Renesas Electronics Corporation (6723) Earnings Call Transcript & Summary

Thank you everyone for taking the precious time to attend Renesas Electronics Analyst Day. We thank you very much indeed. First, let me introduce today's speakers to you. Speakers, you are requested to put your video on. Today's session is attended by our Representative Director, President and CEO, Hidetoshi Shibata; Senior Vice President and CFO, Shuhei Shinkai; Executive Vice President and General Manager of IoT Infrastructure Business Unit, Sailesh Chittipeddi; Senior Vice President, General Manager of Automotive Solutions Business Unit, Takeshi Kataoka; Senior Vice President and Deputy General Manager of Automotive Business Unit Vivek Bhan and also some staff from the IR department. This is today's agenda. As you can see here, we would like to finish the entire session in about 2 hours and 5 minutes, at around 5 minutes past 11 Japan Standard Time. The materials to be used for today's presentation are posted on the company's IR site. Also, the recorded video of today's session will be posted on the same site. Now without further ado, I would like to ask Mr. Shibata to put your microphone on and begin the presentation.

Once again, good morning to you. This is Shibata. First of all, well, in fact, we have more than 200 people in Ukraine and also some collaboration partners in U.K., Ukraine. And as we speak today, all these people, by and laws are staying in Ukraine and working. We hope that the peace will resume to Ukraine and to the entire world as quickly as possible. As was mentioned at the outset today, Vivek Bhan, Vivian who joined from Dialog, he's going to speak for the first time. So this is his debut. Although today is a very concise meeting. But if you have any questions, please don't hesitate to ask questions and give questions to be back. And also, number three, the third topic that I wanted to say at the outset, after taking office in 2016, we have made a major strategic shift. And prior to COVID-19 in 2020, we also revamped our strategy once again. At the current moment, we are focusing on the execution of the updated strategy. And I have been adamant in delivering results. I have been communicating this to you all the time. But as a result, the results are not only financial results, such as the revenues and profit. We also have to talk about the progress of the execution of the strategy that we have set as initiative for the company. So we would like to explain this firmly to you today. So to this -- throughout today's session, we would like to talk about the progress of the execution of our strategies. And at the same time, we hope that this will provide you with a good opportunity for you to deepen your understanding on the company. So with that, I would like to start my part. All right. So quickly, I would like to recap on 2021. Of course, there were many things happening. So I think it's almost that we are about to forget about this, but COVID is still there. We are still seeing the continuation of COVID-19. Supply chain challenges were very much the focus throughout the year of 2021. At the same time, with abundant liquidity, massive liquidity, some capital markets in some product markets. We are seeing a significant increase in demand in some cases. And another major event for last year was that the climate change target was stepped up. So more than ever before, sustainability-related initiatives are now accelerating since last year. And we at Renesas, as you can see at the top part here, in February of last year, we announced the acquisition of Dialog. And at the same time, a relatively large earthquake that struck Japan plan also the fire in March, because a lot of inconvenience to so many people and thereafter, we received incredible support from so many people. And as a result, we were able to recover and resume at an early date. So I would like to take this opportunity to once again express my appreciation to all the efforts undertaken. And as a result, as you can see from the bottom 4 circles there, Dialog's were consolidated for the 4-month period. So on a year-on-year, we achieved 39% sales growth on a pro forma basis compared to 2020, assuming that Dialog was there from 2020, we still achieved a 27% growth in sales, which was quite significant. And we achieved EBITDA slightly to the sales of JPY 400 billion and design-in amounted to JPY 1.5 trillion. I think the winning combo we have been heavily promoting, we have received more than 300 -- we have provided more than 300 solutions in the course of last year. And just more -- a bit more about Naka factory fire, as you can see on the left-hand side on March 19. Unfortunately, we caused a huge fire at the Naka plant. And as a consequence, April shipment was -- came down to nearly 0. However, as I mentioned earlier, with the incredible support that we have received from many people around the society, we -- although we have set a very aggressive target of resuming in about 100 days, completing 100% shipment by then. Although we were slightly short of that target, but by July, we were slightly below 100%, but still be able to recover the shipment to that level. And from August and thereafter, we were able to utilize our full, almost near full capacity and continued shipment at that level from there. On the right-hand side, you see the tools which were required to be replaced. So the same list is posted here, which we presented back then. And we also have secured some secondhand equipment, and also we particularly developed -- we built equipment using components from 2 units and then combining into a single unit. So with all these creative efforts, all the equipment that were anticipated to be replaced last year was replaced or repaired and be able to use for production. And then after that, based on the learnings that we have learned this time, we ensure that we have to improve our resilience and took necessary actions. As you can see on the left-hand side, this is a familiar picture to here because we have shown them several times. Automatic fire extinguishers, sensitive smoke detectors, those were installed from the second half of last year. And then currently, the installation is making favorable progress. So I think by the end of this year, we will have completed all the installation of the necessary equipment and facilities. Now what is more important for us is the human-related efforts, I believe. Sharing the learnings and visualizing the learnings, those have to be incorporated in our day-to-day activities. And of course, in that regard, we are trying to implement the mechanism that -- so that our factories will compete with these other. Of course, if it grows too much, it's not going to be so good. But I think a healthy competition will be quite effective