Revenue is on plan, but the focus for the first half is recovery in the operating margin, which declined.

First-quarter operating revenue was ¥11,215 million, up ¥304 million, or 2.8%, from ¥10,911 million a year earlier. Operating profit, however, was only ¥286 million, down ¥489 million, or 63.1%, from ¥775 million a year earlier. Ordinary profit also fell 57.8% year on year to ¥347 million, indicating that revenue growth has not translated into earnings. Operating profit as a percentage of operating revenue was approximately 2.5%, down approximately 4.6 percentage points from approximately 7.1% a year earlier.

The full-year forecast calls for operating revenue of ¥47,500 million and operating profit of ¥1,000 million. First-quarter progress was 23.6% for operating revenue and 28.6% for operating profit, with operating profit ahead of revenue on a progress basis. However, if the first half is simply assumed to represent 50% of the full year, ¥23,750 million of operating revenue and ¥500 million of operating profit by the end of September provide reference points. The company has not disclosed seasonality or quarterly plans, so this 50% threshold should be treated as a benchmark for measuring the difference in revenue and profit progress, rather than as the company’s own plan.

First-quarter revenue by business was ¥5.9 billion for Products, ¥1.1 billion for EMS, ¥1.2 billion for Devices and ¥3 billion for Systems. Year-on-year changes were negative ¥200 million, negative ¥1.4 billion, flat and positive ¥1.9 billion, respectively, indicating that higher Systems revenue offset the decline in EMS. The reporting structure treats the company as a single segment, and operating profit by business has not been disclosed. Accordingly, the current disclosures do not show whether first-half revenue growth is being driven by higher-margin areas or whether changes in the revenue mix are failing to improve profit.

At the next results announcement, disclosure of actual first-half operating revenue and operating profit, as well as gross margin, SG&A expenses and profit by business, will be important. In particular, we will check whether the operating margin remains at or above approximately 2.1%, the level implied by the full-year forecast, rather than falling from approximately 2.5% in the first quarter, and whether the company is absorbing cost increases. Even if the full-year forecast is maintained, the credibility of the plan will depend on how specifically the company explains the operating revenue and operating profit required over the remaining 6 months.