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• Opening Safety Update

  • A recent major earthquake in Aomori Prefecture, where the firm's subsidiaries are located, caused no damage to facilities or employees, and normal operations have resumed.

• Core Operational Results

  • The firm reported an operating loss of 169 million yen, an ordinary loss of 180 million yen, and a net loss attributable to parent shareholders of 175 million yen, representing significant declines in profitability year-over-year. Profit declines were driven by the loss of high-margin smartphone sales, increases in fixed costs (personnel and depreciation expenses), yen appreciation, and product mix shifts.
  • Capital expenditure for the half-year period reached 85 million yen for facility maintenance; depreciation expense totaled 303 million yen (up 16 million yen year-over-year); R&D expense totaled 139 million yen (down 34 million yen year-over-year).

• Strategic Priorities under Mid-Term Management Plan R2027

  1. Focus management resources on high-growth markets that leverage the firm's core strengths: mobility (automotive), medical healthcare, IoT devices, and next-generation digital infrastructure.
  2. Drive innovation through unique, proprietary technology to create new customer value. The firm has narrowed its product portfolio to three core focus lines:
     • KoT-cut crystal devices: Positioned for next-generation digital infrastructure, with mass production set to begin next fiscal year, entering the investment recovery phase. The new KCRO-05 is a 2520-size 625MHz device specifically designed for AI server optical transceivers, with industry-leading ultra-low jitter performance (12 femtoseconds typical) that outperforms competing MEMS and traditional crystal devices.
     • AT-cut crystal devices: Re-positioned as a specialized product for automotive and medical healthcare, focused on ultra-small form factors and tight frequency tolerance requirements. The firm is advancing mass production of the 0806-size AT-cut device using proprietary direct solid-phase diffusion bonding for medical applications.
     • Tuning fork crystal devices: Focused on non-smartphone growth markets (automotive, medical, IoT) to leverage the firm's core photolithography processing strengths. The firm is developing automotive-grade variants modified to meet automotive performance and structural requirements, with significant growth expected starting next fiscal year.
  3. Strengthen profitability and cash generation through structural reform, including agile product portfolio rebalancing to prioritize high-growth, high-margin segments.

• Targeted Growth Initiatives by Focus Market

  • Automotive: On track to obtain IATF16949 automotive quality certification within this fiscal year. The overall automotive electronics market is projected to grow at 5% CAGR to 90 trillion yen, with strong demand growth for both AT-cut and tuning fork crystal devices from EVs (for driving safety and autonomous driving systems).
  • Medical Healthcare: Strong demand for ultra-small devices for glucose sensors, wearables, hearing aids, and emerging products like smart rings. The firm is actively expanding sales of its specialized ultra-small products for this segment.
  • Next-Generation Digital Infrastructure: The 625MHz KoT-cut KCRO-05 addresses exploding demand for AI server optical transceivers, a market growing at 16% CAGR. The device enables 800Gbps to 1.6Tbps ultra-high-speed communication by dramatically reducing communication errors through its ultra-low jitter performance. The firm also launched the low-voltage FCXO-07F AT-cut oscillator for AI server applications, which has strong customer traction.

• Competitive & Geopolitical Advantage

  • Over 90% of the firm's production is located in Japan (primarily Aomori Prefecture), which mitigates geopolitical supply chain risk and aligns with customer demand for diversified, reliable supply chains under current global trade trends. Japan-based production also supports the firm's reputation for high quality and reliable delivery.

• Full-year FY2026 March Term guidance has been revised downward:
  • Full-year net sales is projected at 5.74 billion yen, with an operating loss of 224 million yen, an ordinary loss of 235 million yen, and a net loss of 266 million yen, based on an assumed exchange rate of 145 JPY/USD. The downward revision reflects worse-than-expected smartphone sales declines in the first half, with gradual tariff impact easing in the second half not enough to fully offset the first half shortfall.
  • Full-year capital expenditure is projected at 626 million yen, a 20.6% decrease year-over-year, following heavy capital investment in prior periods. R&D expenditure is projected to see a slight increase, with most spending allocated to KoT-cut crystal device development.
• The firm is maintaining its full-year dividend guidance at 10 yen per share (5 yen interim, 5 yen year-end), and plans to maintain this payout despite near-term weakness, citing positive growth signals for the next fiscal year.
• KoT-cut crystal device KCRO-05 development is complete, with mass production preparation on track for next fiscal year.
• IATF16949 automotive quality certification is expected to be obtained on schedule within the current fiscal year.
• The firm’s long-term target is to return total company net sales to the 7-8 billion yen level achieved in prior peak years, supported by growth in automotive, medical, and KoT-cut product lines.

