DAISHINKU CORP. Q4 FY2025 earnings call

Opening Statement & Apology

• Management apologized for a mid-period financial statement correction caused by prolonged undetected human error. Root cause analysis has been completed, new internal controls to prevent recurrence have been implemented, and management committed to avoiding similar issues in the future.

Cost Structure & Capital Expenditure

• Full year 2025 capital expenditure totaled 7.45 billion yen (including 5.3 billion yen for the newly completed head office factory completed in August 2024). Depreciation expense was 3.986 billion yen, and R&D expenditure was 2.168 billion yen, which was largely flat year-over-year.

OCEAN+2 Strategy Progress

• One (Single-Source Supply): Management is developing small, thin, low-cost timing devices for the emerging chiplet semiconductor architecture, which is expected to see mainstream adoption around 2027 in AI data centers, automotive, and mobile devices. Development is ongoing in collaboration with chiplet assembly manufacturers.
• Cost (Challenge to Low- Cost Segment): The new Arkh.2G product line places an Arkh crystal resonator on a ceramic base, creating a product with external performance matching standard ceramic oscillators but a far more cost-competitive internal structure. While Arkh.2G uses 3 crystal wafers versus 1 for traditional products, higher yield, simplified assembly, and higher output per existing factory deliver lower overall final cost. The product line is focused on SPXO, TCXO, and differential output crystal oscillators, and is currently being promoted to customers.
• Element (Larger Artificial Crystal): 8-inch seed crystals are growing as scheduled. 4-inch long原石 cultivation has been completed successfully, which delivers strong economics per growth furnace. 6-inch long crystal development is ongoing, with completion targeted for the end of 2027.
• Alliance (Co-Creation): A two-step alliance with a Chinese manufacturer for the Chinese oscillator market is progressing: 1) Daishinku completes assembly, the Chinese partner handles inspection and sells under its own brand; 2) Daishinku will produce Arkh.3G resonators, with all other components sourced locally in China and the Chinese partner handling full assembly and sales. Discussions are progressing on schedule.
• Niche (Survivor Profits): Crystal filters for low-orbit satellite antennas have outperformed expectations. Daishinku currently holds ~67% share (70% including orders), expected to grow to ~80% by 2027. This niche market maintains high margins with no price pressure, and production volume is expected to more than double, requiring modest additional investment.
• +1 (New Crystals): Development of high-performance, high-purity zeolites has hit a key milestone, and the product is moving to the commercialization stage. Near-term sales contribution will be limited, but Daishinku will grow this business as a long-term strategic initiative.
• +2 (New Business): Daishinku has launched KDS-DAC, a direct air CO2 capture system that produces saleable hydrogen via a closed-loop, ambient temperature process. Under a model that captures Daishinku's full 220,000 ton annual Scope 1-3 CO2 emissions, the system is projected to have a 3-year payback period when selling generated hydrogen, CO2, and oxygen. Discussions with potential partners at thermal power plants and steel mills are ongoing with positive early responses.

Refocused Business Portfolio

• Core priority: Growth of crystal oscillators centered on Arkh.2G, including SPXO, TCXO, differential output oscillators, and RTC.
• Crystal resonators: Will avoid the oversupplied Bluetooth resonator market, and focus on high-frequency resonator products.
• Crystal filters: Will continue to maximize profits as long as market demand persists, which has lasted longer than initially projected.

Full year 2025 March ended results (year-over-year): Total net sales = 38.62 billion yen, operating income = 0.915 billion yen, ordinary income = 0.412 billion yen, net income = 0.285 billion yen, representing a year-over-year decline in both revenue and profit. By market segment:

1. Consumer segment: Revenue increased year-over-year, driven by strong demand for PC-related, wearable, and drone products
2. Automotive segment: Revenue grew modestly year-over-year, showing steady performance
3. Industrial segment: Revenue declined sharply year-over-year, as expected client recovery in the second half of the prior year did not materialize
4. Communications segment: Revenue declined 13% year-over-year, driven by a shift from US to Taiwanese chipsets in Chinese smartphones that moved demand to lower-frequency products Chinese manufacturers could produce at much lower price points; KDS did not enter this low-price segment, and late-quarter photolithography equipment issues further limited production.

