Nidec Corporation (6594) Earnings Call Transcript & Summary

Now it's time for us to start the presentation on Nidec Corporation's financial results for the first half of fiscal year 2023. [Operator Instructions] . Presenting the company's financial results are as follows: Mr. Shigenobu Nagamori, Representative Director, Chairman and Chief Executive Officer; Mr. Hiroshi Kobe, Representative Director, President and Chief Operating Officer; Mr. Mitsuya Kishida, executive Vice President and Executive General Manager of AMEC business unit; Mr. Akinobu Samura, Senior Vice President and Chief Financial Officer. Mr. Masahiro Nagayasu, General Manager of Investor Relations and CSR Promotion Department. That is all. In today's presentation, these executives represent the Nidec Corporation, will provide outlook and details of the company's financial results for the first half of fiscal 2023. After that, floor will be open up for questions. This conference is planned to last until 11:30. Thank you.

Thank you very much for gathering at this conference despite your busy schedule. I am Kobe, the President of the company. Mr. Samura, will present our company's financial performance in detail for the first fiscal year 2023. and Mr. Nagamori will explain the details of the company's performance. Then the floor will be opened up for questions for us to be able to answer. Now Mr. Samura, please start your presentation.

This is Samura speaking. I would like to give you a brief outline of our performance for that brief period. If you take a look at the slide 3, First half net sales stood at a record high of [JPY 1.1607 billion] operating profit increased 21.1% and operating profit ratio was 10.0%. The first half of profit before income taxes increased 22.8% to [JPY 145.4 billion] and profit attributable to owners of the parent increased 22.4% to JPY 106.1 billion. When it comes to sales and all the operating related ratio were all record high. And now here this time, sales and other operating-related videos were record high as well. But annual forecast remains unchanged. That is all for me. Now I would like to give you the details of our financial performance for the first half of this fiscal year. Please take a look at Slide 4 of the document, 4 main business categories, when it comes to Small Precision Motor compared with Q4 of 2022 fiscal year, we hit the bottom there. And in Q1 and Q2 of this fiscal year, we made a recovery. When it comes to this particular business segment, we increased our prices and it was delayed. And this process was almost completed by the end of September. On a quarterly basis, we made a profit JPY 10 billion approximately. That's the type of structure of this Small Precision Motor business. When it comes to the sales, year to year JPY 360 billion in total. That's the target we need to go back to. And we are expecting to achieve that goal. There are some new products in this area. We like to grow this business with these new emerging products. With regards to Automotive business, I believe this is one of the most paid attention to areas. We have business strategy in place. We have changed it -- first of all, we have focused on certain countries, in other words China, we have deeply dependent upon the country so far. But now we have diversed our interest to Japan, United States and Europe, we have receiving many inquiries from these regions and countries. Recovery is the most important task that we have quite a few companies that are in deficit in comparison with us. The competition over products performance is not there yet. We are competing over prices in China. And these competitors are in deficit constantly while competing with us. Such a price-based competition is not something we are used to. It's not necessarily maybe healthy. We have been in a competition and sometimes some customers -- some competitors are enjoying 5% profit, others even more or less. We need to recognize values about our companies with each other, and that's the type of the competition we should be in. We launched a Gen1 in the past, and at the most they are at the breakeven point. Currently, we have not accepting orders for Gen1 products even though they do come to us. Basically, we elected chief operating profit ratio target of 15%, and we like to compete with other companies to be able to generate at least 15% operating profit ratio. I cannot give you any names at this moment, but in Japan there are some OEM manufacturers we are going to receive orders from an OEM manufacturer in the country. Instead of having many inexpensive products orders, and we have had productive production capacity with such a system in place, we won't be able to foresee much bright future. Therefore, we decided to decline in offers in expensive products, we would like to secure profit first. We'll actively forecast on generating profit. Starting next April, we're going to have NEP in Europe to be consolidated into our Nidec Group's performance. I'd like to give you figures in detail later in this