Q1Security risks have become a social concern since October. Have you seen any changes in customer inquiries or business opportunities? Please also explain how you are responding to growing demand.

A1Security incidents, including information leaks, ransomware attacks, and external intrusions, have led to an increase in customer inquiries and requests for consultation. Adopting security products requires consideration of post-deployment operations as well, and we expect business opportunities to continue increasing.
To meet growing demand, we support customers from the evaluation stage, taking their post-deployment operations into account.

Q2In the CN Business, are you involved in identifying customer issues and supporting implementation? Please explain your initiatives.

A2For example, the growing use of AI agents is creating challenges related to visibility and control. We identify emerging challenges and seek out and introduce new products to address them.
We support customers with product evaluation and service setup during implementation, including onboarding, as well as maintenance, operations, and monitoring. We place particular emphasis on technical support to help customers achieve success, including post-deployment services that enable them to use our products more effectively.

Q3How long do you expect price increases and longer lead times for semiconductors and IT products to continue?

A3It is difficult to give a specific timeframe. However, AI investment remains strong, particularly among hyperscalers and big tech companies, so we expect these trends to continue for the time being.

Q4You mentioned that profit in the EC Business increased partly due to price increases. Are analog semiconductors and other products also seeing ongoing price increases similar to those for memory products?

A4Semiconductor manufacturers are showing a shift from past practices by passing on costs associated with current and future capital investment and production investment through product prices. We expect prices, including those of analog semiconductors, to continue rising as manufacturers pass on these costs.
Although we do not handle DRAM, we do handle products incorporating NAND flash, and their prices continue to rise. As it is expected to take several years for supply to stabilize, we believe prices will continue to increase.

Q5How does the current semiconductor supply-demand situation compare with that during the COVID-19 pandemic? Please also explain whether customers are placing duplicate orders and how your margins would be affected if semiconductor prices were to level off at a high level.

A5In terms of product shortages, we believe the situation is similar to that during the COVID-19 pandemic. Supply-demand conditions for printed circuit boards are even tighter than those for semiconductors, and customers are placing particular emphasis on procuring boards.
We are not currently seeing duplicate orders from customers. Some of the earliest orders based on actual demand are already for 2028. Customers are placing advance orders in anticipation of long lead times, and we are coordinating with manufacturers and customers to meet their requested delivery dates.
As semiconductor manufacturers are passing on investment costs through product prices, we believe prices will level off. We also expect pricing, including our margin, to stabilize and business to continue at the current pace. However, the key going forward will be how to pass on rising logistics, personnel, and material costs through prices. We do not expect our margins to decline in this situation.

Q6Is priority supply to AI servers and AI data centers causing supply constraints for electronic device products used in other applications?

A6We believe this is generally not a matter of priority supply. Rather, customers place advance orders for large quantities, which makes it appear that they are receiving priority.
When semiconductor manufacturers expand their production lines, they prioritize investment in high-value-added products using leading-edge processes. In some cases, however, they do not expand production capacity for older-generation products, which may be contributing to longer lead times.
We consult with customers and place advance orders in line with their production plans, supplying products to help keep their manufacturing lines running even as lead times lengthen.

Q7As AI agents advance, are you seeing a shift in demand from GPUs to CPUs? Please also explain the impact on your business.

A7Previously, one or two CPUs, primarily Intel processors, were used for every 10 GPUs. However, changes in computational methods for generative AI and other applications have increased the ratio of CPUs to five or six for every 10 GPUs. Our processor sales to customers are also increasing.
Customers are also considering the use of edge AI in manufacturing equipment, inspection equipment, and other applications. We believe our business will grow if demand increases for the processors, software, and services that support edge AI. In our components business, we also offer total solutions that include security, such as FalconVault, and we expect this to contribute to business expansion.

Q8For the PB Business’s design and mass production contract services, does increased demand for manufacturing equipment translate into demand in proportion to the number of equipment units? Are there other determining factors?

A8We provide board design and mass production contract services for industrial equipment. Board shipments are increasing alongside growing demand, particularly for semiconductor manufacturing equipment. As multiple boards are installed in each equipment unit, supply and demand for our boards generally vary in correlation with the number of manufacturing equipment units.
However, our boards are used in a wide range of equipment, and growth in the number of units differs depending on the manufacturing process in which the equipment is used. We believe trends in the equipment in which our boards are adopted are also a determining factor.

Q9Regarding wafer inspection systems in the PB Business, please provide an update on changes in inquiries for silicon wafer applications, indications of future demand growth, and developments in relation to compound wafer applications.

A9We provide inspection systems for both silicon wafers and compound wafers. For silicon wafers, our customers’ factory utilization rates have improved considerably this year, and production volumes have also increased. Compared with the beginning of 2026, we are seeing a trend toward more concrete consideration of capital investment to accommodate future increases in production.
We believe clearer indications of demand may emerge from the second half of this fiscal year through the first half of 2027.
Demand for compound wafers varies by application. However, demand for certain types of compound wafers is growing rapidly against the backdrop of changes in AI data center and AI chip architectures, and inquiries for inspection systems from these customers are trending upward.

Q10Is the growth in compound wafers related to SiC or GaN?

A10The compound wafers covered by our inspection systems include SiC. There are also various other compound wafers, including InP, or indium phosphide, and LT/LN wafers, depending on the semiconductor devices being manufactured. Regarding growth, what we can say is that InP is closely linked to AI data centers and is seeing increasing demand.

Q11Operating cash flow was negative in the first half. Is it correct to understand that this trend will continue and that you will address it by increasing borrowings?

A11Our business involves a time gap between procurement and the collection of accounts receivable after sales. As a result, operating cash flow tends to move in a negative direction when our business is growing. For the time being, we plan to address this by increasing borrowings. We have secured sufficient financing capacity and liquidity on hand, and we are managing the situation prudently.

Q12Given semiconductor market conditions, growth in the PB Business and CN Business, and expectations for improved profit margins, what is your current view of the earnings outlook for the next fiscal year, ending March 2028?

A12As the third quarter has only just begun, it is difficult to comment on the next fiscal year. However, some of the orders we have received extend over a long period. In the CN Business, the shift to subscriptions has been progressing, primarily for security products and, more recently, for storage products as well. We are receiving orders for business that continues after the services begin.
During the second half, we are working to increase these orders so that we can achieve higher results next fiscal year than in the current fiscal year. At present, market conditions are moving in a favorable direction for both semiconductors and IT, and our current view is not particularly negative.

Q13You expect profit margins to improve in the second half compared with the second quarter. Do you expect improvements in both the EC Business and the CN Business? Please explain the reasons.

A13We are working to improve profit margins in both the EC Business and the CN Business, and we recognize improving profitability as a companywide priority, including in the PB Business. Profit is an important source of funding for sustaining our business amid inflation, rising wages, and the need to address security requirements. Improving profitability is also a goal of our medium-term management plan, VISION2030, and we will pursue this across the company.

Q14Which internal initiatives, rather than external factors, are currently contributing to improved profit margins?

A14At present, we believe the main contributors are steady efforts to offer our own products and expand higher-margin services.
Looking ahead, we are pursuing initiatives to increase profit and improve profit margins, including creating new opportunities and developing next-generation inspection systems in the PB Business. Rather than relying on a single measure, we are working to increase both profit margins and the amount of profit through the cumulative effect of these efforts.

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