3778.T

Overall Financial Performance

• Sakura Internet achieved record-high full-year revenue with 12.4% YoY growth, but missed initial performance targets and had to issue two downward revisions to full-year guidance, which management apologized for.
• Large GPU customer cancellations and delayed contract restart (from January to February) led to a full-year operating loss, driven by lower utilization of GPU assets. The company has since improved contract management, and all previously canceled GPU capacity has been re-contracted to new customers starting from the beginning of the new fiscal year.

Key Strategic Milestones

• Government Cloud: Officially selected as an approved government cloud service provider in March 2026. Against a backdrop of security concerns over reliance on only 4 foreign cloud vendors, the company's domestic Japanese origin creates high value for public sector and private enterprise clients. Registrations for the company's cloud certification and inbound project inquiries have grown sharply, and the company aims to build out a partner ecosystem to capture long-term 5-10 year growth from this new market.
• Generative AI GPU Infrastructure: Deployed approximately 1,100 B200 GPUs, the largest installation in Japan. The company holds a unique market position as the only private sector provider of large-scale clustered GPU services (offered under the "Sakura ONE" supercomputing service), with proprietary multi-tenant scheduling capabilities that create competitive advantage over single-GPU vendors that lack clustered infrastructure expertise. Management is focused on raising pricing and upgrading legacy underpriced contracts to improve profitability over the next two years.

Mid-Long Term Strategic Direction

• Maintain 5-year existing strategy: focus on core cloud and AI GPU infrastructure, with no plans for significant new business lines, prioritizing expansion into new enterprise and government markets rather than developing new business categories.
• Vertical integration of operations: all service development, data center operation, customer support and call center functions are handled in-house by company employees, unlike the common horizontal outsourcing model in the IT industry. While this increases fixed costs, it improves service quality and control, which is a core competitive advantage for the firm.
• Co-creation ecosystem expansion: while maintaining in-house control of infrastructure, the company is expanding partnerships for sales and AI utilization to reach enterprise and government clients, with recent new alliances including Japan Microsoft, Nihon Business Systems, and Mitsubishi Research Institute. The company has shifted from direct sales only to internet firms to supporting a broad partner channel for enterprise and government clients.

ESG and Operational Initiatives

• Environment: Operates the Ishikari Data Center on 100% renewable carbon-free energy, a pioneering initiative the company has pursued for 15 years, ahead of industry trends, aligning with growing demand for sustainable AI infrastructure amid global concerns over power consumption from AI data centers.
• Social: Expanding digital education opportunities via the Sakura Cloud and Sakura AI certification programs, which have seen sharply growing participation post government cloud approval. Maintains high flexible work standards with 90% of employees working remotely, and strong work-life balance metrics.
• Governance: Following Sojitz's partial share sale and exit of 3 appointed board directors, the company maintains a strong governance structure with 4 internal directors and 3 independent outside directors, and will continue to prioritize strong corporate governance.

• For FY2027 March full year, management guides total consolidated revenue of 45 billion yen, representing 27.5% YoY growth; operating profit of 1.5 billion yen; ordinary profit of 1.2 billion yen; net profit attributable to parent shareholders of 0.85 billion yen. The guidance is set conservatively to avoid consecutive years of downward revisions, accounting for recent price inflation and prior utilization issues, and management notes that there is upside potential to exceed the 45 billion yen revenue target.
• Segment guidance: Cloud services are expected to grow 14.9% YoY, returning to double-digit growth after missing the target in FY2026; GPU Infrastructure services are expected to grow 125.9% YoY, driven by the new large B200 contracts secured starting in Q4 FY2026.
• Dividend guidance: Plans a 0.5 yen per share dividend increase, in line with historical levels, after a 1 yen increase in FY2025 that reflected strong prior year performance.
• Investment plan: The company has a committed total investment target of 113 billion yen for generative AI services, with approximately half completed as of FY2026 end. Investment in next-generation GPUs (such as the upcoming Rubin architecture) will proceed gradually based on market conditions, with a spare data center already prepared for additional capacity, and updates will be provided as plans solidify. The company will continue incremental investment in data center and network infrastructure to support growth.
• Hiring plan: Resumes hiring after a hiring freeze in the weak FY2026 performance environment, but will not return to the large 200-300 person annual hiring of prior periods, and will prioritize internal transfers alongside cautious new hiring amid uncertainty over AI-driven changes to labor demand.

For the full fiscal year ended March 2026:

1. Total consolidated revenue: 35.301 billion yen, a 12.4% increase year-over-year, reaching a new all-time high.
2. Cloud Services: Grew 9.4% year-over-year, missing the company's target of double-digit growth. The segment is the core growing business of the firm, boosted by the recent official selection as a government cloud service provider.
3. GPU Infrastructure Service: Drove overall revenue growth, with ~1,100 units of B200 GPUs deployed (the largest scale in Japan). However, large customer cancellations and lower utilization in the first half of the fiscal year led to a full-year operating deficit for the consolidated result, dragging overall profitability down.
4. Physical Infrastructure Service: Has seen continued year-over-year revenue decline for 10 years, and the decline is expected to continue, with the decline offset by growth in cloud and GPU segments, resulting in no material impact to overall business.

• GPU market and operational risk: The GPU industry faces extremely rapid change, with frequent shifts in supply and demand. Prior operational missteps included failure to re-contract canceled GPU capacity in a timely manner, leading to lower utilization and reduced profitability. Intense competition in the single-unit GPU retail market erodes pricing power for standard GPU offerings, and competition is expected to intensify going forward.
• Supply chain risk: Server prices have tripled in recent periods, and the global procurement environment for GPUs remains extremely competitive, with a global battle for GPU supply and sharply rising memory prices, making new capacity investment more costly and challenging, even for firms with established procurement scale like Sakura Internet. New data center development is also increasingly difficult in the current market environment.
• Market structure risk: AI-driven reduction in software development costs is shifting the IT market, with growing adoption of full custom development that may reduce demand for SaaS and packaged software; while this increases demand for underlying IaaS infrastructure that Sakura provides, the company notes that it must monitor the risk that its SaaS enterprise customers may face headwinds from this market shift.
• Fixed cost risk: The company's vertical integrated operating model increases fixed costs, which creates greater financial risk if revenue declines, as fixed costs cannot be reduced quickly in a downturn.

No formal question and answer section is included in the provided transcript.