conference. In addition, we have Japan, U.S., new customers compared with the current business partners, we have better unit prices. And we shouldn't generate any more deficit while we try to increase our production in order to continue to win going forward in the business. When it comes to performance, we are specialized motor manufacturer. Compared with other competitors' performance, product wise our products excel them. We are not going to discount our products anymore. Because when it comes to components that we use, we're going to use some of the components that are manufactured in China, it is okay according to our customers for us to continue to use China made components, but we need to make some changes for that too. And local production, local consumption is very important in China. When it comes to Japanese customers, they want us to produce components in Japan. So when the production size is right, we will produce those components for the customers in Japan. When it comes to United States, American customers, we will produce our components -- products in Mexico. It may not be right now, but in the future, we like to able to achieve the operating profit ratio of 15%. That's type of operating profit ratio that we need in order to avoid a generating deficit. We like to avoid negotiation for lower prices when it comes to our products. It has been 50 years since I founded this company. It has not been really profitable to be in such type of price reduction type business. We have never tried to reduce our motors prices. And all those competitors had to withdraw from the business. Because of that, we have been able to achieve profitability. Performance has not been so much of the focus, but the price has been people's focus. In such a market, we try to reduce our price to the best extent possible, we still needed to make money. If we cannot make money, we shouldn't be in such a business. Fortunately, we have some customers, having giving us inquiries, orders. And we have negotiated with our Chinese customers to decide on appropriate level of prices for us to sell our components to our customers. That's the direction we're going into. We are selling Gen2 and Gen3 prices. We're going to reduce the prices of these new emerging products that we will make sure to secure a healthy profit. We will review all the designs and everything else in our products. The performance will not be declined, but this is a very new market. At this moment, it is not wise for us try to reduce our price components and the product prices. In the end, in all cases, we have become the world's leading manufacturers and the details of this area will be explained by our Executive Vice President in this area. When it comes to Appliance, Commercial and Industrial products, I have purchased Emerson's businesses on 3 different occasions. We have launched a lot of reforms when it comes to people and others and top executives are there. We have a new business unit called ACIM and MOEN. Both of these business units are under my operation about past 10 years or so. And they all know due [Indiscernible] policy. And they have launched many new products, and they are enduring a very good profitability. They are making sure to achieve at least 15% [of operating profit] their management is very stable. And their profitability in Q1 and Q2, there are some seasonalities. Still, their profitability is going towards 15%. When it comes to Slide 24, this is very important for our future profitability. When it comes to large industrial motors here. This is part of the infrastructure business in the United States and other places. And many parts of the infrastructure is being replaced with new ones for the next 10 to 15 years. And these were originally built in 50 years and is time for replacement. On the other hand, we have some serious issues such as CO2 emissions, motor's efficiencies is in question. And in Slide 24 is the market, JPY 2.5 trillion, and that's the size of the market in industrial motors and others included in this market. Over the past years, I have research in this area. This is one of the most best areas that we are very truly best at. We have brushless motors, and we have induction motors, high efficiency motors are here, and they are now brushless already. Now finally, my idea is coming to reality. High-performance motors, now they are here. It has taken a long time, they are here. And SynRA is the brand that we have for this product. But 2 years ago or so, this was introduced into the market. In the United States, technology for innovation is already taking place, has received 3 major technological innovation awards in the United States already. And you can see the performance related to the differences between conventional and -- commercial motors and this one. And this is [45%] smaller than the conventional ones, as you can see, among other features. This area has had only 3% per year when it comes to profit, it's now up to 18%, you got [Indiscernible] in a small circle here.

