Renesas Electronics Corp

Thank you, ladies and gentlemen, for taking a precious time to attend Vanessa's Electronics 2023 fourth quarter full-year earnings call, despite your busy schedule. Today's simultaneous interpretation service is made available. Please click the globe icon at the bottom of the screen and select your preferred language. The speakers, please turn your video on. For today's session, we have Representative Director and President CEO, Hidetoshi Shibata, Senior Vice President and CFO, Shuhei Shinkai, and some other staff members. From now, Mr. Shibata will say a few words, and then Mr. Shinkai will present the fourth quarter and four-year earnings, followed by a Q&A session. We expect to finish the entire session in about 60 minutes. Please be advised that the material to be used for today's presentation is the one that is posted on the IR site of our homepage. Mr. Shibata, please turn your microphone on and begin. Good morning to you all. This is Shibata from Runefoss Electronics. First of all, I would like to express my sympathy to those who were affected by the Noto Peninsula earthquake. We look forward and hope that a calm life will be returned to the hands of the disaster victims as early as possible. Today, we would like to share the results of the last 12 months performance. For the last 12 months, if we talk about our segment, IIoT segment, has seen some production adjustment and that took longer than expected compared to initial assumptions. However, on the other hand, automotive segment performed quite steadily and that strongly drove the revenue or supported the revenue. Of course, we were also helped by the depreciation of yen. So compared to 2022, the revenue was just down by 2.2% compared to 2022. As for inventory adjustment or management, reflecting the past experiences, we have been very stringent in the management. Most recently, the automotive inventory level has come down too low. However, on the part of IIoT, the inventory level is relatively low, but I think it is still at the minimum range of the reasonable level. So, for the first quarter of this year, The automotive steady performance is still continuing. However, looking at the channel inventory, I think we'll try to expand the inventory level to the normal state. That is something that we need to do. On the other hand, for the IOT, the industrial and also the mass market, we believe the adjustment will continue into the first quarter of this fiscal year. And at this point of time, We believe the first quarter will see the bottom and then we'll start to see the recovery from the second quarter onwards, in our view. For the AI-related demand, we are seeing a strong demand for AI-related applications, but this still is very limited in terms of the portion vis-à-vis the total demand. company volume. And of course, we also have some production risks, so we'll try to do our best and try to catch up with this growing demand of AI related. And this time around, this is the resumption technically, but Actually, in reality, it's more like an announcement of starting dividend payment and also the treasury shares. We have received many questions so far, but we'll try to cancel some of the treasury shares. That's the decision that we have made. As for future M&A, we'll try to actively look into the possibility and acquire assets if that's deemed necessary. So we are not only paying out dividends. We would like to strike a good balance of shareholder return and M&A. So with that, that's the highlight of the, an outline of the results of the year ended. So more details will be explained from Shinkai-san from now onwards. So Mr. Shinkai, the floor is yours. Yes, this is Shinkai CFO. I would like to present the fourth quarter and four-year results for the fiscal year ended December 2023 using the presentation material. Next page, the next page, the disclaimer. As you can see on the fourth point there, in June 2023, we completed the acquisition of Panthronix and the purchase price allocation of this transaction is reflected in the results. And also, to another reminder, in May of this year, the ERP system integration, the first phase is going to happen. So in relation to the system integration, the impact on the first quarter results is minimal, if any. However, in the second quarter, there might be some impact. We are expecting some impact, and we'll try to clarify that during the next presentation of next earnings call. The next point is that in conjunction with the organization change conducted in January, this year we will review the way of recording revenues in each segment. IOT and the automotive segment will remain unchanged. We'll continue using the segmentation, but the way of reporting the segment performance of revenues will be divided and we'll review that and that will be That new method will start being applied from the first quarter of this year, and we'll provide you more details at the next earnings call. And the next page, regarding the fourth quarter performance, if you look at the