after the end of the last business year) theamount of such reduction and (if the Company has distributed the surplus to the shareholders after the end of the last fiscal
year) the amount set aside in additional paid-in capital or legal reserve (if any) as required by the ordinances of the
Ministry of Justice.
The Distributable Amount of the Company at any given time shall be the aggregate amount of (a) the surplus and (b) the amountof the transfer price of its treasury stock in the same period, after subtracting the amounts of the following items:(1)

the book value of its treasury stock;(2)(if the Company transferred its treasury stock after the end of the last fiscal year) the amount of the transfer price of its
treasury stock; and(3)other amounts as provided for by an ordinance of the Ministry of Justice including (if the sum of one-half of goodwill andthe deferred assets exceeds the total of stated capital, additional paid-in capital and legal reserve, each such amount beingthat appearing on the non-consolidated balance sheet as of the end of the last fiscal year) all or certain part of suchexceeding amount as calculated in accordance with the ordinances of the Ministry of Justice.

In addition, if the Company elects to become a company that uses its consolidated balance sheet for calculating distributabledividends (thus, becomes “a company subject to regulations in respect of dividends determined based on consolidated accounts”), theCompany would be required to deduct the excess amount calculated in the following manner from the distributable amount of surplus.
Such excess amount is determined as (x) the total amount of the amount of shareholders’ equity on unconsolidated balance sheet at theend of the last fiscal year and other amounts as provided for by an ordinance of the Ministry of Justice exceeds (y) the total amount of
the amount of shareholders’ equity on its consolidated balance sheet at the end of its last fiscal year and other amounts as provided forby an ordinance of the Ministry of Justice.
If the Company prepares extraordinary financial statements (as described below) and such extraordinary financial statements areapproved at a meeting of the Board of Directors or the shareholders (if the Company Law so requires), the Company would be
required to adjust the distributable amount for surplus by considering the profits and losses and the amount in respect of issuance oftreasury stock during the period covered in such extraordinary financial statements.

55

The Company may prepare extraordinary unconsolidated financial statements that consist of a balance sheet as of a date within
the fiscal year immediately following the last fiscal year (an extraordinary settlement date) and profit and loss covering a period of thefirst day of the current fiscal year up to such extraordinary settlement date. Such extraordinary financial statements prepared in theforegoing manner must be audited by corporate auditors and accounting auditors.
Dividends—Ex-dividend date and prescription
In Japan, the ex-dividend date and the record date for dividends precede the date of determination of the amount of the dividend
to be paid. The market price of shares generally becomes ex-dividend on the third business day before the record date.
Under the articles of incorporation, the Company is not required to pay any cash dividends unclaimed for a period of three years
after the date on which the dividends first become payable.
For information as to Japanese taxes on dividends, see “—Taxation—Japanese Taxation.”
Capital Accounts
The amount of the issue price of new shares (with certain exceptions) is required to be accounted for as stated capital, although
the Company may account for an amount not exceeding one-half of the issue price as additional paid-in capital.
Under the Company Law, a resolution of general meetings of shareholders is generally required for such transfer of theadditional paid-in capital and legal reserve to the stated capital.
The Company may also reduce the sum of its legal reserve and additional paid-in capital by resolution of a general meeting ofshareholders. Under the Company Law, the Company may reduce the sum of its legal reserve and additional paid-in capital without
the limitation of the amount to be reduced as mentioned above.
All or any part of the surplus which may be distributed as dividends may also be transferred to stated capital by resolution of ageneral meeting of shareholders.
Stock Split
The Company may at any time split the outstanding shares into a greater number of shares by resolution of the Board of
Directors. The Company must give public notice of the stock split, specifying a record date for the stock split, not less than two weeks
prior to the record date.
Consolidation of Shares
The Company may at any time consolidate shares in issue into a smaller number of shares by a special shareholders resolution(See “Voting Rights”). When a consolidation of shares is to be made, the Company must give public notice and notice to eachshareholder that, within a period of not less than one month specified in the notice, share certificates must be submitted to theCompany for exchange. The Company must disclose the reason for the consolidation of shares at the general meeting of shareholders.
The Unit Share System
GeneralConsistent with the requirements of the Company Law, the Company’s articles of incorporation provide that 100 sharesconstitute one “unit.” Although the number of shares constituting a unit is included in the articles of incorporation, any amendment tothe articles of incorporation reducing (but not increasing) the number of shares constituting a unit or eliminating the provisions for theunit of shares may be made by a resolution of the Board of Directors rather than by a special shareholders resolution, which isotherwise required for amending the articles of incorporation. The number of shares constituting one unit, however, cannot exceed
1,000 shares.
Voting Rights under the Unit Share System
Under the unit share system, shareholders shall have one voting right for each unit of shares that they hold. Any number ofshares less than a full unit will carry no voting rights.
Share Certificate for Less Than a Full Unit of Shares
The Company’s articles of incorporation provide that the Company chooses not to issue share certificate for any number ofshares less than a unit will be issued. As the transfer of shares normally requires delivery of share certificates, any fraction of a unit for
which share certificates are not issued will not be transferable.
56

Repurchase by the Company of Shares Constituting Less Than a Full Unit
A holder of shares constituting less than a full unit may require the Company to purchase those shares at their market value inaccordance with the provisions of the Company’s share handling regulations.
Request by a Holder of Shares of Sales by the Company of Shares to Constitute a Full Unit
The Company’s articles of incorporation provide that a holder of shares constituting less than a full unit may request theCompany to sell to such holder such amount of shares which will, when added together with the shares constituting less than a fullunit, constitute a full unit of shares in accordance with the provisions of the Company’s share handling regulations.
Effect of the Unit Share System on Holders of ADRs
A holder who owns ADRs evidencing less than 100 ADSs will indirectly own less than a whole unit of shares of common stock.
Although, as discussed above, under the unit share system holders of less than a unit have the right to require the Company topurchase their shares, holders of ADRs evidencing ADSs that represent other than integral multiples of whole units are unable towithdraw the underlying shares of common stock representing less than a unit and, therefore, are unable, as a practical matter, toexercise the rights to require the Company to purchase such underlying shares unless the Company’s articles of incorporation are
amended to eliminate the provision not to issue share certificates for the numbers of shares less than a unit. As a result, access to theJapanese markets by holders of ADRs through the withdrawal mechanism will not be available for dispositions of shares of common
stock in lots less than a unit. The unit share system does not affect the transferability of ADSs, which may be transferred in lots of any
size.
General Meeting of Shareholders
The Company holds its ordinary general meeting of shareholders within three months after the end of a fiscal year and normallyin June of each year in Tokyo, Japan. In addition, the Company may hold an extraordinary general meeting of shareholders whenevernecessary by giving at least two weeks’ advance notice. Under the Company Law, notice of any shareholders’ meeting must be given
to each shareholder having voting rights or, in the case of a non-resident shareholder, to his resident proxy or mailing address in Japanin accordance with the Company’s share handling regulations, at least two weeks before the date of the meeting. The record date foran ordinary general meeting of shareholders is March 31 each year.
Any shareholder holding at least 300 voting rights or 1% of the total number of voting rights for a period of six months or longer
may propose a matter to be considered at a general meeting of shareholders by submitting a request to a representative director of theCompany at least eight weeks before the date of such meeting.
Voting Rights
A holder of shares constituting one or more whole units is entitled to one voting right per unit of shares subject to the limitations
on voting rights set forth in the following paragraph. In general, under the Company Law, a resolution can be adopted at a general
meeting of shareholders by a majority of voting rights represented at the meeting. The Company Law and the Company’s articles ofincorporation require a quorum for the election of directors and corporate auditors of not less than one-third of the voting rights of allshareholders. The Company’s shareholders are not entitled to cumulative voting in the election of directors. A corporate shareholder
whose outstanding shares are directly or indirectly owned by the Company or, due to other causes, whose management is being
controlled in substance by the Company as provided for by an ordinance of the Ministry of Justice, does not have voting rights.
Shareholders may exercise their voting rights through proxies if those proxies are also shareholders who have voting rights.
The Company Law provides that a quorum of at least one-third of voting rights of shareholders that are eligible to vote must bepresent at a shareholders’ meeting to approve any material corporate actions, such as:(1)amendment of the articles of incorporation (except in cases in which a shareholders’ resolution is not required);(2)

acquisition of its own shares from a specific party;(3)

consolidation of shares;(4)

any issue or transfer of new or treasury shares at a “specially favorable” price (or any issue of stock acquisition rights, orbonds with stock acquisition rights at “specially favorable” conditions) to any persons other than shareholders;(5)

the removal of a corporate auditor;(6)

the exemption of liability of a director or corporate auditor with certain exceptions;
57

(7)

a reduction of stated capital meeting certain conditions;(8)

a distribution of in-kind dividends which meets certain requirements;(9)

dissolution, merger, or consolidation with certain exceptions in which a shareholders’ resolution is not required;(10) the transfer of the whole or a material part of the business;(11) the taking over of the whole of the business of any other corporation with certain exceptions in which a shareholders’
resolution is not required;(12) share exchange or share transfer for the purpose of establishing 100% parent-subsidiary relationships with certain
exceptions in which a shareholders’ resolution is not required; or(13) separating of the corporation with certain exceptions in which a shareholders’ resolution is not required,
At least two-thirds of voting rights eligible to vote that are represented at the meeting must approve these actions.
The voting rights of holders of ADSs are exercised by the depositary based on instructions from those holders. With respect tovoting by holders of ADRs, see “Description of American Depositary Receipts” set forth in the Company’s registration statement on
Form F-1 filed with the Securities and Exchange Commission on July 22, 2002.
Rights to be Allotted Shares
Holders of shares have no preemptive rights under the Company’s articles of incorporation. Under the Company Law, the Boardof Directors may, however, determine that shareholders shall be given rights to be allotted shares in connection with a particular issue
or transfer of new or treasury shares, or stock acquisition rights. In this case, the rights must be given on uniform terms to allshareholders as of a specified record date by at least two weeks’ prior public notice to shareholders of the record date.
Rights to be allotted new or treasury shares are non-transferable. A shareholder, however, may be allocated stock acquisitionrights for free, in which case such stock acquisition rights may be transferred to a third party.
Stock Acquisition Rights
Subject to certain requirements, the Company may issue stock acquisition rights by resolution of the Board of Directors. Except
where the issue would be on “especially favorable” terms, the issue of stock acquisition rights may be authorized by a resolution of theBoard of Directors. Holders of stock acquisition rights may exercise their rights to acquire a certain number of shares within theexercise period as prescribed in the terms of their stock acquisition rights. Upon exercise of stock acquisition rights, the Company will
be obliged to issue the relevant number of new shares or alternatively to transfer the necessary number of existing shares held by it.
Liquidation Rights
In the event of a liquidation of the Company, the assets remaining after payment of all debts, liquidation expenses and taxes will
be distributed among the shareholders in proportion to the respective numbers of shares they own.
Liability to Further Calls or Assessments
All of the Company’s currently outstanding shares, including shares represented by the ADSs, are fully paid and non-assessable.
Record Date
March 31 of each year is the record date for the Company’s year-end dividends, if declared. A holder of shares constituting one
or more whole units who is registered as a holder on the Company’s register of shareholders or register of beneficial owners at theclose of business as of March 31 is entitled to exercise shareholders’ voting rights at the ordinary general meeting of shareholders withrespect to the fiscal year ending on that March 31. September 30 of each year is the record date for interim dividends, if declared. In
addition, the Company may set a record date for determining the shareholders entitled to other rights and for other purposes by giving
at least two weeks’ public notice.
The shares generally trade ex-dividend or ex-rights in the Japanese stock exchanges on the third business day before a record
date (or if the record date is not a business day, the fourth business day prior thereto), for the purpose of dividends or rights offerings.

58

Repurchase by the Company of Shares
The Company may acquire its own shares (i) through a stock exchange on which such shares are listed or by way of tender offer(pursuant to an ordinary resolution of a general meeting of shareholders or a resolution of the Board of Directors), (ii) by purchasefrom a specific party (pursuant to a special resolution of a general meeting of shareholders), or (iii) from a subsidiary of the Company(pursuant to a resolution of the Board of Directors). When such acquisition is made by the Company from a specific party other than asubsidiary of the Company, any other shareholder may make a demand to a representative director, more than five calendar days prior
to the relevant shareholders’ meeting, that the Company also purchase the shares held by such shareholder. However, under theCompany Law, the acquisition of its own shares at a price not exceeding the then market price to be provided under an ordinance ofthe Ministry of Justice will not trigger the right of any shareholder to include him/her as the seller of his/her shares in such proposed
purchase. Any such acquisition of shares must satisfy certain requirements and shall be integrated into regulations governing financial
resources relating to the distribution of distributable surplus to shareholders. See “Additional Information—Memorandum and Articles
of Association—Dividends—Distributable amount.”
Shares acquired by the Company may be held by it for any period or may be cancelled by resolution of the Board of Directors.
The Company may also transfer to any person the shares held by it, subject to a resolution of the Board of Directors, and subject also
to other requirements similar to those applicable to the issuance of new shares. The Company may also utilize its treasury stock for the
purpose of transfer to any person upon exercise of stock acquisition rights or for the purpose of acquiring another company by way ofmerger, share exchange or corporate split through exchange of treasury stock for shares or assets of the acquired company.
The Company Law generally prohibits any subsidiary of the Company from acquiring shares of the Company.
Disposal of the Shares by the Company
The Company is not required to send notices to a shareholder if notices to such shareholder fail to arrive continuously for five
years or more at the registered address of the shareholder in the Company’s register of shareholders or at the address otherwise
notified to the Company.
In addition, the Company may dispose of the Shares at the then market price of the Shares by a resolution of the Board of
Directors and after giving at least three months’ prior public notice as well as individual notice to the shareholder at the registeredaddress of the shareholder in the Company’s register of shareholders or to the address otherwise notified to the Company, and hold or
deposit the proceeds for the shareholder, the location of which is unknown, if (i) notices to the shareholder fail to arrive continuously
for five years or more at the registered address of the shareholder in the Company’s register of shareholders or at the address otherwise
notified to the Company, and (ii) the shareholder fails to receive surplus dividends on the Shares continuously for five years or more at
the address registered in the Company’s register of shareholders or at the address otherwise notified to the Company.
Acquisition or Disposition of Shares
Under the Foreign Exchange and Foreign Trade Law and the cabinet orders and ministerial ordinances thereunder (collectively,
the “Foreign Exchange Regulations”), all aspects of regulations on foreign exchange and trade transactions are, with minor exceptions
relating to inward direct investments (which are not generally applicable to the Company’s shares), only subject to post transaction
reporting requirements. Acquisitions and dispositions of shares of common stock or ADSs by non-residents of Japan (including
foreign corporation not resident in Japan) are generally not subject to this reporting requirement. However, the Minister of Finance has
the power to impose a licensing requirement for transactions in limited circumstances.
Dividends and Proceeds of Sales
Under the Foreign Exchange Regulations as currently in effect, dividends paid on, and the proceeds of sales in Japan of, shares
held by non-residents of Japan may in general be converted into any foreign currency and repatriated abroad. The acquisition of sharesby non-residents of Japan by way of stock splits is not subject to any of the foregoing notification or reporting requirements.
Reporting of Substantial Shareholdings
Pursuant to the Financial Instruments and Exchange Law of Japan and regulations thereunder, a person or group of persons
beneficially holding more than 5% of the total shares with voting rights (for this purpose shares issuable upon exercise of stockacquisition rights held by the person or persons are counted in the calculation of the holding and the total shares in issue) of acompany listed on any Japanese stock exchange is required to file with the director of a competent local finance bureau, within fivebusiness days a report containing the identity of such person or persons, the purpose of such holding and certain other informationprescribed by regulations. A similar report must also be made (with certain exceptions) if the percentage of such holding subsequently
increases or decreases by 1% or more or if any change occurs in material matters set out in reports previously filed.
5910.C. MATERIAL CONTRACTS
All contracts concluded by the Company during the two years preceding this filing were entered into in the ordinary course ofbusiness.
10.D. EXCHANGE CONTROLSThe Foreign Exchange and Foreign Trade Law of Japan and its related cabinet orders and ministerial ordinances (the “Foreign
Exchange Regulations”) govern the acquisition and holding of shares of capital stock of the Company by “exchange non-residents”
and by “foreign investors.” The Foreign Exchange Regulations currently in effect do not, however, affect transactions between
exchange non-residents to purchase or sell shares outside Japan using currencies other than Japanese yen.
Exchange non-residents are:•individuals who do not reside in Japan; and•corporations whose principal offices are located outside Japan.

Generally, branches and other offices of non-resident corporations that are located within Japan are regarded as residents ofJapan. Conversely, branches and other offices of Japanese corporations located outside Japan are regarded as exchange non-residents.
Foreign investors are:•individuals who are exchange non-residents;•

corporations that are organized under the laws of foreign countries or whose principal offices are located outside of Japan;
and•corporations (1) of which 50% or more of the total voting rights of their shares are held by individuals who are exchange
non-residents or corporations (a) that are organized under the laws of foreign countries or (b) whose principal offices arelocated outside of Japan or (2) a majority of whose officers, or officers having the power of representation, are individuals
who are exchange non-residents.

In general, the acquisition of shares of a Japanese company (such as the shares of capital stock of the Company) by an exchange
non-resident from a resident of Japan is not subject to any prior filing requirements. In certain limited circumstances, however, theMinister of Finance may require prior approval of an acquisition of this type. While prior approval, as described above, is not required,in the case where a resident of Japan transfers shares of a Japanese company (such as the shares of capital stock of the Company) for
consideration exceeding ¥100 million to an exchange non-resident, the resident of Japan who transfers the shares is required to report
the transfer to the Minister of Finance within 20 days from the date of the transfer, unless the transfer was made through a bank,securities company or financial futures trader licensed under Japanese law.
If a foreign investor acquires shares of a Japanese company that is listed on a Japanese stock exchange (such as the shares ofcapital stock of the Company) and, as a result of the acquisition, the foreign investor, in combination with any existing holdings,
directly or indirectly holds 10% or more of the issued shares of the relevant company, the foreign investor must file a report of theacquisition with the Minister of Finance and any other competent Ministers having jurisdiction over that Japanese company within 15
days from and including the date of the acquisition, except where the offering of the company’s shares was made overseas. In limited
circumstances, such as where the foreign investor is in a country that is not listed on an exemption schedule in the Foreign Exchange
Regulations, a prior notification of the acquisition must be filed with the Minister of Finance and any other competent Ministers, who
may then modify or prohibit the proposed acquisition.
Under the Foreign Exchange Regulations dividends paid on, and the proceeds of sales in Japan of, shares held by non-residents
of Japan may in general be converted into any foreign currency and repatriated abroad. Under the terms of the deposit agreement
pursuant to which the Company’s ADSs are issued, the Depositary is required, to the extent that in its judgment it can convert yen on areasonable basis into dollars and transfer the resulting dollars to the U.S., to convert all cash dividends that it receives in respect ofdeposited shares into dollars and to distribute the amount received (after deduction of applicable withholding taxes) to the holder of
ADSs.
10.E. TAXATION
The following discussion is a general summary of the principal U.S. federal income and Japanese national tax consequences of
the acquisition, ownership and disposition of the shares of common stock of the Company (the “Shares”) or ADSs. This summary
does not purport to address all the material tax consequences that may be relevant to the holders of the Shares or ADSs, and does nottake into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks, insurance60companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings,
regulated investment companies, real estate investment trusts, investors liable for alternative minimum tax, partnerships and otherpass-through entities, investors that own or are treated as owning 10% or more of the Company’s voting stock, investors that hold theShares or ADSs as part of an arbitrage, options trading, hedge, conversion or constructive sale transaction or other integrated
transaction and U.S. Holders (as defined below) whose functional currency is not the U.S. dollar) may be subject to special tax rules.
This summary is based on the federal income tax laws and regulations of the United States and the national tax laws of Japan, judicial
decisions and published rulings and administrative pronouncements as in effect on the date hereof, as well as on the current income
tax convention between the United States and Japan (the “Treaty”), as described below, all of which are subject to change (possiblywith retroactive effect), and/or to differing interpretations.
For purposes of this discussion, a “U.S. Holder” is any beneficial owner of the Shares or ADSs that, for U.S. federal income tax
purposes, is:(1)

an individual who is a citizen or resident of the United States,(2)

a corporation or other entity organized in or under the laws of the United States or any State thereof or the District ofColumbia,(3)

an estate the income of which is subject to U.S. federal income tax without regard to its source, or(4)

a trust that is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons, or that has avalid election in effect under applicable Treasury regulations to be treated as a U.S. person.

An “Eligible U.S. Holder” is a U.S. Holder that:(1)

is a resident of the United States for purposes of the Treaty,(2)

does not maintain a permanent establishment in Japan (a) with which the Shares or ADSs are effectively connected andthrough which the U.S. holder carries on or has carried on a business or (b) of which the Shares or ADSs form part of thebusiness property, and(3)

is eligible for benefits under the Treaty, with respect to income and gain derived in connection with the Shares or ADSs.

