Sumitomo Electric Q2 FY2027: Net profit jumps 63%, outlook raised

Sumitomo Electric’s first-half revenue for FY2027 rose 16.5% year on year to ¥2.7649 trillion. Operating profit climbed 43.5% to ¥219.6 billion, while net income attributable to owners of the parent increased 62.7% to ¥159.3 billion. Operating profit rose ¥66.5 billion and net income ¥61.4 billion from a year earlier, both reaching record highs for a first half. Demand growth and stronger profitability drove record first-half earnings.

• Data-center demand: Demand for optical wiring products and optical devices for data centers grew sharply amid the spread of generative AI.
• Broad product strength: Demand for power cables, automotive wire harnesses, FPCs and cemented carbide products also remained firm.
• Improved margins: Better product mix, higher productivity and improved selling prices supported earnings, as did the weaker yen.
• Higher costs: The company absorbed higher costs linked to the Middle East situation and rising copper prices through revenue growth and improvement measures.

Profit growth outpaced revenue growth, lifting the operating margin to about 7.9% from about 6.4% a year earlier. A key feature of the results was the company’s ability to convert not just market growth but also better product mix and factory productivity into profit. At the same time, earnings remain exposed to yen movements and raw-material prices, leaving the durability of operational improvements in focus.

Revenue increased year on year in all five businesses. Information and industrial materials stood out for operating profit growth, while automotive and environment and energy reported declines, highlighting differing levels of profitability across businesses.

Information & Communications revenue rose 48.8% year on year to ¥201.4 billion, and operating profit was ¥61.2 billion. Expanding demand for optical wiring products and optical devices from the generative AI data-center market, along with a better product mix, productivity gains and the weaker yen, boosted earnings. Sumitomo Electric plans to increase production capacity for optical cables, optical connectors and optical devices.

Automotive revenue increased 17.3% to ¥1.6165 trillion, but operating profit fell to ¥53.7 billion. Demand for wire harnesses and anti-vibration rubber remained solid, but higher raw-material costs linked to the Middle East situation and rising copper prices squeezed profitability. Strengthening the global supply network and developing products for vehicle electrification and intelligence remain priorities.

Environment & Energy revenue increased 2.0%, supported by power cables, rectangular copper wire for electric-vehicle motors and the impact of higher copper prices. Operating profit declined, partly because Sumitomo Densetsu, now Semlinks, was no longer included in consolidation.

Electronics revenue rose 18.3% on firm demand for FPCs from major customers. Revenue growth, productivity improvements and the weaker yen supported profit. Industrial Materials & Others saw orders for cemented carbide products increase amid a sharp rise in tungsten market prices and tight supply and demand, lifting revenue 28.1%. Operating profit changes from a year earlier were as follows:

Sumitomo Electric raised its consolidated earnings forecast for FY2027. It increased its revenue forecast by ¥350 billion, its operating profit forecast by ¥50 billion and its net income forecast by ¥30 billion from the previous outlook.

First-half results exceeded the previous forecast announced on July 31, and the company revised its outlook to reflect recent business conditions and demand prospects. Under the revised forecast, full-year revenue is expected to rise 12.5% from the previous year and operating profit 19.6%, while net income is projected to increase just 0.1%. The forecast will depend on how much of the first half’s strength carries into the second half, as well as the effects of raw-material prices and geopolitical risks.

Total assets stood at ¥5.1898 trillion at the end of September, up ¥365.3 billion from the end of the previous fiscal year. Operating cash flow fell from a year earlier, with higher inventories weighing on cash generation.

• Total assets: ¥5.1898 trillion, up ¥365.3 billion from the end of the previous fiscal year. Increases in inventories and investment securities were the main factors.
• Equity ratio: 55.4%, down 1.5 percentage points from the previous fiscal year-end. Net assets increased, including from first-half net income, while borrowings also rose.
• Operating cash flow: Cash inflow of ¥139.4 billion, down from ¥251.9 billion in the same period a year earlier. The increase in inventories added to the cash burden.
• Investing and financing cash flow: Investing activities used ¥122.2 billion and financing activities used ¥26.9 billion. Spending on property, plant and equipment was ¥124.8 billion.
• Dividends: The interim dividend was ¥19 per share after the stock split, with a forecast year-end dividend of ¥25 and full-year forecast of ¥44. The forecast was revised from the previous announcement.
• Share buybacks: Cash spent on treasury share purchases during the first half was ¥6 million. The company did not announce a large-scale share buyback in its earnings release.

Sumitomo Electric split each share into four in July 2026, so the previous year’s annual dividend of ¥154 should be adjusted for the split before making a direct comparison. On a post-split basis, the previous year’s dividend was ¥38.5, making the current full-year forecast of ¥44 an increase. While the company is reflecting earnings growth in shareholder returns, the working-capital burden from rising inventories also warrants attention.

Under its Medium-Term Management Plan 2028, Sumitomo Electric has identified digital and AI, energy, and mobility as priority areas. It aims to reach ¥6 trillion in revenue, ¥600 billion in operating profit and pretax ROIC of at least 15% in fiscal 2028, targeting demand in growing markets.

• Digital and AI: The company plans to expand production capacity for data-center optical wiring products, optical devices and indium phosphide substrates, while developing products that offer high speed, low latency and low power consumption.
• Energy: It is targeting domestic replacement demand for power cables and orders related to renewable energy, while launching a new European base and expanding sales of batteries and power receiving and distribution equipment.
• Mobility: Sumitomo Electric plans to use AI in design, advance smart factories and reform its supply chain, while developing products for vehicle electrification and intelligence and seeking new customers.
• Industrial materials: The company is increasing recycling capacity to secure a stable supply of tungsten raw materials.

In the first half, data-center demand in the information and communications business helped results exceed the company’s plan. Sumitomo Electric is moving to expand capacity and develop new products to capture demand, while also pursuing cost reductions and stronger quality and project management. The key to meeting its medium-term targets will be converting growth investment into sustained improvements in profitability.

Demand remains strong, but Sumitomo Electric is concerned about geopolitical risks and an economic slowdown caused by inflation. Raw-material prices and currency movements also affect profitability differently across its businesses.

• Geopolitical risks: Disruption to supply chains or business conditions from the Middle East situation or U.S.-China tensions could affect procurement, sales and costs.
• Rising raw-material prices: Higher copper prices and costs linked to the Middle East situation squeezed automotive earnings. If improved selling prices and productivity gains do not fully offset the increases, profitability could deteriorate.
• Economic and price changes: A global slowdown caused by inflation or monetary tightening could affect demand for power equipment, automobiles and electronic components.
• Inventory and funding burden: Higher inventories are weighing on operating cash flow. If stocks become excessive relative to changing demand, they could hurt capital efficiency and profitability.
• Foreign-exchange movements: The weaker yen boosted earnings this time, but a reversal could weigh on yen-converted results and profitability.

The company plans to cut costs, improve its product mix and reform its supply chain. Meeting its full-year forecast will depend not only on sustaining the first half’s strong earnings momentum, but also on its ability to pass on higher raw-material costs and manage inventory appropriately.