Renesas Electronics Corp

Hello all, if you would like to hear this session in English, please click the globe icon on the bottom and select English channel. Today, simultaneous interpreting channel is available.

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.

Thank you.

Thank you very much.

We will now like to open the floor for Q&A. So Mr. Shibata, thank you very much for turning your video camera on as well. So allow me to go over with you how this question is to be asked. And so the moderator will call out. If you have any question, please raise your hand. And so if you do, please use the raise hand icon and I will call upon you. And upon that, please. State your name as well as your occupation. And once you are nominated, please unmute yourself so that you'll be able to speak up. Due to time limit, allow us to limit your question to two. With that, may we ask Sugiura-san from Daiwa Securities, please unmute yourself to ask your question. This is Sugiura from Daiwa Securities. Thank you for taking my question. Thank you very much. I have two questions, and I'd like to start with the first one. It goes back to what Mr. Shibata said at the outset. I think you're saying that there's been a little bit of a color in terms of how the revenue is progressing. Can you tell us a little more detail? For example, if you'd be able to also speak to your subcategories, what is doing well, what is not exactly versus your expectation, et cetera. Yes, thank you very much. This is Shibata. So up until now, We know that anything around industrial has been very strong, but then there is going to be a continuous growth year over year. However, the pace of the growth is going to slow down. That is what we are expecting at the moment. In other words, we were extremely strong up until today, but then the strength seems to be slowing down. That's more like the negative side. But then I did mention that everything is pretty much in line. So that's about PC and consumer side versus last year. It still is a low, but then it is still in line. In other words, it bottomed in Q2, and so from Q3 and onwards, we are expecting some modest growth, in other words, a recovery. And that is exactly in line with our expectation. One more thing. Anything for data center. Now, it's probably too early to speak just looking at a specific quarter, and I don't want to say too much here. But then when we look at how things are developing at this moment, a DDR5, a switch to DDR5, it seems to be progressing very fast. And so thanks to that, I think that next quarter, I think we'd be able to expect a large growth. Now, how that will go, is it going to continue? Of course, we do want to see that. But then there are still some customers that will be using DDR4 who would want to utilize their inventory. In other words, they are slimming down the amount they would be purchasing. And so there might be a bit of a rebound in the future. But then at least when we look at how things are going at the moment, there is this strong move towards DDR5. And this trend itself, that's going to mean even more content. So that's favorable. And also anything from automotive side. For the automotive side, it's still uncertain. That's my frank comment. And it's really as it is. In other words, it's not that we're seeing a real weakness, but then we were expecting there would be a little more robustness. However, that's not exactly what we are feeling. It seems like this is really the situation, the status that is just going to continue. That's the feel that we have right now. And so I think there are two factors based on our assumption today. In other words, one is what's going on in China. In other words, the immense growth of EV and the reduction in ICE.

That is especially important.

It's something that we are observing. In other words, that's exactly what's creating the uncertainties, especially amongst our Japanese customers. And of course, when we look at the large tier one customers, the global customers, I'm sure if you'd be able to look at the numbers, it's self-explanatory, but cash flow is really tight. In other words, we believe that everyone is really trying to control their inventory. And I think that's what's happening right now. And it seems like everyone's really focusing on cash. And so there are some shortages and inventories at some point. But then we still do have to keep an eye on how the demand goes. And so with all of that in mind, that's why I'm saying we are seeing some uncertainties. Thank you very much. Now, my second question, I think I should ask Mr. Shinkai. Now, the Wolfspeed, that 2 billion yen deposit, I'd like to ask more about that. So how are you going to pronounce this? And I think you also you. have always been putting forth a very proactive message in terms of shareholder return. In other words, how you'd like to come back to paying dividends and so forth. But what is your expectation now? Yes, so $2 billion. So the first billion dollar has already been paid, and the other billion dollar is going to be paid next year and onwards. The source of this is our own cash. Now, the implication to the shareholder return is no major change to our policy thus far. So that's my response. Yes, I thank you very much. Thank you.

