Renesas Electronics Corp

Ladies and gentlemen, thank you for joining Renesas' fiscal 24 Q3 earnings call. Simultaneous interpretation is available today. Please tap on the interpreter icon at the bottom of your screen and select the language of your choice. Speakers, please turn your videos on. We have with us today our representative executive officer and CEO, Hidetoshi Shibata, and our senior vice president and CFO, Shuhei Shinkai. We also have some members of our staff here present. Mr. Shibata will welcome you, and after Mr. Shinkai will explain about our Q3 results. This will be followed by a Q&A session. The earnings call will be about 60 minutes long. Materials that will be used today is available on our IR section on our website. So Mr. Shibata, over to you. Please turn your mic on. Good morning, everyone. This is Shibata. I'm sure that some of you have already seen the numbers.

But for third quarter results, we thought we were stepping on the brakes before.

But we needed to step on the brakes more. That's how we see the results. Revenue-wise, excluding FX, in fact, we were within our guidance range. However, for end demand, more than expected, it became weaker. Therefore, channel inventory-wise, more than expected, we saw an increase. In the fourth quarter of the year, we would like to reduce the inventory levels. So that's one thing we would like to take on. Inclusive of that, for Q4 guidance, we are expecting a significant decline in revenue, close to 20%, out of which a quarter is expected to be impacted by the stronger yen. So when you take that item out, the impact is about a revenue decline of 15%. So earlier I talked about channel inventory and that we are going to reduce inventory. About a third of the 15% comes from that effort. So when you look at the mix, what reflects demand compared to the 20% significant number, it's about half. that's attributed to end demand, I would say more or less around 10% of the revenue decline is the substantial guidance. Timing-wise, there was a slight shift and Mr. Shinkai may refer to this later and we could also take on your questions in Q&A, When you look at our performance year over year, automotive still mid single digit growth has been observed. So stepping on the brakes during the fourth quarter may have been a surprise for some of you. But before I was saying that we had a lot to regret in the previous results, but this time around, it's more about taking a deep breath and engaging in measures in anticipation of the future. So from that perspective. Automotive on an annual basis is still on a growth trajectory, so. We would like to take on the long term challenges and implement measures steadily. So now without further ado, I would like to pass over to Mr. Shinkai, who will talk about the actual numbers. Then after we would like to move on to Q&A like we always do. Mr. Shinkai, please. Hello, I am Shinkai, the CFO. I'd like to talk about Q3 results. I'm going to be talking off the material that is on our IR site. Next page, please. And next page, please. Here's a disclaimer page. At the very bottom, please look at the bottom bullet. We concluded the acquisition of Altium as of August 1st, 24th, and it's been consolidated from August. So for Q3 results, Altium performance is included. Regarding segment allocation, it is mostly included under industrial infrastructure and IoT for PPA. In the full year results, we expect to close and we will like to retrospectively revise the actual impact. And next page talks about the results. Look at the dark blue column that shows Q3 results. So for revenue, we were at 345.3 billion yen. Gross margins were 55.9%. Operating profit were 93%. 8.4 billion, and operating profit margins were 28.5%. Net income was 86 billion, EBITDA 121.4 billion, and currency rates were 154 yen to the dollar and 168 yen to the euro. The comparison gets our forecast. Please look at the row that is the third to the right. Looking at Q3 results, please look at the left column. Excluding August and September LTM impact, please look at the part that says LTM excluded, which is the fourth row. So compared to forecast by item, please look at the top right. For revenue, compared to forecast median, we were slightly below. but we were within the lower end of our range. Altium's consolidation, if it didn't exist, we would have been below the forecast range due to a stronger yen. In IIoT especially, industrial and mass market contributed significantly negatively. And for automotive and mobile, it was slightly positive compared to expectations. And for gross margins, We were at 55.9% for the quarter, which was slightly above our median forecast. If we excluded LTM consolidation, it was at 54.9%, which was slightly below 55.5% of the forecast median. The reason is because due to less utilization, the production recovery decrease was the main factor. And because of cutting inventory, During Q3, input and production was cut, and operating margin-wise, we were at 28.5%, and this was above our forecast median. And the impact from LTM's consolidation was neutral. And compared to forecast, OPEX went down, and this was mainly due to cost control.