to improve our resilience on a continual basis. So that is the intention. And so far, the progress has been favorable, so we have established a dedicated team of less than 10 members. And for the head of those -- this task force, we have recruited a talent from outside. So we are quite serious in undertaking these kind of initiatives going forward. Of course, all the necessary preparations were finished last year. And currently, we are in the full-scale implementation phase. So throughout this year, we will run the first cycle, and then we would like to lead it to improvement in the second year after -- second year from next year onwards. Now our purpose of the company. Of course, we have shown you from time to time from before, but maybe you may have -- this may have resonated to you to some extent or some of you may have already forgotten this already, but we would like to make our lives easier by complementing human capabilities. That is our mission, our purpose. And what this means, actually, today, I would like to talk about this by revealing the different relations. So it's not only limited to only 4 here. But as a representative initiative, we have listed up all these 4 initiatives that you see here. One is the winning combo that we have been talking about for many times, the solutions for customers, verification, for example, or the design per se, will the time required for that can be reduced significantly. And that will lead to differentiation. And the customers, will it be able to focus on their time and resources to whatever that will differentiate themselves from the competition. Secondly, scalability-focused lineup. So with this, we would like to reduce the efforts and time required for software development on that part of customers, and thereby, improve the reproducibility of the software. And UX, user experience, which was -- has been pointed out as a weak point so far. We have introduced some cases to you. But in any event, whatever the devices is, if it's not really good in terms of usability, people will give up using it. So this is about the many different mechanisms or initiatives to make our devices more accessible and easy to use. And lastly, this is related on the other side of the coin of UX. But in order for the people to utilize our devices, the tools set such as development tool set as well as drivers also apply to this and also a higher level software tool, how to enrich these offerings are our focus today. So we will not limit our activities only to offering devices. When customers utilize our devices, the necessary tools and environment will have to be improved so that we can lead it to reduce the time to market and reduce development time for customers. Maybe in my presentation, I'll talk about this in more detail and some more detailed explanation will be provided during the [ ABU ] and IIBU presentations later. And now about the culture. Again, in 2020 -- from around 2020, I have been quite passionate in undertaking these initiatives. But to be very honest with you, from 2020 until the first half of last year, only some -- a little limited number of people were talking about this and shouting about this, that we are going to do this. However, from around the second half of last year, we changed into and stepped into the next phase, a higher phase. At a more systematic level, we wanted to penetrate all these initiatives throughout the organization. Gradually, we are reinforcing and stepping up these efforts, and I think this will take multiple years. So it's not that we have ended all these initiatives at the end of last year. So we would like to digest into competency that are more easy to understand for their employees. And the human resource performance review has to be incorporated at a systematic level. And through roundtables, all these things that people thought that they have understood or taken as actions. We wanted to notify them and provide a hint that, that was not really the case and remind them to do better. And also for those people who are joining us, we would like to define the cultures and ask them to see that, to see whether they will buy into our culture or if they are embodying those cultures themselves. So we would like to embed all these things so that the human talent that are fit to our culture and the talent who will promote those culture inside organization will be the target of our recruiting activities going forward. And also for the training. Training to our employees, we will like to do this more systematically, including some interesting tips. So we would like to work firmly on the training improvement as well as part of these initiatives. Now as I said at the outset, again, since last year, we have seen accelerated ESG environment-related activities. So I'd like to use the 2 pages to talk about our initiatives. First, about the environment-related initiatives. As you can see on the left-hand side, greenhouse gas reduction target. Last year we raised the bar for climate change. In light of this market trend, we have also raised our bar, internal bar as well. This was changed last year. So the baseline was changed from 2020 to 2021. So compared against 2021 by 2030, we have set a target to reduce the greenhouse gas emission by 38%. This is a new target. And on the right-hand side, water-related efforts. Actually, to be honest with you, we have been a laggard here more than any other initiatives. So in Japan, the -- because Japan is blessed with water resources, so that's the reason why we were a laggard as a global player. We thought that we have to be more aware of the water targets and set a higher bar. So we have set a new target here as well. So the consumption per revenue, the unit revenue in 2030 compared to 2021 will be reduced by 33%. That is the target that we have set as for water intensity and also for water recycling rate. Although this is not a significant change, but compared against 33% recycling rate, we have raised this to 35% for 2030. So in conjunction with all these initiatives in the latter part of last year, Green Bond, $500 million, we were able to secure this in the second half of last year. So our ESG environment-related initiatives, I think, to some extent, were evaluated. And this proves that our efforts were evaluated to some extent. And there are 2 more things regarded to ESG social and governance pieces. On the left-hand side, you see the 4 boxes, DEI, supplier management, shareholder engagement, all these things are the focused areas of the company. And we have just highlighted the major initiatives here, and that is reflected in the ratings at the bottom there. There are -- we are focusing on many different initiatives. So I would like to just show you some of the examples. First of all, at the BoD, the Board of Directors, the