Thank you. Next, Goldman Sachs.

Goldman Sachs. Please unmute yourself and present your question. Thank you. Dr. Matsu from Goldman Sachs. I have to two questions and first of which is the revenue outlook and when you look at the inventory in third quarter you will intend to increase your inventory and I would like to inquire as to how far you will go what is the policy direction and also perhaps it will not be that pronounced in third quarter however in fourth quarter it will bottom out Is that your expectations? If we could confirm your outlook. In terms of the inventory, we talked about in-house inventory and we talked about DOI. When we look at the channel inventory and also in-house inventory in terms of level, we have identified a target. And in your view, it is very clear. As of now, when we look at the holding inventory, it is beneath the target. Basically, we hope to be able to achieve the target, and from that perspective, bit by bit, we are trying to increase our inventory. And as for the outlook ahead, if it is clear, we will be able to, of course, increase the inventory substantially. However, that is not the case, and therefore, we are very attentive to the market situation as we try to increase our inventory. If the weak situation prolongs, Or if there is a reversal, we hope to be able to increase our inventory. But we need to inch closer to the target. So we're taking a wait-and-see approach, and that is what we're doing as of now. And likewise, as for the third quarter, as Shinkai-san has mentioned, as we go into the year-end, the utilization is very early, too. refer to, and therefore I will not be able to make a definitive comment. However, as we're looking at the quarters ahead, of course, the market situation might change. It's very difficult to say for now, but as of now, as I mentioned up front, the uncertainty prolongs, and therefore we cannot really accelerate the situation. We need to look at the situation second quarter and third quarter as we try to manage our inventory. And in the first quarter of next year, if the outlook becomes more clear where necessary, we will also apply adjustment. That is all. Thank you very much. And as for the second question, this is a reference to what is the trend in terms of order backlog? As you all know, In the mid-term, there have been some accumulation, and therefore new orders. We are finding that the situation is rather slow, and we need to consume, of course, what has piled up in the past, and that describes the current situation, and that is also within our expectations. On the other hand, as you might recall, we are looking at NCNR, non-cancellable, orders we have departed from that and the lead time is also very short which also means that of course we need to have ample inventory and therefore when orders come in from our clients compared to the past we find that the orders are coming in in a shorter span based on actual demand and therefore the current expectations as of now

is that for new orders that will come in, as the orders are processed, we believe that the orders will begin to climb up against revenue. The orders, comparatively, is quite high.

As we look at the revenue, you expect revenue to increase in the future, and therefore expect orders to come in and pick up. Well, it's very early to say for now, but as for this fiscal year, we are not concerned in any form. Thank you.

Thank you very much.

Can we ask Mr. Hirakawa from Bank of America? Okay. Yes, this is Hirako from BOFA. I have two questions. My first question, I think it's a recap of the earlier question. In other words, it's about the wafer, Wolfspeed, and $2 billion. I do believe it's quite a large number. As we look into the future, so SIC power, semiconductor, how much share do you mean to gain through this contract? If there's anything that you'd be able to share with us, anything about your outlook, we'd be happy to hear. And also mention about R&D, enhancing your R&D. So this SIC production technology, like where are you in that sense? That's also something I'd also like to hear. That's my large first question. Yes, thank you very much. So SIC, the process, is something that we're starting. And I do not think that we will... I mean, it's not that we're making such a large investment here. And at this moment, we're not expecting that we're going to just accelerate this investment here. It's just going to be like a step-by-step gradual increase into the investment for the technology. Now, as for the size of this investment, for example, IGBT 300mm or... IPD, that's the intelligent power device, any development R&D to go there. At the same time, there's also going to be the investment for a digital purpose. For example, fifth generation SOC, we know that's also going to accelerate. And so there are a lot of things that we do mean to invest. Now, what's going to happen to our share in the SIC Power Semiconductor? That's a good question, like 10% or 15%. I mean, trying to put forth a figure, maybe I can, like 10% or 15%, et cetera. But then at this moment, it's not that we have that clear visibility. But then we're going to start slow. And once we make some good progress, we're trying to make this step ups. And we also are trying to enhance values that we'd be able to gain here and from all means from i believe that there It's probably going to be the time when we have a switchover to 8-inch from 6-inch. That's probably when we'd be making another large investment increase. And it's not something that we want to go hastily. It's something that we do want to make sure that we assess the timing well. Thank you very much for that response. My second question is almost like a follow-up to my first one. Sorry for that.