For the 2nd quarter cumulative period of FY2026 March Term, total consolidated net sales amounted to 2.861 billion yen, a 4.3% increase year-over-year, broken down by application segment:

1. Mobile/ Smartphone: 754 million yen, a 413 million yen (35.4%) decrease year-over-year, accounting for 26.4% of total net sales. Sales dropped sharply due to the impact of US tariff policy.
2. Industrial Equipment: 607 million yen, a 158 million yen (35.2%) increase year-over-year, accounting for 21.2% of total net sales. Growth was driven by strong demand for IoT communication modules for China.
3. Automotive: 452 million yen, a 270 million yen (148.4%) increase year-over-year, accounting for 15.8% of total net sales. This is a core focused growth market for the firm, with strong growth from automotive-grade AT-cut crystal resonators.
4. Medical Healthcare: 438 million yen, a 105 million yen (31.5%) increase year-over-year, accounting for 15.3% of total net sales. Growth was led by strong demand for products for hearing aids and glucose sensors.
5. Consumer Equipment: 226 million yen, a 120 million yen decrease year-over-year, accounting for 7.9% of total net sales.
6. Other: Increased 118 million yen year-over-year, primarily driven by higher sales to overseas trading companies with undisclosed end uses.

By region:

• US: +72 million yen year-over-year; Japan: +88 million yen; China: +88 million yen; Taiwan: -70 million yen; Europe/Other: -59 million yen. Total overseas sales reached 2.51 billion yen (87.7% of total sales), a 31 million yen increase year-over-year.

• US tariff policy has caused significant, larger-than-expected declines in smartphone segment sales, driven by inventory reduction actions by trading intermediaries in the supply chain, which is the primary driver of current year profitability declines.
  • Geopolitical trade tensions and global economic uncertainty have increased volatility in demand and supply chain operations.
  • The smartphone market has deteriorated faster than originally projected, leading to lower high-margin sales and negative profit leverage from fixed costs.
  • Yen appreciation relative to the US dollar created a 46 million yen negative impact on operating profit in the first half, squeezing margins for export-oriented sales.
  • Demand growth for 625MHz KoT-cut devices is still developing, with uncertainty around the ultimate scale of adoption and revenue contribution.

Q: What is the customer status for the KoT-cut crystal device for AI server optical transceivers, and can management confirm strong traction with leading industry players? / A: The critical next-generation market for KoT-cut devices is 625MHz, as the industry gradually shifts from lower 156.25MHz and 312.5MHz frequencies. While not all customers will transition immediately, leading edge customers have very strong demand and the firm is currently engaged in joint development with these customers, with preparation for next year mass production already underway. Management notes that the KCRO-05 was developed specifically in response to a development request from a major industry customer, after two years of iterative improvements to the prior KCRO-04 model, and the initial adoption probability is very high at this stage.

Q: What revenue scale does management expect from KoT-cut devices, and what is the firm's competitive advantage against competing MEMS and crystal device vendors? / A: Management cannot provide an exact revenue figure at this stage, but confirms that KoT-cut will be a high-margin product that will have a meaningful impact on the firm's bottom line starting next fiscal year. In terms of competition, MEMS devices are the farthest along in development, but River Eletec's KoT-cut product has jitter performance that is multiple times better than MEMS alternatives, which is a critical requirement for reducing bit errors in high-speed communication, earning strong customer validation. Among competing crystal vendors, one other competitor can support 625MHz, while others only support 312.5MHz, creating clear differentiation. 1.6Tbps optical transceivers will require 625MHz low-jitter oscillators to reduce IC processing load, making the firm's product the preferred choice for next-generation designs.

Q: If KoT-cut demand grows faster than expected, what is the maximum production capacity, and can total company sales exceed 10 billion yen? What is the long-term sales target? / A: Existing production capacity for automotive AT-cut and tuning fork devices is sufficient to meet expected demand, so any KoT-cut growth will be incremental to the current business. While management cannot provide exact capacity figures at this stage, KoT-cut can grow to become a meaningful positive contributor to total sales and profit, and has the potential to reach a scale that pushes total company sales above the prior peak of ~7.7 billion yen. The firm previously hit full production capacity in 2022 when it achieved 7.4 billion yen in sales, and future growth from KoT-cut will require incremental capital expenditure, which will be implemented as demand grows. The firm focuses on incremental upgrades to existing capacity rather than large discrete investments, targeting long-term sales around the prior peak level driven by the new product line.

Q: What caused the 111 million yen negative selling price impact on operating profit, and is this driven by broad price cuts or product mix shifts? / A: The negative impact is not driven by broad sharp price cuts across the product portfolio. It is almost entirely caused by the sharp decline in volume of the firm's core high-volume, high-margin 1610-size tuning fork product for smartphones, which created an outsized negative mix impact that is recorded as a selling price effect. This confirms the impact is entirely tied to the smartphone segment decline.