female directors ratio target was set 20%. And in the middle part, especially last year, because there was a significant focus last year, especially for supplier management, so the supplier audit on the field was started from last year. 12 companies so far have been audited. And in the 2 years, this year and next year, we plan to cover altogether [ 70 ] different major suppliers of ours with the actual field audit. And the bottom left circle there, at the end of this month, we are planning to hold the Annual General Meeting of Shareholders. And we are going to have a full online AGM. We have changed the articles of associations to that effect, we'll do so. We plan to change the articles of incorporation to that effect. And of course, we do understand that there are many discussions here. But if you consider the actual operations of the company, most -- many of our shareholders are actually foreign shareholders. And physically, most of them are not really able to participate if you have only face-to-face option. So therefore, the online AGM, in light of the shareholder structure, I think that is a better option for us to listen to broader voices of shareholders and also to deliver a message to the shareholders. So online AGM, I think, is a must that we have to deliver. But whether to hold this online, completely online or on a hybrid format combining physical and also online. That was a discussion point, I believe. But in reality, hybrid meetings, if you have ever, ever attended, I think hybrid does not do so many good, I think, in reality. Because the face of the people are too small to see. You see a lot of audio howling, disrupting the discussions on hybrid. Of course, there might be some benefits, but there are also a huge number of disadvantages in that kind of format. So hybrid is possible. But a smoother operation can be enabled by online. And especially when you want others for us to deepen our interaction with shareholders who are not able to visit Japan, we would like to enable full online format for the AGM. And we don't want to sacrifice the voices of our shareholders at all with this format. So if you look at the bottom middle part there, we are eager to hold discussions with shareholders on various occasions. So in addition to the AGM, of course, due to COVID-19, there are some restrictions today. But we would like to prepare many different opportunities to have discussions with shareholders. We will conduct many trials this year. And for the agenda items that received a lot of objections, we would like to take firm action to investigate what are the reasons for the objections? What are the opinions of the company to those suggestions? And what initiatives led to the concerns that led to the objectives. And how -- what can we do now to minimize those concerns? We would like to disclose those information. Through those efforts, we would like to provide an opportunity, make sure that the opportunities for the shareholders to raise their voices will never be sacrificed. In that way, we would like to hold this full online AGM. So maybe today, I think today's participants are mainly analysts, but I think we would like to seek understanding of many different people. So by fulfilling and enriching these initiatives, as you can see at the bottom, the ratings, we will aim to improve the ratings that you see at the bottom, and we would like to hope that we are incorporated in many different indexes. Of course, we are doing this in itself because this has a meaning in itself. But as a byproduct, by being introduced in the indexes as much as possible, those capital that are only available through indexes can be incorporated by the company and because there are so many questions regarding valuation gap. But I think by broadening the basis of our shareholders through this initiative, we'd like to close the valuation gap as much as possible. Conscious of time, so I would like to pick up my pace. Now I would like to discuss some numbers designed in. In 2020, we had a strong year, as we presented last year in 2021. From 2020 level, as regards to automotive business, excluding the anomaly from 2020, we have set a target for growth for IIBU. We also set a target for strong growth in 2021. And both businesses achieved target -- above target levels at high single digits. Results were strong in target itself. If it is overachieved or underachieved by double digit, target is not meaningful. However, it was achieved overachievement of target by high single digits, which means that we also had a good target, of which we were able to overachieve. As for automotive, higher teens, and IoT, high range of 20% are included in the target. They are not apple-to-apple. IIoT includes the effect of acquiring Dialog. That has a huge contribution. And raw materials are rising in cost on the part of our customers. We are asking our customers to share the burden of the cost. And that mechanism is different. IIoT's revising prices, whereas for automotive business, right now, we are taking approach other than price revisions to ask the customers to also bear the cost burden. And that is not reflected in these charts. And therefore, on an apple-to-apple basis, automotive should be adjusted slightly upwards. The bars should look longer for automotive on an apple-to-apple basis. There is not a great divergence in terms of performance between automotive and IIoT. That is what I would like to point out. And we are expecting significant progress in design in from last year. And the [indiscernible] I guess through examples of winning combo, I would like to illustrate how we are making our customers' lives easier with the Dialog joining our group. And we had a Bluetooth BLE capability to some extent and Bluetooth and WiFi capability from Dialog have been incorporated. And at the end of last year, with the acquisition of Celeno, we were able to further enhance our WiFi portfolio with regards to connectivity as a result from endpoint to access points. In an end-to-end fashion, we are now able to provide connectivity. And this is a very easy to use, very enhanced winning combo portfolio. On the right side, an example is shown. And this shows only Dialog device, but we have a same series, which also incorporates several devices. These are under preparation. This is an example of Smart Door Key. If this is assembled into an existing door, Smart Key can be enabled. Based on our devices, we are able to provide such functionality. With this, many customers, especially smaller-sized customers or customers who are new to these areas will be able to reduce their time to market significantly. and so these, we believe, will make our customers' lives easier. In the area of IIoT quality, this is a second example I would like to share with you. First, UX or