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HPC Systems

HPC Systems 6597

HPCシステムズ
Recent Updates
2022-05-16
Q3 FY06/22 Flash update
2022-03-29
Capital and business alliance with QunaSys Inc.
2022-03-09
1H FY06/22 report update
Get in touch
https://www.hpc.co.jp/
03-5446-5530
Summary
HPC Systems Inc. operates in two segments: High Performance Computing and Configure to Order.
Electronic Equipment, Instruments & Components
Key dates
2021-11-02
Coverage initiation
Full Report
2022-05-16
Q3 FY06/22 Flash update
2022-05-16
1H FY06/22 flash update
2022-02-12
Download

Executive summary

Business overview

HPC Systems Inc. operates in two segments: High Performance Computing (HPC; 67.8% of total revenue and 73.0% of total operating profit in FY06/21) and Configure to Order (CTO; 32.2%, 27.0%). In FY06/21, it had revenue of JPY5.8bn (+23.2% YoY) and operating profit of JPY677mn (+41.6% YoY).

In the HPC segment, the company provides one-stop services for high-performance computing (HPC). These include sales of HPC systems for scientific computing and simulation software; systems integration services (i.e., building scientific computing, artificial intelligence [AI], and deep-learning environments); services to parallelize and speed up simulation software programs; development and sales of computational chemistry and materials informatics software; contracted computing services and support for scientific R&D; and science cloud services (Software as a Service for drug discovery, materials R&D, etc.).

In the CTO segment, HPC Systems supplies customized industrial and edge computers that meet customer applications and challenges as determined through interviews. It proposes specifications for such computers, and develops, manufactures, and maintains them, ensuring long-term stable supply of products. Industrial and edge computers are used as controlling equipment in plant production facilities, manufacturing equipment, inspection equipment, control devices, transportation infrastructure, automated driving applications, and retail stores. The company customizes these products in accordance with customer requirements such as pricing, performance, quality levels, operation in harsh environments, and resistance to low or high temperatures, dust, water, and static electricity.

In the HPC segment, the company procures high-performance computer hardware from major electronics manufacturers, and configures these to match the operating requirements of its customers. It builds small to large computer clusters that connect workstations, servers, and storage devices through high-speed networking equipment, installs the necessary software, and optimizes these systems as supercomputers. The hardware and software that make up these systems differ from consumer PCs in that getting them to operate requires more than simply setting up the necessary connections and installing the appropriate software. The hardware, operating system (OS), middleware, software, and network must be configured and optimized to run multiple computational processes in parallel while reducing processing time, and this requires the expertise of a company like HPC Systems.  

Scientific computing is used in a range of fields such as elementary particle and astronomical research, weather forecasting, global warming projections, predictions of disasters such as earthquakes and tsunamis, drug discovery, development of semiconductors and battery materials, and structural and aerodynamic analysis of vehicles and aircraft. HPC Systems excels in building systems for the life science and material science fields, and it mainly supplies these to universities, public research institutions, and R&D divisions of private companies. The process to develop new drugs or materials involves synthesizing various compounds as potential candidates for new drugs or materials, and verifying whether these deliver the desired effect. Supercomputers can simulate combinations of countless different materials, allowing researchers to predict the attributes of new materials before they produce them. This contributes to more effective and efficient development and verification.  

Other companies that operate in the systems integration field are HPC Solutions Co., Ltd. (unlisted), HPC Tech Corporation (unlisted), and Visual Technology, Inc. (unlisted). However, HPC Systems does not actually compete with these companies for large projects or in the computational chemistry field. The target market for the HPC segment is worth JPY260.0bn (based on a 2021 company survey), and the segment recorded revenue of JPY4.0bn (+23.6% YoY) in FY06/21.   

The HPC segment generates a mix of one-time revenue and recurring revenue, with the former accounting for over 90% of the total revenue. One-time revenue is determined by order value and the number of orders, and the lead time for orders is roughly three months. Order value is several to 10 million yen for small orders, goes up to JPY50mn for mid-sized orders, and reaches or exceeds JPY400mn for large orders. Recurring revenue is monthly revenue generated from the company’s science cloud services, and varies based on the type of services requested by customers. 

The target market for the CTO segment is worth JPY178.0bn (based on a 2021 company survey), and the segment recorded revenue of JPY1.9bn (+22.8% YoY) in FY06/21. Using a high-mix/low-volume manufacturing approach, HPC Systems prepares custom designs for industrial computers in accordance with customer requirements, and procures and assembles the optimal parts to build these products. In contrast, its rivals mass-produce and sell general-purpose industrial computers. HPC Systems has also established an organization that enables it to supply its products to customers over the long term. The company’s peers include Contec Ltd. (TSE2: 6639) and Innotech Corporation (TSE1: 9880), but it do not actually compete with these companies, which mass-produce general-purpose industrial computers. HPC Systems has lower revenue than its peers, but it boasts higher profit margins.

In the CTO segment, HPC Systems mainly supplies computers for inspection equipment (e.g., inspection and monitoring of products in plants), Internet of Things (IoT) computers used in plants (e.g., network-based management of cameras and monitoring in plants), and high-end industrial computers for medical image processing (e.g., computed tomography [CT] scans and magnetic resonance imaging [MRI]). Customers often place repeat orders once they have integrated a computer supplied by the company into one of their products, and this trend is reflected in a repeat purchase rate of over 90%.

In both HPC and CTO segments, HPC Systems provides products and services tailored to customer needs (i.e., it procures hardware/software, assembles these, and ships the final products). Accordingly, variable (materials) costs accounted for 97.8% of cost of revenue in FY06/21 (cost of revenue ratio: 69.0%). Its SG&A ratio stood at 19.4%, mostly comprising fixed costs such as personnel expenses and depreciation. 

Earnings trends

In FY06/21, revenue was JPY5.8bn (+23.3% YoY), operating profit JPY677mn (+41.6% YoY), recurring profit JPY666mn (+43.1% YoY), and net income JPY447mn (+45.4% YoY). The results reflected contributions from large orders received from universities and public research institutions. The SG&A expense ratio improved 3.3pp YoY as revenue growth outpaced the increase in SG&A expenses, and OPM improved 1.5pp YoY to 11.6%.

In FY06/22, the company forecasts revenue of JPY6.4bn (+10.2% YoY), operating profit of JPY745mn (+10.2% YoY), recurring profit of JPY741mn (+11.3% YoY), and net income of JPY496mn (+11.0% YoY). HPC Systems thinks the business environment is hard to read at present because it remains unclear when the COVID-19 pandemic will subside and give way to an economic recovery, and also due to impact from semiconductor shortages.

In August 2021, the company unveiled its medium-term management plan “Vision 2024” (FY06/22–FY06/24). As numerical targets, the plan calls for revenue of JPY10.0bn (three-year CAGR of 19.7%), operating profit of JPY1.3bn (23.8%), and ROE of 26% (28.1% in FY06/21). By segment, it looks for revenue of JPY7.0bn (three-year CAGR of 21.0%) and operating profit of

Strengths and weaknesses

Shared Research regards HPC System’s strengths as: (1) its expertise in supercomputers and scientific computing software for quantum chemical computing, molecular dynamics, and other fields in the HPC segment , (2) its ability to rapidly deliver cutting-edge products at affordable prices and secure orders mainly through customer requests in the HPC segment, and (3) its capacity to sell and produce high-performance industrial computers with custom designs tailored to the needs of its customers using a high-mix/low-volume manufacturing approach in the CTO segment. We see its weaknesses as (1) a susceptibility to direct impact of disruptions at suppliers of semiconductors and peripheral electronic parts, (2) a small operational scale that hinders the company’s ability to accept large projects in the HPC segment, and (3) difficulties in generating economies of scale in the CTO segment due to a high-mix/low-volume manufacturing structure. For details, see the Strengths and weaknesses section.  

Key financial data

Income statementFY03/14FY06/14FY06/15FY06/16FY06/17FY06/18FY06/19FY06/20FY06/21FY06/22
(JPYmn)Non-cons.Non-cons.Non-cons.Non-cons.Non-cons.Non-cons.Non-cons.Non-cons.Non-cons.Est.
Revenue2,6663702,5872,8963,9014,0535,3964,7255,8286,425
YoY--11.9%34.7%3.9%33.1%-12.4%23.3%10.2%
Gross profit1,0301,1901,3981,5511,806
YoY15.5%17.5%10.9%16.5%
Gross profit margin26.4%29.4%25.9%32.8%31.0%
Operating profit244282370478677745
YoY15.6%30.9%29.3%41.6%10.1%
Operating profit margin6.3%7.0%6.8%10.1%11.6%11.6%
Recurring profit130-3311475254292367465666741
YoY---34.1%238.3%14.8%25.8%26.8%43.1%11.3%
Recurring profit margin4.9%-4.4%2.6%6.5%7.2%6.8%9.8%11.4%11.5%
Net income68-304239163190219307447496
YoY---8.0%317.9%16.5%15.6%40.1%45.4%10.9%
Net margin2.6%-1.6%1.3%4.2%4.7%4.1%6.5%7.7%7.7%
Per-share data (split- and reverse split-adjusted; JPY)
Shares issued (year-end; '000)88888884,1194,234
EPS16.86-7.4610.509.6540.3446.9954.3375.37107.87119.52
EPS (fully diluted)-------71.06104.06
Dividend per share0.000.000.000.000.000.000.000.000.000.00
Book value per share105.4898.02108.81118.77159.11206.10260.43353.00416.90
Balance sheet (JPYmn)
Cash and cash equivalents7945769381,3991,731
Total current assets1,5851,8772,0542,4243,007
Tangible fixed assets939892101123
Investments and other assets25228392125
Intangible assets3425493727
Total assets1,7372,0222,2772,6543,282
Accounts payable32134
Short-term debt546603463624589
Total current liabilities9401,0731,0951,1451,286
Long-term debt15411712854263
Total fixed liabilities15411712854263
Total liabilities1,0941,1891,2241,1991,549
Total net assets6438331,0531,4551,732
Total interest-bearing debt700719592678853
Cash flow statement (JPYmn)
Cash flows from operating activities200-191537342426
Cash flows from investing activities-42-47-48-61-100
Cash flows from financing activities25419-1261814
Financial ratios
ROA (RP-based)9.3%6.1%17.4%15.5%17.1%18.9%22.4%
ROE10.1%8.5%29.0%25.7%23.3%24.5%28.1%
Equity ratio33.5%34.5%40.5%37.0%41.2%46.2%54.8%52.8%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods. 

