Renesas Electronics Corp

Thank you for taking the time to join the Renaissance Electronics first quarter 2026 earnings conference call. Simultaneous interpretation is available during the call. Please click the interpretation icon at the bottom of the screen and select a language. At this time, speakers are asked to turn the video on. Joining me on the call today are Hidetoshi Shibata, Representative Executive Officer, President and CEO, Shuhei Shinkai, Senior Vice President and CFO, and some members of the staff. After initial remarks by Mr. Shibata, the first quarter results will be presented by Mr. Shinkai, which will be followed by Q&A session. The earnings call is expected to last for 60 minutes. The materials that will be presented are the same as those posted on the IR page of the company's website. Shibata-san, please turn on the microphone. The floor is yours.

Good morning.

This is Shibata speaking. The earnings results this time had the effect of the divestment of the timing business during the period. Because of the decision to divest timing business, it may be more difficult to understand the numbers than is the case usually. Later, Shinkai-san will explain and would like to provide a thorough information so that Apple to Apple comparison is possible as much as possible. All in all, I believe we had good Q1 results. Generally, in comparison to the guidance that we issued last time, we had stronger results overall. And as a result, and since our outlook is that demand will be growing, we wanted to build up channel inventory. But we were able to do so by a smaller margin than we expected. And we will have to increase channel inventory more. Automotive demand was also stronger than expected. It is still small, but Generation 4 SoC, our car, is ramping up very successfully. On the other hand, the previous generation of our car and microcontrollers are also showing strong growth. Automotive results were therefore strong. As for sectors other than segments, other than automotive, Data center AI may be attracting much attention. Data center AI and client-side AI were both growing strongly. Regarding these, towards the end of last year, there was a major earthquake in Taiwan, as some of you may recall. Our partners were affected by that large earthquake. Originally, to begin with, supply demand supply was already tight and on top of that because of the earthquake the supply is not catching up and after q2 we did our best to catch up demand is very strong but because of the rate limiting factor of production The first quarter, there was an impact from that. In Q2, we have overall strong outlook. Of course, there are some products where there is a strong seasonal factors, and there may be a decline as a result of such seasonality factors, but overall impression is that results are very strong. Automotive It's strong and other segments are also strong, especially in non-automotive segments. If I may repeat, we have to catch up with the demand. The bottleneck is our supply constraint. And if we can successfully address this, we may be able to see results better than the guidance that we will be issuing today. So execution is the key. That is the overall situation. The conditions are very strong, and for the foreseeable future, we anticipate the conditions to be strong. Now, I would like to turn it over to our CFO, Shinkai-san. Thank you very much. This is Shinkai, CFO. I would like to present the results from Q1 based on these slides. Next slide, please. Page 3.

What you're seeing on the screen is the disclaimer.

In February 2026, timing business transfer was announced. After the announcement from February onward, in non-GAAP reporting numbers, timing business is excluded. In Q1, only January, the month of January, is included. And beyond February, timing business is not included anymore. But for the sake of Apple to Apple comparison, we also included numbers excluding timing business entirely for comparison's sake. Next page, please. Financial snapshot. In Q1, non-GAAP results are shown on the fourth column from the left in the table. Revenue, 372.3 billion. Gross margin, 59.2%. Operating profit, 125.4 billion. operating margin 33.7%, EBITDA 146.2 billion net profit, 102.9 billion exchange rate, dollar 156 yen, euro 183 yen. Regarding timing business, last time on February 5, at the time of the last earnings call, we announced a forecast, which included three months of timing business However, in actual, only the month of January is included. And therefore, for Apple to Apple comparison, based on forecast and actual results, or for both forecast and actual results, it would be better to exclude timing business. So pro forma number are prepared, shown on the rightmost three columns. It says after adjustments for timing business. assuming that there is no time in business in forecast and actual results. The shaded columns are actual for pro forma basis, 369.1 billion in revenue. This is above forecast by 1.4%, and gross margin is 59.1%, above 1.1 percentage point from forecast. Operating profit, 123.7 billion. It is above the forecast by 2.5% gross profit. operating margin is 33.5%. And based on this pro forma basis, I would like to turn to the next page. This shows revenue, gross margin, and operating margin in Q1. This is a pro forma basis number. Company total is given on the leftmost column shaded in blue. Revenue is up by 1.4% from the forecast. About 80% of that is due to yen depreciation, and the remainder is due to automotive segment, especially with Japanese clients outperforming. And gross margin was above forecast by 1.1 percentage point. About 1 third of that is due to mixed improvement, and 2 thirds is due to decline in manufacturing expenses. As for the mix improvement, to begin with, we expected deterioration in mix, but rather it was a flat. It did not deteriorate. Those that will be impacting gross margin the most are power products with a lower gross margin than company total. And in comparison to forecast, the results were lower due to some supply factors. As for manufacturing expenses, fixed cost decreased and COGS decreased. Maintenance expenses were also reduced. And we had a more conservative forecast. As for operating margin, up 2.5% from forecast. Gross margin increased and revenue increased. Aside from those, operating expense decline impact accounted for about 1 percentage point. Expense decline, however, was mostly one time or there is a time differential which will be booked and therefore expenses will be booked in Q2. So that will be a deteriorating factor for Q2.