And you will see the market environment here. Nidec has #4 in market share up until now. Now with SynRA motors being launched, I think we have been able to take away shares from our competitors all at once. And in FY '30, the market size is expected to grow to about JPY 5 trillion, and we believe that we will be able to take more than half of that market share. So the 18% today will increase to about 19% in margin. So the profitability of appliance and Commercial Industrial segment is increasing and becoming stable. And this is -- we're looking at this on a long-term basis as well. The induction motor market as for the -- they still have a very large size motors. [The Tesla motor] is using induction motor. And this is the conventional induction motor. So they're not using a very highly efficient motor. But with the technological innovation, I think we will be able to capture #1, overwhelming #1 market share in the world. And I think our profitability will exceed 20%. And it's already implemented in the market. So that is why with products that are actually monopolizing some of the markets in the United States, we are able to see further growth in this segment for appliance, commercial and industrial, and we will also enhance on profitability. The motor industry like I said for example, in the Infrastructure segment they use a lot of large motors. But there's a lot of energy, electricity consumption here. And with the size, there's so much difference in the market for induction motor in the world will change quite significantly. So for a Airlines and Commercial, especially for Industrial, I think the profitability structure would change quite significantly for the Industrial segment. So induction motor used to be cheap and because it's easy to build, and they thought it was good, but because efficiency is so bad. And so in terms of CO2 it's not compatible. So that is why the specification is changing. So there's really no choice, they are no longer able to enter the market unless you have that [IEEE] specification standard. And we are actually meeting all the way up to #5 [ IEEE ]. So the situation is changing quite significantly, and is not just improved sales, but also better profitability. And this is a very large change that we're seeing in the motor segment. And also this area, we're implementing new products like -- for example, the flying cars from 2026, we're expecting to launch this, and we have already placed order for the first manufacturer. This is [ JPY 250 million ]. I think this will come down to about JPY 2 million in the future. And also in terms of investment in this area, in India there's a very large plant. So I think there's a lot of confrontation -- to have confrontation in one particular country or region will pose a lot of risk in the future. So often if you continue to be a company with a great dependency on particular countries, and that's actually problematic. So we are looking at Vietnam. So the main stake will be in India and also the United States, Mexico, so there will be large investments in those regions, countries. That's the direction. So in the world, we want to spread out our production basis. And if this -- we're also seeing customers that want to have the manufacturing basis in certain areas. So the idle plants we're utilizing in Japan because customers want to have it built in Japan, and there's a request from customers asking for collaboration. So they are about 3 plants, which we are actually trying to resume in Japan. So we can see a lot of different types of risks in the future. But the company needs to make sure that we're able to deal with these risks. So whether it be a manufacturing basis or whether it be the sales spaces, we need to make sure we scrutinize so that we can mitigate risks in terms of manufacturing and sales. So this will be different from the way we have done in the past. And next is Machinery. Now we're -- this is affected by global trends. But we actually advanced into machinery tool. This most recent case will be Takisawa. We have actually did a tender offer to this company. And we're almost done with this. But most of the large machinery tools have already been included in our lineup, including lathe. And there's a little bit that we're still missing in our lineup, but we will try to add on to that and then we have a company called like, OKK. This used to be a company that wasn't looking at large losses, but I think Mitsubishi had acquired this -- I'm sorry, we have acquired this company, and we have been able to make a lot of profit like 18%, same with Takisawa as well. So we think that we can rebuild this company in the short term and generate large profit, and as for press machines, we have been doing it from before, but we're beginning to see increased demand, especially EV motors are very large, and therefore uses a lot of press machines. So this is in the machinery automation business unit. So we're looking at press machines, and also reduce [gears] and the robot business performance is not doing so well right now. So it's not as good. But the lines before and after the press process, we have acquired it with M&A. So we have been able to enjoy great competitiveness. So I would say the greatest challenge we face today is even for auto, the traction motor -- other motor businesses aside from traction motor is also doing well. It's starting to recover. So brake motors, power steering, they are also performing quite nicely, and we're beginning to see net profit generated and also -- and traction motor. This is about running. We need to make sure that our strategy doesn't go wrong here. And of course, in my past, my track record, I have never backed out of anything like this, especially at a degree like this. Whenever I started, I want to make sure I finish it strong. Of course, we have to adapt to the market and there's a way we need to compete according to what the market environment is at that point in time. But if we do that, we can be strong. So for Auto, I want to say [at the outset] that this year, as for traction motor, we are expecting to lose about JPY 15 billion on an annual basis. We already generated that amount on an overall basis. So JPY 15 billion by the end of this fiscal year in March, we will develop different types of models. So we are looking at a loss of about JPY 15 billion. We are estimating that. But with that, it doesn't mean that overall AMEC business will be loss at making. That's not the [indiscernible] because we have the brake motors and other types of motors from conventional business, which is generating profits. So I think we should be able to offset that loss of JPY 15 billion. And also another major change next year is that this year, we were expecting to be profitable in traction motors. But unfortunately, we are looking at a conservatively loss of JPY 15 billion, but next fiscal year. NPE will be consolidated. So my Vice President will explain a little bit more about what would happen to this.