Recent updates

Capital and business alliance with QunaSys Inc.

2022-03-29

HPC Systems Inc. announced an agreement to form a capital and business alliance with QunaSys Inc. (unlisted), with a view to accelerating business development in computational quantum chemistry.

In July 2020, HPC Systems entered into a business alliance with QunaSys, to pursue development in the computational quantum chemistry field. The aim of this business alliance was to fuse HPC Systems' advanced  technologies and solutions in computational chemistry with the cutting-edge technologies of QunaSys, a developer of quantum computing applications, to develop the world’s first computational chemistry solution for quantum computers and enhance both companies' enterprise value in the process. 

The two companies have been engaged in R&D and business development as part of this alliance. As these activities have generated synergies in both technology and business, HPC Systems has agreed to enter into a capital and business alliance with QunaSys by way of acting as an underwriter for the latter's Series B third-party allotment of new shares (investment amount and stake undisclosed).

The parties believe that this capital and business alliance will further strengthen their collaborative relationship and accelerate business growth toward the practical application of quantum computing, expected within a few years.

Trends and outlook

Quarterly trends and results

Quarterly results
Earnings (cumulative)FY06/20FY06/21FY06/22FY06/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Revenue1,2372,3603,9384,7258392,3265,0515,8288742,2374,98977.7%6,425
YoY---12.9%-12.4%-32.2%-1.4%28.3%23.3%4.2%-3.8%-1.2%10.2%
Cost of revenue8101,5562,6623,1755781,5943,5234,0225631,5083,432
YoY---20.7%-20.6%-28.6%2.5%32.4%26.7%-2.7%-5.4%-2.6%
Cost of revenue ratio65.5%65.9%67.6%67.2%69.0%68.5%69.7%69.0%64.4%67.4%68.8%
Gross profit4268041,2761,5512607321,5281,8063117281,558
YoY--9.4%10.9%-38.9%-9.0%19.7%16.5%19.4%-0.4%1.9%
Gross profit margin34.5%34.1%32.4%32.8%31.0%31.5%30.3%31.0%35.6%32.6%31.2%
SG&A expenses2705538261,0732515338221,129275591919
YoY--12.1%4.3%-6.8%-3.7%-0.4%5.2%9.2%10.8%11.8%
SG&A ratio21.8%23.4%21.0%22.7%30.0%22.9%16.3%19.4%31.4%26.4%18.4%
Operating profit15725145147891987066773613863885.7%745
YoY--4.7%29.3%-94.3%-20.8%56.6%41.6%303.2%-30.6%-9.6%10.1%
Operating profit margin12.7%10.6%11.4%10.1%1.1%8.5%14.0%11.6%4.1%6.2%12.8%11.6%
Recurring profit146238439465102016966663212862183.9%741
YoY--2.6%26.8%-93.4%-15.8%58.6%43.1%232.5%-36.1%-10.7%11.3%
Recurring profit margin11.8%10.1%11.1%9.8%1.1%8.6%13.8%11.4%3.7%5.7%12.5%11.5%
Net income1001613033075137479447208543287.0%496
YoY--13.5%40.1%-95.1%-15.3%57.8%45.4%313.9%-38.0%-9.8%10.9%
Net margin8.1%6.8%7.7%6.5%0.6%5.9%9.5%7.7%2.3%3.8%8.6%7.7%
Earnings (quarterly)FY06/20FY06/21FY06/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
Revenue1,2371,1231,5797878391,4872,7257778741,3632,753
YoY----9.9%-32.2%32.5%72.6%-1.3%4.2%-8.4%1.0%
Cost of revenue8107451,1065135781,0161,9294995639451,924
YoY----20.3%-28.6%36.3%74.4%-2.7%-2.7%-7.0%-0.3%
Cost of revenue ratio65.5%66.4%70.1%65.2%69.0%68.3%70.8%64.3%64.4%69.3%69.9%
Gross profit426377473274260471797278311418829
YoY---18.9%-38.9%24.8%68.6%1.3%19.4%-11.3%4.1%
Gross profit margin34.5%33.6%29.9%34.8%31.0%31.7%29.2%35.7%35.6%30.7%30.1%
SG&A expenses270283272247251282289307275316329
YoY----15.3%-6.8%-0.6%6.2%24.2%9.2%12.3%13.6%
SG&A ratio21.8%25.2%17.3%31.4%30.0%18.9%10.6%39.5%31.4%23.2%11.9%
Operating profit15794200279189507-2936101501
YoY-----94.3%101.5%153.5%-303.2%-46.4%-1.4%
Operating profit margin12.7%8.4%12.7%3.4%1.1%12.7%18.6%-4.1%7.4%18.2%
Recurring profit146922012610191496-313296493
YoY-----93.4%107.3%147.1%-232.5%-49.7%-0.5%
Recurring profit margin11.8%8.2%12.7%3.4%1.1%12.8%18.2%-3.7%7.1%17.9%
Net income1006214245132342-322065347
YoY-----95.1%113.5%140.7%-313.9%-51.0%1.4%
Net margin8.1%5.5%9.0%0.5%0.6%8.9%12.6%-2.3%4.7%12.6%
Earnings (cumulative)FY06/20FY06/21FY06/22FY06/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Revenue1,2372,3603,9384,7258392,3265,0515,8288742,2374,98977.7%6,425
YoY-24.5%-15.2%-12.9%-12.4%-32.2%-1.4%28.3%23.3%4.2%-3.8%-1.2%10.2%
HPC business8771,6192,7833,1986061,5163,6593,9535111,4203,57882.7%4,325
YoY---15.0%-15.5%-30.9%-6.4%31.5%23.6%-15.7%-6.3%-2.2%9.4%
CTO business3607401,1551,5272338101,3921,8753638171,41267.2%2,100
YoY---7.5%-5.1%-35.3%9.4%20.5%22.8%55.9%0.8%1.4%12.0%
Operating profit157251451478919870667736138638
YoY--4.7%29.3%-94.3%-20.8%56.6%41.6%303.2%-30.6%-9.6%
Net margin12.7%10.6%11.4%10.1%1.1%8.5%14.0%11.6%4.1%6.2%12.8%
HPC business127176314299181305594942085488
YoY--11.7%41.3%-85.5%-26.4%77.8%65.3%10.6%-34.2%-12.7%
Net margin14.5%10.9%11.3%9.3%3.0%8.6%15.3%12.5%4.0%6.0%13.6%
CTO business3074136179-9691471831652150
YoY---8.7%13.2%--7.6%7.8%2.1%--23.8%2.4%
Net margin8.2%10.1%11.8%11.7%-8.5%10.6%9.8%4.4%6.4%10.7%
Earnings (quarterly)FY06/20FY06/21FY06/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
Revenue1,2371,1231,5797878391,4872,7257778741,3632,753
YoY-24.5%-2.0%-9.1%-9.9%-32.2%32.5%72.6%-1.3%4.2%-8.4%1.0%
HPC business8777421,1634156069102,1432945119092,158
YoY----19.1%-30.9%22.6%84.2%-29.3%-15.7%-0.1%0.7%
CTO business360380415372233577582483363454595
YoY---3.2%-35.3%51.8%40.2%30.0%55.9%-21.4%2.2%
Operating profit15794200279189507-2936101501
YoY64.8%28.8%-23.3%--94.3%101.5%153.5%-303.2%-46.4%-1.4%
Net margin12.7%8.4%12.7%3.4%1.1%12.7%18.6%-4.1%7.4%18.2%
HPC business12749138-1618111429-652065403
YoY-----85.5%126.0%210.5%-10.6%-41.7%-6.2%
Net margin14.5%6.6%11.9%-3.0%12.2%20.0%-4.0%7.1%18.7%
CTO business30456243-9787836163798
YoY---384.4%-74.6%26.2%-15.8%--53.3%25.4%
Net margin8.2%11.8%14.9%11.5%-13.5%13.4%7.4%4.4%8.1%16.5%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.

Cumulative Q3 FY06/22 results (out May 13, 2022)

  • Revenue: JPY5.0mn (-1.2% YoY)
  • Operating profit: JPY638mn (-9.6% YoY)
  • Recurring profit: JPY621mn (-10.7% YoY)
  • Net income: JPY432mn (-9.8% YoY)  

The company adopted the new Accounting Standard for Revenue Recognition starting Q1 FY06/22. As a result of the change in accounting policy, revenue, operating profit, ordinary profit, and net income for cumulative Q3 decreased by JPY42mn.

The company made no change to its full-year forecast for FY06/22. The progress versus the full-year forecast was 77.7% for revenue (versus 86.7% in cumulative Q3 FY06/21 vs. full-year result), 85.7% for operating profit (104.3%), 83.9% for recurring profit (104.6%), and 87.0% for net income (107.1%) .

