DISCO CORPORATION

Business Overview

Business Composition and Main Products

DISCO CORPORATION (DISCO) primarily manufactures and sells semiconductor manufacturing equipment (precision processing equipment) and precision processing tools, together with related maintenance and services. This basic business composition remained unchanged from the fiscal year ended March 31, 2022 (FY2022) through the fiscal year ended March 31, 2026 (FY2026), and the “Business Overview” sections of the Annual Securities Reports did not describe the establishment or discontinuation of major business fields or any large-scale shift in the company’s business structure. (Annual Securities Reports, 2022–2026)

The main precision processing equipment consists of dicing saws, laser saws, grinders, polishers, and surface planers. Precision processing tools include dicing blades, grinding wheels, and dry polishing wheels. In the Annual Securities Report for FY2022, one product category was described as “grinding and cutting wheels,” while from the fiscal year ended March 31, 2023 (FY2023) onward it was described as “abrasive-related products.” Apart from this change in wording, there was no major change in the composition of the principal products. (Annual Securities Reports, 2022–2026)

Domestic and Overseas Business Structure

Manufacturing is carried out by DISCO and its domestic affiliates, while sales and services are provided through key group companies in Japan, the United States, Singapore, Europe, China, Taiwan, and South Korea.

The principal overseas companies are DISCO HI-TEC AMERICA, INC., DISCO HI-TEC (SINGAPORE) PTE LTD, DISCO HI-TEC EUROPE GmbH, DISCO HI-TEC CHINA CO., LTD., DISCO HI-TEC TAIWAN CO., LTD., and DISCO HI-TEC KOREA Corporation. These companies continued to be listed as major sales and service companies throughout the five-year period. (Annual Securities Reports, 2022–2026)

Changes in Group Composition

The number of subsidiaries increased from 21 in FY2022 to 22 in 2023, remained at 22 in 2024, rose to 24 in 2025, and declined to 23 in 2026. The number of affiliates was 2 in each fiscal year. (Annual Securities Reports, 2022–2026)

In the “Business Overview” section for FY2022, DISCO Manufacturing Co., Ltd. was listed as a principal manufacturing company, but from FY2023 onward it no longer appeared in the list of principal manufacturing companies in that section. Dai-Ichi Components Co., Ltd. continued to be listed, and the composition of the principal overseas sales and service companies was maintained. The reason why DISCO Manufacturing Co., Ltd. was removed from the list of principal manufacturing companies cannot be determined from this disclosure alone. (Annual Securities Reports, 2022 and 2023)

Thus, although there were some changes in the number of subsidiaries and in the companies listed as principal group companies, the core business structure centered on the manufacture and sale of precision processing equipment and precision processing tools, together with related maintenance and services, was maintained throughout the five-year period. (Annual Securities Reports, 2022–2026)

Business Environment and Strategy

Management Policy and Business Environment

Continuity of Core Philosophy and Management Indicators

DISCO’s corporate philosophy, “DISCO VALUES,” established in 1997, defines its social mission as “Bringing faraway science to comfortable living through advanced ‘Kiru’, ‘Kezuru’, ‘Migaku’ technologies.” The company places these 3 technology domains—cutting, grinding, and polishing—at the center of its business. Rather than defining growth as an increase in revenue, market share, or corporate scale itself, DISCO defines growth as greater realization of its Mission and improved value exchange with stakeholders.

This approach remained consistent from FY2022 through FY2026. DISCO also continued to enhance organizational capabilities through its unique managerial accounting system, Will Accounting, and its company-wide improvement activities, Performance Innovation Management (PIM). (Annual Securities Reports, 2022–2026)

As a medium- to long-term target, DISCO has established DISCO VISION 2030. It defines the company’s desired position at the end of fiscal 2030 from 2 perspectives: corporate elements such as business, organization, and human resources, and relationships with stakeholders such as customers, employees, shareholders, suppliers, and local communities.

DISCO maintained the following 2 quantitative management targets throughout the five-year period:

• Four-year cumulative consolidated ordinary profit margin: 20% or higher
• Four-year cumulative Return on Risk Assets (RORA): 20% or higher

The four-year cumulative consolidated ordinary profit margin is intended to capture medium-term profitability rather than single-year performance, taking into account the silicon cycle characteristic of the semiconductor industry. RORA measures the efficiency of assets with relatively low liquidity, such as inventories and fixed assets. (Annual Securities Reports, 2022–2026)

The four-year cumulative consolidated ordinary profit margin increased from 30.8% in FY2022 to 34.4% in 2023, 37.0% in 2024, 40.0% in 2025, and 41.4% in 2026. In FY2026, the company achieved its target of 20% or higher for the 10th consecutive fiscal year.