A follow-up to the earlier question.

So in the In the capital day, I think I did have a sense that you will be giving us some explanation at some early days in how you're thinking about the shareholder return. But then today we're hearing about CapEx, the investment, and what is going to be your capital allocation. If you'd be able to recap that for us. So that's my second question. Yes, thank you very much for your question. So again, no major change to our shareholder return policy, the capital allocation. In terms of shareholder return policy, It is something that we have been saying from before. Now, in terms of dividend, try to look at our annual cycle. In other words, the large milestone, we probably will be talking about the timing around the AGM. In other words, we will be looking at that point of time to prepare about what kind of a dividend we'd be able to have. I don't know what your image would be in terms of the shareholder return, but then, as I have been saying from before, we need to start small. So it's not that we're going to be making a large, for example, dividend payout that is going to pressure the source, the cash source that we will have for R&D and other investments. So we'd like to start small. That's my response. Thank you for that response.

Thank you very much. For Nikkei Shimbun, Mr. Mukano, please unmute yourself and present your question. Thank you. Mukano from Nikkei Shimbun newspaper. In the earlier financials, it said that with the AI generative AI, this will impact the numbers. And upon reflection, What would you say? And also third quarter and onwards, what would you say would be the outlook? Did I say second quarter there would be an impact from Genentech AI? I do not really recall. I believe that I said that it would be second quarter and onwards. As for third quarter and onwards, we believe that the impact will be felt and the implications to our operations will not be that sizable. On a net basis, it will turn positive. For example, In terms of Okuyan, it will not be three-digit numbers, but rather two-digit numbers in terms of Okuyan. So we'll start to see the impact on a positive sense at a moderate level. In the immediate future, we are looking at generative AI, but rather than that, we believe that the impact will be more pronounced with memory architecture and also power architecture as there's a shift to next-generation technology. and from where we will be able to enjoy a larger impact in terms of numbers and figures. But of course, if our pipeline is realized in the future, of course, there will be an impact. As for generative AI, the impact will be positive. However, more than that, for MPU, the architecture side, with a shift in generation, the impact will be more pronounced. Thank you very much. And another question. And this is in terms of products misimprovement in second quarter. If you could, once again, brief us. And also, what is your outlook for the third quarter in terms of product mix? I will turn to Mr. Shinkai. As for the second quarter, for infrastructure, the analog product, specifically, timing IC and timing device, for these products, more than expected, they were positives. And hence, these are products with a large gross margin, which have, of course, pulled up the entire product performance. And as for the third quarter, because of the backlash, there might be some, of course, weakening of the numbers. And also, seasonality will be felt. So overall, for consumables, where the gross margin is somewhat lower, we believe this will pull down the numbers. That is all. Thank you very much.

