inspec Inc. Q4 FY2025 earnings call

Strategic Portfolio Update

• The company originally targeted the electric vehicle market as a core growth opportunity in its prior 3-year mid-term plan, and developed exposure equipment for long flexible substrates used in EVs. The EV market slowed sharply over the past 18 months, while the generative AI-driven semiconductor package substrate market expanded rapidly.
• Management made the strategic decision to exit the exposure equipment business after 5 years of development to reallocate all resources to the fast-growing semiconductor package substrate inspection market. Technical knowledge gained from exposure equipment development, particularly laser technology, will be leveraged for next-generation inspection device development.
• The company released an updated 3-year mid-term management plan centered on capturing growth from the generative AI semiconductor boom, with core goals of reaching 15% operating margin and 15%+ ROE.

Market Opportunity and Core Product Strategy

• Generative AI growth has driven massive investment in data centers, and the shift to chiplet technology has made semiconductor package substrates far more critical than ever. Major semiconductor front-end and foundry players have already begun large-scale in-house investment in semiconductor package substrate production, with mass production capacity expected to come online around 2027, representing a major market inflection point.
• The company's flagship SX Series semiconductor package substrate inspection devices already support a full range of products from current mass-produced 10-micron line width substrates to next-generation prototype 1-micron line width substrates. The company will continue to upgrade core product performance.
• Fully automated, fully unmanned inspection line systems that link multiple standard inspection devices have growing customer demand driven by AI server expansion, and the company already has more than 10 such systems delivered.
• Roll-to-roll inspection devices, the company's core strength, are well-positioned to capture growing demand for high-precision flexible substrates for edge AI smartphones.

Capital Allocation and Operating Initiatives

• Over the 3-year mid-term plan, the company will allocate 1 billion yen to R&D and 0.7 billion yen to human capital and facility investment, focused on building capacity to meet growing demand before the 2027 market inflection.
• The company is expanding structured training for all employees, targeting an average of 50 hours of learning per employee annually, covering management, leadership, and core technical skills such as software and mechanical engineering.
• The company has already achieved 100% renewable energy power use as part of its SDG commitments, and continues to strengthen corporate governance to improve transparency and compliance.

Inspec operates exclusively in substrate inspection equipment-related business after exiting the exposure equipment-related segment in the 2025 April term. For the full fiscal year 2025 April term:

• Total net sales: 2.237 billion yen, slightly below the initial plan of 2.3 billion yen. Operating profit and ordinary profit both exceeded 0.1 billion yen, meeting planned targets. Net loss was 0.142 billion yen due to the recording of exposure equipment business withdrawal losses.
• Total orders exceeded 3 billion yen, hitting an all-time record high, with approximately 70% of orders coming from semiconductor package substrate inspection equipment (flatbed type inspection devices).
• By product segment for reported sales:
  1. Roll-to-roll inspection devices: accounted for approximately 50% of total 2025 fiscal year sales, targeting flexible substrates for edge AI-capable high-end smartphones.
  2. Flatbed type inspection devices: accounted for the next largest share of sales, primarily targeting semiconductor package substrates. Current incoming orders are already dominated by this segment at 70% of total orders.
• Total R&D spending for the 2025 term was 0.358 billion yen, equal to 16% of net sales. 0.1 billion yen of this R&D spending was allocated to the now-exited exposure equipment business.

• For the 2026 April term (first year of the updated mid-term plan), management guides 2.3 billion yen in net sales, 0.12 billion yen in operating profit, 0.07 billion yen in ordinary profit, and 0.06 billion yen in net income.
• The first two years of the 3-year plan (2026 and 2027 April terms) are framed as foundational investment periods: the company will focus on developing competitive next-generation products and expanding production capacity to prepare for large-scale market growth starting from the third year and beyond.
• Management expects the major market inflection point from mass production of advanced semiconductor package substrates by large front-end players to occur between late 2026 and 2027, and is positioning to capture this growth.
• The company will maintain annual R&D investment equal to 12-14% of net sales going forward, focused exclusively on substrate inspection device development after exiting the exposure business.
• Long-term mid-term targets are 15% operating profit margin and 15% or higher ROE.

• Macroeconomic conditions have high uncertainty, making long-term demand forecasting difficult.
• While the semiconductor industry overall is not uniformly strong, growth is concentrated in the generative AI-related segment, and any slowdown in AI investment or delayed adoption of advanced packaging could negatively impact the company's performance.
• The company needs to complete production capacity expansion ahead of projected demand growth; delays in capacity expansion could lead to lost market share if demand grows faster than expected.
• Technological innovation in advanced semiconductor packaging is progressing at a very rapid pace; failure to keep up with evolving technical specification requirements for inspection equipment could erode the company's competitive position.

Q: What was the full background behind the decision to exit the exposure equipment business? / A: The company originally developed exposure equipment targeting the EV market, which slowed sharply 1.5 years ago and became hard to forecast. At the same time, generative AI drove rapid, unexpected growth in the semiconductor package substrate market, with concrete business opportunities already emerging. Management decided to exit the exposure business, despite the technical progress it made, to reallocate all management and capital resources to capture the much larger, faster-growing adjacent opportunity in package substrate inspection. The laser technology gained from exposure development will still be used for next-gen inspection products.

Q: What are the company's plans to expand production capacity, and when will capacity double? / A: Management confirms that doubling production capacity is a core priority over the next two fiscal years (2026 and 2027 April terms). The company has already begun taking steps to expand capacity, including securing additional space and equipment, to prepare for the projected wave of demand starting in 2027. The expansion will be completed incrementally over the two-year foundational investment period to match projected order growth.

Q: What is the current development timeline for next-generation inspection devices for 1-2 micron advanced package substrates? / A: Inspec already has internal testing environments set up to handle 1.5-2 micron line width substrates to meet customer evaluation requests on demand. The company is accelerating final product development to be ready for commercial launch as soon as customer demand for mass production of these next-generation substrates emerges, which is expected by 2027.

Q: Is there any possibility of restarting exposure equipment sales or development in the future? / A: Management does not completely rule out returning to the exposure business if the target EV market segment recovers and the opportunity becomes attractive again in the future. However, for the foreseeable future, all strategic focus and resources are allocated to semiconductor package substrate inspection, so no restart is planned in the current mid-term plan.