The four-year cumulative RORA also increased from 37.1% in FY2022 to 41.1% in 2023, 45.2% in 2024, 50.8% in 2025, and 51.2% in 2026. Both indicators remained above their target levels throughout the five-year period. The management indicators and their evaluation periods were unchanged, while actual performance improved. (Annual Securities Reports, 2022–2026)

Combining Equipment, Tools, and Applications

As of FY2022, DISCO had already set out a policy of combining 3 elements to meet the medium- to long-term expansion of semiconductor demand: precision processing equipment, consumable precision processing tools, and application technologies that combine equipment and consumables to determine optimal processing conditions. Through this combination, the company sought to provide total solutions for customers’ processing needs.

The concept of providing overall processing technology rather than simply selling equipment remained central to management policy thereafter. DISCO also emphasized investment in research and development facilities to sustain technological development and the development of its financial and management foundations. (Annual Securities Reports, 2022–2026)

Explicit Positioning of the Fab Important Strategy

In the Annual Securities Report for the fiscal year ended March 31, 2025 (FY2025), the “Fab Important Strategy,” which positions manufacturing sites as the starting point for technological innovation, market responsiveness, and corporate competitiveness, was presented as an independent management policy item. The same strategy continued to be described in FY2026.

DISCO explained the significance of maintaining manufacturing functions in-house in terms of faster technological improvements through close collaboration between development departments and manufacturing sites, flexible responses to customer-specific specification changes and high-mix low-volume production, accumulation of manufacturing know-how, and internalization of technologies. It also described supply-chain resilience against factors such as geopolitical risks and delivery-time fluctuations.

This represented a change in disclosure in which, in addition to the long-standing business policy centered on processing technologies, the management significance of retaining manufacturing capabilities in-house was explained more explicitly. (Annual Securities Reports, 2025 and 2026)

Changes in the Company’s View of the Business Environment

Throughout the period, DISCO expected semiconductor demand to expand over the medium to long term due to developments in information and communications technology, artificial intelligence (AI), the Internet of Things (IoT), autonomous driving, and decarbonization. Actual market conditions, however, differed by application, and these differences were reflected in management’s annual explanations of performance.

In FY2022, demand increased across a broad range of applications, including 5G, automobiles, logic ICs, memory, and power semiconductors. In FY2023, demand for smartphones and PCs declined, while demand for research and development applications and power semiconductors provided support.

In the fiscal year ended March 31, 2024 (FY2024), smartphone and PC demand remained subdued, while demand for power semiconductors and generative AI-related applications was increasingly cited as support. In FY2025, a high level of capital investment continued in some applications, including high-performance semiconductors related to generative AI.

In FY2026, data-center investment continued to expand against the backdrop of growing demand for generative AI. Demand for advanced logic semiconductors and high-bandwidth memory (HBM) remained at a high level, while demand for power semiconductors was subdued as electric vehicle demand slowed.

Over the five-year period, the company’s basic expectation of medium- to long-term growth in semiconductor demand remained unchanged, while the applications supporting performance shifted from broad semiconductor demand and power semiconductors toward generative AI and high-performance semiconductor applications. (Annual Securities Reports, 2022–2026)

Sustainability Approach and Initiatives

Relationship with Corporate Philosophy and Management Structure

DISCO positions sustainability not as a new and independent management objective, but as part of its corporate activities to improve the realization of the Mission under DISCO VALUES and enhance value exchange with stakeholders.

The Annual Securities Report for FY2022 already described the company’s basic approach to sustainability, improvement of employee satisfaction, and environmental targets under “Management Policy and Business Environment.”

From FY2023 onward, disclosures became more systematic in areas such as governance, risk management, human capital, and environmental initiatives. (Annual Securities Reports, 2022–2026)

Climate Change Initiatives

As of FY2022, DISCO had established the following greenhouse gas reduction targets:

• Achieve carbon neutrality by fiscal 2030 for emissions related to its own operations: Scope 1 (direct emissions) and Scope 2 (indirect emissions associated with purchased electricity and similar sources)
• Achieve carbon neutrality by fiscal 2050 across the entire supply chain: Scope 1 + 2 + 3, with Scope 3 covering indirect emissions in the value chain other than Scope 1 and Scope 2

These targets remained in place through FY2026. (Annual Securities Reports, 2022–2026)

From FY2023 onward, disclosures described initiatives linked to day-to-day operations, including energy-saving activities by departments and employees, education on carbon neutrality, and improvements through PIM activities.

From FY2024 onward, transition plans for Scope 1 + 2 by 2030 and Scope 3 by 2050 were described in greater detail, including energy conversion and reductions across the supply chain. Rather than changing the underlying targets, DISCO provided more specific descriptions of the actions and disclosures intended to achieve them. (Annual Securities Reports, 2023–2026)

Human Capital and Stakeholder Initiatives

DISCO emphasizes employee satisfaction and positions an organizational culture in which employees act autonomously and engage in work improvements as one of its management foundations.

In addition to the Employee Satisfaction (ES) Survey, the company continues to use Customer Satisfaction (CS) and Supplier Satisfaction (SS) surveys to assess the stakeholder relationships set out in DISCO VISION 2030.

