TOKYO ELECTRON DEVICE (2760) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of FY2026, the Company reported lower revenue and lower profits, with revenue and all profit categories falling below the same period of the previous year, primarily due to declines in revenue and earnings in the core Semiconductor and Electronic Device Business. Revenue was ¥146.72B (down △9.5% year on year), Operating Income was ¥6.31B (down △28.8%), Ordinary Income was ¥6.03B (down △24.0%), and Net Income was ¥5.06B (down △9.6%). The smaller decline in Net Income than in Operating Income and Ordinary Income was attributable to a ¥1.07B gain on the sale of investment securities recorded as extraordinary income, indicating that the deterioration in the profitability of the core business was substantially greater in real terms.

Factors Affecting Performance

【Revenue】Revenue was ¥146.72B, down △9.5% year on year. The Semiconductor and Electronic Device Business (80% of total revenue) posted a significant decline, with revenue of ¥117.30B, down △13.7%, driving the Company-wide revenue decline. In contrast, the Computer Systems-Related Business expanded to ¥29.41B, up +12.5%, supported by growth in storage and network equipment as well as maintenance and monitoring services.

【Profit and Loss】Operating Income was ¥6.31B (down △28.8%), and the Operating Margin declined to 4.3% from 5.5% in the same period of the previous year. The decline in cost of sales did not keep pace with the decline in revenue, causing the gross margin to fall to 14.9% from 15.2% in the previous year. In addition, SG&A expenses declined by △1.3%, less than the △9.5% decline in revenue, resulting in an increased fixed-cost burden. Ordinary Income was ¥6.03B (down △24.0%), negatively affected by a ¥0.26B foreign exchange loss and ¥0.16B interest expense recorded as non-operating expenses. Net Income was ¥5.06B (down △9.6%), although this was substantially supported by the one-time gain of ¥1.07B on the sale of investment securities. By segment, segment profit in the Semiconductor and Electronic Device Business fell sharply to ¥1.85B, down △61.0%, with the segment margin declining to 1.6%. By contrast, the Computer Systems-Related Business maintained high profitability, with segment profit of ¥4.18B, up +31.0%, and a segment margin of 14.2%. Overall, the Company reported lower revenue and lower profits, with deteriorating profitability in the core business determining Company-wide performance.

Segment Analysis

The Semiconductor and Electronic Device Business recorded revenue of ¥117.30B (down △13.7% year on year), segment profit of ¥1.85B (down △61.0%), and a segment margin of 1.6% (3.5% in the previous year), indicating a rapid deterioration in profitability. The semiconductor market environment, customer capital expenditure trends, and changes in product mix appear to have had an impact. The Computer Systems-Related Business improved, recording revenue of ¥29.41B (up +12.5%), segment profit of ¥4.18B (up +31.0%), and a segment margin of 14.2% (12.2% in the previous year). Storage and network equipment, etc. (¥17.56B), and maintenance and monitoring services (¥11.85B) drove growth. The gap in profit margins between the two businesses has widened, and changes in the business mix within the portfolio are affecting Company-wide profitability.

Key Financial Metrics

【Profitability】The Operating Margin was 4.3%, down from 5.5% in the same period of the previous year, while the Net Profit Margin was 3.4% (approximately 3.4% in the previous year), broadly unchanged. The gross margin was 14.9%, slightly down from 15.2% in the previous year.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥8.91B, approximately 1.8 times Net Income of ¥5.06B, indicating good earnings-to-cash conversion. However, contributions from working-capital factors, including a ¥4.80B decrease in inventories and a ¥8.02B increase in advances received, were significant and should be evaluated separately from the Company’s recurring cash-generating capacity. Free Cash Flow was ¥9.70B, comfortably exceeding capital expenditures of ¥0.20B.【Investment Efficiency】ROE (annualized) was 13.5%, indicating a structure in which low Net Profit Margin is supplemented by financial leverage. Total asset turnover was approximately 1.2 times.【Financial Soundness】The Equity Ratio improved to 31.6% from 30.5% in the previous year. Although long-term borrowings of ¥15.20B and short-term borrowings of ¥5.83B have been reduced from the previous year, the debt-to-equity ratio remains high, leaving limited flexibility in the capital structure.

Cash Flow Analysis

Operating Cash Flow was ¥8.91B, down △14.5% year on year, but exceeded Net Income of ¥5.06B, indicating good cash conversion quality. The breakdown shows that cash flow from operations before changes in working capital was ¥10.62B. Various factors, including a ¥4.80B decrease in inventories and an increase in advances received, boosted OCF, while an increase of △¥4.27B in trade receivables was a source of cash outflow. Investing Cash Flow was positive at ¥0.79B, as proceeds from the sale of investment securities exceeded capital expenditures of ¥0.20B. Free Cash Flow was ¥9.70B, calculated as the sum of ¥8.91B and ¥0.79B, securing cash generation well in excess of investment requirements. Financing Cash Flow was a substantial outflow of △¥12.54B, primarily due to the reduction of long-term borrowings, a ¥2.00B share repurchase, and dividend payments. Although OCF generally supports investment and shareholder returns, given the dependence on the decrease in inventories, it is necessary to monitor inventory and order trends to assess the sustainability of cash generation at the same level in the future.