If a partnership holds the Shares or ADSs, the tax treatment of a partner generally will depend upon the status of the partner andthe activities of the partnership. A partner of a partnership holding the Shares or ADSs is urged to consult its tax advisor.
This summary does not address any aspects of U.S. federal tax law other than income taxation and does not discuss any aspectsof Japanese tax law other than income taxation as limited to national taxes, inheritance and gift taxation and securities transfer taxation.
This summary also does not cover any state or local, or non-U.S., non-Japanese tax considerations. Investors are urged to consult theirtax advisors regarding the U.S. federal, state, local and Japanese and other tax consequences of acquiring, owning and disposing of
Shares or ADSs. In particular, where relevant, investors are urged to confirm their status as Eligible U.S. Holders with their tax
advisors and to discuss with their tax advisors any possible consequences of their failure to qualify as Eligible U.S. Holders.
This summary is also based in part upon the representations of the depositary and the assumption that each obligation in thedeposit agreement referred to in “Description of American Depositary Receipts” set forth in the Company’s registration statement on
Form F-1 filed with the Securities and Exchange Commission on July 22, 2002, and in any related agreement, will be performed under
its terms.
In general, for purposes of the Treaty, and for U.S. federal and Japanese national income tax purposes, owners of ADRs
evidencing ADSs will be treated as the owners of the Shares represented by those ADSs, and exchanges of the Shares for ADSs, andexchanges of ADSs for the Shares, will not be subject to U.S. federal or Japanese income tax.
This discussion below is intended for general information only and does not constitute a complete analysis of all tax
consequences relating to ownership of Shares or ADSs. Investors in Shares or ADSs should consult their own tax advisors concerning
the tax consequences of their particular situations.
Japanese Taxation
The following is a summary of the principal Japanese tax consequences (limited to national taxes) to holders of the Shares andof ADRs evidencing ADSs representing the Shares who are either individuals who are not residents of Japan or non-Japanese
corporations, without a permanent establishment in Japan (“non-resident Holders”).
Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese withholding tax on dividends paid byJapanese corporations. Stock splits in themselves are, in general not a taxable event.
61

In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax orallowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese
corporations to non-residents of Japan or non-Japanese corporations is generally 20%. With respect to dividends paid on listed sharesissued by a Japanese corporation (such as the Shares) to any corporate or individual shareholders (including those shareholders who
are non-Japanese corporations or non-residents of Japan, such as non-resident Holders), other than any individual shareholder who
holds 5% or more of the total issued shares of the relevant Japanese corporation, the aforementioned 20% withholding tax rate is
reduced to (i) 7% for dividends due and payable on or before December 31, 2008, and (ii) as a general rule, 15% for dividends due andpayable on or after January 1, 2009. At the date of this annual report, Japan has income tax treaties, conventions or agreements
whereby the above-mentioned withholding tax rate is reduced, in most cases to 15% for portfolio investors with, among othercountries, Australia, Belgium, Canada, Denmark, Finland, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland and 10% for portfolio investors under the income tax treaty with France, the U.K.
and the United States.
Under the Treaty, the maximum rate of Japanese withholding tax which may be imposed on dividends paid by a Japanese
corporation to an Eligible U.S. Holder that is a portfolio investor is generally reduced to 10% of the gross amount actually distributed
and Japanese withholding tax with respect to dividends paid by a Japanese corporation to an Eligible U.S. Holder that is a pension
fund is exempt from Japanese taxation by way of withholding or otherwise, unless such dividends are derived from the carrying on ofa business, directly or indirectly, by such pension fund.
If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by the Company to any particular
non-resident Holder is lower than the withholding tax rate otherwise applicable under Japanese tax law or any particular non-resident
Holder is entitled to reduced rate or exemption from Japanese income tax with respect to such dividends under the income tax treaty
applicable to such particular non-resident Holder, such non-resident Holder who is entitled to a reduced rate of, or exemption from,Japanese withholding tax on payment of dividends on the Shares by the Company is required to submit an Application Form for
Income Tax Convention Regarding Relief from Japanese Income Tax on Dividends (together with any other required forms anddocuments) in advance through the Company to the relevant tax authority before the payment of dividends. A standing proxy for nonresident Holders of a Japanese corporation may provide this application service. With respect to ADSs, this reduced rate or exemption
is applicable if the Depositary or its agent submits two Application Forms (one before payment of dividends, the other within eightmonths after the Company’s fiscal year-end or semi-fiscal year-end). To claim this reduced rate or exemption, any relevant nonresident Holder of ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership (as applicable) and toprovide other information or documents as may be required by the Depositary. A non-resident Holder who is entitled, under anapplicable income tax treaty, to a reduced treaty rate lower than the withholding tax rate otherwise applicable under Japanese tax law
or an exemption from the withholding tax, but failed to submit the required application in advance will be entitled to claim the refundof withholding taxes withheld in excess of the rate under an applicable tax treaty (if such non-resident Holder is entitled to a reduced
treaty rate under the applicable income tax treaty) or the whole of the withholding tax withheld (if such non-resident Holder is entitled
to exemption under the applicable income tax treaty) from the relevant Japanese tax authority.
Gains derived from the sale of the Shares or ADSs outside Japan by a non-resident Holder holding such Shares or ADSs as
portfolio investors are, in general, not subject to Japanese income tax or corporation tax. Eligible U.S. Holders are not subject toJapanese income or corporation tax with respect to such gains under the Treaty.
Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired the Shares or ADSs
as a legatee, heir or donee even though neither the individual nor the deceased nor donor is a Japanese resident.
Holders of the Shares or ADSs should consult their tax advisors regarding the effect of these taxes and, in the case of U.S.
Holders, the possible application of the Estate and Gift Tax Treaty between the U.S. and Japan.
U.S. Federal Income Taxation
U.S. Holders
The following discussion is a summary of the principal U.S. federal income tax consequences to U.S. Holders that hold thoseShares or ADSs as capital assets (generally, for investment purposes).
Taxation of Dividends
Subject to the passive foreign investment company rules discussed below, the gross amount of any distribution made by theCompany in respect of Shares or ADSs (without reduction for Japanese withholding taxes) will constitute a taxable dividend to theextent paid out of current or accumulated earnings and profits of the Company, as determined under U.S. federal income tax principles.
The U.S. dollar amount of such a dividend generally will be included in the gross income of a U.S. Holder, as ordinary income, when
the dividend is actually or constructively received by the U.S. Holder, in the case of Shares, or by the depositary, in the case of ADSs.
Dividends paid by us will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect ofdividends received from other U.S. corporations.
62Under current law, dividends received on shares or ADSs of certain foreign corporations in taxable years beginning before
January 1, 2011 by non-corporate U.S. investors may be subject to U.S. federal income tax at lower rates than other types of ordinary
income if certain conditions are met. Dividends received by non-corporate U.S. Holders with respect to Shares or ADSs are expected
to be eligible for these reduced rates of tax. U.S. Holders should consult their own tax advisors regarding the eligibility of such
dividends for a reduced rate of tax.
The U.S. dollar amount of a dividend paid in Japanese yen will be determined based on the Japanese yen/U.S. dollar exchange
rate in effect on the date that dividend is included in the gross income of the U.S. Holder, regardless of whether the payment isconverted into U.S. dollars on such date. If the Japanese yen received as a dividend is not converted into U.S. dollars on the date ofreceipt, a U.S. Holder will have a tax basis in such Japanese yen equal to its U.S. dollar value on the date of receipt. Generally, any
gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is included in the
gross income of a U.S. Holder through the date that payment is converted into U.S. dollars (or the U.S. Holder otherwise disposes of
the Japanese yen) will be treated as U.S. source ordinary income or loss. U.S. Holders should consult their own tax advisors regarding
the calculation and U.S. federal income tax treatment of foreign currency gain or loss.
To the extent, if any, that the amount of any distribution received by a U.S. Holder in respect of Shares or ADSs exceeds theCompany’s current and accumulated earnings and profits, as determined under U.S. federal income tax principles, the distribution firstwill be treated as a tax-free return of capital to the extent of the U.S. Holder’s adjusted tax basis in those Shares or ADSs, andthereafter will be treated as U.S. source capital gain.
Distributions of additional Shares that are made to U.S. Holders with respect to their Shares or ADSs and that are part of a pro
rata distribution to all of the Company’s shareholders generally will not be subject to U.S. federal income tax.
For U.S. foreign tax credit purposes, dividends included in gross income by a U.S. Holder in respect of Shares or ADSs will
constitute income from sources outside the United States, and will generally be “passive category income” or “general category
income”. Subject to generally applicable limitations under U.S. federal income tax law and the Treaty, any Japanese withholding tax
imposed in respect of the Company dividend may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder,or if the U.S. Holder does not elect to claim a foreign tax credit for any foreign taxes paid during the taxable year as a deduction fromsuch U.S. Holder’s taxable income. Special rules generally will apply to the calculation of foreign tax credits in respect of dividend
income that qualifies for preferential tax rates of U.S. federal income tax. Additionally, special rules may apply to individuals whose
foreign source income during the taxable year consists entirely of “qualified passive income” and whose creditable foreign taxes paidor accrued during the taxable year do not exceed $300 ($600 in the case of a joint return). Further, under some circumstances, a U.S.
Holder that:(i)has held Shares or ADSs for less than a specified minimum period, or(ii)

is obligated to make payments related to the Company dividends,

will not be allowed a foreign tax credit for Japanese taxes imposed on the Company dividends.
Investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular
circumstances. The U.S. Internal Revenue Service (the “IRS”) has expressed concern that parties to whom ADSs are released may betaking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of ADSs. Accordingly, investors should beaware that the discussion above regarding the creditability of Japanese withholding tax on dividends could be affected by future
actions that may be taken by the IRS.
Taxation of Capital Gains
In general, upon a sale or other taxable disposition of Shares or ADSs, a U.S. Holder will recognize gain or loss for U.S. federal
income tax purposes in an amount equal to the difference between the amount realized on the sale or other taxable disposition and the
U.S. Holder’s adjusted tax basis in those Shares or ADSs. A U.S. Holder generally will have an adjusted tax basis in the Shares or
ADSs equal to their U.S. dollar cost. Subject to the passive foreign investment company rules discussed below, gain or loss recognizedon the sale or other taxable disposition generally will be capital gain or loss and, if the U.S. Holder’s holding period for those Sharesor ADSs exceeds one year, will be long-term capital gain or loss. Non-corporate U.S. Holders, including individuals, are eligible forpreferential rates of U.S. federal income tax in respect of long-term capital gain. Under U.S. federal tax law, the deduction of capital
losses is subject to limitations. Any gain or loss recognized by a U.S. Holder in respect of the sale or other disposition of Shares or
ADSs generally will be treated as derived from U.S. sources for foreign tax credit purposes.
Deposits and withdrawals of Shares in exchange for ADSs will not result in the realization of gain or loss for U.S. federal
income tax purposes.

63Passive Foreign Investment Companies
A non-U.S. corporation generally will be classified as a passive foreign investment company (a “PFIC”) for U.S. federal income
tax purposes in any taxable year in which, after applying look-through rules, either (1) at least 75% of its gross income is passive
income, or (2) on average at least 50% of the gross value of its assets is attributable to assets that produce passive income or are held
for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains
from commodities and securities transactions. The PFIC determination is made annually and generally is based on the value of a nonU.S. corporation’s assets (including goodwill) and the composition of its income for the relevant tax year.
Based on current estimates of its income and assets, the Company does not believe that it will be a PFIC for its current taxable
year, and intends to continue its operations in such a manner that it will not become a PFIC in the future. However, because the PFIC
determination is made annually at the close of the taxable year, the Company can provide no assurance that it will not become a PFICin the current or any future taxable year due to changes in its asset or income composition, a decrease in the price of its Shares (which
is used as a measure of goodwill as an active asset) or for other reasons. If the Company becomes a PFIC, U.S. Holders could be
subject to additional U.S. federal income taxes on gain recognized with respect to the Shares or ADSs and on certain “excess”
distributions (generally distributions in excess of 125% of the average distribution over a three-year period, or, if shorter, the holding
period for the Shares or ADSs). In addition, an interest charge may apply to the portion of the U.S. federal income tax liability on suchgains or distributions treated under the PFIC rules as having been deferred by the U.S. Holder. Moreover, dividends that a noncorporate U.S. Holder receives from us will not be eligible for the reduced U.S. federal income tax rates applicable to dividends
described above if we are a PFIC either in the taxable year of the distribution or the preceding taxable year. The Company will inform
U.S. Holders if it believes that it will be classified as a PFIC in any taxable year. If a U.S. Holder holds Shares or ADSs in any taxable
year in which the Company is a PFIC, such U.S. Holder will be required to file an information statement with the IRS.
U.S. Holders are urged to consult their tax advisors concerning the U.S federal income tax consequences of holding Shares or
ADSs if the Company were considered a PFIC in any year.
Non-U.S. Holders
The following discussion is a summary of the principal U.S. federal income tax consequences to beneficial holders of Shares or
ADSs that are neither U.S. Holders nor partnerships, nor entities taxable as partnerships for, U.S. federal income tax purposes (“NonU.S. Holders”).
A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax in respect of distributions in respectof the Shares or ADSs unless the distributions are effectively connected with the conduct by the Non-U.S. Holder of a trade orbusiness within the United States (and, if an applicable tax treaty requires, are attributable to a U.S. permanent establishment or fixedbase of such Non-U.S. Holder).
A Non-U.S. Holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a sale or othertaxable disposition of Shares, unless (i) the gain is effectively connected with a trade or business conducted by the Non-U.S. Holder
within the United States (and, if an applicable tax treaty requires, is attributable to a U.S. permanent establishment or fixed base ofsuch Non-U.S. Holder), or (ii) the Non-U.S. Holder is an individual who was present in the United States for 183 or more days in the
taxable year of the disposition and other conditions are met.
Income that is effectively connected with a U.S. trade or business of a Non-U.S. Holder (and, if an applicable income tax treaty
applies, is attributable to a U.S. permanent establishment or a fixed base of such Non-U.S. Holder) generally will be taxed in the samemanner as the income of a U.S. Holder. In addition, under certain circumstances, any effectively connected earnings and profits
realized by a corporate Non-U.S. Holder may be subject to additional “branch profits tax” at the rate of 30% or at a lower rate that
may be prescribed by an applicable income tax treaty.
Backup Withholding and Information Reporting
In general, except in the case of certain exempt recipients (such as corporations), information reporting requirements will apply
to dividends paid to a U.S. Holder in respect of Shares or ADSs, and to the proceeds received by a U.S. Holder upon the sale,exchange or redemption of Shares or ADSs within the United States or through certain U.S.-related financial intermediaries.
Furthermore, a backup withholding tax (currently at a rate of 28%) may apply to such payments or proceeds if a U.S. Holder fails toprovide an accurate tax identification number and make appropriate certifications in the required manner.

64

Dividends paid to a Non-U.S. Holder in respect of Shares or ADSs, and proceeds received upon the sale, exchange orredemption of Shares or ADSs by a Non-U.S. Holder, generally are exempt from information reporting and backup withholding undercurrent U.S. federal income tax law. However, a Non-U.S. Holder may be required to provide certification under penalty of perjury toensure that exemption. Persons required to establish their exempt status generally must provide such certification on IRS Form W-9,
entitled Request for Taxpayer Identification Number and Certification, in the case of U.S. Holders, and on IRS Form W-8BEN,
entitled Certificate of Foreign Status (or other appropriate IRS Form W-8), in the case of Non-U.S. Holders.
Backup withholding is not an additional tax. The amount of backup withholding imposed on a payment may generally be
refunded or allowed as a credit against the holder’s U.S. federal income tax liability provided that the required information is properly
furnished to the IRS.
THE SUMMARY OF U.S. FEDERAL INCOME AND JAPANESE NATIONAL TAX CONSEQUENCES SET OUT ABOVEIS INTENDED FOR GENERAL INFORMATION PURPOSES ONLY. INVESTORS IN THE SHARES OR ADSs ARE URGED
TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO
THEM OF OWNING OR DISPOSING OF SHARES OR ADSs BASED ON THEIR PARTICULAR CIRCUMSTANCES.
10.F. DIVIDENDS AND PAYING AGENTS
Not applicable.
10.G. STATEMENT BY EXPERTS
Not applicable.
10.H. DOCUMENTS ON DISPLAY
The Company files annual reports on Form 20-F and furnishes semi-annual and other periodic reports on Form 6-K with theCommission. You may read and copy any reports, statements or other information on file at the public reference facilities maintainedby the Commission at 100F Street, N.E., Room 1580, Washington, D.C. 20549 or by accessing the Commission’s home page(http://www.sec.gov). Copies of the Company’s annual reports on Form 20-F, semi-annual and other periodic reports on Form 6-K are
also available on its website at http://www.advantest.co.jp/investors/en-index.shtml. The ADSs are listed on the New York Stock
Exchange under the symbol “ATE,” and the Company’s reports and other information may also be inspected at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. In addition, copies of contracts referred to in this annual report may beinspected at the principal executive offices of the Company, located at Shin Marunouchi Center Building, 1-6-2, Marunouchi,
Chiyoda-ku, Tokyo 100-0005, Japan.
10.I.

SUBSIDIARY INFORMATION
Not applicable.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKAdvantest is exposed to market risk from changes in foreign currency exchange rates, interest rates and equity security prices
and credit.
Foreign Currency Exchange Rate Risk
The tables below summarizes information as of March 31, 2008 and March 31, 2007 on instruments and transactions that are
sensitive to foreign currency exchange rates, including assets and liabilities denominated in U.S. dollars, Euros, New Taiwan dollars
and Korean won, and forward contracts. The information in each table is presented in Japanese yen equivalents, which is theCompany’s reporting currency.

65Foreign Currency Denominated Assets and Liabilities
Foreign currency denominated assets and liabilities that are sensitive to exchange rates between such foreign currency and theJapanese yen are presented by denominated currency. All of these assets and liabilities are stated at fair value.
As of March 31, 2008
Assets and Liabilities Denominated in
U.S.$

Euro

NT$

KRW

(in millions)

Cash and cash equivalents.........................................................
Accounts receivable ..................................................................
Accounts payables and accruals................................................

¥ 40,533
5,410(1,507)¥ 10,369
403
(389)

¥383
627
(489)

¥ 1,361
518(243)

As of March 31, 2007
Assets and Liabilities Denominated in
U.S.$

Euro

NT$

KRW

¥ 1,537
2,366
(950)

¥ 2,295
1,376
(531)

(in millions)

Cash and cash equivalents.........................................................
Accounts receivable ..................................................................
Accounts payables and accruals................................................

¥ 49,892
3,509(2,307)¥ 11,057
269(493)

Other foreign currency denominated assets and liabilities that are sensitive to exchange rates between such foreign currency anda currency other than the Japanese yen are presented on a combined basis below. All of the assets and liabilities are stated at fair value.
As of March 31, 2008
Yen Value of Cross Currency Assets and Liabilities(in millions)

Cash and cash equivalents ..............................................................................
Accounts receivable........................................................................................
Accounts payables and accruals......................................................................

¥530
54
(9)
As of March 31, 2007
Yen Value of Cross Currency Assets and Liabilities(in millions)

Cash and cash equivalents ..............................................................................
Accounts receivable........................................................................................
Accounts payables and accruals......................................................................

¥1,241213(2)Foreign Exchange Forward Contracts
Foreign exchange forward contracts used by Advantest are primarily to reduce foreign currency exchange risk. Foreignexchange forward contracts are presented by the notional balances with weighted average exchanges rates. The contract terms of all
foreign exchange forward contracts are short-term which will mature within one year. All of the foreign exchange forward contracts
outstanding as of March 31, 2008 and March 31, 2007 are listed below.
As of March 31, 2008

Contract Amounts

Fair Value

Average
Contractual
Exchange Rate(in millions)

To sell U.S. dollars/receive yen ............................................
To sell Euro/receive yen .......................................................
To sell yen/receive Euro .......................................................
Total ......................................................................................

¥ —
532
2,398
¥ 2,930

¥ —
(10)
(4)
¥ (14)¥—
153.87157.23As of March 31, 2007

Contract Amounts

Fair Value

Average
Contractual
Exchange Rate(in millions)

To sell U.S. dollars/receive yen ...........................................
To sell Euro/receive yen ......................................................
To sell yen/receive Euro ......................................................
Total .....................................................................................

¥

¥

66

—
1,450
3,905
5,355

¥ —
(12)
63
¥ 51

¥

—
155.55154.38

Interest Rate Risk
The table below presents the principal cash flows and related weighted average interest rates by year of maturity for Advantest’slong-term debt obligations by expected maturity dates as of March 31, 2008.
Expected Maturity Date
Type of Debt andAverage Interest Rate

2009

2010

2011

2012

2013

2014 and
thereafter

Total

Fair Value(in millions)

Unsecured borrowings ........................................

¥—

¥—

¥—

¥—

¥—

¥—

¥—

¥—

Total....................................................................

¥—

¥—

¥—

¥—

¥—

¥—

¥—

¥—

The table below presents the principal cash flows and related weighted average interest rates by year of maturity for Advantest’slong-term debt obligations by expected maturity dates as of March 31, 2007.
Expected Maturity Date
Type of Debt andAverage Interest Rate

2008

2009

2010

2011

2012

2013 and
thereafter

Total

Fair Value(in millions)

Unsecured borrowings (1.72%) ..........................

¥ 10

¥—

¥—

¥—

¥—

¥—

¥ 10

¥ 10

Total....................................................................

¥ 10

¥—

¥—

¥—

¥—

¥—

¥ 10

¥ 10

67

Securities Value Risk
The table below shows the acquisition price and fair value of securities that Advantest holds as of March 31, 2008 and March 31,
2007. Advantest does not hold or issue financial commodity with the purpose to trade. The only available-for-sale securities Advantest
holds are equity securities.
As of March 31, 2007
Acquisition Price

As of March 31, 2008

Fair Value

Acquisition PriceFair Value(in millions)Tradable Securities ..................
ITEM 12.

