Renesas Electronics Corp

Good morning, everyone. If you like to listen to this session in English, please click the interpretation icon at the bottom of the screen and select English channel. Please select a language by clicking on the translation icon at the bottom of the screen. Now, please turn on the video, speakers. In today's presentation, we have the CEO and CEO of Shibata Hidetoshi, the executive director and CFO of Shinkai Shuhei, and other staff members. Now, I'd like to introduce Mr. Shibata, and then I'd like to introduce Mr. Kiketsu from the third quarter. Next, we'll have a Q&A session. The total time of the session is scheduled to be 60 minutes. The materials used in today's session are the same as those on our website. Mr. Shibata, please turn on your microphone.

Good morning, everyone. I'm Shibata. Today, I caught a cold, and I think it's hard to hear because of my hoarse voice. I'm sorry. The temperature has dropped considerably. The school event and the autumn event are all over the place, and my body is full of wind, so I caught a cold. Everyone, please be careful. I think many of you have already seen the third quarter, but in a sense, I think it was a landing as expected. I think you remember, but there may be upsides, but I said last time that we will run carefully, but it is almost as it is. The sales from us are as planned at the beginning. On the other hand, the sales from the channel touched a little on the upside side, and the channel stock fell slightly, which is the result of the third quarter. Therefore, if it remains as it is, it will not go up, so I think it would be nice to be able to expand the channel stock a little for this fourth quarter. As a whole, from the end of the channel, I would say that it is almost a flattish feeling. I think it's about that kind of feeling. There are some specific customers' production and inventory adjustments, so I think it will go down a little. On the other hand, the 28nm mic and the generation 4 SoC, of course, are continuing to stand up smoothly, but they are still small, and as for the 28nm mic, As I mentioned earlier, it was mainly adjusted by specific factors in China, and I don't think it's going to grow so much. I think it's going to grow steadily. On the other hand, I would like to point out that in terms of 4Q, the outlook is much better than the previous one. I'm sorry, I'm a little flustered, but I think it's good. Of course, there are some drawbacks as a whole, but as a whole, we are expecting a strong recovery. In the fourth quarter after the third quarter, the AI infrastructure has continued to be in a very strong state. We are working hard on the production side. We are thinking that we will try our best to make and sell in a way that does not cause any damage to consumers. Also, regarding the IoT field of consumer mobile that represents consumers, there is nothing strange about this, but we are seeing a decrease in the seasonality of the third quarter going up and the fourth quarter going down. However, there is also some share gain here, So I think it's a good trend for the entire IIoT. As for automotive, there is still a lot of inconsistencies, especially with Nexperia. We will drive carefully while looking closely at our and the channel's stock. In particular, regarding the management of the channel stock, It was a long time ago, about five years ago, and there was a situation where it wasn't good, so based on that, we will continue to be careful, so I would be grateful if you could take a look at this and give it a high rating. Then, today, until the last budget announcement, It's been over a year since we acquired Altium, so we've heard a lot of questions about what's going on, so I'd like to talk a little bit about it today. From now on, I'd like to make the story a little more fulfilling step by step, so I'd appreciate it if you could allow me to touch on it today. Please show me the slides of the office. This is a story of Altium alone, but so far, as planned, the cost synergy and organic growth have been going well without any deviations from the plan. The above two meanings are written on the left. As for the sales synergy, this is of course a matter of time, In other words, the meaning of the word enterprise is that it starts with a little push towards a large customer that leads the world. Right now, we are focusing on the middle part. If we buy Altium and keep it stand-alone, we won't be able to do anything. So we are making a big change. I've already announced this from Altium, and if you look at the website, I think you can get a sense of it. Until now, it was a company that provided products for PCB designer software and Octopart, but now it is in the process of making a major change to a company that provides platforms. At the same time, We wanted to accelerate the expansion of the user base, and we started promoting our efforts for that. And one of the big pillars of why it's called Renesas is our platform, which is known as the Renesas 365. We are currently developing it. In the first half of this year, we held a trade show called Embedded World. I put the demo in the video, but based on that, we are currently preparing to launch it within the year. In the future, as you can see on the right, the Renaissance 365 that I just mentioned is scheduled to be launched within the year. By the way, this is not something that will surprise you so much at the time of launch. It's not going to be a great thing. It's not going to be a great thing. It's not going to be a great thing. From there, we are planning to go through the process of constantly repeating upgrades, like Windows 95, where Windows took a big take-off, so I hope you can see it with a good sense of expectation. Regarding the progress of Altium and digitalization as a whole, as I mentioned earlier, we are currently in the process of making a big change, so I think it's a bit hasty to decide all the KPIs here and then change them later, so we're setting up the KPIs a little carefully right now, so if things go well, we'll be able to talk about how to trace things like this by the time of the next continuous calculation. Also, we are planning to report progress on the overall progress of the capital market day next year, which is a major milestone. We are planning to report progress on the overall progress of the capital market day next year, which is a major milestone. We are planning to report progress on the overall progress of the capital market day next year, which is a major milestone. We are planning to report progress on the overall progress of the capital market day next year, which is a major milestone. We are planning to report progress on the overall progress of the capital market day next year, which is a major milestone. We are planning to report progress on the overall progress of the capital market day next year, which is a major milestone. We are planning to report progress on the overall progress of the capital market day next year, which is a major milestone. We are planning to report progress on the overall progress of the capital market day next year, which is a major milestone.

