TOKYO ELECTRON DEVICE LIMITED FY2026 FY Earnings Report

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Executive Summary

The deterioration in market conditions for the core Semiconductor and Electronic Devices Business could not be fully offset by the expansion of the Computer Systems-Related Business, resulting in lower revenue and lower profit. Revenue was ¥2,037.5B (-5.8% year on year), Operating Income was ¥102.5B (-17.7%), Ordinary Income was ¥97.5B (-14.6%), and Net Income was ¥78.8B (-7.8%). The decline in Operating Income exceeding the rate of revenue decline was attributable to selling, general and administrative expenses remaining broadly flat, resulting in a relatively heavier fixed-cost burden. The smaller decline in Net Income than in Operating Income was supported by extraordinary income of ¥11.4B, including a gain on the sale of investment securities of ¥10.8B.

Factors Affecting Performance

【Revenue】Revenue was ¥2,037.5B, down -5.8% year on year. The Semiconductor and Electronic Devices Business, which accounts for approximately 80% of the revenue mix, declined to ¥1,625.4B (-9.2%), weighing on overall results. Meanwhile, the Computer Systems-Related Business expanded to ¥412.0B (+10.4%); within this segment, storage and networking equipment and related products increased to ¥244.7B (+7.1%), while maintenance and monitoring services grew to ¥167.4B (+15.6%).

【Profit and Loss】Operating Income was ¥102.5B (-17.7%), and the Operating Income margin declined by 0.8pt from 5.8% to 5.0%. While the gross margin declined only slightly from 15.6% to 15.5%, selling, general and administrative expenses were ¥212.9B, broadly in line with the previous year, and the rigidity of expenses amid declining revenue pushed down the profit margin. On a segment-profit basis, calculated using Ordinary Income, the Semiconductor and Electronic Devices Business deteriorated significantly to ¥32.1B (-47.8%, 2.0% margin), while the Computer Systems-Related Business improved to ¥65.4B (+24.2%, 15.9% margin), indicating a shift in the earnings mix toward higher-margin businesses. Ordinary Income was ¥97.5B (-14.6%), including a foreign exchange loss of ¥4.4B in non-operating expenses. Net Income was ¥78.8B (-7.8%), with the decline narrowing relative to the operating level due to extraordinary income of ¥11.4B, including a gain on the sale of investment securities of ¥10.8B. Revenue and profit both declined.

Segment Analysis

The Semiconductor and Electronic Devices Business recorded Revenue of ¥1,625.4B (-9.2% year on year) and segment profit of ¥32.1B (-47.8%), with its profit margin declining from 3.4% to 2.0%. Its revenue mix remained substantial at 79.8%, and its impact on overall performance remains high. The Computer Systems-Related Business recorded Revenue of ¥412.0B (+10.4%) and segment profit of ¥65.4B (+24.2%), with its profit margin improving from 14.1% to 15.9%. The combined segment profit of the two businesses is broadly consistent with consolidated Ordinary Income; however, this is calculated on an Ordinary Income basis and differs in definition from consolidated Operating Income. As a share of company-wide profit, the Computer Systems-Related Business has become the core earnings business, generating approximately 67% of profit.

Key Financial Metrics

【Profitability】The Operating Income margin was 5.0% (5.8% in the previous year), while the Net Income margin was 3.9% (4.1%), with both declining. The gross margin was 15.5% (15.6%), remaining broadly flat, and the primary factor behind the decline in profit margins was the persistently high selling, general and administrative expense ratio of 10.4%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥156.8B, approximately 2.0 times Net Income of ¥78.8B, indicating solid cash-generation capacity. However, the contribution from working-capital movements, including a ¥95.9B increase in advances received and a ¥43.7B decrease in inventories, was substantial, while trade receivables increased by ¥56.3B and put pressure on cash. 【Investment Efficiency】ROE was 14.7%, and the Equity Ratio was 33.1%. Net assets were ¥537.6B against total assets of ¥1,622.1B, indicating that the capital base increased from the previous year. Capital expenditures were small at ¥2.7B, resulting in a limited investment burden. 【Financial Soundness】Short-term borrowings, long-term borrowings, and commercial paper were all substantially reduced from the previous year, indicating progress in reducing interest-bearing debt. Cash and deposits were ¥76.2B, while current assets of ¥1,503.4B exceeded current liabilities of ¥850.0B, securing short-term payment capacity.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥156.8B, down -17.1% year on year, but remained approximately 2.0 times Net Income attributable to owners of the parent of ¥78.4B, indicating continued strong cash-generation capacity relative to earnings. By component, the ¥95.9B increase in advances received and the ¥43.7B decrease in inventories contributed positively, while the ¥56.3B increase in trade receivables was a negative factor; payments of income taxes and other taxes of ¥16.5B were also deducted. Investing Cash Flow was positive at ¥12.0B, supported by proceeds from the sale of investment securities and fixed assets. Capital expenditures were only ¥2.7B, resulting in a limited investment burden. Free cash flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, reached ¥168.8B. Financing Cash Flow was -¥178.5B, primarily due to repayments of short-term borrowings, long-term borrowings, and commercial paper, share repurchases of ¥20.0B, and dividend payments. The Company used abundant cash to reduce interest-bearing debt and return capital to shareholders.

