Profit Volatility Risk Based on Gross Margins by Project and Hardware Sales Performance
First written in FY2017-Q1. 9 of 28 entries say "Mitigated", first in FY2019-Q3. Latest entry: FY2026.
Intelligent Wave moved to the "Worse" side of this theme in 2025, 2 years after the typical company in this theme (2023).
The whole theme swung hardest in 2022: 2 of 6 companies on the "Worse" side.
2 other companies' latest entry also says "Mitigated".
- FY2026MitigatedAnnual report
「Operating profit increased despite a decline in gross margins caused by quality-related measures for cloud services projects for certain customers and the product mix in the security area, as the quality-related measures were resolved during the fiscal year. In addition, profitability remained solid in major system development projects and hardware sales increased, contributing to higher profit.」
Although quality-related measures and the product mix caused gross margins to decline, the quality-related measures were resolved during the fiscal year, while profitability in major system development projects and hardware sales contributed to higher profit. - FY2026-H1WorsenedAnnual report
「Gross profit margins for system development and maintenance in the payments area remained solid, but the gross margin for cloud services declined, resulting in a decline in the overall gross margin.」
Gross margins for system development and maintenance in payments remained solid, but the decline in the cloud services gross margin lowered the overall gross margin. Profit fluctuations from the project and service mix materialized in the adverse direction. - FY2025-H1WorsenedAnnual report
「Gross profit margins for system development and maintenance in the payments area remained solid, but the gross margin for cloud services declined, resulting in a decline in the overall gross margin.」
System development and maintenance in payments remained solid, but the decline in the cloud services gross margin lowered the overall gross margin. Profit fluctuations from the project and service mix materialized in the adverse direction. - FY2024-Q3MitigatedAnnual report
「Gross profit increased due to higher revenue from system development and cloud services and improved gross margins.」
Gross profit increased due to higher revenue from system development and cloud services and improved gross margins. During the cumulative quarter, the risk of profit fluctuations from the project and product mix materialized as improved earnings. - FY2024-Q2MitigatedAnnual report
「Gross profit increased as revenue from system development and cloud services rose, while margins on system development, including large projects, remained strong.」
Margins on system development, including large projects, remained strong, driving an increase in gross profit. During the cumulative second quarter, the risk of profit fluctuations from project-level gross margins and the product mix materialized as increased profit rather than an adverse impact. - FY2024-Q1MaterialisedAnnual report
「Gross profit on third-party products, including hardware, declined because there had been large, highly profitable hardware sales in the previous period. Gross profit from system development and cloud services increased as revenue rose and development efficiency improved, among other factors.」
The pullback from highly profitable large hardware sales in the previous period resulted in an actual decline in gross profit attributable to the product mix. Improvement in margins in system development and cloud services partly offset the decline. - FY2023Revenue and profit increased, but the operating margin declinedAnnual report
「Operating margin 8.8% 9.5% 10.1% 13.2% 11.6%」
Operating profit increased to ¥1,556 million, while the operating margin declined from 13.2% in the previous period to 11.6%. The increase in selling, general and administrative expenses, including investment in human capital, improvements to the office environment and IT investment, was identified as a factor behind the change in the margin. - FY2022-Q3MitigatedAnnual report
「Operating profit significantly exceeded the previous period's result. Operating profit in the third quarter increased 70.3% year on year, from ¥273 million in the previous period to ¥464 million in the current period. Higher profitability in system development, maintenance and the cloud services business, together with several high-margin hardware projects, contributed to the increase in profit.」
Although hardware and third-party product sales declined, higher profitability in system development, maintenance and cloud services, together with high-margin hardware projects, prevented the adverse impact of profit fluctuations from emerging, and operating profit increased 70.3% year on year. - FY2022-Q2Decline in hardware sales offset by other categoriesAnnual report
「Revenue fell below the previous period's result. In the same period of the previous year, relatively large hardware revenue was recognized from server sales, but there was no comparable project in the current period. Meanwhile, system development for new customers and sales of the company's products increased, and revenue in each of the other categories exceeded the previous period's result. However, the substantial decline in hardware sales caused revenue in the second quarter under review to decrease.」
Revenue declined in the absence of a relatively large hardware project, while system development for new customers and sales of the company's products increased. Revenue fluctuated due to the project and product mix, but operating profit exceeded the same period of the previous year. - FY2021MitigatedAnnual report
「Although revenue from system development services fell below the previous period's result, the increase in sales of hardware and other products offset the decline.」
The increase in sales of hardware and other products offset the decline in system development revenue, limiting the adverse impact of profit fluctuations from the sales mix over the full year. - FY2021-Q3Revenue and profit increased, but the operating margin declinedAnnual report
「Revenue from the business serving the financial industry totaled ¥7,444 million, up 4.2% year on year and above the previous period's result. Hardware and third-party product sales exceeded the previous period's results, while system development results fell below them. As a result, operating profit was ¥740 million, up 1.1% year on year and broadly flat.」
Hardware and third-party product sales increased while system development revenue declined, changing the sales mix. The business serving the financial industry achieved revenue growth, but operating profit growth was limited to 1.1%. - FY2021-Q1MaterialisedAnnual report
「Operating profit fell below the previous year's actual result. In addition to lower profit resulting from a decline in revenue from system development, operating profit fell because costs temporarily increased to restore a system failure in the cloud services business.」
Changes in the business mix and expenses materialized as a shortfall in operating profit from the same period of the previous year, due to a decline in system development revenue and costs to restore cloud services following a system failure. - FY2020MitigatedAnnual report
「Software development services progressed steadily without any unprofitable projects, improving earnings from the previous period. As noted above, operating profit increased because of substantial growth in hardware sales revenue.」