training videos are made available. More than 110 videos are made available on our website. Recently, I think many people enjoy watching YouTube. And with the videos, it is easier to understand the subject. We would like to increase the number of videos that shows the way of using our devices. We will continue efforts in this area. What is shown in the [ Middle East ] sample program. Oftentimes we received complaints from our customers that it was not easy to simply obtain samples with our website and other mechanisms. Free samples are offered or small purchase of samples are made much easier. For your information, in case of microcontrollers, RL78 included in the portfolio, sample availability was improved, including analog for overall products. More than 10 million devices are readily available as samples, and they are stored for immediate delivery. Together with the video training, it will be easier for customers to test our devices using one sample or a couple of samples. And mobile microcontroller guide app, which I mentioned on previous occasion, is being developed further. And from a device vision level, it is now possible to select our board. We are enhancing the functions and features out this half. I would like to use 2 slides to discuss automotive business as auto winning combo from 2019, 2020, to be honest, we started from where we were able to, that was how we started. But right now, we are more strategic in our approach in this area. In terms of the fields of applications, what is shown on the left are applications, EV, including E-Axle and ADAS and E/E architecture. These are 3 major applications. We are focused on these applications for our solutions. Let's see shown on the right side, each small ECU unit reference was how our efforts are started, but some are at a level of proof of concept for demonstration. And as a larger group, at ECU level, turnkey solutions are offered, including those that I've introduced to you on previous occasions. For example, EE architecture -- in EE architecture, important role is played by central computer and a solution that can be spontaneously used will be offered. Now further enhancement in terms of integration will be pursued to offer turnkey system, for example. All of the electronics combined can be offered as E-Axle or sensor fusion used in ADAS, including Radar and camera. All of that will be used at a system level. As a solution, we will be increasing the level of integration. So for our customers, solutions can be used in plug-and-play fashion. We are in the process of evolution in terms of further integration of our devices. As you guys, automotive software and tool sets, I am showing a rather complex metrics, vertical access 2 is somewhat of a different nature, but a more primitive driver to middleware framework to -- what is key to differentiation for our customers' application are shown on a horizontal axis, various applications are lined up. Here, for differentiation by our customers, what will be at the center are those are developed by our customers. But in areas other than those, we can offer solutions or through collaboration with third parties. We would like to offer even more PS. We have been enhancing our lineup. For example, virtual platform in semiconductor device or device is completely simulated in computer in fast sim. And this is still evolving and changes are taking place every day in AI. AI related tools are also offered. And how -- what should we do so that -- the results of our learning of AI can be transferred to inference. And that inference results should be reflected as the best performance in our computers and how best to compile for that result. And those are learnings are reflected in the tools that we offer. Every day, there are changes in terms of where we are focusing on. But the point is for all of the areas where we have our offerings, we will be enhancing our offerings. And at the same time, our devices themselves will be made easier to use for our customers. Devices should be having tools that will assist digitalization. We will be enhancing such devices. Now as for synergy with Dialog, Mr. Shinkai will discuss this in more detail, but cost synergy is progressing and is on track. As for top line synergy, this is still premature. But winning combos are expected to drive top line and 56 were launched last year. Right bottom is not limited to Dialog, but including inter synergy, winning combo designs are being offered in increasing numbers year-by-year. That's for our maximization of shareholder value growth, the leverage shareholder return. These are exactly the same as what we presented before. OpEx was shown as an emphasis point and that remains unchanged, as Mr. Shinkai will explain later. But in the next few years, we would like to be more bold in CapEx, especially in capacity area, short-term demand surge decline. Irrespective of increase or decrease of demand short term, we would like to increase our capacity for long term. And for that purpose, we would like to make sure we have sufficient CapEx. These are still under consideration and there are not definitive plans yet. But once decisions are made, we would like to inform you of those. It doesn't mean that we will change our fab-light strategy, but we will be making sure that there will be adequate CapEx. Having said so last year and this year, we are expecting a continuation of strong performance. And initially, at the time of the acquisition of Dialog, net debt to EBITDA of less than 1 was set as a target. And 1 year ahead of plan, we expect to achieve this. Therefore, regarding deleverage, we believe that we are able to achieve this ahead of plan, given that more so than ever, first and foremost, we would like to positively consider buyback. I would like to communicate this to you once again. I would like to summarize. On the left side of 3 items are shown, and these are same as before. As for a well-positioned portfolio with the acquisition of Celeno last year, at the end of last year, we are able to enhance our portfolio. Furthermore, in automotive, this is more pronounced that applications likewise. But in terms of customer segments, high growth, faster growth are expected. And the segment is growing into such a segment, and we will be providing more support in the high-growth segment. We would like to persist on delevering results, emphasize delivering results. We were able to enjoy favorable environment thus far, but environment may not continue to be favorable. Eventually, if market may soften and we would like to solidify our position in anticipation of change in environment. We will be customer centric, but not only for our customers, we would like to make our lives easier. Thank you very much. With that, I would like to conclude. Thank you for your patience.

