Renesas Electronics Corp

Thank you very much for taking time out of your busy schedule today to attend the Earnings School for Renaissance Electronics fourth quarter and full year of FY24. Simultaneous interpretation is available for today's presentation. Please click on the interpretation icon at the bottom of the screen and select your language. Speakers, please turn on the camera. Speakers today are Hidetoshi Shibata, President and CEO, and Shuhei Shinkai, Senior Vice President and CFO. Staff members are also present. After a brief remark from Mr. Shibata, Mr. Shinkai will explain the financial results for the fourth quarter and the whole year, which will be followed by question and answer session. The entire presentation is scheduled to last 60 minutes. The presentation material is uploaded on the IR section of the company's website. Now, please unmute Mr. Shibata and kick off the presentation. Good morning, ladies and gentlemen. This is Shibata. In the previous earnings call, I said that we are going to take a deep breath. And we actually did. Also, the state of the business is now somewhat stabilizing. Looking at Q4, due to the expectation, we were able to reduce the channel inventory. And I know that you're interested about the outlook for this fiscal year. For Q1, we have given the guidance.

We expect slight growth.

Also, there are some moving factors, but generally speaking, I think we are hitting the bottom. And now the question is how quickly we can go back to the growth trajectory. On that point, there are still uncertainties, but gradually we expect the outlook to improve. So that's our expectation going forward. And I think I will also explain later. From this fiscal year, the Altium's revenue recognition standard has been changed. So at first glance, the ultimate revenue looks like it's going to decline significantly. And that is impacting the overall revenue trend. And the other players in the industry has done this. So it's not abnormal. But given the acquisition, we decided to change the standard at this point. Last year, we have started the dividend, and we are going to be paying the dividend for this fiscal year as well. So that's a summary for the outlook. Now I will hand over to Mr. Shinkai, who will give you a more detailed explanation about the results and the outlook. This is Shinkai, the CFO. So regarding the result, I will explain using the presentation material uploaded on the IR site. Next page, please. This is a disclaimer. So at the very bottom, you can see that the figures reflect the impact of PPA for transfer of an Altium for which the deals were completed on June 20th and August 1st of 2024, respectively. The second and the third quarters of the 524 have also been updated retrospectively. Next page, please. So this is the results from Q4. For Q4, you can see the column in the middle, the dark blue column. For revenue, it was $292.6 billion. The gross margin stood at 54.9%. Operating profit was $75.4 billion and operating margin was 25.8%. Net profit was $71.9 billion with EBITDA of $98.2 billion yen. FX is 149 to the dollar and 162 yen against the euro. Three columns to the right is the change from the forecast. And the four-year actual is shown by the dark blue column on the right. The revenue was 1,348.5 million yen with a gross margin of 56.1%. Our trading profit was 397.9 billion, and the operating margin was 29.5%. Net profit was 360.4 billion, with EBITDA of 486.2 billion yen. For the full year, looking at the change from last fiscal year, revenue was down by 8.2%. Automotive grew modestly year on year, and for industrial infrastructure IoT, because of the weak market, the revenue came down. And excluding the impact of the weaker yen by 11 yen, the revenue declined by 11.7%. Gross margin compared to last fiscal year was down by 0.9 percentage points. For IIoT, the product mix deteriorated, and also the lower utilization had a negative impact, but it was offset by the improvement in the production cost. For operating margin, It came down by 4.6 percentage points year-on-year. This is mainly due to the increase in OPEX, mainly for R&D, and also some impact from the acquisition cost. Next page, please.

For Q4, please let me refer to this slide.

For company total versus the forecast, please look at the top right. For revenue, compared to the midpoint of the forecast, it was higher by 5.1%.

The FX impact was roughly Two-thirds of the impact.