Thank you very much. Can we ask Mr. Kojima from Nikkei BP to ask your question? Yes, thank you. This is Kojima from Nikkei BP. Thank you very much. So my first question is about your power semiconductor. So you're going to have a slow start. You're going to start with SIC, slow start. But then... I'd like to ask about the expected scale of your business in terms of SIC, power semiconductor. At this moment, I mean, for example, you might be able to say like right now you're around this level, but then, for example, like in years down the road, how much you want to be like, for example, in like the year 2030? I think that's a question for Mr. Shinkai. Yes, this is Shinkai. So 2030, where we would be for power semiconductor, that is... A good question, not an easy one to answer. Now, it's exactly what Mr. Shibata said earlier. In other words, for SIC, we're going to have a slow start. But then for IGBT, from year 25, in other words, from 2024, we're going to resume a Kofu plant so that for 300 millimeter, we'd be able to resume our production, the mass production from 2025 at Kofu. And so down the road from there, there is going to be an expansion of production in Kofu plant. And so those are some of the things that we are keeping in mind. So that's my response. Well, this is Shibata. At this moment, I would say a little more than 10 billion or a little under 100 billion. That's probably the scale of our power semiconductor at the moment on an annual basis. And it's really about how we'd be able to make good steady progress in expanding the scale. Thank you very much for that. My second question, I believe there was a brief comment about the fifth generation, the 5G. So here, when do you think you'd be able to have your new product and how would this fifth generation SoC differ from fourth generation? Well, when we'd be able to have Gen 5 SOC, we can't really say at this moment, but then it might be as early as 2027, year 27. And if it's after that, it probably will be pushed out by two or three years. That's how we imagine the pace will be as we prepare. I don't want to say too much here, but then Of course, higher computation capability is one differentiation from G4 and G5, Gen 5. And of course, that's easy to understand. But then in addition to that, I think there are two, I mean, compared to Gen 4, I think there are some more other changes that we want to implement. For example, I'm trying to find the right word to explain this, but I don't exactly want to say customized, but like utilizing shiplets, we're hoping that we'd be able to seek more flexibility in responding to the needs of our customers. And another factor, Another factor, for example, compared to the past, it was like SOC versus MCU. I think that was two categories in computation. And I think that was really the reality. And I did talk about scalability. And from next generation, we want to have a crossover device. So high compute and the more traditional MCU, something in between is something that we'd like to have. And so that we'd be able to have a true seamless situation. And so from that perspective, like ArmCore, trying to implement that in MCU is something that we are trying to prepare. So I guess it's really those two factors. In other words, higher flexibility device and to seek more scalability. we want to make a step further scalability than what we have been doing in the past. And I guess that's something that is more on the hardware side. And of course, the computation feature, it will be increasing, and that's the precondition to make this happen. But then it's really the software part is really also going to be crucial. So simulation, emulation, How we'd be able to create a better environment for that? What kind of model would fit that? That's probably where we will be allocating more of our resources. So that's my response. Thank you very much. So if I may just confirm. So currently you are producing fourth generation, right? Currently, we are mainly offering Gen 2 and Gen 3. I see. There's still this fourth generation that we haven't really been able to see in its entirety. But you also have talked about fifth generation, I see. That's right. So we're really talking about something that has happened in the future. I got that. Thank you very much.

Thank you very much.

City Group Securities. Mr. Fujiwara, please unmute yourself and present your question. Thank you very much from City Group Securities. My name is Fujiwara. I also have two questions. Firstly, Earlier, you mentioned the Tier 1 vendors in which the inventory is being controlled, and you referred to this three months ago during your financials. And within the past three months, how has the situation changed? Perhaps by region? And also, how serious and dedicated are the customers in controlling inventory? That's the first question. That's a tough one to respond to. How should we put it? To quite some extent, there has been an emphasis in looking at easing the burden on the balance sheet. And such a trend is being observed. And that would be one of the most pronounced trends in the past three months. There is an emphasis on controlling the dollar amount. So there's a lot of fixation there and dedication, dedicated efforts. And as a result, oftentimes there has been excessive control and therefore customers find that they are now short of inventory. And therefore looking at it from our perspective, we find that it's very, very difficult to achieve certainty. In terms of regionality, for now, That's not yet been felt in global tier one that are selling to various regions on their platforms. It appears as if they are trying to reduce or control their inventory according to some fragmented information. And that is interpretation as of now. Thank you very much. The second question. In terms of Forex implications, I understand you are hedging against the dollar, and I'm sure it is time that you're considering what to do for next year. And of course, are you going to devise a scheme by which to account for a weekend? And what is the flow when you look at the revenue and also expenses? Are there not a major change there? That's the second question. And Mr. Shinkai will respond. 2024, appropriations are moving ahead, and the policy is the same as we have applied this year. We will hedge against the currency. This year, of course, it was based on dollar-yen terms, but of course, we are also looking at a high euro, and therefore, we will also hedge against the euro for next year as well. And as for the flow, and buy currency, there will not be a major change from the past on revenue basis. Of course, primarily dollar and cost side, yen denomination is higher. And therefore, when we look at the profit, also cash flow, basically in dollar terms, and that is unchanged from the past. And that is all. Thank you very much. Thank you.

