Renesas Electronics Corporation (6723) Earnings Call Transcript & Summary

[Interpreted] Hello. This is Shibata. Last week, after the earnings call, once again, thank you very much for giving us your time this today. There was a sudden change in the speakers. We're so sorry for this. Today, originally, Mr. Yamamoto of the automotive business unit, he was supposed to speak today, but due to private reasons, he is going to be away from the company for a short period of time. During this period, as we have introduced, Mr. Maoka and Kataoka, will be leading the automotive solutions business unit. And today's presentation will be delivered by these 2 gentlemen for the automotive strategy update. We appreciate your understanding. Now I would like to begin for my part. In the first half of my presentation, the medium-term strategy that we introduced in February, we will talk about the progress ever since. That is going to be the update to be provided in the first half. And then in the second half of the presentation, in the last 6 months, and it's only 6 months, but the environment surrounding us has changed dramatically. So I'll talk about the strategy adjustment or the directions that we are going to make going forward due to the impact that we have seen in the last 6 months. So I'll briefly talk about that in the second half of the presentation. So first of all, as you can see here, this is the result of the first half, which was already covered last week. So this is just a reminder. Then more important is the indicators for the future, which is the design-in, the progress of the design-in, the deals that we have been winning. What you see here is the D-in actuals for last fiscal year: automotive, over JPY 4,000 oku; and for nonautomotive, slightly less than JPY 6,000 oku was the actual. But after last year, the rules or criteria by which we record the design-in has changed compared to before. It has been made more precise. So based on the new criteria, criteria, especially the industrial infrastructure and IoT, I think the actual for last fiscal year would have been smaller in reality. So based on that, but even so, this fiscal year, we set a larger target for this fiscal year compared to last year and vis-à-vis the target. In the first half alone, the actuals for the first half, as you see, which is represented by the light blue and the light pink part, I think that is self-explanatory for automotive already compared against the target. Close to 80% was already achieved in the first half. And for nonautomotive, by and large, roughly half of the target has been achieved in the first half already. Again, at the risk of repeating myself, for good or bad, from around February, March, the environment surrounding has changed dramatically, and face-to-face meetings with clients have suddenly become difficult. And all of a sudden, people are not coming to the offices any longer. So this is a major change in the environment. But despite this change compared against the target, we have achieved a very favorable progress in design-in, which I believe is a very good development for us. But there's just one point that I wanted to note here. For the design-in of automotive, because of the nature of the deals, there are limited numbers of deals and the single size of a single deal is quite considerably large. So whether we are able to acquire those deals and depending on the timing of winning these deals, it's not going to be a linear increase. There's a great probability of fluctuation for the automotive. So even though I said that 80% was achieved in the first half, it doesn't indicate that if things stay on course, we are going to achieve 1.6x of the target for the full year. So please be advised of that when you look at these numbers. But by and large, I would say, given the environment, the first half results were quite favorable for us. Then from here, I would like to talk about a little bit of the specific measures that we have been implementing in order to drive revenues and win in the market. Let me give you some actual examples to explain to you what kind of progress that we have achieved so that you can have a tangible understanding. First, in automotive. I'll be using these 2 slides to explain the automotive initiatives. For the first thing, in digital, scalability would be the central piece of activity in order for us to win deals. Winning combos on the right-hand side, that's how we call it. This is the combination of original Renesas digital devices, combined with the analog technology that we have acquired through the acquisition of Intersil and IDT, which will be offered as a solution. I think you recall that we have discussed that scenario before. And for the digital area, these numbers are already included under D-in, but we have successfully acquired a large deal, an ADAS deal from a major Tier 1 or OEM in the world. And on top of that, although the size will be somewhat smaller, but health care will have a size of more than JPY 100 billion or tens of billions yen. We have handful of sizable opportunities in SoC and MCU. Around a few opportunities are in the funnel, and we are pursuing this, and then we hope that this will manifest itself as orders in the second half of the year. On the right-hand side, the winning combo solutions, with these solutions, as we have aimed, we have successfully got a deal from the Great Wall Motor of China and another major OEM of India. In India and China, OEM are directly involved in the device selection. So although they are both OEMs, not -- as opposed to Tier 1s, we were able to acquire this deal, a quite sizable one from these OEMs. The winning combo approach, eliminating the hassle of design-in on the part of customers, are well received by those emerging market clients and has led to the acquisition of orders from these clients, which I believe is a major development for us. And another slide for automotive. In the winning combos, in the second quarter of this year, for sensor signal conditioner, a new winning combo using sensor signal conditioner was released in the market. And the next-generation sensor signal conditioner is currently underway in its development. And once this becomes available in the market, the winning combo itself will have higher accuracy and enhanced capability. So that version will become available in the future. And the bottom left, I'll come back to this topic later. But especially given the changes in the environment, from the drivers' viewpoint, easier to understand, our value-added is now drawing attention, and that's what we're focusing as well. So in that context, the wireless charger inside the vehicles are similar to the approach of the winning combo, combining digital and analog. We are providing reference designs and promoting these reference designs. And even in the automotive, we already have achieved a track record of design-ins. But with these turnkey reference designs, we would like to further accelerate this momentum. On the right-hand side, radar-LiDAR collaboration is progressing at a favorable pace. And if you look at the bottom right, positioning sensors as well. The development is also underway at a favorable pace, and the industrial version was released in June. And the automotive version is also planned for release before the end of the year. The next -- using the next 2 slides, I will talk about industrial, infra and IoT, the strategy thereof. In the industrial area, digital products, just like automotive, scalability will be the centerpiece of our lineup for us to differentiate from the market. Again, like automotive, in the first half, even despite the harsh environment, design-in has made a good progress. And the RZ/A Series at the bottom, the previous embedded AI was the main promotion that we have promoted significantly in the past, if you recall it. So we talked about the 10x, 100x and 1,000x performance from the -- compared to the first version in our road map. And the bottom one is the 10x version. We have acquired lots of D-ins for this series, and the 100x version, this performance device was also completed recently. So with this, the first design of this product was acquired. So using these devices, the end point becomes possible. So integrated with camera with that interaction with the cloud, inside the camera alone, the AI-enabled solutions and processing will become possible. So as you can see there, the thermal camera through recognition, crowd monitoring, all these applications are likely to adopt this technology going forward and especially for the first case. One of the very important customers for us, Casio, we have engaged in a different collaboration with them. So as a design partner, we are going after solutions jointly, and we have successfully moved along with us -- with that path. So not only that we are making good progress in design-ins, we are now exploring a new approach with our partnership with customers, and that's delivering quite good results. So I just wanted to give you an example for this new approach to you today. On the right-hand side, the HMI solutions. I'll come back to this topic again. But contactless applications are now seeing a rising demand significantly. In this environment, of course, in addition to the touch solutions that we have been providing from before, the voice user interface solutions have been enriched, and that's what it talks about here. Of course, naturally, we are going to further enrich the offerings going forward in a scalable manner. So starting from the very simple solutions, VUI, all the way to a very complex solution that can handle natural language communications, we are going to offer a wide range of reference devices and designs going forward. And for the nearer term, revenue, especially in the infrastructure, 5G, as we have explained during the earnings call last week, in the first half, this is about the revenue and the sales. The first half revenue was 80% higher compared to the same period of last fiscal year. Data center, again, on a year-end basis, we have achieved a 20% growth, a significant growth. And on the right-hand side, IoT. Many different initiatives were concurrently promoted. Especially in November last year, we introduced and released our first ARM-based microcontroller. And of course, as a matter of fact, in this first half compared against the same period of last fiscal year, 8x the number of D-ins have been acquired. So this is a very fast takeoff. I think Sailesh will give some additional comments later on in his presentation. The low pin count MCU, the release to the market has been making very favorable progress. And in a third box there, connectivity and cloud partnership, these are also making a very good progress, including the collaboration with Microsoft Azure, a software-centered out-of-the-box solutions are now being promoted, and also with an Australian company, NFC-based collaboration is also underway. And with 3db, UWB solutions are also making a very good progress. That's what I wanted to introduce in this box here. So with that, with those developments and the preparation of solutions and which -- and some of them have gone to the D-in stage, and again, in the first half, despite the changes in environment, we achieved a very favorable progress. I just wanted you -- to share this information with you. And then next is the synergy with IDT. I just thought that I should give you some more updates. So that's the reason why I prepared this slide. As you may recall, in February, the actual for last fiscal year was $85 million in savings. That's represented in the gray bar there. And the target for this year is $80 million. But since $85 million was achieved last year, we thought that we should seek a higher number. And the actual turned out for the first half, $62 million was the actual saving already achieved in the first half. And based on that, we made an estimate for the full year and gave an update here. $120 million is the current estimate, and we are making a very favorable progress. And more important is the top line and synergies that are making contributions to the revenues. Let me talk about that here. What you see here on the screen is the exact same picture that I have shown you in February last year. Based on winning combos, design-ins amounted to USD 129 million, and the number of new customers amounted to over 11,000. In the first half of this year, the actual turned out to be -- this is not the cumulative number since last year. This is only the actual for the first half alone for this fiscal year. And the design-in amounted to $357 million, and the number of new customers amounted to over 20,000. In this regard, too, we are also making a very favorable progress. And now the details, what kind of progress have we made. This is also another slide that illustrates so that we can give you a more tangible understanding on the progress that we are making. What you see here, the slide here, of course, we reshuffle the order of presentation, but basically, the information listed here is unchanged from February. 101 winning combos have been prepared. That's what we have shown you in February. And now today, as of today, the number has risen. As you can see on the top left, over 160 winning combos have been developed. And in particular, automotive takes time for the development. And of course, Maoka will explain during his presentation. But on a cumulative basis, 19 different solutions have been developed already. So this is a very solid growth, and we would like to further accelerate this momentum going forward and try to deliver results as quickly as possible. So with that, I said the design-in is making favorable progress. The development is also making a good progress. So as a result, the target model, of course, Shinkai-san will give more further color during his presentation. But as a matter of fact, because it's only 6 months since we released this information, we don't have any intention of changing the target model. That's what I wanted to convey here. But the target itself, I just wanted to give an update of the current state of progress vis-à-vis the target. If you refresh your memory, the target was set vis-à-vis the market growth. That's how we set the target originally. And compared against that, what you see here in this slide shows the meter. The meter is the absolute growth level compared against what we had projected before. So that is the comparison with compared to before. And naturally, because of the dampening of the automotive market, the automotive market has been plunging, so I think it's going to take time for recovery. I would say, 2 years. So in terms of absolute growth, the automotive is likely to grow slower than earlier projected. On the other hand, industrial, infra and IoT, in the absolute growth level, we believe the growth will be faster compared to what we have predicted before. Then what is most important is the -- our target of growth vis-à-vis the same as market -- relative growth vis-à-vis the market. For automotive, remain -- this remains unchanged. It's the same. And for industrial, infra and IoT, we are expecting faster growth compared to the market. That's the recent assessment. So compared to what we had explained during February, as of today, we have, I think, a better leeway for the attainability of the target. But of course, this is subject to fluctuation after all. So the model, therefore, remains unchanged from what we have presented before. Okay. Now I'll go into the second part of the presentation from here. I will talk about the strategic adjustments for the future. Due to COVID-19, I think it's very easy to understand. But those changes that we had anticipated from before, those are accelerating and happening before than what we had earlier projected. The most typical examples would be contactless and digital transformation. And of course, there will be implications made there. But within the industry or between industries, the winners and losers will be more conspicuous even more than before. So with that, the structural change will occur in within industries and the power balance between industries might change. And in automotive and for nonautomotive, what kind of implications will this have? That's illustrated in this slide. And as I mentioned earlier, in automotive, the ADAS and autonomous driving, not only that, but driver-appealing features will become more -- receive more attention. And I think that is going to be increasingly the case going forward. And of course, EVs will increase in number. And of course, this might be contradictory to the first point. But as we become more articulate, the traditional technology may survive and be used for a longer period of time in some areas. Then on the industrial and the infra and IoT side, of course, this is very easy to understand, the enablers of remote activities, i.e. the applications, the VRs and handheld devices and sensors, those will see increased demand and the contactless applications will proliferate further. And the third point may be an ongoing trend, but compute and in communication infrastructure will see continued increase in demands. From here, I'll use 2 slides each for automotive and industrial and talk about our strategic implications that we are currently foreseeing to give you some additional information. So for automotive, what's written on the top here is the areas that will accelerate due to COVID-19. So within our customer universe, there are some customers who opt for more technology integration to be done by themselves. But on the contrary, there are some other groups of people who would like to leave all these technology integration to the suppliers. So that demarcation will become more conspicuous going forward. That's how we wanted to illustrate. The darker ones show those group of clients would like to have a tighter control of technical integration by themselves, and the light gray part shows the kind of clients who like to incorporate those technologies off the shelf. So for those customers, as we have discussed, the winning combos were the centerpiece of solutions that we are going to provide to those customers to -- who would like to use the solutions provided by solutions, we'll be appealing to those customers. And here, the direction remains unchanged because this is -- there's a conspicuous trend, especially in the case of digital. Kataoka-san will explain later in more detail. Especially for those customers who would seek tighter technology integration, for those group of customers more than ever, scalability will be promoted strongly as we offer devices in the future. And from that context, the last time we said that we'll be using applications in order to show our strength, but -- and we were not really sure about IVI and decided to reshuffle and move our resources to ADAS. But in the last 6 months, we have implemented many different initiatives. And the R&D allocation and the cost control, I think we have reassured you with the cost allocations, but I think we are now more agile than before and skillfully operating our business. And so therefore, in terms of device, we can have enhanced scalability in our offerings. So we have that clearly, a path when compared to before. So we have decided to once again include IVI again with SoC and MCU and have a complete set of complete scalability offerings to our customers. That's how we adjusted our strategy. So then with that, what kind of picture are we going to explore in the future? I think this helps you understand the direction for our future. So that's the reason why we have prepared this picture. I don't intend to preach on the bidder, but the horizontal line at the top shows in the computer world, the vertical integrated world was there. But of course, due to Microsoft and Intel, a horizontal slicing structure has emerged as a result of Microsoft and Intel. And then also in the smartphone industry, the same thing applies. Google Android and Qualcomm, with these players, the horizontal slicing structure has emerged. But there's one exception within that environment, which is Apple. In the PC world, in the PC, they are going to prepare their own silicon, but also for smartphones, the silicon included, Apple is now seeking a vertical model and have engaged in platform business. What is going to happen in the automotive world? We have made an analysis ourselves. I believe an Apple-like model may occur in the automotive sector as well because the industry is much larger in scale and the complexity is also very complex. So it's not going to be only just one player. So in order to compare with Apple, we have a -- gave a fruit icon, and there will be several players. So an Apple comparable player will be pursued by a limited number of multiple companies. So centered on these customers, the scalability solutions that we are going to provide that we have illustrated in these -- the previous slide. In the vertical platform business, we are going to offer these products. That is the model that we are going to go after from the capacity as a semiconductor player. In the automotive industry, I think there are semiconductor suppliers who are making recent announcements, on the right-hand side, as you see there. Of course, these players will have a different approach. They are going to seek an approach similar to Intel, Qualcomm in the PC, in the smartphone business. And of course, there are customers who will seek those approaches. But of course, there are other customers with a certain scale and continue to grow according to our forecast. So our focus will be on the latter. We will attach a focus on the latter vertical platformers. But still, it doesn't mean that we are not going to address the needs of horizontal platformers. We are going to provide solutions to them as well. So long as there is a need for us and demand for us, we would like to provide our device and solutions to all customers, but the strategic focus will be attached on the vertical platformers. That is going to be the transition that we are going to make. Now as for industrial, infra and IoT strategy, there's no major change in the direction due to COVID-19. All these familiar applications will enjoy a stronger tailwind due to COVID 19. That's how we view it. Of course, there are some specific and concrete examples, especially for the near-term data center, DDR5 and 5G applications. Those will be explained by Sailesh later in his presentation. And more recently, the recent trends will be also introduced by Sailesh in his presentation. So therefore, it's not going to be a directional change. All these applications that we had anticipated will enjoy even a stronger tailwind compared to before. So as a result of that, for all these areas, by and large, all these areas are going to enjoy a tailwind. So the middle column shows the speed of growth that we had anticipated before COVID-19 in a symbolic manner. But by and large, these will further accelerate going forward with one exception, which is the smartphone. Because this is affected by the design-in cycle of a major customer and also in the first half, the smartphone market has seen a contraction in demand. So this area will show a different behavior. But other than that, I think all these sectors will enjoy a tailwind generally. And a very interesting trend is the surveillance and VUI opportunity. And also the satellite communication, the demand for satellite communication is going to increase. And therefore, the rad hard technology is now seeing a very strong increase in demand, which is a very interesting trend that we had not anticipated before. So in the interest of time, I would like to summarize and wrap up my presentation. What you see on the left-hand side, these 3 statements is what we had informed to you the last time in February. We have a very good portfolio. And with this portfolio, we are ready to address the high-growth market. And we will emphasize on delivering results. That's what we have informed you back in February. The technology portfolio is still valid. Our technology portfolio, I think, in the new world, will enjoy a very good strong need. We have a good portfolio to be ready to address the needs in the new world. And the markets that we are going to approach remains unchanged. In automotive, infrastructure, IoT, that remains unchanged. But still within the automotive, we are going to address the applications that are easier to appeal to drivers. And for IIoT, the new sectors that I mentioned, the handheld Satcom, those new applications, we will attach a stronger focus on those new applications. And at least for the last 6 months, although that's a very short period of time, we are -- we have been able to execute on track. So as I mentioned during the last time, we would like to make our users' and customers' and ourselves' lives easier. That's our ambition. With this, I would like to finish my presentation. I would now like to hand the baton to Mr. Shinkai.