dark blue columns in the middle there, revenue, 361.9 billion yen. Gross margin is 64.4%. Operating product, 115.5 billion. OP margin, 31.9%. Profit IWO to the owners or parent, 98.2 billion. And excluding the foreign exchange impact, it was 104.9 billion. And EBITDA, 136 billion yen. And foreign exchange rate was 149 yen to the dollar and 159 yen to the euro. As for the comparison with the forecast, those are written in the three columns on the right. So I'll come back to this topic later in the presentation. For the full results, please look at the dark blue columns on the right. Revenue, 100. trillion, 469.7 billion yen, gross margin 57%, and operating profit of 501.6 billion, and 34.1% was the margin, profit attributable to the owners or parent of 432.9 billion, excluding the foreign exchange impact, 424.4 billion, EBITDA 581.9 billion, and the full-year currency rate was 140 and 150 yen, to the dollar and euro, respectively. Especially on the year-on-year comparison, I have several comments here. So, as I talked about, the overall performance was really commented by Shibata-san. Revenue dropped by 2.2%, due mainly to the adjustments in the IIoT segment. So, overall 2.2% decline, excluding the foreign exchange impact, a 6.9% decline year-on-year. And automotive was up, And IOT also down significantly, excluding exchange impact. And the gross margin declined due mainly to the deterioration of utilization rate, which resulted in the decline of production recovery. Operating profit, I see for automotive, IGBT, SIC, those core semiconductors investment resulted in R&D expenses increase. And of course, due to overall inflation cost increases, 3.1% decline in operating profit margin. The profit, net profit, significant improvement. For one thing, this was due to the change of the intercompany pooling method, which allowed us to minimize the exchange losses. So we were able to minimize the exchange losses. And so compared on a yearly basis, that had a positive impact towards the gain side. And also, because of the change of the pooling method, we were able to receive interest and income from the dollar deposits. And also, the Wall Street deposit also gave us some interest income. So those made a positive factor to the profit attributable to the owners or parents. The next page, page five, please. This is the changes, quarterly changes of revenue. On the far right side, please look at the fourth quarter and the revenue, fourth quarter revenue. Year-on-year, down 7.5%, and on a Q&Q basis, minus 4.6%. Excluding exchange impact, year-on-year, down 8.1%, and on Q&Q, down 6.6%. The automotive and IoT breakdown as follows. Please look at them in the next page. This is the fourth quarter revenue, gross margin, and operating profit margin. For this matter, for the overall company performance, if you look at the right-hand side, compared to the forecast, operating profit margin was up 1.4%. As for revenue, compared to the midpoint number, it was up 1.1%, but this was due mainly to the foreign exchange impact. Excluding foreign exchange impact, there was a change in the mix. So for automotive, compared to the forecast, it achieved upsides, but however, IoT compared to the forecast was down. So on a net basis, it was almost in line with the forecast. As for automotive, We had foreseen the risk of UWA strike, but that did not really manifest itself. It was nothing. And also the IOT, especially in the mass market, we have seen adjustment, and therefore it performed downwards compared to the forecast. As for the gross margin compared to the forecast, slightly better, up 0.4 percentage point. And the foreign exchange was flat, and the product mix, IOT down, automotive up. So therefore, deterioration slightly. Production recovery resulted in production adjustment, and therefore, the utilization was lower, and therefore, production recovery deteriorated. On the other hand, because of the positive impact from the reduced expenses and no write-down of inventory, so overall, the performance was slightly better. And R&D expenses slightly down compared to the forecast. And if you look at the Q and Q performance at the bottom right, OP margin down 3 percentage point, and the growth margin, if I give you a breakdown, well, this is almost the same as the analysis of the comparison with the forecast, but automotive up, IoT down, and mixed deterioration, and also the production recovery down because of adjustment. For the operating expenses, the concentration in the fourth quarter, such as R&D and SDNA, we have seen an increase of these cost items in the fourth quarter. And if you look at the segment numbers on the left-hand side, the gross margin Q&Q changes for the automotive side. The revenue increased, however, within the segment, the mix deteriorated also because of the production judgment impact. The gross margin for the automotive business slightly deteriorated on a Q&Q basis. And for the IOT operating margin, because of the decreased revenues, we have seen a significant OP margin decline on a Q&Q basis.