From FY2023 onward, policies and initiatives related to human capital were described as an independent item in sustainability disclosures. The value exchange with employees, which had long been emphasized as part of the company’s management philosophy, was also organized within the sustainability disclosure framework. (Annual Securities Reports, 2022–2026)

Note: A dedicated disclosure section for “Sustainability Approach and Initiatives” was introduced in Annual Securities Reports following disclosure rule revisions in January 2023.

Business Risks

Semiconductor Market Fluctuations

One of the most fundamental risks described throughout the five-year period was fluctuations in supply and demand in the semiconductor market.

Demand for DISCO’s products is affected by capital investment and production trends among semiconductor manufacturers and electronic component manufacturers. The company explains that a semiconductor downcycle or an unexpected change in demand could adversely affect performance if customers freeze capital expenditures or reduce production.

In response, DISCO has sought to build an organization capable of responding flexibly to demand fluctuations through cost reductions, operational improvements, and human resource development under Will Accounting and PIM activities. This basic risk perception and response policy remained unchanged from FY2022 through FY2026. (Annual Securities Reports, 2022–2026)

Actual market conditions showed weak semiconductor demand for smartphones and PCs from FY2023 through 2024, while demand for research and development applications, power semiconductors, and generative AI-related applications provided support. In FY2026, demand for high-performance semiconductors remained at a high level, while demand for power semiconductors was subdued, illustrating application-specific fluctuations within the semiconductor market.

Accordingly, a notable feature of the five-year period was not only fluctuations in the overall semiconductor market, but also shifts in the applications supporting demand. (Annual Securities Reports, 2023–2026)

Emergence of New Technologies

DISCO has continued to recognize the possibility that the emergence of processing technologies that replace precision diamond wheels could affect demand for existing products and the company’s performance.

In response, the company has been developing processing technologies using lasers and plasma for materials that are difficult to process with diamond wheels.

Throughout the five-year period, both the advancement of existing precision processing technologies and responses to alternative or new processing technologies were positioned as research and development priorities. (Annual Securities Reports, 2022–2026)

Disasters, Infectious Diseases, and Production Sites

DISCO recognizes that large-scale disasters or infectious disease outbreaks at its headquarters and research and development sites in Japan, or at production sites in Hiroshima and Nagano prefectures, could affect headquarters functions and product manufacturing.

The company has established a Business Continuity Management (BCM) Committee and a dedicated department to deliberate important BCM matters and prepare for disasters and infectious diseases. It prioritizes employee safety, develops response measures for disasters and infectious diseases, and uses seismic isolation structures at major sites. It also describes a production system under which both precision processing equipment and precision processing tools can be manufactured in seismically isolated buildings.

In FY2022, the response to COVID-19 was an important management issue. DISCO stated that it did not consider COVID-19 to have had a material impact on its performance for that fiscal year and did not change its management strategy in response.

Responses to infectious diseases and natural disasters continued thereafter to be positioned as risks to ongoing business operations. (Annual Securities Reports, 2022–2026)

Procurement of Raw Materials and Components

DISCO has also continued to disclose the possibility that shortages of raw materials and components, or supply constraints caused by disasters and other events, could disrupt production.

Countermeasures include maintaining strategic inventories of important raw materials and components and strengthening relationships with suppliers. These responses were maintained from FY2022 through FY2026. (Annual Securities Reports, 2022–2026)

The Fab Important Strategy, explicitly described from FY2025 onward, also explains in-house manufacturing technologies and supply-chain resilience from a management strategy perspective. The company therefore discloses both specific measures addressing procurement risk and a management policy emphasizing its own manufacturing capabilities. (Annual Securities Reports, 2025 and 2026)

Foreign Exchange Fluctuations

Because DISCO manufactures products in Japan and sells them worldwide, with some transactions settled in foreign currencies such as the U.S. dollar, the company has continued to recognize foreign exchange fluctuations as a risk to performance.

DISCO states that it analyzes foreign exchange sensitivity to understand the potential impact on performance and maintains a framework that enables prompt decision-making when risks materialize. (Annual Securities Reports, 2022–2026)

Foreign exchange effects also appeared in actual performance explanations. In FY2023, the company cited a substantial increase in gross profit margin, mainly due to foreign exchange effects. Improvements in gross profit margin including foreign exchange effects were also cited as factors behind profit growth in FY2024 and FY2025. Although foreign exchange was recognized as a risk, in some years during the period it contributed positively to margins. (Annual Securities Reports, 2023–2025)

Environmental Regulations

DISCO recognizes that tighter environmental regulations related to climate change, water quality, chemical substances, waste, and other areas may create additional obligations or costs.

In FY2022, the company stated that it was formulating “Environmental Vision 2030,” covering areas including climate change, chemical substances and pollution prevention, water resources, resource use, and biodiversity. In FY2026, it stated that it had formulated an “Environmental Vision” covering these areas.

The company positions responses to environmental regulations not only as legal compliance, but also as medium- to long-term initiatives to reduce environmental impact. (Annual Securities Reports, 2022 and 2026)

Information Security

In the Annual Securities Report for FY2026, information security risk was presented as an independent item.