I'd like to update the progress on the left side of the previous page. It's been a year since the first quarter, and we'll talk about the progress so far. On the right side, you can see the cost synergy. In the first place, the cost synergy is the initial cost cut right after the closing, and then the cost increase from there. We are thinking of a two-stage structure that uses the resources of Renesas to absorb them. The cost reduction in the first stage was completed by the end of the first quarter of this year. The second point is organic growth. As you can see on the chart on the left, the annual recurring revenue is shown to show the overall growth. This is a indicator that shows the continuous revenue of a part of the annual contract or subscription that occurs from the service. Compared to the third quarter of 2020, which was just a year ago, it has grown by 15% with Yaw Buyer. This means that it has grown steadily at almost the same pace as before. The sales synergy started with a cross-sell for enterprise. Finally, I would like to talk about the transition to a platform company. In addition to the development of Renaissance365 as a line-up, I would like to talk about the revenue recognition standard announced in the first half of the fiscal year. The transformation of the business model to a platform company shows that the recognition standard has been changed from this period. That's all for the progress update on Altium. From now on, we will use the usual slides to talk about the third half-time calculation. Please go to page 6. This is the summary of the settlement. Please refer to the dark blue line in the middle for the third quarter. The sales revenue is 33.42 billion yen, the total profit is 57.6%, the operating profit is 1,032 billion yen, the operating profit is 30.9%, the total profit is 882 billion yen, EBITDA is 1,225 billion yen, the exchange rate is 146 yen, the euro is 170 yen. Please refer to the three rows on the right for the expected cost. I will explain it on the page later. This is the non-GAAP framework, but I will explain the GAAP framework later. Next slide, please. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales revenue, net profit, and operating profit. This is a summary of the third quarter's sales Automobiles landed in line as expected. Originally, we were planning to export to the upside of sell-through, but the sell-through was improved and the export landed as expected. Industrial infrastructure IoT has also increased in cost. Here, digital power for AI and digital power for server and TC, as well as the memory interface, have been the center of attention. Next, the net profit and loss ratio was 1.1% above the expected value. It was mainly due to the improvement of MIX and the price movement. The improvement of MIX was also seen in the above slide of sales, but it was sold with a relatively high gross margin of memory interface and so on. Regarding the range of motion, we will talk about it later, but the range of motion of input has increased slightly. By reviewing the import schedule, the number of imports in the third quarter has increased. In terms of operating profit, there is a large gap in the expected cost of 3.9% points. In addition to the improvement in sales and profit-making, the reduction in operating costs has contributed significantly to the improvement. In terms of actual costs, the operating costs of R&D, SG, and OPEX have decreased by 6.3 billion yen. Half of it was due to the deterioration of the research and development cost, and the other half was due to the reduction in cost. The effect was not as expected. Therefore, the deterioration of the research and development cost I think it will have a significant impact. I will talk about it in the fourth half of the year, but if you look at it on the average of the fourth quarter, I think it will be a more realistic operating profit rate. Please refer to the box at the bottom right for the supply and demand. The sales revenue increased by 2.9%, and the number of cars and industrial infrastructure increased by 9.9%. The net profit-saving ratio increased by 0.8%, and the mix improvement has been improved, and the cost-benefit ratio has been slightly increased. As for the operating profit, it increased by 2.9% with 949 points. The cause is the loss of sales, as I mentioned earlier. Next slide, please. Oh, sorry. Here it is. Excuse me. This is for each segment. As for cars, if you refer to the lowest operating profit rate, the operating profit rate is greatly improved at 949. This is a reflection of the loss of one-off performance in the second half of the year, and the specific damage costs and so on. This is a reflection of the loss of one-off performance in the second half of year, I don't know if it's true, but in terms of performance, well, in terms of how it works, it's a 3rd quarter. If you look at it in total, it's 29.5% in terms of sales performance for automobiles up to the third quarter, but that's roughly I think it is close to the current state. There is nothing special about the industrial infrastructure IoT, so I would like to move on to the next page. Let's look at the sales revenue. The overall revenue was 3.2% in the year-on-year, and 2.9% in the year-on-year. As you can see in the description, it is different for each segment. Let's move on to the next page. This is a trend of various numbers. There is nothing special about this one, so please go to the next page. Let's talk about the stock. We have organized the increase and decrease of QONQ. First of all, it is our own stock. In the third quarter, QONQ increased the stock and DOI as expected. In the third quarter, DOI increased to 111 days. As for the fourth quarter, we expect it to increase by 949. We are planning to build a large bank focusing on internal affairs. On the other hand, we would like to build a large bank for AI and DC, but we are not able to do so. As for the finished product, we are planning to make a small production for the end of the year to support the delivery of the year-end