AXELL CORPORATION

Business Details

An existing business segment engaged in the development and sale of Graphics LSI for Pachinko/Pachislot Machines and Memory Modules. It is the core source of revenue, accounting for approximately 94% of consolidated net sales, with Midoriya Denki, Kaga FEI, and Kaga Electronics as the three major sales channels. The company adopts a fabless model, with R&D capability as the source of competitive advantage. While the market maintains a certain scale against the backdrop of the spread of smart pachislot machines, it faces medium- to long-term contraction risk due to the decline in the gaming population, progress in component reuse, and legal amendments. Note that as of the end of the current consolidated fiscal year, the name of the reportable segment was changed from "LSI Development & Sales" to "AI Business" (no substantive change) [Note: this refers to a naming pattern applied across segments; this segment's own name remains LSI Development & Sales/LSI Business].

Recent Overview

Unit sales declined due to market contraction, but profit margin improved amid progress toward higher value-added products

Net sales of the LSI Business for FY2026 (ending March 2026) were ¥13,793 million (down ¥1,010 million, or 6.8%, year on year), and segment profit was ¥2,566 million (down ¥44 million, or 1.7%, year on year). The main cause was a decline in the annual number of new pachinko/pachislot machine units sold, from approximately 1.53 million units in the prior period to approximately 1.48 million units. On the other hand, progress toward a shift to higher value-added products improved the consolidated gross profit margin by 3.3 percentage points to 32.1%. The period-end order backlog stood at ¥14,929 million, a substantial increase from the prior period-end (¥10,992 million), and is expected to contribute to sales from the next period onward.

Key Products

Growth Drivers

• Steady demand centered on smart pachislot machines continuing to underpin unit sales volume
• Improvement in gross profit margin through progress in the shift to higher value-added products (32.1% in the current period, a 3.3-point improvement year on year)
• Expectations for sales recovery from the next period onward, supported by a period-end order backlog of ¥14,929 million (up ¥3,937 million from the prior period-end)
• Diversification of the product portfolio through expanded adoption of products such as LED Driver
• Provision of customer-focused solutions through the development of a support environment aimed at reducing customers' development burden

Risks

• Medium- to long-term market contraction risk due to the declining trend in the pachinko/pachislot gaming population (annual unit sales for the next period are expected to shrink from 1.48 million units to 1.35 million units)
• Structural decline in demand for new machines due to progress in the reuse of component parts (an increase in the reuse ratio is expected in the next period)
• Risk of rising manufacturing costs for Memory Modules and other products due to a global surge in memory prices driven by expanding generative AI demand
• Risk of sudden changes in the market environment due to legal amendments or regulatory changes
• Uncertainty over the recovery of demand in the pachinko machine market (unit sales of pachinko machines in the next period are expected to fall below the current period)
• Customer concentration risk due to concentrated sales to Midoriya Denki, Kaga FEI, and Kaga Electronics