Founded in 1881, Oki Electric Industry Co., Ltd. (OKI) manufactures electrical and communications equipment, ICT equipment, and systems that utilize these products. Since manufacturing the first domestic telephone in 1881, OKI has focused on developing domestic telecommunication technology instead of relying on foreign products. OKI was one of four members of the Nippon Telegraph and Telephone (NTT) family (formerly a Japanese government-owned telecommunications monopoly, privatized in 1952). OKI’s sales within the NTT family have shrunk following the privatization of NTT, the opening of the domestic telecom market, and the shift of telecom networks to IP (internet protocol) technology, but the company has successfully built a customer base spanning national and local government bodies to general corporations by leveraging its audio technology in the telecom field.

In the ICT segment, the company provides telecom systems and solutions to a range of industries and government agencies. The ICT segment is fueled by replacement demand from major companies. In the Mechatronics Systems segment, the company has a high domestic market share of cash-recycling ATMs (machines that use deposited cash for future withdrawals) for financial institutions and retailers. It is focusing on cash-handling machines and tapping into emerging markets overseas. In the Printers segment, key products are single and multifunction printers for the office printer market, but given the company’s low market share and high fixed costs, OKI is shifting its earnings structure to focus on specialty and professional printing markets. In the EMS segment, the company offers reliable, high-end electronics manufacturing services (EMS), while maintaining segment OPM of 5%. It expects continued EMS growth on expanded production bases and sales channels via acquisitions. Effective from FY03/21, Information and Communication Technology was reorganized into the Solution Systems segment, while Mechatronics Systems, Printers, and EMS were reorganized and integrated into the Components & Platforms segment.

The company’s four segments are Information and Communication Technology (ICT), Mechatronics Systems, Printers, and Electronics Manufacturing Services (EMS). OKI works to further develop the ICT and EMS segments where the earnings base is stable, while simultaneously advancing structural reforms in the Mechatronics Systems and Printers segments.

Earnings trends

FY03/22 results: The company reported full-year consolidated sales of JPY352.1bn (-10.4% YoY), operating profit of JPY5.9bn (-34.1% YoY), recurring profit of JPY7.7bn (-12.3% YoY), and net income of JPY2.1bn (versus loss of JPY819mn in FY03/21). With respect to sales, while sales in factory automation/semiconductor manufacturing equipment has recovered strongly since the end of FY03/2021, there were continued delays in production in other areas due to prolonged difficulties on the supply chain side that prevented it from procuring enough of the necessary parts. In addition to this, the effect of dropout of large orders in FY03/21 also became a factor for the sales decline. On the earnings front, the 34.1% decline in operating profit was largely due to parts shortages, soaring prices for materials and parts, and other problems on the supply side. Together, this offset reductions in fixed costs stemming from structural reforms and the addition of JPY3.2bn to earnings resulting from the reversal of previous provisioning for doubtful accounts in connection with its ATM business in China. The company estimates that the production delays caused by shortages of parts and materials ended up reducing sales for FY03/22 by a total of roughly JPY30.0bn and reducing operating profit by about JPY8.3bn.

FY03/23 forecast: The company is projecting full-year consolidated sales of JPY425.0bn (+20.7% YoY), operating profit of JPY9.0bn (+53.5% YoY), recurring profit of JPY8.0bn (+4.0% YoY), and net income of JPY3.0bn (+45.2% YoY). With FY03/23 being the last year under the current medium-term business plan, the company's current projections tell us that it expects to finish short of the performance targets set out under its medium-term plan. The projected shortfall is attributable largely to adverse changes in Oki's external operating environment that were unexpected at the time the medium-term plan was put together, including the prolonged fallout from the pandemic, shortages of parts and materials, the sharp jump in shipping costs, and other supply chain problems that it has yet to overcome.

Medium-term strategy

On October 29, 2020, the company announced a three-year plan covering FY03/21–FY03/23, Medium-Term Business Plan 2022. OKI marks its 150th anniversary in 2031, and targets sustainable growth through solving social problems. It has positioned the current three years as a time to put in place the foundations for growth as the first installment of these ambitions, and announced plans to execute large-scale structural reforms.

OKI’s approach is three-pronged: restructuring its business portfolio; strengthening its “mono-zukuri” (manufacturing) foundations; and reforming costs in shared group functions. The three hardware-based businesses (Mechatronics Systems, Printers, and Electronics Manufacturing Services (EMS) are to be integrated into the new Components & Platforms segment to concentrate on the production of AI edge-related and other competitive products. The company will also review its domestic and overseas sales structures. In addition, the technologies, development structure, and production functions held separately by the three businesses are to be integrated and restructured as a manufacturing platform for electronic equipment. Alongside this restructuring, the company plans to integrate procurement departments and restructure the supply chain to optimize inter-group costs. In FY03/23, the last year of the plan, the company targets operating profit of JPY20.0bn (+19.0% versus FY03/20) and a shareholders’ equity ratio of 30%.

Strengths and weaknesses

Shared Research views the company’s strength as its diversified customer base in the ICT segment, its system construction tailored to customers’ workflows and designed to meet various standards, and its cash-recycling ATMs, which allow it to differentiate itself in the ATM markets of developing countries. As for its weaknesses, Shared Research thinks these are high fixed costs in the Printers segment, past inadequate management structures overseas, and a weak balance sheet.