[Interpreted] I am Shinkai, the CFO, and the finance part. In the Analyst Day in February, we unveiled our financial -- target financial model. And I would like to give you the update after 6 months and the initiatives that we have undertaken. The target financial model, first of all, as Mr. Shibata mentioned, this is underway with target intact. So we are going to keep this unchanged. To give you a reminder, this model is based on the actual fiscal 2019, adjusted with the ForEx and the discontinued business. So the 2019 adjusted, the left-hand side, this is the launchpad, the starting point. And based on which, the automotive is going to achieve same growth level as the SAM. Industrial, infrastructure and IoT, a relatively higher growth level. And therefore, overall combined for corporate, we are going to aim for a higher than SAM growth rate. Gross margin at the middle, 50% for the corporate; and operating profit margin, 50% -- 20% for the corporate. In the last 6 months, despite the changes due to COVID-19, given this change is taken into consideration, we believe the target model can be reasonably maintained, especially the top line growth. I will leave the BU heads to talk about the details for their revenue, the top line. So I would like to talk about the factors that will affect the gross margin and operating profit, i.e., the SG&A. And also, the objective of the target model is the shareholder value and enhancement. So therefore, I would like to also talk about the deleveraging activities. First, about the gross margin. The left-hand side shows the plan as of February and the right-hand side shows the prospects as of today. The left-hand side, this waterfall chart is based on the 2019 actual converted into run rate and 45% is the gross margin, the starting point. And with the 4 major basic point building blocks, we would like to achieve the 50% target. And the right-hand side shows the current prospects. The time frame that we had anticipated in February is the criteria based on which we have made in prospects. So the timing of emerging effects, if it's going to be happening before or after, depending on that, the effects could be larger or smaller. So that's how you should see this table. Starting with that bottom block, which is depreciation, this is on schedule. This is likely to happen on schedule. Structural reform. In May this year, we decided to withdraw from the compound business and decided to shut down the compound line. Because of the suspension of the production line, fixed costs will come down, and therefore, the structural reform is going to happen earlier than expected. Therefore, this box is assessed as pull-in. The 2 boxes on the top, due to COVID-19, the market itself is -- the automotive market is going to slow down. The impact of the automotive slowdown are divided into these 2 boxes here. First, the product mix. For automotive and industrial infrastructure and IoT, the absolute growth will be different between the 2. That's how we see it. So for industrial, infrastructure and IoT, the faster than market growth is currently estimated. And therefore, as we said in February, the Renesas overall portfolio transformation is going to make progress faster than expected, and that is going to have a positive impact on our gross margin. And therefore, in terms of product mix, this is a pull-in. And finally, volume scale. In order for us to achieve the target model, operating revenues, we wanted to have until -- a plan that is not dependent on the operating net leverage. And naturally, because the automotive market is growing slower than expected, net profit growth due to the scale expansion is going to slow down. Therefore, this box is going to be pushed out. But overall, this push-out will be offset through the product mix and the structural reform pull-in. And therefore, that's the reason why we believe the 50% target is still valid and achievable. Now about the SG&A outlook. The left-hand side is the planned number on the right -- as of February and the right-hand side is the outlook as of today. The plan as of February, this is just based on the adjusted for 2019. And on an accrual basis, the SG&A will be improved. And then after that, regardless of the revenue growth, we are going to maintain the actual level. And therefore, we plan -- and thereby, we would like to maintain and dilute the percentage of the SG&A vis-à-vis the revenues. And the current outlook is illustrated on the right-hand side. On the logistic cost, due to COVID-19, we have seen a significant increase in logistic cost for the short term, and this is going to be a headwind for the time being. For the medium term, we would like to simplify the logistics flow, reducing the number of stock points and reduce the cost of maintaining inventory. And by this, we would like to catch up with this delay. But on the other hand, due to COVID-19 and geopolitical reasons, customers' supply chain will be diversified. And without becoming more redundant, we cannot rule out that possibility. And therefore, overall, this block is expected to be a push-out compared to our initial assumption. Then the IT spend, Renesas, Intersil and IDT, all these former 3 companies' ERP will be integrated and -- to achieve cost benefits. And this is going to be a medium-term cost synergy. And as of this point, in addition to the ERP system, the peripheral system is also being integrated. And by doing so, we are expecting a larger-than-expected cost reductions, and this is, therefore, a pull-in. On other SG&A spend, due to COVID-19, the new normal is going to accelerate. People are now working from home and have new options of work styles, and that trend is accelerating around the world. And therefore, Renesas is also going to review how to use office spaces, and we will reduce the office space. And for the important locations, we will upgrade the locations so that we can provide an optimal environment for our employees in the new age. As a result of that, this will allow us to save costs, and this is going to pull in due to COVID-19. And therefore, this block is considered to be a pull-in for us. So overall, we are going to improve the actual cost and the cost reduction is going to happen earlier than expected. Therefore, for operating profit margin, this will have a positive impact. That's how we see it. Next, deleveraging target. Again, the left-hand side, the chart there is the plan out of February. First of all, if you look at the red circle there, this is the target for December 2020, 2.5x of net debt, which we believe is a very tough target to achieve. But beyond that, December 2022, less than 1x of net debt level. Because the SG&A growth is going to slow down, we believe we should maintain this target unchanged for the actual initiatives. For the bottom line, SG&A is going to be reduced and the work -- through inventory improvement, the working capital and also disciplined capital expenditures, through these initiatives, we will like to achieve this target. That's our aspiration. Especially, the absolute amount is very important. So revenue growth is going to be a very important lever. From that perspective, the second point, the working capital management. Further improvement is currently underway. Specifically, [ tie ] bank and order link is expanded. In other words, the inventory will be kept at a chip level without the asset being assembled, and we will just assemble it after the order is placed, and we are going to increase the number of products that will be covered under this approach. Financially, this will allow us to reduce and curb the inventory level at the monetary basis but be able to increase the inventory on hand in terms of quantity, minimizing the opportunity loss for sale. So at the end of the day, we believe, although this is challenging, we are quite cautiously positive about the attainability of the target of the net debt level for 2022. Finally, for the summary. Revenue remains unchanged. Overall, Renesas, we would like to achieve a higher-than-SAM growth. Gross margin remained unchanged. The impact of the slowdown of the automotive market will be offset by the solid prospects of other businesses. Operating margin, because of the SG&A, is going to come down at an accelerated pace. So that will have a positive impact on the operating margin. Deleveraging, this remains unchanged. The target, although it is a stretched target, we would like to maintain this target impact. The COVID-19 impact has a very big -- has had a very big repercussion on Renesas business, and that will continue to be the case. But financially, COVID-19 is not only about the negative impact. This has also brought about positive impact as well. So taking the opportunity of this change, as we have mentioned during February, I hope that you'll change how you view the company. Industrial, infra and IoT is quite powerful, and we have a relatively stronger company than before. And if you -- I hope that you will change your views on the company. For us to achieve the target model, we would like to deliver results in a step-by-step approach. And I hope that you have -- keep high hopes on the company. Thank you very much for your attention.

