SAKURA internet Inc. Q2 FY2026 earnings call

Overall Financial Performance

• Total consolidated revenue grew 17.8% YoY to 15.631 billion yen, with the first half reaching a record high, driven by growth in both traditional stock services and large gains from generative AI GPU infrastructure services.
• Operating profit declined YoY due to ongoing upfront investment, higher personnel costs, depreciation, and pre-revenue development for Govemment Cloud, but profit came in above the revised forecast thanks to strict cost control and improved margins from high-value-added service sales.
• Cash flow remains balanced, supported by prior year capital increases and loan financing, with monetization of GPU investments identified as the key near-term priority.

AI Strategy and Business Developments

• Launched full operations for Sakura ONE, a GPU-based supercomputer that ranked 49th globally in the TOP500 performance ranking, targeting large enterprise and government multi-GPU cluster demand, with a goal to reach the top 20 globally in the near term.
• Expanding the Sakura no AI Engine platform, which hosts open-sourced older frontier AI models to meet low-cost inference demand; this can cut customer costs by 80-90% compared to relying on expensive overseas AI APIs, while still meeting 90%+ of common use case requirements.
• Unified internal teams covering Sakura ONE, GPU sales, and Sakura no AI Engine under a single leadership to streamline operations. The company differentiates on reliable power delivery, advanced cooling, and stable full-load GPU performance that competitors cannot match, avoiding aggressive price competition and competing on service quality.
• Leveraging the trend toward sovereign/domestic AI: closed domestic environments meet the data security needs of Japanese government and enterprise customers, and the company is participating in the government-run GENIAC GPU subsidy program, with multiple GENIAC awardees already switching to Sakura Internet supply after other providers could not meet demand.
• A new B200 GPU cluster is scheduled to go live within the current fiscal year, with commercial negotiations already underway.
• The company is partnering with Highreso and KDDI to expand sales channels and address the gap between excess GPU supply and customer demand.

Cloud Strategy and Govemment Cloud Progress

• Development of Govemment Cloud is in its final phase, targeting certification by March 2026, with all major outstanding technical requirements resolved. The company is the only domestic provider positioned to serve as a secure data repository for sensitive Japanese government, defense, and healthcare data.
• Shifted from product-out to customer-centric go-to-market: improved customer feedback collection, more active trade show participation, and expanded partnership with resellers and agents, which have grown in number thanks to Govemment Cloud development efforts.
• Added Premium Support for Sakura no Cloud, filling functionality gaps that previously put domestic cloud at a disadvantage compared to foreign providers, and targeting 20-30% annual growth for cloud sales long-term.

ESG Initiatives

• Launched a new 100% renewable energy-powered zone at the Ishikari Data Center starting in June 2025, using direct liquid cooling for containerized data center infrastructure, with an additional zone scheduled to launch within the current fiscal year.

1. GPU Infrastructure Service: 25.9% YoY revenue growth, driven by strong generative AI demand. 2. Cloud Service: 10.2% YoY revenue growth, beating initial full-year guidance expectations, and maintained prior year growth rate even as the base size expanded. 3. Traditional stock services including Sakura no Cloud and Sakura Rental Server delivered steady growth. Total consolidated revenue for the quarter was 15.631 billion yen, up 17.8% YoY, marking a record high for the first half of the fiscal year.

• Full-year AI-related sales guidance was revised downward from an original 15.8 billion yen to a range of 9.0 billion yen to 11.0 billion yen, following the loss of a large customer contract in Q1. The full-year forecast for the next fiscal year remains unchanged, with the company aiming to carry over current pipeline demand to the next term.
• The company is actively pursuing new customer contracts to close the gap from the lost large client, expects existing pipeline projects from the first half to start generating revenue in the second half, and forecasts full-year results to progress in line with the revised guidance.

• Ongoing global GPU supply constraints and international export restrictions limit the ability to serve customers in all regions, and create volatility in GPU supply and demand: the market has shifted rapidly from shortage to surplus and back to shortage within six months, creating challenges for demand forecasting and capacity planning.
• Single-GPU rental services face high competitive risk, with the market maturing faster than expected; large tech firms have absorbed much of the available demand, and large customers are increasingly shifting to publicly-funded GPU infrastructure like ABCI, creating structural headwinds for this segment.
• Govemment Cloud development remains an upfront cash burn, with revenue recognition not expected to start until after April 2027, creating ongoing pressure on near-term profits. It also requires meeting strict Digital Agency requirements, and while all major issues are resolved, completion risks remain.
• The loss of a large customer contract in Q1 created a revenue gap that is proving difficult to close in the short term, as large contracts require long sales cycles and cannot be replaced quickly with hundreds of smaller deals.

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