DISCO recognizes that cyberattacks or information leaks could impair its technological advantage or stop product manufacturing and shipments. It also identifies risks such as losses caused by business email compromise, damage to social credibility, and liability for damages.

To address these risks, the company has established a standing Information Security Committee under the Board of Directors and implements internal rules, employee education, and internal audits. (Annual Securities Report, 2026)

Management’s Analysis of Financial Position, Operating Results, and Cash Flows

Demand Expansion and Margin Improvement in 2022

In FY2022, semiconductor demand expanded across a broad range of applications, including 5G, automobiles, logic ICs, memory, and power semiconductors. Customers maintained active capital spending, shipments of dicing saws and grinders remained at high levels, and shipments of precision processing tools were also favorable against the backdrop of high customer equipment utilization.

Acceptance inspections of equipment also progressed steadily. Revenue increased 38.8% year on year to JPY 253.8 billion, while operating profit increased 72.3% to JPY 91.5 billion. Although selling, general and administrative expenses such as personnel and research and development costs increased, the company explained that higher revenue and improved profitability drove the substantial increase in profit. (Annual Securities Report, 2022)

Application-Specific Demand and FX Effects in 2023–2024

In FY2023, mass-production applications for smartphones and PCs declined, while demand for research and development applications at semiconductor manufacturers and for power semiconductors remained firm. Equipment shipments, particularly grinders, remained at a high level, but demand for consumable precision processing tools weakened in the second half.

Even so, revenue increased 12.0% year on year to JPY 284.1 billion, and operating profit increased 20.7% to JPY 110.4 billion. DISCO explained that the large increase in gross profit margin, mainly due to foreign exchange effects, contributed to the increase in profit. (Annual Securities Report, 2023)

Demand for semiconductors used in smartphones and PCs remained subdued in FY2024, but demand for power semiconductors and generative AI-related applications provided support. Shipments of precision processing tools also trended upward in line with customers’ equipment utilization. Revenue increased 8.2% year on year to JPY 307.6 billion, while operating profit increased 10.0% to JPY 121.5 billion.

DISCO stated that a higher share of high-value-added projects and foreign exchange effects increased the gross profit margin and offset increases in personnel and research and development expenses.

Meanwhile, the company recorded an impairment loss of approximately JPY 7.5 billion as an extraordinary loss in connection with the rebuilding of the Haneda R&D Center. Partly due to this impact, net income attributable to owners of the parent increased only 1.6% year on year. This was a fiscal year in which the growth rate of operating profit differed from that of net income. (Annual Securities Report, 2024)

Greater Contribution from High-Value-Added Products and Generative AI Demand in 2025–2026

In FY2025, demand for end products such as smartphones and PCs had not yet fully recovered, while a high level of capital investment continued in some applications, including power semiconductors for electric vehicles and high-performance semiconductors related to generative AI.

Precision processing equipment remained solid, particularly high-value-added products, while shipments of precision processing tools also remained at high levels in line with customers’ equipment utilization. DISCO cited higher revenue from progress in acceptance inspections of shipped equipment, an increase in high-value-added projects, and a higher gross profit margin due in part to foreign exchange effects as factors behind profit growth.

Revenue increased 27.9% year on year to JPY 393.3 billion, and operating profit increased 37.3% to JPY 166.8 billion. The operating profit margin reached 42.4%. (Annual Securities Report, 2025)

In FY2026, data-center investment expanded as generative AI became more widely adopted, and demand for high-performance semiconductors such as advanced logic devices and HBM remained at a high level. Meanwhile, demand for power semiconductors was subdued as electric vehicle demand slowed, indicating a change in the center of demand.

Shipments of precision processing equipment, particularly high-value-added products, and precision processing tools remained at high levels. Revenue increased 11.1% year on year to JPY 436.9 billion, while operating profit increased 10.9% to JPY 185.0 billion.

DISCO explained that the gross profit margin declined slightly due to changes in product and application mix, while personnel and research and development expenses increased. Nevertheless, higher revenue and the earnings contribution from high-value-added products resulted in higher profit, with different contributing factors from previous years in which gross profit margin expansion had accompanied profit growth. (Annual Securities Report, 2026)

Across the five years, semiconductor demand did not expand uniformly. Demand trends by application, foreign exchange effects, equipment acceptance inspections, and the mix of high-value-added products changed from year to year. The company’s performance explanations show that, as these factors shifted, revenue and profit continued to increase. (Annual Securities Reports, 2022–2026)

Material Contracts

For “Material Contracts” or equivalent sections, each Annual Securities Report from FY2022 through FY2026 stated that there were no applicable matters. (Annual Securities Reports, 2022–2026)

Research and Development Activities

DISCO conducts research and development primarily in precision processing equipment used for microfabrication of semiconductors and electronic components, consumable precision processing tools, and application technologies.