In cumulative Q3 FY06/22, revenue was JPY5.0bn (-1.2% YoY), breaking down into JPY3.6bn for the HPC segment (-2.2% YoY) and JPY1.4bn for the CTO segment (+1.4% YoY). The cost of revenue ratio was 68.8%, down 0.9pp YoY due to the recording of revenue from high-margin projects, which offset higher material prices. The SG&A ratio was 18.4%, up 2.1pp YoY on higher personnel expenses stemming from aggressive hiring in line with the medium-term management plan. Operating profit was JPY638mn (-9.6% YoY) and the OPM was 12.8% (-1.2pp YoY).

HPC segment
  • Revenue: JPY3.6bn (-2.2% YoY)
  • Operating profit: JPY488mn (-12.7% YoY) 

Orders declined YoY in Q3 (three months). Orders from universities and government offices were down YoY due to the absence of extraordinary demand seen in the previous year. In the private sector, orders increased in the computational chemistry solutions (CCS) and computer aided engineering solution (CAES) areas, but decreased in the data science solution (DSS) area.

The company recorded revenue in Q3 from large orders which it received in Q4 FY06/21. Revenue from the private sector increased 59% YoY, backed by strong performance of DDS projects for AI and deep learning development platforms and CCS projects for materials development and drug discovery research. On the other hand, revenue from universities and government offices declined 48% YoY in reaction to the extraordinary demand seen in the previous fiscal year.

The company was able to sell its science cloud system to overseas customers for the first time in Q1. HPC Systems has positioned overseas expansion as a key initiative in its medium-term plan (See "(5) Advance into overseas markets and promote related operation” in the Medium- to long-term outlook section).

OPM declined 1.7pp YoY to 13.6%. This was attributable to an increase in SG&A expenses on a higher headcount (another key policy of the medium-term plan, "(2) Cultivate human capital and recruit human resources").

CTO segment
  • Revenue: JPY1.4bn  (+1.4% YoY)
  • Operating profit: JPY150mn (+2.4% YoY)

Orders were up 1.5x YoY in Q3 (three months). Orders from repeat customers increased for SF machine vision projects for semiconductor-related equipment (wafer inspection, etc.) and Edge IoT projects. Orders from new customers were robust for Edge IoT and Edge AI projects.

Revenue from repeat customers increased YoY. Major contributions came from Edge IoT projects for medical equipment and amusement equipment, as well as from SF machine vision projects for semiconductor-related equipment (wafer inspection, etc.). Revenue from new customers declined due to the absence of large orders received in the previous year.

OPM improved 0.1pp YoY to 10.7%. Although personnel expenses rose on a higher headcount (a key policy of the medium-term plan) and depreciation expenses increased due to the upgrade of testing and inspection equipment, these were more than offset by the recording of revenue from high-margin projects.

For details on previous quarterly and annual results, please refer to the Historical results section.

Company forecast for FY06/22 

EarningsFY06/20FY06/21FY06/22
(JPYmn)1H2HFY1H2HFY1H2H Est.FY Est.
Revenue2,3602,3664,7252,3263,5025,8282,2374,1886,425
YoY---12.4%-1.4%48.0%23.3%-3.8%19.6%10.2%
Cost of revenue1,5561,6193,1751,5942,4284,0221,508
YoY---20.6%2.5%50.0%26.7%-5.4%
Cost of revenue ratio65.9%68.4%67.2%68.5%69.3%69.0%67.4%
Gross profit8047471,5517321,0741,806728
YoY--10.9%-9.0%43.9%16.5%-0.4%
Gross profit margin34.1%31.6%32.8%31.5%30.7%31.0%32.6%
SG&A expenses5535201,0735335961,129591
YoY--4.3%-3.7%14.7%5.2%10.8%
SG&A ratio23.4%22.0%22.7%22.9%17.0%19.4%26.4%
Operating profit251227478198478677138607745
YoY--29.3%-20.8%110.5%41.6%-30.6%27.0%10.1%
Operating profit margin10.6%9.6%10.1%8.5%13.7%11.6%6.2%14.5%11.6%
Recurring profit238227465201465666128613741
YoY--26.8%-15.8%104.8%43.1%-36.1%31.7%11.3%
Recurring profit margin10.1%9.6%9.8%8.6%13.3%11.4%5.7%14.6%11.5%
Net income16114630713731044785411496
YoY--40.1%-15.3%112.5%45.4%-38.0%32.5%10.9%
Net margin6.8%6.2%6.5%5.9%8.9%7.7%3.8%9.8%7.7%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.

For FY06/22, HPC Systems forecasts revenue of JPY6.4bn (+10.2% YoY), operating profit of JPY745mn (+10.1% YoY), recurring profit of JPY741mn (+11.3% YoY), and net income of JPY496mn (+10.9% YoY).

The company has compiled conservative forecasts for FY06/22 as it expects shortages of semiconductors and peripheral electronic components to cause disruptions in its supply chain.

HPC segment

HPC Systems forecasts revenue of JPY4.3bn (+9.4% YoY) in FY06/22. Following a rise in revenue from universities and public research institutions driven by the government’s supplementary budget in FY06/21, the company expects demand to revert to normal levels in FY06/22. Demand from private companies is rebounding across the board, and demand for drug discovery, materials development, and AI-related applications has been particularly strong. The company also secured a large order related to machine learning in Q4 FY06/21, and plans to record related revenue in FY06/22.   

CTO segment

The company forecasts revenue of JPY2.1bn (+12.0% YoY) in FY06/22. It expects a recovery in demand for medical equipment and amusement equipment applications after a slump in demand attributable to the COVID-19 pandemic in FY06/21. In addition, demand for machine vision and inspection equipment applications also remains strong.

Machine vision: A form of computer-based image processing used in areas such as automated inspections, process control, and robot coordination. Specific tasks that can be achieved with machine vision include counting the number of objects on a conveyor belt, scanning serial numbers, and detecting damage on the surface of objects. 

Company forecasts versus results

The table below shows how HPC Systems’ results have compared with its forecasts. The company revised up its FY06/21 forecast when it announced Q3 FY06/21 results. 

Company forecasts versus results 
Results vs. Initial Est.FY06/20FY06/21
(JPYmn)
RevenueInitial Est.5,7855,200
Results4,7255,828
Results vs. Initial Est.-18.3%12.1%
Operating profitInitial Est.469505
Results478677
Results vs. Initial Est.1.9%34.0%
Recurring profitInitial Est.457495
Results465666
Results vs. Initial Est.1.8%34.5%
Net incomeInitial Est.309330
Results307447
Results vs. Initial Est.-0.5%35.5%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods. 

Medium- to long-term outlook

HPC Systems aspires to be a “global visionary company of the 21st century that specializes in the field of computer science” with the capacity to endure through several eras and continue operating beyond 2030. As a medium-term goal, it aims to become the leader in a global niche market by 2030. It has formulated the medium-term management plan “Vision 2024” (FY06/22–FY06/24) using a backcasting approach, and unveiled the plan in August 2021. 

As numerical targets, the plan calls for FY06/24 revenue of JPY10.0bn (three-year CAGR of 19.7%), operating profit of JPY1.3bn (23.8%), and ROE of 26% (28.1% in FY06/21). The breakdown by segment is revenue of JPY7.0bn (three-year CAGR of 21.0%) and operating profit of JPY960mn (24.9%) in the HPC segment, and revenue of JPY3.0bn (17.0%) and operating profit of JPY320mn (20.9%) in the CTO segment. In addition, the plan looks to keep ROE above 25% through FY06/24. It outlines specific priority measures for each segment, which are discussed in detail below.

Numerical targets included in medium-term plan “Vision 2024” (FY06/22–FY06/24)
FY06/21FY06/243-year CAGR
(JPYmn)ResultsTargets
Revenue5,82810,00019.7%
HPC business3,9537,00021.0%
CTO business1,8753,00017.0%
Operating profit6771,28023.7%
Operating profit margin11.6%12.8%
HPC business49496024.8%
Operating profit margin12.5%13.7%
CTO business18332020.5%
Operating profit margin9.8%10.7%
ROE28.1%26%
Source: Company data

Based on its own survey, HPC Systems estimates the target market for the HPC segment will expand at a three-year CAGR of 13.0% from JPY260.0bn in 2021 to JPY380.0bn in 2024, and aims for above-market growth of 21.0% in the segment. Similarly, it estimates the target market for the CTO segment will grow at a CAGR of 11.1% from JPY187.0bn in 2021 to JPY257.0bn in 2024, and aims for above-market growth of 17.0% in the segment.

Based on its own survey, HPC Systems estimates the target market for the HPC segment will expand at a three-year CAGR of 13.0% from JPY260.0bn in 2021 to JPY380.0bn in 2024, and aims for above-market growth of 21.0% in the segment. Similarly, it estimates the target market for the CTO segment will grow at a CAGR of 11.1% from JPY187.0bn in 2021 to JPY257.0bn in 2024, and aims for above-market growth of 17.0% in the segment. 

As priority measures, the company will (1) evolve its core businesses, (2) cultivate human capital and recruit human resources, (3) create new businesses, (4) strengthen management foundations, and (5) advance into overseas markets and promote related operations.

(1) Evolve core businesses 

Priority measures in the HPC segment
(1) Develop practical applications for computational chemistry and materials informatics

The company aims to increase revenue in this field from JPY400mn in FY06/21 to JPY1.0bn in FY06/24. In addition to the computational chemistry software it already provides, it plans to promote the adoption and expansion of materials informatics and the Global Reaction Route Mapping (GRRM) program it has jointly developed with Hokkaido University.    