¥ 4,224¥ 8,170¥

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

12.A. DEBT SECURITIES
Not applicable.
12.B. WARRANTS AND RIGHTS
Not applicable.
12.C. OTHER SECURITIES
Not applicable.
12.D. AMERICAN DEPOSITARY SHARES
Not applicable.

68

5,942

¥ 6,493PART IIITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.
ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.
ITEM 15.
(a)

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Advantest performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures asof the end of fiscal 2007. Disclosure controls and procedures are designed to ensure that the material financial and non-financial
information required to be disclosed in the reports that Advantest files, or submits, under the Exchange Act is accumulated andcommunicated to its management including the chief executive officer and principal accounting and financial officer to allow timely
decisions regarding required disclosure. The disclosure controls and procedures also ensure that the reports that it files or submits
under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Commission’s
rules and forms. The evaluation was performed under the supervision of Toshio Maruyama, Advantest’s Representative Board
Director, President and CEO and Yuichi Kurita, Advantest’s Director and Managing Executive Officer. Advantest’s disclosure andcontrols and procedures are designed to provide reasonable assurance of achieving its objectives. Managerial judgment was necessary
to evaluate the cost-benefit relationship of possible controls and procedures. Mr. Maruyama and Mr. Kurita have concluded that
Advantest’s disclosure controls and procedures are effective at the reasonable assurance level.
(b)Management’s Annual Report on Internal Control Over Financial Reporting

The management of Advantest is responsible for establishing and maintaining adequate internal control over financial reporting.
Advantest’s internal control system was designed to provide reasonable assurance with respect to the preparation of financial
statements in accordance with U.S. GAAP and the reliability of such financial statements.
Internal control over financial reporting has inherent limitations underlying internal control systems and misstatements may not
be prevented or detected. Furthermore, if the evaluation results regarding the effectiveness of internal control are expected to remain
the same going forward, it is important to recognize that there are risks, under which changes in circumstances may lead the controls
in place to be inadequate or that the extent to which policies or procedures are complied with may lower.
Advantest’s management assessed the effectiveness of the company’s internal control over financial reporting as of March 31,
2008. In making this assessment, it used the criteria set forth in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as ofMarch 31, 2008, Advantest’s internal control over financial reporting was effective based on those criteria.
Ernst & Young ShinNihon, Advantest’s independent registered public accounting firm, has issued an attestation report on theeffectiveness of our internal control over financial reporting as of March 31, 2008. This report appears in Item 18.
(c)

Attestation Report of the Independent Registered Public Accounting Firm
This report appears in Item 18.

(d)Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the year ended March 31, 2008
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16.

[RESERVED]ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERTAdvantest’s Board of Corporate Auditors has determined that Hitoshi Owada is “audit committee financial expert” as such termis defined by Item 16.A. of Form 20-F.

69

ITEM 16.B.

CODE OF ETHICS

The Company has adopted a code of ethics that applies to its directors and executive officers, including its principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of theCompany’s code of ethics was attached to the annual report on Form 20-F for fiscal 2003 and is attached as an exhibit to this Form 20F for reference.
ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Ernst & Young ShinNihon served as our independent registered public accounting firm for fiscal 2007, 2006 and 2005. The
audited financial statements for these fiscal years are included in the respective year’s annual report filed on Form 20-F.
The chart below sets forth the aggregate fees for professional services and other services rendered to Advantest by Ernst &Young ShinNihon and its member firms in fiscal 2006 and 2007.
Fiscal 2006

Fiscal 2007

(in millions)

(1)

(2)

(3)

(4)

Audit Fees(1) ................................................................................................
Audit-Related Fees(2)...................................................................................
Tax Fees(3) ...................................................................................................
All Other Fees(4) ..........................................................................................

¥ 320
3
33
2

¥ 332
2
24
7

Total ...........................................................................................................

¥ 358

¥ 366

Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that
only the external auditor reasonably can provide, and include the group audit; statutory audits; the issuance of consents; andassistance with and review of documents filed with the SEC.
Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of theaudit or review of our financial statements or that are traditionally performed by the external auditor, and include consultations
concerning financial accounting and reporting standards; and review of security controls and operational effectiveness of
systems.
Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns andclaims for refund; tax consultations, such as assistance in connection with tax audits and advice related to transfer pricing, andrequests for rulings or technical advice from taxing authorities; and expatriate tax services.
All Other Fees include fees billed for training; and process improvement and advice.

Policies and Procedures of the Board of Corporate Auditors
Below is a summary of the current policies and procedures of the board of corporate auditors for the pre-approval of audit andpermissible non-audit services performed by Advantest’s independent public accountants.
Under the policy, the board of corporate auditors authorizes general pre-approval of audit and permissible non-audit services forthe following fiscal year. Upon the general pre-approval of the board of corporate auditors, no specific pre-approval for audit andpermissible non-audit services is required so long as those services fall within the scope of the general pre-approval provided.
Applications to provide services that require specific pre-approval by the board of corporate auditors will be submitted to theboard of corporate auditors.
The board of corporate auditors makes further determination of whether or not to revise the general pre-approval for theapplicable fiscal year. Such request may include adding or subtracting to any audit or permissible non-audit services listed in thegeneral pre-approval. The performance of audit and permissible non-audit services and the payment of fees are subject to the review
by the board of corporate auditors once every fiscal year.
ITEM 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESThe Company does not have an audit committee. The Company is relying on the general exemption contained in Rule 10A3(c)(3) under the Exchange Act, which provides an exemption from the NYSE’s listing standards relating to audit committees forforeign companies like the Company that have a board of corporate auditors. The Company’s reliance on Rule 10A-3(c)(3) does not,in its opinion, materially adversely affect the ability of its board of corporate auditors to act independently and to satisfy the otherrequirements of Rule 10A-3.

70

ITEM 16.E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The following table sets forth Advantest’s purchases of its common stock during fiscal 2007:

Period(a) Total Number of
Shares Purchased1(b) Average Price
Paid per Share(Yen)(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs3

2007
April 1 – April 30 ......................................................
May 1 – May 31.........................................................
June 1 – June 30.........................................................
July 1 – July 31 ..........................................................
August 1 – August 31 ................................................
September 1 – September 30 .....................................
October 1 – October 31..............................................
November 1 – November 30......................................
December 1 – December 31.......................................

652
3,600,312
226
408
218
24
132
5,500,107
186¥ 5,562
5,309
5,270
5,378
4,401
4,260
3,634
3,171
3,255

N/A
3,600,000
N/A
N/A
N/A
N/A
N/A
5,500,000
N/A

N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

2008
January 1 – January 31 ..............................................
February 1 – February 29...........................................
March 1 – March 31 ..................................................

182
24
99

3,049
2,440
2,472

N/A
N/A
N/A

N/A
N/A
N/A

Total...........................................................................

9,102,570¥ 4,0179,100,000

N/A

1

2

(d) Maximum Number of
Shares thatMay Yet Be Purchased
Under the Plans
or Programs

All purchases are made through repurchase of shares constituting less than one unit, which is 100 shares of common stock, or
through repurchase of shares pursuant to a resolution of Board of Directors (Note 2). The purchase of shares that are a fractionof a unit are made in accordance with the provisions of the Company’s share handling regulations. The Company is required tocomply with such requests pursuant to the Company Law. See “Additional Information—Memorandum and Articles of
Association—The Unit Share System.”
The Company can repurchase its shares through stock exchanges where the Company’s shares are listed or pursuant to a
takeover bid when there is a resolution of Board of Directors in accordance to Article 42 of the Articles of Incorporation. At themeeting of its Board of Directors held on April 25, 2007, the Company resolved to repurchase up to 3.6 million shares at an
aggregate price not exceeding ¥20 billion between April 26, 2007 and June 20, 2007. Pursuant to the resolution, the Company
repurchased 3.6 million shares at an aggregate purchase price of ¥19,111 million in May 2007. Moreover, at the meeting of its
Board of Directors held on October 26, 2007, the Company resolved to repurchase up to 5.5 million shares at an aggregate pricenot exceeding ¥20 billion between October 29, 2007 and December 28, 2007 . Pursuant to the resolution, the Company
repurchased 5.5 million shares at an aggregate purchase price of ¥17,441 million in November 2007.

71

PART IIIITEM 17.

FINANCIAL STATEMENTS

Not applicable.
ITEM 18.

FINANCIAL STATEMENTS

The following financial statements are filed as part of this annual report on Form 20-F.

72

ADVANTEST CORPORATION
AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm........................................................................................................

F-2

Consolidated Balance Sheets as of March 31, 2007 and 2008......................................................................................................

F-4

Consolidated Statements of Income
for the years ended March 31, 2006, 2007 and 2008 ...............................................................................................................

F-6

Consolidated Statements of Stockholders’ Equity
for the years ended March 31, 2006, 2007 and 2008 ...............................................................................................................

F-7

Consolidated Statements of Cash Flowsfor the years ended March 31, 2006, 2007 and 2008 ...............................................................................................................

F-8

Notes to Consolidated Financial Statements.................................................................................................................................

F-9

All schedules are omitted as permitted by the rules and regulations of the Securities and Exchange Commission, as the required
information is presented in the notes to consolidated financial statements, or the schedules are not applicable.

F-1

Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Advantest Corporation
We have audited the accompanying consolidated balance sheets of Advantest Corporation and subsidiaries (the “Company”) as
of March 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of thethree years in the period ended March 31, 2008. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Advantest Corporation and subsidiaries at March 31, 2008 and 2007, and the consolidated results of their operations andtheir cash flows for each of the three years in the period ended March 31, 2008, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Advantest Corporation’s internal control over financial reporting as of March 31, 2008, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated June 16, 2008 expressed an unqualified opinion thereon.
/s/Ernst & Young ShinNihon

Tokyo, Japan
June 16, 2008

F-2

Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Advantest Corporation
We have audited Advantest Corporation’s internal control over financial reporting as of March 31, 2008, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Advantest Corporation’s management is responsible for maintaining effective internal control overfinancial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in theaccompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on thecompany’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of theassets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Advantest Corporation maintained, in all material respects, effective internal control over financial reporting asof March 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theaccompanying consolidated balance sheets of Advantest Corporation and subsidiaries as of March 31, 2008 and 2007, and the related
consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended March 31,
2008 and our report dated June 16, 2008 expressed an unqualified opinion thereon.
/s/Ernst & Young ShinNihon

Tokyo, Japan
June 16, 2008

F-3

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2007 and 2008
Yen (Millions)
2007

2008

AssetsCurrent assets:
Cash and cash equivalents.................................................................................................................
Trade receivables, net........................................................................................................................
Inventories.........................................................................................................................................
Deferred tax assets ............................................................................................................................
Other current assets ...........................................................................................................................

¥196,395
54,264
31,976
9,215
2,958

147,348
30,124
26,823
12,678
6,474

Total current assets ..................................................................................................................

294,808

223,447

Investment securities ..................................................................................................................................
Property, plant and equipment, net .............................................................................................................
Deferred tax assets......................................................................................................................................
Intangible assets, net ...................................................................................................................................
Other assets.................................................................................................................................................

11,37049,650
2,690
3,101
4,755

9,754
50,765
6,488
3,476
4,754

Total assets ..............................................................................................................................

¥366,374

298,684

See accompanying notes to consolidated financial statements.

F-4

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2007 and 2008
Yen (Millions)
2007

2008

10
29,0959,370
1,700
13,637
4,135
2,705

—
11,765585
2,458
10,9403,143
2,804

Total current liabilities ...................................................................................................
Accrued pension and severance cost...........................................................................................................
Other liabilities ...........................................................................................................................................

60,6528,267
2,658

31,695
10,711
2,094

Total liabilities ...............................................................................................................
Commitments and contingent liabilities

71,57744,500Stockholders’ equity:
Common stock,
Authorized 440,000,000 shares; issued 199,566,770 shares....................................................
Capital surplus...................................................................................................................................
Retained earnings ..............................................................................................................................
Accumulated other comprehensive income (loss).............................................................................
Treasury stock, 11,916,485 shares in 2007 and 20,840,721 shares in 2008, at cost..........................

32,36339,256
273,082
3,652(53,556)

32,36340,072
278,689(7,615)(89,325)

Total stockholders’ equity..............................................................................................

294,797

254,184

Total liabilities and stockholders’ equity .......................................................................

¥366,374

298,684

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt .....................................................................................................
Trade accounts payable .....................................................................................................................
Income taxes payable ........................................................................................................................
Other accounts payable .....................................................................................................................
Accrued expenses..............................................................................................................................
Accrued warranty expenses...............................................................................................................
Other current liabilities......................................................................................................................

See accompanying notes to consolidated financial statements.

F-5¥

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended March 31, 2006, 2007 and 2008
Yen (Millions)
2006

2007

2008

Net sales......................................................................................................................................
Cost of sales................................................................................................................................

¥ 253,922
121,429

235,012
108,718

182,767
88,837Gross profit ..............................................................................................................

132,493

126,294

93,930Research and development expenses ..........................................................................................
Selling, general and administrative expenses .............................................................................

26,927
41,10829,50939,99330,50740,707

Operating income ....................................................................................................

64,45856,792

22,716

Other income (expense):
Interest and dividends income...........................................................................................
Interest expense.................................................................................................................
Other, net...........................................................................................................................

1,760
(290)
1,526

3,026
(16)
1,288

3,799
(12)
(2,970)

2,996

4,298

817

Income before income taxes and equity in earnings (loss) of affiliated company ...

67,45461,09023,533

Income taxes ...............................................................................................................................
Equity in earnings (loss) of affiliated company ..........................................................................

26,080—25,520
(14)

6,889
(94)

Net income...............................................................................................................

¥ 41,374

35,556

16,550Yen

Net income per share:
Basic..................................................................................................................................
Diluted...............................................................................................................................

2006

2007

2008

¥ 223.17
221.98190.01
188.85

90.72
90.57

See accompanying notes to consolidated financial statements.

F-6

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years ended March 31, 2006, 2007 and 2008
Yen (Millions)

Balance at April 1, 2005................................................................
Comprehensive income:Net income .........................................................................
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments...............
Net unrealized gains (losses) on securities .............

Commonstock

CapitalsurplusRetainedearnings

Accumulated
othercomprehensive
income (loss)¥ 32,363

35,263

210,121(4,878)

206,749
41,374
5,074
1,148

8,157
(55)
1

47,596(4,625)
1,884
8,157
(55)
(1,779)(58,017)257,927(4,625)1,884(1,780)¥ 32,363

37,147

245,090

1,344

35,55635,556
1,123
(362)

1,123
(362)

4,520
(68)
9

36,3171,547(7,474)
2,566
4,063
(68)
(81)

(53,556)

294,797

1,547(7,474)
2,566
(457)
(90)
¥ 32,363

39,256

273,082

3,652

16,55016,550(6,845)(2,060)(2,362)

Total comprehensive income ..........................................................
Cash dividends................................................................................
Stock option compensation expense ...............................................
Exercise of stock option..................................................................
Repurchase of treasury stock ..........................................................
Sale of treasury stock......................................................................
Balance at March 31, 2008 ...........................................................

(66,120)

5,074
1,148

Total comprehensive income ..........................................................
Adjustment to initially apply SFAS 158, net of tax.........................
Cash dividends................................................................................
Stock option compensation expense ...............................................
Exercise of stock option..................................................................
Repurchase of treasury stock ..........................................................
Sale of treasury stock......................................................................
Balance at March 31, 2007 ...........................................................
Comprehensive income:Net income .........................................................................
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments...............
Net unrealized gains (losses) on securities .............
Pension related adjustments ...................................

Total
stockholders’equity41,374

Total comprehensive income ..........................................................
Cash dividends................................................................................
Stock option compensation expense ...............................................
Exercise of stock option..................................................................
Repurchase of treasury stock ..........................................................
Sale of treasury stock......................................................................
Balance at March 31, 2006 ...........................................................
Comprehensive income:Net income .........................................................................
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments...............
Net unrealized gains (losses) on securities .............

Treasurystock(6,845)(2,060)(2,362)

793(36,564)
2

5,283(10,702)858
751(36,564)(239)(89,325)

254,184(10,702)
858
(42)
(241)
¥ 32,363

40,072

278,689(7,615)

See accompanying notes to consolidated financial statements.

F-7

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 2006, 2007 and 2008
Yen (Millions)
2006

2007

2008

¥ 41,374

35,556

16,550

8,275
1,005
1,884

8,214
7,381
2,566

8,836
(4,449)858(11,072)
108
7,627
12,506(1,261)610(329)(1,247)

15,563(2,054)(3,318)(10,586)815(641)(1,437)(3,108)22,666
4,877(16,239)(8,657)(2,527)(986)(1,480)4,717

Net cash provided by operating activities .................................................
Cash flows from investing activities:
Proceeds from sale of available-for-sale marketable securities ........................................
Proceeds from sale of non-marketable securities ..............................................................
Purchases of marketable securities....................................................................................
Purchases of non-marketable securities ............................................................................
Investment in equity method investee...............................................................................
Proceeds from sale of property, plant and equipment .......................................................
Purchases of intangible assets ...........................................................................................
Purchases of property, plant and equipment .....................................................................
Other .................................................................................................................................

59,48048,951

24,166

2,977—(2,256)(1,900)—258(523)(7,071)
(27)

0
20
—
—
(90)
541
(897)
(7,511)(76)—
56(3,002)(233)(1,035)
1,015(1,017)(11,994)(112)

Net cash used in investing activities..........................................................
Cash flows from financing activities:
Principal payments on long-term debt ..............................................................................
Proceeds from sale of treasury stock.................................................................................
Payments to acquire treasury stock ...................................................................................
Dividends paid ..................................................................................................................
Other .................................................................................................................................

(8,542)(8,013)(16,322)(20,043)
6,378(57)(4,622)
8

(30)
3,913
(68)
(7,468)
(9)

(10)
508
(36,564)(10,695)(9)Net cash used in financing activities .........................................................

(18,336)(3,662)(46,770)

Net effect of exchange rate changes on cash and cash equivalents........................................

4,337

1,194

(10,121)

Net change in cash and cash equivalents ...............................................................................
Cash and cash equivalents at beginning of year ....................................................................

36,939120,986

38,470157,925(49,047)
196,395

Cash and cash equivalents at end of year...............................................................................

¥157,925

196,395

147,348

Supplemental data:
Cash paid during the year for:
Income taxes.................................................................................................................
Interest..........................................................................................................................

¥ 12,096401

29,28416

23,28813

Cash flows from operating activities:
Net income ........................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................................................
Deferred income taxes.............................................................................................
Stock option compensation expense........................................................................
Changes in assets and liabilities:
Trade receivables ................................................................................................
Inventories ..........................................................................................................
Trade accounts payable.......................................................................................
Income taxes payable..........................................................................................
Accrued expenses ...............................................................................................
Accrued warranty expenses ................................................................................
Accrued pension and severance cost...................................................................
Other........................................................................................................................

See accompanying notes to consolidated financial statements.

F-8

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements(1) Description of Business and Summary of Significant Accounting Policies and Practices(a) Description of Business
The Company and its consolidated subsidiaries (collectively “Advantest”) manufacture and sell semiconductor and component
test system products and mechatronics-related products such as test handlers and device interfaces. Advantest also engages in researchand development activities and provides maintenance and support services associated with these products.
Description of the business by segment is as follows:
The semiconductor and component test system segment provides customers with test system products for the semiconductor
industry and the electronic parts industry. Product lines provided in the semiconductor and component test system segment include
test systems for memory semiconductors for memory semiconductor devices and test systems for SoC (“System-on-a-Chip”)
semiconductors for non memory semiconductor devices.
The mechatronics system segment provides product lines such as test handlers, mechatronic-applied products for handlingsemiconductor devices, device interfaces that serve as interfaces with the devices that are measured and operations related to nanotechnology products.
The services, support and others segment consists of comprehensive customer solutions provided in connection with the above
segments, support services, equipment lease business and others.
(b) Principles of Consolidation
Advantest’s consolidated financial statements include financial statements of the Company and its majority-owned subsidiaries.
Advantest is not involved with any significant variable interest entities which should be consolidated as defined by Financial
Accounting Standards Board (“FASB”) Interpretation No. 46 (revised December 2003) “Consolidation of Variable Interest Entities”.
All significant intercompany balances and transactions have been eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents primarily consist of deposits and certificates of deposit with an original maturity of three months or less fromthe date of purchase. Advantest considers all highly liquid debt instruments with original maturities of three months or less to be cash
equivalents.
(d) Allowance for Doubtful Accounts
Advantest recognizes an allowance for doubtful accounts to ensure that trade receivables are not overstated due touncollectability, which represents Advantest’s best estimate of the amount of probable credit losses in Advantest’s existing tradereceivables. An allowance for doubtful accounts is provided at an amount calculated based on historical write off experience and a
specific allowance for estimated amounts considered to be uncollectable after reviewing individual factors such as the customer’scurrent financial position, significant changes in the semiconductor industry, other information that is publicly available and thecustomer’s credit worthiness.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the average cost method.

