JTEC Corporation 3446
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Summary
Mainstay products comprise high-precision mirrors used in synchrotron radiation facilities and X-ray free electron laser facilities around the world. Core technologies include nano-level surface machining and measurement technologies.
Health Care Equipment & Supplies
Key dates
2022-02-14
Next earnings announcement
2018-10-17
Coverage initiation
Executive summary
JTEC CORP’s mainstay products are high-precision mirrors used in synchrotron radiation facilities and X-ray free electron laser facilities around the world, and 3D cell culture systems used in regenerative medicine and drug discovery. The company sees itself as a leading innovator in global niche markets. Its proprietary machining and measurement technologies enable surface shape polishing to nano-level precision. The company’s aim is to broadly contribute to society through products that harness unique technologies, and its corporate mission is to deliver products that can help bring about scientific and technological innovation. Its main segments are Optical (FY06/21 sales: JPY519mn) and Life Science (LS) & Equipment Development (JPY301mn). In FY06/21 it posted an operating loss of JPY272mn.
Optical segment: Mainstay products are high-precision mirrors used in synchrotron radiation facilities (such as Japan’s leading facility, SPring-8) and X-ray free electron laser facilities around the world (SACLA in Japan). The company’s ability to polish surface shapes to nano-level precision (single-digit superiority over rivals) makes it extremely competitive in applications that require high-precision mirrors. JTEC CORP has close relationships with Osaka University and research institute RIKEN. The company’s elastic emission machining (EEM) technology as well as the measurement technologies of relative angle determinable stitching interferometry and microstitching interferometry (RADSI/MSI), which enable nano-level surface shape precision machining, are commercial applications of technologies transferred from these institutions. The company plans to tap into demand for high-precision mirrors used in synchrotron radiation and X-ray free electron laser facilities amid approvals for new, expanded, and upgraded facilities around the world to be used in the fields of life sciences, material sciences, and industry.
LS (Life Science) & Equipment Development segment: While maintaining its mainstay lineup of 3D cell culture systems used in regenerative medicine and drug discovery, JTEC CORP is developing equipment under contract for customers in a variety of industries. Of particular note is the CELLFLOAT cell culture technology the company developed. It uses this in general-purpose equipment it markets, such as CellPet 3D-iPS used to culture iPS cells. In the equipment development business, it leverages its technologies to supply equipment to a range of customers. The seeds of what could become new businesses from the equipment business are starting to sprout.
Medium-term plan and long-term targets: The company’s medium-term management plan calls for FY06/24 sales of JPY3.2bn, operating profit of JPY862mn (OPM of 26.9%), recurring profit of JPY875mn (RPM of 27.3%), and net income of JPY591mn. In the longer term, JTEC CORP aims to create multiple business that generate sales of at least JPY10.0bn.
Trends and outlook
On a nonconsolidated basis, JTEC CORP recorded full-year FY06/21 sales of JPY820mn (-20.2% YoY), operating loss of JPY272mn (profit of JPY6mn in FY06/20), recurring loss of JPY239mn (profit of JPY34mn in FY06/20), and net loss of JPY171mn (net income of JPY16mn in FY06/20). The company already made downward revisions to its forecast on July 13, and these results were essentially in line with the revisions. The Optical and LS & Equipment Development segments both suffered significant negative impacts from the COVID-19 pandemic, and the delays in planned sales booking weighed on overall results. The company has shifted to consolidated reporting from FY06/21. However, since it only consolidated its results at end-June, it did not announce consolidated operating results (income statement), but only its financial position (balance sheet). Net assets per share on a consolidated basis were JPY385.7.
FY06/22 forecast (consolidated basis): JTEC CORP forecasts sales of JPY1.7bn, operating profit of JPY194mn, recurring profit of 232mn, and net income attributable to owners of the parent of JPY150mn. No consolidated figures for FY06/21 are available for comparison, but a nonconsolidated FY06/22 forecast that allows YoY comparison calls for sales of JPY1.4bn (+72.5% YoY), recurring profit of JPY205mn (recurring loss of JPY239mn in FY06/21), and net income of JPY141mn (net loss of JPY171mn in FY06/21).