Computational science: A field of study that builds numerical and quantitative evaluation models to resolve scientific problems with computers.

Materials informatics: A technology that utilizes artificial intelligence (AI) applications such as machine learning and deep learning to build statistical models from databases that map the relationships between the attributes and chemical structure of materials. By predicting the attributes of materials based on their chemical structure, it facilitates the discovery of chemical structures that possess a desired set of attributes, and thus contributes to enhanced efficiency in new materials development. 

(2) Standardize high-performance computing (HPC) systems integration 

Integrate heterogenous hardware environments and diverse software in HPC-AI platforms while considering future strategies. As a KPI, expand the new adoption rate for HPC-AI platforms to 50%.

Heterogeneous: A condition in which equipment, devices, and software with different roles and uses are combined into one system, and function on the basis of mutual coordination and division of roles.

(3) Diversify science cloud services 

Under its science cloud services, HPC Systems provides various types of scientific computing software to customers over the cloud. The company will aim to convert 20 or more new customers into repeat customers for its cloud services.

Priority measures in the CTO segment 

HPC Systems aims to expand revenue from repeat customers in the CTO segment by 130% from FY06/21 to FY06/24. It believes it will need to develop growth drivers and strengthen its business foundations to achieve this target.

The company envisions the following growth drivers: (1) cultivating industry knowledge, (2) accelerating the development of customers through combination technologies, and (3) applying network technologies. It will aim to understand the challenges their customers face on the ground as well as their core needs, and supply the optimal products customers require through its proprietary combination technologies.

To strengthen its business foundations, HPC Systems plans to (1) upgrade its plants, (2) forge ahead with digital transformation (DX: adopting of digital technologies to optimize operations) and reform its business processes, and (3) improve its production technology and quality-cost-delivery (QCD). To upgrade its plants, the company looks for an 50% increase its production capacity by 2024 by making more efficient use of its current space. It will also consider expanding existing plants and building new facilities. To forge ahead with DX and reform its business processes, the company will promote the sharing and standardization of operations, diversify materials procurement channels, and promote initiatives related to chemSHERPA.

chemSHERPA: An information transmission and sharing scheme under which information on chemical materials contained in products is adequately managed across the entire supply chain from upstream to downstream companies, and effectively and efficiently transmitted. 

(2) Cultivate human capital and recruit human resources 

The company plans to increase its human resources by 20–50% from FY06/21. To this end, it will actively recruit personnel in specialized fields, provide internal training, and expand skill enhancement programs.

(3) Create new businesses

The company looks to create new businesses that can become fresh earnings drivers. Specifically, it plans to leverage synergies between its core businesses to create businesses in the fields of machine learning and AI. At the same time, it will work to expand and promote business alliances.

(4) Strengthen management foundations

The company plans to promote DX, develop business tools, and adopt robotic process automation (RPA) to strengthen its management foundations. It will also develop and operate marketing tools.

Robotic process automation (RPA): Software bots that use rules-based engines or AI to automate deskwork ordinarily performed by white collar workers.

(5) Advance into overseas markets and promote related operations 

On the overseas front, the accompany plans to (1) move into the European and US markets by forming alliances with partners in the computational chemistry field, (2) reinforce its base in Vietnam, (3) strengthen the functions of its base in Taiwan, and (4) cultivate the Chinese market. In the HPC segment, it has handled orders for the Vietnamese government and Vietnam National University in collaboration with a major trading house. By FY06/24, it plans to increase overseas revenue to JPY500mn–JPY1.0bn.

Market environment 

In March 2021, the Japanese Cabinet approved and set in motion the 6th Science, Technology, and Innovation Basic Plan that maps out the science and technology policy of the government for the five years from FY2021. The government budgets JPY30tn in R&D spending over the five-year period, and hopes this will spur private investment. On the whole, it targets public-private investment of JPY120tn.    

The plan calls for a “societal vision predicated on innovation (societal change)” as its first theme, and promotes digitalization and the implementation of data-driven strategies in the government, as well as the preparation and development of next-generation infrastructure and technology such as supercomputers and quantum technology.  

The government will establish a JPY10tn university fund, and establish a research system for universities that can compete on the global stage. 

Business

Business overview

As its mission, HPC Systems seeks to “provide researchers and developers with the tools to research and develop products.” 

The company operates in two segments: High Performance Computing (HPC; 67.8% of total revenue and 73.0% of total operating profit in FY06/21) and Configure to Order (CTO; 32.2%, 27.0%). 

Revenue by product offerings
FY06/17FY06/18FY06/19FY06/20FY06/21
(JPYmn)
Revenue3,9014,0535,3964,7255,828
YoY3.9%33.1%-12.4%23.3%
HPC business2,7382,6483,7873,1983,953
YoY-3.3%43.0%-15.5%23.6%
% of total70.2%65.3%70.2%67.7%67.8%
CTO business1,1631,4051,6091,5271,875
YoY20.8%14.6%-5.1%22.8%
% of total29.8%34.7%29.8%32.3%32.2%
Operating profit244282370478677
YoY15.6%30.9%29.3%41.6%
Operating profit margin6.3%7.0%6.8%10.1%11.6%
HPC business152139211299494
YoY-8.6%52.2%41.3%65.3%
Operating profit margin5.5%5.2%5.6%9.3%12.5%
% of total62.2%49.2%57.2%62.5%73.0%
CTO business92143158179183
YoY55.3%10.3%13.2%2.1%
Operating profit margin7.9%10.2%9.8%11.7%9.8%
% of total37.8%50.8%42.8%37.5%27.0%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods. 

HPC segment

In this segment, HPC Systems develops, manufactures, and sells hardware and software for scientific computers. Its customers are mainly universities and R&D divisions of private companies. Scientific computers such as supercomputers and workstations differ from their consumer-oriented counterparts in that they deliver vastly higher performance. The aforementioned R&D divisions rely on computational science to develop new materials, discover new drugs, and conduct simulations of fluid structures, which are an essential part of product manufacturing. The company provides the environments (integrated hardware, operating system [OS], middleware, software, and network, and related optimization) to facilitate these processes.

In this segment, HPC Systems develops, manufactures, and sells hardware and software for scientific computers. Its customers are mainly universities and R&D divisions of private companies. Scientific computers such as supercomputers and workstations differ from their consumer-oriented counterparts in that they deliver vastly higher performance. The aforementioned R&D divisions rely on computational science to develop new materials, discover new drugs, and conduct simulations of fluid structures, which are an essential part of product manufacturing. The company provides the environments (integrated hardware, operating system [OS], middleware, software, and network, and related optimization) to facilitate these processes.

Core customers

The company has supplied products and services to private companies operating in the pharmaceuticals, chemicals, materials, automotive, electrical and electronic equipment, and heavy industry sectors. It also counts many public research institutions and universities among its customers. 

From FY06/19 to FY06/21, the HPC segment accounted for 69% of total revenue. By strategic (customer) area, computer science solutions (CSS: fundamental research into science and technology) for universities and public research institutions made up 29%, data science solutions (DSS: machine learning and AI R&D) 21%, computer-aided engineering solutions (CAES: simulation data analysis during design phase) for automotive, general electrical machinery, optical equipment, precision equipment, and information and communication equipment companies 9%, computer chemistry solutions (CCS: drug discovery and materials development) for comprehensive chemicals, derivatives, electronic materials, drug discovery, and food companies 8%, and HPC infrastructure (HPCI) 2%. Over the same period, the CTO segment generated 31% of total revenue. By strategic (customer) area, Edge IoT for medical and amusement equipment accounted for 15%, smart factory solutions for manufacturing equipment and plant facilities (visual inspections and semiconductors) for 12%, and edge AI for infrastructure monitoring and security equipment for 4%.

Systems delivered to customers
Private companies
[Automotive][Electronics, electric equipment, home appliances][Chemistry and materials][Manufacturing, cosmetics, food]
・Toyota Motor・Panasonic・Sumitomo Chemical・Takeda Pharmaceutical
・Honda Motor・Sony・Mitsubishi Chemical・Astellas Pharma
・Nissan Motor・Hitachi・AGC・Otsuka Pharmaceutical
・Mazda Motor・Mitsubishi Electric・Mitsubishi Gas Chemical・Kao
・Mitsubishi Motors・Kyocera・Nippon Shokubai・Chugai Pharmaceutical
・Hino Motors・Fuji Xerox・Nissan Chemical・Yakult
・Yamaha Motor・Nikon・Kuraray・Roche Group
・Daimler AG・Omron・Daicel・Mitsubishi Tanabe Pharma
・TRI-AD・Toshiba・Kaneka・Shionogi
・Advanced Smart Mobility・Casio・Toray Industries・Ajinomoto
・J-QuAD Dynamics・Canon・Asahi Kasei・Kyowa Kirin
・TOTO・Toyobo・Sumitomo Dainippon Pharma
[Communication, Internet]・Tokyo Electron・Mitsui Chemicals
・SoftBank・HOYA・Taiyo Yuden[Heavy Industry]
・NTT・Daikin Industries・Teijin・ENEOS
・KDDI・Konica Minolta・Showa Denko・Kawasaki Heavy Industries
・NTT Docomo・Nabtesco・Tokyo Ohka Kogyo・Mitsubishi Heavy Industries
・Yahoo Japan・NGK Insulators・Mitsui E&S Holdings
・CyberAgent[AI]・NGK Spark Plug・IHI
・GMO Internet・AI inside・Tosoh・Hitachi Zosen
・SenseTime Japan・Fujifilm Holdings・Nippon Steel
[Construction]・Magne-Max Capital Management
・Shimizu・Cybercore
・Taisei・DEEPCORE
・Chiyoda・PKSHA Technology
・Kajima・Morpho
・Takenaka
Public research institutions and universities
[Public research institutions][Universities]
・Institute of Physical and Chemical Research (RIKEN)・The University of Tokyo・Keio University・Iwate University
・Japan Aerospace Exploration Agency・Kyoto University・Chuo University・University of Tsukuba
・Technical Research and Development Institute, Ministry of Defense・Osaka University・Waseda University・Shizuoka University
・National Institute of Advanced Industrial Science and Technology・Tohoku University・Sophia University・Rikkyo University
・High Energy Accelerator Research Organization・Kyushu University・Tokushima University・Kanazawa University
・Japan Atomic Energy Agency・Hokkaido University・Chukyo University・Tokyo City University
・Japan Meteorological Agency・Nagoya University・Toyama Prefectural University・Vietnam National University
・Japan Agency for Marine-Earth Science and Technology・Yamagata University・Tokyo University of Science・Stanford University
・Research Institute of Innovative Technology for the Earth・Tokyo Institute of Technology・Saga University・Princeton University
・National Institutes of Natural Sciences・Japan Advanced Institute of Science and Technology・Texas Advanced Computing Center
Source: Shared Research based on company data

Some examples of supercomputer tenders of universities or public research institutions that have been awarded to the company are shown below.