F-9

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(f) Investment Securities
Investment securities at March 31, 2007 and 2008 consist of marketable and non-marketable equity securities, and investment in
an affiliated company. Fair value is determined based on quoted market prices, projected discounted cash flow or other valuation
techniques as appropriate.
Marketable Equity Securities
Advantest classifies its marketable equity securities as available-for-sale.
Available-for-sale securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, on availablefor-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss)
until realized. A decline in the fair value of any available-for-sale security below cost that is deemed to be other than temporary results
in an impairment loss. The impairment is charged to earnings and a new cost basis for the security is established. Dividend income isrecognized when earned.
On a periodic basis, Advantest evaluates the cost basis of an available-for-sale security for possible impairment. Advantest has
an intention and ability to retain available-for-sale security for a period of time sufficient to allow for any anticipated recovery inmarket value. Factors considered in assessing whether an indication of other than temporary impairment exists include: the degree ofchange in ratio of market prices per share to book value per share at the date of evaluation compared to the acquisition date, thefinancial condition and prospects of each investee company, industry conditions in which the investee company operates, the period oftime the fair value of an available-for-sale security has been below the cost basis of the investment and other relevant factors. The
impairment to be recognized is measured based on the amount by which the carrying amount of the investment exceeds the fair valueof the investment.
The cost of a security sold or the amount reclassified out of accumulated other comprehensive income (loss) into earnings isdetermined by the average cost method.
Non-marketable Equity Securities
Non-marketable equity securities are carried at cost. On a periodic basis, Advantest evaluates these investments for possible
impairment. Non-marketable equity securities that have impairment indicators were evaluated to determine whether the investments
were impaired and the impairment, if any, is other than temporary. If the impairment is other than temporary, Advantest recognizes an
impairment loss.
Investment in an Affiliated Company
Investment in affiliated company over which Advantest has the ability to exercise significant influence, but does not hold acontrolling financial interest, is accounted for by the equity method. All significant intercompany profits have been eliminated.
(g) Derivative Financial Instruments
All derivative instruments in the consolidated balance sheets are stated at fair value. The accounting for changes in the fair value(that is, gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, the reason for holding the instrument. If certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows, or foreign currencies.
If the hedged exposure is a fair value exposure, the gain or loss on the derivative instrument is recognized in earnings in the
period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. If the hedged
exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as acomponent of other comprehensive income (loss) and subsequently reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss arereported in earnings immediately. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in
the period of change.
Advantest uses foreign exchange forward contracts to manage currency exposure, resulting from changes in foreign currency
exchange rates, on trade receivables. However, these contracts do not qualify for hedge accounting since they do not meet the hedging
criteria specified by Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments andHedging Activities”, as amended.

F-10

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Foreign exchange forward contracts generally have maturities of several months. These contracts are used to reduce Advantest’srisk associated with exchange rate movements, as gains and losses on these contracts are intended to offset exchange losses and gains
on underlying exposures. Changes in fair value of foreign exchange forward contracts are recognized in earnings under the caption ofother income (expense).
Advantest does not, as a matter of policy, enter into derivative transactions for the purpose of speculation.
(h) Property, Plant and Equipment
Property, plant and equipment is stated at cost.
Depreciation has been computed principally using the declining-balance method for the Company and its domestic subsidiaries.
The straight-line method over estimated useful lives of the assets is used for foreign subsidiaries.
On April 1, 2007, the Company and its domestic subsidiaries elected to change the declining-balance method of depreciatingmachinery and equipment as well as furniture and fixtures from the fixed-percentage-on-declining base application to the 250%
declining balance application. Estimated salvage values have also been reduced in conjunction with this change. The Company and its
domestic subsidiaries believe that the 250% declining balance application is preferable because it provides a better matching of
allocation of cost of machinery and equipment as well as furniture and fixtures with associated revenue in light of product life cycles.
In accordance with SFAS No. 154 “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and SFAS
No.3”, this change in depreciation method represents a change in accounting estimate effected by a change in accounting principle.
Accordingly, the effects of the change are accounted for prospectively beginning with the period of change and prior period results
have not been restated. The change in depreciation method caused decreases in income before income taxes and equity in earnings ofaffiliated company and net income by ¥861 million and ¥513 million, respectively, for the year ended March 31, 2008. Basic net
income per share and diluted net income per share decreased by ¥2.82 and ¥2.81, respectively, for the year ended March 31, 2008.
The depreciation period for significant assets ranges from 15 years to 50 years for buildings, 4 years to 10 years for machineryand equipment, and 2 years to 5 years for furniture and fixtures.
Depreciation expense was ¥7,517 million, ¥7,583 million and ¥8,216 million for the years ended March 31, 2006, 2007 and2008, respectively.
(i) Intangible Assets and Other Assets
Intangible assets principally consist of goodwill and computer software for internal-use. Other assets consist of investments(other than investment securities), security deposits and prepaid expenses, of which no one individual item was material to theconsolidated financial statements of Advantest.
Advantest capitalizes certain costs incurred to purchase or develop software for internal-use. Costs incurred to develop software
for internal-use are expensed as incurred during the preliminary project stage, which includes costs for making strategic decisions
about the project, determining performance and system requirements and vendor demonstration cost. Costs incurred subsequent to thepreliminary project stage through implementation are capitalized. Advantest also expenses costs incurred for internal-use software
projects in the post implementation stage such as costs for training and maintenance.
Costs incurred to develop software to be included with and sold as part of the Company’s Semiconductor Test Systems arecapitalized subsequent to the attainment of technological feasibility until the product becomes available for general release tocustomers in accordance with the provisions of SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, orOtherwise Marketed”. Other costs are expensed as incurred.
The cost of software is amortized on a straight-line basis over the estimated useful life, which is generally from 3 years to 5
years.
Business combinations are accounted for using the purchase method in accordance with SFAS No. 141, “Business
Combinations”. SFAS No. 141 establishes certain criteria for the recognition of intangible assets separately from goodwill. Under
SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill and other intangible assets with indefinite useful lives are no longer
amortized, but instead are tested for impairment at least annually. Intangible assets with definite useful lives are amortized over theirrespective estimated useful lives and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”.

F-11

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Advantest performs its annual impairment test at the end of each year. Advantest completed its annual impairment test at
March 31, 2007 and 2008 and identified no indication of impairment.
(j) Impairment of Long-Lived Assets
Advantest evaluates the impairment of long-lived assets in accordance with the provisions of SFAS No. 144. SFAS No. 144
requires that long-lived assets and certain identifiable intangibles with definite useful lives be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to beheld and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to begenerated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount bywhich the carrying amount of the assets exceeds the fair value of the assets.
(k) Accrued Warranty Expenses
Advantest’s products are generally subject to warranty, and Advantest provides an allowance for such estimated costs when
product revenue is recognized. To provide for future repairs during warranty periods, estimated repair expenses over the warranty
period are accrued based on the historical ratio of actual repair expenses to corresponding sales.
(l) Accrued Pension and Severance Cost
The Company and certain of its subsidiaries have retirement and severance defined benefit plans covering substantially all of
their employees. Prior service benefit and cost, and actuarial gain and loss recognized in accumulated other comprehensive income(loss) are amortized using the straight-line method over the average remaining service period of active employees. See Note (16) tothe consolidated financial statements for further discussion.
(m) Revenue Recognition
GeneralAdvantest recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred or the services havebeen rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured in accordance withthe guidance provided by the Securities and Exchange Commission’s Staff Accounting Bulletin No.104, “Revenue Recognition”.
For equipment sales involving software that is more than incidental to the product, revenue is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection of the related
receivable is probable in accordance with American Institute of Certified Public Accountant (“AICPA”) Statement of Position(“SOP”) No.97-2, “Software Revenue Recognition”, as amended by SOP No.98-9, “Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions”. Revenue for the separate elements is only recognized when the functionality of
the undelivered element is not essential to the delivered element.
Sales of Products
Sales of products which require installation are recognized when the related installation is completed and other sales recognition
criteria are met since the installation is essential to the functionality of the equipment. When customer acceptance is uncertain,
revenue is deferred until customer acceptance has been received. When the final payment is subject to customer acceptance, a portionof revenue for the final payment is deferred until an enforceable claim has become effective.
Sales of products and component which do not require installation service by Advantest is recognized upon shipment if theterms of the sale are free on board (FOB) shipping point or upon delivery if the terms are FOB destination which coincide with thepassage of title and risk of loss.
Long-term Service Contracts
Revenue from fixed-price, long-term service contracts is recognized on the straight-line basis over the contract term.
Leasing Income
Revenue from operating leases is primarily recognized on the straight-line basis over the lease term.

F-12

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Multiple DeliverablesMultiple Deliverables are accounted for under the Emerging Issues Task Force Issue No. 00-21 (“EITF 00-21”), “Revenue
Arrangements with Multiple Deliverables” or SOP 97-2, “Software Revenue Recognition”.
Advantest obtains and utilizes objective evidence (Vendor-Specific Objective Evidence (VSOE) under SOP 97-2) of fair value
to allocate revenue to elements in multiple element arrangements and recognizes revenue when the criteria for revenue recognition
have been met for each element. If the criteria are not met, then revenue is deferred until such criteria are met or until the period(s)over which the last undelivered element is delivered. In the absence of objective evidence of fair value of a delivered element,
Advantest allocates revenue to the fair value of the undelivered elements and the residual revenue to the delivered elements. The pricecharged when an element is sold separately generally determines fair value.
(n) Shipping and Handling Costs
Shipping and handling costs totaled ¥1,451 million, ¥1,541 million and ¥1,361 million for the years ended March 31, 2006,
2007 and 2008, respectively, and are included in selling, general and administrative expenses in the consolidated statements of income.
(o) Research and Development
Research and development costs totaled ¥26,927 million, ¥29,509 million and ¥30,507 million for the years ended March 31,
2006, 2007 and 2008, respectively, and are expensed as incurred.
(p) Advertising Costs
Advertising costs totaled ¥469 million, ¥374 million and ¥332 million for the years ended March 31, 2006, 2007 and 2008,
respectively, and are expensed as incurred.
(q) Stock-Based Compensation
Advantest applies the fair value recognition provision of SFAS No. 123 (revised 2004) (SFAS 123R), “Share Based Payments”,
and recognizes stock based compensation expense in the consolidated statements of income. The fair values of the option are
estimated using a Black Scholes option pricing model and amortized to expense over the requisite service period.
Expected dividend yield is determined by the Company’s dividend ratio of the past and other associated factors. Risk freeinterest rate is determined by Japanese government bond yield for the period corresponding to expected life. Expected volatility isdetermined by historical volatility and trend of the Company’s share prices, and other associated factors. Expected life is determinedby the Company’s option exercise history, post vesting employment termination behavior for similar grants, and other pertinent
factors.
(r) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, and operating loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the periodthat includes the enactment date. Advantest records a valuation allowance to reduce the deferred tax assets to the amount that is more
likely than not realizable.
Effective April 1, 2007, Advantest adopted FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes, aninterpretation of SFAS No.109 (“FIN 48”)”. Advantest recognizes the financial statement effects of tax positions when they are more
likely than not, based on technical merits, that the tax positions will be sustained upon examination by the tax authorities. Benefits
from tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of benefit that isgreater than 50 percent likely of being realized upon settlement. Advantest recognizes interest and penalty accruals related tounrecognized tax benefits in income taxes in the consolidated statement of income. The adoption of FIN 48 did not have an impact on
Advantest’s consolidated results of operations and financial condition.

F-13

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(s) Net Income per Share
Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during
the year. Diluted net income per share is calculated by dividing net income by the sum of the weighted average number of shares plus
additional shares that would have been outstanding if potential dilutive shares had been issued for granted stock options.
(t) Foreign Financial Statements
In accordance with SFAS No. 52 “Foreign Currency Translation”, the financial statements of foreign operations whosefunctional currency is a local currency are translated into Japanese Yen. Assets and liabilities are translated at the period-end exchange
rates and revenues and expenses are translated at the average exchange rate for the period. Resulting translation adjustments are shown
as a component of other comprehensive income (loss).
The financial statements of foreign operations whose functional currency is Japanese Yen are remeasured into Japanese Yen. All
exchange gains and losses from remeasurement of monetary assets and liabilities denominated in the local currency are included inother income (expense) for the period in which the remeasurement is made.
(u) Foreign Currency Transactions
Assets and liabilities denominated in foreign currencies at the balance sheet date are translated by using the applicable current
rate prevailing at that date. All revenue and expenses associated with foreign currencies are translated by using the rate of exchange
prevailing when such transactions occur. Those gains (losses) are included in other income (expense) in the accompanying
consolidated statements of income.
Foreign exchange gains (losses) were ¥757 million, ¥1,323 million and (¥1,880) million for the years ended March 31, 2006,
2007 and 2008, respectively.
(v) Use of Estimates
Management of Advantest has made a number of estimates and assumptions relating to the reporting of assets and liabilities andthe disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts ofrevenues and expenses during the period to prepare these consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. Significant items subject to such estimates and assumptions include valuation
allowances for trade receivables, inventories and deferred tax assets, various accruals such as accrued warranty expenses, and assets
and obligations related to employees retirement and severance plans. Actual results could differ from those estimates.
(w) New Accounting Standards
In September 2006, the FASB issued SFAS No.157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective forfiscal years beginning after November 15, 2007 and is required to be adopted by Advantest in the first quarter beginning April 1, 2008.
In February 2008, the FASB issued Staff Positions No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13” and No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which partially delay theeffective date of SFAS 157 for one year for certain nonfinancial assets and liabilities and remove certain leasing transactions from its
scope. Advantest is currently evaluating the effect that the adoption of SFAS 157 will have on its consolidated results of operations
and financial condition but does not expect SFAS 157 to have a material impact.
In February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No.115” (“SFAS 159”). SFAS 159 provides companies with an option to measureselected financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been
elected will be recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and is required to be
adopted by Advantest in the first quarter beginning April 1, 2008. Advantest is currently evaluating the effect that the adoption of
SFAS 159 will have on its consolidated results of operations and financial condition but does not expect SFAS 159 to have a material
impact.

F-14

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R
establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R iseffective for fiscal years beginning on or after December 15, 2008 and is required to be adopted by Advantest in the first quarter
beginning April 1, 2009. Advantest is currently evaluating the effect that the adoption of SFAS 141R will have on its consolidated
results of operations and financial condition.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statement, anamendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to thenoncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments whena subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between theinterests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008 and is required to be adopted by Advantest in the first quarter beginning April 1, 2009. Advantest is currently
evaluating the effect that the adoption of SFAS 160 will have on its consolidated results of operations and financial condition.
(x) Reclassifications
Certain reclassifications have been made to the prior years’ consolidated financial statements to conform with the presentation
used for the year ended March 31, 2008.
(2) Trade Receivables
Trade receivables at March 31, 2007 and 2008 are as follows:
Yen (Millions)
2007

2008

Notes............................................................................................................................................................
Accounts ......................................................................................................................................................

¥ 10,016
44,453

3,915
26,254

Less allowance for doubtful accounts..........................................................................................................

54,469205

30,16945¥ 54,264

30,124(3) Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts for the years ended March 31, 2006, 2007 and 2008 were as follows:
Yen (Millions)
2006

2007

2008

Balance at beginning of year ..............................................................................................
Provision for (reversal of) allowance..................................................................................
Amount written off .............................................................................................................

¥ 2,174
(45 )
(12 )

2,117
(190)
(1,722)

205
(160)
—

Balance at end of year.........................................................................................................

¥ 2,117205

45(4) Inventories
Inventories at March 31, 2007 and 2008 are composed of the following:
Yen (Millions)Finished goods .............................................................................................................................................
Work in process ...........................................................................................................................................
Raw materials and supplies..........................................................................................................................

F-15

2007

2008

¥ 7,616
18,977
5,383

8,258
13,9984,567¥ 31,976

26,823

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(5) Property, Plant and Equipment
Property, plant and equipment at March 31, 2007 and 2008 is composed of the following:
Yen (Millions)
2007

2008

Land .......................................................................................................................................................
Buildings................................................................................................................................................
Machinery and equipment .....................................................................................................................
Furniture and fixtures ............................................................................................................................
Construction in progress ........................................................................................................................

¥ 18,606
49,266
31,161
26,101354

18,08147,80029,521
24,112
1,569

Less accumulated depreciation ..............................................................................................................

125,488
75,838121,083
70,318¥ 49,650

50,765(6) Intangible Assets and Other Assets
The components of acquired intangible assets excluding goodwill at March 31, 2007 and 2008 were as follows:
Yen (Millions)
2007
Gross carrying
amount2008
Accumulated
amortization

Gross carrying
amountAccumulated
amortization

Intangible assets subject to amortization:
Software ..............................................................
Other....................................................................

¥ 4,963
297

3,583
226

¥ 4,907
122

3,150
53

Total..............................................................................

¥ 5,260

3,809¥ 5,029

3,203

Intangible assets not subject to amortization at March 31, 2007 and 2008 were insignificant.
Aggregate amortization expense for the years ended March 31, 2006, 2007 and 2008 were ¥758 million, ¥632 million and¥620 million, respectively. Estimated amortization expense for the next five years ending March 31 are: ¥542 million in 2009,¥415 million in 2010, ¥262 million in 2011, ¥170 million in 2012, and ¥62 million in 2013, respectively.
Changes in the carrying amount of goodwill for the years ended March 31, 2006, 2007 and 2008 were as follows:
Yen (Millions)
2006

2007

2008

Balance at beginning of year .......................................................................................................
Acquisition during the year..........................................................................................................

¥ 1,426
—

1,426
—

1,426
—

Balance at end of year..................................................................................................................

¥ 1,426

1,426

1,426

Goodwill relates to the semiconductor and component test system segment.

F-16

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(7) Investment Securities
Marketable securities consist of equity securities. The acquisition cost, gross unrealized gains, gross unrealized losses and fairvalue at March 31, 2007 and 2008 were as follows:
Yen (Millions)Noncurrent:
Available-for-sale:
Equity securities
Acquisition cost ............................................................................................................................
Gross unrealized gains ..................................................................................................................
Gross unrealized losses.................................................................................................................
Fair value ......................................................................................................................................

2007

2008

¥ 4,224
3,956
10¥ 8,170

5,942
901
350
6,493

Gross realized gains and losses on available-for-sales equity securities for the years ended March 31, 2006, 2007 and 2008 wereas follows:
Yen (Millions)

Yen (Millions)2006

Noncurrent:
Available-for-sale:
Equity securities .................................................

2007

Gross
realized
gains

Gross
realized
lossesNet
realized
gains(losses)¥ 1,040

—

1,040

Gross
realized
gains

Gross
realized
lossesNet
realized
gains(losses)¥0—0

Yen (Millions)2008

Noncurrent:
Available-for-sale:
Equity securities ..................................................

Gross
realized
gains

Gross
realized
losses

¥

—

8

Net
realized
gains(losses)8

Net realized gains and losses based on the averaged cost method are included in “other income (expense)” in the consolidated
statements of income, and “other” in net cash provided by operating activities in the consolidated statements of cash flows.
Proceeds from the sale of available-for-sale equity securities for the years ended March 31, 2006, 2007 and 2008 were
¥2,977 million, ¥0 million and ¥10 million, respectively. For the year ended March 31, 2008, Advantest recognized impairment lossesof ¥1,275 million on available-for-sale equity securities, which were considered other-than-temporarily impaired and wrote themdown to the fair value.
Gross unrealized losses on available-for-sale equity securities and the fair value of the related securities, aggregated by length oftime that individual securities have been in a continuous unrealized loss position, at March 31, 2008, were as follows:
Yen (Millions)Less than 12 months

Noncurrent:
Available-for-sale:
Equity securities ...................................................................................

F-17

12 months or longer

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses

2,741

350

—

—

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Advantest maintains non-marketable investment securities, which are recorded at cost. The carrying amounts of non-marketable
investment securities were ¥3,200 million and ¥3,261 million at March 31, 2007 and 2008, respectively. Advantest has not estimatedthe fair value of non-marketable equity securities since it is not practicable to estimate the fair value of the investments and Advantest
did not identify any events or changes in circumstances that might have had significant adverse effect on the fair value of theinvestments. It is not practicable to estimate the fair value of the investments in non-marketable investment securities because of thelack of readily determinable fair values and difficulty in estimating fair value without incurring excessive cost. Non-marketable equity
securities that have impairment indicators were evaluated to determine whether the investments were impaired and the impairment, if
any, is other than temporary. No impairment indicators were recognized and, accordingly, no impairment losses were recorded onthese securities.
(8) Derivative Financial Instruments
Derivative financial instruments are utilized by Advantest primarily to reduce foreign currency exchange risk. Advantest does
not hold or issue derivative financial instruments for trading purposes. Advantest generally does not require or place collateral forthese derivative financial instruments.
Derivative financial instruments contain an element of risk in the event the counterparties are unable to meet the terms of theagreements. However, Advantest minimizes risk exposure by limiting the counterparties to major international banks and financial
institutions meeting established credit guidelines. Management of Advantest does not expect any counterparty to default on its
obligations and, therefore, does not expect to incur any losses due to counterparty default on its obligations.
Advantest had foreign exchange forward contracts to exchange currencies among Japanese yen and Euro at March 31, 2007 and2008. The notional amounts of these contracts were ¥5,355 million at March 31, 2007 and ¥2,930 million at March 31, 2008. The fairvalues of these contracts at March 31, 2007 and 2008 are shown in Note (9) to the consolidated financial statements. These contracts
do not qualify for hedge accounting since they do not meet the hedging criteria specified by SFAS No. 133. Changes in the fair value
are recognized in earnings under the caption of “other income (expense)”.
(9) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of Advantest’s financial instruments at March 31,
2007 and 2008, except for cash and cash equivalents, trade receivables, other current assets, trade accounts payable and accrued
expenses for which fair value approximate their carrying amounts. Fair value estimates are made at a specific point in time based on
relevant market information and information about the financial instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and, therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Yen (Millions)2007

Financial assets:
Investment securities for which it is practicable to estimate fair value ..............
Foreign exchange forward contracts ..................................................................
Financial liabilities:
Foreign exchange forward contracts ..................................................................
Current portion of long-term debt ......................................................................