JTEC CORP announced a new medium-term management plan running through FY06/24, replacing the earlier medium-term plan with one that provides consolidated-basis earnings targets. The new plan calls for FY06/24 sales of JPY3.2bn, operating profit of JPY862mn (OPM of 26.9%), recurring profit of JPY875mn (RPM of 27.3%), and net income attributable to owners of the parent of JPY591mn. The company excluded some of its new businesses from the plan. It put forward achievable earnings targets based on growth in its mainstay Optical business and expanding sales in its LS & Equipment Development segment.
Strengths and weaknesses
JTEC CORP’s strengths are: 1) its proprietary technologies (nano-level machining and measurement technologies); 2) business structure (low fixed costs and minimal financial risk); and 3) industry-academia collaboration (strong relations with research institutions such as Osaka University).
Its weaknesses are: 1) stalling growth in the LS (Life Science) business; 2) high dependence on synchrotron radiation facilities (unique customers) and X-ray focusing mirrors (specialized product); and 3) earnings lumpiness (weakness from a listed company’s perspective).
Key financial data
Note: Figures for FY06/15 and earlier are unaudited. (The same applies to charts and tables throughout the report.) The company began supplying consolidated results from FY06/21, so YoY comparisons are not provided.
Recent updates
Received a large Osaka Mirror order from HEPS, a large synchrotron radiation facility in Beijing, China
On November 29, 2021, JTEC CORPORATION announced that it has received a large Osaka Mirror order from HEPS, a large synchrotron radiation facility in Beijing, China.
The company announced that it has received a large order for various ultra high-precision mirrors from High Energy Photon Source (HEPS), a large synchrotron radiation facility that is currently being constructed (completion slated for 2025) under management from the Institute of High Energy Physics (IHEP) at the Chinese Academy of Science in Beijing, China. The goal of this project is to achieve synchrotron radiation beams with world-class brilliance.
The monetary value associated with this order is about JPY230mn, and the company expects to record corresponding sales starting in Q4 FY06/22 (April–June 2022). This order is larger than the batch order the company announced in June 2021, which it received from Advanced Photon Source (APS), a large synchrotron radiation facility at Argonne National Laboratory (ANL) in Chicago, Illinois, US. The company also stated that this order from HEPS merely represents a "first stage," suggesting that it will continue to receive orders from HEPS in the future.
The company plans to further improve Osaka Mirror's nano-level machining and measurement technologies, which are already recognized as among the best in the world, to meet growing demand for ultra high-precision mirrors in China and elsewhere.
Trends and outlook
Quarterly trends and results
Note: Since the company began disclosing consolidated earnings results (consolidated income statement) from FY06/22, YoY changes are not provided for the said fiscal year.
Note: Starting with Q1 FY06/19, expenses related to the Cell Culture Research Center, which had been included in LS & Equipment Development, are now included in adjustments as companywide expenses (applied retroactively).
Note: Since the company began disclosing consolidated earnings results (consolidated income statement) from FY06/22, YoY changes are not provided for the said fiscal year.
Q1 FY06/22 results (out November 12, 2021)
Results summary
JTEC's performance in Q1 FY06/22 (July–September 2021) was as follows.
JTEC began disclosure of consolidated earnings results (consolidated income statement) from FY06/22, and accordingly has not provided YoY changes in sales and profits in the latest earnings announcement. The company started disclosing its consolidated balance sheet from end-FY06/21.
JTEC's initial plan for 1H FY06/22 (July–December 2021) called for sales of JPY339mn, operating loss of JPY179mn, recurring loss of JPY181mn, and net loss attributable to owners of parent of JPY128mn. Shared Research understands that Q1 results were in line with these projections.
Results by segment were as follows. For both businesses, the company is typically busy receiving orders in Q1, and does not expect revenue growth during the quarter. As such the progress thus far is as planned, according to the company.
Optical segment
LS and Equipment Development segment
Shared Research will update this report with more detail regarding the earnings results after the company's planned results briefing and interviews with the company.
Full-year company forecast
Overview of company forecast
JTEC left its forecast for full-year FY06/22 unchanged at the time of the Q1 earnings announcement.
The following comments are based on the FY06/21 results and forecast for FY06/22 released by the company in August 2021. While Shared Research anticipates no major change to the content given that JTEC did not revise its forecast at end-Q1, we plan to update the material following interviews with the company.