In the next column, Q on Q results.

Generally, it is repetitive with what I have already presented regarding cross margin. It improved due to depreciation of the yen and mix was flat. Operating margin, Because of increasing volume and one-time factor improvement, we had declined QoQ. By segment shown on the right, automotive, there is nothing noteworthy. Industrial infrastructure, IoT, if you could refer towards the right bottom in operating margin, There was a significant improvement by nine percentage points. OPEC's seasonality was one factor, and there is also a decline from the higher level from last year. And 10% increase was recorded in revenue, and there is operating leverage. And three percentage points is accounted for by all of these three factors each. Next, revenue.

By quarter.

This is based on non gap numbers for the first quarter up to January. The timing business is included in the non gap results, so we have company wide and by segmented results year on year and queue on queue. Please refer to the numbers on the right hand side. Please go to the next page. This is about inventory on the left hand side is in house inventory for the first quarter on queue on queue. both inventory actual amount and DOI increased in line with our expectations. As for the second quarter, in terms of the actual amount, we are expecting flat to increase. On the other hand, for the DOI, due to increase in revenue and in the scale, we expect DOI to decrease. As was mentioned during the previous earnings results announcement, as for the buffer and making advanced arrangements for certain risks. Our target for DOI is 150 days, but considering the risks, both die banks and finished products for accommodating buffer needs for shorter deliveries, this is a policy that we will have. And on the right-hand side is the channel inventory for the first quarter. The channel inventory increased Q1Q. As for automotive, both sell-in and sell-through had upside compared to the expectations. We had originally planned for expansion of the channel inventory, but due to the increase in sell-through, we were not able to achieve the expected increase, and as a result, the channel inventory decreased. As for the industrial infrastructure IoT, generally speaking, we were able to have a slight build-up of the channel inventory, mostly for data centers. For the second quarter, Looking ahead to anticipated demand, the policy is to continue to build up a channel inventory, but we expect a higher sell-through increase as for the ratio in terms of WOI for automotive and IIoT, we expect WOI to decrease. Looking by segment for automotive, we expect the increase in demand and also to respond to short delivery demands. The policy is to further build up the channel inventory As for IIoT, including the mass market and for the general market, we continue to build up inventory and also for data centers, we have new products. Before certification, we plan to have advanced shipments and also for mobile mass production ramp up before the high season, we will also have advanced shipments. So these are mostly advanced shipments and from the actual amount basis we plan to continue to build up a channel inventory. And if you could go to the next page, this is the utilization rate and CapEx status. On the left-hand side is the utilization rate based on front-end wafer input. For the first quarter, utilization rate was around 55%, and the previous quarter, the fourth quarter in the previous year, Since then, we have seen utilization rate increase by about six points. Naka factory, 12-inch MCU, 47 MCU, and also Saijo digital power products. These are mostly seeing increase in demand, and as a result, we also increased the wafer input. For the second quarter, we are expecting a flat to slight increase from the current state. As for CapEx, as shown on this graph, For the first quarter, we made the decision to invest in capacity expansion. This is a rather substantial investment decision made in terms of the amount, ¥94 billion in terms of the decision-based investment, and 80% of that will be investments for capacity expansion. Specifically, AI, data center, digital power for these applications will be made in-house. Most of these are for front-end investments, Kofu, Naka, Saijo factories. This is for 8 inches. We hope to make these investments for capacity expansion at these factories and also for the back-end process as well for package and module. must increase the production and for the development that we plan to make investments. For the front end, mostly investments for digital and power products have been completed, so we are now considering investments for the back-end process. Please go on to the next page. This is the second quarter forecast. On the left-hand side, the fourth column from the left in the shaded column, please refer to that, Our revenue midpoint forecast is 388 billion yen, a gross margin of 57.0%, operating margin of 29.0%, and exchange rate assumptions is 156 yen to the dollar and 180 yen to the euro. And in relation to the timing business, the second quarter forecast does not include the timing business. Timing business has