So my name is Kishida, and I'm responsible for the automotive products business. If you could go back to Page 18, as we had explained earlier, at this point in time with regards to the China business, we're seeing a rapid price disruption. And so we are intentionally trying to restrict orders so that we can be more profitable, especially our joint venture partner like NPE and [Indiscernible] we want to make sure that we will accelerate our orders from our partners. That's our policy. And if you look at the current number today, how solid are they? So as of today, the firm orders, we have revised it to the firm order numbers. And going forward, we will do the same. We will be very severe with our forecasting, and we will engage in order taking from that. In 2025, that's the time in which the market will explode. And we still have time for that. So how are we going to really finalize our strategy for that? I think that's really critical. So from 2024, NPE's number will be added to our consolidation. So we're looking at and 1.55 and then this will go to 2 million -- 4 million and our target is to achieve 10 million. So there's no change with our target, but we want to make sure that we're profitable in the China business and accelerate order taking in Europe. And as for Japan, we want to make sure that we're able to increase business in Japan as well. So that's our target for '24 - '25. So if you could turn to Page 19. So on the monetary basis, this is how it looks. And when it's [indiscernible]. So from 2023 to '25. As for traction business, we're looking at flat. After 2024 fiscal year NPE will be consolidated into our group [indiscernible] we have going to achieve JPY 500 million, currently JPY 387.2 billion is in our target. And we're going to do our -- sending our motors into these vehicles. We would like to expand our sales based on the sales of these motors into these vehicles. And there are some reasons that this forecast is coming true. But when it comes to China where price competition is extremely tough, what we need to do is, we need to focus on production productivity, work productivity. In 2024 and onward, we're going to have a new joint venture with a new partner, supply of components to Europe is something we're going to launch as well, not part of this green section -- part of the green section on the slide. And external sales of the components. And that's another chance in business we would like to make come true. This battle has just begun. We are just a starting point of this battle. That's one thing that I like to reiterate here. And we have investment in research and development. Please go back to Slide 17, Generation 3 or Gen3. We have Gen1 and Gen2 in place, we are doing our business with these models, Gen1 and Gen 2. It's about 70%, and 30%, respectively, in our business -- automotive business. [During June next year], we like to launch Gen3 in the market. This is not really our random target of entering into business. This is in automotive manufacturing plan with GAC, our partner. Here, you can see the [indiscernible] model as 7 in 1 is what we're going to start our business with. 7 includes these 3 major components, inverter motor and gear. We have IPS included in it and PTC heater is also included in it. These are all heat resource related component. These will be part of our inverter. That's how it's called 7 in 1. ECU will be included in it. This is how we like to slash our cost as much as possible. As has been explained by Mr. Nagamori, we will produce and complete all the business for China in China. So this is a very important point, 35% of materials are for inverters, we need to reduce the cost for that. When it comes to our customers they are requesting us to use semiconductors produced in China for their products. So we have found the partners for that, so that we can develop inverters in China, so that we can produce Gen3 products in China with these inverters on. Net part of our additional research and development investment for this fiscal year. [Indiscernible] our profit and loss statement. That's one thing that I wanted to add, and that is all for me. Thank you. I would like to open the floor for questions, if that's okay.