[Interpreted] [Operator Instructions] The first question is from Citigroup Securities. Mr. Fujiwara, please begin the question.

[Interpreted] This is Fujiwara from Citigroup Securities. Can you hear me?

[Interpreted] Yes. I hear you.

[Interpreted] I have 3 questions. First of all, regarding the industrial, infra and IoT, I have a question. You decided not to change your medium-term model. But in the second quarter results, the gross margin and the operating profit margin is already achieved by and large. So over the medium term, I was wondering if you have any upside in mind. Going forward, the profit margin improvement, is that going to be a focus of business management? Or rather, because you have -- already have a very good margin already, are you going to make R&D investment and go after scale while maintaining a certain level of profit margin? Is that your priority? So can you comment on which approach are you going to take going forward?

[Interpreted] This is Shibata. I would like to answer your question. For IIBU, a more balanced approach is what we are going to pursue. We will maintain the margin and the spend will be tightly controlled and 6% to 8% growth is what we are going to aim for. We don't have any plans to change anything. As we mentioned during my part, the design-in, for the next 5 years or so, so long as we secure JPY 6 billion worth of design-in per annum, this growth rate is likely to be attainable. So that's what we -- that is the model of fall-through from design-in to revenue, so the JPY 6 billion for this year's target. As long as we are able to constantly achieve that number, the margin will be maintained and be able to achieve a top line growth. That's how we see it. For automotive, I think Maoka-san and Kataoka-san will explain later. We don't have any intention of sacrificing the margin at all. Of course, margin will be a priority going forward. But relatively speaking, top line growth is more emphasized. That's how we see it. And from that perspective, the gross margin and profit margin is different depending on the device. So previously, it was difficult to focus with power [ cloud ] discrete. For those products also, in the new management team since July of last year, this is now a priority area for us. So we would like to achieve a profit margin and achieve absolute amount of profits. And as far as gross margin is concerned, we are now taking a more balanced approach. So the growth is the focus. That's all for myself.

[Interpreted] The second question regarding the automotive business. In Shibata-san's presentation, at the outset, you said that in the first half, you are making a good progress in the design-in and the applications are also very important. But in the first half, the design-in activities, can you explain the reason why the design-in is making so much progress in the first half because the automotive sector due to COVID-19, the release of new car release is now getting delayed. So despite an environment, how have you been able to -- why are you able to achieve this good progress in design-in?