been excluded from the non gap results since February of this year. Therefore it is not included in the second quarter forecast. However, for comparability sake we have year on year and the queue on queue. Results adjusted for timing business figures shown on the right hand side. As for the second quarter forecast on a pro forma basis, a queue on queue. This is the two right columns. The far right column, to be kept in mind as I make this comment, for the revenue midpoint of 388 billion yen, but on a pro forma basis, we expect increase by 5.1% Q on Q. And excluding FX impact, revenue is expected to increase by 5.0%. For both automotive and IIoT, we expect both segments to increase. As for gross margin, we are forecasting 57% on a performer basis. That would be minus 2.1% percentage points from Q on Q. Due to production absorption, we expect improvements, but due to effects impact and also mix, This mix also includes a currency mix impact thereof and also increase in manufacturing costs result in expected Q1Q deterioration. As for operating profit margin, we are expecting 29.0%. That will be minus 4.5% Q1Q. It's a rather significant decrease. This is due to the deterioration of the gross margin decrease. Excluding that factor, there's also deterioration coming from operating expenses increase that contributes to about 3%, and of which 1% concerns one-time factors that was mentioned during the first quarter and the timing differentials. So about 2% is the net increase in operating expenses for the second quarter expected. If we look at the breakdown, first is labor cost increase, the annual salary to be increased from April term. So that will be affecting the second quarter results and also the continued investments in R&D as well as seasonality factors all contributing to operating expense increased by 2%. As for the FX sensitivity, you can see the table at the bottom. And in the appendix, there are several items that I would like to highlight. Please go to page 18. The highlights, please look at the far left. Our car, Gen 4, is ramping up. So these are the specific customers that will be using this. And please go to the next page. Regarding Altium, I would like to also give a progress update. First quarter ARR was increased by 8% year on year. Compared to the past growth rates, we've seen slight slowdown in the short term. Rather than maximizing the ARR growth in the short term, we would like to promote the adoption of platform and also increase in the number of accounts That has been our priority, and as a result of that, we've seen this result in some services and some regions. We are seeing transition from the older model to the new model, and this has resulted in a temporary decrease of the ARR. As for our approach to ARR and how we should constitute the transition period, how we should apply the thinking of KPIs,

that will be updated in due time.

And on the right-hand side, we started the general availability of Renaissance 365 as shown here. That concludes my presentation. Thank you.

Thank you very much.

We will now open the floor for questions. Shibata-san, please turn on the video. If you have Any questions, please press raise hand icon at the top of the screen. Participants will be called on by name and company name based on the order their hands are raised. When called on by the moderator, you will be able to speak. Please unmute your microphone before asking your question. In the interest of time, I would like to ask the attendees to please ask no more than two questions. First, from Goldman Sachs, Takayama-san, please. Please unmute.

Thank you very much.

Thank you for taking my question. This time you emphasized the rate limiting factor of supply, supply not catching up with the demand. Towards April to June quarter, what are you focused on to address the bottleneck and what can you do to increase sales more? as for capex when will capex start to make contribution is it in the second half of the year what is the pace that you expect to increase supply with and as a result sales i believe the digital power mainly are performing strongly. You've also mentioned that automotive performance was also strong. Is there any supply constraints regarding automotive? But conversely, why is demand so strong from automotive segment or automotive segment?

As for the capacity of Renaissance itself, realistically, I believe it will be

having contribution contributory effect from the beginning of next year. So in a step function way, we are not expecting increase in supply in step function way bottlenecks change constantly in small way. What are we doing recently to address bottleneck? We are looking at testers. Even when we receive wafers, since the number of units of tester is not sufficient, the wafer just lay idle. In some cases, we have placed orders for testers quite some time ago. But as you are aware of, overall, there is a shortage in general. So we would like to receive tester earlier and by greater number, even by one unit. And as we continue these efforts, we expect bottleneck to be resolved and shipment to increase. If this is successful, then it could be an upside factor in Q2.