Thank you very much. Now I'd like to open the floor for questions and answers. [Operator Instructions] Does anyone have any questions on floor?

This is Takayama, Goldman Sachs. My question is regarding China's E-Axle strategy has been changed, I believe. When it comes to Gen3, with the Chinese market going to remain unchanged, are you going to continue to have a price competition? Do you have any risk for any changes, do you have any ultimate form that you have in mind when it comes to these products that are used in China? What is the ultimate form going to be for these products that I'd like to ask you a question. This question to Mr. Nagamori on stage.

When it comes to the traction motor strategy that we have as a company; if we take a look back, we have made some mistakes. I'm not going to say anything about the people who are no longer with us. But back then, one of them wanted to take everything in his power to make decisions on the automotive business of Nidec. And diluting the responsibility was my mistake. When it comes to Motors, our company is the world's leading manufacturer -- motor manufacturer. We have processed new companies. Inverter is the critical component. We have made a major mistake in the inverter strategy. We have components from China. We have companies from Europe. We wanted to use those products in these regions in the country. We were performance forecast. If you disassemble these components, 25% profitability for [multiyear] 15% inverter, 25% to 30% in deficit that's the inverter. So it is clear that where we had a mistake in our strategy. It is not right to purchase other components to assemble these components into one inverter and that's not really meaningful. I'm talking about the Chinese market here. For Chinese customers, we should use all the China-made components [Indiscernible] can be reduced to a lower price like CNY 1200. That's how much you can reduce the price in China by using China made component. And we were given a permission to use China made components for our Chinese customers. There are some quality issues, but even if they happen that's going to be a problem for motor. Those are the problems with inventors, not with motors. We have a very good inverter manufacturer that is very reliable. And we decided to outsource the production of this inverter production. And their products are very inexpensive. We need to be a competitive -- we need to use competitive components in China. And that's how by switching the strategies like that we can increase our profitability. Inverter has a loss of 25% to 30%. [Indiscernible] the price was [CNY 2,000] but the additional costs are associated with such a problem. So far, when it comes to inverter business, we are yet to be capable enough to be able to produce inverters on our own. We cannot rely on ourselves to make everything, including all the invertor components and invertor itself. In regards to Japanese customers and the European customer, situation is different. They are practicing our products at a higher price than they do in China. When it comes to NPE, next fiscal year, sales are expected to be JPY 250 billion, including currency exchange rate changes. NPE does not say it is okay for us to use China-made companies for inverters. We can expect 5% to 8% operating profit ratio from the beginning NPE joint venture. And as the goal, the threshold that has been set between us and NPE. The price reduction aggressiveness doesn't exist in our European customers. They are willing to pay a price despite some problems that we face, same thing can be said about Japanese customers. People understand what products are suitable for them and what products are not suitable for them. So when it comes to performance, some customers are making -- used to make these products on their own. But they are now attracted to use our products because our products seem to be of better quality than theirs. It is not wise to do a loss-making business. performance has to be considered in a right way and price has to be set properly based on the performance. That's the type of customers that we are looking for. Still, the Chinese market is expected to grow even larger than it is now. There are quite a few Chinese companies there in China. And some of these companies are withdrawing from the market, numbers are rapidly increasing. We need to be very selective in choosing our customers so that we can increase our overall profitability. For some period, I believe it is okay to be in a deficit, but a long time deficit is not duly a business that should be involved in. That's not part of our Nidec policy. At least, we have many customers. In 2025 or so -- 2025 will be a critical point in my opinion. And then there is -- some customers are coming to us because their production was not really right. When it comes to 2025 after critical turning point. The first step is to secure a very healthy profitability. When it comes to power steering unit and brake motors, we have been in this business over the past 20 years. And among the manufacturers that are supplying these components, quite a few companies had to recall their products from the market due to some problems, but that's not the case with us. That has never happened to us at Nidec. We are reliable and our customers are not aggressive in price reduction on us when it comes to these customers. And we clearly state that we cannot do business with certain customers at the certain price range, if that range is not acceptable to us, we are making products to make the [Indiscernible]. Traction motors is the unit that make the car. It is for the car to be able to make very good turns. Generating deficit constantly is not really good at all. Sometimes you have an increase in production productivity or volume over the past 3 months or so. We need to secure profit so that we can -- it is not really my concern about receiving -- or being subject to criticism in the investors conference like this one. We need to see a profit. I'm not really answering your question at all, I believe, but that's what I want to say here in response to your question.

When it comes to Stellantis, you have referred to -- it says 8%, number here on the slide doesn't cover that much. What is the secured amount of money or profit and sales for Stellantis. And these are all in yen, Japanese yen; 120, 130 per euro. Euro is currently [150 per yen]. That's the difference in the current exchange rate. Can you answer the question [indiscernible].

This is Kishida speaking. I'd like to answer your question. [Indiscernible] currency. I'm talking about in terms of euro, 7% to 8% can be [Indiscernible].

Another last question. In FY '25, you said JPY 4 trillion, organic JPY 3 trillion. So without conversion of the China strategy you're thinking, if not here, maybe somewhere else, so you have it all built up. But whether it be ACIM or machinery tool, but can you tell me a bigger picture on how to drive to that number, which would compose what.

Well, so we have ACIM, large motors, so this will become a very big pillar for us going forward. I talked about the sales size, it's written here, but it's a very large market already. Infrastructure, it takes like 20, 30 years to change. So I know that we can expect large sales. And also as you can see from the market size, we have the 10% market share, and this increases to 55%, then the profitability also. Even if it's conservatively looking 20% in the profit margin, that's still a very large amount. But having said that, there's not that many companies that do large motors. So we will leverage M&A and this will become a very large and stable business for us, which we want to continue to grow. And application is wide range. So up until now, they said because it was bad efficiency, maybe there's thermal issues. And so they had all these problems, but if you have something with a great performance, then we will have expanded application. And this is a small market today -- it's not a small market, it's actually trillions of yen in the market size. And it has taken us decades to develop this, but we will have a new brand named SynRA that's the brand name. And we will market this around the world. And I know that this will sell well in Japan as well. We would like to take other questions. Gentleman from second row in the front.