[Interpreted] I thought I had made an explanation during my presentation, but one big business, if that happens, the numbers appear in this way. So it's not that we have seen a major sea change in the market environment. It just happened to be so that a major client and a big opportunity, this just coincided to happen at this timing. When you look at the other opportunities, as you rightly pointed out, the pushout has happened in some cases. So it's not that we have taken something structurally different and achieved this number. But on the other hand, the acceleration of design-in, high-quality designing -- design-in to be accelerated, for that purpose, we have already started taking internal measures. Up until last year, we focused on the quality of design-in and that was a major focus of the company up until last year. But this -- starting this year, we are now taking a more balanced approach. So we are also trying to take in the quantity of this design-in that's already included in one of the KPIs. And we are monitoring the design-ins and deploying them horizontally. So we are trying to build up all these successful cases. We have established a central team for that purpose, which is led by a non-Japanese employee. And with this, all these opportunities that are not focused by the sales reps, like if you go after MCUs, there could be some power opportunities, and those could be horizontally deployed. By running this cycle on a weekly basis, we shall be able to achieve followers. It's not a big sizable opportunity, but these small opportunities are accumulating in number. And so these are [ DCD ] D-ins are now accumulating. The single opportunity is not that large, like in the billion dollar. So the accumulation for the 6 months is not going to be that sizable, but the pace of accumulation is quite favorable. So in 1 year's time or 2 years' time from now, I think this may appear as a structural change. That's how -- that's the expectations for the company right now.

[Interpreted] The third question is about your financial model. The SG&A, you are seeing great opportunities for upside in SG&A savings. I'm not really sure if you can comment on the specific numbers, but how much exactly? In absolute amount of reduction of SG&A, what is the target that you're thinking?

[Interpreted] And that can be explained by Mr. Shinkai-san.

[Interpreted] Okay. The -- in terms of absolute amount, I think the size would be good enough for us to achieve the target for this fiscal year. Originally, in the improved level there, with that level, we were achieving -- we were aiming to improve the SG&A level to over -- slightly over 10%. And then as revenue grows, we wanted to reduce further SG&A ratio to less than 10%. So in terms of size, that is the size that we are expecting. I think that you should take it that way.

[Interpreted] The next is from UBS Securities, Yasui-san. Well then, we'll go to the next questioner first. Merrill Lynch Japan, Hirakawa-san.

Hello, can you hear me? Hello? Can you hear me? [Interpreted] This is Hirakawa from Merrill Lynch. I think I am able to -- I was able to unmute my microphone. Can you hear me?

[Interpreted] Yes. We hear you.

[Interpreted] I have 2 questions. Today, you talked about your design-in. I have -- my first question relates to the design-in. You said that you are making a favorable progress. In the first half design-in that you acquired this fiscal year, what was the percentage of winning combos among the total design-ins? Can you give us a breakdown for the automotive and IIBU, the contribution of the winning combos? My second question is also related to the first question. In your automotive strategy, you said that you are going to focus on scalability products for the automotive and especially for the vertical platformers, but you're also going to go after the horizontal platformers as well. But the focus is the vertical platformers. The winning combos are also making successful results in the new opportunities. So what is your view regarding the roles of the winning combos in the automotive opportunities? That's my second question.

[Interpreted] As we presented in the previous slide, winning combos are making a very favorable progress, and we would like to, of course, promote this further. But still at a stage, this is only at the early stage in the first half, roughly JPY 350 million is the number. And in the first half, the design-ins, as I said for the IIBU, it's about JPY 3 billion. And for automotive, JPY 4 billion, slightly over JPY 4 billion, so JPY 7 billion altogether. In light of that, it's only about 5% all combined. So it's very small still at this stage. And also for ABU, automotive, the winning combos are quite small in scale. So the percentage of our design-ins of winning combos is very limited in terms of the total percentage. Of course, naturally, automotive takes longer time for the lead time. So we cannot help this. But the curve of taking off is not really bad at all. That's how we see it. And for winning combo and the -- vertical platforms and scalability, I'm not really sure what was the right expression. So that's the reason why we chose this expression bidimensional. So that means we are going to address both. The required talent and the way we sell products are different between the 2. So there's no problem addressing both opportunities in that regard. To step in further, the winning combo solutions does not cost us so much either compared against the digital scalability opportunities. It's a very light investment opportunity, the winning combos. So in that regard, there are not so many restrictions for that matter. But what is most important is raising the priority in our behavior and the mechanisms and tools that will make us easier to sell the winning combos. Maoka-san will explain later. Previously, people talked about that Renesas has good devices, but -- and I hope that Maoka-sans' presentation will explain this very well. But I think that people are -- we would like to make people realize that Renesas is now at last delivering all these solutions and mechanisms, and we are now at last providing all these mechanisms. So we would like to attach us a proper attention and make it easier for customers to use. We would like to increase those winning combos. That's the emphasis that we are currently promoting right now. This relates to the improvement of the IIBU winning website. So those are weak points of Renesas. At last, the companies are now taking a serious attention for these matters and implementing initiatives so that we can move forward. That's all. Thank you.

[Interpreted] The next question is [ Eva Linney, Tuohy Adviser ].

Can you hear me?

Yes. I can.

Okay, great. Shibata-san, so I have 3 questions on my hand. The first 2 are related to your product and technology because it sounds like you're progressing really well in design-in. But it really doesn't come as clear as I would have expected, like with what products are you winning the design-in? As you have some support, the winning combo is still a small portion. So I wonder what are the major products are you winning design-in for? For example, is it an SoC? Or is it like your traditional MCU product? And also, do you have any visibility regarding your market share, say, 2 to 3 years later based on your current design-in? That's the first question.

[Interpreted] Should I answer in Japanese? Okay. Then I'll try to answer in Japanese.

Yes, sorry I could not speak in Japanese. Sorry, I could not.

[Interpreted] I'll answer in Japanese, sorry. The status of design-in and market share, that's quite different between automotive and nonautomotive. So I'll try to differentiate the 2. That's very important that you separate the 2. And I hope that you also deepen your understanding on the nonautomotive. So I'll start with the nonautomotive. The winning combos are still limited, but analogs has made the biggest progress in terms of design-in. In terms of application, I think you will be convinced. But the data center, power management, chip solutions and also the -- and I think Sailesh will cover this later. But in relation to data centers, the memory interface is also enjoying a high growth. And 5G-related are also enjoying a very strong growth. So analog accounts for the biggest bulk. Next is in terms of the growth -- pace of growth, the fast growth came from IIBU, auto SoC. Compared to before, it's different in that it's more like an MPU focus. And MPU standard products are being promoted so that we can sell them in quantities. And also for ASICs-related products, the decision is made on a case-by-case basis. So long as we are making a profit, we will sell them. So this is also a bidimensional approach, so we articulated the approach. And with this, we have been able to secure a lot of design-ins, which resulted in a significant leap in the first half. And as far as analog is concerned, I think that they account for 1/3 or 1/4 of the total design-ins. What lies in the middle is the microcomputers, MCUs. MCU is still limited in scale, but the ARM-based RA at last has started to take off. And even in this environment, compared against last year, design-in is growing. And in the second half, this momentum is likely to continue. So on a full year basis, I would say, roughly JPY 150 billion or so, slightly over that is the estimated size of design-in. That's our expectation. So overall, across many different areas, I think we are making a very good progress overall for nonauto. For automotive, again, at the risk of repeating myself, we've already achieved 80% in the first half, but please do not take it as it because otherwise, the view could be distorted. So we have to be careful here. On SoC, we talked about over JPY 1 billion already. But those -- we had a very big one shot order, and the MCU, also large-scale prospects are also coming in one after another. So compared against analog, digital, the analog is quite limited. So SoC is predominant there and followed by MCU and analog power are the areas that we are going to further increase going forward. That is the picture for automotive. For market share in the IIBU part, they will talk about MCU. And in the automotive presentation, not the share itself, but ASP discussion will be covered. So I'll leave the answers to those presentations that will be following after this.

Great. Thank you very much. And second part is regarding if you're winning share or you're winning big orders for your SoC product, I feel that has to say that the value-add for SoC is actually smaller. I'm understanding it's quite higher than MCUs. I'm wondering what is the reason behind it. Like is there any technology breakthrough you have there or some kind of solution you have -- like you have that makes you stand out versus your competitors? Especially when you have many Internet players in the SoC field like NVIDIA and Intel, just how do you compare yourself in terms of technology solutions with them?

[Interpreted] This will be explained during Kataoka-san's presentation in more detail. So I'd just give you a very brief introduction. Roughly speaking, it's about how old is the software is and how old software can you use. And of course, there are so many applications out there: IVI, ADAS and gateway. There are so many applications. So within that, the fundamental part of the software is quite common across different applications. So the device -- do we have a device lineup that allows the reuse of these things and of course, the device itself, power consumption and performance and, of course, prices? The balance thereof will be the area that we will like to achieve our differentiation. And I think we have been able to achieve the differentiation. Kataoka-san will explain later in more detail.

Great. And then my final question is regarding your production inventory. As your inventory is always a -- staying handy around our Renesas, so I wonder, can you just quantify what kind of targets you have regarding both in-house inventory and channel inventory? Like what approaches have you taken or have you communicated with your dealers to achieve that target?

[Interpreted] That will be explained by Shinkai-san.

