Why did quarterly results exceed expectations?

  • In the second quarter of the fiscal year ending March 2027, revenue was 935.1 billion yen, up 28% quarter on quarter and 5.5% above market consensus; operating profit was 295.4 billion yen, up 40% quarter on quarter and 15.3% above consensus.
  • DRAM was the main source of the upside: quarterly sales were 249.7 billion yen, up 103.3% year on year and 10.2% above consensus. Logic chip and foundry sales were 411.3 billion yen, up 53.2% year on year.
  • Performance varied across businesses: quarterly NAND sales were 73.4 billion yen, up 15.3% year on year but 5.3% below consensus.

What do full-year guidance and margins signal?

  • The company guided for revenue of 3.7 trillion yen for the fiscal year ending March 2027, 7.9% above market consensus. Its operating profit guidance of 1.169 trillion yen was 14% above consensus and also above the buy-side expectation of 1.1 trillion yen cited in the report.
  • Second-quarter gross margin was 47.8%, up 1.1 percentage points quarter on quarter; operating margin was 31.6%, up 2.7 percentage points. The company expects a gross margin of 48.3% in the second half of the fiscal year, with the improvement coming from scale and pricing.
  • The company said it expects to be able to achieve a gross margin of 50% in the next fiscal year; if some high-margin projects materialize in the fourth quarter, it could also reach that level in the fourth quarter.

Equipment market forecasts raised: what conditions constrain growth?

  • The company raised its forecast for the global wafer fabrication equipment market in calendar year 2027 from 190 billion dollars to 210 billion dollars, and its forecast for 2026 from 150 billion dollars to 160 billion dollars. Management said it has yet to see signs of a slowdown among customers.
  • The company’s chief executive is confident about expanding capacity to meet demand, but identified some key components as potential risks and is managing them individually with supply chain partners.
  • Growth also comes with working capital requirements. Bernstein’s model forecasts that inventory at the end of the fiscal year ending March 2027 will rise to 1.6191 trillion yen from 713.1 billion yen a year earlier; over the same period, operating cash flow falls to 143.6 billion yen from 539.7 billion yen, and the model shows a negative working capital change of 932.5 billion yen.

How did Bernstein adjust its earnings forecasts and valuation?

  • Taking into account the quarterly results and an improved outlook for growth and margins in the following year, Bernstein raised its revenue forecasts for the fiscal years ending in 2027 and March 2028 by 9.7% and 9.6%, respectively, and its earnings per share forecasts by approximately 18% and 12%, respectively.
  • The firm maintained its Outperform rating and raised its target price from 15900 yen to 16300 yen, while lowering its valuation multiple from 28 times to 25 times earnings and rolling forward the earnings forecast used in its valuation by one quarter.