Revenue holds steady in Q1, but operating profit falls sharply on higher costs

Consolidated revenue in the first quarter was ¥8,654 million, virtually unchanged from ¥8,655 million in the year-earlier period. Operating profit, however, fell ¥190 million to ¥255 million from ¥445 million, a decline of 42.7%. Ordinary profit was ¥385 million, down 33.7%, while net profit attributable to owners of the parent was ¥68 million, down 77.0%. The operating margin declined from approximately 5.1% in the year-earlier period to approximately 2.9%, making the deterioration in profitability, rather than revenue scale, the key point to monitor in the next results.

Progress against the full-year forecast in the first quarter was 23.2% for revenue and 7.9% for operating profit. Revenue was close to the 25% elapsed-quarter benchmark, but operating profit had a weak start even after taking seasonality into account. The company assessed consolidated results as being in line with plan and maintained its full-year forecasts of ¥37,200 million in revenue, ¥3,200 million in operating profit, ¥3,300 million in ordinary profit and ¥3,000 million in net profit attributable to owners of the parent. At the next interim results, however, it will be necessary to assess the degree of improvement in standalone second-quarter profit and any change in the company’s assessment of the full-year forecast, as the forecast assumes operating profit of ¥2,945 million in the second half.

Supplementary materials identified a ¥250 million positive factor from an improved product mix and lower silicon wafer production costs as a reason operating profit declined from ¥445 million in the year-earlier period to ¥255 million. Offsetting factors included a ¥180 million decline from higher labor, raw-material and depreciation costs, a ¥160 million decline from higher research and development and selling, general and administrative expenses, and a ¥100 million decline from lower test sales of development products and changes in the timing of shareholder benefits. Against the ¥250 million improvement, total negative factors amounted to ¥440 million, consistent with the explanation of a net ¥190 million decline in operating profit.

On the cost side, cost of sales decreased from ¥6,744 million in the year-earlier period to ¥6,671 million, while selling, general and administrative expenses rose from ¥1,466 million to ¥1,728 million. The next results should therefore show not only whether the improvement in cost of sales continues, but also whether the increase in SG&A, including research and development, personnel and depreciation expenses, is temporary. The first-quarter materials disclose the increases in raw-material and administrative costs, but not the planned second-half raw-material prices, foreign-exchange assumptions, pass-through rate or SG&A. It will be important to see whether the same factor bridge is updated in the interim results.