To address growing demand for microfabrication as end products become smaller and more sophisticated, the company develops abrasive technologies, laser technologies, software technologies, and other technologies, while also pursuing research and development for processing materials other than silicon. These core research and development areas were maintained throughout the five-year period. (Annual Securities Reports, 2022–2026)

Research and development expenses were as follows.

Unit: JPY billion

(Annual Securities Reports, 2022–2026)

Research and development expenses increased for 5 consecutive fiscal years, from JPY 19.9 billion in FY2022 to JPY 34.2 billion in FY2026.

In describing its research and development activities, DISCO continued to refer to recruiting engineers responsible for advanced precision processing technologies and developing processing technologies for materials other than silicon.

A notable feature of the five-year period was that investment in research and development increased while the company maintained its core technology domains. (Annual Securities Reports, 2022–2026)

Financial Overview

Consolidated Balance Sheet

Expansion of Assets and Increase in Inventories

DISCO’s consolidated total assets increased from JPY 404.5 billion at the end of FY2022 to JPY 743.4 billion at the end of FY2026. This represented an increase to approximately 1.84 times the initial level over 5 years, with both current assets and fixed assets increasing.

Current assets increased from JPY 244.9 billion at the end of FY2022 to JPY 494.6 billion at the end of FY2026. In addition to higher cash and deposits, inventories also increased substantially. (Annual Securities Reports, 2022 and 2026)

The 3 main inventory items changed as follows.

Unit: JPY billion

(Annual Securities Reports, 2022 and 2026)

Inventories increased to approximately 2.1 times their 2022 level over the five-year period. The increase in raw materials and supplies was particularly large, reaching JPY 59.2 billion at the end of FY2026, more than double the level at the end of FY2022.

The increase in inventories also continued to affect cash flows from operating activities through FY2025. Inventory increases reduced cash flow by JPY 22.2 billion in FY2024 and JPY 24.6 billion in FY2025.

In contrast, the cash-flow decrease associated with higher inventories narrowed to JPY 207 million in FY2026. Inventories at the end of that fiscal year were broadly unchanged from the previous year-end, showing both the buildup of inventories over the five-year period and a slowdown in the pace of increase in the most recent fiscal year. (Annual Securities Reports, 2024–2026)

Investment in Production Facilities and R&D Sites

Property, plant and equipment increased from JPY 144.4 billion at the end of FY2022 to JPY 223.2 billion at the end of FY2026.

At the end of FY2022, buildings and structures totaled JPY 94.9 billion and land totaled JPY 26.6 billion. By the end of FY2026, these amounts had increased to JPY 101.6 billion and JPY 65.5 billion, respectively. The increase in land was particularly notable.

In FY2025, DISCO acquired land, buildings, and other assets for research and development, and cash outflows for purchases of property, plant and equipment increased to JPY 66.9 billion.

Construction in progress totaled JPY 33.9 billion at the end of FY2026, up from JPY 16.9 billion at the previous year-end. Because construction in progress represents expenditures related to buildings and equipment under construction, this indicates that investment in fixed assets was still underway at the end of FY2026. (Annual Securities Reports, 2022, 2025, and 2026)

Accumulation of Net Assets and Financial Structure

Net assets increased from JPY 293.8 billion at the end of FY2022 to JPY 588.1 billion at the end of FY2026, approximately doubling over the period.

During this period, retained earnings increased from JPY 242.5 billion to JPY 521.9 billion. Continued earnings generation and dividend payments were reflected in movements in retained earnings, which were the main driver of the increase in net assets. (Annual Securities Reports, 2022 and 2026)

The equity ratio was 72.3% at the end of FY2022, 74.0% in 2023, 72.9% in 2024, 75.1% in 2025, and 78.9% in 2026.

At the end of FY2026, total assets increased by JPY 89.3 billion from the previous year-end, while total liabilities decreased from JPY 161.4 billion to JPY 155.3 billion. As a result, the equity ratio rose 3.8 percentage points from the previous year-end.

Over the five-year period, DISCO’s asset base expanded while the accumulation of net assets also raised the equity ratio, which reached nearly 80% at the end of FY2026. (Annual Securities Reports, 2025 and 2026)

Consolidated Income Statement

Expansion of Revenue and Operating Profit

Revenue increased from JPY 253.8 billion in FY2022 to JPY 436.9 billion in FY2026. Operating profit also increased from JPY 91.5 billion to JPY 185.0 billion, approximately doubling over the five-year period.

The operating profit margin increased from 36.1% in FY2022 to 42.4% in FY2025. It declined slightly to 42.3% in FY2026, but remained above 40%.

The increase in operating profit reflected not only revenue growth but also an increase in operating margin. However, the gross profit margin declined slightly in FY2026, so profitability did not improve continuously throughout all 5 years. (Annual Securities Reports, 2022–2026)

Impairment Loss in 2024

In FY2024, DISCO recorded an impairment loss of JPY 7.5 billion as an extraordinary loss in connection with the rebuilding of the Haneda R&D Center.

