DAISHINKU CORP. Q2 FY2026 earnings call

• Core Growth Strategy: Arkh Series

  • The Arkh series, the core of Daishinku's growth strategy, enters full mass production in the second half of this fiscal year. Large-scale revenue contribution is expected starting from next fiscal year.
  • Key focus domain: Differential oscillators for optical transceivers. The 312.5MHz segment (double the legacy 156.25MHz standard) is emerging as the new mainstream for next-generation 800G-1.6T optical transceivers, with very limited supplier competition, creating a major expansion opportunity for Arkh.2G.
  • Arkh.2G advantages: Uses pre-tested, pre-frequency-adjusted Arkh.3G finished crystal units, achieving over 99% post-assembly yield, eliminating material loss from poor yield seen in traditional products, and securing clear cost competitiveness against peers. It also avoids outgassing-related frequency drift from conductive adhesives in traditional designs, delivering superior long-term aging performance.
  • Arkh series manufacturing advantages: Arkh.3G is manufactured at the wafer level. Product miniaturization (moving from 1008 to 0806 size) and a shift from 4-inch to 6-inch wafers deliver a combined 2.8x multiplicative cost reduction via higher units per wafer. This enables competitive expansion beyond high-margin optical transceivers into high-volume automotive oscillators and high-frequency crystal units.
  • Productivity improvement: The new Arkh.2G production line at the Tokushima plant increased production per unit area by 7x vs. legacy lines. This allows Daishinku to meet growing market demand without building new factories, avoiding large fixed cost increases and protecting profitability amid volume growth.

• Foreign Exchange Risk Reduction

  • Daishinku has long had very high non-operating foreign exchange sensitivity, driven by large foreign currency-denominated receivables between the Japanese headquarters and overseas sales subsidiaries.
  • In the second half of this fiscal year, the company will reduce sensitivity via a capital increase to overseas subsidiaries, which use the new capital to pay down intercompany payables, shortening payable terms. This is expected to cut non-operating exchange sensitivity from ~70 million yen per 1 yen of USD/JPY movement to ~30 million yen, reducing volatility in ordinary and net profit.

This report covers the 2nd quarter and first half of the 2026 March fiscal year:

1. First half cumulative results (year-over-year comparison): Total net sales = 19.591 billion yen, operating profit = 0.179 billion yen, ordinary loss = -0.091 billion yen, net loss = -0.32 billion yen, resulting in higher sales but lower profit year-over-year.
2. By market segment (year-over-year change):
   • Communications: -7%, hit by supply shortages from photolithography process machine issues
   • Automotive: +7%, strong growth led by demand outside North America
   • Consumer electronics: -1%
   • Industrial: Recovering from a prolonged downturn in FA/robotics segments
3. 2nd quarter alone (previous quarter comparison): Total net sales = 10.214 billion yen, operating profit = 0.109 billion yen, ordinary profit = 0.449 billion yen, net profit = 0.119 billion yen. Improvements were driven by foreign exchange gains from yen depreciation against the US dollar.
4. By market segment (previous quarter change):
   • Communications: +20% (driven by seasonal factors, but growth was limited by lingering machine trouble effects)
   • Automotive: +2%, steady growth, but unmet demand from limited production capacity
   • Consumer and Industrial: Growth driven by seasonal factors
5. Other financials: Cumulative first half capital expenditure = 1.129 billion yen (down 4.87 billion yen year-over-year due to the prior year's new head office completion), depreciation = 2.006 billion yen, R&D expenditure = 0.974 billion yen. End-of-first-half inventory = 20.7 billion yen, up 2.7 billion yen from the prior period-end, driven by rising raw material (gold and other components) prices.

