3040.T

• External Environment Outlook
  • Domestic labor population will continue declining, while global economic security requirements will strengthen and AI transformation will accelerate over the 3-year mid-term period. Information management and data privacy regulations will also become stricter.
  • In IT security, implementation of frameworks such as Zero Trust, SASE and PQC is becoming standard, and demand for advanced remote monitoring and remote operation technology in video communication, edge AI and drone sectors is growing rapidly. Soliton Systems views these changes as major growth opportunities rather than constraints.
• Corporate Vision and Core Technologies
  • The company aims to evolve from a niche market leader to a core infrastructure company supporting Japan's DX, built on its three core technologies: advanced authentication technology, proprietary video transmission technology, and innovative semiconductor design technology.
  • The long-term vision is to complete monetization of investment businesses by the end of the mid-term period in 2028, build a multi-engine profit portfolio, and accelerate growth across the entire business portfolio from 2029 onward, with potential for discontinuous growth driven by M&A and global expansion.
• IT Security Segment Strategy
  • The segment is the company's core growth engine. It will prioritize expanding the stock business ratio, which will grow from 44% to 55% by 2028. The 55% target was adjusted down from an original 60% target due to an increase in large on-premises public sector projects centered on defense, which have multi-year contracts over 5 years and deliver stable recurring revenue with no negative impact on profit margins.
  • The company will expand its Soliton Zero Trust Solution, leveraging its strengths including a strong authentication core based on digital certificates, effective data protection via last-mile DLP that prevents data leakage by not storing data on end devices, and seamless implementation and operation in mixed legacy-cloud environments common for Japanese companies.
  • The authentication solutions centered on Soliton OneGate are positioned as the entry point for Zero Trust, with the market expected to grow 12.6% annually from 2025 to 2028, driven by new government supply chain security requirements starting in 2026.
  • Secure access solutions that enable data-less operation (no data stored on end devices) are expected to grow 50% annually, far outpacing the domestic data-less client market's projected 25.2% annual growth, driven by growing demand to replace existing VDI/DaaS and rising cyberattacks targeting VPN devices.
  • Public sector demand is expected to grow steadily through 2030 across local government (third-phase resilience projects), education (GIGA School initiative renewals and school office DX), and healthcare (mandatory multi-factor authentication by 2027 and hospital DX security requirements).
• Video Communication Segment Strategy
  • Growth will be driven by the proprietary RASCOW protocol, which optimizes multi-link transmission across LTE, 5G and satellite connections and supports both on-premises and cloud configurations, enabling reliable video sharing for mission-critical use cases such as public safety and disaster prevention.
  • The company will expand use cases to construction machinery, factory transport equipment, autonomous driving support and remote operation, and expand into overseas markets based on its proven domestic track record.
• Eco New Business Development Segment Strategy
  • The core growth driver is the analog edge AI chip, which operates at ultra-low power consumption of hundreds of microwatts while supporting high-speed processing, customization and generative AI. Tape-out is scheduled for Q2 2026, with functional evaluation and demos planned for Q4 2026, followed by generations of scaling to finer process nodes to expand performance and applicable use cases including anomaly detection, infrastructure monitoring, small drones, robot control, healthcare and smart homes.
  • Other development initiatives include a collaborative sea drone project that enables remote monitoring and operations at sea via a network of sub-drones connected to a satellite-capable mothership, and participation in JAXA's LUPEX lunar rover project to implement image navigation algorithms on space-grade FPGAs, currently in its second phase.
• Human Capital and Cash Allocation
  • Human capital investment is a top priority, including office environment upgrades, flexible R&D lab time for developers, cross-departmental learning programs, annual salary increases, evaluation system reform, and HR DX. The company has obtained the "Eruboshi" certification for promoting women's participation and plans to obtain the "Kurumin" certification for supporting childbirth and childcare. A new ES department directly under the CEO has been established to improve employee welfare and increase dialogue opportunities.
  • The top priority for cash allocation is growth investment in the core IT security business, to maintain competitiveness via continued R&D and advance cloud and stock business conversion to improve revenue stability, profit margins and ROE. For new businesses and R&D, the company will continue to invest as future growth drivers while strictly managing monetization timing and investment efficiency to balance profit growth and capital efficiency.

• Company-wide 2028 end-of-period targets: 24.5 billion yen in total revenue, 5 billion yen in operating profit, 20.4% operating profit margin, EPS growth from 123 yen to 184 yen, and 20% ROE. Annual revenue CAGR for the 2025-2028 period is targeted at 7.4%, while annual operating profit CAGR is targeted at 20.6%, meaning profit growth will significantly outpace revenue growth.
  • Cloud revenue centered on the flagship Soliton OneGate is projected to grow 40% annually over the 3-year mid-term period.
  • Long-term guidance after 2029: Growth will be accelerated by the expanded business portfolio, with key drivers including revenue growth from analog edge AI chip scaling and mass production, higher value and profitability from IT security development and cloud transformation, productivity improvements from human capital investment, and discontinuous growth from M&A and global expansion.