2008

Carrying
amount

Fair
value

Carrying
amountFair
value¥ 8,270
51

8,270
51

¥6,529
—

6,529
—

—
10

—
10

14
—

14
—

The carrying amounts shown in the table are included in the consolidated balance sheets under the indicated captions. And thecarrying amounts of foreign exchange forward contracts are included in other current assets and other current liabilities.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and cash equivalents, trade receivables, other current assets, trade accounts payable, and accrued expenses(nonderivatives): The carrying amounts approximate fair value because of the short maturity of these instruments.
Investment securities: The fair values of equity investments are based on quoted market prices at the reporting date for thoseinvestments.

F-18

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Current portion of long-term debt: The fair value of current portion of long-term debt is estimated by discounting future cash
flows of each instrument at rates currently offered to Advantest for similar debt instruments of comparable maturities by financial
institutions.
Foreign exchange forward contracts: The fair value of foreign exchange forward contracts are estimated by obtaining quotes
from financial institutions.
(10) Leases—Lessor
Advantest provides leases that enable its customers to use semiconductor test systems. All leases are classified as operatingleases. Lease terms range from 1 year to 5 years, and certain of the lease agreements are cancelable. The gross amount of machineryand equipment and the related accumulated depreciation under operating leases as of March 31, 2007 and 2008 were as follows:
Yen (Millions)

Machinery and equipment ...............................................................................................................................
Less accumulated depreciation .......................................................................................................................

2007

2008

¥11,330
6,162¥ 5,168

11,375
7,003
4,372

Depreciation of machinery and equipment held under operating leases are included with depreciation expense. These assets areincluded in property, plant and equipment.
Future minimum lease income under noncancelable operating leases as of March 31, 2008 is as follows:Year ending March 31

Yen (Millions)2009 ..................................................................................................................................................................................
2010 ..................................................................................................................................................................................
2011 ..................................................................................................................................................................................
2012 ..................................................................................................................................................................................
2013 ..................................................................................................................................................................................
Total minimum lease income ..................................................................................................................................

¥ 1,310
136
76
53
26
¥ 1,601(11) Leases—Lessee
Assets under capital leases at March 31, 2007 and 2008 were insignificant.
Advantest also has several noncancelable operating leases, primarily for office space and office equipment. Rent expense,
including rental payments for cancelable leases, for the years ended March 31, 2006, 2007 and 2008 was ¥1,408 million,¥1,494 million and ¥1,524 million, respectively.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of oneyear) as of March 31, 2008 are as follows:Year ending March 31

Yen (Millions)2009 ..................................................................................................................................................................................
2010 ..................................................................................................................................................................................
2011 ..................................................................................................................................................................................
2012 ..................................................................................................................................................................................
2013 ..................................................................................................................................................................................
Thereafter..........................................................................................................................................................................

¥ 358
246
133
13
13
15

Total minimum lease payments...............................................................................................................................

¥ 778

F-19

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(12) Long-Term Debt
Long-term debt at March 31, 2007 and 2008 consists of the following:
Yen (Millions)
2007

2008

Unsecured borrowings, with annual interest rates ranging from 1.05% to 2.25% ..............................................
Less current portion ............................................................................................................................................

¥ 10
¥ 10

—
—

Long-term debt excluding current portion ................................................................................................

¥——(13) Income Taxes
The components of income before income taxes and equity in earnings (loss) of affiliated company and provision (benefit) for
income taxes as shown in the consolidated statements of income are as follows:
Yen (Millions)

Income before income taxes and equity in earnings (loss) of affiliated company:
The Company and domestic subsidiaries ...........................................................................
Foreign subsidiaries ...........................................................................................................

2006

2007

2008

¥ 54,877
12,57745,22915,861

9,272
14,261¥ 67,454

61,09023,533

Yen (Millions)

Provision (benefit) for income taxes:
Current:
The Company and domestic subsidiaries ...........................................................................
Foreign subsidiaries ...........................................................................................................
Deferred:
The Company and domestic subsidiaries ...........................................................................
Foreign subsidiaries ...........................................................................................................

2006

2007

2008

¥ 19,831
5,244

14,227
3,911

7,725
3,613

747
258

8,665
(1,283)(5,415)966¥ 26,080

25,5206,889

The Company and its domestic subsidiaries are subject to a number of income taxes, which in the aggregate resulted in statutory
income tax rate of 40.3%, 40.3% and 40.4% for the years ended March 31, 2006, 2007 and 2008, respectively.
A reconciliation of the Japanese statutory income tax rate and the effective income tax rate as a percentage of income before
income taxes is as follows:
Statutory tax rate.................................................................................................................................
Increase (decrease) in income taxes resulting from:
Earnings of foreign subsidiaries taxed at different rate from the statutory rate in Japan ..........
Tax credits earned .....................................................................................................................
Expenses not deductible for tax purposes .................................................................................
Undistributed earnings of foreign subsidiaries..........................................................................
Change in valuation allowance..................................................................................................
Other, net...................................................................................................................................

F-20

2006

2007

2008

40.3%

40.3%

40.4%

(1.8)
(3.8)
1.3
2.2
(0.0)
0.5

(2.8)
(5.0)
0.7
11.0
(2.1)
(0.3)

(8.1)
(7.4)
0.6
4.7
—
(0.9)

38.7%

41.8%

29.3%

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Prior to April 1, 2006, management intended to reinvest certain undistributed earnings of its foreign subsidiaries for anindefinite period of time. Effective April 1, 2006, Advantest has recognized additional deferred tax liabilities on undistributed earningsof certain foreign subsidiaries since it changed the dividend policy to have earnings from these subsidiaries remitted in the form of
dividends in the future periods. At March 31, 2007, undistributed earnings of other subsidiaries not expected to payout the dividends
to Advantest in the foreseeable future amounted to ¥25,639 million and related deferred tax liability would have been ¥1,111 million.
During the fiscal year ended March 31, 2008, Advantest has reassessed and decided to change its dividend policy to have earnings
from remaining significant subsidiaries in the form of dividends in the future periods in line with other foreign subsidiaries. At
March 31, 2008, deferred tax liabilities have been provided for at all foreign subsidiaries with undistributed earnings.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities
at March 31, 2007 and 2008 are presented below.
Yen (Millions)
2007

2008

Deferred tax assets:
Inventories..............................................................................................................................................
Accrued warranty expenses....................................................................................................................
Accrued pension and severance cost ......................................................................................................
Accrued expenses...................................................................................................................................
Research and development expenses capitalized for tax purposes.........................................................
Operating loss carryforwards .................................................................................................................
Property, plant and equipment and intangible assets..............................................................................
Tax credits..............................................................................................................................................
Other.......................................................................................................................................................

¥ 3,343
1,532
3,303
4,502
1,701
421
2,506
330
3,690

4,373
1,218
4,382
3,398
2,425
137
3,223
289
3,177

Total gross deferred tax assets ......................................................................................................
Less valuation allowance ..............................................................................................................

21,328—22,622—

Net deferred tax assets ..................................................................................................................

21,32822,622

Deferred tax liabilities:
Net unrealized gains on marketable securities .......................................................................................
Undistributed earnings of foreign subsidiaries.......................................................................................
Other.......................................................................................................................................................

1,563
8,160
36

209
3,427
76

Total gross deferred tax liabilities ................................................................................................

9,759

3,712

Net deferred tax assets ..................................................................................................................

¥11,569

18,910Included in other current liabilities and other liabilities are deferred tax liabilities of ¥336 million and ¥256 million at March 31,
2007 and 2008, respectively.
The net changes in the valuation allowance for the years ended March 31, 2006 and 2007 were decreases of ¥1,762 million and¥1,263 million, respectively. There was no net change in the valuation allowance for the year ended March 31, 2008.
Net operating loss carryforwards utilized during the years ended March 31, 2006, 2007 and 2008 were ¥777 million,¥486 million and ¥1,046 million, respectively.
At March 31, 2008, Advantest had net operating loss carried forwards for income tax purposes of ¥345 million which areavailable to reduce future income taxes, if any. These operating losses will expire by the year ending March 31, 2015.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. Management considers thescheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
At March 31, 2008, Advantest has recorded on its consolidated balance sheet, net deferred tax assets of ¥18,910 million. Basedupon projections for future taxable income over the periods in which the deferred tax assets are deductible including management’s
expectations of future semiconductor market and semiconductor and component test systems market prospects and other factors,
management believes it is more likely than not that Advantest will realize the benefits of these deductible differences at March 31,
F-21

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2008. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of futuretaxable income are reduced and the effect on its consolidated financial position and results of operations could be significant.
Advantest adopted FIN 48 effective April 1, 2007. As a result of implementation of FIN 48, Advantest identified unrecognizedtax benefits of ¥238 million as of April 1, 2007, which were recorded at March 31, 2007, and did not require a cumulative-effectadjustment to retained earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Yen (Millions)

Balance at April 1, 2007 ..............................................................................................................................................
Additions for tax positions of prior years ....................................................................................................................
Reductions for tax positions of prior years ..................................................................................................................
Additions for tax positions of the current year ............................................................................................................
Reductions for tax positions of the current year ..........................................................................................................
Reductions by settlements ...........................................................................................................................................
Lapse of the applicable statute of limitations...............................................................................................................

¥ 238
—
—
—
—
(238)
—

Balance at March 31, 2008 ..........................................................................................................................................

—

Although Advantest believes its estimates and assumptions of unrecognized tax benefits are reasonable, uncertainty regarding
the final determination of tax audit settlements and any related litigation could affect the effective tax rate in the future periods.
Advantest does not have any unrecognized tax benefits that would affect the effective tax rate. As of March 31, 2008, Advantest does
not expect changes in its tax positions that would significantly increase or decrease unrecognized tax benefits within next 12 months.
Advantest files income tax returns in Japan and various foreign tax jurisdictions. As of March 31, 2008, Advantest has open tax
years beginning April 1, 2005 for Japan, 2006 for Taiwan, and 2004 for the United States.
(14) Other Comprehensive Income (Loss)
The accumulated balances for each classification of other comprehensive income (loss), net of tax, for the years ended March 31,
2006, 2007 and 2008 are as follows:
Yen (Millions)
Foreigncurrencytranslation
adjustments

Net unrealized
gains (losses)
on securities,
net of tax

Pensionrelatedadjustment,
net of tax

Accumulated
othercomprehensive
income (loss)

Balance at April 1, 2005 ............................................................
Change during the year ..............................................................
Reclassification adjustments for realized portion ......................

¥ (6,452)
5,074
—

1,574
1,862
(714)

—
—
—

(4,878)
6,936
(714)

5,074

1,148

—

6,222

Balance at March 31, 2006 ........................................................

¥ (1,378)

2,722

—

1,344

Change during the year ..............................................................
Reclassification adjustments for realized portion ......................
Adjustment to initially apply SFAS 158....................................

1,123
—
—

(362)
(0)
—

—
—
1,547

761
(0)
1,547

1,123

(362)

1,547

2,308

(255)

2,360

1,547

3,652

(6,845)—(2,058)(2)(2,269)(93)(11,172)(95)(6,845)(2,060)(2,362(11,267)¥ (7,100)

300

(815)

(7,615)

Balance at March 31, 2007 ........................................................

¥

Change during the year ..............................................................
Reclassification adjustments for realized portion ......................
Balance at March 31, 2008 ........................................................

F-22

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The related tax effects allocated to each component of other comprehensive income (loss) for the years ended March 31, 2006,
2007 and 2008 are as follows:
Yen (Millions)Year ended March 31, 2006:
Foreign currency translation adjustments ............................................................................
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the year .................................................
Less reclassification adjustments for net gains realized in earnings ..........................
Net unrealized gains (losses)......................................................................................
Other comprehensive income (loss).....................................................................................
Year ended March 31, 2007:
Foreign currency translation adjustments ............................................................................
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the year .................................................
Less reclassification adjustments for net gains realized in earnings ..........................
Net unrealized gains (losses)......................................................................................
Other comprehensive income (loss).....................................................................................
Year ended March 31, 2008:
Foreign currency translation adjustments ............................................................................
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the year .................................................
Less reclassification adjustments for net gains realized in earnings ..........................
Net unrealized gains (losses)......................................................................................
Pension related adjustment ..................................................................................................
Other comprehensive income (loss).....................................................................................

Before-tax
amountTax(expense)or benefit

Net-of-tax
amount¥ 5,074

—

5,074

3,119
(1,076)(1,257)
362

1,862
(714)

2,043
¥ 7,117

(895)
(895)

1,148
6,222

¥ 1,123

—

1,123

(607)
(0)

245
0

(362)
(0)

(607)
516

245
245

(362)
761

¥ (6,845)—(6,845)(3,447)
(3)

1,389
1

(2,058)(2)(3,450)(3,957)¥(14,252)

1,390
1,595
2,985

(2,060)(2,362)(11,267)¥(15) Stock-Based Compensation
Advantest has stock-based compensation plans using stock options as incentive plans for directors, corporate auditors andselected employees.
In July 2002, stock options were issued to directors, corporate auditors and certain employees of the Company and its
subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled 1,470,000. Options
were granted with an exercise price of ¥4,074 per share that is equal to the higher of (1) 1.05 times the average price of the Company’scommon shares of the preceding month on the date of grant and (2) the closing price of the Company’s common shares traded on theTokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are exercisable from April 1, 2003.
In April 2003, stock options were issued to a director and certain employees of foreign subsidiaries under a stock option plan
approved by the Board of Directors. The number of granted shares totaled 28,000. Options were granted with an exercise price of¥4,074 per share that is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of the preceding
month on the date of grant, (2) the closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of
grant, and (3) the exercise price at which the July 2002 options were granted. The options have an exercise period of no later thanMarch 31, 2007 and are exercisable from May 1, 2003.
In June 2003, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
1,468,000. Options were granted with an exercise price of ¥2,580 per share that is equal to the higher of (1) 1.05 times the average
price of the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’scommon shares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are
exercisable from April 1, 2004.
F-23

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
In August 2003, January 2004 and March 2004, stock options were issued to a director and certain employees of foreignsubsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled 12,000, 14,000 and
6,000, respectively. Options were granted with exercise prices of ¥4,045, ¥4,610 and ¥4,275 per share, respectively, those are equal tothe higher of (1) 1.05 times the average price of the Company’s common shares of the preceding month on the date of grant, (2) the
closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of grant, and (3) the exercise price atwhich the June 2003 options were granted. All of the options have an exercise period of 4 years and are exercisable from April 1, 2004.
In July 2004, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
1,522,000. Options were granted with an exercise price of ¥3,732 per share that is equal to the higher of (1) 1.05 times the average
price of the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’scommon shares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are
exercisable from April 1, 2005.
In November 2004, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approvedby the Board of Directors. The number of granted shares totaled 8,000. Options were granted with an exercise price of ¥3,732 pershare that is equal to the exercise price of the July 2004 options. The options have an exercise period of 4 years and are exercisablefrom April 1, 2005.
In April 2005, stock options were issued to certain employees of the Company and its foreign subsidiary under a stock option
plan approved by the Board of Directors. The number of granted shares totaled 8,000. Options were granted with an exercise price of¥3,732 per share that is equal to the exercise price of the July 2004 options. The options have an exercise period of 4 years and are
exercisable from April 1, 2005.
In July 2005, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
1,518,000. Options were granted with an exercise price of ¥4,300 per share that is equal to the higher of (1) 1.05 times the average
price of the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’scommon shares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are
exercisable from April 1, 2006.
In December 2005, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approved by
the Board of Directors. The number of granted shares totaled 16,000. Options were granted with an exercise price of ¥4,300 per sharethat is equal to the exercise price of the July 2005 options. The options have an exercise period of 4 years and are exercisable from
April 1, 2006.
In February 2006, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approved by
the Board of Directors. The number of granted shares totaled 3,980. Options were granted with an exercise price of ¥6,702 per sharethat is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of the preceding month on the date of
grant, (2) the closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of grant and(3) ¥4,300 per share that is equal to the exercise price of the July 2005 options. The options have an exercise period of 4 years and are
exercisable from April 1, 2006.
In July 2006, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
1,578,000. Options were granted with an exercise price of ¥5,880 per share that is equal to the higher of (1) 1.05 times the average
price of the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’scommon shares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are
exercisable from April 1, 2007.
In December 2006, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approved by
the Board of Directors. The number of granted shares totaled 8,000. Options were granted with an exercise price of ¥6,218 per sharethat is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of the preceding month on the date of
grant, (2) the closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of grant and(3) ¥5,880 per share that is equal to the exercise price of the July 2006 options. The options have an exercise period of 4 years and are
exercisable from April 1, 2007.
In July 2007, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
F-24

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
777,000. Options were granted with an exercise price of ¥5,563 per share that is equal to the higher of (1) 1.05 times the average priceof the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’s commonshares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are exercisablefrom April 1, 2008.
In September 2007, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approvedby the Board of Directors. The number of granted shares totaled 2,000. Options were granted with an exercise price of ¥5,563 pershare that is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of the preceding month on thedate of grant, (2) the closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of grant and(3) ¥5,563 per share that is equal to the exercise price of the July 2007 options. The options have an exercise period of 4 years and are
exercisable from April 1, 2008.
In February 2008, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approved by
the Board of Directors. The number of granted shares totaled 1,000. Options were granted with an exercise price of ¥5,563 per sharethat is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of the preceding month on the date of
grant, (2) the closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of grant and(3) ¥5,563 per share that is equal to the exercise price of the July 2007 options. The options have an exercise period of 4 years and are
exercisable from April 1, 2008.
The exercise price of the stock options is subject to adjustment, if there is a stock split or consolidation of shares, or if newshares are issued or treasury stocks are sold at a price that is less than the market price.
Stock option activity during the years ended March 31, 2006, 2007 and 2008 are as follows:
2006

2007

Number ofshares

Weighted
average
exercise
price

Outstanding at beginning of year.................
Granted ........................................................
Exercised .....................................................
Expired.........................................................
Forfeited.......................................................

4,128,000
1,545,980(1,816,000)——

Outstanding at end of year ...........................
Exercisable at end of year............................

2008

Number ofshares

Weighted
average
exercise
price

Number ofshares

Weighted
average
exercise
price¥ 3,511
4,304
3,512
—
—

3,857,980
1,586,000(1,006,000)—(140,000)¥ 3,828
5,882
3,877
—
3,582

4,297,980
780,000(178,000)(298,000)(86,000)¥ 4,582
5,563
2,845
2,600
5,163

3,857,980

3,828

4,297,980

4,582

4,515,980

4,940

2,320,000¥ 3,5112,713,980¥ 3,824

3,743,980¥ 4,811

Stock based compensation expense recognized were ¥1,884 million, ¥2,566 million and ¥858 million, which were included inselling, general and administrative expenses for the years ended March 31, 2006, 2007 and 2008, respectively. The recognized tax
benefits were ¥697 million and ¥252 million for the year ended March 31, 2007 and 2008, respectively. No tax benefit was allowed by
the Japanese tax law for the year ended March 31, 2006.
The weighted average fair value per share for stock options that were granted during the years ended March 31, 2006, 2007 and2008 were ¥1,219, ¥1,476 and ¥1,112, respectively. These figures were calculated based on the Black Scholes option pricing model byusing the following weighted average estimates:
Expected dividend yield........................................................................................................
Risk free interest rate ............................................................................................................
Volatility...............................................................................................................................
Expected life .........................................................................................................................

F-25

2006

2007

2008

0.5%
0.4%
51.0%
2.4 years

0.5%
1.1%
35.7%
3.1 years

0.7%
1.3%
31.0%
3.4 years

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Cash proceeds from option exercises under the Company’s stock option plans for the years ended March 31, 2006, 2007 and2008 was ¥ 6,377 million, ¥ 3,906 million and ¥506 million, respectively. The total fair value of shares vested during the years ended
March 31, 2006, 2007 and 2008 was ¥ 2,300 million, ¥ 2,102 million and ¥2,338 million, respectively. The total intrinsic values of
options exercised for the years ended March 31, 2006, 2007 and 2008 was ¥ 4,893 million, ¥ 1,967 million and ¥158 million,
respectively.
At March 31, 2008, all of the outstanding stock options were as follows:
Outstanding

Exercisable
Weighted
averageremaining
contractuallife

Number ofoptions

Weighted
average
exercise
price

Weighted
averageremaining
contractuallife

Exercise price

Number ofoptions

Weighted
average
exercise
price3,732 - 4,610
5,563 - 6,702

2,206,000
2,309,980

4,064
5,777

1.6 years
3.3 years

2,206,000
1,537,980

4,064
5,884

1.6 years
3.0 years

4,515,980

4,940

2.5 years

3,743,980

4,811

2.2 years

There was no aggregate intrinsic value for the options outstanding and exercisable at March 31, 2008.
(16) Accrued Pension and Severance Cost
The Company and certain of its subsidiaries have unfunded retirement and severance plans (point-based benefits system). Undera point-based benefits system, the benefits are calculated based on accumulated points allocated to employees each year according totheir job classification and their performance.
The Company and its subsidiaries also have a defined benefit corporate pension plan covering substantially all employees.
Under the cash balance pension plan, the benefits are calculated based on accumulated points allocated to employees each year
according to their job classification and their performance with a certain interest rate calculated based on the upper and lower limit ofa market interest rate.
On March 31, 2007, Advantest adopted the recognition and disclosure provisions of SFAS 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statement No. 87, 88, 106, and 132(R)”. SFAS 158
requires Advantest to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit
obligations) of its pension plans in the consolidated balance sheet, with a corresponding adjustment to accumulated othercomprehensive income (loss), net of tax. The adjustment to accumulated other comprehensive income (loss) at adoption represents theunrecognized actuarial loss, and unrecognized prior service cost, all of which were previously netted against the plans’ funded status
in the consolidated balance sheet pursuant to the provisions of SFAS 87. These amounts will be subsequently recognized as net
periodic benefit cost pursuant to Advantest’s historical accounting policy for amortizing such amounts. Further, actuarial gains andlosses that arise in subsequent periods and are not recognized as net periodic benefit cost in the same periods will be recognized as acomponent of other comprehensive income (loss). Those amounts will be subsequently recognized as a component of net periodic
benefit cost on the same basis as the amounts recognized in accumulated other comprehensive income (loss) at adoption of SFAS 158.
Information about the retirement and severance plans of Advantest for the years ended March 31 are as follows:
Yen (Millions)Components of net periodic benefit cost:Service cost .............................................................................................................................
Interest cost .............................................................................................................................
Expected return on plan assets ................................................................................................
Amortization of unrecognized:
Net actuarial (gain) or loss.............................................................................................
Prior service (benefit) cost.............................................................................................
Net periodic benefit cost ......................................................................................