The full-year FY06/22 company forecast follows. It will disclose consolidated results for the first time from FY06/22, so YoY growth rates are not available. In FY06/21, the company did not announce consolidated operating results (income statement), but only its consolidated financial position (balance sheet).
The company’s 1H FY06/22 forecast follows. It will disclose consolidated results for the first time, so YoY growth rates are not displayed.
The full-year sales forecast of JPY1.7bn breaks down to Optical segment JPY1.1bn, LS & Equipment Development JPY308mn, and ESCO, Ltd. JPY285mn. The company made ESCO—which develops, produces, sells, and analyses scientific instruments—a consolidated subsidiary on June 30, 2021. The company plans to consolidate results from ESCO for nine months in FY06/22 (July 2021–March 2022), and for full year from FY06/23 onward.
As the forecast clearly shows, the company expects to book about 20% of sales in 1H and 80% in 2H. Shared Research thinks this is not unusual, as its sales are typically skewed to 2H. Some sales in the Optical segment are underpinned by the order backlog. Shared Research understands that the focus will be on how much the company can build up the backlog in 1H.
Optical segment
The company expects brisk orders from its key synchrotron radiation facility customers in Europe and the US, where there are solid plans to upgrade to fourth generation. It also expects inquiries for large fourth-generation synchrotron radiation facilities being built in Beijing and X-ray free electron laser facilities in Shanghai and elsewhere in China. JTEC CORP also has incorporated orders for installing its mirrors in facilities in Japan into its forecasts. The order backlog in the Optical segment stood at JPY1.2bn (parent company basis, as of end-June 2021), the highest in three years. The company thinks that its JPY1.1bn sales forecast for FY06/22 is already well within reach.
LS & Equipment segment
The company is seeing brisk inquiries for automated cell culture systems, and receiving custom orders as researchers look for COVID-19 treatments. It is also focusing on tapping into demand for quartz crystal unit wafer machining systems, after it installed the first mass production unit in FY06/21. However, given the sales booked in FY06/21, the segment's order backlog at end-FY06/21 was just JPY110mn. The company realizes that it must work hard on the marketing front to meet its FY06/22 target of JPY308mn in sales.
Note: Nonconsolidated data is provided through FY06/20. The company began consolidated reporting from FY06/21, so YoY comparisons are not provided.
Medium-term outlook
Note: Nonconsolidated data is provided through FY06/20. The company began consolidated reporting from FY06/21, so YoY comparisons are not provided.
Medium-term plan
In August 2021, JTEC CORP announced a new three-year medium-term management plan (FY06/22–FY06/24), in light of a couple of factors. It had released a four-year plan (FY06/20–FY06/23) for the first time in August 2019, but the subsequent emergence of COVID-19 forced a major review of business plans, and it also moved to consolidated reporting. There are no significant changes to business development trajectories, but in the wake of the pandemic, the company has sought to reduce uncertainty as much as possible and steer a realistic course, giving a higher priority to meeting investor expectations. Key points are outlined below.
Some new businesses excluded from forecast
In the previous plan, JTEC CORP flagged its intention to develop five new businesses in addition to its legacy Optical and LS & Equipment Development businesses.
The company excluded next-generation SPE development and applications for its nano-level machining and measurement technologies from its updated plan. It consolidated these businesses in its Optical, Life Science, and Equipment Development businesses and aims to concentrate on growing sales in existing businesses (mirrors for synchrotron radiation facilities and X-ray free electron laser facilities, as well as automated cell culture systems). The company will continue developing the other new businesses (X-ray optical elements for microscopes and telescopes, quartz crystal unit wafer machining systems, and regenerative medicine support). It also announced plans to develop thermal desorption spectrometry (TDS) equipment and expand sales to the semiconductor and steel sectors.
In light of this significant review, the company set the following financial targets for the next three years.
FY06/22 forecast
The previous plan called for sales of JPY2.7bn, operating profit of JPY827mn, recurring profit of JPY849mn, and net income of JPY585mn, but Shared Research thinks these figures should only be used for reference as they were non-consolidated forecasts. For details, refer to Full-year company forecasts section.
