MACNICA HOLDINGS,INC. Q2 FY2026 earnings call

• Corporate AI Strategy

  • AI is a core business driver that cuts across all three business segments, creating synergies with internal DX: internal DX accelerates AI-related business, and AI solutions are piloted through internal DX to create mutual synergies. The strategy consists of four pillars:
  • Edge AI products: Targets high-growth areas including autonomous driving, robotics, medical devices, smart factories and smart cities. Macnica catches future mass production projects early by selling NVIDIA Jetson at R&D/prototyping stage, provides full technical support for design and AI model implementation, leverages its large talent pool across the full AI value chain from semiconductors to applications, and offers a broad product portfolio to support customer mass production.
  • Infrastructure AI products: Covers GPU servers, accelerators and related infrastructure for AI training and cloud inference, serves large-scale data center projects and high-volume small-scale local LLM projects from large enterprise customers, offers a full portfolio from high-end to low-end products and integrated end-to-end solutions.
  • System AI products: Expands portfolio across data collection/management, AI utilization and AI system layers, partners with leading global vendors to offer data infrastructure and AI risk management solutions, and expanding in-house developed services aligned with corporate AI strategy.
  • Industry and business-specific general services: Offers in-house developed services including pharmaceutical QA-focused document checker, generative AI utilization platform, and meeting summary analysis tool, builds flexible generative AI platforms that support multiple model options with consistent user experience, and continues to develop industry-specific applications.

• Business Operations

  • Semiconductor: Gains market share in automotive and industrial equipment in high-growth Asian markets, grows AI-related high-performance AI server sales domestically and overseas. In the domestic market, industrial equipment and automotive are down slightly, while AI-driven data processing electronics market grew 70% YoY and now holds 28% market share.
  • Cybersecurity: The in-house Security Research Center engages in public cyber risk education, tracks attack trend changes, and develops new solutions. It caught the shift in ransomware attack vectors early and developed the Macnica Attack Surface Management service, which now holds leading market share.
  • CPS Solutions Smart City/Mobility: Consolidated Navya Mobility in H1, launched the new EV autonomous bus EVO3 which is equipped with upgraded autonomous driving software and sensors, improved driving performance in complex urban environments via AI and machine learning, and won a Japanese first multi-municipality autonomous driving demonstration project, with social adoption ramping up.

• Management Base Strengthening

  • Human Capital: Reformed personnel systems last year, structured and strengthened talent development under the Macnica University program, expanded tiered training and professional education, prioritized DX talent development, and won the top award for HR transformation in the 2025 Career Ownership Management Awards.
  • DX Initiatives: Built shared internal-commercial DX infrastructure, accumulated commercial data for service development, is advancing core system overseas expansion, hyper-automation and generative AI infrastructure, and focuses on developing DX core talent and global operational productivity improvement.
  • Branding and IR: Launched scheduled TV CM through March 2026, refreshed the recruitment website and already sees large increases in site traffic, strengthened IR events including expert panel discussions and external director sessions, released the integrated report in both Japanese and English, and improved website ESG information disclosure.

1. Semiconductor Business: YoY revenue increased 49.2 billion yen (11% growth), driven by AI-related demand and overseas supply chain transfers. Operating profit decreased 4.2 billion yen, resulting in higher revenue but lower profit, due to low profit margins of AI and supply chain transfer businesses and Q1 foreign exchange impacts from stronger yen and stronger Taiwan dollar. By use case: Computer segment grew strongly led by data center demand for AI; automotive and industrial equipment segments both grew YoY, driven mostly by overseas supply chain transfers; organic growth was flat for automotive, flat domestically for industrial equipment while overseas saw mild recovery. By product category: the 'Other' category (mostly NVIDIA AI server-related products) grew; analog semiconductors grew 16 billion yen from overseas supply chain transfers; PLD grew 14.4 billion yen from front-loaded purchases by Chinese customers due to tariff concerns. The combined share of automotive and industrial in total semiconductor revenue fell from 68% to 64% as AI-driven computer market grew 91% YoY.
2. Cybersecurity Business: YoY revenue increased 7.2 billion yen (10% growth), operating profit increased 1.4 billion yen, delivering both higher revenue and higher profit, with strong performance across domestic and overseas markets. Software revenue share continues to grow, and service revenue growth was particularly notable, driven by growth in hardware-related maintenance and implementation services, especially overseas. Domestically, cybersecurity core grew 7% YoY, big data business fell 25% YoY due to a large prior-year large project, cloud-related application business grew 22% YoY. Overseas revenue grew 21% YoY, with growth across Thailand, Malaysia, Australia, Indonesia, India offsetting a small decline in Singapore.
3. CPS Solutions Business: Revenue was 3.7 billion yen. Operating loss was 4.2 billion yen, a worsening from prior year, due to upfront investment in personnel costs and consolidation of Navya Mobility increasing selling, general and administrative expenses. Full year planned operating loss is 4.5 billion yen, so first half progress is behind plan.

