Trend Micro Inc S/Adr

I think before I dive into the future strategy of Trend Micro, I'd like to spend a little bit of time talking about software value in the Gen AI era. Since Trend Micro is one of the large software companies that originated from Asia, of course, this affects Trend Micro a lot. Software at the end, the value usually generated by doing three things. First, collect the data. Second, organize the data so that customer can see the data and generate business intelligence for customers. But in the GenAI era, these all three steps will be changed. First, if your data is just very standard external defined data, then certainly, GenAI can do it much better. And also, with the unstructured data that can be consumed by GenAI, I think the traditional entering way of collecting data will be obsolete, of course. The second step, Organize the data. Of course, Gen AI will flatten all the data, break all the data silos, connect them all together, can generate and organize the intelligence much better than the traditional way. And the third layer, if you are just providing the business intelligence, intelligence is not anymore the most important thing because it can be generated by the AI and therefore I think in the future the value of a software company really defined by all these three things First, the data you are collecting must be specifically about the customer, fit into the customer's special environment and special need, such as Fortran micro security data. We need to collect all the have the sensor and collect all the desktop telemetry, server telemetry, network telemetry. All of these are specially about the customer's special data. Those internal data collection is most important. And secondly, you need to organize it so that the customer can easily assess it with natural language or natural interface that customer can understand their own better better and lastly the most important part is your data your information is support for the customer to make the best decision and best decision is different from each of the customers. It's not necessarily there's a universal best decision for all the customers. And therefore, the value of the software is specialized in customers' data collection, data organization, and specialized in helping customers to make the best decision for themselves. And that is the value of the future. As you know, Trend Micro as a cybersecurity company, we actually have been moving to AI security. AI as our platform to develop the best business support decision for cybersecurity. And the fundamental of that, as you can see in this page, this is, we call it the digital twin for cybersecurity. customers or the sensor collecting all those cyber security related specific data for the customer organizing into a can be simulated into a customer's information flow digital twin and customer therefore imagine that When they need to do pen tests, they need to know their cybersecurity exposure, then they can use this digital twin to simulate the attack and seeing what is the real response on the digital twin, how their cybersecurity posture is, and therefore can proactively provide the best security for their their real environment that kept on changing. And those cybersecurity decision, best decision for finance sector or for manufacturer sector are quite different. And therefore, we believe cybersecurity is going to be dominate and very important software value that is going to be exist and even more important in the Gen AI area. So that's our view of cybersecurity software value in the Gen AI area. Now, I'd like to take a little bit time to talk about more of Trend Micro. Since Trend Micro last year, We already see that need for specialized in different area to create that specialized customer cybersecurity decision support. That's why we reorganize our company into enterprise segment that is trained ai that specialize in enterprise cyber security trend life will be specialized in consumer and software business and then we also have big one which is specialized in the physical ai security and lastly we also work with winstrom to to establish a new company called magnet ai that would help customers to establish their ai operation securely and more starting to rewrite their ai application so i'd like to go into this financial report by all these three three areas that we are focusing on. So first of all, Trend AI, I believe the enterprise business, as I say, our competitive edge is that we can use digital twin for cybersecurity to personalize or customize for the customer environment. And then we use our specialized cybersecurity intelligence to create the Cybertron SLM specialized language model together with the agentic AI we can help customers make the best cybersecurity decision and going forward can also help them automate and save their efforts on their cybersecurity practice. So for Trend Micro, I would say we take not only we redesign our product platform, but also we are reorganizing our GTM, go-to-market strategy. So there's three big things that we are doing in our go-to-market. First is our fragmented platform and product need to be organized. And because this type of point product sales create a lot of product silos and also very heavy price competition. And therefore, we believe we need to reorganize this into a new go-to-market strategy, which is lead with Vision One as the AI security platform and integrate with agentic SIEM, vulnerability management, exposure management into a unified platform go-to-market strategy. That we will start very focused on executing debt starting 2026. And actually the platform way of selling, we already starting. And right now our vision one platform sales already about 38% of our total revenue into 2026. we believe we will continue to grow our vision one platform strategy and platforms way of selling and early quarter today we're seeing that already our vision one is already about 41 percent of our total trend ai arr so that is the first one first of all lead with the vision one platform way of selling that's the first change in our GPM. The second one, in 2025 and before, I think our biggest challenge is that in our go-to-market organization, our incentive structure is tied to the gross sales. Gross sales means total gross sales or post the whole for sales margin. And that's why our sales force are diluting their focus on the platform-driven growth. Going into 2026, our go-to-market strategy will change to adjust our incentive to prioritize our annualized year one sales and reducing our unnecessary discount and creating more durable revenue and managing core value of the platform. So the indicator we are using is that we want to make sure that our total multi-year product sales are focusing on the year one value