inspec Inc. Q2 FY2026 earnings call

Core Business Position & Mission

• The company positions itself as the global niche top provider of ultra high-end precision electronic component appearance inspection, with core products including AOI for semiconductor package substrates, roll-to-roll AOI for precision FPC, and newly commercialized AOS for semiconductor package substrates.
• The company's mission is "anticipate change and create innovative products", with core values emphasizing "courage and challenge" for advanced product development, and "learning and growth" for employee development as the foundation of sustainable growth.

Product & Technology Roadmap

• The company has already launched the SX7400 next-generation semiconductor package substrate inspection device capable of inspecting L/S = 1.5/1.5 micron patterns, and is incrementally advancing inspection precision to support future mass production of L/S = 1/1 micron products expected after 2028.
• Laser repair equipment is gaining increasing market traction: as substrates become more micro and expensive, there is growing demand to repair minor defects instead of scrapping entire substrates, so more customers are purchasing inspection and repair devices as a bundle.
• The company is already conducting sample testing and development for glass substrates, which are expected to gradually replace resin-based substrates as pattern miniaturization reaches 1 micron levels, to adapt to new inspection requirements from the material transition.

Business Base Expansion

• The company is building a collaborative production network with capable manufacturers in Akita prefecture and surrounding regions to scale production capacity to meet growing order demand.
• The company expanded its customer support network: opened a new Shiga Support Center in western Japan this year, maintains a local subsidiary in Taiwan, a support center in Suzhou (China), a nationwide Chinese代理店 network with dozens of support staff, and a partnership with a regional support provider in Southeast Asia that now allows local support without dispatching company engineers, covering Thailand, Vietnam, and Singapore.
• R&D focus is entirely on substrate inspection technology after exiting the exposure device business, with active development for current, next, and future generation product requirements.

1. Semiconductor package substrate inspection equipment: This segment accounts for the majority of revenue share for the term, with total orders for large-scale fully automated inspection systems for generative AI data center applications growing sharply. Exact absolute revenue for the quarter was not broken out separately, but the segment accounts for the majority of the 372 million yen total Q2 revenue, and represents most of the 2.1 billion+ yen backlog. 2. Roll-to-roll AOI for precision flexible printed circuits (FPC): This segment's demand is growing driven by AI-enabled smartphone replacement demand, though much of the new order revenue will be recognized in future quarters, and revenue contribution was not material in Q2 2026. 3. Newly launched laser repair equipment: This product is seeing growing order volume as it is increasingly bundled with semiconductor package substrate inspection systems, though it did not contribute significant Q2 revenue as of this reporting period.

• Management maintains the previously announced full-year 2026 April term earnings guidance, and confirms that execution is on track to meet the full-year targets as of the second quarter.
• Sales for the full year are concentrated in the third and fourth quarters, due to long lead times for large-scale orders that are currently in work-in-progress at the factory. Factory utilization is currently running at 120% to 130% to complete these units on schedule.
• The product roadmap calls for incremental precision improvements, with mass market adoption of 1/1 micron L/S substrates not expected until after 2028, and the company's development timeline is aligned with this industry trajectory.

• Current negative profitability and cash balance decline in the first half are driven by the need to fund materials and labor for large, long-lead orders before revenue is recognized and customer payments are collected. While management expects short-term borrowings and cash balances to recover substantially after year-end when revenue is recognized, there is short-term working capital pressure in the interim.
• The transition to glass substrates will require new technical capabilities for inspection, and while the company has begun testing, full requirements are not yet fully defined, creating development uncertainty.
• Large-scale capital investment in new semiconductor package substrate production from major manufacturers (including Rapidus and TSMC Kumamoto) is not expected to lead to inspection equipment orders until 2027-2028 at the earliest, meaning near-term revenue growth from this new capacity will not materialize.

Q: What is Inspec's competitive position against AI-based inspection devices, and how is Inspec using AI technology internally? / A: Management believes Inspec's current algorithm-based systems hold a competitive advantage for the foreseeable future. Full AI-based inspection of ultra-fine patterns requires processing extremely large high-magnification images, which is currently too slow to meet customer throughput requirements. Inspec does use AI for post-processing of defect candidate crops to improve overall inspection accuracy, a feature already offered to some customers. Management expects AI adoption in inspection to grow gradually over time, but widespread use is still far off.

Q: How does the industry L/S miniaturization timeline align with Inspec's development roadmap? / A: The published L/S development roadmap is Inspec's internal plan aligned with customer production timelines. Customers are expected to reach mass production of 5/5 micron L/S in 2026, and move to mass production of 2/2 micron L/S between 2027 and 2028, which matches Inspec's staged product development timeline.

Q: What is the timeline for revenue recognition of the current strong order backlog? / A: Lead time varies by device size. Revenue is recognized only after customer acceptance of installed and tested units. The current delivery rush runs from January to the end of March, so most revenue will be recognized in the fourth quarter after customer acceptance, with only a smaller portion recognized in the third quarter.

Q: Why is the industry transitioning to glass substrates, and what technical changes does this require for Inspec's inspection equipment? / A: Resin substrates cannot maintain the required flatness and rigidity for 1 micron-level patterns, while glass offers much higher dimensional stability, so a gradual shift to glass is seen as inevitable. The material change will alter how defects appear and require new processing techniques, so Inspec is already conducting testing on customer samples to adapt its technology, and will apply its accumulated inspection expertise to address new requirements incrementally.