Disco Corp., the Japanese maker of the saws and grinders that cut and thin silicon wafers into chips, reported record operating profit of 67.6 billion yen for the July to September quarter, up 52.3% from a year earlier, as demand tied to generative AI kept its plants busy. Its forecast for the current quarter came in lower.

For investors in Asia, Disco is a direct read on advanced packaging, the step where memory and logic dies are stacked and bundled for AI accelerators. Nearly 90% of its quarterly sales came from outside Japan, according to the company's results presentation.

Sales rose 36.4% to 142.8 billion yen in the quarter, and net income climbed 43.5% to 46.1 billion yen, the company said on Oct. 22. Gross margin widened to 71.7% from 69.5% a year earlier, which Disco put down to a weaker yen and a richer product mix. The operating margin reached 47.4%.

Disco guides profit lower for October to December

Disco gives guidance only one quarter at a time. For October to December it forecast sales of 132.4 billion yen and operating profit of 58.1 billion yen, which would be down about 14% from the September quarter but still 23% above the 47.3 billion yen it earned in the same period last year.

The forecast assumes an exchange rate of 151 yen to the dollar; Disco estimates that each 1 yen move against the dollar shifts annual profit by about 2.1 billion yen.

The shares had already slipped before the release, closing at 51,230 yen on Oct. 22, about 22% below their Oct. 6 close of 65,500 yen. On Oct. 23, the first full session after the results, the stock fell as much as 10% to 46,100 yen, a low for the year, before closing down 3.79% at 49,290 yen, according to Kabutan price data.

For the nine months to December, Disco now expects sales of 389.5 billion yen, up 28.2%, and operating profit of 174.7 billion yen, up 38.4%, according to its financial statements.

Shipments point to steady AI demand

The weaker profit outlook partly reflects how Disco books revenue. It recognises sales only once a customer has inspected and accepted a machine, so reported results can lag orders. Shipments, which the company says track demand more closely, tell a firmer story.

Disco shipped a record 148.6 billion yen of equipment and consumables in the September quarter, up about 54% from 96.3 billion yen a year earlier. It expects shipments of 149.6 billion yen in the December quarter, another high. First-half shipments rose about 40%, the company said.

By product, Disco expects grinder shipments to rise about 10% from the previous quarter, while blade dicer shipments fall about 5% and laser saws hold flat. Grinders thin wafers before they are stacked, a step used heavily in high-bandwidth memory for AI chips. Sales of blades and grinding wheels, which wear out and are replaced in proportion to how hard customers run their machines, hit a record last quarter and are forecast to ease about 5%.

The company also pointed to early demand for dicing optical chips and components used in co-packaged optics, a technology that moves light-based connections closer to AI processors.

The figures follow a similar pattern at fellow Japanese tool supplier Advantest, which raised its full-year profit forecast after a record quarter for AI chip testers.

Cash, dividend and new plants

Disco ended September with 342.4 billion yen in cash and deposits and an equity ratio of 76.1%. It raised its interim dividend to 186 yen a share from 129 yen a year earlier, in line with its policy of paying out 25% of half-year net income. Under the same policy, a third of any year-end surplus cash above its funding needs is added to the year-end payout. The year-end dividend has not been set.

Capital spending for the fiscal year is expected to total about 33 billion yen. That includes a new plant at its Hiroshima Works, budgeted at about 33 billion yen in total, and a new building at its Haneda research center in Tokyo, at about 14 billion yen, with payments for both spread over three fiscal years through March 2028. Research and development spending is forecast at about 38 billion yen.

Disco's next data point comes in early January, when it publishes preliminary shipment figures for the October to December quarter.