Now we would like to go to the Q&A session. [Operator Instructions] Now we would like to start the Q&A session. If you have any questions, please raise your hand. All right. So BofA Securities, Hirakawa-san. Please unmute yourself and begin your question.

BofA, my name is Hirakawa. Thank you very much for appointing me. I'm sorry to ask this, but because of the geopolitical risk in view of the current environment in Russia and Ukraine, Shibata-san compared to your prospects, what kind of impact has this caused on your business? And what is the main scenario and sub scenario that you're currently contemplating to the extent that you can share with us, that would be appreciated.

Well, the situation is changing every day. So it's very difficult to make a comment here in that regard. But at this moment, if there are any changes from the initial outlook at the year, actually, I would say there is no major changes so far. The change itself has been seen in the business, the impact on the business itself, that's one thing. And also, as I said at the outset, a very important and excellent R&D people. We have R&D base there, so that will have an impact on the R&D activities. That's something that we foresee. And also when it comes to business, this relates mostly to supply. Raw materials, supply impact is something that we are currently forecasting. So these are the 3 possible impacts. And I won't rule out any possibility that this will not -- we will be free and immune from any impact. But as of this point, the R&D and supply-related impact, if the situation does not aggravate and this does not get prolonged, this is actually my expectation partly. But I think I would say that to some extent, these things are under control. The impact on our sales revenues, I hope that this will not have a significant impact. But I think -- but we are still calculating and confirming the impact. Russia and Ukraine, if the situation that has a repercussion on the customers' production site, well, that will have an impact. So we have to be carefully observing the situation. In terms of sales development, procurement, for those aspects, among all those, the sales risk, I think, is the highest. And we have not been able to estimate completely yet. But as of this point, we have not seen any significant impact as of yet.

Next, Mr. Sugiura from Daiwa Securities.

This is Sugiura from Daiwa Securities. Regarding shareholder return, what are your current views regarding share buyback? I believe the comment that you made earlier was unchanged from before. Are there any bottlenecks for share buybacks? Or is it simply a matter of timing? And as soon as you have a better feeling for year-end results, will you make a decision to the extent that you're able to? Please respond.

