Renesas Electronics Corp

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Those of you who wish to use the interpreting, please select your language from the globe icon at the bottom. May we ask the speakers to turn on your camera. Today, we're being attended by Mr. Hidetoshi Shibata, Representative Director, President and CEO, Mr. Shuhei Shinkai, Senior Vice President and CFO, as well as other staff members. We will first have Mr. Shibata give an opening remark, and after that, we will hear from Mr. Shinkai, earnings result for Q2. After that, we will have Q&A session. We expect the entire session to be 60 minutes. The materials to be used in today's earnings call is the same material that is within our IR website. With that, Mr. Shibata, please turn on your microphone. Thank you very much for joining in spite of our busy schedule. The numbers for Q2, I do believe, is in line with our expectation. On the other hand, when we think about Q3 and onwards, I do believe that I mentioned that we want to be prepared for upsides. But then when we look at the contents, I'm not exactly sure upside would be the right word, but we do believe there are areas where we can make a very good progress. However, there still are uncertainties that will continue and that is our current thought and so for the time being we do want to go for to make sure that we be able to go on a safe side and so as for details i would like to leave for miss leave it to mr shinkai to explain so with that mr shinkai please yes this is Allow me to go over with you the details for Q2 results referring to the materials within our IR website. Can we start with slide number three? So here are some disclaimers. And so I do recall that I did give some heads up at the point of Q1 result as for the integration of ERP system. But then we had not really been able to prepare. And so there's a delay. And so that means there is not going to be any impact to Q3. We currently are expecting that we'd be able to do that next year. And I will make sure that I'd be able to update you when we are ready. And so here we have the... And so please look at the middle blue column for the actuals for Q2. Revenue stands at 368.7 billion. Gross margin, that's 37.4%. And operating profit, that's 129.1 billion, with the margin standing at 35%. As for profit attributable to owners of parent, that's 119 billion yen. And excluding the currency impact, that's 108.2 billion. EBITDA, that would be 149 billion yen, a currency that stands at 135 yen versus dollars, 146 yen versus euro. And if you'd be able to look at three columns on the right, we have the comparison versus the forecast, which I will be going over in the following slides. And also for the year-to-date for the first half, that is on the next dark blue column. Moving on to the next slide, which is about the quarterly revenue trend. And if you'd be able to look at the far right, that shows the actuals for Q2. So in total, the revenue fell by 2.2% year-on-year and increased by 2.5% Q1Q. But then if we try to exclude forex impact, that's a decline by 8% year-over-year and then increased by 0.8% Q1Q. As for the breakdown, anything for automotive or industrial infrastructure, IoT, you see all the numbers there. But then at the same time, if we try to exclude foreign currency impact, automotive, That's a negative trend. In other words, negative 2.7% year-over-year and then negative 1.1% Q1Q. On the other hand, industrial infrastructure IoT, that's a decline by 12.3% year-over-year and then plus 2.5%. That's an increase on Q1Q basis. Please go to the next slide. 売上総利益率、営業利益率等についてです。

Here we have the revenue gross margin operating margin for Q2. First start with the company total referred to the upper right-hand corner retained against the forecast. Revenue was 2.4% above the median forecast, 8.5 billion in real terms. Slightly more than half is due to the exchange rate effect. Just under half for non-exchange rate effects. By segment, there was slight decrease in automotive. While industrial infrastructure IT registered an increased gross margin was 1.9% touch points above forecast. The reason is risk was considered at the time the guidance were not realized. And forks are in line with expectations. Product missed positive. However, products, we find that in terms of cost, we see an increase in terms of cost. This is attributed to decline in production And also, we had expected a cost associated with raw materials. However, this was under expectations. And therefore, these are the main reasons. And as for operating expenses, when we look at R&D SG&A, it was down against expectations. And therefore, it was 3.0 percentage points above our expectations. And down below, we are looking at Q on Q. And as for operating margin, it was plus revenue, excuse me, it was plus 2.5% and 1.2% in terms of gross margin. In terms of product miss, infrastructure, IoT industry, we see some positives. In terms of utilization, due to decline in utilization, there was a decline in terms of Recovery, however, production costs, of course, we need to take account for accounting factors, but we are seeing on a net basis, this is a positive. And we need to look at the left-hand corner and by segment, please take a look. And here we can Q&Q variabilities in terms of automotive. There have been impact from weak production recovery. In industry, infrastructure, and IoT, there was an improvement in mix. And there was also evaluation downgrade. And therefore, this