Next page, please.

So this is an in-house inventory. So the overall DOI is a has gone down, and the quarter is 93 days. So automotive IOT has declined in terms of absolute value and in terms of DOI. Next slide, please. So this is the sales channel inventory. Overall, quarter on quarter, it has slightly increased. It is slightly over nine weeks. Automotive has declined. It is around eight weeks before the IOT has increased to about certainly about 10 weeks. But automotive, we have initially anticipated an increase. However, as I said, AWA impact was minor and there has been a lot of inquiries coming from the customers. So the inventory level has gone down. As has been predicted, the sell-through for the mass market has declined. On the other hand, the sell-in has decreased in terms of the inventory level. It is basically in line, basically a slight increase. Going to the next slide. So this is inventory analysis. First, on the left-hand side, this is the in-house inventory, the third quarter to fourth quarter. Compared to the projection, we have increased the production adjustment. For instance, for the mass market on-purpose products, based on the demand outlook, we have increased the range of the production adjustment. So the working process has gone down. The finished goods, we haven't conducted mass production. basically conduct shipment in line with the demand, so it has gone down slightly. For the first quarter, in the first quarter, we are anticipating a second quarter recovery, and we are planning to increase the production slightly. On top of that, for the Naka plant, the 40 nano MCU for the automotive sector, we are trying to accumulate a die band, and we're going to start the accumulation. So in terms of raw materials and the work in progress, for the next fourth quarter is going to go up. On the right-hand side, this is the sales channel inventory for the fourth quarter. I have talked about this already. For the first quarter, for the automotive sector, for the fourth quarter, it has gone down, but we will replenish that. In terms of the level, it's going to go up. On the other hand, for the IIoT, We will conduct shipment in line with the demand. It means that we're going to anticipate a slight decline. But going forward, we do want to not reduce the inventory too much. That is our policy. Next slide, please. This is the utilization rate. This is the front. Up is the WIFI input base utilization. Fourth quarter, it was a little under 55%. It was slightly down, lower than we anticipated. For the first quarter, it is going to go up from this point. I have talked about towards the second quarter, we're going to increase the production and the Naka plant at Daiban production is going to contribute. Next slide, please. This is the gross profit margin and the operating profit margin. Please refer to these numbers. Next slide, please. This is EBITDA and free cash flow. On the right-hand side, free cash flow, So for the deposits provided to the World Speed, we have excluded that. Well, the fourth quarter operating cash flow is 152.4 billion yen. Free cash flow is 103.2 billion yen. So the difference between the fourth quarter is that basically a normal level, but this is a corporate tax payment and the bonus payment. Next slide, please. This is the FI2024 first quarter outlook. So please look at the column, the dark blue one on the middle. In terms of the revenue, the point of numbers, 345 billion yen. Q1Q, it's minus 4.7%. If we exclude the forex impact, it's minus 2.9%. So the breakdown of this, it's automotive, it's going to slightly increase, IIAOT, is going to go down. And net, we're going to see a decline in the revenue. In terms of the gross profit margin, it's 55%. Q and Q is minus 1.4 percentage points. Major reason behind this is due to the change of the sales of the end product mix is going to deteriorate, increase of the production cost because of the ramp up of the core plant. We are including that as well. On the other hand, production recovery, because of the utilization rate improvement, it's going to cover slightly, but in total, it will be going down. In terms of operating margin, it's 30%. In terms of the forex assumption, $1, 142 yen to the dollar, 155 yen to the euro. Then going to the appendix portion, please go to page 22. This is about CapEx fourth quarter. Centering on R&D-related investment against the sales is 3.4%. But this quarter, in terms of the scale, it's about, it will be the 1% level against the sales. Please go to page 23. This is about the acquisition of the Transform. We have acquired this company, Transform, which is engaging GAN. Next slide, please. This is about dividends and the cancellation of a treasury stock. On the left-hand side, in terms of the dividend, it will be 28 yen per share, so 49.8 billion yen in total. We have decided to pay out this level of dividend. Going forward, we will continuously and stable dividend payment. We will try to commit to that. On the right-hand side, this is about the cancellation of the treasury shares. And we have clarified our policy about a treasury stock holding, and we have decided to partially cancel. So the limit of the holding of the treasury stock of 5%, if it exceeds that level, in principle, we will cancel. As for the 5% treasury shares, this will be used for the mid- to long-term incentive for our employees. So with this, I would like to end my presentation.

Thank you.