Key financial data

Income statement		FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22	FY03/23
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons. Est.
Sales		455,824	483,112	540,153	490,314	451,627	438,026	441,452	457,223	392,868	352,064	425,000
	YoY	7.6%	6.0%	11.8%	-9.2%	-7.9%	-3.0%	0.8%	3.6%	-14.1%	-10.4%	20.7%
Gross profit		118,417	128,477	140,506	129,064	114,233	110,576	118,827	117,807	99,423	90,116
	YoY	11.1%	8.5%	9.4%	-8.1%	-11.5%	-3.2%	7.5%	-0.9%	-15.6%	-9.4%
	Gross profit margin	26.0%	26.6%	26.0%	26.3%	25.3%	25.2%	26.9%	25.8%	25.3%	25.6%
Operating profit		13,475	27,196	32,415	18,594	2,545	7,721	17,522	16,829	8,895	5,864	9,000
	YoY	12.5%	101.8%	19.2%	-42.6%	-86.3%	203.4%	126.9%	-4.0%	-47.1%	-34.1%	53.5%
	Operating profit margin	3.0%	5.6%	6.0%	3.8%	0.6%	1.8%	4.0%	3.7%	2.3%	1.7%	2.1%
Recurring profit		20,304	36,655	37,928	11,366	-2,366	8,515	15,477	13,804	8,766	7,691	8,000
	YoY	123.7%	80.5%	3.5%	-70.0%	-120.8%	-459.9%	81.8%	-10.8%	-36.5%	-12.3%	4.0%
	Recurring profit margin	4.5%	7.6%	7.0%	2.3%	-0.5%	1.9%	3.5%	3.0%	2.2%	2.2%	1.9%
Net income		13,599	27,359	33,091	6,609	4,691	5,891	8,405	14,086	-819	2,065	3,000
	YoY	774.5%	101.2%	21.0%	-80.0%	-29.0%	25.6%	42.7%	67.6%	-	-	45.3%
	Net margin	3.0%	5.7%	6.1%	1.3%	1.0%	1.3%	1.9%	3.1%	-	0.6%	0.7%
Per-share data (JPY)
Shares issued (year-end; mn)		728.0	727.8	868.5	868.4	87.2	87.2	87.2	87.2	87.2	87.2
EPS		17.2	36.2	40.0	7.6	54.0	67.9	97.2	162.8	-9.5	23.9	34.6
EPS (fully diluted)								97.0	162.5	-	23.8
Dividend per share		-	3.0	5.0	5.0	50.0	50.0	50.0	50.0	20.0	30.0	30.0
Book value per share		34.4	79.3	137.7	122.9	1,115.7	1,154.0	1,155.3	1,227.4	1,286.4	1,240.6
Balance sheet (JPYmn)
	Cash and cash equivalents	36,406	50,901	53,632	47,829	54,164	48,698	29,730	49,227	44,845	36,691
Total current assets		246,994	278,522	293,629	277,630	231,506	230,420	223,206	236,726	222,170	211,837
Tangible fixed assets		57,829	56,193	57,176	56,691	44,783	52,048	49,393	51,428	51,314	57,653
Intangible assets		7,655	9,600	10,240	9,637	10,891	9,952	10,457	11,288	11,969	14,027
Investments and other assets		36,843	68,196	78,311	67,816	73,544	79,356	82,446	73,027	86,091	85,652
Total assets		349,322	412,514	439,358	411,776	360,724	371,778	365,503	372,471	371,546	369,170
	Accounts payable	63,416	73,312	79,053	65,477	58,685	67,124	67,465	61,714	56,706	56,691
	Short-term debt	77,000	107,033	65,556	75,144	56,882	58,958	48,880	35,415	38,123	43,337
Total current liabilities		197,129	242,272	211,580	199,162	176,559	186,666	176,194	159,940	154,151	157,958
	Long-term debt	48,958	19,438	48,740	55,118	37,264	31,906	41,599	42,310	52,518	53,578
Total fixed liabilities		95,567	78,322	106,362	105,228	86,949	82,967	89,108	106,090	105,795	103,576
Total liabilities		292,697	320,595	317,943	304,391	263,509	269,634	265,302	266,030	259,947	261,535
Total net assets		56,625	91,918	121,414	107,384	97,215	102,144	100,200	106,440	111,598	107,635
Total liabilities and net assets		349,322	412,514	439,358	411,776	360,724	371,778	365,503	372,471	371,546	369,170
Total interest-bearing debt		125,958	126,471	114,296	130,262	94,146	90,864	90,479	77,725	90,641	96,915
Cash flow statement(JPYmn)
Cash flows from operating activities		-11,619	31,868	40,999	-3,573	41,967	15,578	6,364	32,547	17,398	5,921
Cash flows from investing activities		-9,214	-13,977	-18,583	-13,762	7,588	-10,485	-12,099	-2,972	-13,784	-17,597
Cash flows from financing activities		-21,092	-4,270	-20,724	11,138	-43,985	-11,512	-12,971	-9,224	-8,852	1,680
Financial ratios
ROA (RP-based)		5.7%	9.6%	8.9%	2.7%	-0.6%	2.3%	4.2%	3.7%	2.4%	2.1%
ROE		28.0%	37.8%	31.8%	5.8%	4.6%	6.0%	8.4%	13.7%	-0.8%	1.9%
Equity ratio		16.1%	21.5%	27.2%	25.9%	26.9%	26.9%	27.3%	28.5%	30.0%	29.1%

Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.
Note: The company conducted a 1-for-10 reverse stock split in October 2016. Dividend forecast take into account the reverse stock split.