• Full-year 2026 March fiscal year guidance has been revised downward from the original plan:
  • Net sales revised from 41 billion yen to 40 billion yen (-1 billion yen)
  • Operating profit revised from 2 billion yen to 1 billion yen (-1 billion yen)
  • Ordinary profit revised from 1 billion yen to 0.5 billion yen (-0.5 billion yen)
  • Net profit revised from 0.5 billion yen to 0.3 billion yen (-0.2 billion yen)
  • Capital expenditure revised from 9 billion yen to 8.2 billion yen (-0.8 billion yen, no changes to depreciation or R&D guidance)
  • The average USD/JPY assumption is revised from 140 yen to 146 yen, reflecting current market conditions.
  • The downward revision is driven by the expectation that ongoing raw material price hikes (primarily gold) experienced in the first half will continue into the second half.
• Second half forecast: Operating profit of 0.821 billion yen, bringing full-year operating profit to 1 billion yen. The forecast assumes 1.14 billion yen of positive marginal profit contribution, driven by the resolution of first-half machine trouble, improved yield, increased photolithography product shipments, and improved product mix and cost ratio, offsetting 0.13 billion yen of negative impact from price changes from raw material costs.
• Mid-term strategic plan: The core Arkh series growth strategy is progressing on track, but the full-scale launch has been delayed by approximately one year vs. original mid-term plan, so single-year financial targets will be adjusted, with updated guidance to be released at the next earnings briefing.

• Persistently rising raw material prices, especially gold, have created significant downward pressure on profitability, and this pressure is expected to continue into the second half.
• The photolithography process (used for key growth products) experienced unexpected machine trouble that lasted into the first half of this fiscal year, causing supply shortages, reduced yield, lower sales, and reduced profitability. While the issue is now resolved, it has already impacted first-half results.
• High foreign exchange volatility has created significant swings in ordinary and net profit, even as the company is implementing measures to reduce this sensitivity.
• In the high-frequency oscillator market, while crystal devices have clear jitter/noise performance advantages over MEMS alternatives, very high frequency ranges are more challenging for crystal devices, creating competitive pressure.

Q: The machine trouble started around 1.5 years ago, with previous guidance that it would be resolved earlier. What was the issue, and why was the resolution delayed, and can we confirm the problem is now fixed? / A: The issue has been in the photolithography process, but the specific problem this year is different from the issue in prior years, so it is not a continuation of the original problem. The original issue was resolved last year, and the new problem this year stemmed from an unexpected issue different from what management initially diagnosed. The problem was fully resolved in the first half, with assembly yield returning to normal levels starting from November input; only remaining October-produced chips still have residual impact. The improvement is already confirmed via internal production data.

Q: What is the current business opportunity for Daishinku in optical transceivers for generative AI servers, what is the sales impact this year and next, and what is the competitive advantage vs MEMS? / A: Daishinku currently has low market share in this segment, so current sales contribution is very limited. 312.5MHz product design-in is ongoing with strong customer evaluation, and meaningful sales growth is expected to start next year. For generative AI servers, Daishinku already has a full product portfolio and is actively expanding sales. Against MEMS products, Daishinku's crystal-based products have much better jitter/noise performance, which is a critical requirement for this high-frequency market, giving the company a clear competitive edge. While extremely high frequency ranges are more challenging for crystals, 156.25MHz and 312.5MHz are well within crystal's viable range, so higher-performance crystal products are expected to win market share.

Q: What explains the projected 1.14 billion yen increase in marginal profit in the second half, how much comes from production volume growth, and what is the inventory outlook? / A: The biggest contribution to the marginal profit increase comes from improved utilization and cost ratio from the resolution of the first-half machine trouble. The machine trouble caused major yield drops and lower utilization in the first half, which will reverse to become a positive contribution in the second half, alongside improved product mix from higher photolithography product shipments. The remaining increase comes from production volume growth, with projected 0.8 billion yen of sales growth between the first and second half. Inventory will increase moderately from current levels, but this is only to restore proper inventory levels for tight products such as TCXOs, thermistor-bearing oscillators and tuning-fork oscillators, not excessive inventory building.

Q: What is the current dividend policy, will it change with new management, and is a dividend cut possible? / A: Under the current mid-term management plan, the company maintains a 2.8% minimum dividend yield on equity, with a 3% target for the final year of the plan (next fiscal year). There is no plan to change this policy for the remainder of the current mid-term plan. Management is discussing future shareholder return policy after the current plan, but there is no intention to reduce shareholder returns; options including share buybacks are under discussion for the next plan, but no decisions have been made. There is no current discussion of a dividend cut, and next year's dividend plan remains within the existing mid-term framework with no planned changes.