On the other hand, some products

Concerning some products as I discussed earlier last year on December 27, there was an earthquake in Taiwan and there were also subsequent earthquakes and there was also black out and that resulted in a wafer being a bottleneck wafer side. We are making efforts to pull in depending on what the product is. the situation is different but we want to pull in incrementally we want to increase gradually we are making a great effort in this and we will continue to make these efforts gradually we expect capacity to increase. As for suppliers, especially beyond Q3 and beyond, suppliers are already increasing supply as these materialize. Then Q3 and beyond, in particular regarding wafer, which I mentioned earlier, I believe that we can expect significant increase in supply from some time in Q2. At the earliest, supply may begin to increase. If not, we expect wafer supply to increase from Q3. As for automotive segment, I did not mean to emphasize that the performance is extremely, extremely strong. It is stronger than we expected. Mainly, for one thing, Gen 4 R car.

40 nano MCU and Gen 3 R car.

are also contributing our car fluctuate from quarter to quarter as we discussed before but the trend is a stronger trend I have covered this last year as well the environment surrounding automotive industry has changed. And more so than we expected, I believe there is a tendency to continue to use previous generations products. As for 28 nano microcontrollers, we see steady growth. But in particular, because China is large, especially some customers in China, their production and sales are affecting our results. So there is some volatility in the short term, but overall, the trend is smooth growth. Microcontroller of the older generation, newer generation, and ARCA older generation, newer generation, we are seeing ramping up of the new generation. not by very large margin but steady increase and as for older generation they are being used more longer than we expected and i believe the combination of these resulted in stronger results i see thank you second question is about a price environment i would like to understand better some non-japanese players are commenting to the effect that there may be price increase. How do you see the situation and what are the developments that you expect? That is a question that is difficult to address because of different expectations from investors. And our customers, raw material, transportation, as you know, costs are rising. There are also supply constraints. memory price as a result is increasing and when necessary our competitors are also increasing their prices that is the actual situation given this situation it would be very difficult for us alone to not increase price so at some point in time by certain magnitude, by some magnitude, we may have to adjust our price. Thank you very much.

Thank you.

Next, BOBA Securities, Hirakawa-san, please unmute and ask your questions. Thank you. This is Hirakawa of BOBA Securities. The first question is regarding gross margin for the second quarter, how we should think about that. As per Mr. Shinkai's presentation, we have the breakdown, but looking at that, what I struggle to understand was that sales is expected to be flat, Q1Q. However, you are expecting 2% decrease. How should I think about that? To what extent risks are incorporated? Is there any upside? If you could talk about those things, I would appreciate that. And also for power, gross margin, slow mixed deterioration is expected as per your presentation. But what is the contribution in terms of OP margin? That's my first question. Thank you. I will ask Mr. Shinkai to respond to those questions. Thank you. regarding a gross margin decreasing by two percentage points. As for the breakdown, due to the production absorption, we expect a slight improvement, but because of the effects impact and the manufacturing costs increase, we expect the overall deterioration. As for the contribution and the breakdown, effects impact is one third, manufacturing costs is about two thirds in terms of the impact. As for the effects,

Second quarter, we expect the depreciation of the yen.

