Renesas Electronics Corporation

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Thank you very much for taking your precious time to attend RuneSys Electronics' fiscal 2026 third quarter earnings call. We thank you very much indeed. For today, simultaneous interpretation is made available. Please click the interpretation icon at the bottom of the screen and select the language of your choice. Mr. Shinkai, please turn your video on. Today's session is attended by our CFO, Mr. Shuhei Shinkai, as well as other staff members of the company. After a few words from Mr. Shinkai, we would like to provide you with explanation of the third quarter results, which will be followed by a Q&A session. We expect to finish the entire session in about 60 minutes. The materials to be used for today's presentation is already posted on the IR site of our corporate homepage. Mr. Shinkai, please turn your microphone on and begin your presentation. Thank you. I am Shinkai, CFO of the company. Good morning to you. From this time around, the earnings call update method was reviewed. In June of this year, at the Capital Market Day, I met the long-term business direction and strategies as well as the aspirational financial targets were presented to you in a comprehensive manner. So the progress of those long-term things will be explained during the full year of earnings call also at the Capital Market Days from Mr. Shibata. But the recent or the quarterly performance of the company will be explained mainly by myself. So please be aware of that. Now, if I could begin the presentation using the presentation slides. But before that, in the third quarter of this year, I would like to just briefly talk about the highlights of the third quarter results as well as the outlook for the fourth quarter. The first third quarter actuals with the industrial infrastructure sales came in higher than the projected numbers. On an actual back-to-back basis, without the impact of forex, it was a 1.18% increase compared to the plan. As for the third quarter, on the 1st of July, the timing business was transferred. We completed that transfer. So the gap-based operating profit, we recognized the proceeds from the sales of 450.3 billion yen. For the third quarter, on a Q&Q basis, Excluding the foreign exchange impact on an Apple-to-Apple basis, 4.2% Q increases was recorded. The details was driven by the growth of automotive, SOCs, and also the fourth generation took off, started off, and also the MCU 28mm adoption spread. So that was also a factor, and also industrial infrastructure continued to be strong. The fourth quarter outlook, so if I try to summarize for the full year of 2026 on a year-on-year basis, 26.4% revenue increase is expected for the landing. There is also foreign exchange favorability, but on a year-on-year basis, a 20% increase is expected for the full year. Now, for the mid to long-term aspirational targets, towards these goals, we will continue to grow. and we are also tackling to increase the production capability. The in-house production will be expanded through capital expenditures. In the third quarter, fourth quarter, we will continue to make those capital investments. So now I would like to go into the explanation using the presentation slides. Now, if you can go to page three, this is a disclaimer here. As I said at the outset, on the 1st of July, the timing business was transferred, so those were excluded from the non-GAAP numbers, and the GAAP-based third quarter numbers recognizes the proceeds from the transfer of the timing business, the gains from the sale. The fourth page, the third quarter actuals are presented here. If you look at the shaded part on the left, those are the third quarter, so if you can look at that, For the revenue, 435.2 billion yen, gross margin 59.4%, operating profit 150.5 billion yen, operating margin 34.6%, EBITDA 173.4 billion yen, and profit attributable to the owners or parent 125 billion yen, foreign exchange 161 yen to the dollar, 185 yen to the euro. As always, the timing business, excluding all that, the year-near comparison excluding timing business is presented on the right-hand side of the screen. And then with the third quarter, there was one of accounting-related factors, so excluding that. We wanted to show this apple-to-apple as much as possible so that we can explain the real strengths. So excluding the foreign exchange and the one-off factor, If you look at the second column there, that's already presented. So it's the one that says that excluding foreign exchange and also the foreign exchange impact and also the one-off factor. The Chip and David transaction related adjustments are this one-off factor. The Chip and David. We have made a quotation for the provisions and then Based on the actual sales to the customers, we have settled that. So we have changed the methodology for the quotations. So that's the reason why we have decided to make this adjustment one-off here. The number was quite significant, so that's the reason why we have decided to exclude this as a one-off factor. And so it's just a technical adjustment. If you can look at the next page, this is the comparison vis-a-vis their plan. Revenue, gross margin, and also the OP margin. I would like to explain them one by one versus the plan. If you look at the column versus the plan, revenue was plus 1.2%. However, on a like-for-like basis, it was higher. So it came in higher on an Apple-to-Apple basis, higher than the plan. But because of the foreign exchange impact and also the one-off factor, those factors are canceled out each other. Now, the actual demand, 1.8% incremental revenue. If you look at the actual demand, automotive compared to land was slightly higher. Infrastructure, IoT, industrial and IoT was higher. So therefore, the mass majority came from the contribution of IIoT. And then there are three major factors here. Data center actual demand increased and also consumers and also the back end supply improved. Therefore, we were able to have an increase in collection. And also as for the mass market in the industrial sector, AI and semiconductor related demand increased. So those were the three major factors behind this upside compared to the plan. Now as for the gross margin, Thank you. and also the supply improvement. That was the factor behind the revenue improvement. And so likewise here, the digital power Thank you very much. The growth margin, the upside factors for the growth margin was the same here for the OP margin. And there were increase in expenses, but the increase in the revenue. So those canceled out each other, more or less. The decline was the decline of expenses due to the freezing or the review of the hiring plan. AI infrastructure investment inside the company and also the increase of the SDI related provisions offset those favorabilities. So the actual landing numbers came in more or less in line with the plan. And if you look at the right hand side, on a Q and Q basis, gross margin was more or less in line with the projection. and also for the operating margin on a Q&Q basis, we anticipated an expense increase and we landed according to the plan. By segment, IIoT on a Q&Q basis, there has been a significant increase as you can see here. But when it comes to the gross margin, foreign exchange and mix was also a factor. And also for the operating profit, the scale increase was the major driver behind the good performance. If you look at the next page, this is the quarterly performance of the revenue. Overall, year on year, 30.2% increase on the Q&Q, 7.4% increase. The numbers on the brackets are the actual Apple-to-Apple excluding a 4-1-0 factor in a foreign exchange, 22.3% increase year-on-year, and 8.6% increase quarter-on-quarter. The next page.

