Morpho's cut to its outlook for the year ending October 2026 is a reminder that a subsidy line can make the profit statement look less bad without fixing the business underneath. The image-processing software company booked ¥39 million of subsidy income as non-operating revenue, but first-half sales still fell 24.8% year on year to ¥1,152 million and the operating loss widened to ¥539 million. Morpho now expects full-year sales of ¥3,000 million, an operating loss of ¥350 million, an ordinary loss of ¥230 million and a net loss of ¥520 million, versus its previous forecast for sales of ¥3,500 million, operating profit of ¥100 million, ordinary profit of ¥150 million and net profit of ¥70 million.
The reset looks like this:
| Metric | Previous guide | Revised guide | First half actual | Second half outlook |
|---|---|---|---|---|
| Sales | 3,500 | 3,000 | 1,152 | 1,848 |
| Operating profit/loss | 100 | -350 | -539 | 189 |
| Ordinary profit/loss | 150 | -230 | -464 | 234 |
| Net profit/loss | 70 | -520 | -681 | 161 |
What actually deteriorated
The operating problem was mostly commercial, not accounting. Morpho said royalty sales fell as higher semiconductor prices fed through to lower smartphone shipments, while development revenue weakened as automotive customers scaled back, paused or delayed projects amid a slower EV market and cautious investment conditions. In the first half, royalty income fell 32.5% to ¥603 million and development income fell 20.3% to ¥485 million. Because the group's cost base carries heavy fixed-cost characteristics, lower sales translated quickly into a deeper operating loss.
What the subsidy did, and did not, do
The subsidy helped below the operating line. Morpho's interim income statement shows ¥75,910 thousand of non-operating income, including ¥39,528 thousand of subsidy income, which is why the ordinary loss of ¥464 million was smaller than the operating loss of ¥539 million. But that accounting lift was outweighed by special losses. The company separately disclosed ¥183 million of reform-related charges, split between ¥143 million of structural reform costs for older software assets with low fit to next-generation products and ¥40 million of impairment losses on other fixed assets. The interim income statement shows total special losses of ¥193,784 thousand, so the reform items were most of the extraordinary hit, not all of it.
Why the second half matters
Morpho says revenue is already recovering and that the second half should carry 61.6% of full-year sales, with orders expected from devices beyond smartphones, including smart glasses, steadier domestic DX demand and lower depreciation after the asset cleanup. Its revised plan implies second-half operating profit of ¥189 million and net profit of ¥161 million. That is the recovery case readers are being asked to accept. The hard number already in hand is the first-half loss, and the company itself says actual results may differ from the forecast.