So in terms of that effect, there is an upside based on our current view. As for the mix, there is the product mix and also currency mix that's also impacting the results. For the second quarter, the yen portion is expected to slightly increase. and the foreign currencies upside would decrease in turn. Therefore, the currency mix will also contribute to the deterioration. In terms of the product mix, we have the legacy power products. These are low gross margin products, and shipments of those products is expected to increase Q1Q, and this will impact the overall gross margin. As for the manufacturing costs, This accounts for about two-thirds of the overall impact. For the second quarter, there is a unique factor to the quarter. The utility costs, the energy costs with higher temperatures, of course, utility costs will also increase. And the operating expense, when I talked about that, I mentioned this briefly. Due to the merit increase, we also expect labor cost increase. and the periodic repairs and maintenance. This will be done during the Golden Week holiday and also in preparation for the capacity expansion. There will be some inspections done, so contributing to overall increase in costs and as a result of the manufacturing costs increase and contributing to lower gross margin for the second quarter. If I may supplement. as Mr. Shinkai already gave the forecast for the second quarter but generally speaking as for the currency and product mix simply we expect fluctuations power for AI demand we have low gross margin products to high gross margin products there is a rather wide range of products with gross margin levels and our customer in customer share is also expected to change drastically. So it's a bit difficult to forecast, but our intention is to have a higher gross margin product and a higher customer share. And if this starts to be realized, then if we have an increase in power for AI demand, this should not contribute to lower gross margin. But for the time being, we expect some fluctuations And generally speaking, as I think I already mentioned, manufacturing costs are expected to increase given the current crude oil situations. And according to the media reports, we should expect impact in six months time or so. So maybe looking at the second half, we should expect impact in terms of the energy costs. Generally speaking, we do not expect gross margin to continue to rise. So the key is how to manage the manufacturing cost increase, including the energy costs through such measures as improvement in mix, for example, for products for AI. By improving the mix, we can absorb to an extent the increase in manufacturing costs. you should not expect this to have a steady increase. And sorry, I forgot to answer another part of the question. In terms of the OP margin, we should expect positive contribution, positive impact. Thank you. Another question, maybe I misread, but on page 9, the FX, 156 yen to the dollar is the assumption, and the second quarter... That's for the first quarter. So would that have an impact on Q? Sorry for the euro. In terms of the euro effect sensitivity, I don't see much impact. Would that have a much impact in terms of the one yen fluctuation? That's rather limited impact, correct? Yes, the currency mix has a bigger impact, bigger yen, This is an expected increase in sales for Japanese customers contributing to that. I see. I understand. Thank you. And this relates to my first question. For the automotive business, you said that it is stronger than your expectation. But on the other hand, for the second half, demand for automotive is still uncertain, as what we hear from the peers. Given the macro environment with what you know so far, what is your expectation for the second half? What is your outlook? Well, it is uncertain for sure. I don't know how I should phrase this, but macro uncertainty affecting automobile consumption certainly exists, and that's a big factor to consider. If there are no such factors, we do not expect such substantial increase, but depending on what platforms to be launched and other factors all included, we do expect a increase going forward to some extent. So outlook is rather bright. But the Middle East situation is affecting the crude oil prices by large, and maybe this will result in sales of gasoline cars, hybrid or EVs. So all factors need to be considered. Having said that, as for sales for ourselves, as was shown during Shinkai's presentation recently, we are seeing stronger results coming in compared to our expectation. So inventory, particularly channel inventory, has to be built up. So adjustments in that sense have to be made and that will give the necessary support to an extent. As for our sales outlook, relatively speaking, we have an optimistic view for our sales going forward. That is an honest assessment of where we are. Thank you.

Thank you.

Next, from Daiwa Securities, Okawa-san, please. Please unmute. Thank you very much for taking my question. I'm Okawa from Daiwa Securities. I also have two questions.

First about...

SG&A, labor cost increase, R&D cost increase were mentioned, and this accounted for close to two percentage point increase. But second half onward, what is your outlook? And Q&Q, in terms of percentage, is there going to be increase or is it going to be increase in value? If sales also increases in terms of percentage, will the increase be more milder? How do you foresee the second half? Shinkai-san, please. This time, between Q1 and Q2, there were some timing issues of when expenses are put in Q1 or Q2, and that accounts for one percentage point. Adjusting for that, in Q2, operating expense will be about 100 billion yen or more. And therefore, in Q2, labor cost increase and seasonality factors are taken into account. In the second half, this also depends on the foreign exchange rate, but every quarter, 100 billion yen or so of operating expense is what we generally expect towards the second half of the year. I see. Thank you very much. Second question is related to business concerning data center. You have decided to make a large capital expenditure in comparison to three months ago. Do you see, do you have different outlook? Doubling growth in AI was your previous forecast. Does that remain unchanged? Intel announced a strong performance. Non-AI may also be an area to pay attention to, and including non-AI area, what is your vision in the medium to long term? At least as far as until the end of this year is concerned, our outlook remains more or less unchanged. At least it is not deteriorating, and so it is not unchanged in the good sense. As for next year onward, I believe strong momentum will be maintained. Thus, as soon as possible, we would like to increase our internal capacity to capture that stronger momentum. As for non-AI, it's not glamorous, but certainly it is increasing, growing, and we expect this growth to continue.