Thank you for your question. In the past, we had more leeway in terms of time line, but I was saying that we would like to implement this sooner. This time, as I mentioned earlier, based on the results from last year and forecast for this year, I am saying we would like to implement sooner. There are no bottlenecks. Having said so, we have to also make sure that we deleverage, to be honest. But as of today, deleverage target is certain to be achieved 1 year ahead of plan. I have announced that earlier. So more so than before, in terms of time line, we would like to consider a buyback at an earlier timing.

All right. Then the next question will be from Asahi Shimbun, Suzuki-san.

Suzuki from Asahi Shimba Newspaper. Can you hear me? I have a question relating to TSMC Kumamoto plant in this regard, what do you think about the estimate of the impact on your business for [ TMC's ] Kumamoto plant opening?

Well, for us, this is a big positive for us. Because simply, all the necessary capacity that we require will just simply increase. We talked about designing targets earlier in my presentation, especially when it comes to automotive, 28-nano microcomputer designing, we are planning to significantly increase in our current business plan. So the Kumamoto fab the major products there is the 28-nano node product that will be produced there, that's already decided. So this is going to be a major tailwind for us. In addition to that, naturally, of course, reason why the procurement sourcing basis will be diversified. So this has a geopolitical impact as well as if you think about the natural disaster kind of impact, this will only be a positive development for us. So the Kumamoto fab is a very welcome development for us. And also, we usually welcome their decision.

Sorry for the follow-up question, but the reason why you did not invest in that plant, can you?

No comment for that.

Next, we have Yamamoto-san from Mizuho Securities.

Yamamoto from Mizuho Securities. Towards the end of your presentation, you discussed CapEx. And you've commented that you are not able to discuss in specific terms, but preprocessing, past processing of semiconductors, are those the types of CapEx that you have in mind? Or in automotive winning combos, you said that you would like to increase the degree of integrations in areas other than before. Is Renesas planning to make CapEx? Could you comment on that?

Thank you for your question. What I mentioned is about CapEx of the capabilities of semiconductor manufacturing itself. In the past, on a smaller scale, smaller scale may not be the right free. But in incremental way for preprocessing and post-processing to increase capacity, we have been investing. As we discussed in our earnings release session, we said at that time that we will be increasing CapEx. But what I mentioned today is over medium to long term to increase sizable CapEx. Those are under considerations. That is all.

A follow-up question. So for both the preprocess and post process, over medium to long term, you will have a new location?

In terms of new location, we are not currently thinking of building a new plant, but including foundries with our partners, how we engage with them. Perhaps there may be a way to engage more deeply than before or in the facilities that we already have, maybe we can take a look at them from a different angle and work on them. So more broadly, I'm thinking of possible CapEx. But greenfield large investment is not much considered.

Thank you. I'm sure we are receiving so many questions, but we have to move on to the next session.