[Interpreted] First of all, the on-hand inventory, the target for that roughly is as of -- the number for last fiscal year, that's the baseline. The channel inventory, this had to be divided between automotive and nonautomotive because there, the numbers are likely to behave differently. By and large, 10 weeks or so is the base that we are looking at. Of course, depending on our relations with the supply chain and the channel in the future, especially for automotive business, a more careful study will be needed. That's all for myself.

[Interpreted] Thank you. In the interest of time, we would like to finish the first Q&A session with one final questioner. The next question will be from Mr. Itaya of JPMorgan.

[Interpreted] Can you hear me?

[Interpreted] Yes, we hear you.

[Interpreted] I just have one question. Regarding your design-in amount. In reality, what percentage of those design-in will lead to after orders and sales for non-auto and infrastructure and IoT? Based on your historical level, what is the percentage of achieving sales out of the design-ins? Based on the 2016 actual study, auto design-in was about [ JPY 7,000 ] according to your disclosure. But compared to before, the current design-in, is that now currently based on a different criteria? So how much will that lead to actual flows in the future? Can you share that information with us?

[Interpreted] Well, depending on the content in detail, the situation varies. So it's just a rule of thumb. And of course, this changes over time. But as of this point, according to our current internal rule of thumb, it's about 60%. So 60% of these numbers will translate actually into revenues. That's how we see it. And that is our projection. But for industrial, infra and IoT and automotive, the criteria of calculation are different between the two. For automotive, as I mentioned earlier and as you pointed out, historically, very bullish and strong numbers where the central criteria for us to see is things in the past, as we have discussed previously, and it just could be so that we are once bitten and twice shy. But for automotive, this is quite a discounted number. From design-in all the way to revenue, the yield of that is about 60% according to what we see. But the design-in numbers that you see here in itself, at the end of the day, could potentially be larger than what's written here. So we have made a very hair cut projection here according to what you see on this chart. So the haircut is a very careful observation which is different from before. And previously, although nobody was wrong, in cases, we have been providing deals to multiple Tier 1s, while they were after only 1 single OEM. So even though the designing for 3 companies were actually linked to only just 1 prospect. So therefore, we decided not to repeat that mistake. So we have to look all the way beyond the Tier 1s and calculate the numbers. That's how we are doing things right now. So not only from the prospective numbers we are taking a conservative approach in the haircut, and also we're looking into the actual context of the project in calculating the numbers. So that's the major difference compared to before. And going into detail, relatively speaking, the Japanese clients, customers, historically speaking, has a higher reliability in delivering the numbers. But [ the other ] Tier 1s, especially in Europe, because they aim for global deployment, the numbers come up very strong in the beginning. But as it turns out, the numbers come down to a smaller number. So we have to apply a different rate of discounts between those potential clients. So but in any event, we look into the actual details and apply a conservative bias. So maybe in 1 year's time or 2 years' time, we may have to change the way we present the numbers after looking at the bias. So please understand that these numbers here are somewhat conservative.

[Interpreted] Thank you. Since we ran out of time, the next presentation will be from Kataoka and Maoka for the ABU strategy update. Please begin the presentation.

[Interpreted] Hello. I am Kataoka from Automotive Business Unit. Next page, please. First of all, I would like to talk about the industry transformation. On the left-hand side, there are 2 bullet points. We are seeing a major change in the structure of industry. The first point is the geopolitical changes and the post COVID-19 supply chain localization. Due to these 2 factors, we are foreseeing a fragmentation decoupling. And therefore, the industry ecosystem is likely to reconfigure itself. That's how we see things. Secondly, semiconductor -- within the semiconductor in non-auto areas such as PCs, mobile. There will be newcomers from these areas coming into the automotive sector and the platformers also -- are also going to make a foray into the automotive business. And therefore, the competitive environment and the value chains are likely to change significantly going forward. So the competition, therefore, is likely to intensify. And despite those changes, Renesas is willing to survive in the market. And for that, I would like to give you more details how we are going to survive. The automotive growth strategy is illustrated here. There are 3 bullet points there. Basically, there's no change in our strategy. We are making a steadfast progress so far. First point is the market growth driver. Due to COVID-19, the automotive industry overall has shown a slowdown in the growth rate, but the case in E/E architecture amid this environment remains a key driver even after COVID-19, and we would like to pursue this going forward. But there's just one point of difference, that is we have to attach a stronger focus on driver-appealing features, such as user experience and rich IVIs, and as Mr. Shibata mentioned earlier, wireless charging. Those, for the short term, are likely to grow and we will advertise a stronger focus on those driver-appealing features. The second is the winning combo. As we have explained so far, MCU, SoC and analog power, through the combinations of these, we would like to offer products that have higher value. And for customers, faster lead time for mass production, especially for the emerging players in emerging markets. By addressing these emerging players and markets, we would like to further expand the size of our business. That's the second strategy. And the third one is scalability. As it was mentioned many times during today's presentation, the vertical platformer, the major OEMs, the software platform of these OEMs, we would like to provide a proper support for that and thereby increase our business. And the assets that we have developed and accumulated as a result of that will be applied to follower customers. And by doing so, we will have to further drive growth. That is the basic strategy for us to grow going forward. This is the same slide as the slide presented by Shibata-san. By winning combos and scalability on these 2 dimensions, we would like to grow the automotive business, and I would like to go into more detail. For scalability, even we say scalability, those are inside the scale -- application scalability and the scalability in between applications and scalability between different generations. The vertical platformers, major Tier 1s, they are strongly demanding the inter-application scalability. That is a strong request of the OEMs and therefore, in the last strategy update we have presented, compared to that time, the IVI was also included in the scope so that the SoC applications could cover ADAS, gateway and IVI. These will be the 3 focuses and the accesses, whereby we are going to appeal our value to customers. But the software upgrade, upgradeability of software is also becoming very important. So for that matter, the intergeneration scalability is going to be very important. One way to look at it is that those very high-performance LSI is already there and increasing the software upgrade is one approach to do so. But still, the simple computing capability is not only the question, the memory bandwidth and also the Ethernet feed, megabits going to gigabits and multi-gigabits, 10 gigabits, 20 gigabits. That -- in that evolution, a single hardware, even though the computing power is increased, whether we can continue to use that is not really possible. So definitely, there will be a replacement of generation. So amidst the change of generations, we would like to allow customers to utilize the software, and also the function of safety and security will be very important. So we have to ensure scalability there and make the development burden of customers easier and shorten the lead time. That is the contribution that we would like to make going forward. And this is the design-in progress. This was already covered by Shibata-san. For automotive, the first half, the lead customers, the major customers and followers, for both of them, compared against the target, we overachieved the target for both sectors, especially on the right-hand side. The camera opportunity from a major OEM, this platform was secured by us, which amounted to more than $1 billion. And besides that, tens of billions of yen or [ JPY 100 billion ], those kind of sizable opportunities are in the funnel. So we would like to secure these orders in a steadfast manner. Just yesterday, as a hot topic on the MCU side, a certain major customer, a Tier 1 customer, chassis platform business in the order of JPY 10 billion was finalized last night in reality. And the next page, this is what was presented by Shibata-san earlier, relates to this slide. He talked about that the automotive growth will be on par with SAM, but even amid that, the quality is changing. That's what I wanted to explain using this slide here. So this is about the ASP, the average selling price. This shows the average selling price trend. On the selling price, as far as the SoC is concerned, compared against the market, we are overachieving the growth rate in SoC in terms of ASPs, especially for ADAS. In the area of ADAS, we are increasing quantity and increasing the market share. And the selling price of ASP is quite large. And that's the reason why we have achieved a very strong growth in the ASP for SoCs. And also for MCUs, the conventional low end involving microcomputers, previously, that accounted for the bulk of the quantity previously. But going forward, the main controller and [ non controller ], those higher value-added products will be the focus going forward. And by making this transition, we would like to overperform the growth rate of the market and achieve a growth in ASP. And for power, compared against the legacy products, we are going to make a transition to IGBT and increase the selling price. In this way, by reshuffling the portfolio and increasing the quality of our products, we would like to strengthen the foundation of our business. And in reality, just last month -- as of the end of last month, the second quarter results were analyzed and were presented. And the automotive had a 23% year-on-year decline, a major revenue decrease due to COVID-19. But despite that, the automotive secured a more than 10% operating profit margin. Of course, we are taking in profits earlier than -- for some of the opportunities. But despite COVID-19, we have been able to secure a good level of profit because of the change of the quality of the product mix. And that result is manifesting itself. For now, I would like to relay to Mr. Maoka-san and ask him to continue with the rest of the presentation.

