Cybersecurity firm Trend Micro bets on AI to offset US tariff woes
[SINGAPORE] The Trump administration's policies have cast a shadow over Japanese cybersecurity firm Trend Micro, contributing to a slowdown in its first-quarter revenue, but the company believes that artificial intelligence (AI) offers longer-term promise that could more than make up for the current troubles.
'Even though everybody is pulling back their spending, nobody has stopped the exploration of AI,' said the company's chief executive officer, Eva Chen, in an interview with The Business Times.
The company provides products and services for all cybersecurity layers such as endpoint devices like laptops, servers where data is stored and Internet networks. With a hand in all security layers, Trend Micro can keep up with innovation and industry changes quickly, including progress in AI, said Chen.
Trend Micro was first listed on Japan's stock exchange for emerging and venture companies, the Jasdaq, in 1998. It later listed on the Tokyo Stock Exchange in 2000. Since then, the company's share price has risen nearly 20 per cent.
Trend Micro currently has a market capitalisation of 1.3 trillion yen (S$11.4 billion) and annual revenue of about US$2 billion, selling cybersecurity products to both consumers and enterprises.
Company performance
In its latest Q1 results for FY2025, Trend Micro turned in a net sales of 67.5 billion yen, up 2.4 per cent from a year ago. This was a slowdown from Q4 of FY2024, which had a 7.7 per cent increase in net sales compared to a year ago. Chen attributed the slowdown in sales to several reasons.
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Firstly, one of Trend Micro's suppliers, which operates the company's electronic payment system for its consumer business, went bankrupt. Thus, Trend Micro's payment service was not functional in regions outside Japan in the first quarter of FY2025.
On a macro level, Trend Micro's business slowed down due to the policies introduced by the Trump administration in the US. In its Asia markets, Chen observed that businesses, especially manufacturers, were more cautious about their spending given uncertainty over US tariffs.
Within the US market itself, Chen observed a slowdown in business from the US government sector, likely due to the impact of the Department of Government Efficiency, or Doge, an initiative by the Trump administration to cut wasteful government spending.
Chen said she expects the impact of Doge to linger in Q2 as overall US government spending slows. Overall, Q1 net income fell 17.6 per cent to 8.9 billion yen. However, Chen attributed this to an employee stock option programme which allows Trend Micro staff to cash in their shares whenever they want at the current market price.
'And fortunately or unfortunately, our stock price jumped up a lot last quarter, so that (stock-option related) cost increased a lot,' said Chen. Trend Micro's share price hit a 52-week high of 12,160 yen per share on Feb 19.
Good sales over FY2024
Despite the lower revenue and net income, Trend Micro's Q1 operating income – which represents the company's income from core business operations – hit a record high of 15 billion yen, an increase of 23.7 per cent from a year ago.
Chen said that the performance is due to Trend Micro's evolving business strategy. In its early years, Trend Micro adopted a perpetual licence model for its sales where customers could purchase Trend Micro's software licence, and pay additional fees annually to update the software.
Trend Micro later moved to a subscription-based software delivery model called Software as a Service (SaaS). This allows customers to subscribe to the software, which is run by Trend Micro, on a cloud-based server.
However, Trend Micro's profit margin dropped during this period as the operation cost for a cloud service provider was expensive. It was also difficult to expand the range of products sold to customers through the SaaS model.
In 2023, Trend Micro introduced its Vision One cybersecurity platform, which integrates all of Trend Micro's products and services for various cybersecurity layers into one platform.
'When the SaaS customer re-subscribes to our services in the second year, we don't need to re-establish the whole platform for them again. Therefore the profit margin gets better,' explained Chen. This reduces the operating cost and encourages customers to buy more products offered by Trend Micro through its Vision One platform, she added.
The figures for FY2024 have been encouraging. For the full year ended Dec 31, 2024, Trend Micro's net income more than tripled to 34.4 billion yen. Operating income rose to 48.1 billion yen, up 47.6 per cent. Net sales for the full year rose nearly 10 per cent to 272.6 billion yen, with the Asia-Pacific region its fastest growing market in FY2024.
Sales in the region jumped 20 per cent from a year ago, compared to Trend Micro's other markets in Japan, the Americas and Europe.
The power of AI
Chen said she is optimistic that the longer-term business opportunities offered by AI will override the shorter-term challenges presented by current US policies.
Firstly, AI can help to improve Trend Micro's products, said Chen. 'We use AI to make our products much smarter. The whole detection and protection – which we call proactive security – for our customers is much faster and better,' she explained.
For example, Trend Micro can use AI to create 'digital twins' which can replicate a system or programme, while providing businesses with customisable, higher-value products at a lower cost.
Secondly, the incorporation of AI by businesses also presents them with new cybersecurity risks. For instance, companies need to ensure that the data that they use to train the AI is 'not polluted', meaning that the data is accurate and not biased.
For these reasons, opportunities in AI will be the focus of Trend Micro's business strategy in the next few years, said Chen.
The company is projecting a 13.2 per cent rise in its net income for FY2025, with net sales rising 5.9 per cent to 288.6 billion yen. It also estimates that its operating income will grow by 25.3 per cent to 60.3 billion yen for the current financial year.
Challenges remain, but with AI reshaping both its product and business model, Trend Micro sees more opportunity than risk ahead.
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