Tenders of universities and other public institutions awarded to the company 
Awarding institutionProjectBidding dateAwardeeContract price (JPYmn)
Tokyo University of Agriculture and TechnologyDeep-learning computing system for analysis of large brainwaves (full project)Jan. 2021HPC Systems Inc.13
Tokyo University of Agriculture and TechnologyComputing system for large-scale deep learningJan. 2021HPC Systems Inc.22
Tokyo University of Agriculture and TechnologyComputing system for analysis of large-scale, complex data sets (full project)Jan. 2021HPC Systems Inc.13
The University of TokyoGeneral-purpose computing platform systemOct 2020HPC Systems Inc.98
National Institute of Information and Communications TechnologyProcurement of server farm to support physical downsizing for the NICTER systemSep 2020HPC Systems Inc.68
The University of TokyoCPU/GPU computing system for quantum algorithm verification equipmentSep 2020HPC Systems Inc.35
Hokkaido UniversityHigh-performance computing systemMay 2020HPC Systems Inc.86
Hokkaido UniversityHigh-performance computing systemDec 2019HPC Systems Inc.99
Source: Shared Research based on data compiled by HPC Wire Japan

Examples of systems deployed by the company at customers are shown below. 

Systems deployed by the company 
CustomerCase study
International Center for Elementary Particle Physics, The University of TokyoExploration of supercomputer application potential in data analysis with PRIMEHPC FX700
Shizuoka UniversityChemPark cloud service used for chemical computing task in classrooms
Tokyo University of Agriculture and TechnologyReconfiguration of continuous physical spaces from complex, large datasets with signal information processing and fundamental machine-learning technologies
Tokyo City UniversityPotential of COCOA contact-tracing app for COVID-19
Yahoo Japan Corporation (TI Office of CTO Technology Strategy Division)Immersion-cooled supercomputer kukai, the world’s second-best energy-saving supercomputer
Nara Institute of Science and TechnologyPromotion of paradigm shift to support the cultivation of a new material science
Tokai University, Tokai Formula ClubConstruction of a formula one car
Nihon UniversityDesign and development of ultra-high-speed and ultra-high-density next-generation magnetic recording
Rhelixa Co., Ltd.Proprietary computational algorithm to decode the genome information
Tokyo University of TechnologyWeb application FEHA that provides simple learning environment for programming
Hoshi UniversityDevelopment of practical FMO drug discovery technology through industry-academia-government collaboration / Use of FMO drug discovery consortium and supercomputer k
True Cell SimulationsAcceleration of basic research, drug discovery, and medical research with 4D cell simulation
Rikkyo UniversityDevelopment of new molecular asymmetric catalyst based on a molecular-level understanding
Yokohama Soei UniversitySimulation-based analysis of structural flaws in crystals
Kyushu UniversityRealization of organic EL device with internal emission quantum efficiency of 100%
Maxis One Ltd.Contribution to advancements in crystal device industry with proprietary technology
Hiroshima UniversityAdvancing the field of chemistry by elucidating reaction behavior
The University of TokyoTo elucidate the basic principles of life
Ibaraki UniversityGrowing crops in a computer to assess the impact of global warming
Utsunomiya UniversityDynamics of interdependent balance state and corresponding control
Kogakuin University Shinjuku CampusMovement of molecular quantum dot cell automaton and theoretical analysis
Waseda UniversityAnalysis of chemical reaction at solid-liquid interface with theoretical calculations
Kogakuin University Shinjuku CampusSupporting the development of high-performance sports equipment with material mechanics
Kyushu UniversityEstablishing numerical wind prediction technology that supports wind power generation
Tokyo University of ScienceAttempting multiphysics computer fluid dynamics (CFD)
Wakayama UniversityUsing computational chemistry to elucidate the structure of organic compounds
Tottori UniversityProjecting changes in water environments via field observations and numerical calculations
Nagaoka University of TechnologyAttempting direct detection of gravitational waves
Hachinohe Institute of TechnologyDeveloping chemical reaction process to use microwave irradiation as a heat source
Utsunomiya UniversityTheoretically projecting turbulence phenomena in various settings
Iwate UniversityReconstructing and regenerating Iwate with thermal fluid analysis technology
Chukyo UniversityContributing to the design of new devices with large-scale calculation and spectroscopy technology
Yokohama City UniversitySimultaneous development of theory and application
Nabtesco CorporationCluster system that supports original motion technology
Source: Shared Research based on company website
Competitive landscape

Suppliers of supercomputers include major companies such as Fujitsu Limited (TSE1: 6702), NEC Corporation (TSE1: 6701), and Hewlett Packard Enterprise (NYSE: HPE). To deliver the operating environments required by its customers, HPC Systems builds computer clusters that connect workstations, servers, and storage devices through high-speed networking equipment, installs the necessary software, and optimizes the computer clusters as supercomputers. The hardware and software that make up these systems differ from consumer counterparts in that getting them to operate requires more than simply establishing the necessary connections and installing the appropriate software. The hardware, operating system (OS), middleware, software, and network must be configured and optimized to run multiple computational processes in parallel while reducing the processing time, and this requires the expertise of a company like HPC Systems.

The company identifies the following as its main areas of business.

System overview by price bracket
Source: Shared Research based on company data

Other companies that operate in the systems integration field are HPC Solutions Inc. (unlisted, consolidated subsidiary of Argo Graphics Inc. [TSE1: 7595]), HPC Tech Corporation (unlisted, consolidated subsidiary of AKIBA Holdings Co., Ltd. [TSE JASDAQ: 6840]), and Visual Technology, Inc. (unlisted). However, HPC Systems does not actually compete with these companies in the computational chemistry field. Scientific computing is used in a wide range of fields such as elementary particle and astronomical research, weather forecasting, global warming projections, predictions of disasters such as earthquakes and tsunamis, drug discovery, development of semiconductors and battery materials, and structural and aerodynamic analysis of vehicles and aircraft. HPC Systems excels in building scientific computing systems for the life science and material science fields, and its customers are mainly universities, public research institutions, and R&D divisions of private companies.

Hardware 

HPC Systems procures and delivers hardware and software in accordance with the needs of its customers. It mainly uses products supplied by Super Micro Computer, Inc. (NASDAQ: SMCI), Hewlett-Packard Company, GIGA-BYTE Technology Co., Ltd. (TWSE: 2376, Taiwan), DataDirect Networks, Inc. (unlisted, US), and Graphcore Limited (unlisted, UK). It meticulously selects hardware in function of customer budgets and desired research environments. However, the company has particularly strong ties with Super Micro Computer, and therefore sources a lot of its hardware from this supplier.       

Workstation
Rack-mounted server
Storage system
Source: Company materials
Super Micro Computer

HPC Systems has concluded a distributor agreement with Super Micro Computer, which has become a core supplier of servers for the company. From FY09/18 to FY09/21, Mr. Tau Leng, currently the Senior Vice President of Technology at Super Micro Computer, served as an outside director at HPC Systems. Super Micro Computer’s plant in Taiwan automatically configures the specifications (CPU, memory, GPU, OS, software, etc.) for orders placed by the company using an install system developed by HPC Systems. As a result, the company does not have to open the products to install parts or software after they have arrived in Japan. Thanks to these arrangements and the discounts it receives on bulk orders, HPC Systems can rapidly provide products manufactured by Super Micro Computer at affordable prices.

Incidentally, according to a survey conducted by IDC Japan in March 2021, Fujitsu Ltd. led the domestic server market in 2020 with a share of 27.4%, followed by NEC Corporation at 17.8%, Hewlett-Packard Japan, Ltd. at 12.7%, Dell Technologies Japan Inc. at 11.2%, Hitachi, Ltd. at 6.0%, other companies at 13.6%, and ODM production at 11.3%. Super Micro Computer was included under ODM production in the survey. On its website, Super Micro Computer states it was the world’s fifth largest supplier of servers by shipments in 2019.

Super Micro Computer works with several distributors in Japan, HPC Systems being one of them.

Software

We now turn to the software offered by HPC Systems for scientific computing. The company handles a broad range of software packages in the field of quantum chemistry, proposing solutions tailored to the needs of its customers. One example of such a software package is Gaussian. Developed by Gaussian, Inc., this quantum chemistry computing application uses cutting-edge technology to model the electronic structure of various compounds. It is used by many researchers in the fields of chemistry, biochemistry, and physics, and has become the de-facto standard for research in these areas. In Japan, Gaussian is sold by HPC Systems, Hulinks Inc. (unlisted, consolidated subsidiary of Argo Graphics Inc. [TSE1: 7595]), Conflex Corporation (unlisted), and Molsis Inc. (unlisted).

