1Q returned to profitability, but the recovery is concentrated in Microelectronics, while Electronic Systems remains loss-making

FY2027-Q1 revenue was ¥1,535 million, up 1.1% year on year, while operating profit was ¥19 million, ordinary profit was ¥21 million and quarterly net profit was ¥21 million. As the same quarter of the previous year recorded an operating loss of ¥106 million, an ordinary loss of ¥105 million and a quarterly net loss of ¥75 million, profitability improved substantially at every level. The operating margin also rose from approximately negative 7.0% in the same quarter of the previous year to approximately 1.2%.

By segment, Electronic Systems revenue was ¥721.257 million, down 7.0% year on year, and the segment posted an operating loss of ¥7.247 million. Its simple calculated operating margin was approximately negative 1.0%. Back-calculating revenue for the same quarter of the previous year gives approximately ¥775.5 million, so the next results should first be checked for a recovery in automotive and back-end products to the previous year’s level.

Microelectronics, meanwhile, reported revenue of ¥555.293 million, up 6.5% year on year, and segment operating profit of ¥69.393 million. Its segment operating margin was approximately 12.5%, making it the strongest contributor to the company-wide return to profitability. Product Development also recovered to revenue of ¥258.941 million, up 16.7% year on year, but its segment operating loss was ¥43.092 million and its margin remained approximately negative 16.6%. The key point is that higher revenue has not yet translated directly into profit.

For the full previous fiscal year, Electronic Systems recorded revenue of ¥3,059.962 million and a segment operating loss of ¥182.127 million, while Product Development recorded revenue of ¥1,303.692 million and an operating loss of ¥127.839 million. Microelectronics was also profitable, with operating profit of ¥140.141 million, but profit declined 17.0% year on year. Accordingly, the 1Q return to profitability is more likely to reflect a recovery in the high-margin design and IP businesses and a halt in the decline of Product Development than a structural normalization across the company.

The company has disclosed that revenue and profit are concentrated in the second half, particularly the fourth quarter, so it is difficult to conclude that the 1Q return to profitability has materially increased the likelihood of achieving the full-year forecast. In FY2027-H1, both year-on-year comparisons and segment operating profit will need to be used to assess whether Electronic Systems’ loss narrows further, whether higher Product Development revenue is accompanied by improved profit, and whether Microelectronics’ profit growth is non-recurring.