Thank you very much. Next. Can we ask Mr. Ishizaka from Toyo Keizai to ask your question? Thank you. This is Ishizaka from Toyo Keizai. Thank you very much for taking my question. So I'd like to ask your supply contract with Wolfspeed for SIC wafer. So I'm sure there are other companies as a SIC wafer supplier. And amongst the other players in the world, why did you select Wolfspeed this time? Well, they offer good quality. And again, this time what we did was we wanted to focus on 8-inch wafer. And we have been able to for the first time in the world, secure supply for this 8-inch. And I think that means a lot for us. And also for Wolfspeed, they needed cash. And so they had the needs to obtain cash so that they'd be able to expand their capacity. And so the two sides' needs met. That's my response. Thank you very much.

Thank you. Tenpa Shimbun, Yamamoto-san, please. Am I being heard? Yes. The first question referenced the front-end utilization. You said between 50% to 70%, the early part of 70% from what I have recently heard.

Astrid, I'll look ahead. I believe you mentioned it would be basically flat. But what is the recovery from the next fiscal year and onwards? So that's my first question. Yes, next term we are looking at the utilization being mainly flat. And for the fourth quarter, this is, of course, dependent on the trends for the next fiscal year. and a decision will be made. And the second question, this is a reference to revenue down from previous year, 2.5%. While the situation appears to be fragmented, there is, of course, a sign of a recovery, and that would explain the total picture. Would that be correct? The overall outlook, I would say that there are not yet signs of recovery and therefore uncertainty is still very pronounced. And that is what I wanted to convey to you. And we look at the circumstances as anticipated. There are some areas in which recovery is being observed. However, there are ups and downs and therefore overall picture is such that at least compared to three months ago when I spoke to you, full-fledged recovery appears to be somewhat later in time. Thank you very much.

Thank you very much. Next, Mr. Hanaya from Nikko Securities. Can you unmute yourself to ask your question? Yes, this is SMBC Nikko Securities. This is Hanaya. Thank you very much for taking my question. I have two questions. My first one is just a confirmation. But then in your earlier comment, I think you were talking about consumer product, which is in line with your expectation. I think that's what you said. But then every time in your quarterly result, you have been saying that there's been some delays. But then at the moment, you believe that this bottoming out is in line with expectation. Yes, this is Shibata. Consumer, computer side, like I mentioned in Q1, when you look at the numbers, I think we now are seeing it clearly that we have bottomed out. It's in the numbers. Thank you very much for that. My second question is about Wolfspeed deal. So you mentioned about 8-inch, and I'm thinking that's probably more into the future when you say 8-inch. So you're trying to get supplied and you're trying to obtain some scale here. But then at the same time, I do believe there is also going to be more CapEx for your internal production. And what is going to be the size of this CapEx and the timing? Is there anything you'd be able to share that with us? Well, this is Shibata. Well, please look forward to what we'd be able to announce in the future. We do want to be careful in making this decision. We don't want to go too hasty because that's not really going to create good results. So from Q3, we are going to be shipping out some samples for the six inch. And we want our customers to look at that and be happy with that. And once we go to that point, we should be able to increase six inch and eight inches more down the road after that. So that means we're talking about something that should happen a little more down in the future. Well, thank you very much. So 6-inch, is there going to be any investments or capacity increase? Well, we will be, yes, and adding some capacity here, too. Thank you very much. That's all for my question. Thank you very much.

Thank you very much. Are there any other questions? If you do have questions, please use the raise hand button.