In the quantum chemistry and molecular dynamics fields, HPC Systems sells software developed by its own engineers, many of whom hold relevant PhD or master’s degrees. Having used standard software packages such as Gaussian and AMBER during their academic training, these engineers have a firm grasp of the functions that are either missing or difficult to use in these products, and develop software that makes up for these flaws. For example, the company released the Reaction Plus Pro software in June 2018. This software relies on Gaussian for computational processes but extends its functionality.

In July 2020, HPC Systems concluded a joint research agreement with the Faculty of Science at Hokkaido University. The aim of the agreement is to jointly research global reaction route mapping (GRRM), and commercialize related outcomes in the science cloud services offered by the company.

In February 2021, the company successfully developed a groundbreaking molecular structure generation algorithm as part of its materials informatics program development, and applied for a corresponding patent.

Materials informatics: A new methodology in the materials development field that leverages big data analysis and AI technologies to reduce the costs and accelerate the pace of materials development. In the past, the molecular design process in materials development entailed synthesizing materials deemed to express a desired set of attributes. This approach is still commonly used in R&D today, but its drawback is that the development of new materials depends on the experience and intuition of researchers. In recent years, materials informatics has been promoted as a new methodology that takes advantage of machine learning technology underpinned by massive amounts of data to predict the attributes of new materials in a short time without having to rely on simulations.

Examples of scientific computing software packages supplied by the company
Source: Shared Research based on company data
Science cloud services

The company launched its science cloud services in June 2018. Because they are delivered over the Internet, these services allow customers to perform scientific computing on PCs, removing the need to purchase expensive computers or software. The science cloud services have been mainly adopted by chemical manufacturers to date.

In April 2021, the company also started providing a paid science cloud service that demonstrates computing processes running on the supercomputer Fugaku.

Overview of science cloud services
Entry planStandard planEnterprise plan
User baseElementaryIntermediate and aboveDaily use of HPC
Available computational chemistry softwareGaussianGaussianProvided upon customer request
Reaction plus ExpressoReaction plus Pro2
NWChemGRRM-Neo11Computer-aided engineering (CAE: structure, fluids, etc.) also available
LAMMPS
Quantum ESPRESSO
GROMACS, etc.
PricingFrom JPY98,000/monthFrom JPY98,000/monthEstimate provided
Usage termsStarting from 30 min limit per computing sessionUnlimited computing timeUnlimited computing time
Source: Company website
Process from order to delivery

It takes roughly three months for HPC Systems to deliver orders. Upon receiving an order from a customer, the company first orders the necessary parts, which take six weeks to two months to arrive. Thereafter, it installs the operating system (OS) and applications, and confirms the system operates as expected. Transactions with overseas hardware and software vendors such as Super Micro Computer are settled in dollars, so HPC Systems is susceptible to forex impact. However, because the lead time for orders is about three months, the company can often pass on forex-driven price increases to customers, so it does not shoulder major forex risk. The largest concern for the company as of September 2021 is the global shortage of semiconductors, as a result of which deliveries of parts could conceivably suffer delays.

Order format

While it also bids for tenders issued by universities and public research institutions, HPC Systems mainly secures orders via direct customer inquiries. Customers typically refer to the product lineup and benchmarks (performance indicators) on the company’s website while they are researching the optimal hardware and software for their R&D objectives, and subsequently reach out to the company. Upon receiving a request, the company’s sales and technical staff explain and propose products to the customer. Customers are chiefly concerned with the benchmarks of the systems they intend to purchase, and the company lists verified numerical benchmarks on its website. HPC Systems also sells products through third parties under agency agreements, but the revenue contributions from such arrangements are small because the company does not sell general-purpose products. In April 2020, the company formed a capital and business alliance with AS ONE Corporation (TSE1: 7476), and started offering its products and services on the AXEL e-commerce platform operated by AS ONE in October 2020.

Benchmarks (numerical performance indicators)

HPC Systems measures benchmarks for systems that use the latest hardware (including next-generation processors), runs various types of optimized simulation software, and publishes these on its website. It uses benchmark software to measure and evaluate the quantitative processing capacity of the hardware and software employed. Customers can browse these benchmarks on its website and inquire about them before placing an order. In FY06/21, the company budgeted JPY76mn for capital investment, and allocated JPY58mn toward investments in servers and other hardware used to obtain benchmarks. 

System, software, and application engineers

At end-June 2021, HPC Systems employed 92 people, of which 26 engineers engaged in R&D and verification technology. Its engineer team includes nine individuals with PhD degrees, six with master’s degrees, and 15 postdoctoral researchers in fields such as computational chemistry, organic synthesis, theoretical chemistry, machine learning, flow simulation, and physics. The company’s engineers are all experienced users of the Gaussian software package that has become the de-facto standard software for quantum chemistry. Having used the software during their academic training, they have a firm grasp of its shortcomings (such as missing functions), and use this information to develop the many proprietary software packages that are sold by the company.

HPC Technology Development Center

The company is headquartered in Minato-ku, Tokyo, but it operates its HPC Technology Development Center in Chuo-ku, Tokyo. From the center, its systems and application engineers provide sales support, develop proprietary software, and conduct technical research for its science cloud services.    

Overseas operations

In March 2020, HPC Systems established Intelligent Integration Company Limited, a wholly owned subsidiary, in Vietnam. In the past, the company has handled orders for the Vietnamese government and Vietnam National University in the HPC segment. Its customers in the CTO segment have production bases in Vietnam, so the company expects to win related orders in the future. It also plans to expand its operations in Asian markets other than Vietnam. 

HPC Systems has yet to handle orders in the US or Europe, but it is planning a move into these markets. Specifically, it intends to launch businesses that take advantage of its science cloud services.

Technology trend (1) Supercomputer Fugaku

The supercomputer Fugaku developed by Fujitsu Ltd. and RIKEN is the world’s most powerful supercomputer. As of September 2021, nine joint research projects were underway to expand the use and improve the usability of Fugaku, and HPC Systems was selected for one of these project. Since April 2021, HPC Systems has offered a paid cloud-based service that demonstrates its computational chemistry simulation software running on the supercomputer Fugaku.

Source: Fujitsu website

Supercomputer Fugaku: The Nikkei has reported the supercomputer Fugaku cost JPY130.0bn to develop (of which JPY111.1bn funded by the Japanese government according to the Mainichi Shimbun). The system was launched on a trial basis in 2020, and entered full-scale operation in March 2021. It topped the list of the world’s 500 most powerful computers in June 2020 and November 2020. It succeeds the supercomputer K (or “Kei” in Japanese), which was ranked the world’s most powerful computer in 2011.

Technology trend (2): Immersion-cooled servers

The kukai server delivered by HPC Systems to Yahoo Japan Corporation uses a liquid immersion cooling system, and has been ranked as the world’s second-best energy-saving supercomputer by GREEN500, a biannual ranking of the most energy-efficient supercomputers in the world. Servers are generally air-cooled, which means fans are used to divert the heat generated by their internal parts. The immersion-cooled server delivered by the company is entirely submerged in a thermally conductive dielectric liquid or coolant contained within a water tank, which contributes to a reduction in power consumption. This is a field poised for growth in the future. 

Source: Company website
Technology trend (3): Quantum computers

Quantum computers are next-generation computers that can perform calculations at far greater speeds than supercomputers. The technology is still in the development phase, and it is said to be two decades away from commercialization. Quantum computers perform calculations based on technological principles that are drastically different from classical computers. In November 2020, HPC Systems formed a business alliance with QunaSys Inc. (unlisted). The company aims to fuse its advanced  technologies and solutions in computational chemistry with the cutting-edge technologies of QunaSys, a developer of quantum computer applications, to develop the world’s first computational chemistry solution for quantum computers.

Orders, revenue, and operating profit  

The company’s revenue remains in an overall growth trend from a medium-term perspective, although it has declined in some years. The main factors driving fluctuations in revenue are the acquisition of large orders and the timing of revenue recognition.
In FY06/17 and FY06/19, HPC Systems handled major projects for Yahoo Japan Corporation worth over JPY400mn. OPM has improved mainly due to (1) a reduction in SG&A expenses (attributable to a relatively steady workforce) amid revenue expansion, and (2) the absence of impact from major projects with low margins.  

HPC segment: Orders, revenue, and operating profit
FY06/17FY06/18FY06/19FY06/20FY06/21
(JPYmn)
Orders3,8583,3895,127
YoY--12.1%51.3%
Revenue2,7382,6483,7873,1983,953
YoY--3.3%43.0%-15.5%23.6%
Operating profit152139211299494
YoY--8.6%52.2%41.3%65.3%
Operating profit margin5.5%5.2%5.6%9.3%12.5%
Segment assets1,0481,3531,4611,839
YoY-29.1%8.0%25.8%
Segment ROA-17.6%21.2%29.9%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods. 

CTO segment

In the CTO segment, HPC Systems develops, manufactures, and sells industrial computers that are configured to order. It operates a plant in Sosa City, Chiba Prefecture, from where it supplies products in accordance with customer needs using a high-mix/flexible-volume approach. Its product lineup includes inspection equipment computers that inspect and monitor products manufactured in plants, IoT computers used in plants to manage and monitor networks through on-site cameras, and high-spec industrial computers used for medical image processing (computed tomography [CT] scans and magnetic resonance imaging [MRI]). The company procures parts, cases that have been designed internally, and software, and subsequently develops and assembles these into systems that are supplied to customers under the HPC Systems brand. It says its repeat purchase rate exceeds 90%.