[Interpreted] The remaining automotive presentation will be presented by myself, Maoka. In Kataoka-san's part, one of the drivers of growth was CASE and -- plus E/E. That was explained by Kataoka-san. CASE is the leading trend of automotive and this is a very important driver and the E/E architecture transition is a very new demand that we are seeing, and this is going to be a major factor that will shape the demand in the future. And the -- we believe there could be 2 different paths for growth in the future -- the avenue for growth, there will be 2 different avenues. One is the service vehicles that you see on the left-hand side. And the other one is the owner vehicle that you see on the right-hand side. And there will be 2 different paths for evolution. The service vehicle on the left, mostly this is attaching value for transportation. And that is one path of evolution. And in this area, fully autonomous and more EV platforms will be adopted. That is the major trend that we foresee for the service vehicles. For the owner vehicles, user-centric comfort is the focus of the value. That is how we see how things will unfold in the future. And so therefore, the ADAS for user support and human machine interface and the driver-appealing features will be the focus. That is how this path will evolve in the future according to our analysis. And Renesas is willing to offer its products and solutions for both opportunities. So no matter what the evolution path take place, we are ready to cover both opportunities. And the next page. I talked about the driver-appealing features, the features that will directly appeal to drivers. I use that expression. So one example of that is -- which was covered already by Shibata-san's presentation, is the wireless charger. We have this product in our portfolio. Originally, this was developed by the industrial infrastructure and IoT business unit, but we would like to apply this to automotive applications. And we have already started selling them for the automotive and achieved a track record already. For automotive applications, we have a fine-tuned product already. And our product, in terms of efficiency, we have a better efficiency. And for power management, ICU and with MCUs, we would like to combine them with this technology so that we can offer a winning combo that is user-friendly to customers. Next page. Next, this is the winning combo, track record. In the first half of fiscal 2020, in the February Analyst Day, we planned to release 14 winning combos. But as it turned out, in the first half already, 15 winning combos were released. But for design-ins, as of February, compared against the plan back in February -- I'm sorry, we are very sorry for this interruption. For design-in, compared against the plan as of February, we actually achieved double the numbers in the first half. The specific cases were already introduced by Mr. Shibata-san in his presentation, the Great Wall Motors of China and a major OEM in India, the inverter winning combo, combining MCUs and power management IC. This solution was adopted by these OEMs. These new clients has a tendency of preferring turnkey solutions. We are quite responsive to these turnkey solutions. And compared against those customers in the leading nations, the lead time from development to mass production is quite short. So in this case, too, as an automotive application, this realized a very short timing. And therefore, the mass production is likely to start in 2021, which is a very fast pace of development. The next page. This is the specific winning combo road map, how we have prepared and delivered the results. This is shown as a road map. And for each winning combo boxes, which is indicated by blue, red and white circles, this represents the original Renesas products and the former Intersil products and the white circle shows the former IDT products. So the winning combos, if you look at each winning combo, it shows the construction of the products of the former companies. So in this way, all the assets previously owned by the former 3 companies are now combined as winning combo solutions and be rolled out to the customers. Up until the second quarter, 15 different winning combos have been released. For the future, as you can see there, we have a road map in place and we'll prepare them and properly execute them and release them in the market, one after another. The next page. This, as it was already mentioned by Shibata-san, this is a point that was already covered by Shibata-san, especially for analog products. We have a plan to further expand the sales of analog and it's not just only about releasing solutions and products. In addition to that, how to make it easier to sell these products, so that these can be chosen by customers. From that perspective, the peripheral areas, including the infrastructure and the tools, we have decided to enrich and revamp those tools and the infrastructure. And some of the examples are shown here. On the left-hand side, the headcounts have been increased. The sales and FAEs have been reinforced. Due to COVID-19, the uncertainties are rising, but still, we thought that this is very strategically important. So we constantly reinforce the hiring of the sales and FAEs. With the analog headcounts, we now have a stronger structure in place to support the analog opportunities and we have also organized regional activities, learning from the successful cases from other markets, and we will be deploying the successful cases to various regions. And the headquarters will provide the proper support. So this positive loop for reinforcement has been put in place. And also the support infrastructure for promotion has also been enhanced, including documents and training. We prepare the documentation and training and especially during the COVID-19 lockdown period, people were not able to go out in some regions, so we utilized this lockdown period in a very skillful manner and provided training on a global scale to improve the skill level of our people. And the right-hand side, we also enriched our web content, the analog products that we would like to promote and winning combos. We presented them in our web page and the winning combos that have been posted on the web page induced some direct contacts from some customers. And the next page. This is the summary of the automotive presentation, the last page of this presentation. After COVID-19, the market, the total addressable market will be -- we are going to adjust the timeline because somewhat some of the opportunities will be postponed. And decoupling, due to geopolitical and supply chain decentralization and localization, we are foreseeing some impact from this, in terms of decoupling. And the new entrants and the cloud players. All these platformers that have new technologies will come into play in the automotive space. And therefore, a new competitive environment will emerge. That is the environment that we foresee in the post COVID-19 era. Our strategy, as we have repeatedly mentioned, scalability are our intrinsic strength and also the winning combo that we have acquired through the acquisition of Intersil and IDT will be provided so that we can take bidimensional approach. By making use of -- in order for us to achieve a scalability advantage, we would like to focus on the vertical platformers and also focus on the driving -- driver-appealing features. We would like to strengthen these capabilities going forward. And so far, we have achieved a very steadfast progress, especially in terms of ASP, the prices, we have seen a healthy development and being, we have overachieved the original target. And if I may add one more comment, in the automotive area, of course, a large-scale deal is quite conspicuous and outstanding. But of course, there are so many other customers, and we have such customers. In the first half, when we analyzed the design-in achieved in the first half compared to our earlier projections, the followers are expanding quite significantly. And for our portfolio development, we believe the follower expansion is a very favorable development for us. The winning combo releases are making a steadfast progress and we have led them to successful cases. And the analog promotion, we will continue to reinforce the promotion measures for analog. That was all for the automotive presentation. And the next will be the presentation for industrial, infrastructure and IoT.

[Interpreted] All right. The next presentation is from industrial, infrastructure and IoT strategy. IoT infrastructure business unit, Mr. Sailesh Chittipeddi will make a presentation. Please begin your presentation.