Q4 2025 March ended results (quarter-over-quarter vs Q3 2025): Total net sales = 9.071 billion yen, operating income = 0.174 billion yen, ordinary loss = 0.089 billion yen, net income = 0.268 billion yen. Q4 saw an overall year-over-year revenue decline: automotive and communications segments both decreased, while consumer segment sales had a smaller-than-usual decline due to Chinese consumer product subsidies, partially offsetting the downturn. The photolithography product share of the sales mix fell from 19% to 16% due to the communications segment downturn. Inventory reached 18 billion yen at end of period, driven by higher raw material costs, particularly sharply elevated gold prices.

For the full year 2026 March fiscal year, management guides: total net sales of 41 billion yen, operating income of 2 billion yen, ordinary income of 1 billion yen, net income attributable to parent shareholders of 0.5 billion yen. Capital expenditure is guided at 9 billion yen, depreciation at 4.5 billion yen, based on an assumed USDJPY exchange rate of 140.

By segment 2026 guidance (year-over-year change):

• Industrial segment: 6% revenue decrease, as recovery is not expected this period
• Consumer segment: 2% revenue decrease, following strong prior year PC-related performance
• Automotive segment: 8% revenue increase, driven by higher device count per vehicle and growth of higher-priced ADAS devices, with US tariff effects not yet incorporated into guidance
• Communications segment: 18% revenue increase, driven by growth in TCXO demand from mandated GPS modules for Chinese electric two-wheelers, higher demand for high-frequency WiFi resonators, and surging demand for Daishinku's high-share crystal filters for low-orbit satellite antennas.

For the 2027 March fiscal year (final year of the second mid-term management plan), management set a total sales target of 53 billion yen, with growth driven primarily by Arkh.2G adoption, growth of high-frequency WiFi 6/7 crystal resonators, and higher crystal filter sales. As of the call, ~9 billion yen of the target 12 billion yen incremental revenue is secured; management targets exceeding 60 billion yen in sales in the following period. US tariff impacts have not been incorporated into guidance; management expects minimal impact from production shifting from China to other Asian locations for consumer and communications segments, and will monitor automotive and industrial segment exposure closely.

• Human error resulting in a mid-period financial statement correction, which occurred due to prolonged lack of detection
• Weak demand recovery in the industrial segment, which resulted in significant year-over-year revenue decline in 2025
• Uncertainty around US tariffs, which could negatively impact automotive and industrial segment performance if macro conditions weaken
• Arkh.2G and new business commercialization depends on customer adoption, and timing and volume of new customer design wins can shift unexpectedly
• Chinese manufacturers have growing cost competitiveness in mass-market oscillator segments, creating ongoing price pressure
• Late-quarter photolithography equipment failure caused unplanned production disruptions that exacerbated 2025 communications segment revenue decline
• Pricing and regulatory uncertainty for DAC-CO2 capture and hydrogen sales, which is critical to the commercial viability of the new KDS-DAC business

Q: How does Daishinku protect core technology when partnering with a Chinese manufacturer for Arkh.2G, and how does management view rising Chinese competition in the oscillator market? / A: For the first phase of the alliance, Daishinku handles all assembly of Arkh.2G, and the Chinese partner only performs final inspection, which does not involve access to core assembly technology. For the second phase of Arkh.3G, Daishinku retains production of the core resonator component, so core know-how does not leak. Assembly of Arkh.3G only requires simple bonding with no specialized technical know-how needed, and any existing common technology like IC flip chip bonding is already available in China, so there is no leakage risk for unique intellectual property. Regarding Chinese competition: Chinese manufacturers have strong cost advantages in basic SPXO for security cameras, but operate at very thin margins. Daishinku will prioritize volume growth to speed up depreciation for the Arkh line. There is still a meaningful technology gap between Chinese and Japanese ICs for TCXOs, with major Chinese brands reporting quality issues with local Chinese TCXOs, so Japanese manufacturers retain a technical lead for now. For 150MHz fundamental differential output products, Chinese manufacturers rely on a higher-cost third overtone manufacturing method, so Arkh.2G retains clear competitive advantage at present.