Connector and Circuit Board Makers Q1 FY2027: AI boom widens profit gap

Expanding investment in AI and data centers lifted demand for connectors, circuit boards and related components across all three companies.

• Hirose grew sales to industrial equipment customers. Demand for semiconductor and data center equipment also contributed, with revenue rising 26.8% year on year.
• Meiko benefited from demand for AI servers, as well as boards for automotive and satellite communications applications. Revenue rose 38%, the fastest growth among the three.
• MinebeaMitsumi performed well in data center bearings and optical devices, as well as HDD motors. Revenue increased 16.3%, with growth across all segments.

Revenue growth did not automatically translate into stronger margins. Hirose's operating margin was 21.5%, far above Meiko's 8.3% and MinebeaMitsumi's 6.2%. It also exceeded the three-company average of 12%, underscoring the gap in profitability.

Hirose stood out for its ability to generate profit. Operating income rose 35.6% year on year to ¥13.3 billion, second in scale to MinebeaMitsumi's ¥26.3 billion. Hirose's 21.5% operating margin topped Meiko's 8.3% and MinebeaMitsumi's 6.2%, while revenue also grew 26.8%.

Meiko had the weakest profit growth. Its 38% revenue increase was the fastest among the three, but operating income grew just 8.7%. Higher raw material costs and expenses to start up new factories diluted the benefit of higher sales, creating a sharp contrast in earnings growth.

MinebeaMitsumi led in net profit growth, up 95.6% year on year. Hirose's net profit rose just 1.4%, weighed down by expenses related to transfer pricing taxation, leaving a wide gap between its operating and net profit growth.

Hirose raised its full-year earnings forecast and announced a share buyback. Its full-year operating income forecast is ¥50 billion, above Meiko's ¥38 billion. First-quarter operating income rose 35.6%, showing continued momentum. However, the company booked ¥7.135 billion in expenses related to transfer pricing taxation, leaving tax uncertainty in focus.

Meiko accelerated sales growth by bringing an acquired electronics business into its consolidated results. Its full-year revenue forecast of ¥320 billion is above Hirose's ¥250 billion. Higher utilization at new factories and passing on raw material cost increases will be key to improving profit.

MinebeaMitsumi captured data center demand and grew revenue across all segments. Its full-year forecasts are the largest among the three, at ¥1.69 trillion in revenue and ¥120 billion in operating income. It also raised its net profit forecast. But operating income in its European automotive parts business fell 97% amid restructuring. Investors will watch whether strength in growth areas can help turn around weaker operations.

• A pause in AI and data center investment could weaken demand for related components. These markets support growth at all three companies, making changes in investment plans important to watch.
• Raw material costs and factory start-up expenses can weigh on earnings. At Meiko, operating income growth lagged well behind sales growth.
• Intensifying price competition could prevent higher demand from feeding through to profit. Price increases and a shift toward higher-value products remain key challenges.
• Regional demand and restructuring can shape returns in automotive markets. The gap between growth areas and weaker businesses, as seen in MinebeaMitsumi's European operations, is also a risk.
• Expenses related to transfer pricing taxation held back Hirose's net profit. Tax rulings and changes in effective tax rates also matter when assessing earnings.

AI and data center growth is creating opportunities across all three companies, but their businesses differ. Hirose is focused on connectors for industrial equipment, Meiko on circuit boards and new factories, and MinebeaMitsumi on a broad range of components and business restructuring.

Those seeking roles in growth markets can look to businesses serving AI servers and satellite communications. Factory launches, cost improvement and the turnaround of MinebeaMitsumi's European operations may also create demand for talent. Looking beyond sales momentum to how each company earns profit, and to the roles available, can help sharpen career choices.