Thank you, everyone, and good morning. I'm going to provide an update -- strategy update on the business today. If you look at the mega trends for the business that we discussed in February of last year -- of this year, sorry, the big mega trends continue to be intact. As a matter of fact, on the data center front, we're starting to see some massive tailwinds, as Shibata-san mentioned, because of the rise of bandwidth demands. Moving to the next one. On the 5G ramp, in addition to the growth in the sub-6 gigahertz infrastructure space, there is the additional space of Satcom where we're seeing good market expansion, driven on the back of things like rural telemedicine, which are an impact of the COVID-19 virus. Moving to the next piece of it. We have talked about intelligence moving to the endpoint. Shibata-san highlighted a few devices, and I'm going to be talking about a few more. So the mega trends for our business are largely unchanged, except we're seeing some good tailwinds for our businesses, which I'll talk about next. Next slide, please. So what are the major post COVID trends? Some of these were highlighted during Shibata-san's presentation, but let me talk about the reason why some of these are happening. On the data center side, the memory interface, timing, and core power is doing exceptionally well, driven by bandwidth needs. On the consumer side, the smartphone business during the first half of the year, as you might have heard from several of the phone manufacturers, was kind of weak. What we're seeing now is a pickup in the 5G phone market, and we are in a good position with some of the leading Android suppliers in that market, but it will not recover to the original expectations for the year, obviously, given the decline in the first half of the year. Interestingly enough, the laptop and the tablet market is where we're seeing very good growth driven on the basis of telecommuting both in the workplace as well as for children and schools. So the back-to-school demand is very, very strong, as the major suppliers put in bids for winning us in school systems. Health care environment continues to be an important area of growth. And this is where we see our sensor signal conditioning ICs, flow sensors and again, power management getting a good tailwind. Surveillance and voice interfaces, we have our MPUs and MCUs, which are suitable for that opportunity. And increasingly, because of the contactless factor that Shibata-san mentioned, people are moving more from touch into contactless things like voice, gesture recognition and so on. Last but not the least, the rad hard and Satcom is an area where we're seeing growth. There are 2 reasons why that's happening. One is planetary exploration is continuing to grow and the other one is focused on rural telemedicine. Moving to the next slide. I'm going to talk about the major SAM expansion opportunities. We had highlighted during our previous presentation the opportunity in the DIMM modules. So the DIMM modules, to refresh your memory, are the traffic management devices between the memory and the CPU. So one of the things is the CPU performance is no longer the limiting performance nor is memory performance, but how the data is handled between the 2 is an important factor. In moving from DDR4, which is the older generation, to the DDR5, which is shown on the top of these figures, which is the new generation, we gained for the 2 DIMM module configurations. One is the registered DIMM, which is the RDIMM, the other one is the LRDIMM, which is basically the load-reduced DIMM module. So if you look between the bottom and the top, in the LRDIMM module, you'll find that we have 10 data -- 9 data buffers, a temp sensor and -- temp sensor in place. If you look at the top, we have 10 data buffers, 2 temp sensors, a PMIC and an SPD Hub. So massive content expansion. If you go to the middle of the slide, you'll see that SCM refers to storage-class memories. So an example of that would be phase-change memories or 3D cross-point would be an example. But if you look at it, at the bottom, it shows you what we would have had in the DDR4 generation. And you go to the top, it shows you what we gain by way of content, moving to the DDR5 generation. The SODIMM refers to the small outline DIMM packages, where the DDR4 generation we had no content, but moving up to the DDR5 generation, we have 2 devices. So Renesas gained significant content from a migration, which has just begun. And it's early in the cycle, so we expect that by the second half of next year we should start to see significant acceleration and growth because of this move to DDR5. Next slide, please. Not only are we winning, you might be thinking, hey, the major CPU vendor is losing market share to the others. This slide talks to our position in the market, regardless of who the CPU provider is. So our DDR3, DDR4 and DDR5, we are very well positioned in terms of being well along the qualification process for each of these products. So clicking, if you do one more click on it, Renesas memory interface solutions are CPU architecture agnostic. So our solutions work with everybody's. So regardless of the move from DDR4 to DDR5 and regardless of the solution provider for the CPU or the memory provider in the case of memories, we are extremely well positioned to take advantage of growth in this marketplace. And you would have already seen it in our second quarter revenue and our third quarter revenue, which is -- which has been talked about previously. Moving to the next slide, which is about 5G. One of the major trends that's occurring in this business is the move from proprietary networks, like the companies like Ericsson, Nokia and so on provide, and that figure on the left shows you the architectures that are currently used in 4G. And on the right-hand side, it shows you the new vision, which is the Open RAN vision or Open Radio Access Networks that's pioneered by several companies and the TIP vision that's -- companies like Facebook are pushing. And the whole idea there is to make hardware and software completely unrelated the way it was before. So by unrelated I mean decoupling the 2, not really unrelated, but decoupling hardware and software much has occurred in the PC arena. So in addition to the traditional providers of 5G networks, we're going to see an array of new companies like Parallel Wireless, [ Altiostar ] and so on coming into play in this area. So for us -- next click, please, if you do the next 2 clicks. Renesas has power products both in conventional networks as well as RF, power and timing, and optical and conventional. But in addition, when you move to the Open RAN type structure, we have memory interface products with very good ASPs in this area as well as rapid I/O products. So Renesas has solutions to address both the traditional telecom providers as well as new class of emerging Open RAN solution for the 5G market. We're seeing solid growth opportunities in this area and as Shibata-san mentioned, this has been one of our most promising growth areas in the near term. Although it is coming off a fairly small base, we expect the growth to continue very nicely. And primarily, just a refresher, 5G networks today are in sub-6 gigahertz. We are very well positioned as we make the move to millimeter-wave to take advantage of that particular situation as well. Next slide, please. Moving then to industrial power expansion. This is a road map that I'm sharing with you. As you can see, this year, we launched a slew of new products at various cost points to get us to be much more competitive in this marketplace. And if you look between '20 and '21, we'll have a host of products that are very cost-competitive and very good technology base. So if you click on it, a couple of times more, we are able to now address markets in the industrial area that we weren't able to do, such as appliances, smart meters, home automation, as well as test equipment, 5G cloud infrastructure and factory automation, power tools and amusement. So a massive expansion of our portfolio allows us to address a $3 billion market that we were not able to address before with the product portfolio that we had. Moving to the next slide. I'm going to dig in a little bit on the MCU, MPU and rad hard market. If you look at the chart on the left-hand side, you will see, this is Gartner data, we're gaining share on the 16-bit MCU market where we were hitherto losing share before. And the reason for it is we're launching several new products and aggressively attacking the low pin count market that we weren't able to before. If you look at the 2 plots on the right-hand side, it shows you -- for products that were introduced in November and December of last year, we are already getting, not only new opportunities but also design-ins. So our share we're starting to see gains, and then the new LPC and next-generation products, we're starting to see early signs of traction in the marketplace. And this is with the RL78 family. Moving to the next slide. If you look at the 32-bit based microcontroller, our share erosion has slowed significantly and the reason for that is very clear. Late last year, we introduced our first set of ARM -- 32-bit ARM-based microcontrollers. And if you could look at the 2 charts, you could see the RA family, the amount of opportunities as well as design and momentum that we're seeing. And stay tuned to this place because you're going to see us gain much more share in the RA arena in the second half of the year and beyond. And we are aggressively taking steps to widen our portfolio in this market and go after new applications that we did not do before. So please remember on the 32-bit where we only had proprietary solutions, we now have ARM-based solutions, and we're making them more user friendly. So the share erosion has slowed significantly and Renesas' new products are seeing significant traction in the marketplace. Moving to the next slide. On the MPU side of the business, the left shows you our move in terms of motion control devices from RZ/T1 to RZ/T2, which allows us not only to address the server market but also the AC drive market. The RZ/N family is primarily for networking MPUs and they're going to see some exciting new products on the industrial automation front come out the second half of this year and early into next year. Shibata-san talked a little about the general-purpose MPU, but we're very excited. We're not going to see ground in any ASP category in this market. But most importantly, the RZ/V2M which we just launched, has already got design-in status at Casio, and this allows us to do endpoint AI at very leading customers. Moving then to the RE family, which is the energy harvesting family. You already probably know that we're in the Casio G-SHOCK watch with the Europa family, but we're expanding the scope to drive up the connectivity and put it in touch with all the sensors that we have in our portfolio. So stay tuned to the MPU area to see us diversify our portfolio quite aggressively while we continue to grow our SoC business with opportunities in the ASIC space as well. Next slide, please. Renesas -- and you can click on all of them, please. So the Renesas rad hard products are critical to Satcom. We started working in this planetary exploration in 2018, and we've worked with most major governments to help their programs. If you look at the bottom, we're involved with the JAXA Hayabusa project, and we're also involved with the European Space Agency for ExoMars, and we work with the Indian government on the moon missions. Next click please. For the March 2020 Explorer, which launched last week, Renesas had over 20 unique parts on the Perseverance rover, which is exploring signs of life in Mars. And the reason for all these Mars explorations is because Earth is closest to Mars over the next 6 months. So we've seen a good bit of traction for the products in this particular area. Next slide please. Let me -- last but not the least, I want to talk about the winning combinations and some exciting new products that we've launched. On the top left-hand side, we have a sensor board with BLE and machine learning built into it. Yesterday, we announced a camera module together with our own sensors, ISP and power management. We're doing IEEE 1588 solutions for synchronization of timing networks. Why is this important? As you move to 5G, you need the networks to be synchronized locally. And the way to do that is to use the timing -- the synchronization solutions that we offer. We're also going to be providing UWB-based social distancing bands. On the top right-hand side, you'll see the 48-volt scooter and I'm going to show you a very quick video as to the reasons why we're excited about it. So if you'll click on it, please. [Presentation]

So I wanted to give a demo of the kind of winning combinations we're putting in the marketplace. We are very excited about this turnkey solution. Since the start of April 2019, we've launched 146 new winning combinations and achieved over $390 million design-ins, cross-selling and combo sales. To put it in perspective, Renesas has leveraged the portfolio of its acquisitions, whether it be Intersil or IDT, to drive tremendous design-in growth and we're excited as this being one of the vectors in addition to our core products to drive growth in the IoT and the infrastructure business. Next slide please. So to summarize, the growth drivers for IIBU are largely intact post COVID-19. We're seeing certain areas with increased needs for telecommuting, remote health care, environmental awareness and endpoint AI is leading to demand growth for our product, coupled with the bandwidth growth. We're continuing our design-in momentum. As a matter of fact, Shibata-san mentioned this, to achieve a 6% to 8% growth, we need about a [ $6 billion ] target. We're well on our way to achieve these numbers. Traction for the winning combinations continues to be solid. We have revamped the MCU and the MPU road maps, and we're starting to see early success. You'll see much more success by next year. We're regaining our share in the 16-bit market and this could be -- and the RA family continues to get traction. We should see growth in the 32-bit area as well. And last but not the least, for those who are concerned, the Shiga closure does not materially impact our offerings in the area of 400G and 800G optical markets, we still produce the silicon-based ICs, both the [ Hx ] and the [ Gx ] family, and we continue to see traction for those. Thank you very much.

[Interpreted] Move on to the next questioner. SMBC Nikko Securities, Mr. Watanabe. Please begin your question.

[Interpreted] This is Watanabe. Can you hear me?

[Interpreted] Yes.

[Interpreted] Okay. I'll begin my question. First of all, regarding automotive, I have a question. In relation to ADAS, you said you secured a big deal. Mobileye is quite strong in this business. Why haven't you been able to achieve and receive orders? That's my first question.

[Interpreted] This is Kataoka. And let me answer your question. Previously, as was mentioned during the presentation, the major Tier 1s has this tendency of developing and build their own software platform on their own. In light of this, ADAS and autonomous driving, in the case of Mobileye, it's a black box. And it's difficult for these OEMs to develop their own software, they have to use the off-the-shelf software. So in that case, the vertical platformers, they have a tendency of building their own software and the entire systems on their own. And for that reason, I believe they have chosen Renesas and order their business to us.

[Interpreted] A follow-up question to that. If that is the case, then Mobileye approach, they are providing standard products to multiple OEMs and I think that will generate gross margin on their part. But for those Tier 1s and OEMs who like to have their own control, in this business, unless you're able to secure followers, there is a risk that your gross margin will be diluted. So in terms of profitability of businesses, what is your view on that?