The rest was the other factors other than effects. So for the factors other than effects, with the forecast, we were expecting a risk of slowdown in the parts supply, but thanks to the recovery measures taken, The impact, it was smaller compared to your anticipation. So, all in all, for automotive, other than that, it was pretty much in line with the projection. We reduced the selling to cut the inventory. For IIoT, there was some change in the product mix, but the result was pretty much on par with the plan. Next, moving on to the gross margin, It was higher by 2.4 percentage point. It was mainly coming from the improvement in the production cost. Two-thirds of the improvement came from the production cost improvement for two reasons. One is that from Q3 to Q4, we stepped on the break heart for production and selling. As this was a short-term adjustment, we had assumed that production costs centered on utilities would not fall as much as we had hoped. But in reality, we were able to keep costs down. So that's about 50% impact. And another factor was the variable costs that would decrease in line with sales and production reflection was conservative. For example, IP realty costs and logistics costs would come down with rapid decline, but we did not fully factor those impacts in. Also, all in all, we saw an improvement in the growth margin. The operating margin was better than forecast by 3.3 percentage points. This is partly due to the improvement in the growth margin and also compared to the forecast, the effect slightly declined. Looking at the operating margin for Q4, As we had explained in the previous result meeting, it included one factor. Specifically, the effective reversal of the provision for bonuses is concentrated in the fourth quarter. For automotives, there was a big recipient of the R&D expenses. Please look at the Q&Q change at bottom right. The revenue was down by 15.3%. As we communicated in the previous earnings goal, looking at the waterfall chart, the impact of the stronger yen and the stagnation on the part supply was smaller than expected. So this Q&Q decline of 15% was mainly coming from the channel inventory reduction and the reduction in the sell-through. The impact was half each. And for cross-margin Q&Q, it was down by 1 percentage point. mainly due to the lower utilization rate. For operating margin, it was down by 2.7 percentage points. It does include one factor, but effects on QNQ basis came down, but the operating margin was down because of the decline in revenue. Looking at the segment details, for automotives, the operating margin QNQ increased. The one-month deployment cost payment was made, so that had a positive impact. For IIoT, the gross margin decline on a Q-on-Q was smaller, and this is thanks to the impact of the ultimate consolidation and the decline was made smaller. And this is the Q-on-Q revenue for Q, the column at the far right. For company total, year-on-year, it was down by 19.2%. Q1Q, it was down by 15.3%. And I have already explained the details. And the second information is also illustrated on this slide. This is the trend for the financial KPIs. Please look at the next page. Regarding the inventory, we have the Q1Q trend and the factors behind the change. First, looking at our in-house inventory on the left, and also look at the box at the top right, please. For Q4, on a Q1Q basis, it increased. Initially, we expected a low-budget utilization to cut the work in progress in the Daibank, and also reduce what we procure from the outsourcing partners. But this was not happening at full speed, and also at the end of the year, yen was weaker. And also DOI, because of the revenue decline, increased to 120 days. For Q1, overall, we expect the inventory to slightly go up, but the DOI is expected to come down because of the revenue increase. In Q4, we reduced the die bank, so we are going to replenish that. So that's why the utilization rate is expected to go up in Q1. Overall, the short-term lead time order, it's still coming in big volume. So in order to support this, we will not reduce inventory too much. So with revenue growth, we expect the DOI to go up.

And regarding sales channel inventory, so from these results, we have changed the definitions of some numerics here. Let me explain on that. When we manage the channel inventory, So we revised the definition this year to match accounting management more with the reality. So the price of inventory, which is in bar chart. So we have been using the book value at a distributor, which was including the margin of ship and debt transactions, but we instead, we change it to the net selling price basis. So the bar height and the price should be much closer to the actual sales price. So I believe this would be more appropriate to reflect the reality. The WOI is just a result of division, so it won't be changing much. But due to the difference in the price, then the bar height will be smaller. On this slide, we have updated retroactively with this new definition. In Q4, the sales channel inventory, both actual amount and WOI decreased Q and Q. In Q1, both automobile and IIoT, we plan to reduce the channel distribution inventory furthermore. So we'll maintain the inventory to stay lean. Next slide, please. Utilization in CAPEX. Starting with utilization in Q4, it was around 30% as forecasted, but it came out to be a little just under 35%, so we had slight increase. In Q1, we plan to have a slight increase on utilization. a little over 40% is expected. So we had the reduction on WIP in Q4, but we plan to increase them into Q1, including DAI banks. And CAPEX is as shown on the right-hand side. Next slide, please. Q1 forecast, right in the middle, in blue, dark blue. The revenue midpoint forecast was 309 billion yen. And gross margin will be 54%. Operating margin will be 24%. The effect assumption, 155 yen to a dollar, 161 yen to a euro. And let me touch on more details on that. First, with revenues. The midpoint forecast is 309 billion. Year-on-year, it's down by 12.2%, and it's up by 5.6% Q&Q. This Q&Q change, 5.6%, so it says it's down by 0.1%, excluding foreign exchange impact, and for device revenue, plus 0.2%. Let me explain on these. So, Yen impact was 5.7% positive for FX impact. Then the Altium consolidation is minus 2.3%, so device sales would be 2.2% accordingly.