[Indiscernible] Mitsubishi Morgan Stanley Securities. Kishida-san, I want to ask this question to you. With regards to automotive, you talked about specific strategy on Gen3. Now focusing on customers and you talked about 7 in 1. So next fiscal year, are you planning to introduce from June? Is it substantially like mostly 7 in 1? Or would it be concentrated on high-end cars, could you give us more color? And also, you talked about JPY 15 billion in losses. Is this JPY 15 billion in just all R&D, anything else in there?

Well then let me answer that question. So first of all, in June 2024, that's our target. At the beginning, will be 135 kilowatts. That will be the first Gen. It used to be 100 kilowatt. But actually, we're seeing better performance. So we're aiming for 135-kilowatt for luxury cars, so high-end cars that are planned. And after that, within [ GAG ], Guangzhou Automotive Group, we have received a lot of inquiry. So we will go -- start with Guangzhou now high-end existing Guangzhou Automobile Group, and we will produce at the joint venture basis, and we will supply that. So that's where we want to start with. So we will begin with the 135 kilowatt, but we will have 70 kilowatts as well. Now -- at this point in time, from [ GAG ], we have received orders from them. Aside from this, at GAG they have an ICE engine group company. And they are building hybrids. So as a hybrid motor, they're inquiring us about motors. And within the affiliate, there are domestic companies as well. So we're starting dialogue with them as well. So we should be able to disclose them when the appropriate timing comes, and we will do so. And the second point about the JPY 15 billion this year, this is a very large downward revision. And we do feel the responsibility for that. However, we talked about how there's a rapid price decline. And as Mr. Nagamori said we -- the moment we think is a surprise decline of destruction, then we will be defeated in this competition. So even if there's a price decline, there's not much history of that being recovered. So the price was declining. There's -- every generation with the development of this new generations, we will need to accommodate this decline in prices that's an environment we need to compete in. So Gen 3, we'll be able to accommodate that decline in prices, and that is why we're adding on this R&D cost in order to accommodate that. And last year, we had JPY 30 billion in losses this year. Even on our own, we are generating about JPY 1 billion in losses. And we are adding on R&D cost. So that is why we will be booking JPY 15 billion in losses for this fiscal year. So this is organic plus R&D in JPY 10 billion or so. So this is a natural cost increase. Is this because of inverter in China development? Is that very big inverter? Yes. And other than that, we're trying to accelerate some of the developments as well. What we call it as inverters, it's not just the control type but also because we're implementing 7-in-1, we have this new IPS. This is a new type of control circuit for processors, so we are also looking for partners, and we want to try to accelerate that process, so we can complete this by this fiscal year. Nidec mobility, which Amaron has talked about. We are specializing in converters -- they specialize in converters, and we want to collaborate with them, and we want to do joint research as one Nidec. And then in terms of inverter, one of the challenges is that there is a lot of electronic components that we will be using and being able to deal with the pricing -- price issues, you have to be able to have a certain level of volume. Otherwise, you will not be able to keep the cost -- the price down. So going scale is important. And so for example, there's a power source manufacturer in China, and they use a lot of the components. So maybe we can associate with them. That would be, price-wise, maybe decreasing 30%, 40% or so. So as long as we're not booking losses with inverter, then we're able to make a profit from motors and gears. So we need to also polish up on our inverter technology in the meantime. But if you look at the companies in the West and if you look at the semiconductors and manufacturers in Japan, to be honest, I mean, they can't really lower the prices. That just doesn't become cheap. So in order to compete against this price competition, we have to buy from someone who actually produces at the cheapest price. So in whatever we can, we will do so. But with regards to chips, you can't immediately produce this in-house. So up until now, we have tried to produce everything in-house. But in order to go to producing chips. At this situation, the investment amount is quite large. So we may need to leverage the power of third party. It's completely different. We say -- there is manufacturers as we say 2,000, they say 1200. So that is why -- what happens is that we all end up with components from China. So Chinese companies do purchase it from us. But -- with regards to the Japanese companies and the European companies, maybe they think it's a little too early in stage. So we have to separate it by customers. Also from one development. If you need to make a drastic change, I basically tell them not to do anything like that. You have built the base and you modify slightly and have someone else purchase it because otherwise, you can't make a completely new development every time. Because right now, even nothing is free lunch and still be expensive. So -- in order to -- we don't know if that company could survive. So we have to basically cut business with unprofitable customers. just because we want orders, we don't have to do like go purchase -- take orders from everyone. And this is because the management was coming from outside the company, and that is why they used to think that way, but we need to eliminate that kind of thinking, we have to be profitable in our order taking.