Now we'd like to move on to the Q&A session. Mr. Shibata, please turn your video on. Now, let me explain how to raise your question. The MC will ask if you have any questions. to raise your hand. If you have any question, please press the raise hand button in the screen. And in the order of the hands that were up, we would like to call the name of yourself and also the company. So if you are called, you will be able to unmute yourself and please begin your question. In the interest of time, we would like to limit the number of questions to two questions per one question. So we would now like to begin the Q&A session. If you have a question, please raise your hand. BOA Securities, Hirakawa-san, please begin your question. Thank you very much, BOA Securities. My name is Hirakawa. I have two questions. First, regarding the comment from Shibata-san at the outset, You mentioned that the automotive and IOT semiconductor trend in the first quarter and also the outlook for the 2024, if you could also give some indication when things will start to recover, at which point things will start to recover. And my second question, my second question, The supply demand of semiconductor, we are aware that things are changing in this environment. The semiconductor price has held steady, but can you comment on how the prices are changing between automotive and non-automotive? Can you divide your comment between automotive and non-automotive? Yes, I'll do so. The first quarter automotive, in our view, compared to the fourth quarter, we believe it will fair flattish compared to the fourth quarter the fourth quarter as mr shinkai explained to you the fourth quarter for some customers because of the production coming in the last minute the end demand was longer compared to our initial assumption but in the first quarter however because of the chinese new year and so forth The basic trend is that we are seeing a steady trend, but on a Q basis, we believe it will be flat. Our revenue, in terms of our revenue, we have to ramp up the inventory in the channel, so therefore we are expecting a slight growth in our revenue. As a basic trend, I don't think the basic trend will change rapidly or significantly from the second quarter onwards in our view right now. The automotive production quantity overall is estimated to be nearly flat in our business plan. And also, it's about the content increases. Maybe the content increase will be slower compared to the past, but we will continue to see a double-digit growth. So some EV, there are some headwinds in the EV area and the China market becoming increasingly competitive. But overall, I would say the trend will remain to be steady. As for the industrial infrastructure and IoT, if you divide the industrial versus the mass market and also for the Japanese market, the inventory adjustment compared to other segments started after or later and I think that is still and that's the reason why the adjustment is still continuing continuing and also therefore this may continue into the first quarter. or maybe into the second quarter as if this has a U-shaped recovery so that we believe the second half, in the second half, we'll start to see the recovery in these segments. As for PC, as we have mentioned the last time, we already hit the bottom. So it will go up and down based on the cyclicality of the market. So it will improve in the third quarter, towards the third quarter, and maybe come down again in the fourth quarter. That is the curve that we are projecting for the PC market. And also, data center and AI for data center and AI. These account for a very small portion in total revenues, let's say it's about only two to 3% of our total revenues. If you comment on the size of this business, but I think we are expecting a strong growth in this area. So we'll try to skillfully catch up with our product injection and also the production. If we are able to do so, I think this will underpin strongly the IIoT performance. And prices. Well, between automotive and non-automotive, we are not foreseeing a significant gap in between them. But as you have guessed precisely, up until last year, the uptrend of prices up until last year, I think we might see a reversal this year. Although we are not expecting a significant decline in prices, however, because the competitive landscape is changing significantly, so I think a slight price downtrend is something we are foreseeing this year. Did I answer your question? Just one last point regarding the price decrease, I think it usually happens, but what is the impact on the gross margin? Is that going to be offset by the productivity improvement or the volume increase? So is that the price reduction that you can anticipate? Is that the level? Well, I'm not really sure if you can completely offset the impact, but we are not expecting a severe decline in productivity. I think we should be able to manage in that way. And also, the depreciation will also increase because of the start of the operation of some plants. So that's going to be some challenge for us. But I don't think we have to anticipate a significant decline that will worry you. Thank you.

Thank you very much. Let's go to the next question from Daira Securities. Sugiura-san, please ask your question. Please unmute yourself and speak up. Thank you for taking my question. So my side, I have one large question. On the first quarter, the utilization is going to improve, but specifically, so first quarter, what will be the actual utilization rate? And if possible, from the second quarter onwards, how is the utilization rate going to trend? That's number one. And number two is, Shibata-san has mentioned that the A524 automotive semiconductor double-digit growth can be expected within this for you against the market. Where will you underperform and where will you outperform the market? And in totality, how are you going to perform in this market? I would like to hear about this. So I have been... Let's answer the second question first. And for this question, Shinkai will answer first. So compared to before, the ADAS and EV sales within our automotive business has been increasing compared to before, but that said, it's still about 15% against our whole automotive business. So with ADAS, well, EV is still an adjustment phase. I think the ADAS-led growth in the market will continue for the automotive overall total business volume. It's still currently 1% plus, but it's going to grow. So 85% of automotive business is non-EV business, and that will drive our business in the automotive area. So we are forecasting a kind of robust business, but the competitors that have a larger exposure to ADAS or EV compared to them, maybe a growth level will seem a bit weak. So I think that's the situation that we are in. So utilization rate, Shinkansen will answer. For the fourth quarter to the first quarter, The one single digit or the earlier 1% level of improvement will be made, but the second quarter was 1% plus level of the Q1Q improvement of the utilization rate. But there's some technical issues. So I have talked about the 40 nano MCU knock-up plants die bank accumulation. this will contribute to this utilization rate. The increase of production is going to be starting to contribute from March. So the So in terms of the first quarter, the third contribution, the second quarter onwards, the contribution is going to be more. So that would be the driver of the utilizing rate. But besides that, there would be some changes depending on the changes in the demand. That's all for me. Thank you very much. This is a follow-up question. Shibata-san has said that you talked about ADAS and EV. So in terms of the DINs, that you have been able to capture from the past. Doesn't that contribute to your future business? In terms of the ADAS business, I think basically it will smoothly ramp up. So I think there'll be no surprise whether that's a good thing or a bad thing. But the EV side, and a lot of people have an interest in this business, but mainly in China, In the past year, the market environment has changed dramatically. So compared to before, compared to last year to this year, actually, I think the intent for the IGBT, for instance, will seem to be facing a tougher situation. So from the perspective of IGBT, With the non-Chinese competitors, I think our situation won't be that different from them, but SIC, mainly in SIC, compared to the competitors that we're competitive, so I think we're competing in SIC, maybe we'll see that we're slowing down, but we will produce a Kofu plant and ship products out of their application in terms of clients that we're going to provide from the Kofu plant, luckily. they will not be dramatically impacted by the situation that's happening in China. So maybe there'll be some ups and downs, but I do not think that things will go as we planned. In terms of the COVID plan, we'll wrap up and the IGBT business will wrap up as well. Thank you.

