IBIDEN CO.,LTD. Q2 FY2026 earnings call

• Record Financial Performance: Both revenue and operating profit for H1 FY2026 achieved historical highs, driven primarily by the Electronics segment's strength in AI-related applications.
• AI Market Dynamics: Demand is shifting from learning to inference and agent AI. The number of CPUs per system is increasing, particularly for AI application CPUs, which are expected to grow at a CAGR of 20% or more.
• Capacity Constraints: Supply remains tight as current domestic capacity is at maximum utilization. Even with expansions, supply will only double, failing to meet the projected 4-5x increase in required capacity.
• Strategic Investment (Cell 6): IBIDEN announced an additional 151 billion yen investment for Cell 6 (Gamma plant). Approximately half is allocated to IMIP-T (EMIB-T) and the remainder to EMIP. This investment aims to secure customer relationships and address strong CPU/IMIP-T demand.
• Ramp-up Timeline: The new Cell 6 capacity is scheduled to ramp up in late 2029, with meaningful revenue contributions expected in FY2030.
• Technology Evolution: Packaging complexity is increasing with multi-core structures and embedded components. Glass cores and optical-electrical conversion technologies are in R&D phases but are expected to emerge in mass production later.
• Ceramics Diversification: While ICE markets shrink, EV and NEV markets are growing. Nuclear power generation materials (FGM) are being developed as a future business pillar to support data center power needs.

The company reported record-high financial results for the first half of fiscal year 2026. Revenue reached 262.5 billion yen, and operating profit hit 60.1 billion yen, with an operating margin of 22.9%. Net profit was 38.6 billion yen (14.7% margin), up 75% year-on-year. The Electronics segment was the primary driver of this growth, fueled by strong AI demand and favorable pricing. The Ceramics segment also showed upside against original expectations due to higher order volumes for DPF and other products. Other businesses performed in line with plans.

• FY2026 Full Year Forecast: Revenue is forecast at 565 billion yen, with operating profit at 133 billion yen (23% margin). These figures represent record highs.
• FY2027 Mid-term Revision: Revenue guidance remains unchanged at 650 billion yen. However, operating profit guidance has been raised from previous disclosures to 165 billion yen (25.4% margin), reflecting improved product mix and SP selling price expectations.
• FY2030 Long-term Targets: Maintained at 1 trillion yen revenue and 300 billion yen operating profit. Electronics operating margin is expected to exceed 30% by FY2030.
• Capex Outlook: Capex is estimated at 210 billion yen for FY2026, rising to 350 billion yen for FY2027, and exceeding 400 billion yen for FY2028.
• Conservative Assumptions: Management explicitly stated that forward-looking ASP (Average Selling Price) assumptions are conservative compared to current levels, acknowledging potential future pricing pressure despite current strong margins.

• Supply Chain Bottlenecks: Equipment lead times for laminators, bonders, and lasers are lengthening, posing a risk to timely capacity expansion.
• Yield Challenges: IMIP-T yields are currently challenging. While management believes they are comparable to Japanese peers, there is skepticism about competitor yields exceeding 50%.
• Customer Prioritization Conflicts: Customers face difficult trade-offs between allocating capacity to high-demand IMIP-T versus strong CPU demand, potentially leading to reallocation requests.
• Market Structure Changes: A South Korean competitor has entered the advanced packaging market, creating a three-party competitive landscape for AI GPUs/ASICs, though capacity shortages currently favor suppliers.
• Alternative Technology Risk: If customers cannot tolerate prolonged supply shortages until 2030, they may seek alternative technologies. Currently, no viable alternatives to large chiplet solutions exist, but sudden emergence could disrupt demand.

Q: Goldman Sachs asked why the 151 billion yen Cell 6 investment targets IMIP-T rather than EMIB-T, given EMIB-T delays, and what the payback period is.

A: Management clarified that the investment prioritizes CPU and IMIP-T because customer demand for both is exceptionally strong, and failing to supply would damage relationships. EMIB-T demand still outpaces capacity, so future discussions on expanding it will occur. The 151 billion yen investment is expected to generate at least 150 billion yen in revenue, with meaningful profit contributions starting in FY2030 after a late 2029 ramp-up.

Q: Citigroup inquired if the entry of a South Korean competitor into the AI GPU/ASIC space poses a risk to market share or pricing power for IBIDEN.

A: Management noted that while the competitive landscape now includes three parties, total industry capacity remains far below market demand. Therefore, the focus remains on capacity acquisition rather than price competition. IBIDEN expects its market share and positioning to remain stable, although management maintains conservative ASP assumptions acknowledging that current favorable conditions may not last forever.

Q: Morgan Stanley questioned whether IBIDEN’s slower capacity expansion relative to the fivefold market growth risks losing market share, and how long it takes to build new plants like Cells 7 and 9.

A: Management argued that competitors cannot expand capacity as rapidly as demand grows, so IBIDEN does not expect share loss. Regarding new facilities, building Cells 7 and 9 would take at least four years from decision to mass production due to engineering and human resource constraints. Acquiring existing plants was considered but rejected due to layout and integration challenges, making new builds the preferred option despite similar timelines.

Q: UBS asked why the FY2030 targets were not increased despite strong H1 results, and requested details on IMIP-T yield competitiveness.

A: Management explained that the FY2030 targets were held constant because details regarding remaining Cell 6 space, Cell 8, and potential new factories are still uncertain; these will be clarified during FY2026. Regarding yields, management admitted IMIP-T yields are challenging but believes they are comparable to Japanese peers, doubting that Taiwanese competitors have significantly higher yields. Capacity allocation decisions remain with customers balancing IMIP-T and CPU demands.