FY06/23 forecast
The sales forecast of JPY2.5bn breaks down to Optical segment JPY1.5bn, LS & Equipment Development JPY579mn, and ESCO, Ltd. JPY400mn. The previous plan called for sales of JPY5.5bn, operating profit of JPY2.1bn, recurring profit of JPY2.1bn, and net income of JPY1.5bn, but Shared Research thinks these figures should only be used for reference as they were non-consolidated forecasts. While changes partly reflect the difference between consolidated and non-consolidated figures, the significant lowering of the sales forecast reflects the exclusion of some new businesses from the medium-term plan as described above.
FY06/24 forecast
This is the final year of the medium-term plan, and the first time the company has released consolidated FY06/24 forecasts. The sales forecast of JPY3.2bn breaks down to Optical segment JPY1.9bn, LS & Equipment Development JPY700mn, and ESCO, Ltd. JPY600mn. The company said goodwill amortization charges for ESCO would amount to JPY42mn each for FY06/23 and FY06/24.
Optical segment
The company plans to continue developing business around optical elements and applications for its nano-level machining and measurement technologies. Building on its track record of deliveries to synchrotron radiation facilities around the world, it expects mounting demand for its high-precision mirrors as customers install fourth-generation facilities and upgrade existing ones. JTEC CORP expects an increasing number of inquiries for its mirrors used in X-ray free electron lasers amid plans to build numerous such facilities in China, in addition to Europe and the US. It also expects increasing demand for its mirrors in Japan, and is likely to review the surface precision of its products.
Around the world there are plans for new, expanded, and upgraded (fourth-generation) synchrotron radiation and X-ray free electron laser facilities. China in particular has strong investment plans, with numerous new facilities on the drawing board. These facilities are important in scientific and technological advances in many fields including life sciences, medicine, material sciences and industry, and earth and environmental sciences, so the end-user researchers are putting forward numerous proposals for projects. The company expects continued increases in demand for its nano focusing mirrors, mirrors that suppress high-order harmonics, and diffraction grating mirrors. The move to the next-generation facilities requires more powerful light sources, so the company plans to develop and sell new products such as rotating ellipsoidal, variable shape, and Wolter mirrors.
The company has a commanding advantage in high-precision mirrors. None of its competitors can produce mirrors with comparable precision, so prospects are for JTEC CORP to win an increasing share of orders going forward. It aims to grow sales by focusing on orders for mirrors where high precision is a must.
LS & Equipment Development segment
The company plans to continue developing equipment for regenerative medicine and applications for its machining technology. It thinks that pharmaceutical companies’ efforts to address the COVID-19 crisis will lead to increased inquiries regarding its large-scale and general-purpose automated cell culture systems, and plans to focus on growing sales of MakCell, its new product in the range. In the Life Science business, JTEC CORP will work to create a service business for regenerative medicine to supplement its sales of equipment and consumables. In equipment development, it plans to focus on growing sales of quartz crystal unit wafer machining systems, having already made pilot deliveries.
To conduct R&D into regenerative medicine using CELLFLOAT, its proprietary 3D cell culture technology, the company has joined hands with the Faculty of Medicine of Osaka University and Yokohama City University School of Medicine, and aims to pursue clinical research. However, evaluation of the technology takes time. The company hopes to gradually grow sales while launching new products such as its KB-2000 automated cell culture system and the MakCell desktop version of automated cell culture system. It is also focusing on new product development. Meanwhile, it is developing some of the new businesses included in the segment, such as quartz crystal unit wafer machining systems.
Making ESCO, Ltd. a subsidiary: implications
Having made ESCO, Ltd. a consolidated subsidiary, the company envisions marketing synergies. It plans to focus on stepping up its sales activities with a strengthened salesforce and increase sales to Europe and the US.
Creating several businesses with sales of JPY10.0bn from a longer-term perspective
From a longer-term perspective, JTEC CORP targets the creation of several businesses with sales of JPY10.0bn. It plans to use its proprietary nano-level machining and measuring technology from its Optical segment to develop applications other than mirrors for synchrotron radiation and X-ray free electron laser facilities. The company has in mind the fields of space, semiconductors, and medicine as examples of candidates for new businesses with sales of JPY10.0bn in its medium-term plan.
Business
Business description
JTEC CORP applies unique, proprietary technologies to develop equipment and manufacture products targeting global niche markets. In line with company’s corporate mission to deliver products that can help bring about scientific and technological innovation, it develops products for synchrotron radiation and public medical research facilities, universities and corporate R&D divisions. Accordingly, its business model consists of leveraging ties and joint research capabilities with institutions such as Osaka University and research institute RIKEN, and generating added value by applying cutting-edge technologies to mass produce and commercialize products that lead in niche markets.