[Interpreted] As I said earlier, our customers for the vertical integration model, our customers are quite large. So production for a company, the lifetime value is quite large and significant. And therefore, of course, we have to be very careful about the profitability. But with the performance of the product, we strike a good balance with the cost and make a proper proposal to customers. By doing so, we believe we are able to secure profitability. Of course, in order for us to further improve the operating margin, we have to deploy the products to followers. But at least, the first major OEM, even with that single customer alone, we secure profits. We have been able to do so.

[Interpreted] The second question is also related to automotive. The IVI opportunity. Previously, NVIDIA and graphics, those were the areas that Renesas was not really good at, and you're not really successful there. What's the reason why you have decided to go on to the IVI opportunities?

[Interpreted] Well, [ R-Car V2H ], we have been very good at navigation-related opportunities, but as far as the high-end part is concerned, the quantity was limited so far. So up until the generation 3, the mid-market -- mid-sector, was the focus of the IVI business. However, this time around, for the next generation, not only the middle segment, the high-end customers' demands are rising. And therefore, this time around, from middle-end to the high-end premium market, we have decided to cover those opportunities. So we have a proper portfolio in place. And I think that is aligned with the scalability demand for customers. So that's the reason why we have decided to expand on this business. And if I may add one more comment, for driver's monitor and the [ map brief ] configuration, those AI ADAS-related functions are also incorporated inside the IVIs recently. So the high-end products on the IVI side is likely to expand further. So we have decided to plan product, including this opportunity and make proposals to customers.

[Interpreted] So the drive computer included, you're going after all these larger opportunities?

[Interpreted] Yes, definitely, of course, this depends on our future decision, but ADAS and IVI, the IPs are quite similar to each other and common to each other. Therefore, that's the reason why we have decided to attach more focus on the IVI side of the business. In terms of development efficiency, the efficiency is quite high. They are ready. So -- and of course, customers -- the usability of the software is also an important demand for customers. And I think there's good visibility and also the network as well. So therefore, we have decided to go after this IVI opportunity.

[Interpreted] And finally, about DDR5. Thank you very much for your update, and we have high expectations for the DDR5. In the smartphones, low power DDR are going to be adopted going forward? On the smartphone side, in the mobile devices, the DDR expansion, you see an opportunity for your company?

Yes. So the low -- yes. For the smartphone DDR activity, we don't participate in. We are primarily focused on the enterprise servers. So our focus is really on that market, which we think is fairly large, without entering into a price war on the smartphone side of the business. So we stick to our core competency in that particular area of enterprise servers.

Does it mean -- are you focusing on the more on the high gross margin business rather than volume chasing?

Correct. Absolutely. And then the server, to be fair, server growth is fairly strong.

Yes, of course.

So I wouldn't call it -- it's a decent volume with good margins.

[Interpreted] Thank you. The next question from Macquarie Securities, Damian Thong.

I just have 1 question, on the memory interface and on DDR5, actually, in general. Could you actually talk about -- because you talked about content growth here. Is it possible to quantify this? And also the pace of ramp, because clearly [ Intel end developer ] have committed to 5G now. So it might -- it looks like very interesting market going forward.

Sure. Right. Thank you. The -- if you look at it, right, I've quantified it actually in terms of the RCD opportunity and the -- excuse me, the RDIMM opportunity and the LRDIMM, right? In the case of the RDIMM opportunity, the blue -- the little blue things that you see at the bottom, which says DB, wouldn't exist. So we would gain share there, primarily on the RCD, the Hub, the PMIC and the temp sensor. That would be the growth. In the LRDIMM, which is a configuration shown in this picture, we would gain 1 additional data buffer and all the other parts. So that would be the growth on the RDIMM and the LRDIMM, respectively. And as I shared last time, right, it is quite a significant growth by a multiplicative factor. I mean it almost -- like a 2x increase in terms of the value creation for Renesas moving from one generation to the next.

Okay. Got it. But in terms of the current market size, how large is it? And so it's 2x versus what will be the base number?

Yes. So we won't -- I mean broadly, I won't talk to specifics about our market in this area. But expect the overall market to grow by about -- I'd say, between 50% to 75% from the base line than it is today.

[Interpreted] Since we are running out of time, this will be the last question for today. [ Tuohy Adviser, Eva Linney ].

Can you hear me? So you guys can hear me, right? So thank you so much for the great update. And I have a question for Kataoka-san. So I wonder when you are speaking -- or you are looking at your design wins in the new higher end SoC and MCUs, what will impact on your large quantity low-end MCUs. I wonder, is that more of like structural growth, like the high-end part will be pure incremental? Or if there is cannibalization for the lower end or large quantity MCUs from your side, especially from the technology point of view?

[Interpreted] That's a very good question. We are changing our product portfolio, and we are focusing relatively on the high-end side. But as you rightly pointed out in your question, the MCU quantity will still come from the low end. The body products will account for the bulk. Therefore, we have to secure this business in a proper manner. The low-end product, especially the winning combos with the combination of analog, those controllers account for a very large quantity. So of course, new products will be released to the market with regular interval, but rather than deploying lots of MCUs, we will rather focus on the winning combo so that we can increase the total numbers. That is the strategy of the company. Of course, within the low-end, security features are strongly requested for -- to be updated. So we will accommodate those requirements going forward. On the other hand, the performance itself, some people say it's already sufficient. And the [ RAM ] capacity is also there. And the low-end for customers, they are rather satisfied. So that's not going to increase significantly. The central LSI, the high computer LSI are the areas where their programs are shifted to. So the memory capacity and the performance for the low-end side is not going to grow significantly because currently -- the current capacity is already sufficient. We have to address the new security features. And the main driver will come from the winning combos. That's our approach.

Great. And then I have questions regarding the competition dynamics in the high-end. I think it's a very helpful comment. And you said the Tier 1 OEMs are shifting from like choosing the black box offering to their own software. So they choose you. But I wonder, if you look again, do you think that the mainstream trend for OEMs to go for that way, which will put you actually in a better competitive dynamic, especially in comparison with the big players like the NVIDIA or Intel? Or it's like just some occasional things? Just like how do you compare yourself with the Internet players and also with your traditional peer players in the sale in terms of the higher-end applications?

[Interpreted] Again, that's another good question. Certainly, the players from outside are likely to become a very formidable competitor for us. Of course, the computing power software development, this alone, is very difficult to compete on these factors only and some competitors have a very strong capital base, very -- they have a very strong development capability with a lot of money available. So in order for us to compete against them and win over them, all the strengths that we have accumulated over time, especially the quality in automotive business and the ability to offer products in a proper manner based in accordance with the development span of customers, these basic capabilities will have to be continued to be offered to customers. And on top of that, against the new competitors coming from outside, we have to overwhelm them in terms of performance functions and also the product lineup and the development tools and environment. We have to be at least on par with them. So in totality, we can get selected from customers. That is the semiconductor manufacturing, the automotive sector, that's how we try to survive in the market.

I see. My final question is regarding your regional focus. So if you look at your new design wins or the market share gains you aim to take, is there a regional focus? For example, is it still be going to be those Japanese players or European players or Chinese players? Like is there any increasing emphasize -- any specific region for your further development?

[Interpreted] Of course. Primarily, we will target the major OEMS, but on the other hand, we have to expand the followers, especially when it comes to winning combo solutions. China and other emerging markets, mainly addressing these markets, we would like to expand the sales of our product. So China will be one of the main markets that we will be looking at to drive the quantity growth. And for that purpose, as Mr. Maoka mentioned, a proper mechanism is needed. The mechanism for expanding sales is now prepared such as the improvement of the web contents, the sample software and also the local partners having a collaboration with them so that we can directly approach the OEMs and provide support to them and assist their mass production. Through these approaches, we hope to expand the sales of our products, especially in the emerging markets. Those are the approaches that we are taking in order to gain market share in these markets.

[Interpreted] Thank you. We would like now finish the Q&A session. Finally, our CEO, Mr. Shibata, will have a closing remark.

[Interpreted] Ladies and gentlemen, so sorry for the participating -- for the extended time. If I try to summarize, in the last 6 months, the world has changed dramatically. But the impact on our business is not a major sea change. To some extent, we are enjoying tailwind and to some other extent, there are different impacts that we see. I hope you were able to understand this message through our presentations. And depending on the changes in environment, our strategic directions are adjusted in a timely manner. I hope that I was able to convey that message to as many people as possible. The most important message is that despite the changes in environment, our execution is making a steadfast progress. I hope that you receive that message. And from now, I believe the COVID-19 virus is going to stay with us for such a long time. We cannot foresee all the changes, but we would like to flexibly adjust ourselves to the changes in environment. Our focus will be changed, the way we work will be changed. And so we will never get delayed in our execution. That is our approach. And we would like to constantly hold this kind of occasions going forward. And if you have any questions or need clarification, please don't hesitate to contact our IR team. We would like to respond as much as possible. With this, I would like to finish my remark. Thank you very much for staying with us for such a long time, and we look forward to future collaboration. Thank you.

[Interpreted] With this, we would like to finish the strategy update session. We're so sorry that the English translation was somewhat difficult to hear in some part of the presentation. We are so sorry for any inconvenience. The documents and the recorded data will be made available in the Investor Relations page on our homepage. So please review them as adequate. Thank you very much once again for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]