Starting with device, so total

Revenue excluding FX and Altium software sales is excluded. It's shown over here as device revenue. It's up by 2.2%, Q and Q. Automotive and infrastructure, industrial infrastructure, IoT, both increasing Q and Q. And also Altium portion. This is down by 2.3%.

So from Q4, or Q1,

we are changing the revenue recognition rule for this portion. And let me explain a little bit more on this. So at Altium, revenue for software license sales, that's both on the on-premise type and subscription types. So they basically were recognized mostly upfront at the time of the contract.

But at the same time, the business itself

has been migrating to the cloud service. So the subscription-based contracts are expanding right now as a form of software provision. The cloud service percentage is increasing year by year.

So cloud service, subscription service, as in continuous service provision.

So it is consistent to recognize revenue over the period of provision. Therefore, so instead of booking the revenue up front at the time of the contract, we decided to change the revenue recognition to be prorated over the service period. And so this is starting this fiscal year. From PMI perspective, we believe it has... best applied from FY2025 because of the consolidation. So, at the time of the change, the revenue booking timing will be temporarily delayed, resulting in a decrease in sales temporarily. After that, the stable revenue recognition becomes possible, and from Q4 into Q1, we will see a temporary decrease because of this, and that is about 2% or so, as I mentioned earlier. But the fundamental business continues to grow, and from Q2 beyond, along with the business expansion and contract accumulation, we expect to see increases to come Q and Q. So that was for the revenue. Then let me talk about gross margin, 54%. So the Altium, the revenue recognition rule change excluding this impact, it's almost flat. So improvement due to increased capacity utilization will be largely offset by price mixes. Then OP margin, 24%. The excluding Altium impact, it's going to be almost flat, Q and Q. So the one-off impact, so seen in Q4, will be offset by controlling the expenses. Those are the forecasts for Q1. Going into appendix, let me also touch on some of the pages first on page 14. Balance sheet. So we have completed a transformer Altium PPA calculation, so we have retroactively revised the results. and so the acquisition cost 6.4 billion yen and of that 70% would be the goodwill and roughly 30% intangible fixed assets. Amortization period became weighted average to be 14 years and annual amortization cost is going to be about 149 million US dollars. So going on to page 16 right here, we have added the impact of Altium in the A recurring item in Q4. We have 8.4 billion yen as non-recurring items. This is mainly structural reform related costs. Such a new time impact. Next on page 18. Let me go over highlights on the left. Altium PMI, PPA is completed. And PMI progressed. Specially we made progress on financials. And we changed the revenue recognition standard starting from this 25. In the middle, dividend, continuing last year, we will continue to pay out dividends. And the Gen 5 updates on the 5th, right? This is all from me.

Thank you very much.

We'd like to move into the Q&A session. Let me explain how you can ask your questions. If you have a question, please use the raise hand button on the screen. In order, we will call upon your name and your affiliation. Also, when you're appointed, please unmute yourself and ask your questions. Given the time, we'd like to limit the two questions per person. So first, from Goldman Sachs, Takayama-san, please. Please unmute yourself and ask your question.

Hello, thank you for this opportunity. So looking at the Q1 revenue mix and also

the profit, how you build those plants. Earlier, you mentioned about the automotive and non-auto. The revenue is likely to go up. I think this is the 2.2% growth. And with an automotive, can you give us the breakdown by region? And also for the non-auto business, like industrial machinery and data centers and other applications, are there any difference in the recovery of those end markets? I think you mentioned that in Q1, the product mix is going to deteriorate a little bit. Maybe the automotive business is going to grow faster, but in Q2, looking at the sales in effect, if the revenue is to go up, I guess there's no one-off from the LTM. So if the revenue goes up, your margin should go up. Is that going to be the way we should be looking at performance on Q2 and beyond? Yes. So this is Shiba. Let me first respond to your question, and Shinkai-san can follow later. Looking at Q2 and beyond, of course, there are a lot of uncertainties. But looking at the direction of the margin, like Takayama-san said, I think that's how we see things play out. So I will be repeating your comment, but the option of revenue recognition change will be absent in a way, because it's going to be concentrated in Q1.