Thank you. Now I would like to move on to the next question from Goldman Sachs. Takayama-san, please begin your question. Please unmute yourself and make your statement. Hello, thank you very much. Hello, thank you for this opportunity. My first question relates to automotive. In the last earnings call, you said that in the end of December, Europe and also in the end of March, there will be some year end adjustments. So how did that turn out? Can you comment on that? And also if you can just clarify the trends by each region and also we also receive a question regarding the semiconductor automotive overseas business, your performance is quite favorable. Maybe this is due to the difference of contract, difference of the inventory level, but from your perspective, from your company's perspective, why do you think you are resilient in automotive business? What is the difference of yourselves vis-a-vis your competitors, overseas competitors? Yes, well. I don't want to be... to show off so much, but this is something we are talking about far from some time, but in the COVID environment. In a very tight situation, we believe we have been communicating quite frequently with our customers, so we were asking customers not to purchase if that's not really needed for them, and I will try to supply if that the product is rarely strongly needed by the customer. So this is the approach that we have been taking. for some time since last year, so therefore that has given us customers confidence, and they are purchasing orders for things that they really need. And we received this question regarding the automotive inventory adjustment, and I think things have not changed that much compared to before. By region, by segment, it's not a a fact that we have a universal situation regarding inventory adjustment or something universal when it comes to the excess or shortage of inventory. But on a spot-by-spot basis to some specific customers, there are some overshooting, and then after an overshoot, there is an adjustment. So if overshoot is upwards or downwards, so those kind of adjustments are still taking place as we speak right now. So if you look at the overall picture, there are some oversupply and undersupply in some areas, but the overall situation remains in line with the business plan, so we are continuing our shipment. So long as the automotive market remains solid, I think we can expect our revenue to continue to perform steadily. That's how we look at the market. Well, in the end of December, Europe and also in the end of March, the year-end adjustment did not really take place as much as you had anticipated. We didn't really see any significant adjustment. Actually, in the fourth quarter in the end of last year, there was a strong adjustment, especially amongst the Japanese customers last year. But at some customers, of course, there was suspension of production and also shipments. And towards the end of March, we might see that going forward. However, we are not really in trends by local. At least after in March, On the, of course, there is a, or the China's, China's, Chinese, but the market inventory will come, will be actually adjusted significantly towards the end of March. My second question relates to the location of your capital, especially I'm talking about your share buyback and dividend program. You made this announcement this time around, so from here onwards, do you plan to raise your dividend level going forward or, Would you rather try to maintain this level, 14.8% of payout ratio and focus more on the share buyback? Because I think you also have to think about the share disposal of a major shareholder. So what is your priority? I think last year, I think paying out dividend was your first priority, but what is a priority going forward? If you can share your thought process. Well, we'll try to steadily... and cautiously raise our dividend level. That is our plan. And for share buyback, it depends on the prevailing market situation, conditions, and also, of course, the shareholder return is very important for us, but we also are looking into strategic investments, especially M&A. So we'll... Look at both opportunities and depending on situation, if you're able to purchase shares at attractive prices, we will prioritize share buyback. But if that's not the case, we'll try to prioritize strategic investment. So we'll strike a good balance looking at both sides. A supplementary question. Maybe this is not a question to you, but if your major shareholder releases their whole short-term, would you like to absorb that through share repurchase? As a possibility, I will not rule out that possibility. As a possibility, that might possibly happen, but that is not the center of my thoughts, right? Thank you, thank you.