Trends and outlook

Quarterly trends and results

Cumulative		FY03/20				FY03/21				FY03/22				FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Sales		107,617	218,384	327,858	457,223	81,375	173,542	266,853	392,868	79,869	159,815	246,413	352,064	96.5%	365,000
	YoY	21.0%	12.8%	9.5%	3.6%	-24.4%	-20.5%	-18.6%	-14.1%	-1.9%	-7.9%	-7.7%	-10.4%		-7.1%
Gross profit		25,167	54,312	82,693	117,807	20,810	41,378	64,250	99,423	19,110	39,256	62,127	90,116
	YoY	6.3%	7.4%	3.4%	-0.9%	-17.3%	-23.8%	-22.3%	-15.6%	-8.2%	-5.1%	-3.3%	-9.4%
	Gross profit margin	23.4%	24.9%	25.2%	25.8%	25.6%	23.8%	24.1%	25.3%	23.9%	24.6%	25.2%	25.6%
SG&A expenses		24,091	49,110	73,561	100,978	21,931	43,947	66,838	90,528	22,136	43,663	62,507	84,252
	YoY	-1.6%	-1.3%	-1.9%	-0.3%	-9.0%	-10.5%	-9.1%	-10.3%	0.9%	-0.6%	-6.5%	-6.9%
	SG&A ratio	22.4%	22.5%	22.4%	22.1%	27.0%	25.3%	25.0%	23.0%	27.7%	27.3%	25.4%	23.9%
Operating profit		1,075	5,201	9,131	16,829	-1,121	-2,568	-2,588	8,895	-3,026	-4,406	-380	5,864	65.2%	9,000
	YoY	-	546.1%	83.1%	-4.0%	-	-	-	-47.1%	-	-	-	-34.1%		1.2%
	Operating profit margin	1.0%	2.4%	2.8%	3.7%	-	-	-	2.3%	-	-	-	1.7%		2.5%
Recurring profit		149	2,937	7,290	13,804	-2,148	-3,231	-3,433	8,766	-2,763	-4,252	-176	7,691	85.5%	9,000
	YoY	-	-	160.2%	-10.8%	-	-	-	-36.5%	-	-	-	-12.3%		2.7%
	Recurring profit margin	0.1%	1.3%	2.2%	3.0%	-	-	-	2.2%	-	-	-	2.2%		2.5%
Net income		-369	4,060	7,183	14,086	-3,326	-5,445	-8,465	-819	-3,811	-6,714	-6,473	2,065	59.0%	3,500
	YoY	-	-	-	67.6%	-	-	-	-	-	-	-	-		-
	Net margin	-	1.9%	2.2%	3.1%	-	-	-	-	-	-	-	0.6%		-
Quarterly		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales		107,617	110,767	109,474	129,365	81,375	92,167	93,311	126,015	79,869	79,946	86,598	105,651
	YoY	21.0%	5.9%	3.5%	-9.0%	-24.4%	-16.8%	-14.8%	-2.6%	-1.9%	-13.3%	-7.2%	-16.2%
Gross profit		25,167	29,145	28,381	35,114	20,810	20,568	22,872	35,173	19,110	20,146	22,871	27,989
	YoY	6.3%	8.4%	-3.5%	-9.6%	-17.3%	-29.4%	-19.4%	0.2%	-8.2%	-2.1%	0.0%	-20.4%
	Gross profit margin	23.4%	26.3%	25.9%	27.1%	25.6%	22.3%	24.5%	27.9%	23.9%	25.2%	26.4%	26.5%
SG&A expenses		24,091	25,019	24,451	27,417	21,931	22,016	22,891	23,690	22,136	21,527	18,844	21,745
	YoY	-1.6%	-1.0%	-3.1%	4.2%	-9.0%	-12.0%	-6.4%	-13.6%	0.9%	-2.2%	-17.7%	-8.2%
	SG&A ratio	22.4%	22.6%	22.3%	21.2%	27.0%	23.9%	24.5%	18.8%	27.7%	26.9%	21.8%	20.6%
Operating profit		1,075	4,126	3,930	7,698	-1,121	-1,447	-20	11,483	-3,026	-1,380	4,026	6,244
	YoY	-	155.0%	-6.0%	-38.6%	-	-	-	49.2%	-	-	-	-45.6%
	Operating profit margin	1.0%	3.7%	3.6%	6.0%	-	-	-	9.1%	-	-	4.6%	5.9%
Recurring profit		149	2,788	4,353	6,514	-2,148	-1,083	-202	12,199	-2,763	-1,489	4,076	7,867
	YoY	-	245.5%	19.2%	-48.6%	-	-	-	87.3%	-	-	-	-35.5%
	Recurring profit margin	0.1%	2.5%	4.0%	5.0%	-	-	-	9.7%	-	-	4.7%	7.4%
Net income		-369	4,429	3,123	6,903	-3,326	-2,119	-3,020	7,646	-3,811	-2,903	241	8,538
	YoY	-	-	205.9%	-30.7%	-	-	-	10.8%	-	-	-	11.7%
	Net margin	-	4.0%	2.9%	5.3%	-	-	-	6.1%	-	-	0.3%	8.1%

Source: Shared Research based on company data
Note: Quarterly data derived by subtracting cumulative results for previous quarter from relevant cumulative results (e.g. Q3 figures are 1H results subtracted from cumulative Q3 results).