Earnings Quality

Net Income of ¥78.8B included extraordinary income of ¥11.4B, mainly comprising a gain on the sale of investment securities of ¥10.8B. Temporary factors therefore supported Net Income at a pace exceeding the Company’s recurring earnings power. The difference between Ordinary Income of ¥97.5B and Net Income was primarily attributable to this extraordinary income and the ¥30.0B burden from income taxes and other taxes; the effective tax rate was approximately 27.5%, broadly within a normal range. Non-operating income was ¥3.1B, compared with non-operating expenses of ¥8.1B. In addition to interest expenses of ¥2.2B, a foreign exchange loss of ¥4.4B was incurred, indicating that foreign-exchange fluctuations associated with overseas procurement and sales weighed on Ordinary Income. Comprehensive Income was ¥86.8B, and the difference from Net Income of ¥78.8B was mainly attributable to foreign currency translation adjustments of ¥5.8B; no significant divergence arose. The fact that Operating Cash Flow exceeded Net Income is favorable from the perspective of cash support for earnings. However, dependence on working-capital movements, such as increases in advances received and inventory reductions, is high, so recurring earnings power should be evaluated primarily based on Operating Income and Ordinary Income.

Earnings Forecast and Guidance

The Company’s forecast for the next fiscal year is Revenue of ¥2,250.0B (+10.4% year on year), Ordinary Income of ¥113.0B (+15.9%), EPS of ¥265.78, and a dividend of ¥108.00. The Company expects a recovery from current-period Revenue of ¥2,037.5B and Ordinary Income of ¥97.5B. Achieving this forecast will depend on a recovery in demand for the Semiconductor and Electronic Devices Business, which accounts for approximately 80% of the revenue mix, as well as an improvement from its segment profit margin of 2.0%. The Net Income forecast is ¥78.5B, remaining broadly in line with current-period Net Income of ¥78.8B. This appears to reflect the expiration of extraordinary income, including gains on the sale of investment securities recorded in the current period, offset by higher profit at the Ordinary Income level.

Shareholder Returns

The annual dividend was ¥107 per share (¥35 interim and ¥72 year-end), resulting in a Payout Ratio of 42.8%. The total annual dividend amounted to approximately ¥33.5B. Including share repurchases of ¥20.0B, the total amount returned was approximately ¥53.5B, resulting in a Total Return Ratio of approximately 68.3%. Dividend coverage based on free cash flow of ¥168.8B was sufficient, and shareholder returns were not excessive relative to the current period’s earnings and cash flow levels. The Company’s dividend forecast for the next fiscal year is ¥108, representing a planned increase of ¥1 from the previous fiscal year.

Risk Factors

1. Business concentration risk: The Semiconductor and Electronic Devices Business, which accounts for 79.8% of Revenue, declined -9.2% year on year, while segment profit deteriorated by -47.8%. The Company therefore has a structure in which market fluctuations in this business have a significant impact on consolidated performance.

2. Prolonged working-capital cycle: Trade receivables increased by ¥56.3B, while inventories decreased by ¥43.7B. Depending on the collection of trade receivables and inventory-level management, these factors may cause fluctuations in Operating Cash Flow. In particular, inventories contain the risk of valuation losses during market fluctuations.

3. Foreign-exchange risk: A foreign exchange loss of ¥4.4B was recorded in non-operating expenses. In the electronic-device supply chain involving overseas procurement and sales, foreign-exchange fluctuations are affecting Ordinary Income.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (trading)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, indicating that profitability is relatively strong within the industry.

Growth and Capital Efficiency

The Revenue growth rate is substantially below the industry median, positioning the Company as one experiencing a revenue decline within the industry.

※Source: Company analysis

Key Takeaways from the Financial Results

1. The earnings mix is shifting from the lower-margin Semiconductor and Electronic Devices Business, with a 2.0% profit margin, toward the higher-margin Computer Systems-Related Business, which has a 15.9% profit margin and is on a revenue growth trend. This indicates a qualitative change in the business portfolio.

2. Net Income benefited from a gain on the sale of investment securities of ¥10.8B. When evaluating recurring earnings power, performance should therefore be assessed primarily based on Operating Income and Ordinary Income.

3. Interest-bearing debt, consisting of short-term borrowings, long-term borrowings, and commercial paper, has been reduced, while the Equity Ratio increased to 33.1%, indicating an improvement in the financial position from the previous year.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,029–¥2,147 at ±1% for the cost of equity, and ¥2,079–¥2,097 at ±0.1 for ω.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these figures do not constitute forecasts of market share prices or recommendations for specific investment actions, and do not predict or guarantee future share prices.)

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This report is an automatically generated earnings analysis document created by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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