Operating profit increased from the previous fiscal year to JPY 121.5 billion, while net income attributable to owners of the parent was JPY 84.2 billion, an increase of only 1.6% from JPY 82.9 billion in the previous fiscal year.

In that fiscal year, operating profit from the core business increased, while a one-time loss related to rebuilding the research and development site reduced the growth in net income. (Annual Securities Report, 2024)

Profit Levels in 2025–2026

In FY2025, revenue increased 27.9% year on year and operating profit increased 37.3%. The operating profit margin reached 42.4%, the highest level during the five-year period.

Revenue and profit also increased in FY2026, but the growth rate of operating profit declined to 10.9% from 37.3% in the previous fiscal year.

In the consolidated income statement for FY2026, revenue was JPY 436.9 billion, cost of sales was JPY 130.4 billion, and selling, general and administrative expenses were JPY 121.5 billion. Gross profit increased from JPY 277.6 billion in the previous fiscal year to JPY 306.5 billion, although the gross profit margin declined slightly.

In non-operating income and expenses, DISCO recorded foreign exchange gains of JPY 811 million in FY2025, compared with foreign exchange losses of JPY 1.2 billion in FY2026.

Ordinary profit for FY2026 was JPY 184.9 billion, while net income attributable to owners of the parent was JPY 135.5 billion. Both were the highest levels during the five-year period. (Annual Securities Reports, 2025 and 2026)

Consolidated Statement of Cash Flows

Trends in Operating Cash Flow

Cash flows from operating activities increased from JPY 83.7 billion in FY2022 to JPY 133.5 billion in FY2026.

After decreasing slightly year on year in FY2023, operating cash flow increased for 3 consecutive fiscal years from 2024 through 2026.

However, increases in profit did not translate directly into corresponding increases in operating cash flow. In FY2024 and FY2025, increases in inventories reduced cash flow by JPY 22.2 billion and JPY 24.6 billion, respectively.

In FY2026, profit before income taxes was JPY 183.8 billion and depreciation and amortization of JPY 14.8 billion was added back, while an increase in trade receivables of JPY 11.0 billion, a decrease in trade payables of JPY 10.7 billion, and income taxes paid of JPY 55.1 billion reduced cash flow.

Despite the impact of working capital and tax payments, operating cash flow remained positive at a high level throughout the five-year period. (Annual Securities Reports, 2022–2026)

Changes in Investing Cash Flow Associated with Capital Expenditures

Cash flows from investing activities were negative in all 5 fiscal years.

In FY2022, investing cash flow was negative JPY 43.6 billion, mainly reflecting JPY 43.6 billion of purchases of property, plant and equipment.

In FY2023, the investing cash flow deficit narrowed to JPY 13.1 billion, while FY2024 recorded negative JPY 16.4 billion.

In FY2025, purchases of property, plant and equipment increased to JPY 66.9 billion, and investing cash flow was negative JPY 68.0 billion. DISCO explained that the main factor was expenditure for the acquisition of land, buildings, and other assets for research and development. (Annual Securities Reports, 2022–2025)

In FY2026, the investing cash flow deficit widened to JPY 135.8 billion. However, the main factor was a JPY 100.0 billion deposit into time deposits.

Purchases of property, plant and equipment were JPY 35.1 billion, down from JPY 66.9 billion in the previous fiscal year.

Accordingly, the large negative investing cash flow in FY2026 cannot be interpreted simply as an expansion in capital expenditures. In that fiscal year, the transfer of funds into time deposits had a major effect on the amount of investing cash flow. (Annual Securities Reports, 2025 and 2026)

Financing Cash Flow and Shareholder Returns

Cash flows from financing activities were negative in all 5 fiscal years.

The principal outflow was dividend payments, which increased from JPY 27.4 billion in FY2022 to JPY 45.3 billion in FY2026.

Financing cash flow in FY2026 was negative JPY 45.0 billion. The main component was dividend payments of JPY 45.3 billion, together with proceeds from share issuance of JPY 349 million and other items.

Throughout the five-year period, a portion of the funds generated through operating activities continued to be returned to shareholders. The policy for determining dividends and changes in dividend per share are discussed under “Dividend Policy.” (Annual Securities Reports, 2022–2026)

Changes in Cash and Cash Equivalents

Cash and cash equivalents at year-end increased from JPY 125.8 billion at the end of FY2022 to JPY 229.2 billion at the end of FY2025.

At the end of FY2026, however, the balance was JPY 184.6 billion, a decrease of JPY 44.6 billion from the previous year-end.

In FY2026, operating cash flow was positive JPY 133.5 billion, while investing cash flow was negative JPY 135.8 billion and financing cash flow was negative JPY 45.0 billion.

However, investing cash flow included the previously noted JPY 100.0 billion deposit into time deposits.

On the consolidated balance sheet at the end of FY2026, “cash and deposits” totaled JPY 284.6 billion, up from JPY 229.2 billion at the previous year-end. By contrast, “cash and cash equivalents” in the consolidated statement of cash flows totaled JPY 184.6 billion.