Quarterly sales(Left)/Quarterly operating profit(Left)

Source: Shared Research based on company data

Full-year consolidated results for FY03/22 (out May 11, 2022)

Sales: JPY352.1bn (-10.4% YoY)
Operating profit: JPY5.9bn (-34.1% YoY)
Recurring profit: JPY7.7bn (-12.3% YoY)
Net profit: JPY2.1bn (versus loss of JPY819mn in FY03/21)

Background behind decline in sales

There has been a strong recovery in sales for factory automation/semiconductor manufacturing equipment since the end of FY03/21, but it was not enough to offset continued delays in production in other areas due to prolonged difficulties on the supply chain side that prevented it from procuring enough of the necessary parts. The effect of dropout of large orders in FY03/21 also became a factor for the 10.4% decline.

Background behind decline in operating profit

On the earnings front, the company attributed the 34.1% decline in operating profit mainly to parts shortages, soaring prices for materials and parts, and other problems on the supply side, which together were enough to offset reductions in fixed costs stemming from structural reforms and the addition of JPY3.2bn to earnings resulting from the reversal of previous provisioning for doubtful accounts in connection with its ATM business in China. The company estimates that the production delays caused by shortages of parts and materials ended up reducing sales for FY03/22 by a total of roughly JPY30.0bn and reducing operating profit by about JPY8.3bn.

Cumulative	FY03/20				FY03/21				FY03/22
(JPYmn)	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales	107,617	218,384	327,858	457,223	81,375	173,542	266,853	392,868	79,869	159,815	246,413	352,064
Operating profit	1,075	5,201	9,131	16,829	-1,121	-2,568	-2,588	8,895	-3,026	-4,406	-380	5,864
Quarterly	FY03/20				FY03/21				FY03/22
(JPYmn)	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales	107,617	110,767	109,474	129,365	81,375	92,167	93,311	126,015	79,869	79,946	86,598	105,651
Operating profit	1,075	4,126	3,930	7,698	-1,121	-1,447	-20	11,483	-3,026	-1,380	4,026	6,244

Source: Shared Research based on company data

Breakdown of results by segment

Solution Systems segment

Performance

Cumulative		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales		52,801	103,640	157,317	229,065	39,619	82,675	127,288	190,763	33,924	68,942	107,606	162,645
	YoY	-	-	-	-	-25.0%	-20.2%	-19.1%	-16.7%	-14.4%	-16.6%	-15.5%	-14.7%
	% of total	49.1%	47.5%	48.0%	50.1%	48.7%	47.6%	47.7%	48.6%	42.5%	43.1%	43.7%	46.2%
Operating profit		2,544	5,627	10,721	20,217	1,750	3,988	6,481	16,329	-72	-153	1,528	9,532
	YoY	-	-	-	-	-31.2%	-29.1%	-39.5%	-19.2%	-	-	-76.4%	-41.6%
	Operating profit margin	4.8%	5.4%	6.8%	8.8%	4.4%	4.8%	5.1%	8.6%	-	-	1.4%	5.9%
Quarterly		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales		52,801	50,839	53,677	71,748	39,619	43,056	44,613	63,475	33,924	35,018	38,664	55,039
	YoY	-	-	-	-	-25.0%	-15.3%	-16.9%	-11.5%	-14.4%	-18.7%	-13.3%	-13.3%
	% of total	49.1%	23.3%	16.4%	15.7%	48.7%	24.8%	16.7%	16.2%	42.5%	21.9%	15.7%	15.6%
Operating profit		2,544	3,083	5,094	9,496	1,750	2,238	2,493	9,848	-72	-81	1,681	8,004
	Operating profit margin	4.8%	6.1%	9.5%	13.2%	4.4%	5.2%	5.6%	15.5%	-	-	4.3%	14.5%

Source: Shared Research, based on company data
Note: Starting in FY03/21, the company reclassified its reporting segments. It also changed accounting methods used to calculate profits and losses at individual reporting segments and also retroactively adjusted the figures for FY03/20 (hereinafter the same).

Full-year segment sales (to external clients): JPY162.6bn (-14.7% YoY)
Segment profit: JPY9.5bn (-41.6% YoY)

Sales and profit decline

Ongoing supply chain problems on the parts and materials side acted as a drag on production and sales for all the businesses under this segment. Sales declined, especially at its enterprise solutions and hybrid solutions businesses due to the reactionary drop from large orders in FY03/21 and delays in deliveries originally scheduled for FY03/22. With respect to the shortages of parts and materials, this affected not only the network devices, PBX products, and other equipment handled by its enterprise solutions and DX platform businesses, but it also impeded production and deliveries of servers, networking equipment, and other types of equipment.

