TOKYO ELECTRON DEVICE LIMITED Q2 FY2026 earnings call

Overall Interim Financial Performance

• The first half posted year-over-year decreases in both revenue and profit: revenue fell 13.8%, ordinary profit fell 40.3%, and net income attributable to parent company shareholders fell 40.1%. However, results outperformed the company's prior interim guidance, with revenue 5.3% above forecast, ordinary profit 11.1% above forecast, and net income 12.2% above forecast.
• Second quarter total orders reached 50.8 billion yen; CN business orders were strong across both products and maintenance/monitoring services, driven by steady IT investment. EC business customer inventory is gradually normalizing but has not yet seen a full demand recovery.
• Total assets fell 1.9 billion yen year-over-year to 154.9 billion yen, driven by reduced trade receivables and inventory alongside lower revenue. Interest-bearing debt decreased alongside lower working capital requirements. Operating cash flow remained positive amid falling revenue, while financing cash flow was negative due to debt repayment, treasury share repurchases, and dividend payments.

CN Business Operational Updates (aligned with VISION2030)

• Strong growth was driven by increased sales of storage products (to telecom carriers), security products (to enterprise clients), and maintenance/monitoring services (to telecom, data center, and cloud operators). The only softness was a slight sales decrease for network products to data center and cloud operators, following strong performance in the prior year.
• To hit VISION2030 targets, the business partners with overseas offices to source cutting-edge technology and identify high-potential solutions. In Q2, the company signed new agency agreements with three overseas vendors: Semperis (security), Arize AI and Glean Technologies (AI), and will continue expanding product/service offerings centered on the high-demand security and AI sectors.

PB Business Operational Updates (aligned with VISION2030)

• Weakness came from reduced wafer inspection device sales due to ongoing customer inventory adjustment, and slow demand for industrial equipment-bound design and mass production contracting services. In-house information and communication equipment at the company's Nagasaki facility posted strong performance.
• The company's top priority within PB business is the measurement and inspection device business. Following the 2023 acquisition of business from Nippon Electro Sensor Device, the company entered the silicon field, and has now shipped its first SiC wafer inspection device to an overseas manufacturer for the compound semiconductor market. SiC is a high-growth material for power semiconductors, and this shipment is a milestone in the company's multi-year effort to enter the global SiC market. The company will continue R&D on new inspection methods to expand its range of inspection targets and grow this business.

Shareholder Returns

• The company follows a performance-aligned shareholder return policy with a target payout ratio of 40%. Based on performance, the interim dividend for the 2026 March fiscal year was increased from the prior forecast of 32 yen per share to 35 yen per share. Combined with the forecasted year-end dividend of 64 yen per share, the full-year annual dividend is planned at 99 yen per share.

For the first half of the 2026 March fiscal year, total company revenue was 96.2 billion yen, a 15.4 billion yen decrease year-over-year. The breakdown by segment is as follows:

1. CN Business: Revenue was 19.1 billion yen, an 8.5% increase year-over-year, accounting for 19.9% of total consolidated revenue. Segment profit was 2.6 billion yen, a 20.3% increase year-over-year, with a segment profit margin of 13.6%.
2. EC Business: Revenue was 77 billion yen, an 18.1% decrease year-over-year, accounting for 80% of total consolidated revenue. Segment profit was 1 billion yen, a 73.4% decrease year-over-year. Overseas consolidated subsidiaries in the EC business posted USD-denominated revenue of 140 million USD, a 32 million USD decrease year-over-year, with particularly weak performance for computer and peripheral device-bound products.
3. PB Business: Revenue was 5.6 billion yen, a 19.3% decrease year-over-year, accounting for 5.8% of total consolidated revenue.

• Full-year 2026 March fiscal year consolidated revenue is maintained at the prior forecast of 200 billion yen. Ordinary profit was revised down 9% from 10 billion yen to 9.1 billion yen, while net income was revised up 2.9% from 7 billion yen to 7.2 billion yen. The downward revision to ordinary profit reflects longer-than-expected customer inventory adjustment in the EC business that has delayed recovery. The upward revision to net income reflects an expected extraordinary gain from the planned sale of all shares of equity-method affiliate Fidus Systems, to be recorded in Q3.
• Segment full-year forecast: CN business revenue is projected at 39 billion yen, a 4.5% increase year-over-year; EC business consolidated revenue is projected at 161 billion yen, a 10.1% decrease year-over-year. Full-year segment revenue changes from the prior year are: +1.6 billion yen for CN business, -15.4 billion yen for EC distribution, -2.6 billion yen for PB business, summing to the full-year 200 billion yen total revenue forecast.
• The company originally expected EC and PB business to recover in the second half of the 2026 March fiscal year, but now expects the adjustment period to continue and the shift to recovery to occur in the next fiscal year (2027 March fiscal year) or later. Full recovery for EC business is not expected until next fiscal year, while PB business's design contracting and inspection device businesses are expected to gradually recover starting next fiscal year.
• Key forecasting assumptions: Semiconductor inventory is expected to gradually normalize starting in the second half, but wafer demand will remain weak through the second half, keeping industrial and automotive equipment demand soft. The Chinese market is showing signs of bottoming but is expected to remain stagnant through the full year. The CN business market is expected to remain steady, led by the security sector. The assumed exchange rate range is 145 to 150 yen to the U.S. dollar.

• Lengthy customer inventory adjustment in the EC and PB businesses has delayed recovery, pushing the expected return to growth to the next fiscal year, which creates ongoing pressure on full-year 2026 profits compared to initial projections.
• U.S. tariff measures create high uncertainty: it is extremely difficult to quantitatively forecast the future trajectory and impact of these measures, which creates unquantifiable downside risk to results.
• Persistent weakness in wafer demand and prolonged stagnation in the Chinese market add further downside risk to EC and PB business performance in the second half of the fiscal year.
• Foreign exchange rate volatility and interest rate changes create uncertainty for results, and while the company is monitoring these factors closely, unexpected movements could impact performance.

No question and answer section was included in the provided transcript.