is a positive. And for industrial infrastructure IoT, we find that queue on queue, there is an increase in R&D. And this was one factor behind this. And going on to page 7, here we're looking at in-house inventory. Overall, when we look at the DOI, days of inventory, that's indicated to the right. In the second quarter, on Q2, there's a decline. First quarter was 107 days, and now it's 106 days. For infrastructure and also automotive, we see a decline. And going on to the next page, this is a sales channel inventory. And we're looking at WOI, weeks of inventory. All segments of Q1Q basis, we're seeing an increase. automotive, somewhat of an increase in industrial infrastructure and IoT, somewhat of an increase as expected. Around nine weeks overall. And factors behind increase and decrease of inventory to the very left, we have in-house inventory. Overall, we're looking at 10.3 billion yen decline. And to the raw materials, Q1Q, it's 1.7 billion yen plus there have been production adjustments, and therefore, there have been lower wafer consumption, and this is a factor. And we have, of course, long-term contract, and the utilization rate has declined, and therefore, in the third quarter, we are expecting an increase that will continue. And as for work-in-progress for internal products, we increased the die bank inventory, but there have also been production adjustments as anticipated, and therefore, work-in-progress decreased And therefore, it was basically flat Q on Q. And for the third quarter expectations, we are also intending to pursue further increase in die bank inventory. And also, we would like to decrease the inventory. And therefore, we'll decrease the finished products, which will mean that the work in progress will increase. And therefore, Q on Q, there will be a slight increase that is expected. And lastly, in terms of finished products, the first quarter has declined. And for a handful of products, there will be a temporary increase expected. And to the right, we have the channel inventory. In all of these segments, there is somewhat of an increase. For automotive, so through, somewhat increased. And therefore, WI has slightly increased. for industry infrastructure sell-through and also sell-in also increased. And therefore, as anticipated, we have registered an increase. And as for the third quarter expectations for automotive industrial and IoT, we expect to see somewhat of an increase. And next page. This is quarterly trends in front and utilization rate for wafers, 6% in the first period. However, due to production adjustment, some of it declined against the expectations. And into the third quarter, we expect to see a flattening trend. And moving on. And here we look at gross profit and operating profit quarterly trends. And please take a look. And moving on to the next page, we are looking at EBITDA and also free cash flow. To the right, I would like to make a comment. For Q2 and Q1, we see that there's quite a gap. In the second quarter, the operating cash flow, when you compare it to the first quarter, there have been, of course, tax payments and also increase in terms of bonus payments. There's a factor behind this. In third quarter, there'll be interim payment of taxes as well as bonus payments, and therefore we'll see minus figures. And going on to the next page. In third quarter, a forecast is indicated here. And please look at the dark blue column in the middle. The forecast for median revenue is 370 billion yen year-on-year. It will be minus 4.5% Q1Q plus 0.3%. And down below, excluding forex impact, the figures are minus 5.4% year-on-year and minus 0.1% Q1Q. And as a gross margin, 56.5%, that will translate to 0.9% down on Q&Q, and 32.5% in terms of operating margin. And when we look at this on a Q&Q basis, 0.9% decline is attributed to products' mass deterioration and also increase in manufacturing costs. In terms of production mix, in the first quarter, we saw brisk performance. However, there has been a decline. In terms of production costs, there are increase in breakdowns and also utility costs that have surged, and also facility construction in terms of operating margin. Third quarter, R&D is expected to increase. The second half of the year R&D spending will increase mainly for automotive, YGBTI, NSSI, SOC rather, next generation product where the focus will be placed. Moving on to the appendix, and please take a look at page 19. And this is for the second quarter. known gap to gap. One point worthy of mention, the third from the right, and this is a reference stock-based compensation for 23 this year. It is increasing year on year. Dialogue employees will be integrated into the same cycle as Renaissance and M&A. Due to M&A, the number of hand count is also increasing and also due to attributed to the weekend on a quarterly basis, The expenses was about 4 billion up to now, but it will increase to 7 billion in the second quarter. And moving on to page 21. And this is in terms of CapEx. There are subsidies that have been gained from METI that have been indicated in light blue. End of April, an announcement has been made. The subsidy is indicated as highlighted in light blue. and it's about a third of what's indicated here. And moving on to the next page, this is just for reference sake. With Wolfspeed, for the latest wafer supply agreement, it was July 5th that we have been able to assign a 10-year supply agreement. And that will conclude my presentation. Thank you for your attention.