And also, what's going to be growing has a relatively good margin.

So that's the feeling we have for the future outlook.

And looking at the Q1 specifically, like Takayama-san rightly pointed out,

There's nothing to rebut your comment, but looking at the region, Europe and I guess Japan as well, Europe may be bigger in terms of impact, but it's not going to be a rapid growth, but it's going to be growing from the low base in Q4 because in Q4, mainly with the European clients, a lot of attention was paid to the balance sheet. So, short term, there was a movement to reduce the inventory. So, as a rebound from that, I believe Q1 is going to grow versus Q4, and that's how we see the automotive business.

At the same time, looking at China,

With the Chinese New Year holidays, I think there was some pulling of demand in Q4, taking the demand from Q1. So because of that, I think there's going to be a sequential decline. But other than that, we do not see any abnormal trend. So have I answered your question? Yes. If I may ask a follow-up question, for the automotive business, I was expecting the key client in Japan to recover, but I guess it's not going to be such a big recovery, but I guess more recovery is expected from a European client from the end of last fiscal year. Is that the correct understanding? Yes. As I mentioned earlier, in Q4, with the European clients, many of them cut their inventory quite significantly. So I think that's going to go back to the run rate we saw prior to Q4, so what we have been seeing in Q3. So for non-automotive industrial IoT and infrastructure, within infrastructure, the AI-related things that were pushed back, I guess, is going to come back. Do you see any change in the recovery of different end markets for the non-auto business? Yes, for the industrial machinery, we expect to see continued inventory correction. So we are a little bit negative on that. But having said that, I've said this many times, but the inventory correction Our trend, I think, is now very close to the bottom because the rate of reduction has moderated. And for things like AI and the cloud infrastructure, our outlook is expecting a big growth. But from the overall business portfolio, the exposure is still relatively small. And also, we have to be cautious about this point. For the home appliances, we expect a big growth in Q1. I'm thinking that there could be some plain of demand to address the tariff issue and also some one-off demand that's supported by the subsidy that is provided when consumers buy new appliances. Our view is cautiously optimistic. It's not the event driven spike and we do not expect a big rebound from that with the demand declining. At the same time, we don't expect this growth from Q4 to Q1 to continue at this level. But for the home appliances, I think we can expect some substantial growth. And for PC and mobile, there's the seasonality, so they will be coming down.

I see.

And also, my second question is, looking at the FY25 from the management perspective,

You want to grow higher than the industry average so that you will be evaluated in a good way from the equity market.

I think last year you tried to build up inventory in the first half quite actively and tried to capture the demand in the second half. But I think you're going to be more cautious for this fiscal year. maybe slightly different. And from a long-term perspective, you have done many initiatives such as acquisition of Altium. So, would you be able to enjoy the fruit of those initiatives so that you will be able to outpace the industry growth? Well, I understand your expectations. And regarding how we manage inventory and also the shipping, I think Sinkai-san mentioned this partially, but for the channel, we're still cautious, and we want to ship in accordance with the demand in the end market. And for our in-house inventory, we would like to have some robust level of inventory, so The strategy is not that different from that of last year, but compared to last year, it's not like we're very cautious, but we'll focus on the short-term trend and not to have too much inventory. And it's difficult to say how things will play out for this fiscal year.

but short-term efforts to date should bear fruit.

And if other competitors are required to conduct inventory collection, we're hoping that we can outpace the growth of those competitors. And also in terms of growth, the size is not that big, but for the automotives, the ADAS application is an area that we see steady growth. We expect that to continue. And also AI Cloud. And also, last year, we weren't able to really walk our talk, but the DDR5 finally we were able to resolve the power management issue for DDR5. Also, from Q3 to fiscal year, we expect a big contribution. So it's not just AI, but cloud infrastructure, including AI and also the automotive ADAS applications are areas where we can uphold our expectations. Thank you very much for the detailed response. Thank you.

Thank you.

Next question from UBS Securities. Yasui-san, please unmute to ask your questions.

Thank you. This is Yasui from UBS. My first question is on automotive business. In Q4 and Q1 forecast, So 180 billion yen revenue. I think there's a lot of adjustment for them.