Thank you very much. Let's go to Citigroup Securities, Fujiwara-san, please. Please submit yourself and state your question. So hello, this is from Citigroup Securities, Fujiwara speaking. So I have two questions. First of all, my first question is, you talked about the industrial mass market, Japan, and the inventory adjustment that started later and is still continuing. I think you have stated that. So specifically for industrial life, that's my question of concern. Well, the Chinese economy is decelerating, And for the industrial market adjustment within Europe, for you, do you really feel that? Do you feel that the deceleration for the Chinese market and for the industrial and for the mass market, how is the inventory adjustment going forward? How far has this adjustment gone? So that's my first question. Well, yes, I specifically for the impact of the Chinese economy, I myself is very concerned about this matter. But how much is coming from the dissolution of the Chinese economy? How much is coming from the inventory adjustment? It's very difficult to divide these two. So I talked about the first quarter, second quarter being the kind of the bottom of the U-shaped recovery curve. That will be the shape of the adjustment. So I'm not anticipating after we close the quarter in March and then suddenly recovering in April, I think the customers will be more cautious in terms of production and purchasing. For the second half, a lot of people have been saying that the market is going to recover. So I think... That is within our view. Understood. So you talked about how far the inventory adjustment has gone. Well, I do not think that everything is going to end in the first quarter. I think basically this condition continuing to the second quarter. Understood. Thank you very much. My second question is how you're thinking behind the numbers. So the forex. The first quarter, the forex sensitivity, I would like to know about that. That's number one. And 2023, you have the proactively hedging against the currency. 2024, if you go to 2024, how the forex hedging situation is going to change, how much you can enjoy the weaker yen. I would like to know about that. So Shinkai will answer this question. Shikasa, please. In terms of the hedging policy, whether it be 24 with the same policy at 2023 for the dollar and for the 2024 for euro partially we have hedged so we have the cap and the floor so we have a color based hedging and in terms of the impact of the hedge excuse me for the impact of the forex for the first quarter the dollar If you change one yen in terms of revenue, 1.3 billion impact. In terms of the gross profit, 600 million. Open profit, 300 million. That will be the impact. For the euro, 200 million, 200 million, 100 million, the same order. That's all. So this is the confirmation. So for the FY24 hedge, compared to the 2023, the yen is going to depreciate more. And in terms of the sensitivity, it's the non-hedge portion. Sensitivity, that's within the hedging portion. And the hedging rate, A524, it's going to be slightly weaker on the yen side. Understood. Thank you very much. That's all for me.

Thank you very much.