It is true for power, but

memory interface also is one of the driver for profit where we can enjoy the benefits. So we would also like to make sure that we capture that benefit. Overall, I think we are similar to our peers. In the near future, we expect a strong momentum and Because of that expectation, we will need to expand capacity. Towards next year, supplier partners from Taiwan that I've mentioned earlier We would like to increase capacity further. We are discussing with them as such and so we believe we will be able to secure a necessary capacity. I I expect a strong growth in a step function way in the third quarter and also next year. Thank you as a follow up. Do you have outlook about share? The digital power memory interface, do you expect any change in outlook in positive or negative sense? In memory, in the positive sense, we do not expect any change, especially Gen 5 and beyond. We believe we are in a good position. We would like to maintain that good position. As for AI power, I have been discussing this on numerous occasions. We would like to maintain or share or increase share, but in the short term, There is going to be a large competition, so we should not become complacent. I believe that is the best way to put this. Thank you.

Thank you.

Next, from Citigroup Securities, Fujiwara-san, please unmute and proceed to your questions. Thank you. This is Fujiwara from Citigroup. I have two questions, please. First, related to automotive. Earlier, Shibata-san said that automotive mix may change. The other day in Europe, EVs are selling, increasing in volume, and due to the changes in the energy prices, EVs are now gaining traction, particularly the battery-powered EVs are rising. Generally speaking, battery cars and EVs believe the semiconductors are used in large quantities. So for Renesas, the fact that EV is growing, what does it mean? But your company's exposure to EV is not that significant. But with the change in the mix for your company in the medium to long term, is it going to be a tailwind or is it going to be a headwind? That's my first question, please. In comparison to the peers, we do not consider it to be a tailwind. There are two factors to consider here. First, we have power discreet, but we do not sell this in large quantities. So SIC, MOS, companies that sell such products would be directly impacted more by EVs and BEVs in a positive way. That's the first thing. And the second thing, I believe last year or the year before that, from that timing, in a continued manner, this is something we've talked about. As for our share of microcontrollers, as a fact, in terms of EV, our German competitor has higher share. And this situation is expected to continue for some time. As I've said before, of course, we are implementing certain measures and we expect the results of those measures to be realized going forward. But in the short term, for the next quarter and the quarter before that, there are timing differentials. So with a shift to BEV, we do not expect any negative impact on our on our company alone, but in comparison to our peers, our growth rate would be muted. That's all. Thank you. This is my second question. Now, you made a decision for large investments in capital expenditure, Naka, Saijo, and Kofu. I have a question for Kofu Factory. so far we have not seen the introduction of the mass production phase with this capex i believe that this is mostly for digital power now you have a visibility to the start of operations at kofu factory and once the operation starts i believe the cost would also increase so how should we interpret the pnl impact a pnl impact will be explained by shinkai Yes, we do have a visibility as to the operational start at Kofu. This is going to be 300 milli. What used to be 8 inches products are using 8 inches, so we'll run the lines. So the line change, the running change is something customers do not readily accept, but we will expect a gradual shift and we do have visibility now. As for the impact on P&L, Shinkai will explain. With the investments that I've covered, the actual start of the production is expected to be FY2028, and the depreciation will start from the time of the start of the production. As for the actual depreciation amounts, the back-end and the intermediate process investments are not yet determined. So the finalized amount will be determined after determining these other processes and investments. I believe the CapEx 94 billion, and you mentioned about 80% of that is for capacity expansion. Just to get a general idea, what would be the allocation to each factory of this investment? Shinkai-san, please. Well, capacity expansion is 80%, so that would be about 77 billion yen in investments for capacity expansion. About half of that is for Kofu, over 20% is for Naka, and around 15% is for Saijo. The remaining amount is for the back-end processes. I see. Thank you very much.

Thank you very much.