Components & Platforms segment

Performance

Cumulative		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales		51,640	108,426	161,034	216,294	41,600	90,531	139,099	201,468	45,856	90,687	138,492	188,995
	YoY	-	-	-	-	-19.4%	-16.5%	-13.6%	-6.9%	10.2%	0.2%	-0.4%	-6.2%
	% of total	48.0%	49.6%	49.1%	47.3%	51.1%	52.2%	52.1%	51.3%	57.4%	56.7%	56.2%	53.7%
Operating profit		339	3,073	3,945	5,202	-1,625	-3,657	-4,291	-996	-1,607	-1,243	3,130	3,497
	YoY	-	-	-	-	-	-	-	-	-	-	-	-
	Operating profit margin	0.7%	2.8%	2.4%	2.4%	-	-	-	-	-	-	-	1.9%
Quarterly		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales		51,640	56,786	52,608	55,260	41,600	48,931	48,568	62,369	45,856	44,831	47,805	50,503
	YoY	-	-	-	-	-19.4%	-13.8%	-7.7%	12.9%	10.2%	-8.4%	-1.6%	-19.0%
	% of total	48.0%	26.0%	16.0%	12.1%	51.1%	28.2%	18.2%	15.9%	57.4%	28.1%	19.4%	14.3%
Operating profit		339	2,734	872	1,257	-1,625	-2,032	-634	3,295	-1,607	364	4,373	367
	Operating profit margin	0.7%	4.8%	1.7%	2.3%	-	-	-	5.3%	-	0.8%	-	0.7%

Source: Shared Research, based on company data
Note: Segment sales represent sales to external clients only.

Full-year segment sales (to external clients): JPY189.0bn (-6.2% YoY)
Segment profit: JPY3.5bn (versus loss of JPY996mn loss in FY03/21)

Factors contributing to decline in sales

The decline in segment sales was attributed largely to production shortfalls at its components business caused by parts and materials shortages. On the plus side, the company saw continued strong sales of factory automation/semiconductor manufacturing equipment under its Mono-zukuri platform business.

Factors contributing to positive swing in operating profit

The decline in sales notwithstanding, the segment's cost structure continued to improve as a result of progress on structural reforms under the medium-term business plan in the area of Information Equipment (formerly Printers). Also, adding to segment earnings and pushing the segment back into the black was the reversal of JPY3.2bn in previous provisioning for doubtful accounts in connection with its ATM business in China.

Others

Performance

Cumulative		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Sales		3,175	6,317	9,505	11,863	155	335	465	636	87	185	314	423
	YoY	-	-	-	-	-95.1%	-94.7%	-95.1%	-94.6%	-43.9%	-44.8%	-32.5%	-33.5%
	% of total	3.0%	2.9%	2.9%	2.6%	0.2%	0.2%	0.2%	0.2%	0.1%	0.1%	0.1%	0.1%
Operating profit		-117	-143	-173	-548	-38	-64	-186	-60	51	72	150	345
	YoY	-	-	-	-	-	-	-	-	-	-	-	-
	Operating profit margin	-	-	-	-	-	-	-	-	58.6%	38.9%	-	81.6%
Quarterly		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Sales		3,175	3,142	3,188	2,358	155	180	130	171	87	98	129	109
	YoY	-	-	-	-	-95.1%	-94.3%	-95.9%	-92.7%	-43.9%	-45.6%	-0.8%	-36.3%
	% of total	3.0%	1.4%	1.0%	0.5%	0.2%	0.1%	0.0%	0.0%	0.1%	0.1%	0.1%	0.0%
Operating profit		-117	-26	-30	-375	-38	-26	-122	126	51	21	78	195
	Operating profit margin	-	-	-	-	-	-	-	73.7%	58.6%	21.4%	-	178.9%

Source: Shared Research, based on company data
Note: Segment sales represent sales to external clients only.

Full-year segment sales (to external clients): JPY423mn (-33.5% YoY)
Segment profit: JPY345mn (versus loss of JPY60mn in FY03/21)

Company forecast for FY03/23

		FY03/21			FY03/22			FY03/23
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	FY Est.
Sales		173,542	219,326	392,868	159,815	192,249	352,064	425,000
	YoY	-20.5%	-8.2%	-14.1%	-7.9%	-12.3%	-10.4%	20.7%
Operating profit		-2,568	12,077	9,509	-4,406	10,270	5,864	9,000
	YoY	-	3.9%	-43.5%	-	-15.0%	-38.3%	53.5%
	Operating profit margin	-	5.5%	2.4%	-	5.3%	1.7%	2.1%
Recurring profit		-3,231	12,611	9,380	-4,252	11,943	7,691	8,000
	YoY	-	16.0%	-32.0%	-	-5.3%	-18.0%	4.0%
	Recurring profit margin	-	5.7%	2.4%	-	6.2%	2.2%	1.9%
Net income		-5,445	5,240	-205	-6,714	8,779	2,065	3,000
	YoY	-	-47.7%	-	-	67.5%	-	-
	Net margin	-	2.4%	-	-	4.6%	0.6%	0.7%

Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods.

Company forecast for FY03/23 (May 11, 2022)

The company is projecting full-year consolidated sales of JPY425.0bn (+20.7% YoY), operating profit of JPY9.0bn (+53.5% YoY), recurring profit of JPY8.0bn (+4.0% YoY), and net income of JPY3.0bn (+45.2% YoY). With FY03/23 being the last year under the current medium-term business plan, the company's current projections tell us that it expects to finish short of the performance targets set out under its medium-term plan. The projected shortfall is attributable largely to adverse changes in Oki's external operating environment that were unexpected at the time the medium-term plan was put together, including the prolonged fallout from the pandemic, shortages of parts and materials, the sharp jump in shipping costs, and other supply chain problems that it has yet to overcome.