products. Next, let's look at the bottom right of the channel stock. In the third quarter, the stock of both WOI and Zyko decreased in real-time. In the second quarter, it was 8.9 weeks, and at the end of the third quarter, it decreased by 8.1 weeks. All of this resulted in a decrease in the channel stock due to sell-through. In the fourth quarter, we expect to see a decline overall. Automobiles will be shipped like sales through, and the stock will be doubled. Industrial infrastructure IoT will be shipped like sales through, but for AI and DC, for data centers, sales through will continue to be high, and as a result, the channel stock will decrease. In Shibata's comment earlier, I mentioned that the channel stock is expanding, but looking at Q49, the third quarter and the fourth quarter, the sell-through is roughly flat, and the sell-in is increasing. In that sense, we are saying that the channel stock is decreasing. Next page, please. Regarding the operating rate of each process, as I mentioned earlier, the third quarter From a 50% down view, the input-based efficiency increased slightly to 50%. However, this was due to the fact that we reviewed the operating schedule at the end of the year and forwarded the input to the third quarter from the fourth quarter. In that sense, we expect to see a decline due to the recoil in the fourth quarter. There is nothing specific about the investment in equipment. Next page, please. Let's look at the forecast for the fourth quarter. Please refer to the blue line in the middle of the fourth quarter. The average sales revenue is 3.4 billion yen. The total sales profit is 57.0%. The operating profit is 27.5%. As a prerequisite, the dollar is 150 yen. The Q4Q is 3 yen. The euro is 175 yen. Similarly, the Q4Q is 5 yen. In terms of revenue, 34.5 billion yen in the central region is 16.2% in the year-on-year, and 1.7% in the Q4-Q. However, the Q4-Q's increase is due to the fact that there are many devices that are based on the Q4-Q, and the revenue is B. It's a Q&Q of device sales, but it's a mobile and IoT segment-related seasonal decline. It's a pre-investment in the industry where we can see a strong AI and GC direction, as well as a bottom-out industry. The sales revenue is 50%. At 7.0%, we saw a minus of 59 basis points with Q4Q and a slight drop. The main factor is the increase in MIX. The operating profit rate is 27.5% and a minus of 338 basis points with Q4Q. The main factor is the increase in OPEX at Q4Q. The shift from Q3 to Q4, which I mentioned earlier, In addition, the focus on the end of the year and the cost increase of the cover assets will contribute about 1 in 3, and the OPEX will increase by 1.1 billion yen with QMQ. The operating profit rate is 27.5%, which is 29.2% on average in the short term, and 27.7% on average in the short term. From there, we have improved by about 150 basis points. This is due to the improvement in the progress of the top line and the effect of cost reduction. If you look at the bottom right of this table, you can see that we have added the volatility of the exchange rate. The volatility of the exchange rate is quite high, and we have added how it will look like if the exchange rate is converted to 100 yen. To summarize, each dollar and euro has an impact on the sales and business profits when they fluctuate by one yen. When the dollar fluctuates by one yen, it has a 17-billion-yen impact on the sales and revenue of the fourth quarter and a 7-billion-yen impact on the business profits. Based on this value, if we convert it to USD 100 yen and EUR 120 yen, we can see that the market share of the fourth quarter is 27.5% to 22.3%. And for the year-round, 28.5% to 23.0%. Next, let's take a look at the gap in the appendix. Page 19, please. The net profit is 1,063 billion yen. The valuation of Ulf Speed is in the form of other financial funds, which is 4.45 billion yen. Next page, please. I will explain the structure and how to think about it. As you can see on the left, at the time of the reinstatement support contract before Chapter 11, we agreed to exchange the reinstatement that we originally had for the transfer fund, the normal stock market, and the new stock market. And the continuation of Chapter 11 was completed at the end of September. We evaluate these assets at the end of the quarter, but they are basically equity-based assets, so the valuation depends on the global speed of the stock value. As you can see in the middle, in the second half of the year, we estimated that the market value would be $16.6 billion. This was the basis for the reconstruction plan. Accordingly, we estimated that our assets would be $5.75 billion. In the third half of the year, After the continuation of the chapter 1, the capital stock price was updated, and the total number of shares after the complete contract was increased to the share price after the contract was completed. The share price at the end of September was 28.6 dollars, and the share price at the end of September was 27.1 billion dollars. Accordingly, the amount we can calculate is 8.74 billion dollars, which is 13.1 billion yen in Japan yen. The difference is 4.45 billion yen as a form of the valuation. This is the financial impact up to the third quarter, and we have summarized what will happen in the future on the bottom right. At the moment, CFIUS has not been approved, and it has not been approved by the normal stocks and new stocks. The stock-based ones will be approved after CFIUS is approved. Currently, the stock-based and new stocks have the same economic value as CFIUS. On the other hand, CIFIAS is expected to get the approval in the process. However, due to the closure of the U.S. government agency, the schedule has been extended. After the approval of CIFIAS and the acquisition of a stock, and the transfer of shares, and the acquisition of a new stock, it will be about 30% of the stock. However, by limiting some of the stockholders' rights, we are now proceeding with the policy of eliminating them from the financial impact caused by the use-and-use link.