F-26

2006

2007

2008

¥ 1,843
565
(478)

1,401
601
(645)

1,543
672
(850)

249
(229)

74
(224)

61
(210)

¥ 1,950

1,207

1,216

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following table sets forth the plans’ benefit obligation, fair value of plan assets, funded status at March 31, 2007 and 2008.
Yen (Millions)
2007

2008

Change in benefit obligation:
Balance at beginning of year ..................................................................................................................
Service cost ............................................................................................................................................
Interest cost ............................................................................................................................................
Actuarial (gain) or loss...........................................................................................................................
Benefits paid...........................................................................................................................................
Other.......................................................................................................................................................

¥ 30,971
1,401
601
241
(329)
(340)

32,545
1,543
672
(375)
(571)
—

Balance at end of year ............................................................................................................................

32,54533,814

Change in plan assets:
Balance at beginning of year ..................................................................................................................
Employer contributions ..........................................................................................................................
Actual return on plan assets ...................................................................................................................
Benefits paid...........................................................................................................................................

21,507
1,927
1,055
(211)

24,2782,227(3,332)(286)

Balance at end of year ............................................................................................................................

24,27822,887

Funded status ...................................................................................................................................................

¥ (8,267)(10,927)

Amounts recognized in the consolidated balance sheets at March 31, 2007 and 2008 are as follows:
Yen (Millions)2007

Accrued expenses ...........................................................................................................................................
Accrued pension and severance cost...............................................................................................................

¥

2008

—
(8,267)(216)(10,711)(8,267)(10,927)

Pension related adjustments (net of tax) recognized in accumulated other comprehensive income (loss) at March 31, 2007 and2008 are as follows:
Yen (Millions)
2007

Actuarial loss ..............................................................................................................................................
Prior service benefit ....................................................................................................................................

¥

2008

(78)
1,625

¥ (2,312)
1,497

1,547

(815)

Changes in pension related adjustments (net of tax) recognized in other comprehensive income(loss) for the year ended
March 31,2008 are summarized as follows:
Yen (Millions)

Current year actuarial loss .........................................................................................................................................
Amortization of actuarial loss....................................................................................................................................
Amortization of prior service benefit.........................................................................................................................

¥ (2,269)35(128)(2,362)

F-27

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The estimated prior service cost and actuarial loss for the defined benefit pension plans that will be amortized from accumulated
other comprehensive income (loss) into net periodic benefit cost over the next year are summarized as follow:
Yen (Millions)

Actuarial loss .............................................................................................................................................................
Prior service benefit ...................................................................................................................................................

¥ 284
(211)
73

Pension plans with accumulated benefit obligations in excess of plan assets at March 31, 2007 and 2008 are summarized asfollows:
Yen (Millions)
2007

2008

¥ 32,545
31,43324,27833,81432,74422,887

2007

2008

2.1%
3.0%

2.1%
3.0%

2006

2007

2008

2.0%
3.0%
3.1%

2.0%
3.0%
3.1%

2.1%
3.5%
3.0%

Projected benefit obligation ........................................................................................................................
Accumulated benefit obligation..................................................................................................................
Fair value of plan assets..............................................................................................................................
Other information about the retirement and severance plans of Advantest is as follows:
Measurement date:
The measurement date for the pension plans is March 31.
Assumptions:
Weighted-average assumptions used to determine benefit obligations as of March 31:

Discount rate .............................................................................................................................................
Rate of compensation increase ..................................................................................................................
Weighted-average assumptions used to determine net periodic benefit cost for the years ended March 31:
Discount rate ...........................................................................................................................
Expected return on plan assets ................................................................................................
Rate of compensation increase ................................................................................................

Advantest determines the expected return based on the asset portfolio, historical returns and estimated future returns.
Plan assets:
Advantest’s domestic benefit plans’ weighted-average asset allocation at March 31, 2007 and 2008 by asset category are as
follows:
Equity securities............................................................................................................................................
Debt securities ..............................................................................................................................................
Cash ..............................................................................................................................................................
Life insurance company general accounts ....................................................................................................

2007

2008

66.2%
23.1
2.3
8.4

60.8%
26.1
2.7
10.4

100.0%

100.0%

Advantest’s investment policies are designed to ensure adequate plan assets are available to provide future payments of pension
benefits to eligible participants by attaining necessary long-term total returns on plan assets. Taking into consideration the expected
returns, associated risks and correlations of returns between asset categories in plan assets, Advantest determines an optimal
combination of equity and debt securities as Policy Asset Allocation (“PAA”). Plan assets are invested in individual equity and debt
securities according to PAA with mid-term to long-term viewpoint, which is revised periodically to the extent considered necessary toachieve the expected long-term rate of return on plan assets.

F-28

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Cash flows:
Advantest expects to contribute ¥1,810 million to its domestic defined benefit plans during the year ending March 31, 2009.
Estimated future benefit payments:
The following benefit payments, which reflect expected future service, as appropriate, are expected:
Year ending March 31

Yen (Millions)2009 ...............................................................................................................................................................................
2010 ...............................................................................................................................................................................
2011 ...............................................................................................................................................................................
2012 ...............................................................................................................................................................................
2013 ...............................................................................................................................................................................
2014 through 2018.........................................................................................................................................................

¥ 584
590
643
695
762
3,849

(17) Stockholders’ Equity
Changes in the number of shares issued and treasury stock during the years ended March 31, 2006, 2007 and 2008 are as
follows:
Total shares ofcommon stock

Shares oftreasury stock

Number of shares as of April 1, 2005 .......................................................................................

199,566,770

14,719,540

Purchase of shares.....................................................................................................................
Exercise of stock options ..........................................................................................................
Sale of shares ............................................................................................................................

———

10,196(1,816,000)(264)

Number of shares as of March 31, 2006 ...................................................................................

199,566,770

12,913,472

Purchase of shares.....................................................................................................................
Exercise of stock options ..........................................................................................................
Sale of shares ............................................................................................................................

———

11,135(1,006,000)(2,122)

Number of shares as of March 31, 2007 ...................................................................................

199,566,770

11,916,485

Purchase of shares.....................................................................................................................
Exercise of stock options ..........................................................................................................
Sale of shares ............................................................................................................................

———

9,102,570(178,000)(334)

Number of shares as of March 31, 2008 ...................................................................................

199,566,770

20,840,721

Based on the resolution of Board of Directors on July 26, 2006, the Company made a two-for-one stock split on October 1, 2006,
for stockholders of record as of September 30, 2006. All share and per share information has been adjusted to reflect the stock split.
The Corporation Law of Japan provides that an amount equal to 10% of distributions paid by the Company shall be appropriatedas additional paid-in capital or a legal reserve until the total amount of the additional paid-in capital and the legal reserve equals to
25% of common stock. Certain foreign subsidiaries are also required to appropriate their earnings to legal reserves under the laws of
the respective countries.
Cash dividends for the years ended March 31, 2006, 2007 and 2008 represent dividends paid out during those years. The
accompanying consolidated financial statements do not include any provision for a dividend of ¥25 per share, aggregating¥4,468 million for the second-half of the year ended March 31, 2008, subsequently proposed by the Board of Directors.
The amount available for dividends is determined under the Corporation Law of Japan and amounted to ¥137,414 million atMarch 31, 2008.

F-29

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(18) Accrued Warranty Expenses
Advantest issues contractual product warranties under which it generally guarantees the performance of products delivered andservices rendered for a certain period. Changes in accrued warranty expenses for the years ended March 31, 2006, 2007 and 2008 weresummarized as follows:
Yen (Millions)
2006

2007

2008

Balance at beginning of year ..................................................................................................
Addition ..................................................................................................................................
Utilization ...............................................................................................................................
Translation adjustments ..........................................................................................................

¥ 4,090
7,645(7,035)
76

4,776
7,307
(7,949)
1

4,135
6,401
(7,387)(6)

Balance at end of year.............................................................................................................

¥ 4,776

4,135

3,143

(19) Operating Segment and Geographic Information
Advantest manufactures and sells semiconductor and component test system products and mechatronics-related products such as
test handlers and device interfaces. Advantest also engages in research and development activities and provides maintenance andsupport services associated with these products. In accordance with SFAS No. 131, “Disclosure about Segments of an Enterprise andRelated Information”, Advantest has three operating and reportable segments, which are the design, manufacturing, and sale ofsemiconductor and component test systems, mechatronics systems and services, support and others. These operating segments are
determined based on the nature of the products and the markets.
The semiconductor and component test system segment provides customers with test system products for the semiconductor
industry and the electronic parts industry. Product lines provided in the semiconductor and component test system segment include
test systems for memory semiconductors for memory semiconductor devices and test systems for SoC semiconductors for non
memory semiconductor devices. The mechatronics system segment provides product lines such as test handlers, mechatronic-applied
products, for handling semiconductor devices, device interfaces that serve as interfaces with the devices that are measured andoperations related to nano-technology products. The services, support and others segment consists of comprehensive customer
solutions provided in connection with the above segments, support services, equipment lease business and others. Fundamental
research and development activities and headquarters functions are represented by Corporate.

F-30

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Operating segment information during the years ended March 31, 2006, 2007 and 2008 are as follows:
Yen (Millions)

As of and for the year ended March 31, 2006:
Net sales to unaffiliated customers...................................
Inter-segment sales...........................................................

Semiconductor
andComponent
Test System
Business

Mechatronics
SystemBusiness

Services,
SupportandOthersElimination
andCorporate

Total¥ 187,136
4,279

47,724536

19,062——(4,815)

253,922—

191,415
2,993

48,2601,058

19,062
3,680(4,815)544

253,922
8,275

57,517

11,9663,853(6,994)

66,342

Sales...........................................................................................
Depreciation and amortization...................................................
Operating income (loss) before stock option compensation
expenses ................................................................................
Adjustments:
Stock based compensation expense..................................

1,884

Operating income.......................................................................
Expenditures for additions to long- lived assets ........................
Total assets ................................................................................

2,649
94,745

1,177
27,444

4,203
16,722294
211,865

64,4588,323
350,776

As of and for the year ended March 31, 2007:
Net sales to unaffiliated customers...................................
Inter-segment sales...........................................................

¥ 164,899
2,916

51,801
224

18,312——(3,140)235,012—167,815
2,812

52,025
1,241

18,312
3,710(3,140)451

235,0128,214

48,60813,6472,870(5,767)59,358

Sales...........................................................................................
Depreciation and amortization...................................................
Operating income (loss) before stock option compensation
expenses ................................................................................
Adjustment:
Stock based compensation expense..................................

2,566

Operating income.......................................................................
Expenditures for additions to long- lived assets ........................
Total assets ................................................................................

3,173
84,962

1,145
24,256

3,533
15,163485
241,993

56,792
8,336
366,374

As of and for the year ended March 31, 2008:
Net sales to unaffiliated customers...................................
Inter-segment sales...........................................................

¥ 128,779
2,829

34,644300

19,344——(3,129)182,767—

131,608
3,561

34,944
1,261

19,344
3,324(3,129)690

182,767
8,836

23,263

3,266

3,177

(6,132)

23,574

Sales...........................................................................................
Depreciation and amortization...................................................
Operating income (loss) before stock option compensation
expenses ................................................................................
Adjustment:
Stock based compensation expense..................................

858

Operating income.......................................................................
Expenditures for additions to long- lived assets ........................
Total assets ................................................................................

7,814
63,5702,260
18,511

2,749
14,493

1,260
202,110

22,716
14,083
298,684

Adjustments to operating income (loss) in Corporate principally represent corporate general and administrative expenses andresearch and development expenses related to fundamental research activities that are not allocated to operating segments.
Advantest uses the operating income (loss) before stock option compensation expenses for management’s analysis of businesssegment results.
Additions to long-lived assets included in Corporate consist of purchases of software and fixed assets for general corporate use.

F-31

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Total assets included in Corporate consist of cash and cash equivalents, assets for general corporate use and assets used for
fundamental research activities, which are not allocated to reportable segments.
One customer and its related entities mainly in the semiconductor and component test system segment and the mechatronics
system segment accounted for approximately 7%, 11% and 5% of total consolidated net sales for the years ended March 31, 2006,
2007 and 2008, respectively. Another customer accounted for approximately 17%, 4% and 4% for the years ended March 31, 2006,
2007 and 2008, respectively.
Information as to Advantest’s net sales and long-lived assets in various geographical areas is as follows:
Net sales to unaffiliated customers for the years ended March 31, 2006, 2007 and 2008 are as follows:
Yen (Millions)
2006

2007

2008

Japan ......................................................................................................................................
Americas................................................................................................................................
Europe....................................................................................................................................
Asia........................................................................................................................................

¥ 81,140
25,516
14,558132,708

72,834
10,158
11,238140,782

56,032
9,616
8,859
108,260

Total .............................................................................................................................

¥ 253,922

235,012

182,767

Net sales to unaffiliated customers are based on the customer’s location. Net sales indicated as Asia are generated in Taiwan,
Korea and China and others in the amount of ¥54,391 million, ¥35,754 million and ¥42,563 million for the year ended March 31, 2006,¥63,098 million, ¥51,177 million and ¥26,507 million for the year ended March 31, 2007, and ¥56,122 million, ¥35,967 million and¥16,171 million for the year ended March 31, 2008, respectively. Substantially all net sales indicated as Americas are generated in the
United States of America.
Long-lived assets as of March 31, 2006, 2007 and 2008 are as follows:
Yen (Millions)
2006

2007

2008

Japan ............................................................................................................................................
Americas......................................................................................................................................
Europe..........................................................................................................................................
Asia..............................................................................................................................................

¥ 47,661
1,222
667
4,101

45,940
1,093
620
5,098

49,006
161
592
4,483

Total ...................................................................................................................................

¥ 53,651

52,751

54,242Long-lived assets are those assets located in each geographic area.
There is no individually material country with respect to long-lived assets outside Japan. Substantially all long-lived assets
indicated as Americas are located in the United States of America. Significant portion of long-lived assets in Asia are located in
Singapore.

F-32

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(20) Related Party Transactions
Advantest sells products to and purchases raw materials from Fujitsu Limited, its 11.3% stockholder as of March 31, 2008 andits group companies (collectively “Fujitsu”). The terms of sales are the same as those with third parties. Advantest purchases raw
materials after receiving competitive bids from several suppliers. Advantest also purchases various software products for internal use,
information system related services, research and development materials and services from Fujitsu. Advantest had the following
transactions with Fujitsu as of and for the years ended March 31:
Yen (Millions)

Sales of products................................................................................................................................
Purchases of raw materials ................................................................................................................
Receivables ........................................................................................................................................
Payables .............................................................................................................................................
Purchases of software, hardware and others ......................................................................................
Research and development expenses, computer rentals, maintenance and other expenses ...............
Investment .........................................................................................................................................

2006

2007

2008

¥ 3,618
10,378
3,100
4,392
201
1,569
—

4,104
8,929
1,161
4,519
227
2,382
90

5,395
6,153
1,515
1,964
230
3,083
1,035

Advantest invested ¥90 million and ¥1,035 million for the years ended March 31, 2007 and 2008, respectively, in common stockand class stock of e-Shuttle, Inc., a subsidiary of Fujitsu. Advantest holds approximately 35% of common stock of e-Shuttle, Inc.
which is accounted for by equity method of accounting.
(21) Per Share Data
The following table sets forth the computation of basic and diluted net income per share as of March 31:
Yen (Millions) except per share data
2006

Numerator:
Net income ..............................................................................................

2008

41,37435,556

16,550Denominator:
Basic weighted average shares of common stock outstanding................
Dilutive effect of exercise of stock options .............................................

185,389,026
994,054

187,128,842
1,141,846

182,418,821
305,161

Diluted weighted average shares of common stock outstanding.............

186,383,080

188,270,688

182,723,982

223.17221.98190.01
188.85

90.72
90.57

Basic net income per share ...............................................................................
Diluted net income per share ............................................................................

¥

2007

¥

At March 31, 2006, 2007 and 2008, Advantest had outstanding stock options exercisable into 3,980, 11,980 and 2,309,980
shares of common stock, respectively, which were anti-dilutive and excluded from the calculation of diluted net income per share but
could potentially dilute net income per share in future periods.
(22) Concentrations of credit risk
Advantest is exposed to credit risk in the event of default by financial institutions to cash and cash equivalents, but such risk is
considered mitigated by the high credit rating of the financial institutions.
At March 31, 2007, Advantest has two customers with significant receivables. Receivables from these customers accounted for
26% of consolidated trade receivables at March 31, 2007. At March 31, 2008, Advantest has no single customer accounts for morethan 10% of consolidated trade receivables. Although Advantest does not expect that the customer will fail to meet its obligations,
Advantest is potentially exposed to concentrations of credit risk if the customer failed to perform according to the terms of thecontracts.
(23) Commitments and Contingent Liabilities
Advantest is involved in various claims and legal actions arising in the ordinary course of business. In the opinion ofmanagement, the ultimate disposition of these matters will not have a material adverse effect on Advantest’s consolidated financial
position, results of operations, or cash flows.
Commitments outstanding for the purchase of property, plant and equipment and other assets totaled ¥182 million at March 31,
2008.

F-33

ITEM 19.

EXHIBITS
Index to Exhibits

1.1

Amended and Restated Articles of Incorporation of the Registrant (English translation)*

1.2

Regulations of the Board of Directors of the Registrant (English translation)

1.3

Regulations of the Board of Corporate Auditors of the Registrant (English translation)

2.1

Share Handling Regulations of the Registrant (English translation)

2.2

Form of Deposit Agreement among the Registrant, JPMorgan Chase Bank (as successor to Morgan Guaranty Trust
Company of New York), as depositary, and the owners and beneficial owners from time to time of American Depositary
Receipts**

2.3

Form of Amendment No. 1 to Deposit Agreement among the Registrant, JPMorgan Chase Bank, N.A. as depositary, andall holders from time to time of American Depositary Receipts, including the form of American Depositary Receipt***

2.4

Form of ADR (included in Exhibit 2.3)

8.1

List of Principal Subsidiaries (See “Organizational Structure” in “Information on the Company”)

11.1

Code of Ethics of the Registrant applicable to its directors and executive officers, including its principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions****12.1

Certifications of the Registrant’s Chairman of the Board and Chief Executive Officer and Director and Managing
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

13.1

Certifications of the Registrant’s Chairman of the Board and Chief Executive Officer and Director and Managing
Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act

15.1

Consents of Independent Registered Public Accounting Firm***

Incorporated by reference to the Company’s report on Form 6-K filed with the SEC on October 27, 2006 (file no. 1-15236).
Incorporated by reference to the Company’s registration statement on Form 20-F filed with the SEC on September 4, 2001
(file no. 1-15236).
*** Incorporated by reference to the Post Effective Amendment to the Company’s registration statement on Form F-6 Filed with
the SEC on September 12, 2006 (file no. 333-13886).
**** Incorporated by reference to the Company’s annual report on Form 20-F filed with the SEC on June 29, 2004 (file no. 115236).

SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf.
Date: June 26, 2008
ADVANTEST CORPORATION
By:
Name:
Title:/S/

YUICHI KURITA

Yuichi Kurita
Director and Managing Executive Officer

Exhibit 1.2(Translation)

REGULATIONS OF THE BOARD OF DIRECTORSADVANTEST CORPORATIONREGULATIONS OF THE BOARD OF DIRECTORS
Article 1. (Purpose)
Except as otherwise provided for by laws and ordinances or the Articles of Incorporation, any matters related to the Board of
Directors of Advantest Corporation (the “Company”) shall be governed by these regulations of the Board of Directors (the“Regulations”).
Article 2. (Responsibilities)
The Board of Directors shall, in addition to making decisions on significant matters concerning the execution of business and basic
management policies, including the Internal Control System, oversee the execution of duties of the Representative Director.
Article 3. (Convocation)
The Ordinary Meeting of the Board of Directors shall be held once a month in principal, and the Extraordinary Meeting of theBoard of Directors shall be held at any time whenever necessary.
Article 4. (Place)
The meeting of the Board of Directors shall be held at the head office of the Company; provided, however, that the place of themeeting may be changed whenever necessary.
Article 5. (Convener and Chairperson)
The Chairperson of the Board shall convene and act as the chairperson of the meeting of the Board of Directors. Should the
Chairperson of the Board be unable to act, another director shall take his/her place in accordance with an order of priority
previously determined by the Board of Directors.
Article 6. (Request for Convocation)
1. A director may, by submitting a matter to be discussed at a meeting of the Board of Directors to the Convener stipulated in thepreceding Article, request that a meeting of the Board of Directors be convened.
2. A corporate auditor may, where it is deemed necessary, request the Convener stipulated in the preceding Article to convene ameeting of the Board of Directors.
Article 7. (Procedure for Convocation)
1. Notice for convocation of the meeting of the Board of Directors shall be dispatched in writing to each director and corporate
auditor at least three (3) days prior to the date set for the meeting; provided, however, that such period may be shortened or the
meeting may be convened orally or electronically if the convocation is urgently required.
2. If the consent of all directors and corporate auditors is obtained, the meeting of the Board of Directors may be held without
taking the procedure for convocation.
Article 8. (Matters to be Resolved)
1. Matters which are required to be resolved by the Board of Directors are stipulated in the annex hereto.
Article 9. (Method of Adopting Resolutions)
1. Resolutions of the Board of Directors shall be adopted by a majority vote of the directors present at the meeting at which amajority of directors are present. In the event of a tie, the chairperson of the meeting may defer the resolution and submit thesame proposal again at the following meeting of the Board of Directors.
2. Any director having a special interest in the matter to be resolved may not exercise his or her voting rights.
Article 10. (Omission of Resolutions)
If the chairperson of the meeting submits a resolution in respect of a matter that is subject to a resolution by the Board of Directors,
if all directors (limited to those directors who are entitled to participate in resolving such matter) consent to such resolution inwriting or electronically, and no corporate auditor objects to such resolution, such resolution shall be deemed approved by the
Board of Directors.

2Article 11. (Matters to be Reported)
1. The Representative Director or the director in charge shall report to the Board of Directors on the status of execution of businessduring such period.
2. The Representative Director may, where it is deemed necessary in a report pursuant to the previous paragraph, cause anotherperson responsible for the execution of the relevant business to report on the status of such matter.
3. Any director who intends to engage in i) transactions which will compete with the business of the Company or ii) transactions
with the Company, shall disclose the important facts to and obtain approvals from the Board of Directors, and shall report theimportant facts concerning the transactions to the Board of Directors without delay after the completion thereof.
4. Matters which are required to be reported to the Board of Directors are stipulated in the annex hereto.
Article 12. (Appointment and Dismissal of Executive Officers)
1. The Board of Directors may appoint executive officers and assign the performance of operations of business of the Company tothem.
2. The Board of Directors may appoint, from the executive officers, one (1) person for the office of President of Executive Officers,
and several persons for the office of Vice-President of Executive Officers, Senior Executive Officer and Managing Executive
Officer, respectively, by its resolution.
3. Basic matters such as the appointment, authority, duties and retirement of executive officers shall be separately determined by
the Regulations of Executive Officers.
Article 13. (Attendance of Related Persons)
If the Chairperson deems it necessary for deliberation at a meeting of the Board of Directors, he or she may have any executive
officer responsible for business related to any of the proposals and/or other persons he or she deems appropriate to attend themeeting and express his or her opinions and/or provide explanations.
Article 14. (Minutes)
1. The substance of the proceedings of the meeting of the Board of Directors, the results thereof and other matters provided for in
relevant laws and regulations shall be recorded in the minutes and the directors and corporate auditors present at the meetingshall affix their names and seals thereto or put their electronic signatures thereon.
2. The minutes shall be kept at the head office of the Company for the period of ten (10) years.
Article 15. (Notification to Directors and Corporate Auditors Not Present)
Directors and corporate auditors who were not present at a meeting of the Board of Directors shall be notified of the substance ofthe proceedings and the results thereof.
Article 16. (Amendment)
Any amendment to these Regulations shall be made by a resolution of the Board of Directors.
SUPPLEMENTARY PROVISION
1Amended and Enacted

January 1, 2008;

Amended and Enacted

June 27, 2006;

Amended and Enacted

May 1, 2006;

Amended and Enacted

June 27, 2003;

Amended and Enacted

June 27, 2002;

Amended and Enacted

June 28, 2001;

2
3
4
5
6

3

7
Amended and Enacted

May 1, 1998;

Amended and Enacted

April 1, 1992; andAmended and Enacted

October 1, 1990.

8
9

4

ANNEX
MATTERS TO BE RESOLVED
1.

Matters provided for by laws and ordinances or the Articles of Incorporation:(1)
Convocation of the General Meeting of Shareholders and proposals to be referred thereto(Article 298 of the Company Law (“CL”));(2)
Determination and the order of directors to act as the Convener and the Chairperson at theGeneral Meeting of Shareholders;(3)
Establishment and amendment of the Regulations of Board of Directors;(4)
Development of the Internal Control System (CL362);(5)
Appointment or dismissal of the Representative Director or directors with titles (CL362);(6)
The amount of remuneration, among others, and time of payment of remuneration to directors
upon resolution of the General Meeting of Shareholders;(7)
Approval of the transactions by directors which will compete with the business of theCompany and the transactions between directors and the Company (CL365);(8)
Exemption of directors’ and corporate auditors’ liabilities under the Articles of Incorporation(CL362);(9)
Appointment or dismissal of a Counselor or an Advisor;(10) Approval of accounting documents, business reports and annexed specifications thereof(CL436);(11) Matters concerning distribution of surplus and related matters (CL459);(12) Establishment of a record date;(13) Matters concerning a share split and amendment to the Articles of Incorporation with respect
to an increase of the total number of issuable shares corresponding to such share split (CL183,
CL184);(14) Allotment of shares without consideration (CL186);(15) Acquisition of treasury shares under the Articles of Incorporation (CL165);(16) Retirement of treasury shares of the Company (CL178);(17) Matters concerning the issuance of offering shares (CL201);(18) Decrease of the number of shares constituting one unit of shares or abolishment of theprovisions which define such number (CL195);(19) Matters concerning the issuance of bonds, stock acquisition rights and bonds with stockacquisition rights (CL362, 240);(20) Sale of shares owned by non est shareholders (CL197);(21) Establishment and amendment of the Share Handling Regulations;(22) Appointment of the share registration agent and its handling office;(23) Any and all other significant matters under the laws and ordinances or the Articles ofIncorporation.

2.

Important Execution of Business(1)

Matters concerning budgets andsettlement of accounts;(2)

Matters concerning material
contracts, business alliances orlawsuits;
Matters concerning otherimportant execution of business.

(3)

Threshold for approval•budget for the first and second half of the fiscal
year, financial statements for the fiscal year,
interim period and quarterly period, etc.

5

3.

Disposal or Acquisition of Important Assets
and Loans of Large Amount(1)

Establishment, merger, acquisition, dissolution or
liquidation of affiliate or joint venture;(2) Acquisition or sale of businesses;(3) Capital subscription or investment;(4) Acquisition, sale or lease of fixed assets or trade
rights;(5) Disposal of fixed assets or inventory;(6) Loans and borrowings;(7) Leasing;(8) Creation of security right;(9) Guarantee of liabilities;(10) Depreciation or waiver of credit; and(11) Donation.
4.

All;
All;
One hundred million yen (¥100,000,000) or more per each;Three hundred million yen (¥300,000,000) or more per each(including land and buildings);
One hundred million yen (¥100,000,000) or more per each;Three hundred million yen (¥300,000,000) or more per each;
Five million yen (¥5,000,000) or more per month per each;
One hundred million yen (¥100,000,000) or more per each;
Thirty million yen (¥30,000,000) or more per each;
Thirty million yen (¥30,000,000) or more per each; andThirty million yen (¥30,000,000) or more per each.

Important corporate organization and personalaffairs(1)

Amendment to corporate organization;(2)

Appointment or dismissal of executive officers, oramount of remuneration, and time of payment of
remuneration thereto;
Personnel changes; and

(3)
(4)

•

corporate division or similar or more importantorganization; and•assignment of business responsibilities to directors andcorporate executive officers; division manager (controller)
or senior to such position.

Appointment of directors or corporate executive
officers to an affiliate, other company or outsideorganization, or change thereof.
MATTERS TO BE REPORTED

1. Monthly settlement of accounts (excluding those months in which the fiscal, interim or quarterly settlement of accounts are
subject to resolution)
2. Matters subject to the resolution of the Board of Managing Executive Officers which are considered material by the
Representative Director
3. Matters which will have a material impact on the management of the Company
4. Matters stipulated in Article 11, Paragraph 3 of the Regulations of the Board of Directors (competitive transactions and conflictof interest transactions)
5. Other matters in respect of which the Chairperson requests a report

6

Exhibit 1.3(Translation)

REGULATIONS OF
THE BOARD OF CORPORATE AUDITORSADVANTEST CORPORATION

(TRANSLATION)REGULATIONS OF
THE BOARD OF CORPORATE AUDITORSOFADVANTEST CORPORATION(Kabushiki Kaisha Advantest)
Article 1. (General Rule)
These Regulations stipulate matters concerning the Board of Corporate Auditors of Advantest Corporation (the “Company”) basedon laws, regulations and the Articles of Incorporation of the Company.
Article 2. (Organization)
1. The Board of Corporate Auditors shall consist of all corporate auditors.
2. The Board of Corporate Auditors shall appoint corporate standing auditor(s).
3. In addition to the preceding paragraph, the Board of Corporate Auditors shall appoint a chairperson of meetings of the Board of
Corporate Auditors.
Article 3. (Purpose)
The Board of Corporate Auditors shall receive reports, deliberate or adopt resolutions on significant matters concerning audits;
provided, however, that it shall not interfere with the execution of powers of each corporate auditor.
Article 4. (Duties of the Board of Corporate Auditors)
The Board of Corporate Auditors shall perform the following duties; provided, however, that decisions made pursuant to Paragraph
3 below shall not interfere with the execution of powers of each corporate auditor:
preparing audit reports;
appointing and dismissing corporate standing auditor(s); anddetermining audit policy, methods to investigate the state of business operations and assets and other mattersrelating to the execution of duties by corporate auditors.
Article 5. (Appointment and Dismissal of Corporate Standing Auditor(s))
The Board of Corporate Auditors may, by its resolution, appoint corporate standing auditor(s) from among the corporate auditors or
dismiss corporate standing auditor(s).
Article 6. (Chairperson)
1. The Board of Corporate Auditors shall, by its resolution, appoint a chairperson of the Board of Corporate Auditors from among
the corporate auditors.
2. The chairperson of the Board of Corporate Auditors shall perform the duties set forth in Article 8, Paragraph 1.
Article 7. (Meetings to be Held)
The meeting of the Board of Corporate Auditors shall be held at least once every three (3) months; provided, however, that ameeting may be held from time to time as necessary.
Article 8. (Person Entitled to Convene Meetings)
1. The chairperson of the Board of Corporate Auditors shall convene and preside over the meetings of the Board of Corporate
Auditors.
2. Each corporate auditor may request the chairperson of the Board of Corporate Auditors to convene a meeting of the Board of
Corporate Auditors.
3. Despite such request, if the chairperson does not convene a meeting of the Board of Corporate Auditors, the corporate auditor
who made the request may convene and preside over the meeting.
2Article 9. (Procedure for Convocation)
1. Convocation notice of a meeting of the Board of Corporate Auditors shall be sent to each corporate auditor in writing at least
three (3) days prior to the date of the meeting; provided, however, that, in urgent cases, such period may be shortened.
2. With the consent of all corporate auditors, a meeting of the Board of Corporate Auditors may be held without following theconvocation procedures.
Article 10. (Method of Adopting Resolutions)
1. Resolutions of a meeting of the Board of Corporate Auditors shall be adopted by a majority vote of corporate auditors.
2. In adopting resolutions, the Board of Corporate Auditors shall deliberate based on adequate materials.
Article 11. (Resolution of Audit Policy and Others)
1. The Board of Corporate Auditors shall resolve matters deemed necessary to perform the duties of the corporate auditors,
including audit policy, audit plans, audit procedures and budgeting of audit expenses, among others.
2. In addition to the matters set out in the preceding paragraph, the Board of Corporate Auditors shall resolve any other mattersdeemed necessary to perform the duties of the corporate auditors, including any further improvement to be made to the audit
system of the Company, and propose such matters to the directors.
Article 12. (Periodic Meetings with the Representative Director)
1. The Board of Corporate Auditors shall present explanations to the Representative Director with respect to audit policy, audit
plans and the state of audit enforcement and results from time to time, exchange opinions, and endeavor to deepen the mutual
understanding and relationship of trust.
2. In addition to matters required by law, the Board of Corporate Auditors shall determine matters that the directors, executive
officer and employees should report to the Board of Corporate Auditors through discussions with directors and executive
officers, and the Board of Corporate Auditors shall receive such reports.
Article 13. (Reports to the Board of Corporate Auditors by Corporate Auditor)
1. Each corporate auditor shall report the state of his or her execution of duties to the Board of Corporate Auditors from time totime, and at any time upon request by the Board of Corporate Auditors.
2. Any corporate auditor who has received a report from the accounting auditor, director, executive officer, employees, such as
those of the internal audit department, or any other person shall report the same to the Board of Corporate Auditors.
3. The Board of Corporate Auditors may request reports from the accounting auditor, directors, executive officers, employees,
such as those of the internal audit department, and other persons, when necessary.
4. With respect to Paragraph 1, 2 and 3 above, if any of the corporate auditors, the accounting auditor, directors, executive officers,
employees of the internal audit department or other persons set matters that such persons should report to the Board of
Corporate Auditors and notify all of the corporate auditors with respect to such matters, such matters shall not be required to bereported to the Board of Corporate Auditors.
Article 14. (Measures to be Taken in Response to Reports)
1. If the Board of Corporate Auditors receives a report from any of the directors or executive officers to the effect that material
damage to the Company was found, the Board of Corporate Auditors shall conduct necessary investigations and take appropriate
measures according to the situation.
2. If the Board of Corporate Auditors receives a report from the accounting auditor to the effect that any misconduct by a director
or executive officer with respect to the execution of his or her duties or any other material facts which contravene the provisionsof laws, regulations or the Articles of Incorporation of the Company were found, the Board of Corporate Auditors shall conduct
necessary investigations and take appropriate measures according to the situation.
Article 15. (Preparation of Audit Report)
1. The Board of Corporate Auditors shall prepare the audit report of the Board of Corporate Auditors based on reports received
from each corporate auditor and after deliberation thereof.
3

2. If the content of the audit report of the Board of Corporate Auditors is different from the content of the audit report of eachcorporate auditor, and if requested by such corporate auditor, the Board of Corporate Auditors shall refer to the content of theaudit report of such corporate auditor in the audit report of the Board of Corporate Auditors.
3. Each corporate auditor shall sign or affix his or her name and seal (electronic signatures permitted) to the audit report of theBoard of Corporate Auditors. Any corporate standing auditor and outside corporate auditor shall indicate such title thereon.
4. Provisions in the preceding Paragraph 1, 2 and 3 shall be applied mutatis mutandis when the Company prepares extraordinary
financial statements or consolidated financial statements.
Article 16. (Consent Concerning Appointment of Corporate Auditors)
The following matters relating to appointment of the corporate auditors shall be determined by resolution of the Board of
Corporate Auditors:
consenting to the matters for resolution to be submitted to a general meeting of shareholders concerning appointment ofcorporate auditor(s);requesting that matters concerning appointment of corporate auditors be matters for resolution to be submitted to a general
meeting of shareholders; andrequesting matters to be submitted for resolution to a general meeting concerning appointment of corporate auditor(s).
Article 17. (Consent Concerning Appointment of the Accounting Auditor)
1. The following matters relating to appointment, removal or non-reappointment of the accounting auditor shall be determined byresolution of the Board of Corporate Auditors:
consenting to the matters for resolution to be submitted to a general meeting of shareholders concerning appointment of
the accounting auditor;
consenting to that matters concerning appointment or non-reappointment of the accounting auditors be matters forresolution to be submitted to a general meeting of shareholders;requesting matters to be submitted for resolution to a general meeting of shareholders concerning appointment of theaccounting auditor;
requesting that matters concerning appointment, removal or non-reappointment of the auditing auditors be matters forresolution to be submitted to a general meeting of shareholders; andappointing those who shall temporarily assume the duty of the accounting auditor in case of a vacancy of the position of
accounting auditor.
2. Consent to the removal of the accounting auditor for a cause pursuant to any provision of laws and regulations shall require aunanimous resolution of the corporate auditors and may be adopted after deliberation of the Board of Corporate Auditors. In
such case, a corporate auditor appointed by the Board of Corporate Auditors shall report on and explain such removal of theaccounting auditor and the reason therefor at the first general meeting of shareholders convened after the removal.
3. Unanimous consent stipulated in the preceding paragraph may be obtained in writing or electronically, in urgent cases.
Article 18. (Consent with Respect to Remuneration for the Accounting Auditor)
The Board of Corporate Auditors shall, by resolution, consent to the remuneration for the accounting auditor or those who
temporarily assume the duty of the accounting auditor.
Article 19. (Consent of the Corporate Auditors Concerning Partial Exemption of Directors’ Liabilities)
1. Consent to the following matters shall require a unanimous resolution of the Board of Corporate Auditors and may be adopted
after deliberation of the corporate auditors:
consent to the submission of agenda concerning the partial exemption of directors’ liabilities to a general meeting ofshareholders;4consent to the submission of agenda concerning amendments to the Articles of Incorporation to allow the partial
exemption of directors’ liabilities by resolution of the Board of Director to a general meeting of shareholders;consent to the submission of agenda concerning the partial exemption of directors’ liabilities pursuant to a resolution of
the Board of Director to a general meeting of shareholders;consent to the submission of agenda concerning amendments to the Articles of Incorporation to allow outside directors toenter into a contract with the Company with respect to the partial exemption of directors’ liabilities to a general meeting ofshareholders; andconsent to the auxiliary participation by the Company in shareholder litigation to assist any defendant director.
2. Unanimous consent stipulated in the preceding paragraph may be obtained in writing or electronically, in urgent cases.
Article 20. (Deliberation Pertaining to the Execution of Powers by Corporate Auditors)
In case the corporate auditors shall execute their powers or perform their duties with respect to the following matters, the corporate
auditors may deliberate such matters at a meeting of the Board of Corporate Auditors in advance:
any explanation in response to questions made to corporate auditors by any shareholder prior to a general meeting ofshareholders;
any report to the Board of Directors and requests of convocation of a meeting of the Board of Directors and other mattersrelated thereto;
any results of any investigation concerning matters for resolution or other documents to be submitted to a general meetingof shareholders;
any claim filed to seek an injunction against illegal acts by any director, and any request to the Representative Director
seeking an injunction against illegal acts by any executive officer;
any statement at a general meeting of shareholders concerning appointment, removal, resignation and remuneration of thecorporate auditors;
any matter concerning lawsuits between the Company and a director; andany other matters including filing of lawsuits.
Article 21. (Deliberation with Respect to Remuneration of Corporate Auditors)
The Board of Corporate Auditors may deliberate with respect to remuneration and other matters of the corporate auditors when allof the corporate auditors agree to hold such deliberation.
Article 22. (Minutes)
1. The Board of Corporate Auditors shall prepare minutes of a meeting of the Board of Corporate Auditors. Such minutes shall
include the following matters and shall be signed or sealed (including electronic signatures) by the corporate auditors present at
the meeting:Date and place of the meeting of the Board of Corporate Auditors (including methods of participation by corporate
auditors, directors or the accounting auditor, who were not present at the place of the meeting);
A summary of the proceedings of the meeting and the results thereof;
In case any opinions or comments were made at a meeting of the Board of Corporate Auditors with respect to thefollowing matters, an outline of such opinions or comments:(i)report from a director to the effect that material damage to the Company was found; and(ii)

report from the accounting auditor to the effect that any misconduct by a director or executive officer with respect
to the execution of his duties or any other material facts which contravene the provisions of laws, regulations or
the Articles of Incorporation of the Company were found.

5Names of directors, executive officers or the accounting auditor who were present at the meeting of the Board of
Corporate Auditors; andName of the chairperson of the Board of Corporate Auditors.
2. The minutes referred to in the preceding paragraph shall be kept at the head office of the Company for ten (10) years.
Article 23. (Secretariat of the Board of Corporate Auditors)
The administration of the Board of Corporate Auditors including convocation, preparation of the minutes of a meeting of the Boardof Corporate Auditors and other operational matters of the Board of Corporate Auditors shall be handled by the corporate auditors’
staff.
Article 24. (Regulations for the Audit of Corporate Auditors)
Matters regarding audits by the Board of Corporate Auditors and the corporate auditors shall be governed by the Regulations for
the Audit of Corporate Auditors (Kansayaku Kansa Kijyun) defined by the Board of Corporate Auditors, in addition to the mattersprovided by laws, regulations, the Articles of Incorporation of the Company and these Regulations of the Board of Corporate
Auditors.
Article 25. (Amendment and Abolition of these Regulations)
Any amendment to, and abolition of, these Regulations shall be made by resolution of the Board of Corporate Auditors.
SUPPLEMENTARY PROVISION
These Regulations shall come into force on August 29, 2007.
1.
2.
3.
4.
5.

EnactedAmendedAmendedAmendedAmendedJune 30, 1994;
August 30, 2002;
June 27, 2006;
September 27, 2006; andAugust 29, 2007.