because before because of the growth sales when multiple year deal was supersized the deal but also taking heavy discount. But now, by changing this type of compensation strategy, we believe we will correct our sales behavior. And early quarter today, the progress is that our multi-year impact is starting to decline. And now it's at 17% before in 2025. that impact is about 38%. But now we already seen that we are correcting all of this sales compensation and getting more healthy in our sales behavior. So that's the second one. The third one is very important. It's before Trend Micro is selling by license-based pricing. The license pricing is driving deep discount and also have a lot of procurement friction. Customer has, whenever they want to buy a new module from Vision One, they will need to go through all this procurement again and therefore I think it's a very important thing that starting 2026, we totally changed our Vision 1. The Vision 1 product strategy is going into the Flex program, which means that they buy a total amount of, we call it credits, the credits they can use, and then whenever they want to deploy, they consume all these credits by allocating them to specific product or modules they want to use. This way, we believe Trend AI Flex program will drive predictable spending for customers and scalable consumption and also reduce the procurement friction in customers. So that is a very important change and we believe that will help whole trend micros go to market much more smooth and have much more predictable spending. So early quarter today, the progress we're seeing that is Vision One average ARR. Already, we've seen this average ARR continue to grow. And for Vision One, that is our per customer average ARR before was 35.1K and now already growing to 35.5K in the early this quarter. And compared with non-Vision 1, the average ARR is 5.4K, as you can see. different than what before those are the three very important change go to market change and we believe we are on the right pace and train AI will be using all of this new platform and new platform way of selling to progress and produce more value for our customers so that's train AI and Moving to consumer, which now we call it trend life. Trend life before, the challenge is that the softening, because our original product mainly focused on antivirus for consumer business, but softening in PC sales leading to less security need and therefore our value was diminishing. But starting last year and progressing to 2026, we're seeing there's a new need, such as customers' digital life protection, including anti-spam, not anti-spam scheme, which is a biggest money loss from consumers' business. And also the usage of AI and how to use AI safely to help their digital life quality. I think those are the new areas that trend life will be focusing on. Therefore, now we are already seeing that in 2025, our digital life protection increased now to 36% of our total sales. So we are starting to migrate our revenue to digital life protection rather than pure antivirus protection. So the R pool for this digital life protection is two times higher than the antivirus PC attachment type of revenue. So trend life is also early quarter today. The progress we see is that digital life protection continue to grow And now it's at about 45% of our total trend life sales already. That's trend life. Another trend life is go to market. A very important thing is that we are moving on to more of the we try to manage the customer trend and reduce the trend by focusing on digital life protection and increase auto-renew, auto-renew opt-in. We're starting to see auto-renew has two times the renewal rate than the manual renewal. And therefore, new customer in auto-renew is increasing 11%. since Q4, 2025. So early quarter today, also renewal rate also improving and it's now sitting at 73% of the renewal rate. So on trend life, I think all this auto renewal upping and also the digital life protection value is going to make trend life revenue continue to grow. Now move to our newest startup, I would call, the one that we cooperate with Winstrom and with utilizing a lot of NVIDIA's technology. We established a company called Magna AI. Magna AI is focusing on help countries, government, big enterprise globally when they want to utilize establish the ai application and we help them to establish all this ai application ai infrastructure safely securely because this is a very different sales motion when customers are setting up this sovereign ai and ai new application it's not about buying a software and install it like like before all this cyber security is you need to design your data flow your architecture everything securely and that's why we starting to we take the chance to work with winstrom one of the big AI infrastructure provider and working with NVIDIA and other NCP players to form this Magna AI. Early indicators, we already have several very big MOUs that were signed at Riyadh and at Malaysia. And also we are working in Taiwan, a lot of this type of a big deal. So those are the big initiative, but Trend Micro is using this chance to make sure that we can provide secure AI infrastructure and secure AI application for our customer. That's Magna AI. And big one is established three years ago, and now it's focusing on not just the vehicle security, but also all the robots or all the physical AI cybersecurity. 2023 to 2025, the problem solution bit is the major focus. But in 2026, big one is going to get into growth and expansion. So we already seen we have the secure robotic solution and working with all this vehicle company and also the robotic company to provide the embedded cybersecurity into all of these new AI robots and AI-driven car vehicles. That's big one. So overall, these are Trend Micro that we are working on 2025, our 2026. Our growth target for the overall Trend Micro is we want to have ARR 13% growth. net sales nine percent growth and our operation income will decline by two percent but as you can see where do we spend the money first in trend ai because we believe this transition and this is a great growth area and therefore we spend more time more money on to trend ai enterprise sales And trendline, actually we are optimizing and we believe we can increase the operation income by 1%. But a lot of those investment and cost increase is mainly on Big One and Macadam AI, where we are investing on new market. And that's why in 2026, We believe Trend Micro is going into the growth and we will deliver the best cybersecurity value for our overall different type of enterprise, consumer, and the new AI infrastructure, sovereign AI, and robotic AI, all those cybersecurity coverage for all our customers. Looking forward to a good year in 2026. Thank you.