FUJI ELECTRIC CO.,LTD. Q2 FY2026 earnings call

• Record Financial Performance:
  • Achieved record highs in net sales (593.3 billion yen) and every profit category for the first half.
  • Operating profit increased by 17.1 billion yen to 59.8 billion yen, reaching a 10% operating profit ratio.
  • Profit attributable to owners of the parent increased by 15.5 billion yen to 42.1 billion yen.
• Key Drivers of Growth:
  • Strong performance in Energy and Industry segments drove overall results.
  • Increased sales and production volumes contributed 21.2 billion yen to operating profit growth.
  • Differences in model mix and cost reductions contributed 12 billion yen.
  • Data center demand significantly boosted power supply and facility systems in the Energy segment.
  • Ripple effect demand from semiconductor manufacturing equipment and data centers supported FA components in the Industry segment.
• Challenges and Headwinds:
  • Fixed costs increased by 8.9 billion yen due to labor, R&D, and outsourcing costs.
  • Raw material costs negatively impacted operating profit by 9.2 billion yen, particularly in ED&C components and semiconductors.
  • Semiconductor segment struggled with declining automotive demand and intense price competition in China.
  • Vending machine business faced lower domestic demand.
• Operational Metrics:
  • Total assets decreased to 1,398.0 billion yen.
  • Equity ratio stood at 58.1%.
  • Free cash flow was 58.1 billion yen.
  • Orders increased by 152.6 billion yen year-on-year, largely driven by the Energy segment.

• Energy: Net sales increased significantly, driven by power supply and facility systems (up >10 billion yen), energy management, and power generation. Operating profit ratio rose to 15.2%. All subsegments achieved increases in both sales and profit.
• Industry: Most subsegments saw profit increases. ED&C components and factory automation components were main drivers, with ED&C operating profit ratio rising to mid-teens. IT solutions saw lower sales and decreased profits due to the absence of large-scale academic projects.
• Semiconductors: Net sales decreased by 0.2 billion yen year-on-year (effective decline of 4.2 billion yen excluding forex). Operating profit decreased by 2.5 billion yen (effective decline >4 billion yen). Industrial semiconductors saw higher demand, but automotive semiconductors declined due to lower EV/XEV demand. Rising raw material costs and price competition in China negatively impacted results.
• Food and Beverage Distribution: Vending machine business saw declines in sales and profit due to lower domestic demand. Store distribution business increased sales and profit, but this did not offset vending machine declines. Overall segment net sales and operating profit fell, maintaining an operating profit ratio of 10.0%.

• Full-Year Consolidated Forecasts Revised Upward:
  • Net sales forecast raised by 50 billion yen to 1,350 billion yen.
  • Operating profit forecast raised by 11.5 billion yen to 168.0 billion yen (operating profit ratio of 12.4%).
  • Profit attributable to owners of the parent raised by 5.5 billion yen to 117.0 billion yen.
• Segment-Specific Expectations:
  • Energy segment expected to drive earnings growth strongly over the full year due to increased demand for energy storage systems, data centers, and semiconductor manufacturing facilities.
  • Industry segment also expected to contribute to earnings growth with a recovery in component demand.
  • Energy segment targets net sales increase of around 100 billion yen and operating profit increase of around 20 billion yen compared to FY2025.
  • Industry segment expects operating profit improvement of around 20 billion yen.
• Exchange Rate Assumptions Unchanged:
  • 150 yen per US dollar.
  • 175 yen per euro.
  • 21.90 yen per Chinese yuan.
• Long-Term Ambition:
  • Management intends to set ambitious goals beyond the FY2026 Medium Term Management Plan to achieve record highs in net sales and profit for multiple consecutive years.

• Semiconductor Market Volatility: Automotive semiconductor demand is declining due to lower electrified vehicle (XEV) sales, while industrial semiconductor business faces intensifying price competition, especially in China.
• Cost Pressures: Rising raw material costs have negatively impacted operating profit, particularly in ED&C components and semiconductors. Fixed costs are also increasing due to labor, R&D, and outsourcing expenses.
• Demand Fluctuations: The vending machine business suffered from lower domestic demand as customers delayed investment. IT solutions in the Industry segment experienced lower sales due to the absence of large-scale academic projects previously seen.
• Project Delays: Some plant and systems projects, including power generation projects, faced delays, causing net sales to fall short of initial forecasts in the Energy segment.
• Foreign Exchange Impact: While overseas sales benefited from currency translation, effective sales growth was lower than reported figures, indicating underlying operational challenges in certain regions.

Q: How sustainable is the strong order backlog in the Energy segment, particularly regarding data center-related power supply systems, given potential macroeconomic headwinds? / A: Management emphasized that the surge in data center demand is structural, driven by global AI infrastructure build-outs. They expect this trend to continue supporting high-order intake for power supply and facility systems throughout the fiscal year, despite general economic uncertainties. The company remains confident in its ability to convert these orders into profitable revenue streams efficiently.

Q: What specific measures are being taken to mitigate the impact of rising raw material costs on the semiconductor and ED&C components businesses? / A: The company highlighted efforts to optimize the model mix towards higher-margin products and implement targeted cost reductions across the supply chain. Additionally, they are leveraging economies of scale and renegotiating supplier contracts to absorb some of the inflationary pressures, though significant margin compression remains a challenge in the semiconductor sector.

Q: Can you provide more detail on the strategic shift in the automotive semiconductor business and how it aligns with long-term growth plans? / A: Management acknowledged the current downturn in automotive semiconductors due to slower EV adoption but stressed a strategic pivot towards industrial and IoT applications where demand is robust. They plan to reallocate resources to these high-growth areas rather than aggressively pursuing volume in the saturated automotive market, aiming for better profitability and resilience.

Q: How does the company view the sustainability of its improved free cash flow generation, and what are the primary uses of excess capital? / A: Management indicated that the strong FCF of 58.1 billion yen reflects disciplined working capital management and higher profitability. They intend to prioritize shareholder returns through dividends and share buybacks while maintaining sufficient liquidity for strategic investments in key growth areas like energy management and automation technologies.