6

Exhibit 2.1(Translation)

SHARE HANDLING REGULATIONSADVANTEST CORPORATIONSHARE HANDLING REGULATIONSCHAPTER I. GENERAL PROVISIONS
Article 1. (Purpose)
Denominations of share certificate and matters concerning handling and fees of shares of the Company shall be governed bythese Regulations pursuant to the provisions of the Articles of Incorporation; provided, however, that handling concerning thebeneficial shareholders shall be governed by rules established by Japan Securities Depository Center, Inc (hereinafter called“JASDEC”) in addition to these Regulations.
Article 2. (Share Registration Agent)
1.

The share registration agent of the Company, the handling office and liaison offices thereof shall be as follows:
Share Registration Agent:Tokyo Securities Transfer Agent Co., Ltd.
6-2, Otemachi 2-chome, Chiyoda-ku, Tokyo
Handling Office:The head office of Tokyo Securities Transfer Agent Co., Ltd.
6-2, Otemachi 2-chome, Chiyoda-ku, Tokyo
Liaison Offices:
All and any business offices and liaison offices ofTokyo Securities Transfer Agent Co., Ltd.

2.

Procedures under these Regulations and those for request or notification, etc. concerning the business which the Company
has entrusted to the share registration agent shall be addressed to the share registration agent.

Article 3. (Denominations of Share Certificates)
1.

2.
3.

The denominations of share certificates to be issued by the Company shall be one hundred (100) shares, five hundred(500) shares, one thousand (1,000) shares, ten thousand (10,000) shares, fifty thousand (50,000) shares and one hundred
thousand (100,000) shares; provided, however, that the Company may issue a share certificate representing any number ofshares less than one hundred (100) shares.
Any shareholder may not request for issuance of share certificate for shares constituting less than one full unit except incase of reissuance required under Articles 13 and 21.
With respect to the newly issued shares constituting less than one full unit, the entry into the Shareholders’ Register or the
Beneficial Shareholder’s Register shall be notified by notice of issuance of the shares constituting less than one full unit,
etc.

Article 4. (Request, Notification, Etc.)
1.

All requests, notifications, reports or applications under these Regulations shall be made in the form prescribed by theCompany, and shall bear the seal impression notified in accordance with the provisions of Article 14.

2.

In case that a request, notification, report or application under these Regulations is made by an attorney-in-fact, adocument evidencing the authority thereof or, if such request, notification, report or application requires a consent of acurator or an assistant, a document evidencing such consent, shall be submitted.
In connection with a request, notification, report or application under the preceding two paragraphs, the Company may
request submission of a certificate, a letter of undertaking, a letter of guarantee, or any other document when it may deem
necessary.

3.

2

CHAPTER II.

DESCRIPTION OR RECORDING IN SHAREHOLDERS’ REGISTRY

Article 5. (Registration of Transfer)
1.
2.

The request of description or recording in the shareholders’ registry (the “registration of transfer”) shall be made bysubmitting a written request to that effect together with the share certificates indicating the name of a requester.
In case that any person who has acquired shares for any reason other than assignment requests registration of transfer ofshares, a document evidencing such acquisition shall be submitted if requested by the Company.

Article 6. (Registration of Transfer Where Specially Provided for by Laws and Ordinances)
In case that any special procedure is required for the transfer of shares by laws and ordinances, a written request therefor shallbe submitted together with the share certificates indicating the name of a requester and a document evidencing the completion ofsuch procedure.
Article 7. (Registration on the Beneficial Shareholders’ Register in writing or digitally)
The registration on Beneficial Shareholders’ Register in writing or digitally shall be made in accordance with the noticeconcerning the beneficial shareholder from the JASDEC and Certificate of Beneficial Shareholder.
Article 8. (Certificate of Beneficial Shareholder)
The beneficial shareholder shall submit Certificate of Beneficial Shareholder through participant.
Article 9. (Sum up)
In case that shareholder registered on the Shareholders’ Register in writing or digitally, and the beneficial shareholder registeredon the Beneficial Shareholder’ Register in writing or digitally, are recognized as the identical person in the name and address,
the number of shares of both Register shall be aggregated for the execution of the rights entitled to such shareholder.
CHAPTER III.

PLEDGE AND TRUSTArticle 10. (Registration or Cancellation of Pledge)
The request for the registration, change or cancellation of pledge with respect to shares shall be made by submitting a written
request to that effect which shall be jointly signed by the pledger and the pledgee together with the share certificates indicating
the name of a pledgee.
Article 11. (Indication or Cancellation of Trust Property)
The request for the indication of trust property or cancellation thereof with respect to shares shall be made by the truster or thetrustee by submitting a written request to that effect together with the share certificates.
CHAPTER IV. NON-POSSESSION OF SHARE CERTIFICATE
Article 12. (Application for Non-Possession of Share Certificate)
1.
2.
3.

The application for the non-possession of share certificates shall be made by submitting a written application to that effect
together with the share certificates if the share certificates have been already issued.
As to newly issued share certificates, a written application to that effect shall be submitted.
In case that the application as set forth in Paragraph 1 above has been made, the Company shall treat such sharecertificates as unissued.

Article 13. (Request for Issuance of Non-Possessed Share Certificate)1.
2.

In case that the shareholder who has applied for the non-possession of share certificates requests the issuance thereof, heshall submit a written request to that effect.
In the case as set forth in the preceding paragraph, the Company may request the submission of the Receipt of the
Application for Non-Possession of Share Certificates or an alternative certificate (letter of undertaking) and the Receipt ofShare Certificates, which the Company previously delivered.

3

CHAPTER V.

REPORTS

Article 14. (Report of Name, Address and Seal Impression of Shareholders, etc.)
1.

2.

The shareholder, the beneficial shareholder and the registered pledgee of shares or their legal representatives shall reporttheir names, addresses and seal impressions; provided, however, that foreigners may substitute a specimen signature for aseal impression.
Any change of the items reported as provided for in the preceding paragraph shall be reported.

Article 15. (Report of Place to Receive Notice of Shareholders, etc., Residing Abroad)1.

2.

The shareholder, the beneficial shareholder and the registered pledgee of shares or their legal representatives who reside inforeign countries shall, in addition to a report as provided for in the preceding article appoint and report either theirstanding agents or places to receive notices in Japan.
The provisions of Article 14 shall apply mutatis mutandis to standing agents.

Article 16. (Representative of Corporation)
1.
2.

In case that the shareholder or the beneficial shareholder is a corporation, the representative thereof shall be reported.
Should the representative be changed, the report thereof shall be submitted together with a certificate of registered matters(“tokijikou-shoumeisho”).

Article 17. (Representative for Co-owned Shares)
In case that the shareholder is a voluntary organization or the shareholder who co-owns the shares, then such shareholder shalldesignate a representative and report the Company thereof submitting the report signed by all co-owners and the sharecertificates indicating the names of all co-owners, if issues. In the case of a change of the representative, the same shall apply.
Article 18.

(Change of Indication on Shareholders’ Register, Beneficial Shareholders’ Register and Share Certificate)

In case that the indication on the Shareholders’ Register, the Beneficial Shareholders’ Register and share certificates is to bechanged for the reasons set forth below, a written report of such change shall be submitted together with the share certificatesand a document evidencing the relevant fact; provided, however, that the submission of share certificate is not required should
the share certificates have not been issued or in case of change of indication on Beneficial Shareholders’ Register:
(1)
(2)
(3)
(4)

Change of a family name or a given name;Appointment, change or release of a legal representative, including a person with parental authority, a guardian,etc.;
Change of a trade name, corporate name, or that of a voluntary organization; andChange of corporate organization.

Article 19. (Exception in Case of Reports by Beneficial Shareholder)
In case that the beneficial shareholder reports as prescribed in this Chapter, the beneficial shareholder shall report through theparticipant; provided, however, that in case that the beneficial shareholder report only the change of seal impression, it is not
required to report through the participant.
CHAPTER VI. REISSUANCE OF SHARE CERTIFICATES
Article 20. (Reissuance Due to Splitting or Consolidation of Shares)
1.
2.
3.

In case that the issuance of new share certificates is to be requested due to splitting or consolidation of shares, a written
request to that effect shall be submitted together with the share certificates.
In case that the consolidation of shares constituting less than one full unit produce units of shares, then the shareholders ofsuch shares shall have new share certificates issued for the number of shares constituting units.
Certificates for shares constituting less than one full unit shall not be issued due to splitting or consolidation of shares.

Article 21. (Reissuance Due to Defacement or Mutilation)
In case that the issuance of new share certificates is requested due to defacement or mutilation of share certificates, a written
request to that effect shall be submitted together with the share certificates concerned; provided, however, that when it isdifficult to judge the genuineness of the submitted share certificates, the provisions of CHAPTER VII. shall apply.

4

CHAPTER VII. REGISTRATION OF LOSS OF SHARE CERTIFICATES, etc.
Article 22. (Request for Registration of Loss of Share Certificates)
In case registration of loss of share certificates is requested, a request form therefor shall be submitted together with a document
evidencing acquisition of the share certificates concerned, a document evidencing loss thereof and a document for identificationof the applicant; provided, however, that, in case a registered shareholder of such lost share certificates requests to register suchloss, only a document evidencing loss of the share certificates concerned shall be required.
Article 23. (Application by Shareholders who Registered Loss of Share Certificates to Cancel such Registration)
In case shareholders who registered the loss of share certificates as mentioned in the preceding paragraph apply to cancel suchregistration, an application form therefor shall be submitted.
Article 24. (Application by Shareholders who hold Share with Registration of Loss of Certificates to Cancel such Registration)
In case shareholders who hold shares with registration of loss of share certificates apply to cancel such registration, an
application form therefor shall be submitted together with the share certificates concerned and a document for identification of
the applicant; provided, however, that, in case a shareholder or registered pledgee of shares applies for cancellation, a document
for identification of the applicant shall not be required.
Article 25. (Application of Provisions Concerning Reports)
In case one who registered the loss of share certificates is not a shareholder or registered pledgee of shares of the lost sharecertificates and intends to change the description of the register of lost share certificates recorded in writing or digitally, theprovisions of Articles 14 through 18 hereof shall be applied mutatis mutandis.
CHAPTER VIII. PURCHASE OF SHARES CONSTITUTING LESS THAN ONE FULL UNIT
Article 26. (Handling of Purchase)
1.
2.

The purchase of shares constituting less than one full unit shall be handled by the share registration agent and not by theCompany.
In case that the beneficial shareholder requests the handling provided for in the preceding paragraph, such request shall bemade through the participant and JASDEC.

Article 27. (Purchase of Shares Constituting Less Than One Full Unit When Share Certificates Therefor Have Been Issued
Previously)
The request for the purchase of shares constituting less than one full unit for which share certificate had been issued previously
shall be made by submitting a written request to that effect together with the share certificates.
Article 28. (Purchase of Shares Constituting Less Than One Full Unit When Share Certificates Therefor Have Not Been Issued)
The request for the purchase of shares constituting less than one full unit for which share certificates have not been issued shallbe made in the request form prescribed by the Company and the share registration agent shall receive such request upon
confirmation on the Shareholders’ Register.
Article 29. (Effectiveness of Purchase Request of Shares Constituting Less Than One Full Unit)
1.

2.

The request for the purchase of shares constituting less than one full unit which are made in accordance with the preceding
two articles shall take effect as from the date on which the documents required therefor reach the handling office or one of
the liaison offices of the share registration agent.
After the request for the purchase takes effect as provided for in the preceding paragraph, such request shall not becancelled.

Article 30. (Purchase Price of Shares Constituting Less Than One Full Unit)
1.

The purchase price of shares constituting less than one full unit, the purchase of which has been requested in accordancewith the provisions of the preceding articles, shall be equal to the amount to be obtained by multiplying the purchase priceper share as provided for under Paragraph 2 below by the number of shares constituting less than one full unit thepurchase of which has been requested.

5

2.

The purchase price per share of shares constituting less than one full unit the purchase of which has been requested shallbe equal to the closing price per share at which the shares of the Company are sold on the Tokyo Stock Exchange on the
day when the request for the purchase as provided for in Paragraph 1 of the preceding article is received at the handlingoffice or one of the liaison offices of the share registration agent as set forth in Article 2 above, and should no sales
transaction be performed on the shares of the Company on the said day then the price per share at which the shares of theCompany are first sold at the said stock Exchange thereafter.

Article 31. (Payment of Money Payable for Shares Less Than One Full Unit Purchased)
1.

2.

The amount of the money payable for the shares constituting less than one full unit the purchase of which has beenrequested, unless otherwise separately provided for by the Company, shall be paid at the place where the request for thepurchase thereof is received on the sixth business day from the day when the purchase price per share is fixed as provided
for under Paragraph 2 of the preceding article; provided, however, that should the purchase price per share be the pricereflects the right to receive dividends of surplus or distribution of new shares by stock split, the payment shall be made on
or before the record date therefor.
On paying the purchase price of shares constituting less than one full unit under the preceding paragraph, the fee as set
forth in Article 43 below shall be deducted.

Article 32. (Transfer of Shares for Purchase of Shares Constituting Less Than One Full Unit)
The shares purchased in accordance with the provisions for the purchase of shares constituting less than one full unit shalltransfer to the Company on the day when the share registration agent commences the payment of the purchase price thereof.
CHAPTER IX. SALE OF SHARES CONSTITUTING LESS THAN ONE FULL UNIT
Article 33. (Method of Request for Sale of Share)1.

2.

In case a shareholder or beneficial shareholder of shares constituting less than one full unit makes a request for sale (the“request for sale”) by the Company of the number of shares, which may constitute one full unit together with his/hershares constituting less than one full unit, a request form therefor shall be submitted together with his/her share certificates
and the estimated amount of proceeds set forth in the immediately following article to the handling office or one of theliaison offices of the transfer agent defined in Article 2; provided, however, that, if no share certificates have been issued
for his/her shares, submission of share certificates shall not be required.
When a beneficial shareholder makes the request for sale referred to in the immediately preceding paragraph, such request
shall be made through the participant and JASDEC.

Article 34. (Estimated Amount of Proceeds)
1.

The estimated amount of proceeds shall be the amount calculated by the last selling price per share of the Company on theTokyo Stock Exchange on the immediately preceding business day of the day on which the documents relating to therequest for sale set forth in the preceding article arrive at the handling office or one of the liaison offices of the shareregistration agent (or, if no share of the Company was traded on the Tokyo Stock Exchange on that day, the last selling
price per share thereon on any day immediately preceding that day) multiplied by the number of shares the sale of which
has been requested, and then multiplied by 1.3 (any fraction less than one thousand yen (¥1,000) resulting from suchcalculation being rounded up); provided, however, that the request for sale by a beneficial shareholder shall be handled inaccordance with the rules prescribed by JASDEC.

2.

In the case of the request for sale set forth in the immediately preceding article, if the estimated amount of proceeds is lessthan the amount determined in accordance with the immediately preceding paragraph, the Company shall not handle such
request.

Article 35. (Request for Sale of Number of Shares Exceeding Number of Treasury Stock)
If an aggregate number of shares the sale of which has been requested on any one day exceeds the number of treasury stock
reserved by the Company for the request for sale, no such request for sale made on that day shall become effective.
Article 36. (Effective Date of Request for Sale)
The request for sale shall become effective as of the date on which the documents set forth in Article 33 and the estimatedamount of proceeds set forth in Article 34 arrive at the handling office or one of the liaison offices of the share registration agent.

6

Article 37. (Suspension Period of Request for Sale)
1.

2.

The Company shall suspend acceptance of the request for sale during the period from the twelfth business day
immediately preceding March 31 up to March 31 and the period from the twelfth business day immediately preceding
September 30 up to September 30 every year.
Notwithstanding the immediately preceding paragraph, the Company may establish any other period to suspend
acceptance of the request for sale whenever it deems necessary.

Article 38. (Determination of Sales Price)
1.

2.
3.

The sales price per share shall be the last selling price per share of the Company on the Tokyo Stock Exchange on the dayon which the request for sale becomes effective; provided, however, that, if no share of the Company was traded on theTokyo Stock Exchange on that day or that day was not a business day of the Tokyo Stock Exchange, the first selling priceper share thereon immediately after that day.
The sales price shall be the amount obtained by multiplying the sales price per share in the immediately preceding
paragraph by the number of shares the sale of which has been requested.
In case the estimated amount of proceeds set forth in Article 34 is less than the total amount of the sales price set forth in
the immediately preceding paragraph and the fees set forth in Article 43 (the “proceeds”), the Company shall request thatthe applicant makes payment of such shortfall. In this case, if such shortfall remains unpaid for the period of five(5) business days after the day immediately following the day of the Company’s request, the relevant request for sale shallbecome invalid.

Article 39. (Receipt of Proceeds)
1.

2.

The Company shall receive the proceeds from the estimated amount of proceeds on the sixth business day after thedetermination date of the sales price or the actual payment date of the shortfall in paragraph 3 of the immediately
preceding article; provided, however, that, if the sales price reflects the right to receive dividends of surplus or distributionof new shares by stock split, etc., the Company shall receive the sales price no later than the record date.
The balance obtained by deducting the sales price provided for in the immediately preceding paragraph from the estimatedamount of proceeds shall be refunded to the shareholder who made the relevant request for sale by transfer to the bankaccount designated by such shareholder or by postal money transfer.

Article 40. (Transfer of Shares Sold)
The title to the treasury stock the sale of which has been requested shall be transferred to the shareholder or beneficial
shareholder who made the relevant request for sale on the date when the Company completes the receipt of the sales price asprovided for in the immediately preceding article.
Article 41. (Delivery of Share Certificates)
The Company shall, without delay, issue the share certificates for the shares which become the shares constituting one full unit
by the request for sale, and deliver such share certificates to the shareholder who made such request for sale; provided, however,this shall not apply to any request for sale by a beneficial shareholder.
CHAPTER X. FEES
Article 42. (Fees)
The shares of the Company shall be handled free of charge except in the cases provided below:
1.

The delivery of share certificates under Article 13 (Request for Issuance of Non-Possessed Share Certificate), Article 20(Reissuance Due to Splitting or Consolidation of Shares) and Article 21 (Reissuance Due to Defacement or Mutilation):
the amount of stamp duty plus ¥50 per share certificate.

2.

The request for registration of loss of share certificates under Article 22 (Request for Registration of Loss of Share
Certificates or Cancellation Thereof):
the amount equivalent to ¥10,000 per case plus the amount obtained by multiplying the number of sharecertificates by ¥500.

7Article 43. (Fee for Purchase or Sale of Shares Constituting Less Than One Full Unit)
The fee for the purchase or sale of shares constituting less than one full unit shall be equal to the amount obtained byproportionally dividing the brokerage fee for purchase or sale of one unit of shares of the Company at the purchase price pershare determined in accordance with Paragraph 2 of Article 30 or the sales price per share determined in accordance with
Paragraph 1 of Article 38, which fee shall be separately decided by the Company, by the number of shares constituting less than
one full unit relating to the request for purchase or sale.
SUPPLEMENTARY PROVISIONS
Article 1.
These Regulations shall be established or amended upon the proposal of the Manager of General Affairs Department and byresolution of the Board of Directors.
Article 2.
Amended on November 26, 2007.

8

Exhibit 12.1
CERTIFICATION
I, Toshio Maruyama, certify that:1.

I have reviewed this annual report on Form 20-F of Advantest Corporation (the “registrant”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

5.

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared;(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theperiod covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; andThe registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (and persons
performing the equivalent function):(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.

Date: June 26, 2008
ADVANTEST CORPORATION
By:

/s/

TOSHIO MARUYAMA

Name: Toshio Maruyama
Title: Representative Board Director, President and CEOCERTIFICATIONI, Yuichi Kurita, certify that:1.

I have reviewed this annual report on Form 20-F of Advantest Corporation (the “registrant”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

5.

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared;(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theperiod covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; andThe registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (and persons
performing the equivalent function):(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.

Date: June 26, 2008
ADVANTEST CORPORATION
By:

/s/

YUICHI KURITA

Name:Yuichi Kurita
Title: . Director and Managing Executive Officer

Exhibit 13.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of theundersigned officers of Advantest Corporation, a Japanese corporation (the “Company”), does hereby certify that, to such officer’s
knowledge:
1.

The accompanying Annual Report of the Company on Form 20-F for the period ended March 31, 2008 (the “Report”) fullycomplies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operationsof the Company.

Date: June 26, 2008
By:

/S/

TOSHIO MARUYAMA

Name:Toshio Maruyama
Title: Representative Board Director, President andCEO
Date: June 26, 2008
By:

/S/

YUICHI KURITA

Name:Yuichi Kurita
Title: Director and Managing Executive Officer

Exhibit 15.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:(1)

Registration Statement (Form S-8 No. 333-146218) of Advantest Corporation,(2)

Registration Statement (Form S-8 No. 333-141394) of Advantest Corporation,(3)

Registration Statement (Form S-8 No. 333-132374) of Advantest Corporation,(4)

Registration Statement (Form S-8 No. 333-123671) of Advantest Corporation, and(5)

Registration Statement (Form S-8 No. 333-97107) of Advantest Corporation;of our report dated June 16, 2008, with respect to the consolidated financial statements of Advantest Corporation, and our report dated
June 16, 2008, with respect to the effectiveness of internal control over financial reporting of Advantest Corporation, included in the
Annual Report (Form 20-F) of Advantest Corporation for the year ended March 31, 2008.
/s/ Ernst & Young ShinNihon
Tokyo, Japan
June 20, 2008