Morpho,Inc.

Business Details

The company develops and licenses software with technological advantages in image processing, high-precision AI, and lightweight, fast, low-power-consumption performance, primarily for embedded devices such as smartphones. Revenue consists of three categories: royalty income, development income, and other income. The company has designated Smart Devices, Automotive/Mobility, and DX as its three strategic domains, and is pursuing business expansion under its medium-term management plan "Vision2027." During the current interim period, the company absorbed and merged its subsidiary Morpho AI Solutions and continued to operate as a single segment.

Recent Overview

Q2 cumulative net sales declined 24.8% year-on-year to ¥1,152 million, with operating loss widening to -¥539 million

Due to production adjustments by customers amid a global surge in semiconductor prices, royalty income in the Smart Devices domain plunged 32.5% year-on-year to ¥603 million. In the Automotive/Mobility domain as well, prolonged acceptance inspection and specification-setting processes for contracted development projects caused development income to decline 20.3% to ¥485 million. The company recorded extraordinary losses of ¥144 million in restructuring costs and ¥40 million in impairment losses. It absorbed and merged its subsidiary Morpho AI Solutions, thereby reducing the scope of consolidation. The full-year earnings forecast was revised downward, with net sales now projected at ¥3,000 million and operating loss at -¥350 million.

Key Products

Growth Drivers

• Promoting new customer development and proposal activities targeting wearable device (smart glasses, action camera) manufacturers
• Strengthening alliances with major automobile manufacturers and automotive equipment manufacturers in the Automotive/Mobility domain, and building up the pipeline of contracted projects for the second half and beyond
• Capturing demand for purely domestic Japanese image processing and AI technology in the DX domain for infrastructure applications such as defense, construction, railways, aerospace, and marine vessels
• R&D of product-out offerings utilizing VLM (Vision-Language Model) and 3D spatial imaging technology by the Future Creation Office (some contribution to sales has begun)
• Utilization of subsidy income (¥39 million recorded in the current interim period) to substantially reduce the burden of R&D expenses
• Expansion of equity-method investment gains (¥14 million in the current interim period, approximately 5 times year-on-year)

Risks

• Q2 cumulative net sales of ¥1,152 million represent only 38.4% of the full-year forecast of ¥3,000 million, making a sharp recovery in the second half essential
• Royalty income in the Smart Devices domain fell sharply by 32.5% year-on-year, with a risk that the prolonged production adjustments by customers due to surging semiconductor prices may continue
• Uncertainty in development income due to prolonged acceptance inspection and specification-setting processes for projects in the Automotive/Mobility domain
• Selling, general and administrative expenses remained elevated at ¥923 million, up 2.9% year-on-year, significantly exceeding gross profit of ¥383 million, indicating a strained cost structure
• Occurrence of extraordinary losses from restructuring costs and impairment losses (totaling ¥184 million), with the possibility of additional restructuring costs going forward
• Risk of reduced capital expenditure by overseas customers due to uncertainty in US trade policy, the sluggish Chinese economy, and geopolitical risks
• Reduction in the scope of equity-method application and related loss risk associated with the commencement of bankruptcy proceedings for Top Data Science Ltd.
• Decrease in cash on hand due to share buybacks (117,000 shares, ¥72 million) and erosion of net assets due to continued losses (net assets per share of ¥570.75)