Quality of Earnings

Current-period Net Income of ¥5.06B includes the one-time gain of ¥1.07B on the sale of investment securities, and recurring profitability therefore remained at the level of Ordinary Income of ¥6.03B. Non-operating expenses included a foreign exchange loss of ¥0.26B and interest expense of ¥0.16B, creating a step-down from Operating Income to Ordinary Income, while extraordinary losses were negligible (loss on disposal of property, plant and equipment of ¥0.00B). OCF was ¥8.91B, exceeding Net Income, and accruals (the gap between accounting profit and cash generation) were generally small, confirming cash generation that supports reported earnings. However, the OCF breakdown was significantly supported by working-capital factors such as the decrease in inventories and the increase in advances received, which differs in nature from cash generation resulting from an improvement in the underlying earnings power of the core business. Comprehensive Income was ¥5.12B, approximately equal to Net Income of ¥5.06B, with no significant divergence attributable to other comprehensive income items such as foreign currency translation adjustments.

Earnings Forecast and Guidance

The progress rates for the cumulative Q3 period against the full-year Company forecast (Revenue of ¥200.00B and Ordinary Income of ¥9.10B) were 73.4% for Revenue and 66.2% for Ordinary Income. Revenue progress was broadly close to the standard benchmark of 75%, but Ordinary Income progress was below this level, indicating that profitability improvement is required in Q4. The Company forecast assumes full-year Revenue down △7.6% year on year and Ordinary Income down △20.3%, representing a somewhat less severe assumption than the cumulative decline in Ordinary Income of △24.0%. The earnings forecast and dividend forecast remain unchanged, with no revisions.

Shareholder Returns

The Q2 dividend was ¥35 per share, and the full-year dividend forecast is ¥99 (increased from the previous-year actual dividend of ¥52). Dividend payments totaled ¥3.00B against cumulative Net Income of ¥5.06B, resulting in a Payout Ratio of approximately 59.3%. In addition, the Company conducted a ¥2.00B share repurchase, bringing total dividends and share repurchases to ¥5.00B and the Total Return Ratio against cumulative Net Income to a high level of approximately 99%. Free Cash Flow of ¥9.70B exceeded the total of dividends and share repurchases for the current period, securing financial capacity for shareholder returns. However, the sustainability of high shareholder returns amid declining profitability in the core business will depend on the continued generation of OCF.

Risk Factors

1. Deterioration in core-business profitability: Revenue in the Semiconductor and Electronic Device Business declined △13.7% year on year, while segment profit fell △61.0%, causing the segment margin to decline to 1.6% from 3.5% in the previous year. Semiconductor market conditions, customer capital expenditure trends, and changes in product mix have a significant impact on Company-wide profit.

2. Working capital tied up in funds: Trade receivables of ¥54.08B and inventories of ¥46.06B are substantial, and the management of collection and inventory efficiency will affect the sustainability of OCF. Although the decrease in inventories contributed to the increase in OCF during the current period, fluctuations in demand could create risks of valuation losses and lower gross margins.

3. Changes in financial leverage and cash balances: While borrowings have been reduced, cash and deposits declined to ¥5.64B from the previous year. Debt repayments, share repurchases, and dividend payments have been sources of cash outflow, making the maintenance of OCF a prerequisite for continuing shareholder returns.

Industry Benchmark (For Reference; Based on Company Research)

Industry Benchmark (trading)

Profitability and Returns

Profitability is slightly above the industry median.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry median, and the extent of the revenue decline is notable even compared with peers.

※Source: Based on Company research

Key Takeaways from the Earnings Results

1. Net Income declined △9.6% year on year, a smaller decline than those in Operating Income and Ordinary Income. However, this was due to the one-time gain of ¥1.07B on the sale of investment securities, and the Ordinary Income decline of △24.0% more accurately reflects the underlying profitability of the core business.

2. Although the Computer Systems-Related Business improved in both revenue and profit margin, increasing its contribution to Company-wide profit, the profit margin of the core Semiconductor and Electronic Device Business declined to 1.6%, and the gap in profitability between the businesses has structurally widened.

3. Progress toward the full-year forecast is slower for profit, at 66.2% for Ordinary Income versus 73.4% for Revenue, making the presence or absence of profitability improvement in Q4 the key determinant of whether the full-year forecast will be achieved. The Total Return Ratio is high at approximately 99%; although it is supported by Free Cash Flow, it should be closely monitored together with trends in core-business profitability.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,900–¥2,011 at a ±1% change in the cost of equity, and ¥1,949–¥1,964 at a ±0.1 change in ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated 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 a professional as necessary.

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