Based on 2025 actual results, the 2028 target performance for each segment is as follows:

1. IT Security: 2025 actual revenue of 18.5 billion yen, operating profit of 3.7 billion yen; 2028 target revenue of 22.5 billion yen, operating profit of 5.5 billion yen. This segment contributes 91.8% of total 2025 company-wide revenue and 91.8% of 2028 total target revenue. Compound annual growth rate (CAGR) for revenue is 7%, and CAGR for operating profit is 14%.
2. Video Communication: 2025 actual revenue of 1.05 billion yen, operating loss of 110 million yen; 2028 target revenue of 1.65 billion yen, operating profit of 170 million yen. This segment contributes 5.3% of total 2025 company-wide revenue and 6.7% of 2028 total target revenue. Revenue CAGR is 16%.
3. Eco New Business Development: 2025 actual revenue of 190 million yen, operating loss of 180 million yen; 2028 target revenue of 350 million yen, operating loss reduced to 160 million yen. This segment contributes 1.0% of total 2025 company-wide revenue and 1.4% of 2028 total target revenue. Revenue CAGR is 22%.

• A prolonged semiconductor shortage and worsening geopolitical instability (such as the Iran conflict) could create operational impacts; the company currently holds sufficient hardware inventory to limit short-term impact, and is preparing mitigation measures such as extending inventory holding periods for potential long-term disruptions.
  • New business development is dependent on successful technology commercialization and market adoption, with continued operating losses projected for the Eco New Business Development segment through 2028.
  • Global expansion remains at an early stage, with current overseas revenue accounting for only a very small share of total consolidated revenue, and future growth depends on successful market penetration.

Q: Anthropic's AI technology has led to declining market capitalization for SaaS companies. Do these AI technologies pose a threat to Soliton Systems, and does the company benefit from AI advancement?

A: AI from firms like Anthropic is a tool for efficiently writing programs and fixing programming errors, so it does impact application vendors like ERP and SFA providers. However, Soliton Systems operates as a "shield" that protects running systems and information from unknown threats. Even as AI improves systems, the importance of this shield to block external intrusion does not change. In fact, accelerated digital transformation driven by AI further increases demand for the company's security products and services. AI advancement is not a threat, but a tailwind that reaffirms the company's value and supports growth.

Q: What is the definition used to calculate the stock business ratio, how will the company increase the ratio, and what is the basis for achieving the higher target?

A: The stock business ratio is calculated as the percentage of total revenue from monthly recurring revenue including maintenance services and subscription-based services. The company will increase the ratio by converting one-time product sales to subscription models, and growing revenue from existing subscription service products.

Q: What is the planned investment amount for the initiatives outlined in the mid-term plan?

A: Given the rapidly changing business environment, flexible decision-making is required, so the company declines to provide a specific numerical investment amount at this time. The company will make optimal decisions focused on medium- to long-term growth.

Q: Can you share the current status of Soliton Systems' overseas business and the medium- to long-term plan for global expansion?

A: Currently, the company has overseas locations in Europe and the U.S., with the vast majority of current overseas revenue coming from Europe, and overall overseas revenue still accounts for only a very small share of total consolidated revenue. The company views overseas markets as an important theme for future growth. For the IT Security segment, the company will first expand sales to overseas locations of Japanese companies, and partner with Japanese IT developers expanding overseas to roll out Soliton products globally, with the goal of opening up new growth markets while managing risk and leveraging the company's domestic strengths. For the Video Communication segment, the company already receives strong inquiry for remote operation use cases, and will convert these inquiries to closed deals while expanding the range of use cases and customer base to achieve stepwise growth. While current scale is small, both segments have large room for future growth, and global expansion will be a key growth driver in the medium- to long-term.

Q: What impact has the recent semiconductor shortage had on Soliton Systems, what are the company's mitigation measures, and is there any impact from the Iran conflict?

A: From a short-term perspective, the impact is limited because the company holds sufficient hardware inventory. If semiconductor shortages or worsening social situations persist long-term, the company acknowledges potential impacts will emerge, and is preparing mitigation measures such as extending inventory holding periods.

Q: Is the company considering any changes to its dividend policy or the introduction of shareholder benefits?

A: The company notes that the dividend policy may be reviewed in the future based on changes in the business environment and other comprehensive factors. There are no current plans to introduce shareholder benefits.