Moving on to the next question. UBS Securities, Yasui-san, please begin your question. Please unmute yourself and begin your statement. Yasui from UBS Securities, thank you. This relates to the previous question relating to the foreign exchange impact. In the presentation material, page 11, you have given the gross margin trend if you look at that the gross margin in increasing uh in 2022 and then going up up again is this uh impacted by the foreign exchange because that's how i see it so um if you talk about the sensitivity of foreign exchange it seems that it's not really significantly impacting but in terms of gross margin profit uh gross profit margin i think um the foreign exchange had a toll on you so um I'm not really sure if the size of the impact is so small, like 600 million by four, 2.4 billion. And I think if it's by two, I think 550 billion, will that be the upper limit? So then the bottom will be 200 to 200 billion. So if maybe it has a 40 billion impact altogether, if you multiply that by four. So if you could, again, elaborate on the impact your philosophy regarding foreign exchange. And of course, last year in the one year period, do you think your market share has increased or was it flat? If you can give us some color by product. So that's my first question. The second question is about the acquisition of Transform. So with that done, you now have wide cap and also three types of wide cap power semiconductors now on your hand. So, the wide-cap semiconductor, I think, is now drawing attention. So, in the market, it seems things are getting more interesting. So, if you can share with us your aims or the markets you can target with this new acquisition, if you can share that point. So, Shinkai-san will answer the first question. So, please begin, Shinkai-san. Well, the growth margin vis-à-vis the foreign exchange impact, actually, In 2022-2023, if you look at these numbers here, in 2023, we have conducted hedging, so also that has an impact, and also the foreign-denominated currency vis-à-vis the total cost of our goods has not been significant. So therefore, then in 2023, the gross margin Q&Q changes here. What was the factor behind this? Actually, it's not really a foreign exchange. It's rather the inventory write-downs, for example, And so those irregular factors also had a bigger impact on the cokes. So that's dragged more by these other elements other than foreign exchange. So that's my explanation. Thank you. Wideband gap. It's not really a, we don't really have a very peculiar or special idea for wideband gap. So SIC centered on inverter, we would like to address these demands. And also, again, of course, as you know, power supply or charger related applications are the areas we would like to target. And we would like to enter those business opportunities. Of course, it's going to be very difficult. Like technology, as technology matures, the market adoption also changes. So. It's a chicken and egg story actually, so. But. Sure, if I look at things from an amateur perspective, Gyan offers a great potential, so SIC adoption has started in a big way already, so I think in that regard we are very strong, The way that materials are built today and the ease of processing or the difficulty of processing when you consider all these things, if we can successfully mature the GAN technology and expand the application of GAN to a broader spectrum than what we foresee right now, if we can exert leadership towards that direction, that would be great. That is what we have in our mind. Of course, this is going to be taking a long time, but the GAN is a very interesting material we have high hopes for that which is something that we have had in mind for some time so at last we have our technology on our hands so we are very pleased and we are looking forward to this very much all right so so the market share trend um just as a gut feeling if you can just give us some color push share i'm not really sure but china the power products in china we are obviously losing market share, MCU globally. I think there are some ups and downs, but I think for automotive, I think we are performing steadily. But other than automotive, two years ago, we were able to secure a strong market share, but there might be some reactionary decline as a result of that. But structurally winning or structurally losing, that is not really the case. We are rather... It's just a change in trend, I think. So overall, MCU buy-in laws, I think we are maintaining our market share. That's a picture that we are seeing right now. And power, we are struggling in China. SIC, it's not really adequate for us to talk about this as a market share because there's a spike, spiky trend as a result of individual negotiation outcomes. So the fourth generation devices will start up from next fiscal year onwards. So then once that becomes available, I think we shall be able to show you some powerful performance. Thank you. Thank you. Thank you very much.

Next, Niki BP, Kojima-san, please. Please unmute yourself and state your question. This is Kojima from Niki BP. Can you hear me? Yes, we can hear you. I have two questions. One is, this is about a detailed question about the product. So I think you talked about the applications in your presentation, and my question is twofold. The data center AI is going to grow. You talked about that. More specifically, what specific products are you talking about? And for the automotive, application for semiconductor automotive EV, ADAS. The proportion is still low. 85% is coming from the non-ADAS EV area. So what will be the mainstay product in this 85%? Can you mention that? That's my first question. For data centers and AI, well, AI, mainly, this will be the power semiconductors. power controllers, power switches, of course, timing and various other semiconductors. Of course, this will be sold to the AI market, but specifically what stands out is and it's going to grow will be power semiconductors. But the data center overall, as I have said from before, DDR5, transition memory standard is going to be established. So on the quarter on quarter, maybe this memory business will be fluctuating, but year over year, from last year to this year, it will steadily grow. I think that's going to happen. So for the data center overall, memory interface and power within that, If you specifically talk about AI, power semiconductors will be the main product. I think that will be a precise picture in terms of the automotive business. So MCUs will be a mainstay products and SOCs. So I repeat myself, but this is a kind of a you know, by project by project, different products. So it's running on that. It's quite lumpy. But as a trend, world trend, this will grow. And analog and power semiconductors, we will steadily grow this business. And so the overall MCU ratio goes down. I think that will be a good picture for us. Understood. Thank you very much. My second question is, So I do understand that you can talk about the future, but from the end of last year, when it's just the WTS, so 20 WTS that the market is going to increase by 13%, that has been their outlook. So what do you think that will reach that level? Shibata-san, what's your personal view? Well, With semiconductor overall, I think that's the story, but we're not engaged in HPM. So last year, so some things have dropped last year and there will be a kind of rebound this year. That's the memory. So for the generative, due to generative AI, HPM that's going to be sold by lightning volume. We are not engaged in those type of products. We, in terms of the targeted market, double-digit growth, we don't see the market growing by double-digit growth for our specific market. So I hope that, you know, the market will grow steadily. That's my view. Thank you very much.

That's all from me.