No unprofitable projects arose, and operating profit in the financial systems solutions business increased to ¥1,123 million. The adverse impact of profit fluctuations arising from the project and product mix seen in the previous period was less pronounced in the period under review. - FY2020-Q3MaterialisedAnnual report
「Among the software development projects for which revenue was recognized in the third quarter of the fiscal year under review, some generated less profit than initially planned. As a result, operating profit for the cumulative third quarter period from July 2019 to March 2020 was ¥732 million, slightly below the previous period.」
Some software development projects generated less profit than initially planned, and cumulative operating profit in the financial systems solutions business was ¥732 million, below the same period of the previous year. Profit fluctuations arising from the project and margin mix were reflected in the results. - FY2020-Q2RestatedAnnual report
「In the financial systems solutions business, project sizes differ. Costs may exceed initial estimates at each stage of a project, and gross margins are not uniform across development projects, making these factors drivers of fluctuations in overall business profit. The company also sells hardware, such as servers, alongside system development and system updates, and hardware revenue varies according to the nature of each project. Fluctuations in profit from sales of hardware and other products are also factors causing changes in the overall business margin.」
The company continues to identify project size and gross margins, costs exceeding estimates, and hardware sales as risks that can cause fluctuations in overall profit and margins. - FY2020-Q1MaterialisedAnnual report
「Revenue declined compared with the same period of the previous year. As sales of products with relatively high gross margins declined, operating income also fell below the same period of the previous year.」
The risk of profit fluctuations from the product mix materialized in actual earnings as a decline in sales of high-gross-margin products and a resulting shortfall in operating profit from the same period of the previous year. - FY2019MitigatedAnnual report
「Although sales of relatively low-margin hardware declined, growth in sales of the company's high-margin products enabled the company to broadly secure the operating profit initially forecast.」
The decline in low-margin hardware sales and increase in high-margin sales of the company's products reduced the adverse impact of profit fluctuations arising from the sales mix compared with the previous period. - FY2019-Q3MitigatedAnnual report
「In the product solutions business, revenue totaled ¥620 million, down 24.6% from the same quarter of the previous year, and the operating loss was ¥72 million, compared with an operating loss of ¥129 million in the same quarter of the previous year, from sales and other activities involving the company's CWAT packaged software, which prevents information leaks from within corporate organizations, and third-party Traps packaged software, which protects against external cyberattacks. Sales of the company's packaged software exceeded the same period of the previous year, but hardware sales fell below the same period of the previous year.」
Sales of the company's packaged software increased while hardware sales declined, narrowing the product solutions business's operating loss from ¥129 million to ¥72 million. The impact of profit fluctuations from the sales mix was less pronounced than in the previous period. - FY2019-Q1MaterialisedAnnual report
「Within revenue from software development services, the proportion attributable to software development under fixed-price contracts temporarily declined, while revenue under quasi-mandate contracts increased, due in part to a decline in revenue from large development projects. As a result, earnings fell below the previous period.」
Revenue from large development projects declined and the mix of fixed-price and quasi-mandate contracts changed, causing operating profit in the financial systems solutions business to decline from ¥164 million in the same quarter of the previous year to ¥104 million. - FY2018MaterialisedAnnual report
「However, because the large-scale development project for which revenue was recorded in the third quarter became unprofitable, the Company was unable to generate the profit initially expected. Operating profit fell below the previous period's result, to ¥547 million from ¥702 million.」
The conversion of a large project into an unprofitable project caused the risk of profit fluctuations from project-level gross margins and cost overruns to materialize as a decline in full-year operating profit. - FY2018-Q3MaterialisedAnnual report
「We focused on selling third-party cybersecurity products and increased revenue, but sales performance included hardware with particularly high cost ratios, causing the business's profit and loss to deteriorate from the previous period.」
Results from sales including high-cost-ratio hardware sales caused the risk of profit fluctuations arising from the project and product mix to materialize as an actual deterioration in earnings. - FY2018-Q2RestatedAnnual report
「Because the development projects received differ in content and scale by component, revenue and margins vary by stage even among projects relating to the same overall project.」
The company continues to explain that, even within the same overall project, project content and scale differ by stage, causing revenue and margins to fluctuate. - FY2018-Q1RestatedAnnual report
「In the financial systems solutions business, project sizes differ. Costs may exceed initial estimates at each stage of a project, and gross margins are not uniform across development projects, making these factors drivers of fluctuations in overall business profit. The company also sells hardware, such as servers, alongside system development and system updates, and hardware revenue varies according to the nature of each project. Fluctuations in profit from sales of hardware and other products are also factors causing changes in the overall business margin.」
The company continues to identify project size and gross margins, costs exceeding estimates, and hardware sales as risks that can cause fluctuations in profit and margins. - FY2017-Q1First statedAnnual report
「In the financial systems solutions business, costs may exceed initial estimates at any stage from the receipt of a system development project through its completion. Gross margins also vary by project, making these factors drivers of fluctuations in overall business profit. The company also sells hardware, such as servers, alongside system development and system updates, and hardware revenue varies according to the size and nature of each project. Sales of the company's packaged software likewise vary according to the scale and nature of system development projects. Fluctuations in profit attributable to hardware and software sales are also factors causing changes in the overall business margin.」
In addition to the existing risk of unprofitable projects, the filing identifies project-level gross margins and hardware and packaged software sales, which depend on project size and content, as factors that cause fluctuations in overall profit and margins.