Okay. So I am CFO. My name is Shuhei Shinkai. And the finance thought, in 2021 last year, I would like to provide a recap and also talk about the progress of Dialog acquisition. And then earlier, there was a mentioning about the capital allocation. So related outlooks and prospects, all these. With respect to these elements, I would like to provide you with an update. Next page, please. 2021 progress here. If you look at the middle section there in the green box area, please take a look at those numbers there. In 2020, 2019, 2020, the adjusted revenues, adjusted numbers are provided here. The 2021 actual adjusted amounted to JPY 889 billion. Gross margin amounted to 54%; operating margin, 29%. All of them are non-GAAP numbers. So that's the result for 2021. The adjusted definition, the ForEx US dollar, JPY 100 to the dollar; EUR, JPY 120 to the euro. That's the medium-term rate. And we universally apply this. And also we only included the continual business, continuing ongoing business. Up until 2021 -- for 2021, 4 months' worth of Dialog numbers are consolidated. And the 2021 adjusted numbers. And if you look at the far right, the targets. If you can refer to them, you will see that 2021 has already achieved a good progress, if you make reference to these numbers here. Now another point regarding the highlight for fiscal 2021, the financing diversification was achieved in 2021. Actually, in conjunction with the M&A, the balance sheet has been updated in our history. In 2019, with the acquisition of IDT happen, we use all debts for the financing. But in 2021, for the acquisition of Dialog, we diversify the financing sources. As you can see on the left-hand side, we have diversified the financing sources from the equity market as well as from the capital and debt market, we were able to finance ourselves, which I think for Renesas will be a very positive factor for us to add more flexibility to our financing going forward. And also, if you look at the term loan, indirect loans, JBIC, we have expanded the contact window to JBIC so that we can increase our financing sources. For the indirect financing, we have secured a very strong relationship with our main banks as well. The right-hand side shows the maturity profile. 2024, we see a big peak there. But this is due to the IDT acquisition in 2019. The term loans were mature there. And also the green bond issued in 2021 will see its maturity as well. At this timing, some will be redeemed and some will be refinanced at this timing in 2024. Now deleverage. As Mr. Shibata mentioned in his presentation, simply put, to be precise here, all the targets that we had initially anticipated were achieved. We'll have achieved 1 year ahead of the target date. With the completion of the Dialog acquisition in 2 years, in 10-some years, we -- the net debt will come down to less than 1x. And if you look at the right-hand side, according to the current outlook, after the completion of acquisition, in just 1 year, within this year, in fact, we will have achieved the net debt multiple of less than 1x. So this is according to a reasonable projection, we will most likely achieve this. And therefore, with this progress update, we declare as the target is already achieved. And therefore, the capital allocation, we'll move on to the next phase. I would like to declare that we will move on to the next stage of capital allocation with this completion of the target. Now Dialog's cost synergy progress. I would like to explain this using this slide here. On the left-hand side, you see the target that we set 1 year ago when we announced the intent to acquire Dialog. Then in 3 years' time, after the completion of the acquisition, $124 million is the run rate that we set for this acquisition. Then if you look at the right-hand side, this is the track record and the outlook for the future. Now if you look at the 3 bars and if you look at the day 1, the lowest bar there, in 2021, this is the run rate for 2021. Day 1, immediately after day 1, the start -- this is the initial speed after the stock. So in that regard, I think we got off to a favorable or good start already. And then for the outlook for the future, 2 years after the acquisition completion, the target will be nearly achieved. And in 3 years' time, we will overachieve the target according to the current plan. One point that I would like to supplement here is the components comprising the synergy. The most recent data shows that in light of the supply shortages, the COGS is coming smaller compared to our initial assumption. But the shortage will be offset by the SG&A synergies. That is the current plan that we are currently contemplating. In year 2 and year 3, if you compare the height of the bar, the third year bar is much larger. As you can see there, in 2024, all the system integration that we are currently working on will have a full year effect by that timing. So the -- even before the acquisition of Dialog, this project has been ongoing. But of course, with Dialog, will be subject and included in the scope of system integration. So those synergies will materialize and accelerate to be developed, accelerate the synergies at this timing in 2024. Now OpEx. Part of the OpEx comes from SG&A. So this shows the SG&A performance. So I would like to provide you with an update of SG&A. Originally, SG&A actual amount, we wanted to reduce the SG&A actual amount, and at the same time, expand the revenues so that SG&A percentage to revenues can be diluted. That was the original plan that we have set. So first, if you look at the upper left-hand side and the dark blue part line there, this shows the track record of the last 3 years comparing with the assumptions. So the actual versus the dotted line assumptions, you see 2019, '20 and '21. In 2021, the onetime cost was there. So therefore, we underachieved the target in 2020. But in 2020, we achieved the target just as planned. So the revenue size is increasing, but the fixed cost is not increasing in proportion. So we have been able to maintain the CapEx in this time horizon. That's what we are talking about here. So what is the outlook for the future? You can see the red -- green, now you have to shift your focus to the green line. The actual amount will come down. So the improvement measures include the midterm measures. So those are still ongoing and have not been completed. So by executing those initiatives, we would like to achieve a step improvement so that we can achieve the green line there as for the SG&A percentage. The theme of the initiatives implemented last year are introduced on the right-hand side. One thing, synergies that we talked about in the previous page. Second is the IT integration. And number three, logistics costs. Those are the 3 major components for the initiatives to achieve the improvement of SG&A. Synergies' contribution is the largest here, accounting for more than 50% of the cost reduction. And IT, currently, we are still making investments for improving the efficiency. So once is complete, I think we will be able to start recouping the investments and achieve improvement. For logistic costs, of course, with the addition of Dialog, new logistics lines and operations will be defined. So we would like to achieve efficiency by streamlining the operations. So with all these 3 initiatives, by combining all these initiatives, we would like to achieve the new target line, which is represented by the green line here. So as the revenues there makes progress, we would like to achieve a single -- mid-single-digit level of SG&A percentage. That is the current plan that we are contemplating. And next, Finally, this is my last page. Capital allocation-related topics are presented here. So I'll talk about CapEx first. On the left-hand side, you see the CapEx outlook, the gray line. In the last update, we presented the revenue -- the CapEx to revenue percentage. The green line is the current assumption that we have. If you talk about 2021 and 2022, we are planning to continue a reasonable level of capital expenditures. So we have been more aggressive in the plan right here compared to the last time. In the long-term model, 5% of revenue is the baseline that we are talking about, but the trajectory to get there is different. So that's how you should interpret this graph. Recently, the low end MCU and analog-related capacity expansion is one target of CapEx. At the same time, in 2022 and 2023, if you look at the bars there, you see the dotted line part for the bars of 2022 and 2023. Those are only potential projects. Nothing is decided. So this is not really finalized yet as a plan. But given the recent size of the capital expenditures, we just added these components there to give you an indication about this potential size of CapEx. The details will have to be worked out going forward, but these are the size that we are talking about, meaning that 10% or so to revenues or something somewhere to the north of 10% of revenues is the CapEx to be projected for the next -- this year and the next year. And then the right-hand side is the capacity expansion of the front-end, in-house front-end. The gray line shows the previous update, and the green arrow shows to today's update. This year -- from this year, we have been more aggressive for capacity expansion. So that portion will make contribution to expand the front-end capacity for our in-house production. So therefore, the green line is somewhat steeper or larger compared to the last presentation. The potential projects represent are not included in the capacity projection on the right-hand side here. So once those are decided and to be executed, the angle of the green arrow may become steeper. And in conjunction with the CapEx, depreciation amount was also increased. Therefore, the gross margin will be definitely affected. Of course, gross margin numbers have been indicated to you, but with the CapEx plan and also including the production plan, when we have the next update, we'll talk about and share with you the gross margin outlook as well. So that was all for myself. To summarize, in order to improve the shareholder value, we have contemplated some scenarios. We will deliver performance and achieve results. We will accelerate deleverage. Those are the things that we have been working on. And for those 2 aspects, we have been making good progress already, and the deleverage is all nearly complete. That's one thing. So therefore, going forward, we would like to make investments for growth, including CapEx and also focus our capital allocation focus our spending on capital allocation more than ever. With this, we would like to steadily expand and improve the value of monies as a company. That's all for myself. Thank you very much for your attention.