So at some point, hoping to get back to 180 billion yen, and that's what we hope to see at some point, but when will that be also increased contents to bring you back on a growth trend? When do you expect that to happen? That would be my first question. My second question is data center business, which is still a small business, but that's attracting a lot of attention. So can you maybe elaborate as far as you can disclose, especially PMIC and market share because of the NVIDIA's situation attracting a lot of attention. So please share us about the market share. And data center itself forecast will be also appreciated. Automotive. When to go back to the past record number, it's hard to tell. But in Q4, we took a deep breath. So we were able to moderate the situation. So we're not too much concerned about the future. The speed of the growth. Well, there are little additional R4 Gen 4 may come maybe not this year, but in next year after. So we need to run the business based on Gen 3 for the time being. So some of the contents from 23 are launching so far, so we expect to see them to grow. But contents increase 10% growth if we are able to sustain this level of growth, so we're not too optimistic about the growth level. Not so bad, but it's a gradual increase. That's what we have to see. We cannot have a forecast clearly for such a big growth because could be potentially the tariff impact. The biggest concern or the uncertainty would be the Chinese player, also non-China OEM market share trend. So that would be the affecting factor. So we're having a big growth in China business in a short-term period. Things may not be bad for us, but it may not be directly answering to your question, but the business in China has been, of course, we're facing some different challenges from Western countries and Japan, but we want to take a a bit, you know, we want to continue to monitor this situation. And cloud center, I don't want to say too much because I don't want to take it back later after talking about certain things, but things around the processors, the power supplies around the processor, I think it depends on the timing, but maybe half or one third of the market could be maintained as market share with the customer of a specific customer. When we look at the schedule of the product development, it seems like there will be some ups and downs expected. So it's not like a straight line growth, but the trend-wise, we have an optimistic view. DDL5, power management issue is now resolved, and that is actually giving us more visibility to start kicking in from Q3 onward. If that happens, that can be a strong supporting factor for the business. Thank you. Thank you. Additional question about data center. For the past 12 months, for different application you have, For the coming year or so, can you give us how much growth you're expecting to come for different application? Well, hard to tell as well. We will try our best.

10%.

Maybe we can grow around 10%.

Hoping to go more than that.

I think we can go beyond 10%, maybe stronger than 10%. Looking at numbers we have right now for AI, rather than 10%, it's more like something X, so multiples of some multiples, maybe 10%. 3X or more than 2X. That's the impression we have. The general purpose servers, rather than 10%, I think could be a bigger growth. That's what we expect. So cloud infrastructure business in total, maybe 2X or so. That's how we forecast, but So many things could happen in the short term with this application. So we need to, while we are looking at upside, but at the same time, we want to be also cautious, not being too optimistic. So we want to focus on a quarterly basis. Thank you. Let me ask you once again, sorry for being so persistent. So 2x will be So including three application for data center, the total 2x, or just talking about PMIC, is expected to go 2x. It's about the power. Thank you.

Thank you very much.

The next question is from Hirakawa-san from BOVA Securities. Please unmute yourself and ask your question. Thank you very much. This is Hirakawa from BOVA. I have two questions. Earlier, you mentioned about the R car. In FY24, it had design-ins.

I think you may talk about this in the main IR day, but looking back 24, how did things go?

Especially for the automotive, how you talked about the MCA share, so can you I'll tell us that it's impossible how things went in 2024. And this is related to your outlook. Earlier, I think I mentioned that there is going to be a big volume of shipping for the shorter motors.

And at this point, from demand to shipment, I guess there are different patterns.

But can you tell me the details behind the production to shipment? Shinkai-san, I can answer the latter part of your question, and I will try to address the first part of your question. So Shinkai-san, please. Yes. So for the short-term lead time orders, the proportion vis-à-vis the total order is increasing slightly. The average lead time is, they come in before or disrupting the average lead time product. So there is going to be some disruption. Distributors that have some of those product and we also have those product in our distribution centers.

It really depends on product.

So something we can input the wafer after receiving the order. And sometimes you have to have the inventory and as an intermediary format, we have to have the die bank. So when we receive the order, we can ship out by just doing the back end of the process. So we'll have the finished product and also the die bank to address the short-term lead time orders and also something slightly longer. So we have been creative to address that type of demand. So I hope this answers your question. So during COVID, I think about five to six months before you had to fix your order, but now I guess there are many different patterns. But you can only have visibility over the formal order of the next two months or three months. Is that right? It really depends because we do have some long-term lead time orders and also other short-term lead time orders. But compared to before, the short-term lead time orders are increasing. During COVID, when demand was very strong, the production planning had to be established for us to stably supply So from a long-term perspective, we fixed the demand and the orders, but that's not the environment that we live in today. So it's different. So we do get those type of short-term lead orders as a natural course of our business. And for the design-in, for last year, we had made some changes.

