Disco Corp ((DSCSY)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Disco Corp’s latest earnings call mixed record-breaking momentum with a sober view of near-term risks. Management highlighted a historic JPY111.1 billion quarter driven by generative AI and memory, resilient gross margins when adjusted for currency, and stronger OSAT demand, yet cautioned about Q2 shipment timing, weak power semiconductors and SiC consumables, FX pressure, and limited visibility into the second half.
Record Quarterly Shipments and Upward Revision
Disco posted record Q1 shipments of JPY111.1 billion, well ahead of external expectations and fueled by both machinery, equipment, and other products. The company raised its near-term shipment outlook by about JPY9 billion, while also catching up on roughly JPY3 billion of delayed Q4 orders and shifting another JPY2 billion into Q2.
Generative AI and Memory-Driven IC Upswing
Integrated circuit-related demand surged as generative AI projects and memory customers accelerated orders, pushing memory to just over 40% of Q1 shipments. DRAM led NAND with an estimated 60:40 to 70:30 split, and high-bandwidth memory stood out as a major contributor to the quarter’s strength.
OSAT Channel Recovery Boosts Momentum
OSAT-related shipments rebounded sharply, with OSAT representing around 30% of Q1 business as both memory and logic demand improved. Recovery in Taiwan and broader OSAT activity signaled a healthier packaging and test channel, supporting the broader IC upcycle tied to AI infrastructure.
Strong Gross Margins Despite FX Drag
Reported gross margin reached 68.1% in Q1, but management noted it would have been about 70% if the yen had matched last year’s JPY158 per dollar. The stronger yen at JPY144 eroded roughly 1.9 percentage points of margin, yet underlying profitability remained high even as FX volatility added a new layer of uncertainty.
Advanced Technologies Progress, Still Early in Revenue
The company reported progress in NAND hybrid bonding, with some customers moving closer to mass production compared with three months ago and more inquiries for panel-level packaging. However, PLP, WMCM, and hybrid bonding at scale are still in the investment and evaluation phase and have not yet become meaningful revenue contributors.
Busy Factories and Stable Capacity Utilization
Factory operations were described as generally busy, especially for grinders and related equipment linked to generative AI build-outs, with no acute staffing shortages reported. Grinders and laser saws are running at stable levels, suggesting Disco is managing current demand without major bottlenecks or emergency capacity additions.
Q2 Shipment Decline Driven by Timing Effects
Management warned that Q2 shipments will likely fall sequentially as some projects were pulled into Q1 and advance shipments concentrated early in the year. While generative AI demand itself does not appear to be slowing materially, this timing shift could make Q2 look softer even if the underlying trend remains intact.
Power Semiconductor Weakness Tied to EV Slowdown
Non-IC applications declined, with power semiconductors seeing a notable drop as EV and broader auto demand weakened. Power devices remain a single-digit share of shipments and are not expected to recover in Q2, limiting Disco’s exposure but underscoring softness in the EV-related portion of the market.
SiC-Driven Consumables Softness
Consumables sales are down year over year, largely due to a clear decline in SiC-related consumables demand as that market pauses after rapid expansion. Management expects plant occupancy to gradually increase, but current consumables weakness serves as a reminder that some parts of the power and SiC ecosystem are still digesting past investments.
FX Volatility Adds Another Margin Headwind
The yen’s appreciation from JPY158 to JPY144 per dollar was a significant drag on reported profitability, and management’s assumption of JPY135 for Jul–Sep could shave off up to about two more gross margin points. This FX sensitivity means even strong operational performance may not fully show through in margins if currency moves remain unfavorable.
Reduced Visibility for H2 and Q4
Disco flagged limited visibility into the second half, particularly Q4, as customers shorten their forecasts and issue fewer early purchase orders. This shift increases quarter-to-quarter volatility and raises the risk that timing swings, rather than fundamental changes, will drive reported numbers later in the year.
Advanced Packaging Adoption Still Nascent
Despite rising R&D activity and customer interest in PLP and other advanced packaging technologies, these areas have yet to generate material revenue contributions. Hybrid bonding is making technical progress, but large-volume shipments are still ahead, underlining that the most advanced packaging opportunities remain longer-term drivers.
Guidance Highlights Timing Dip and FX Pressure
Guidance underscores that the JPY111.1 billion Q1 was boosted by pulled-in projects, including about JPY4 billion of evaluation tools and the clearing of delayed Q4 shipments, with Q2 set for a timing-driven dip. Management sees Q3 as somewhat stronger, guides Q2 gross profit down by less than two points with FX at JPY135 per dollar, and keeps H2, especially Q4, as an open question amid ongoing AI strength but softer consumables and power segments.
Disco’s earnings call painted a picture of a company riding powerful AI and memory tailwinds while bracing for short-term volatility in shipments, FX, and certain end markets. Investors will watch whether the Q2 dip proves purely timing-related, how quickly advanced packaging converts into revenue, and whether the combination of strong demand and disciplined operations can offset currency and cyclical headwinds through year-end.
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