Breakdown of company forecast by segment

For the Solutions Systems segment, the company is projecting FY03/23 sales of JPY210.0bn (+29.1% YoY) and operating profit of JPY14.0bn (+46.9% YoY). For the Components & Platforms segment, the company is projecting FY03/23 sales of JPY215.0bn (+13.8% YoY) and operating profit of JPY2.0bn (-42.8% YoY). For the "Others" segment, the company is projecting zero sales and zero operating profit.

The forecast assumes ongoing supply chains problems at both of its mainstay businesses. Compared with the final-year targets set under its medium-term business plan, FY03/23 sales at the Solutions Systems segment are projected to come in roughly JPY25.0bn below plan and operating profit JPY5.0bn below plan, and FY03/23 sales at the Components & Platforms segments are projected to come in JPY10.0bn below plan and operating profit JPY6.5bn below plan.

The forecast assumes average exchange rates of JPY115.0/USD and JPY130.0/EUR during the year.

Medium-term strategy (as announced in October 2020)

Medium-Term Business Plan 2022 announced in FY03/21

On October 29, 2020, the company announced a three-year plan covering FY03/21–FY03/23, Medium-Term Business Plan 2022. OKI marks its 150th anniversary in 2031, and it is seeking to achieve sustainable growth through solving social problems by that date. To this end, it has positioned the current three years as a time to put in place the foundations for growth as the first installment of these ambitions, and announced plans to execute large-scale structural reforms. The key message of the medium-term business plan is “Delivering OK! to your life.”

In FY03/23, the last year of the plan, the company targets operating profit of JPY20.0bn (+19.0% versus FY03/20) and a shareholders’ equity ratio of 30%. To attain these targets, the company assumes sales of JPY465.0bn, net income of JPY12.0bn, and ROE of 10%.

Structural reforms for growth

The approach in Medium-Term Business Plan 2022 is three-pronged: restructuring its business portfolio; strengthening its “mono-zukuri” (manufacturing) foundations; and reforming costs in shared group functions.

Restructure business portfolio

The company believes it must strategically reallocate management resources to business areas where it can harness its strengths at a time when changes in its business environment are accelerating. The company therefore decided to restructure its business portfolio centered on the integration of the three former hardware-based segments (Mechatronics Systems, Printers, and EMS) announced in April 2020.

The new Components & Platforms segment established by integration of these three former segments provides manufacturing services and equipment that solves social problems rather than selling individual products as in the past. The company will therefore integrate and strengthen design and development resources and change its sales and marketing methods as well, from the previous focus on its own sales networks to active business collaboration with customers and other companies to streamline operations.

Of the three former hardware-related segments to be integrated, the Printers segment needed reform the most. The Printers business has an established global manufacturing and sales structure, yet has been struggling amid a shrinking office printer market and increased competition. First, the company integrated printer companies with its head office to centralize corporate functions. Second, it integrated design and development functions with design and development-related departments of the former EMS segment, and reallocated its engineers. The company integrated sales and marketing functions with the Marketing & Sales Group at its head office, transferred or redeployed salespeople in Japan, and is reviewing sales bases and personnel overseas. Regarding products, the company is narrowing its focus on specific-use models, as well as considering the supply of components to other companies and collaboration with global partners in the overseas business.

The former Mechatronics Systems segment needed to develop new products to drive growth and diversify sales methods (such as making a profit from maintenance and selling modules), because the market for ATMs (its previous sales driver) and other automated equipment is maturing. The EMS segment, which has been recording stable earnings, also had issues such as the need to improve the weighting of its contract work portfolio and strengthen fulfillment of demand for upstream design.

The company’s policy for the Components & Platforms segment as a whole (with the exception of contract manufacturing work) is to focus on manufacturing and selling AI edge computer-related electronics products through joint development with clients.

Strengthen “mono-zukuri” foundations

The company shifted focus from selling products it has developed and manufactured through its sales channel to providing a service of stable supply of products that customers need in a timely manner. Put another way, the company does not supply equipment in existing categories, but is changing its business model to providing a “mono-zukuri” (manufacturing) platform.

By integrating the intellectual property related to technology and development of the three former segments, the company will first aim to combine its mechanics- and electronics-related technologies. It will also review its overseas production bases and consolidate domestic production subsidiaries to progress centralization. Instead of assigning production items to specific factories, the company will establish “virtual one factory,” a structure for integrated management of production across the group that optimizes production items and factories. By transitioning in this way to “smart factories” that are centrally managed, the company aims to create a flexible production structure that can adapt to changing demand and technological advances over the long term. As well, the company plans to integrate purchasing departments and restructure the supply chain. This production system is also positioned as a model facility for Manufacturing Digital Transformation (DX).

Reform costs in shared group functions

As part of business integration, the company will streamline costs by integrating shared functions within the group.

First, the company aims to cut purchasing costs. To this end, it will strengthen supply chain management and integrate supply chains, leveraging the gains it makes to build a streamlined purchasing structure, including reorganization of supplier maps. Integrating the three former segments’ separate purchasing strategies will also strengthen development purchasing departments. The company estimates that this will produce a cost saving of around JPY10.0bn over the three-year medium-term plan period.

Second, the company will reduce personnel and other expenses. It plans to streamline and optimize shared group functions in accordance with its portfolio restructuring. Specifically, it plans to outsource logistics, expand the scope of business of group shared companies, and stem expenses paid to outside the group. The company estimates a total expense reduction of around JPY4.0bn in three years.

