inspec Inc. Q3 FY2026 earnings call

• Company Overview & Core Competencies

  • Inspec is a small, development-focused inspection device manufacturer based in Akita, Japan, with 85 total employees, 46% of which work in R&D. It holds all core inspection technologies (image processing, optical sensing, precision mechanics) in-house.
  • Key competitive differentiators are robust, fast customer support (consistently top-rated in customer satisfaction surveys) and flexible custom modification of devices to match customer-specific data output and production line integration needs, a capability no other competitor in the segment offers.
  • The company continues to invest 10%-15% of revenue annually in R&D to keep pace with semiconductor substrate miniaturization trends, with the largest R&D allocations going to core image processing technology and precision mechanical systems.

• Market & Demand Trends

  • Generative AI growth has driven explosive demand for high-performance semiconductor packaging for data center CPUs/GPUs. The shift to chiplet architecture has increased the importance of advanced semiconductor package substrates, driving demand for high-precision inspection equipment.
  • The company has already launched its next-generation SX7300 platform that can inspect 1.5 micron line-and-space patterns (the most advanced specification currently required) paired with a matching laser repair device that fixes short defects via laser ablation.
  • For FPC inspection, demand is growing from two key end markets: AI-enabled smartphone refresh cycles and EV internal wiring, with additional new demand from data center hard disk components.

• Production Strategy

  • Lower-spec FPC inspection devices for EV applications are already moved to contracted production at overseas partner facilities to reduce costs, while all high-spec, high-complexity devices remain manufactured at the domestic Akita main factory.
  • Current factory space is sufficient to meet demand, but labor is tight: the factory operates above 100% capacity, and the company uses temporary staffing from local partner firms to meet demand.

• R&D and Talent Strategy

  • While all core technologies are currently developed in-house, the company plans to partner with external specialist firms for advanced technologies like laser processing and optical sensing to keep pace with increasing technical complexity.
  • To address talent recruitment challenges from its rural location, the company opened a new development center in central Akita City to improve access for applicants, and prioritizes employee learning and development with an average of 50+ hours of training per employee annually.

1. Semiconductor Package Substrate Inspection Equipment: Revenue contribution was 50% of total sales in the last fiscal year, with recent inquiry and order volumes growing sharply to represent a very large majority of current incoming orders. Last fiscal year (FY2025 April term) total company orders hit a record high of 3.0 billion yen, driven primarily by this segment. For the current FY2026 April term, 100% of planned revenue of 2.3 billion yen is already booked, with this segment accounting for the majority of orders.
2. Precision Flexible Printed Circuit (FPC) Roll-to-Roll Inspection Equipment: Revenue contribution was 50% of total sales in the last fiscal year. This segment has seen growing inquiries driven by recovering smartphone demand and rising EV interior wiring demand, with additional new demand from data center hard disk drive FPC applications.

• FY2026 April term guidance: 2.3 billion yen revenue, 120 million yen operating profit. 100% of planned revenue is already booked, with shipments scheduled from Q3 to Q4.
• Mid-term guidance through FY2028 April term: 2.5 billion yen revenue and 150 million yen operating profit for FY2027 April term, growing to 2.8 billion yen revenue and 230 million yen operating profit by FY2028 April term. The company targets steady, manageable growth rather than rapid, unsustainable expansion, and expects SG&A ratios to fall meaningfully once revenue exceeds 2.8-3.0 billion yen.
• Next-generation 1.5 micron inspection devices are expected to begin contributing minor revenue from R&D unit shipments starting next year, with mass market adoption and full revenue contribution starting from 2027 onwards.
• Current order growth for FY2025 is tracking well ahead of last year's record 3.0 billion yen order total, with very strong incoming inquiries continuing.

• Geopolitical and China business risk: The company mitigates this risk by operating exclusively through an experienced local agent with a long history of working with Japanese firms, and has planned for potential disruptions, allowing it to operate with minimized exposure to payment and trade disruptions.
• Labor capacity constraint: The company currently operates above full labor utilization, relying on third-party temporary staffing to meet demand, creating near-term operational pressure if growth outpaces hiring.
• Technology development risk: Semiconductor package substrate miniaturization is accelerating (with the industry moving toward 1 micron and sub-micron patterns and a shift from resin to glass substrates), requiring continued heavy R&D investment to stay competitive.

Q: What is the order outlook for the new 1.5 micron next-generation inspection and laser repair devices, and do you have more confidence in this product than the previously discontinued exposure device program? / A: Mass market demand for 1.5 micron substrates is not expected to emerge until around 2027, with only 2-3 manufacturers currently producing at this node. Minor revenue from R&D prototype units will start next year, with full revenue contribution starting in 2027. Unlike the exposure device program, this product development was initiated in response to direct, early customer requests for the capability, and Inspec already has a demo unit ready for customer testing, so the company sees strong traction for this program.

Q: What is driving the sharp recent growth in semiconductor package substrate inspection orders, and will this growth continue? / A: The primary driver is massive demand growth for generative AI-focused data center semiconductors, which require advanced high-density packaging. This demand growth also extends to FPC inspection for data center hard disk drives, adding further momentum. Management expects this strong demand trend to continue into next year and beyond, not just limit to the current fiscal year.

Q: How is Inspec managing geopolitical and export risk related to China business? / A: The company has long planned for potential disruptions in China and does not see a need for panic reaction. It operates exclusively through a well-established local agent with extensive experience working with Japanese companies, which allows it to mitigate most risks including payment default, and maintain appropriate distance while continuing business activities.

Q: Do you plan to build a new factory for next-generation product mass production, and will you need new capital raising? / A: There are no immediate plans for a new full production factory; the top near-term infrastructure priority is expanding R&D office and lab space. If the mid-term plan proceeds as expected, the company targets to complete this expansion in the next mid-term planning cycle. Capital raising will be required for this expansion, and the company will evaluate all options to select the optimal method when the time comes.