IBIDEN commits an additional JPY 150B to Gama Cell6. With SAP demand set to grow 3.5x and supply still tight, management sees upside to the FY30 plan.

Summary

1H revenue was JPY 262.5B and operating income was JPY 60.1B, both record highs for a first half. Electronics drove the growth on AI demand and pricing gains. The company raised full-year guidance and lifted its FY27 operating income target by JPY 15.0B. It also approved additional investment to fill the remaining just-under-half of Gama Cell6 with EMIB capacity for CPUs, and plans to disclose its approach to Cell7 and Cell9 during FY26. Management noted that the FY30 plan of JPY 1T in revenue and JPY 300B in operating income excludes this new investment, leaving room for upside.

Key Points (Earnings Takeaways and Growth Initiatives)

• Management Strategy and Market View
  • Management highlighted a structural shift as AI workloads move from training to inference and agentic AI, which raises CPU content per system.
  • It expects the AI GPU/ASIC market to grow at a CAGR of ~20%, and AI-related CPUs at a CAGR above 20%.
  • From CY26 to CY30, it estimates SAP demand will rise 5.4x for AI GPUs/ASICs and 2.5x for CPUs. The company's domestic capacity will only double over the same period, so supply should stay tight.
  • Management sees no alternative technology that can fill the capacity gap. In its view, the only way to close the supply-demand gap is demand curtailment.
• Current Business Progress and Drivers
  • Pricing gains and strong AI demand are driving Electronics. Its 2H OPM is expected to approach 30%.
  • The 1H beat in Ceramics was a one-off. It reflected higher-than-usual orders for backup components on certain products, including DPFs.
  • 2H Ceramics guidance assumes continued auto-sector weakness, with operating income shrinking to JPY 2.1B.
  • EMIB-T ramp-up is on schedule. However, management openly acknowledged it is struggling to improve yields.
• Key Strategic Initiatives and Inflection Points
  • Just over half of Gama Cell6 is allocated to EMIB-T. Under an agreement with the customer, the remaining just-under-half will go to EMIB, with the goal of running Cell6 at full capacity.
  • Cell7 and Cell9 are under discussion with customers. They will be similar in scale to Cell6 and Cell8, though land constraints mean somewhat smaller floor space.
  • The SAP capacity index now covers only high-performance products made in Japan and excludes PC capacity. Management said the change avoids misinterpretation.
  • IBIDEN carried out a 2-for-1 stock split and raised the interim dividend to JPY 10.0. It reaffirmed its progressive dividend policy through FY30.

Outlook and Strategy

• Full-year guidance was raised to revenue of JPY 565.0B (+36%), operating income of JPY 133.0B (+114%), and net income of JPY 89.0B. The 2H FX assumption is JPY 150/USD.
• FY27 revenue guidance stays at JPY 650.0B, while operating income was raised to JPY 165.0B. The plan is conservative: it factors in unit price pressure and does not simply extrapolate this year's beat.
• The FY30 plan is unchanged. Potential upside comes from the additional Cell6 capacity and use of the remaining Cell8 floor space. Contributions from Cell7 and Cell9 are expected from FY30 onward.
• Management plans to present a revised FY30 plan during FY26, once the remaining uncertainties are resolved.
• Capex is projected at JPY 210B in FY26 and JPY 350B in FY27, and is expected to stay above JPY 400B in FY28.
• R&D spending is targeted at 6–7% of revenue, with JPY 37B planned for FY26. Nuclear-grade graphite (FGM) is positioned as a potential core business from FY30 onward.

Positive Factors

• Better product mix and a shift toward higher value-added products should lift Electronics OPM to ~35% by FY30.
• Electronics EBITDA margin is planned at 47.6% in FY26 and 48.3% in FY27. Management expects it to exceed 50% from FY28 and approach 60%.
• In current pricing negotiations, securing capacity is the top customer priority. Management expects supplier leverage to persist into next year.
• The supply base for leading-edge AI products is moving to three vendors. Even so, combined competitor capacity still falls short of demand, so management sees IBIDEN's share and positioning as intact.
• The additional investment targets an asset turnover of ~1x, with revenue roughly equal to capex. OPM is expected to exceed 30%, in line with existing high-performance products.
• Growing substrate complexity should keep raising value-add. Drivers include embedded components in the core, multi-core designs, and future glass cores.

Concerns and Risks

• EMIB-T yields are a challenge across the industry. The biggest hurdle is forming electrical connections on the back side of the bridge chip.
• Unit price declines are expected from FY27. The durability of pricing power is a key assumption in the profit plan that warrants scrutiny.
• Lead times for some equipment have lengthened, which would raise procurement risk if Cell7 and Cell9 go ahead.
• Talent to support ramp-ups is a bottleneck. New plants will be brought online in phases, and it takes at least ~4 years from decision to volume production.
• FY27 D&A is limited to JPY 90B as construction-in-progress builds up. Investment is front-loaded, with returns concentrated from FY28 onward.
• The 2H FX assumption of JPY 150/USD compares with an actual 1H rate of JPY 159/USD. Ceramics results could also swing with auto market conditions.

Performance Highlights

1H revenue was JPY 262.5B (+34% YoY), operating income was JPY 60.1B (+85% YoY), and net income was JPY 38.6B (+75% YoY). All three beat the plan disclosed on Aug 4 (revenue of JPY 253.5B, operating income of JPY 54.5B). Electronics contributed 83% of operating income (our estimate), and every segment posted profit growth.

Segment Performance

• Operating Income Margin: 22.9% (+6.2pt from 16.7% in the prior-year period)
• Net Income Margin: 14.7% (+3.4pt from 11.3% in the prior-year period)
• Actual FX Rate: JPY 159/USD (JPY 145/USD in the prior-year period)
• Interim Dividend: JPY 10.0/share (+JPY 2.5 vs. the FY25 year-end dividend of JPY 7.5, split-adjusted)
• Full-Year Electronics OPM Outlook: 29.6% (our estimate)

Q&A List

Q&A not disclosed per company policy