I have two questions.

The first of which is in reference to SIC wafers in terms of financial benefits and how do you look at this on a dollar basis with interest rates very high will you be able to enjoy some measure of discounts? Or in the recovery period, within the 10-year contract, will you be able to recover the costs? Or if it really sells well, then what would be the upsides? In terms of financial benefits, how do you look at the contract to the extent possible? We'd like to hear your thoughts. That's the first question. The second question has to do with the automotives. There are some comments made by region. And we look at this by product to product segment. What is the situation? Of course, the shortage of supply has now been eased. But are there still some shortages where inventory is being suppressed? We hear this from other companies. But we look at the situation, say, for 40 nano. as you have mentioned, but what are the circumstances today at this point in time? If you could share the situation. Now I'd like to respond with the second question. Firstly, I would of course respond to your first question and where necessary, I'd like to ask Mr. Shinkai to fill in. As for anything that is short in terms of supply and whether that situation exists, the numbers have declined. However, that still remains. So that is a comment I would like to make. And also, I referred to this several times within my comment. To quite some extent, there's an emphasis on reducing the dollar valuation of the inventory, which has led to some shortage of inventory.

And the circumstances

of that nature appeared to be on the rise compared to the first quarter. The supply in the beginning was short. However, now we're looking at a different situation in which companies have been trying to control the inventory. However, with the demand increasing, now they're falling short of supply. And that is what we are observing in the automotive semiconductor segment in terms of supply and also demand. And as for Wolf Speed, As you know, capital procurement situation for borrowers is favorable because of the low interest rate. And therefore, looking at this from our perspective, we want to be able to capitalize on this situation. And given the interest rate environment that we are currently in, and the U.S.-based interest market. We are, of course, using an arbitrage. So this is an upbeat situation for our company. And Wolfspeed, which is a borrower, rather than procuring from the U.S. market, of course, there are benefits in terms of interest rate payment by procuring in Japan. So this is a win-win situation for both sides. And as for the wafer This will have, of course, implications on our operations, and therefore I would like to refrain from making that remark. However, on the question as to what has driven us to invest at this scale, of course, I'm sure that you will be able to read between the lines. I would like to refrain from commenting further. And also, SIC substrate, is very tight in terms of supply. And therefore, procurement of supply is very difficult. With the long-term supply contract, we will avail ourselves of substrates that are necessary for our operations. And therefore, which will mean the certainty of our operations will also be enhanced. And there's, of course, an interest rate gap. And we find that, of course, we will be able to reap the rewards. And that is our, of course, judgment. And just one more thing. This is for automotives. Within your company, are there differences? Of course, which nanomicron is strong or weak, depending on the product? Are there some differences? Well, it's not so pronounced. In terms of the order placement, 40 nanometer, of course, remains strong for the MCUs. Does that mean they will fall short? I do not think that that would be the case. However, when you look at the order books, this informs us that 40 nanometers MCU is strong. And for Mr. Shinkai, we talked about die bank inventory to be increased. As for 40 nanometer MCUs, on that point, is the die bank inventory being increased? That is not the case because what we produce is being sold out. And that is the situation.

Thank you. Thank you very much.

And with that, we'd like to end the Q&A session because we're nearing the time to end. So before we end, can we ask Mr. Shibata to give a closing remark? Yes, thank you very much. Now, so I guess today's earnest call didn't give you such a surprise. But then with that said, some of our future outlook Again, it's not that we've changed our outlook. We are trying to be prudent in how we manage ourselves. But we do want to make sure that we be prepared when the market peaks up. And so that is why we want to use both levers, accelerator as well as how we'd be able to put on some brakes if we need to slow ourselves. So that really has been our stance. And so I hope I'd be able to tell you more about what is going to be our outlook for Q4 and onwards in the next quarter's earnings result. So please look forward to what we'll be able to say. But with that, thank you very much for taking your time to join with us. Thank you. Thank you very much. With that, we will end our 2023 Q2 earnings result. Thank you very much for your participation.