Hirose Electric : Q&A Summary of Financial Results Briefing for the 1st Quarter of Fiscal Year Ended March 2027

A1

General industrial: slightly above 1.2; smartphones: slightly below 1.1; consumer, automotive, and telecommunications infrastructure: slightly above 1.1; SER (probe-related business): 0.9.

A2

While it is difficult to clearly distinguish real demand from front-loaded orders, we continuously monitor order trends through ongoing dialogue with customers and market developments. We recognize that some orders may have been brought forward, but we accept orders only after confirming the strength of customersʼ production plans and demand outlooks.

A3

Compared with FY2025 Q4, material and procurement costs increased by slightly less than JPY1.5 billion.

A4

Our Q2 forecast is based on conservative assumptions. We expect seasonal demand in consumer products, including smartphones, while strong order trends continue in industrial equipment and automotive applications. However, sales plans reflect not only demand strength but also the ramp-up of production capacity and supply capabilities. We are expanding capacity in industrial and automotive products and conservatively factor in the timing and effectiveness of these measures. We also assume a stronger yen compared with Q1.

On the profit side, we continue to expect pressure from higher material and procurement costs. Although market prices have recently stabilized, inventory effects remain, and we therefore assume some cost increases in Q2. We also incorporate higher labor and depreciation expenses as well as costs associated with capacity expansion and growth investments.

At the same time, orders remain very strong and backlog continues to build. We are strengthening production facilities and material procurement ahead of H2. If these initiatives progress more smoothly than planned, both sales and profit could exceed our forecasts. While we currently maintain a conservative plan due to capacity and procurement risks, production levels remain high and we believe there is sufficient room to meet demand provided the product mix does not change significantly.

A5

Although material market prices have recently stabilized, the impact will remain for some time because of inventory holding periods. Assuming current market conditions continue, quarterly increases in material and procurement costs should gradually moderate from H2 onward. The annual assumptions for both price optimization and material/procurement cost increases remain unchanged from the initial guidance.

A6

Demand related to industrial equipment, including factory automation (FA) and machine tools, remained strong and drove growth in the general industrial segment. Regionally, sales to Europe and North America have increased quarter after quarter since the second half of FY2025, while Japan and China also recorded strong growth in Q1. These results reflect years of effort in expanding our customer base and promoting new products. Growth in applications such as servo motors, PLCs, CNC systems, and FA cameras expanded across regions and contributed to higher orders. Although difficult to quantify precisely, increased semiconductor investment and rapid AI-related demand growth also appear to be supporting demand throughout adjacent industries.

A7

We have long targeted a 30% new-product sales ratio. New-product sales are currently exceeding expectations, and the shift toward new products is expected to improve profitability. Sales of new products for industrial applications are expanding, while existing products also remain strong.

Although profitability in Q1 was negatively affected by the sharp rise in gold prices around year-end, price optimization efforts remain on track, generating JPY700 million in Q1 toward the full-year target of JPY3 billion. We are also promoting cost-reduction initiatives, including reducing gold usage, and are beginning to see results. Going forward, we will continue enhancing profitability through a better product mix, price optimization, and cost reductions.

A8

Automotive demand remains solid in Japan, South Korea, and the United States. In Europe, orders from Tier 1 suppliers are increasing. While trends vary by customer in China, overall demand remains positive. Profitability is steadily improving due to higher utilization rates associated with sales growth. We continue to pursue price optimization in the automotive business as well. Although profitability remains lower than in consumer and industrial markets, we aim to improve margins through sales growth, price optimization, and ongoing cost reductions, targeting a sustainable operating margin of more than 20% in the future.

A10

AI server-related business in the telecommunications infrastructure segment remained strong in Q1, with demand continuing at a high level and no major change from the previous quarter. Inquiries regarding next-generation products are steadily increasing, and discussions with multiple customers are under way. We are also focused on securing new business opportunities to accelerate growth in AI-related markets. In addition to cloud-side demand, we see significant opportunities in edge AI applications such as smartphones, wearable devices, automotive equipment, FA systems, and humanoid robots. We intend to capture market growth by providing connector solutions across a broad range of AI server, cloud, and edge AI applications.

A11

To achieve the FY2026 sales target of JPY6 billion, Hirose SER is steadily expanding production capacity. Looking beyond that target, we recognize the need for further investment to support additional capacity expansion and business growth, and the matter is being discussed as an important management priority. In addition to expanding sales of existing products, we are exploring new applications and customer needs, as well as opportunities beyond the traditional probe-pin market and into adjacent technologies. While we are not yet in a position to disclose specific details, we are formulating a medium- to long-term growth strategy and intend to provide a clearer picture of Hirose SERʼs growth roadmap in the future.

This document contains statements based on Hirose Electric's current forecasts. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may differ from the Company's actual results. Please note.