Can defense and communications equipment convert its high order backlog into revenue?

In FY2026, the defense and communications equipment business benefited from strong sales of aircraft-mounted and shipborne equipment, generating revenue of ¥26,015 million, up 6.6% year on year, and operating income of ¥2,344 million, up 43.3%. Defense revenue also rose sharply in FY2026-H1 to ¥9,383 million, up 50.4% year on year, confirming that higher defense spending is translating into actual deliveries.

The increase in the order backlog has not been uniform across the company. The consolidated order backlog increased from ¥56,408 million in FY2025 to ¥59,875 million in FY2026, while the defense and communications equipment backlog was essentially flat, declining from ¥43,246 million to ¥43,235 million. Accordingly, rather than judging the defense business's potential for further growth solely on the basis of the company's record-high consolidated backlog, it is necessary to separately assess the pace at which the existing backlog is being converted into revenue, the delivery schedules for individual projects and whether new orders are replenishing the backlog.

The company states that defense spending for fiscal 2023–2027 will total ¥43 trillion over five years, including ¥7.9 trillion in fiscal 2024, and links the high order backlog to the increase in the defense budget. At the same time, it says that its production and staffing structures need to be reviewed to accommodate the expanded defense budget, raising the possibility that delivery schedules, inspections and mass-production capacity could become constraints even if orders continue to grow. In the next results, the focus will be on the amount of the backlog scheduled to be recognized as revenue within 12 months, delivery schedules for major projects, the operating status of capacity-expansion equipment and whether staffing shortages are causing delivery delays.

The market has also expressed the view that the increase in orders driven by higher defense spending may be nearing its peak, with attention turning to the risk of a decline in the order backlog. This does not challenge the company's disclosed backlog itself, but the next interim results should provide evidence of whether defense revenue exceeds the ¥9,383 million recorded in the prior-year interim period, whether operating income can remain at the high level of ¥2,344 million and whether deliveries that are normally concentrated in the fourth quarter are brought forward into the interim period.