Competitors 

The company’s rivals mainly mass-produce and sell general-purpose industrial computers. Conversely, HPC Systems employs high-spec designs customized to meet the requirements of its customers, sources the optimal parts to assemble its systems, while opting for a high-mix/flexible-volume approach toward manufacturing. It has established an organization to ensure long-term supply of its products to customers. Other companies that manufacture industrial computers include Contec Ltd. (TSE2: 6639) and Innotech Corporation (TSE1: 9880), but these do not qualify as genuine competitors as they mass-produce industrial computers as general-purpose products. HPC Systems has lower revenue than its competitors, but it boasts higher profit margins.

Order format

According to the company, exhibitions are one of the main channels through which it secures orders. While showcasing its products at such venues, it meets a large number of customers in search of cutting-edge technology. The company also frequently teams up in sales with several semiconductor trading houses, which act as agents. The rationale behind this approach is that customers that purchase semiconductors wholesale from trading houses also likely require industrial computers. Companies that serve as sales agents for HPC Systems include Ryoyo Electro Corporation (TSE1: 8068), Narasaki Sangyo Co., Ltd. (TSE2: 8085), and Daitron Co., Ltd. (TSE1: 7609).

New and ongoing projects 

In the CTO segment, the company supplies industrial computers that are customized to meet the specifications requested by its customers. Because these computers are ultimately integrated in the products of its customers, the company receives ongoing orders as long as its customers continue to sell their products. As a result, the company concentrates on securing orders that will continue in subsequent years, rather than ad-hoc orders. It says it handled roughly equal shares of new and ongoing projects in FY06/21. GPM is generally lower for new projects, according to the company.  

Sosa plant 

The company operates its own plant for the CTO segment in Sosa City, Chiba Prefecture. At this plant, it assembles, manufactures, inspects, and ships products ordered by customers. The plant switched fully to renewable energy from September 2021.

Orders, revenue, and operating profit 

Revenue in the CTO segment varies based on the computer equipment sold to customers. Revenue tends to accumulate over the medium term as the company increases the number of repeat customers, but new order conditions can cause swings in revenue. Because margins for repeat customers are generally higher than for new customers, an increase in the share of new customers tends to depress overall profitability. 

Revenue and operating profit in CTO segment
FY06/17FY06/18FY06/19FY06/20FY06/21
(JPYmn)
Revenue1,1631,4051,6091,5271,875
YoY-20.8%14.6%-5.1%22.8%
Operating profit92143158179183
YoY-55.3%10.3%13.2%2.1%
Operating profit margin7.9%10.2%9.8%11.7%9.8%
Segment assets9308661,1471,404
YoY--6.9%32.5%22.4%
Segment ROA-17.6%17.8%14.3%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods. 

Earnings structure

The company provides hardware and software tailored to the needs of its customers in its HPC and CTO segments. As this is its core business, its major cost items are materials costs under cost of revenue and personnel expenses under SG&A expenses.

Cost of revenue 

In FY06/21, materials costs accounted for 97.8% of manufacturing costs, labor costs for 1.2%, and other costs for 1.0%. The cost ratio tends to increase for tenders won from universities or public research institutions, and decline for projects handled for private companies. In the CTO segment, the cost ratio is typically high for new projects and low for ongoing projects. 

Breakdown of cost of revenue
FY06/15FY06/16FY06/17FY06/18FY06/19FY06/20FY06/21
(JPYmn)
Cost of revenue2,8712,8633,9983,1754,022
Cost of revenue ratio73.6%70.6%74.1%67.2%69.0%
Manufacturing cots3,0393,9173,0784,052
Materials costs2,9703,8482,9973,961
Labor costs43434950
Other costs25263141
Materials costs (% of total)97.8%98.2%97.4%97.8%
Labor costs (% of total)1.4%1.1%1.6%1.2%
Other costs (% of total)0.8%0.7%1.0%1.0%
Work-in-process inventory at the beginning of year6616916482
Total3,1044,0863,2424,134
Work-in-process inventory at the end of year16916482106
Transfer to other accounts46343758
Cost of manufacturing2,8903,8873,1223,970
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods. 
SG&A expenses

In FY06/21, personnel expenses made up 45.9% of SG&A expenses, depreciation 4.6%, and other expenses 49.5%. 

Breakdown of SG&A expenses
FY06/15FY06/16FY06/17FY06/18FY06/19FY06/20FY06/21
(JPYmn)
SG&A expenses7869081,0281,0731,129
SG&A ratio20.1%22.4%19.1%22.7%19.4%
Salaries and allowances359358365386
Provision for employee bonuses59866996
Provision for directors' bonuses11311936
Depreciation48514452
Other430502575559
No. of employees62637481848592
No. of temporary employees (average)11121112141514
Total7375859398100106
Personnel expenses per employee5.325.435.085.52
Average age43.844.244.5
Average years of service7.88.58.2
Average annual salary5.485.735.63
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods.
Note: Personnel expenses per employee include labor expenses under cost of revenue.
Seasonality in earnings

As the company supplies its products and services to universities, public research institutions, and major companies, it tends to receive the bulk of its orders at the end of March. As a result, its revenue and profit are skewed toward January–March. In FY06/21, the quarterly shares of revenue and operating profit were 14.4% and 1.3% for Q1, 25.5% and 28.0% for Q2, 46.8% and 75.0% for Q3, and 13.3% and -4.3% for Q4.  

Market and value chain

Market overview

Global supercomputer and high performance-computing markets

According to Hyperion Research, the global supercomputer market was worth USD5.9bn in 2020. The launch of Fujitsu’s Fugaku supercomputer created a new category for cutting-edge supercomputers. Hyperion Research sees the market growing at a CAGR of 10.8% in the five years from 2019 to 2024. It valued the peripheral high performance-computing (HPC) market at USD27.8bn in 2020, and expects this market to expand at a CAGR of 6.6% in the five years from 2019 to 2024.

Global supercomputer market
(USDmn)201920202021202220232024
Cutting-edge01,0651,0002,1502,2002,450
Large (USD3mn or more)3,9373,6703,7483,9014,3804,605
Entry-level (USD500,000–3mn)1,2871,2041,2141,3471,5151,678
Total5,2245,9395,9627,3988,0958,733
Source: Hyperion Research, June 2021
Global HPC market
(USDmn)201920202021202220232024
Servers13,59513,74413,71216,16217,67018,846
Storage systems5,3795,5205,5866,6617,4658,021
Middleware1,5991,6181,6361,9432,1382,294
Applications4,6474,6824,6295,3715,7746,049
Services2,2182,1862,1232,4162,5482,617
Total27,43827,75027,68632,55335,59537,827
Source: Hyperion Research, March 2021

Japanese supercomputer and HPC markets

The sizes of the Japanese supercomputer and HPC markets are unknown. The top 20 supercomputers by performance operating in Japan are shown in the table below. 

Supercomputers operating in Japan (December 2020)
OrganizationDepartmentSystemModelPeak performanceLaunched
(TFLOPS)
1Institute of Physical and Chemical Research (RIKEN)Center for Computational ScienceFUGAKUFUGAKU537,2122020
2National Institute of Advanced Industrial Science and TechnologyAI Bridging Cloud InfrastructureABCIFUJITSU PRIMERGY34,2002018
3Joint Center for Advanced High Performance ComputingOakforest PACSFUJITSU25,0012016
4Japan Aerospace Exploration AgencyEngineering Digital Innovation centerJSS3/TOKI-SORAPRIMEHPC FX100019,4642020
5Japan Meteorological AgencyForecast DepartmentSupercomputerCray XC5018,0002018
6Japan Atomic Energy AgencyCenter for Computational Science and e-SystemsSupercomputer SystemHPE SGI 860012,6002020
7Tokyo Institute of TechnologyGlobal Scientific Information and Computing CenterTSUBAME 3.0HPE SGI ICE XA12,1502017
8National Institute of Natural SciencesNational Institute for Fusion SciencePlasma Simulator SystemNEC SX-Aurora TSUBASA10,5102020
9Kyushu UniversityResearch Institute for Information TechnologySupercomputer System ITOFUJITSU PRIMERGY CX10,4302017
10Nagoya UniversityInformation Technology CenterFuro Type IFUJITSU FX10007,7852020
11Nagoya UniversityInformation Technology CenterFuro Type IIFUJITSU PRIMERGY CX2570 M57,5192020
12The University of TokyoInstitute for Solid State PhysicsSystem BDell PowerEdge C6525/R9406,8812020
13Kyoto UniversityAcademic Center for Computing and Media StudiesSystem A Camphor 2Cray XC405,4802016
14SAKURA internet Inc.Ishikari Data CenterHPE Apollo 65005,3652019
15National Institute for Materials ScienceMaterials Numerical SimulatorHPE SGI 86004,9712020
16National Institutes for Quantum Science and TechnologyRokkasho Nuclear Fusion LaboratoryJFRS-1HPE Cray XC504,1902018
17Preferred Networks, Inc.MN-33,1372020
18Hokkaido UniversityInformation Technology CenterGrand Chariot Subsystem AFUJITSU PRIMERGY SERVER3,0802018
19Tohoku UniversityCenter for Computational Materials Science, Institute for Materials ResearchMASAMUNE-IMRCray XC50-LC / CS-Strom 500GT3,0302018
20Japan Meteorological AgencyMeteorological Research InstituteSupercomputer SystemFUJITSU PRIMERGY CX2550M42,8162020
Source: Shared research based on data compiled by HPC Wire Japan
Note: Tera Floating-Point Operations Per Second (TFLOPS) is a unit of computer processing performance equal to one trillion (1012) floating-point operations per second. 