Next, from Mizuho Securities, Yamamoto-san, please. Please unmute. This is Yamamoto from Mizuho Securities. Thank you for taking my question. I also have two questions. In the second half, I have a question regarding automotive. Shibata-san said that demand aside, including energy cost increase and consumption were mentioned as concerns, but memory purchasing may be also a difficulty for how long inventory will last, maybe concerns for Tier 1. In terms of procurement of raw materials, is there going to be impact in the second half of the year to 2027 in terms of impact on the production of automobiles? Do you have any concerns? Since last time, personally, my view has not changed so much. It is a concern, but it's not materializing. And is this going to be a large impact? I believe have a sense that it will not be a large impact. DRAM oftentimes is highlighted, but not only DRAMs, but for example, PCBs on which devices will be mounted, but PCBs, for example, are in shortage. Because of short supply, it is not possible to produce That is a possibility. But if I may repeat, many people are anticipating this and they are taking preemptive measures. So I do not think that there will be too huge an impact. That is my take at the moment. Thank you. My second question is about price increase. About five years ago, I believe a surcharge mechanism was adopted for the incremental cost. The price will be increased so that margin will not deteriorate for Renaissance. I believe that type of price increase was implemented. But oftentimes, American companies also say that because of higher wage price increase, is on top of the increasing cost and a gross margin as a result will be higher in comparison to before the price increase but which approach would you be adopting it may be difficult for you to discuss this but to the extent possible if you could share your thoughts on this it is difficult to say on our part we would like to do what is best for shareholders and customers, what is reasonable for shareholders and customers in terms of pricing. As for surcharge method, it is difficult to implement this in reality in many respects, so we would like to have a more clear-cut way to adjust price.

That is all.

Regarding automotive, you may have long-standing relations with your customers. Since the days of the former renaissance, you may not be able to increase price so aggressively, but acquired companies, the business of formerly acquired company may have the leeway to aggressively increase price more in IBU. Can I have such expectation?

We do not make such distinction anymore.

In the short term, if we do something radical about price, Of course, no customer would like to see that. We would like to be sincere and I think we focused primarily on customers when we try to be sincere, but we would like to be sincere vis-a-vis customers as well as vis-a-vis our shareholders when we consider price. I hope that answers your question. Thank you very much.

Thank you.

Next, Semicon Portal Tsuda-san, please unmute and proceed to your questions. This is Tsuda from Semicon Portal. Thank you for this opportunity.

Regarding AI and data center,

You mentioned the digital and power products as products for these applications. You have power and you also have driver. You have analog, you have MCUs. So this digital power signal chain exists in the company. Are you referring to that? Or what specifically do you mean when you say digital power? Thank you. In principle, basically what we mean is using digital technology to manage and control. That's what we mean. I think it's a strength of Renesas that you have everything covering the whole range. So are you going to sell in a bundled way? Right. So we have the controller using digital to control various devices or components. And also for designing such products, we also have the environment. This is what is unique characteristics for us. And in recent media reports, finally, NVIDIA's strength CUDA is now highlighted in more occasions. Of course, those in the industry have been aware of this for quite some time. For our digital power as well, it's the same kind of differentiation as that. For each individual device performance, of course, we work to further improve and enhance that But more so, we focus on the use of these devices. That's where we find attractive in our solutions. We provide solutions that are attractive in the usage. I think a 48-volt DC is currently selling. Yes, of course. We also, within the grid to core, from grid to core, including GPU, we cover the whole range. We originally focused on core, where devices actually operate, but then we've expanded gradually towards the grid, including the 48-volts So we are still in the process of expanding towards the grid. I see. So 800 volts that is currently attracting attention and you will eventually target that area of business as well. We already have solutions for that. Certain GPU manufacturer publication covers our solution. So we do have a full suite, but of course, we intend to further expand and innovate in terms of offering. So yes, your understanding is correct that we will be pursuing these areas going forward. I see.

Thank you very much. Thank you.

It is now a time to end the conference. We would like to end the Q&A session, but before we end the conference, final remarks by Shibata-san, please. At the risk of repeating myself, due to macroeconomic factors mainly, there are uncertainties, uncertainties remain, but despite these uncertainties, we also have several structural drivers. that are becoming more visible and in the meantime we would like to deliver as much upside as possible and we will focus on execution And if all goes well, we hope that we will have higher inventory next year and stronger expanded capacity to achieve further growth. I hope we will be able to realize that trajectory and we would like to ask for your continuous support on capital market day which will be held in about two months time I don't expect any major news but rather than providing simply an update we would like to have a good Q&A session a longer time for Q&A session and thank you very much for joining us today