Growth strategies by segment

The company’s growth strategy aims to integrate “mono-zukuri” (manufacturing) with a difference and AI edge computer technology to help solve customers’ problems. It plans to leverage the structure it is building through business structural reforms for providing an all-round manufacturing-related service. AI edge is a technology that incorporates an artificial intelligence (AI) learning model to edge devices (devices used by end-users). AI functions are provided in the cloud, which is suited to the AI learning environment, but advances in IoT have also enabled solutions whereby devices to have their own AI functions to reduce the load on networks. The company is fulfilling customer demand for digital transformation (DX) by providing its own solutions service that combines “mono-zukuri” services with AI technology. The company sees as its points of difference its customer base (mainly of social infrastructure service providers), range of edge computing-related equipment and solutions based on these core products, and AI edge technology fostered in the process of device manufacturing.

Solutions Systems segment

Sales: Target increase from JPY229.1bn in FY03/20 to JPY235.0bn in FY03/23
Operating profit: Target of JPY19.0bn

OKI foresees a society of accelerating digital transformation in the “new normal” age after the COVID-19 pandemic is under control. It also believes that solutions harnessing technologies such as 5G and AI will increase, and edge computing (distributed computing to deal with increased volume of information) will become more important. The company seeks to strengthen its business for supporting customers’ digital transformation using AI edge technology.

Components & Platforms segment

Sales: Target increase from JPY216.3bn in FY03/20 to JPY225.0bn in FY03/23
Operating profit: Target of JPY8.5bn

The company will transition from a product-centered business (such as office printers and ATMs) to providing components (devices and modules) needed for systems and services by creating a “mono-zukuri” platform.

Investment in growth

The company plans capex of JPY70.0–80.0bn (including M&A) in the three-year medium-term plan period. Spending will be on strengthening its manufacturing base, transitioning production facilities to smart factories, and promoting DX (such as ERP advancement and IT integration). The company plans R&D investment of JPY40.0bn in the same period, to be spent on DX solutions, component development, and its five priority technologies (sensing, networks, AI, robotics, and user experience).

Team OKI configuration

Source: Shared Research based on company data

New business segments

Source: Shared Research based on company data

Three-way business line integration

Source: Shared Research based on company data

Growth strategy

Along with its release of full-year results for FY03/21, the company also provided information about the growth strategies at its Solution System and Components & Platforms segments to complement its Medium-Term Business Plan 2022 (announced October 29, 2020).

Business activities to be reinforced

In the Solution Systems business, the company is seeking to take advantage of the advancing digitalization of customers’ business processes and warming investment sentiment, and will bolster its ability to offer digital transformation solutions, products, and services to support these moves. The company’s approach is to incorporate its digital technologies in IoT, AI, cloud service, 5G, and local 5G into solutions. For FY03/22, the company expects to achieve sales of JPY40.0bn in its digital transformation businesses (+8.4% YoY), such as next-generation electronic toll collection (ETC) systems, AI edge business computing, and local 5G areas.

The Components & Platforms segment has separate strategies for components and for platforms. For components, the company plans to target customer needs arising from advancing automation and labor saving initiatives, not only reinforcing product lines for partner companies (equipment supply clients), but also expanding its operating services leveraging the base of OKI products already installed and operational in the market. It is looking to widen its network of partner companies beyond traditional core module customers into new fields. The company is positioning its platforms business to be a provider of comprehensive manufacturing services, and seeking to build its capabilities to support all stages of the manufacturing processes, from design and manufacturing to maintenance services. At the same time, the company will expand its lineup to cover mountings, units and equipment. The company estimates that the Components & Platforms business, including comprehensive manufacturing services and products for partner companies, will account for 60% of the projected JPY201.0bn in FY03/22 sales.

Medium-term Business Plan 2019 announced in FY03/18

OKI’s three-year Medium-term Business Plan 2019, which started in FY03/18, reflects on issues observed under the previous medium-term business plan, and sets improved earning capacity as its goal. As key performance indicators, OKI is targeting an operating profit margin of 6% and equity ratio of at least 30%. Performance targets for the final year of the plan (FY03/20) were sales of JPY500.0bn and operating profit of JPY30.0bn. The company is also looking to get the shareholders equity on its balance sheet up to JPY120.0bn and pay a stable dividend. The essential features of the plan as of the time of announcement were as follows.

Key indicator is OPM

The company will be focusing on its operating profit margin as one of its key performance indicators because it is difficult to fund dividends and growth investments without stable earnings from operations. The central theme of the current business plan is to make OKI a company that can secure stable earnings and maintain an operating profit margin of 6%, by placing utmost focus on strengthening earning capacity and laying the foundation for sustained growth and evolution.

Earning stability

A company that can secure stable earnings, in OKI’s definition, is a company that can handle changes in the business environment. This requires not only a well-balanced portfolio of profitable businesses, but also the ability to create next growth-drivers, the strength to endure adverse environment, and a system of corporate governance that is capable of playing offense as well as defense. Whether or not the company achieves these goals during the medium-term plan will be key in the qualitative assessment of OKI’s progress.

The plans for each segment are as follows

in ICT, to create a stable earnings base while growing new business; in Mechatronics Systems, to put the business back on the growth track; in Printers, to shift strategy with the aim of achieving stable profitability; in EMS, to grow sales and get closer to its ultimate goal of creating a JPY100bn business. Put another way, the company aims to establish a solid base for earnings with the ICT segment, work on turning around the Mechatronics Systems and Printers segments as soon as possible, and then add to this by building up new growth business in areas such as social infrastructure and ATMs for emerging markets.

