Revenue flat but net income up +5.6%; 1H guidance calling for +33.1% revenue growth signals accelerating momentum

Key Positives From The Results

Backed by expanding generative-AI-related semiconductor capex, the company delivered revenue of JPY 2,443.5B. Net income hit a record-high JPY 574.4B (+5.6% YoY), boosted by extraordinary gains (JPY 115.4B gain on sale of investment securities). 1H guidance for the new fiscal year points to a clear growth recovery, with revenue of JPY 1,570.0B (+33.1% YoY) and operating income of JPY 431.0B (+42.2% YoY).

• Domestic Revenue
  : JPY 239.4B (+26.0% YoY), reflecting a buoyant domestic semiconductor investment cycle
• 1H OPM Recovery
  : 1H operating income guidance of JPY 431.0B implies a 27.5% OPM, up from 25.6% in the full year just reported
• Dividend Increase
  : Annual DPS raised to JPY 628 (+JPY 36 YoY), maintaining a 50.1% payout ratio while enhancing shareholder returns
• Strong Cash Generation
  : Operating cash flow of JPY 539.7B, virtually debt-free balance sheet maintained; equity ratio rose to 71.5% (+1.4pt YoY)
• Share Cancellation
  : Board resolved to cancel 3.6M treasury shares (0.76% of shares outstanding), underscoring commitment to capital efficiency

Key Concerns From The Results

Core profitability deteriorated, with operating income of JPY 624.9B (−10.4% YoY) and OPM of 25.6% (−3.1pt YoY). Gross margin declined to 45.3% (−1.8pt YoY), compounded by higher SG&A, including R&D expenses of JPY 277.8B (+11.1% YoY). Signs of a capex pause in China are emerging, and with an overseas revenue mix of 90.2%, the business structure remains highly exposed to geopolitical risk.

• Overseas Revenue
  : JPY 2,204.1B (−1.7% YoY), as the deceleration in China capex became more apparent
• Gross Margin Pressure
  : GPM fell to 45.3% (−1.8pt YoY); product mix shifts and cost inflation warrant close monitoring
• FX Losses
  : JPY 4.5B FX loss recognized (vs. JPY 0.9B in the prior year), highlighting downside risk if yen depreciation reverses
• Rising R&D Burden
  : R&D expenses of JPY 277.8B (11.4% of revenue, +1.0pt YoY), reflecting heavier upfront investment
• Limited Visibility
  : Only 1H guidance was provided, with no full-year outlook — reflecting elevated uncertainty around the second half

Focus Areas / Items To Monitor Going Forward

• Order trends for AI and advanced logic applications that are expected to drive 1H revenue of JPY 1,570.0B (+33.1% YoY), along with the regional revenue mix. Whether the China market recovers will be a key swing factor for the full year
• Degree of OPM recovery. Whether the improvement from 25.6% (full-year) to 27.5% (1H guidance) can be sustained through the full year — watch for gross margin inflection and SG&A ratio containment
• Impact of US-China semiconductor regulations on Tokyo Electron's China-bound revenue. Scale of substitute demand if export controls tighten further

Key Financial Highlights

Operating income declined JPY 72,383M YoY, driven primarily by lower gross margin (−1.8pt) and higher SG&A (+JPY 33,977M). Net income nonetheless rose, supported by a JPY 115,494M gain on sale of investment securities.

Performance By Business Segment

Progress Versus Full-Year Guidance

As this is a full-year report, progress-rate analysis does not apply. Actual results exceeded the full-year guidance published on February 6, 2026, and the annual DPS was revised upward from JPY 601 to JPY 628. Notably, the company changed its disclosure policy for the new fiscal year (FY2027/3), providing only 1H guidance with a full-year outlook to be disclosed at the time of the interim results.

• Semiconductor production equipment revenues are heavily dependent on customers' capex plans and exhibit significant quarterly volatility. In recent years, short-term supply-demand swings and semiconductor price fluctuations have intensified, increasing earnings volatility

Changes To Guidance

The dividend forecast for the fiscal year just ended was revised. Full-year results exceeded the guidance announced on February 6, 2026, prompting a DPS increase from JPY 601 to JPY 628 (interim: JPY 264; year-end: JPY 337 → JPY 364). For the new fiscal year, the company has shifted to providing guidance only for the first half; a full-year outlook will be disclosed at the time of the interim earnings announcement.

• Annual DPS
  : Previous JPY 601 → New JPY 628 (+JPY 27)
• Rationale
  : Full-year earnings exceeded guidance

Commentary On Shareholder Returns

The basic policy is a performance-linked dividend, targeting a payout ratio of approximately 50%. Annual DPS was raised to JPY 628 (vs. JPY 592 in the prior year, +JPY 36). A floor of JPY 50 per share per annum has been established for DPS. The company intends to consider opportunistic share buybacks. During the fiscal year, JPY 150,010M in treasury shares were repurchased, and a further 3.6M treasury shares (0.76% of shares outstanding) were cancelled on April 30, 2026.

Financial Position

The company maintained a virtually debt-free balance sheet, with the equity ratio rising to 71.5% (vs. 70.1% in the prior year), reflecting a solid financial foundation. Tangible fixed assets increased JPY 147,629M YoY to JPY 589,335M, as the company actively invested in capacity expansion.

News Released Alongside The Earnings Announcement

Major Announcements During The Quarter

Large-Shareholding Filings / Material Proposals Over The Past Year

• BlackRock Japan and 13 others: 7.34% → 8.37% (Filing trigger date: 2026/02/27) — Pure investment (client asset management under discretionary investment and investment trust mandates)
• Sumitomo Mitsui Trust Asset Management and others: 7.87% → 7.55% (Filing trigger date: 2025/09/15) — Management under investment trust and discretionary investment mandates (filing triggered by change in filer's corporate name)