Profit turned negative despite higher revenue, with product mix and cost absorption the focus for H1

FY2027-Q1 consolidated revenue was ¥6,762 million, an increase of ¥1,511 million, or 28.8%, from ¥5,251 million in the same period a year earlier. Meanwhile, operating income or loss deteriorated from a ¥24 million profit to a ¥197 million loss, ordinary income or loss from a ¥36 million profit to a ¥218 million loss, and net income or loss attributable to owners of the parent from a ¥66 million profit to a ¥233 million loss. The operating margin declined from approximately 0.5% in the same period a year earlier to approximately negative 2.9%, making the failure of higher revenue to translate into profit the key issue for the next results announcement.

By segment, revenue from the manufacture and sale of information and communications equipment was ¥4,535 million, up 46.9% year on year, driving consolidated revenue growth, but the segment posted an operating loss of ¥213 million. Network construction and maintenance revenue was ¥2,228 million, up 2.9% year on year, while the segment recorded a loss of only ¥0.2 million. Accordingly, the consolidated Q1 loss was primarily attributable to deteriorating profitability in the information and communications equipment business. At the next results announcement, it will be necessary to determine whether the segment’s loss narrowed or expanded on a cumulative second-quarter basis.

The earnings presentation identified the following year-on-year factors affecting ordinary profit: a ¥154 million decrease in gross profit, a ¥67 million increase in SG&A expenses, a ¥23 million increase in non-operating expenses, and a ¥9 million decrease in non-operating income. The increase in SG&A expenses included development costs for optical multiplex transmission equipment and packaging and freight expenses associated with higher shipment volumes. However, the company did not disclose individual contribution amounts or a price-volume breakdown for changes in product mix, higher raw-material prices, or production-capacity expansion costs. At the next results announcement, we will assess whether the ¥154 million negative gross-profit factor in Q1 was caused by a temporary product mix or reflects structural factors such as higher raw-material prices and mass-production start-up costs.

The earnings revision announced on 29 September indicated forecast H1 operating and ordinary losses of ¥200 million each. Given the Q1 operating loss of ¥197 million, a substantial improvement in Q2 alone will be required to limit the H1 loss to the same level. The H1 results will show whether revenue, operating income or loss, gross margin or cost ratio, and changes in product mix for the information and communications equipment business can be disclosed together, providing a basis for assessing the reliability of the full-year forecast.