The JPY 100.0 billion difference corresponds to the deposit into time deposits. Accordingly, the decrease in cash and cash equivalents in FY2026 was different from a decrease in the company’s total funds including deposits. (Annual Securities Reports, 2025 and 2026)

Notes to Consolidated Financial Statements

Business Segments

The DISCO Group disclosed a single segment throughout the five-year period, and reportable segment information by business was omitted.

The business composition centered on precision processing equipment, precision processing tools, and maintenance and services was maintained, and no division or integration of reportable segments was identified during the period. (Annual Securities Reports, 2022–2026)

Dividend Policy

Performance-Linked Dividends and Additional Distribution of Surplus Funds

DISCO places importance on returning profits to shareholders and follows a policy combining performance-linked dividends with additional dividends after securing funds required for future business investment. This basic policy was maintained throughout the 5 years from FY2022 through FY2026.

The dividend policy was changed to a performance-linked system in 2006, and in 2012 the company established a policy under which the basic dividend amount is equivalent to 25% of consolidated half-year net income. DISCO generally pays dividends twice a year, through an interim dividend and a year-end dividend, and also states its intention to maintain a stable dividend of ¥10 per half year, or ¥20 per year, regardless of profit levels. However, if consolidated net income is negative for 3 consecutive fiscal years, the company may review the stable dividend amount.

In addition to this basic dividend, if the balance of cash and deposits at year-end after dividend and income tax payments exceeds the amount of funds planned for purchases of technology patents, investments in venture companies, facility expansion, repayment of interest-bearing debt, and other uses, DISCO has a policy of returning approximately one-third of the surplus funds as an additional dividend. Additional dividends are paid except when the company records a loss.

Accordingly, DISCO’s annual dividend is not determined solely by applying a fixed payout ratio. The structure secures a basic dividend based on half-year earnings, then reviews future investment needs and cash holdings at year-end and makes an additional distribution if surplus funds remain. (Annual Securities Reports, 2022–2026)

Dividend Trends and the Impact of the Stock Split

The annual dividend per share increased from ¥808 in FY2022 to ¥916 in FY2023. It was then ¥307 in 2024, ¥413 in 2025, and ¥505 in 2026.

However, a 3-for-1 stock split of common shares took effect on April 1, 2023. The dividend amounts for FY2022 and FY2023 as stated in the Annual Securities Reports are pre-split amounts, so they cannot be directly compared with those from FY2024 onward.

Note: The annual dividend per share of ¥505 for FY2026 is the sum of the interim dividend of ¥129 and the year-end dividend of ¥376, which was scheduled for resolution at the general meeting of shareholders as of the filing date of the Annual Securities Report. The dividend payout ratio of 41.6% is also the figure stated in that report.

Note: The stock-split-adjusted annual dividends per share for FY2022 and FY2023 are reference amounts calculated by dividing the reported annual dividends by 3 and rounding to the nearest yen.

After adjusting for the stock split, the annual dividend per share increased from approximately ¥269 in FY2022 to approximately ¥305 in 2023, remained broadly unchanged at ¥307 in 2024, and then increased to ¥413 in 2025 and ¥505 in 2026.

The dividend payout ratio decreased from 47.6% in FY2022 to 38.2% in 2024, before rising to 38.6% in 2025 and 41.6% in 2026. The payout ratio remained above the 25% benchmark for the basic dividend throughout the five-year period, reflecting the policy of combining the basic dividend with additional distributions of surplus funds. (Annual Securities Reports, 2022–2026)

Increasing Dividends While Prioritizing Business Investment

DISCO continued to invest in technology development for semiconductor precision processing equipment and precision processing tools, as well as in expansion of production capacity. Its policy of allocating surplus funds to dividends after securing the funds needed for these business investments provides a mechanism for combining profit growth and shareholder returns.

During the period, DISCO invested in production facilities and research and development sites. In FY2025, purchases of property, plant and equipment increased in connection with the acquisition of land, buildings, and other assets for research and development. Meanwhile, annual dividend per share increased from ¥307 in FY2024 to ¥413 in 2025 and ¥505 in 2026.

At the ordinary general meeting of shareholders in June 2022, the Articles of Incorporation were amended to allow dividends of surplus and similar matters to be determined by resolution of the Board of Directors. However, DISCO maintained its policy of having year-end dividends decided in principle by the general meeting of shareholders, with Board approval used only when unforeseen events such as disasters make it difficult to hold the shareholders’ meeting. (Annual Securities Reports, 2022–2026)

Throughout the five-year period, there was no major change in the company’s basic approach to shareholder returns. DISCO maintained a basic dividend equivalent to 25% of consolidated half-year net income and an additional dividend based on surplus funds remaining after securing future investment needs. As earnings expanded, dividend per share also increased. After adjusting for the stock split, the annual dividend per share increased to approximately 1.9 times its fiscal 2022 level by fiscal 2026.

Key Financial Indicators

DISCO’s principal consolidated financial indicators over the five-year period were as follows.