Based on a survey conducted by HPC Systems, the target market for its HPC segment was worth JPY260.0bn in 2021, and the company sees this market expanding at a CAGR of 13.0% to JPY380.0bn in 2024. 

Science, Technology, and Innovation Basic Plan

In March 2021, the Japanese Cabinet approved and set in motion the 6th Science, Technology, and Innovation Basic Plan that maps out the science and technology policy of the government for the five years from FY2021. The government budgets JPY30tn in R&D spending over the five-year period, and hopes this will spur private investment. On the whole, it targets public-private investment of JPY120tn. The plan calls for a “societal vision predicated on innovation (societal change)” as its first theme, and promotes digitalization and the implementation of data-driven strategies in the government, as well as the preparation and development of next-generation infrastructure and technology such as supercomputers and quantum technology. In addition, the government will establish a JPY10tn university fund, and set up a research system for universities that can compete on the global stage.

Global industrial computer and CTO markets 

IHS Markit valued the global industrial computer market at USD4.1bn in 2020, and estimates this market expanded at a CAGR of 4.7% in the seven years from 2013 to 2020. In 2021 and 2022, it forecasts YoY growth of 2.3% and 3.6%, respectively.

Global industrial computer market 
(USDmn)201320142015201620172018201920202021F2022F
Global industrial computer market2,9373,2073,3433,5383,5013,8904,0094,0504,1434,291
YoY9.2%4.2%5.8%-1.0%11.1%3.1%1.0%2.3%3.6%
Source: IHS Markit

Japanese industrial computer and CTO markets 

According to “Industrial PCs and their Expansion in the Edge Computing Field: Conditions and Outlook (FY2019)” published by the MIC Research Institute, the industrial computer market was worth JPY109.3bn in FY2018. MIC Research Institute expects the market to expand at a CAGR of 5.7% from FY2018 to FY2022, and reach JPY136.1bn in FY2022.

Based on its own survey, HPC Systems values the target market for its CTO segment at JPY187.0bn in 2021, and it sees this market expanding at a CAGR of 11.1% to JPY257.0bn in 2024.

Strengths and weaknesses

Strengths

Expertise in supercomputers and scientific computing software for quantum chemical computing, molecular dynamics, and other fields in the HPC segment 

HPC Systems uses supercomputers to create operating environments for scientific computing, and this requires specialized expertise according to the company. Its systems consist of interconnected supercomputers, workstations, and servers. These differ from consumer PCs in that getting them to operate requires more than simply establishing the necessary connections and installing the appropriate software. The hardware, operating system (OS), middleware, software, and network that make up these systems must be optimized to ensure compatibility, enable parallel processing of multiple computational tasks, and reduce overall processing time. HPC Systems has accumulated extensive expertise in computing systems for the life science and material science fields. It is one of only a handful of Japanese companies that offer the Gaussian software package that has become the de-facto industry standard for quantum chemistry computing. It also develops and sells proprietary extended functionality for the software.  

Ability to rapidly deliver cutting-edge products at affordable prices and secure orders mainly through customer inquiries in the HPC segment

Excluding tenders invitations by universities and public research institutions, the company mainly secures orders through direct customer inquiries. Customers typically refer to the product lineup and benchmarks (performance indicators) on the company’s website while they are researching the optimal hardware and software for their R&D objectives, and subsequently reach out to the company. Upon receiving an inquiry, the company’s sales staff provide explanations and propose products. Customers are primarily concerned with benchmarks and pricing, and HPC Systems lists benchmarks that it has independently verified on its website. The company has developed strong ties with Super Micro Computer and serves as a distributor for the latter. Taking advantage of this relationship, it has built an organization that facilitates rapid delivery of high-spec products at affordable prices, and Shared Research understands it has gained the recognition of its customers in this respect.   

Capacity to produce and sell high-spec industrial computers with custom designs using a high-mix/low-volume manufacturing approach in the CTO segment

HPC Systems produces and supplies industrial computers with high specifications and custom designs in its CTO segment with a focus on high-mix/low-volume manufacturing. This approach differs from its competitors, which mainly mass-produce and sell low-end, general-purpose products. In addition, the company has established an organization to ensure long-term supply of its products to customers, whereas its rivals update their product models every few years. As a result, its repeat purchase rate exceeds 90%. Although it generates lower revenue than its competitors, the company boasts higher margins. 

Weaknesses

Susceptible to direct impact from disruptions at suppliers of semiconductors and peripheral electronic parts

HPC Systems meticulously selects and procures hardware in function of the budgets and desired research environments of its customers. However, semiconductors have been in short supply since the autumn of 2020, and related shortages affect the hardware procured by the company. That said, the company did not suffer lost orders or delayed deliveries in FY06/21, and thus managed to avert direct impact. While it hedges against potential adverse effects by placing orders in advance, there is a risk the company may not be able to procure sufficient volume, in which case its earnings could take a direct hit.  

Small operational scale hinders the company’s ability to accept large projects in the HPC segment 

The order value in the HPC segment ranges from several million yen to over JPY400mn per project, but the order value for large projects in the HPC market can exceed JPY1.0bn. Shared Research understands that such projects are almost exclusively handled by major electronics manufacturers. HPC Systems’ workforce and revenue scale make it difficult for the company to pursue such orders even though it possesses the necessary technical expertise.

Difficulties in generating economies of scale in the CTO segment due to a production structure geared toward high-mix/low-volume manufacturing

HPC Systems ensures long-term stable supply of high-end computers in its CTO segment, and has achieved a repeat purchase rate of over 90% as a result. It designs industrial computers tailored to customer preferences, procures the optimal parts, and assembles these using a high-mix/low-volume manufacturing approach. Its custom designs and manufacturing process are two major differentiators for the company. However, this also means its order growth is dependent on increases in product sales at existing customers or, in the absence of this, the acquisition of new customers. In other words, the current production structure of the CTO segment is not conducive to economies of scale. In contrast, its rivals in this space mass-produce and sell general-purpose industrial computers.

Historical results and financial statements

Income statement

Income statementFY06/17FY06/18FY06/19FY06/20FY06/21
(JPYmn)Non-cons.Non-cons.Non-cons.Non-cons.Non-cons.
Revenue3,9014,0535,3964,7255,828
YoY34.7%3.9%33.1%-12.4%23.3%
Cost of revenue2,8712,8633,9983,1754,022
Cost of revenue ratio73.6%70.6%74.1%67.2%69.0%
Gross profit1,0301,1901,3981,5511,806
YoY-15.5%17.5%10.9%16.5%
Gross profit margin26.4%29.4%25.9%32.8%31.0%
SG&A expenses7869081,0281,0731,129
SG&A ratio20.1%22.4%19.1%22.7%19.4%
Operating profit244282370478677
YoY-15.6%30.9%29.3%41.6%
Operating profit margin6.3%7.0%6.8%10.1%11.6%
Non-operating income1514321
Non-operating expenses5561412
Recurring profit254292367465666
YoY238.3%14.8%25.8%26.8%43.1%
Recurring profit margin6.5%7.2%6.8%9.8%11.4%
Extraordinary gains714001
Extraordinary losses1--10
Income taxes98116148158219
Implied tax rate37.5%37.9%40.2%33.9%32.9%
Net income163190219307447
YoY317.9%16.5%15.6%40.1%45.4%
Net margin4.2%4.7%4.1%6.5%7.7%
Source: Shared Research based on company data
Note: Figures may differ from company data due to differences in rounding methods. 

In FY06/21, revenue and recurring profit increased to record highs of JPY5.8bn and JPY666mn, respectively. In the four years from FY06/17 to FY06/21, revenue expanded at a CAGR of 10.6% and recurring profit at a CAGR of 27.2%.

In FY06/17 and FY06/19, the company recorded revenue for large projects worth over JPY400mn. As a result, revenue either expanded at a slower pace or declined in the subsequent years—namely, FY06/18 and FY06/20.

The cost of revenue ratio is around 70%, and typically rises in tandem with higher revenue ratios of large projects, tenders for universities or public research institutions in the HPC segment, or a higher revenue ratio of new projects in the CTO segment.

The SG&A ratio is around 20%. The main cost items under SG&A expenses are fixed costs such as personnel expenses and depreciation. However, sales growth requires personnel increases, and therefore inevitably drives up SG&A expenses.

There are no noteworthy items related to non-operating income and extraordinary expenses.

Balance sheet

Balance sheetFY06/17FY06/18FY06/19FY06/20FY06/21
(JPYmn)Non-cons.Non-cons.Non-cons.Non-cons.Non-cons.
Assets
Cash and deposits7945769381,3991,731
Notes receivable71428--
Accounts receivable288334303468476
Electronically recorded monetary claim73213127161138
Products15973446
Work in process6616916482106
Raw materials and supplies136298270208311
Inventory in transit10033462948
Advances paid53458124127
Prepaid expenses1927303137
Other current assets3572321826
Total current assets1,5851,8772,0542,4243,007
Buildings (net)4542394244
Machinery and equipment (net)2636324056
Land1515151515
Other tangible fixed assets76648
Total tangible fixed assets939892101123
Software3425493727
Total intangible assets3425493727
Deferred tax assets910737991
Other1513111335
Total investments and other assets25228392125
Total fixed assets152145224230275
Total assets1,7372,0222,2772,6543,282
Liabilities
Notes payable32134
Accounts payable84153132105200
Short-term borrowings450500350550450
Current portion of long-term borrowings9610311374139
Accounts payable–other3428432727
Accrued expenses1331402529
Income taxes payable808810888168
Advances received8856