Thank you. Moving on to the next. Mitsubishi UFTA Morgan Stanley Securities, Yoshikawa-san. Please begin your question. Unmute yourself and please begin. Morgan Stanley, Yoshikawa is my name. Thank you for this opportunity. A very brief question. This time around, the four-year effective tax rate, I think, was about 20%. Before that, 29%. So the fluctuation is quite rough, so I just want to ask this question. So going forward, what would be the effective tax rate that we have to anticipate? If you can comment on that, that would be appreciated. Shinkai-san, can you comment on that? In 2022, because of one-time factors, but in the future, 2023, 20% or so is something that we have in our mind. Thank you. Thank you.

Thank you very much.

Next. Nikkei newspaper, Nukano-san, please. Please ask a question. Please unmute yourself and please ask your question. So, from newspaper. Thank you for taking my question. So, the transform that you have decided to acquire in terms of R&D system and the production consignment is done in Japan. So, what are you thinking to do about the structure or the policy for the GAN overall? Are you going to produce in the other plants in Japan? Are you going to do internal production? So what is your policy about GAN production? So what's your view currently? That's my first question. My second question is that for the automotive business, you talked about the first quarter, Kuzon Q, your outlook is flat. If we're compared to the past, it has become better or weaker? So, for instance, how about these strikes? This has been an impact on your business. So, the automotive Q&Q outlook, it isn't the case that we change our outlook. So, again, it's something for the future. We can't say for sure, but currently, in terms of the R&D, most of it is conducted in Santa Barbara. So the, mainly at UC Barbara, so the, in terms of the composite, I think it's a global top class people that are there. But, and so the center, in terms of production, same goes to the SIC. We have our own plants, so with their own plants going forward, it'll take some time, but If we can produce in our own plant, I think that would be the best scenario for us.

Thank you.

Thank you very much. We are running out of time, so this will be the last question. The last question is from JP Morgan Securities. Shin-san, please begin your question. Please unmute and begin your question. Can you hear me? Yes, we hear you. Thank you very much for this opportunity. I have just two brief questions. One is just for reconfirmation. Regarding the power semiconductors, the SIC samples, I think, has been submitted. So what is your feedback from customers for the SIC semiconductors? And has that changed your future direction, future strategy as a result of these feedbacks? And the second question is a more big picture question. You have enjoyed tailwind over the last several years, and that tailwind has been has ended so i think um you also change the global hr head so uh in 2024 i believe 2024 will be the decisive year that will be a demarcation for you to win or lose vis-a-vis your competitors so i think we'll see that uh in 2024 so what will be the uh sales strategy, how to change your use of distributors. So if there's any changes planned for this, please share with us. The channel or direct in terms of sales. Actually, we would like to have a solid partnership with the channel and that is our strategy. We don't want to bring everything under our own umbrella for direct sales. this is not going to change dramatically in that regard. However, the important point is that we don't want to change our strategy because this is a good year or bad year. The last several years of initiatives have delivered certain results. So we strongly believe that we have been able to deliver results. So from here onwards, we would like to continue to make investments for a longer-term perspective. And in order to achieve that, from January of this year, not based on segments, we have decided to reorganize the organization based on product, based on technology, rather than segments. And I think the effects of this transformation or reorganization is now becoming visible. So previously, automotive and industrial, there were some overlapping developments. we decided to put them together and these things are happening here and there inside the organization. So like the same human resource or the same amount, by applying the same amount of resources, be it the human or money, the output will be greater compared to before because of this reorganization. But as you know, semiconductor, all the things that we are doing today, and only deliver as a result several years back or years later. So in order for you to appreciate all these deliverables from these initiatives, I think there will be a time lag. But I think so far so good. I think we got off to a good start. Thank you. That's it for myself. What about the power semiconductor and SIC feedback from customers? Well, nothing really in particular. The sample is only at the initial phase. many of the customers will give us favorable comments usually. So they just give a favorable comment that the product is good. So they expect mass production to happen as early as possible. So we have to discount those comments as we hear them. But so far, I think things are moving favorably. Thank you. Thank you. Thank you. That's all for myself. Thank you.

Thank you very much.

With this, I would like to end the Q&A session. So, Mr. Shibata, we're pleased at the end. So, the automotive business has been solid, and AI, we can expect growth, and the industrial mass market is during the adjustment phase, and for the other businesses, when the consumer It's an economic cyclical market. I think we have seen this kind of distinct differences in each of the markets in this earnings report. So in the second half of this year, in terms of the utilization rate, our plans and increasing our inventory, we were cautiously, but at the same time, not to be too cautious. I think we have to be careful in how we drive this. putting on breaks or putting our foot on the gas accordingly. Thank you very much for attending our presentation.