Inventory. Left-hand side is the DOI. and Kyonkyu, third quarter, work in progress and completed is increasing and Daibank increased and production increased too and work in progress also increased. These are the major factors. Fourth quarter, quarter on quarter, there is increase to be expected. Daibank and production capacity, fulfillment by which work in progress will be increased. and fourth quarter has inventory increases to be expected. In addition, on the right-hand side, sales channel inventory shows third quarter Q&Q or inventory increases and auto and industry has been increasing in inventory. On the other hand, for automobile, more than the assumption, the sales through is increasing. So for fulfillment, it's not so large. But it is been increasing as a trend. Fourth quarter, channel inventory fulfillment is to be continued. For auto, as mentioned at the beginning, 27 nano and ALCA mainly will be fulfilled so that demand fulfillment preparation will be made. For industry infrastructure, data center is still at low level in inventory levels, but in actual amount, it will be increased, and we will work on that. Next page, please. So, capabilities and utilization. Front processes, wafer. Third quarter is as assumed. Kawashiri plant, earthquake impact, wafer input had been... The impact is very small and it is 59%. As a result, the fourth quarter expects some increases. On the right-hand side, there is a capex situation shown. Third quarter has MCU and local government power to be increased in production and in-house factory utilization increases and R&D investments that have been in-house which is 111.2 billion yen to be fixed and increases in production is 80% of overall for MCU domestic Naka plant and for power mainly for the post-end process for Malaysia factories to be handled for increasing production and domestic side job factory where production will be increased and the post-process and interim processes is where it will handle those processes. The third quarter continues for AI infrastructure post-processes mostly and In-house factory capacity increases will be worked on. Next page. Fourth quarter and full year forecast. For the fourth quarter, on the left-hand side, there is a shaded portion to be referred to. Revenue and profit, 454 billion yen for revenue and ratio. 58.0%, 32.0% for OP and Forex dollar 157 yen and Euro is 178 yen expected. Respectively, the contents will be explained. Revenue 454 billion yen is shown at the center. UNU on the right-hand side is 29.4%. Q and Q is 4.3% of increases expected. Q and Q, 4.3% will be explained where yen appreciation factors and third quarter one-time factor may be included. But excluding that, it will be around 4.2% of increase to be expected in revenue as written at the revenue, excluding Forex and one-time impact. This 4.2% Q&Q increase for the revenue for data center and industrial increases are mostly the portions for automobile 27 MCU deployments and Japan Gen 4 deployments are the main drivers for the growth. Gross margin 58% is QonQ 1.4 points decrease to be expected. Yen appreciation and mix and production expense increases are included. More than 50% is mixed factor and the remainder is forex and production expense increases. For the production expense in capex, as has been explained, gradually there is more investment into production increases, so investment-related expenses in the fourth quarter is increasing. Year-end maintenance is also necessary, so repair works. Thank you very much. IT and AI infrastructure to be prepared for and investments for that are necessary and R&D investments. There are some seasonal factors where it concentrates towards the end of the year and other portions are also included. Kyonkyu operating expenses is increasing thereby. At the bottom, there is the sensitivity of Forex. Fourth quarter, forex sensitivity has it where 1 yen, 1 dollar to yen fluctuation and impact to operating profit is shown. In dollar case, it's 2.2 billion yen and operating profit 1.1 billion. In euro, in sales, 0.2 billion and operating profit impact is 0.1 billion. So dollar 100 and euro 120. means the performance forecast 32.0% is 26.2%. In addition, for the appendix, please jump over to page 17.