The company’s reporting segments are Optical (63% of sales in FY06/21) and Life Science (LS) & Equipment Development (37%). The mainstay products in the Optical segment are high-precision mirrors used in synchrotron radiation and X-ray free electron laser facilities. In LS & Equipment Development, the main products are automated cell culture systems and 3D cell culture systems for iPS cells, as well as a variety of automated systems developed under contract.
JTEC CORP’s earnings are powered by the Optical segment, which mainly produces high-precision X-ray focusing mirrors. Central to these products are the EEM (elastic emission machining) technology, as well as the measurement technologies RADSI (relative angle determinable stitching interferometry) and MSI (microstitching interferometry), which enable surface shape polishing to nano-level precision (single-digit superiority over rivals). This level of precision is a major differentiator in fields that demand ultrahigh precision, and the company expects demand from domestic and overseas synchrotron radiation facilities (e.g., SPring-8 in Japan) and X-ray free electron laser facilities (SACLA in Japan) to drive earnings over the medium term. The company is also working to develop new applications for its existing technologies and secure new technologies to develop new products.
JTEC CORP was founded by its current President Takashi Tsumura on December 21, 1993, with the aim of “broadly contributing to society through products that harness unique technologies.” The company initially manufactured and sold automated cell culture systems (for use in the drug discovery field), which it jointly developed with large corporations. It subsequently started receiving subsidies from government institutions, and expanded its operations into automated machinery and other equipment for various fields such as image processing and printing.
Regarding earnings, JTEC CORP has not posted an operating loss since its establishment in December 1993. We think this is because in the mainstay business of developing equipment, the company has pursued orders it could steadily turn a profit on while keeping the size of its workforce in balance with the business scale. Although OPM remained below 4% through FY06/11, by outsourcing machining and assembly work to external parties as necessary, the company created a cost structure where fixed costs do not increase inordinately. During the period of rapid Optical segment sales growth, the company kept growth in fixed costs under control, and the OPM rose to 34.0% in FY06/19 (dropping to 0.6% in FY06/20 due to COVID-19).
In FY06/21, 56% of sales were to public research organizations and universities. The company’s devices are needed to pioneer new territories in science and technology. Overseas sales comprise roughly 40% of the total. The technology used to produce the company’s high-precision mirrors with superior characteristics to those of its competitors is rated highly by research organizations in Japan and overseas. Currently synchrotron radiation and X-ray free electron laser facilities around the world use the company’s mirrors.
Optical segment
Overview
The mainstay products in the Optical segment are X-ray focusing mirrors for synchrotron radiation facilities. The mirrors are manufactured applying nano-machining technology EEM (elastic emission machining) and nano-measurement technologies RADSI/MSI (relative angle determinable stitching interferometry and microstitching interferometry) transferred to the company. These technologies, which have their origins in joint development projects with Osaka University and RIKEN, were obtained by the company through a technology transfer. JTEC CORP sells X-ray focusing mirrors and other related mirrors to synchrotron radiation facilities and X-ray free electron laser facilities in Japan and overseas.
Background to bringing X-ray focusing mirrors to commercial scale
JTEC CORP was collaborating with Osaka University prior to its involvement in X-ray focusing mirrors. From 1996, the company started developing businesses based on technologies owned by a research lab of Osaka University, and engaged in joint development projects that would eventually establish the foundations of the present Optical segment and the equipment development business. Two examples of such projects were “Purification system for high-concentration slurry used to create perfect surfaces” in 1997, and “Development of an ultra-precise deburring and determination device using plasma chemical vaporization machining (PCVM)” in 2002.
In 2001, JTEC CORP embarked on a joint development project called “Creating world-class X-ray total reflection mirrors” with Osaka University and RIKEN Harima Branch (a research center of RIKEN that manages SPring-8, a large synchrotron radiation facility that went into operation in 1997), and began developing high-precision mirrors using a machining process that combined PCVM (an ultra-planarization technology that has altered conventional principles of machining technology) and elastic emission machining (EEM).