And this year, we are

considering how we can change this. So focusing on your particular question, how things went last year, as if I may offer some indications, if we track the design in trend as we have done to date, last year for automotive, it did grow by a single digit. There's a big portion from Alcar and MCU was also very brisk. In terms of looking at the direction, I would say that it was not bad. That's my frank opinion. Having said that, from some time ago, I have been trying to make some implications, but the tracking of our design need to be fundamentally changed, in my view. So today, we will have an internal discussion on that topic. So we are now trying to revise this. So in terms of how we treat the numbers, we want to start from scratch. But the autumn recognition was made into a pro-rata basis rather than upfront. So we would have to make changes accordingly. Because that type of indication will give you a sense of is it going up or going down, but it's hard to give you a long-term trend. So we'd like to revisit how we track this. But on an Apple-to-Apple basis, as a direction, as I mentioned earlier, the automotive is growing by a high single digit. Thank you. And as a follow-up question, not looking at the Apple-to-Apple number,

I want to get your feeling, Shibata-san.

So that's the direction it's moving into the positive direction. That's your view, is that correct? Well, for the automotive MCU, it's not bad. It's actually pretty big, frankly speaking. And also for the big business negotiation, the R car, this was true for Gen 4, but it's something that we cannot really foresee. So when things are good, it will grow and vice versa because it's a very limited market. It's a rapid cycle and very volatile. But MCU is not bad, actually. I see. Thank you very much.

Thank you. Next question. Yoshikawa-san from Morgan Stanley MUFG.

Please unmute to ask your questions. This is Yoshikawa from Morgan Stanley. Thank you for explanation. I have one question. Non-GAAP, SGA, and R&D.

In Q4, the number was about 85 billion yen. Q1 will be from the difference between gross profit to OP.

it would be a little less than 93 billion. So Q4, you had, and I think you had drops in various elements, but in the coming quarter, the Q1 level is going to be the base level. And looking at Q1, the percentage, it would be about 30% of the sales, the revenue. And looking at your financial model, R&D would be 16%, SGA and It would be 8% or 24%. So currently, the revenue being low, I guess you're exceeding by about 6 percentage points. So if you were to grow revenue along with a gradual recovery, how are you going to control the level of spending? to answer this question. About the numbers. That is correct. About the 93 billion for Q1. That is correct. So the trend from there. So we are focused on R&D and SG&A, but including COGS. Cost run rate to be lowered. We are currently working on that. So cost improvement impact. Will be seen and throughout the year and force into second half gradually. A part of the impact is also included. Partly thank you. The first half forecast on the runway base. The latter half the year we maybe around 2 a little over 2 percentage points improvement on the base cost and that would be. executed at the cost level. Other than that, the revenue growth is expected. That's my answer.

Thank you. Thank you for your question.

Next question. from Nikkei. Please unmute yourself and ask your question. Thank you for this opportunity. My name is Makano from Nikkei. I have two questions. My first question is, in FY24, can you give us a summary of FY24? The completist said that last year was the worst year in the last 10 plus years, but what is your view of how you did last fiscal year.

The overall summary of last fiscal year.

I guess. Thanks. Trended as they should.

I see.

So the second question is the timing of the mass production for Kofu and also the production commencement of and see you at SIC at Takasaki. So I don't have any update, but as a trend, it's going to be pushed out. As I communicated in the last earnings call, we have become more cautious. Is that because of the market environment? So when you say you're more cautious compared to the last time, Yes, the market is one factor, and we look at our portfolio, and what needs to be mainly manufactured in Kofu is something that we are going to discuss as a fundamental strategy, not just for the short term. So for power semiconductors, now the market is weak, and I guess you have to compete against the Chinese players in terms of cost in the future. And looking at the business environment, how do you see things playing out? How are you going to compete in the current market environment? For power semiconductors, at this juncture, we have a very severe view.