When OKI reported its FY03/20 earnings, it also conducted a review of its Medium-term Business Plan 2019, according to which its FY03/20 operating margin came to 3.7%, falling short of the plan’s stated objective of 6%. Management attributes this to failure to get the Mechatronics Systems segment on track for growth as envisioned. In terms of equity ratio improvement, although it failed to reach its objective of 30%, the company says it did make progress on improving internal control and the financial position.

Given that OKI has been unable to announce earnings forecasts for FY03/21 while the COVID-19 pandemic rages on, it has also made no mention of any new medium-term business plan. However, the company sees the following two points as pillars of its next plan.

First of all, there is the reallocation of hardware-business resources. OKI has traditionally run three hardware businesses, namely Mechatronics Systems, Printers, and EMS, but under its next medium-term business plan, it aims to organize the resources of each line of business and reallocate them under the framework of “hardware business.” Issues management intends to address in terms of hardware business include more focus on R&D to enable timely product development, and attention to the area of upstream design in its contract production services. The second point is to enhance OKI’s ability to access markets and reform its cost structure.

Business, market and value chain

Business overview

Long-established company integral to the telecom industry in Japan

Since OKI’s inception in 1881 when it produced the first made-in-Japan telephone, for over 130 years the company has been an integral part of Japan’s telecommunications industry, as it worked to foster domestically developed technologies without easily depending on imported products. The accumulation of technology and expertise in this field has led to a stable earnings platform in its ICT segment, although relying on domestic development is one reason the company was not able to keep up with rapid changes in the telecom industry.

OKI is one of the four original members of the former NTT family*, but rather than being involved with mainframes like Fujitsu (TSE1: 6702) and NEC (TSE1: 6701), it established a position in the field of terminals for data transmission. However, with changes in the business environment, including the privatization of NTT, the opening of the domestic telecom market, and the shift of telecom networks to IP, sales within the family are shrinking. OKI has therefore expanded from ICT system terminal technologies to network construction and peripheral devices.

OKI’s specialization is audio technology underpinned by over 130 years of expertise beginning with telephones as well as systems that leverage its core technologies such as multi-hop wireless network technology**.

*NTT family: The Japanese government established Nippon Telephone and Telegraph Public Corporation (currently NTT Group) in 1952 to promote the spread of telephones. The public corporation worked to develop the infrastructure needed for Japan’s landlines, and a group of manufacturers with exclusive rights to supply various equipment and terminals came to be known as the NTT family. In telecom equipment, members of the NTT family other than OKI were NEC, Hitachi (TSE1: 6501), and Fujitsu.
In the telecom networks space, which was OKI’s mainstay, the application of IP (internet protocol) technology in routers and switches brought about a transition to switchboards made by overseas companies that met international standards. As a result, OKI’s sales to the telecom sector shrank to JPY68.5bn in FY03/16 compared to JPY160bn in FY03/01. Sales to NTT withered to less than one-third (around JPY20bn) of total sales.

**Multi-hop wireless network: This is a wireless network that not only enables direct communication between terminals, but also allows data to be relayed across multiple terminals, making the communication area expandable. With this sort of wireless network, users are not associated with a certain cell, but can access multiple base stations.
Since various wireless devices make up the networks by autonomously determining different communication routes, multi-hop wireless networks are considered to be highly reliable and can be used in smart meter networks, various sensor networks, and emergency networks in times of disaster. OKI was the first company in Japan to develop a wireless telecom unit for use in the 920MHz band. This frequency band is considered suitable for constructing networks because its high diffractiveness makes it less susceptible to obstacles.

Integrated manufacturing-related areas

Until FY03/20, manufacturing-related areas included the Mechatronics Systems, Printers, and Electronics Manufacturing Services (EMS) segments, but the company combined these into a single new segment in FY03/21. The following discussion refers to the segmentation up to FY03/20.

Information and Communication Technology (ICT) segment: Provides diverse telecom systems and solutions to a range of industries, with customers including major companies and government agencies. Stable earnings underpinned by replacement demand from blue-chip clients.

Mechatronics Systems segment: ATMs are the main product. OKI has 40% domestic share in a three-company oligopoly. Aims to develop new markets for and increase uptake of cash-recycling ATMs by tapping into ATM demand in emerging markets.

Printers segment: Focus on migrating from products for the office printer market to the professional printing market.

Electronics Manufacturing Services (EMS) segment: High-end contracted EMS is a high-quality, highly reliable one-stop service from design and development through production. The segment maintains OPM of around 5%. Winning new customers and new orders from existing customers; actively pursuing M&A.

Segment classifications (until FY03/20)
In FY03/17 the former Info-Telecom Systems segment was split into the ICT segment and the Mechatronics Systems segment. Of the four subsegments (finance, telecom, social systems, and mechatronics systems) comprising the former Info-Telecom Systems segment, the mechatronics systems subsegment was made an independent segment, and the three remaining subsegments formed the new ICT segment. These three subsegments were also merged structurally from April 2016. The integration was necessary to move from the legacy industry-based approach to one where the company can offer all customers the technology and solutions developed in the finance, telecom, and social infrastructure divisions. For example, solutions for payment operations can be applied not just to financial institutions but in a variety of industries including distribution and retail.

Sales by segment (until FY03/20)

Operating profit by segment (until FY03/20)