(Annual Securities Reports, 2022–2026. Consolidated financial indicators are based on the five-year comparison in the Annual Securities Report for FY2026, with operating profit and operating profit margin supplemented from each year’s Annual Securities Report.)

Expansion in Revenue and Changes in Profitability

A key feature of the five-year period was the simultaneous expansion of revenue and increase in operating profit margin. Revenue increased to approximately 1.7 times its fiscal 2022 level, while operating profit approximately doubled.

However, the pace of growth was not constant. Revenue and operating profit increased relatively gradually from FY2023 through 2024, while both rose substantially in FY2025. Revenue and profit continued to increase in FY2026, although the operating profit margin was slightly below the previous year.

Net income also showed year-to-year differences. In FY2024, operating profit increased, while the effect of the impairment loss and other factors limited growth in net income. Net income then increased in FY2025 and FY2026, and EPS moved in the same direction.

Accumulation of Earnings and Capital Efficiency

Total assets and net assets increased for 5 consecutive fiscal years. Net assets grew particularly significantly, and the equity ratio reached 78.9% at the end of FY2026.

ROE, however, did not move in line with the increase in earnings. It rose to 27.6% in FY2025, but declined to 25.1% in FY2026 even though net income reached the highest level in the five-year period.

This reflects the fact that equity also expanded as earnings accumulated. Over the five-year period, profitability and the financial base expanded, while capital efficiency fluctuated from year to year.

Cash Flow and Funds Held

Operating cash flow remained positive in all 5 fiscal years and increased for 3 consecutive fiscal years from 2024 through 2026. Investing cash flow and financing cash flow were negative in all 5 fiscal years.

In FY2026, cash and cash equivalents decreased by JPY 44.6 billion from the previous year-end, partly due to the transfer of JPY 100.0 billion into time deposits. Meanwhile, cash and deposits on the consolidated balance sheet increased from JPY 229.2 billion at the previous year-end to JPY 284.6 billion.

The five-year indicators therefore show expansion in revenue and profit, accumulation of equity, and continued cash generation from operating activities.

Five-Year Review

From FY2022 through FY2026, DISCO maintained a business structure centered on precision processing equipment, precision processing tools, and maintenance and services. Its policy of placing cutting, grinding, and polishing technologies at the core of its business was also consistent, and there was no major change in the basic direction of combining equipment, tools, and application technologies to address customers’ processing needs.

At the same time, the applications supporting semiconductor demand changed. In FY2022, demand expanded across a broad range of fields including 5G, automobiles, logic ICs, and memory. From FY2023 through 2024, smartphone and PC demand remained subdued, while research and development applications and power semiconductors provided support. Demand for high-performance semiconductors related to generative AI then became more prominent. In FY2026, demand for advanced logic and HBM remained at a high level, while demand for power semiconductors was subdued. The company therefore responded to shifts in the center of demand without changing its basic business composition.

In management policy, DISCO continued to enhance organizational capabilities through Will Accounting and PIM activities. From FY2025 onward, it explained more explicitly the significance of maintaining manufacturing functions in-house through the Fab Important Strategy. The company emphasized close coordination between technology development and manufacturing sites, flexible responses to high-mix low-volume production, and accumulation of manufacturing know-how. Research and development expenses increased for 5 consecutive fiscal years, while investment in production facilities and research and development sites also progressed. Funding allocated to technology development and the manufacturing base expanded while the company maintained its existing technology domains.

Financially, revenue increased for 5 consecutive fiscal years, and operating profit approximately doubled from FY2022 through FY2026. The operating profit margin also increased from 36.1% to 42.3%. However, the drivers of profit growth differed by year, with factors such as foreign exchange effects, the mix of high-value-added products, and equipment acceptance inspections affecting performance. In FY2024, an impairment loss related to rebuilding the Haneda R&D Center affected net income. Revenue and profit increased throughout the five years, but the path reflected differences in semiconductor demand by application and one-time losses.

As earnings accumulated, net assets approximately doubled, and the equity ratio rose to 78.9% at the end of FY2026. Operating cash flow also remained positive throughout all 5 fiscal years. Meanwhile, ROE declined from 27.6% in FY2025 to 25.1% in FY2026, reflecting the simultaneous increase in equity as earnings expanded.

In shareholder returns, DISCO maintained a basic dividend equivalent to 25% of consolidated half-year net income and an additional dividend based on surplus funds after securing the funds required for future investment. After adjusting for the stock split, the annual dividend per share increased from approximately ¥269 in FY2022 to ¥505 in FY2026. Over the five-year period, the company increased dividends while continuing research and development and capital investment.

Overall, DISCO responded to changes in the structure of semiconductor demand without materially changing its core businesses or management philosophy, while increasing investment in technology development and manufacturing capabilities and expanding the scale of earnings. These changes were reflected in a higher operating profit margin, accumulation of equity, and increased shareholder returns. (Annual Securities Reports, 2022–2026)

Source: DISCO CORPORATION Annual Securities Reports, 2022–2026.