But on the other hand,

The AI data centers are switching devices and other product that is used in that application. It's not going to be customers sacrificing quality over price. So in the power semi-segment, we never had intended to become a big player. So we are focusing on the target customer in this adjustable market. So that's the main direction that we are pursuing, which is unchanged. And we have considered to use the silicone IGBT but in the last two years the market has dramatically changed and also with the rest of the Chinese players our thinking has changed from that and now we're not looking at the silicone IGBT that much and with the factory operation Do you have a major change in your business strategy? Well, I'm not sure about your question. So what is your intention of your question? So the SIC production, could that be suspended? Or the production plan can be scrapped out? Well, it's not just for SIC business, but those things can happen for any of our businesses. I see. Thank you very much.

Thank you so much. Next question.

Okawa-san from Daiwa Securities. Please unmute to ask your questions. Thank you very much today. I am from Daiwa. I have two questions. First is on automotive business. MCU is going strong so far.

So what is the reason for you being so confident about strong MCU at this point?

Also, the software behind vehicles been the trend so far. How do you feel the response and ASICs are out there? What are the opportunities and risks? Can you comment on this? And that would be my first question. For MCU, at the beginning of last year, we have been talking about MCU and nothing really changed. From what I said, we are trying hard and other players also, competitors are trying hard as well. Sometimes our target may be off or sometimes the target is right on the spot and we're all doing the same thing and the others are also doing things and that's sure. We saw the drop in MCU share in automotive and that was because of the misspecification. We thought we were taking ahead of the trend, but it wasn't going that direction. We redefined the roadmap and then recently the redefined roadmap has been really aligned with the trend so far. It's fit and so we are providing what clients want and we get this nation and for our product and we are receiving large large products projects and that's what we saw last year SDB still there's no clear direction it's not visible yet at the super high level or rather than SOC or the high computer, trying to have a concentration on computing that's been visible, like a gateway product for that, GEN5R usage covering this section. So the inside MCU itself, SDB impact or not, how it plays out, Honestly speaking, we don't really see clear direction yet. So our card scalability will pursue and make sure to reinforce that. And the customers also. we want to offer flexibility in architecture definition of customers. I know this is nothing new, but we want to continue reinforcing this. And I think that is the best approach for us. And as we see more SDBs, then software-oriented development need is increasing. So preparing a virtual environment in the customer software development shift left so they can start early. So we provide tools to allow that to happen. That is going to be important. And we're working on that and we'll continue to do so. Thank you. And my second question is industrial. If a mass market, can you explain splitting these two? Compared to three months ago, any change in your forecast and what would be the bottom for those two categories? Can you give us your comment on that? That what I said in the past were not really, you know, correct. Actually, it makes it difficult for me to make a futuristic comment. But as far as we forecast, as mentioned earlier, inventory correction, and moving forward towards zero, but still small size inventory correction could actually drag the demand situation, and that could continue through the year, throughout this fiscal year. I know there's a different view on that. There's some voices to see the increase, recovery in second half, but it could stay stagnant throughout the year on the other voices. So this year, we want to go back to basics. So we want to address the basics from the perspective throughout the year. This situation could drag and continue. That's how we intend to operate this year. But again, last year, sometime from Q4 into this Q1, This level, this size of inventory correction would not be expected to come. It's going to be quite small if any in the second quarter or beyond. Industrial mass market. How different these are? That's hard to tell because mass market is very difficult to forecast. I won't be able to give you any meaningful response, I guess. It's hard to tell. Looking at our numbers only, I think the mass market could show a faster recovery, I feel. Quarter Q and Q sync when shown numbers, looking at them, mass market shows the bottom, I guess, hitting the bottom earlier than the industrial. So the mass market is moving faster. Also, OctoPot held by Altium. This is also can be utilized for early indicator for the overall sector. It doesn't seem to have a big improvement in movement, but there's a slight increase so far. Compared to industrial, mass market could moderate slightly earlier than industrial. I know. Sorry, I won't be able to give you any clear answer to that. I know. Thank you very much.

I know it's difficult. Thank you very much.

I know that we have some more questions, but we are now close to the time to finish. So lastly, we'd like to invite Mr. Shibata for a closing remark.

I know that the expectation is building up for idiosyncratic growth.

But we don't have that kind of a view, but we now have a more steady outlook. So in a real sense, we can really focus on rolling out initiatives for achieving long-term growth without being disrupted by the short-term challenges. That's the reflection on the result and also the outlook for this fiscal year. I hope to enjoy your continued support. Thank you very much. So with that, we'd like to complete our Renaissance Electronics fourth quarter and full year earnings call for FY24. Thank you very much for joining us today.