• Full fiscal year operating profit guidance is maintained at 42 billion yen, unchanged from the May announcement.
• For the second half (H2), management expects the industrial equipment market (a core focus for semiconductors) to see a gradual recovery starting in the second half of the fiscal year.
• Cybersecurity business is expected to maintain strong performance in H2, and the slight Q2 domestic slowdown is considered temporary, with full year growth still expected.
• CPS Solutions business is currently facing challenges, but management expects recovery in the core smart city/mobility segment in H2, though full year progress is behind plan, management expects to recover the gap in H2.

• Domestic industrial semiconductor demand remains flat amid ongoing market downturn and inventory adjustment, with recovery slower than expected.
• AI-related semiconductor and supply chain transfer businesses have lower profit margins, creating downward pressure on overall semiconductor segment operating profit.
• CPS Solutions business progress is well behind full year plan, with H1 progress at only 25% of full year targets, requiring 75% of full year targets to be achieved in H2, creating significant execution risk.
• Geopolitical tensions create uncertainty for sales of foreign semiconductor products in China, requiring adaptation to changing market conditions.
• Global competition for IT and AI talent is intensifying, creating talent acquisition risk for future service growth.
• Cyber attacks are continuously evolving, with attackers developing techniques to bypass traditional security products, requiring ongoing investment to update solutions.

Q: Selling, general and administrative (SG&A) expenses increased QoQ in Q2. What are the drivers, and how will SG&A be managed in H2? / A: The increase came from headcount growth, variable cost increases tied to higher sales, and temporary expense increases in the cybersecurity business. Management plans to control SG&A growth to a certain degree in H2, and expects the integration of Glowcell to deliver SG&A efficiency gains in H2, which will be incorporated into expense management.

Q: Cybersecurity business saw QoQ revenue and profit decline in Q2, missing plan, with sequential decline over the past two years. Is this new seasonality or temporary? What is the growth outlook? / A: The sequential decline is due to unusually large one-off projects in the prior year comparable period, and Q1 has been seasonally stronger than Q2 for the past two years. The slowdown in H1 year-over-year growth is only a comparison effect, and management expects the business to recover in H2, with full year growth still on track.

Q: What is the status of recovery in automotive and industrial equipment markets? Is growth driven by supply chain transfers or actual end demand? / A: Both segments' growth is driven by a combination of market recovery and supply chain transfers. While recovery has been slower than expected, orders have started to recover led by overseas markets, so management expects improvements in H2.

Q: What is M&A strategy, especially for China/India, and for cybersecurity and CPS segments? / A: India is identified as a high-priority growth market, so management is actively pursuing M&A and capital allocation there. For China, management is adapting to geopolitical changes by building partnerships to distribute Chinese domestic semiconductors to mitigate risk. For cybersecurity and CPS, management is actively evaluating M&A targets to gain new capabilities and expand market share, with a pipeline of opportunities currently under review.

Q: Autonomous EV bus progress is behind plan. What is the probability of hitting H2 order and revenue targets? / A: Order timing has slipped to H2, so full year targets are heavily back-loaded, with 75% of full year targets to be achieved in H2. Management can already see a reasonable pipeline of orders toward the full year target of 15 billion yen, but there is some delay, so it will prioritize recovering the gap in H2.