Synchrotron radiation facilities conduct structural analysis in fields ranging from the study of physical properties to life science, materials science, environmental science and industrial applications. When JTEC CORP joined the project mentioned above, international competition among such facilities was heating up, with each facility aiming to achieve even more advanced levels of nano-analysis. The directivity and brightness of the radiated energy at these facilities is proportional to the energy of the electrons in acceleration. If the energy of the electrons is high and the directional change is significant, the radiation starts to include short wavelengths such as X-rays. For this reason, linear accelerators continued to be expanded in length and circular accelerators in size.
After third-generation synchrotron radiation facilities such as SPring-8 in Japan, the European Synchrotron Radiation Facility (ESRF) in France, and the Advanced Photon Source (APS) in the US went into operation, there was a sharp increase in demand for high-precision mirrors that maximally captured the performance of superior X-ray light sources. Enhancing the high optical resolution of an X-ray light source not only requires the use of a short-wavelength light source and corresponding brightness (photon density), but also “narrow” X-ray beams. This means the focus size needs to be ultra-miniaturized, which requires nano-level focusing technology, the optical elements to achieve such focusing, and the technology to measure the shape of elements.
Against the backdrop of intense global competition in mirror development, in 2005 Osaka University became the first institution to successfully develop high-precision mirrors using a combination of PCVM and EEM machining technologies. With the use of KB mirrors, which enabled both nano-level aspheric shape accuracy and surface smoothness, Osaka University became the first in the world to focus hard X-rays to the diffraction limit.
In 2006, construction began for the next generation XFEL (X-ray Free Electron Laser) facility SACLA, which is located next to the third-generation synchrotron radiation facility SPring-8 (XFEL achieves 10x the brightness of hard X-rays produced by SPring-8). From autumn 2006, Osaka University started development of XFEL focusing mirrors that would maximally leverage the light source capacity of SACLA. Although the XFEL wavelength produced by SACLA was sufficiently short, the photon density had to be increased. This required the development of novel mirrors with high precision (high-precision focusing mirrors to miniaturize the focus size) and a larger size (shape measurement and machining technology for large 400mm focusing mirrors necessary to receive all the SACLA XFEL beams). (As of 2018, overseas XFEL facilities used the company’s 1,000mm mirrors.)
After incorporating preliminary data for the 1km-long beamline (BL29XUL) of SPring-8 (which produces phase-aligned hard X-rays that are close to SACLA’s XFEL) into its machining technology, Osaka University succeeded in manufacturing Kirkpatrick-Baez (KB) mirrors (special aspherical mirrors with ellipse properties) with sufficiently high precision. JTEC CORP subsequently joined the effort, and the two partners succeeded in measuring the shape of a 400mm KB mirror in 2008. They shortened the machining time required to manufacture 400mm KB mirrors by using electrolytic in-process dressing (ELID) grinding developed by RIKEN as a preprocessing step before applying EEM.
JTEC CORP starts to move X-ray nano focusing mirrors to commercial scale
JTEC CORP’s next move marked a major turning point for the company. In April 2005, the company set out to bring development of X-ray nano focusing mirrors to a commercial scale. The initiative was based on the research achievements of Osaka University and RIKEN in the field of nano-level surface fabrication technology, including nano-machining technology EEM (elastic emission machining) and nano-measurement technologies RADSI (relative angle determinable stitching interferometry) and MSI (microstitching interferometry). It then pushed forward with mass production of mirrors as demand for high-precision mirrors based on this research increased following research presentations at international conferences, where synchrotron radiation and other research facilities showed strong interest in such products. Mass production had proved difficult for Osaka University and RIKEN, and this was one reason they approached JTEC CORP with the request to turn their research achievements into a commercially viable business.
JTEC CORP succeeded in automating EEM equipment, which had been manually operated during the research stage. The company was successful in developing automated EEM equipment and measurement equipment that incorporated RADSI and MSI nano-measurement technologies enabling mass production. We understand that automated manufacturing of long mirrors required changes in measurement mechanisms (Osaka University and RIKEN had only created small mirrors using non-automated equipment), and therefore was a major achievement. The company had previously mainly focused on bio-related automated equipment in the LS & Equipment Development segment, but decided to utilize this breakthrough in X-ray nano focusing mirrors to establish the Optical segment. Sales subsequently expanded, surpassing sales of the LS & Equipment Development segment for the first time in FY06/09. As of FY06/20, the Optical segment had the company's mainstay products.