Thank you. We will now open the floor for questions. [Operator Instructions] First from SBI Securities, Izumi-san.

Deleverage is achieved 1 year ahead of schedule. And in a nutshell, I think it is because EBITDA expanded more than expected. Is that the correct understanding? And according to this table, 1x is the number. Does that mean that you expect more than JPY 500 billion of EBITDA. You are not announcing annual forecast, but EBITDA at the level exceeding JPY 500 billion is your expectation? Is this the correct way to understand?

Thank you for your question. Outlook of EBITDA changed substantially, and that is correct. In comparison to initial expectations, at the time when Dialog was acquired over time, outlook has been improving. As a result, and this is to supplement my earlier presentation, at the time of the acquisition of Dialog, what was assumed in terms of the amount for equity financing was now compressed. And last year, in June, we had a public offering. As for the second point regarding the expectations for EBITDA for this year, in terms of a rough image, that might be how it appears. I wonder -- well, going forward, there are various element for fluctuations, volatility. So I would like to refrain from specifically commenting on this. But it is certainly true that outlook for EBITDA has strengthened.

The next question is from Citigroup Securities, Fujiwara-san.

This is Fujiwara from Citigroup Securities. So my question regarding the source of funding of your shareholder returns, deleverage now complete, you said. So if you're going to do anything this year, what is the framework of the shareholder return. Let's say, for the EBITDA allocation deleverage, capital expenditures or -- and then the remainder will be used for capital for shareholder return. I think there are many different plays of our approaches. But what is your basic approach as your company for shareholder return?

Actually, the short answer is that this is for future study. For capital expenditures, as we talked about in the slide there, the production footprint, and if you think we will think about the production strategy and then have to consider what kind of -- what amount of capital will have to be injected for the capacity. And also, besides that, Other areas that requires capital injection will have to be considered. So all these elements will have to be taken into consideration with a priority, and also we have to consider the timing and thereby make an overall judgment for the returns. So currently, we don't have any clear-cut formula or priorities defined yet.

Thank you very much. Next, we have Takayama-san from Goldman Sachs Securities.

Earlier, gross margin outlook, you've mentioned, will be presented next time. This time, regarding the investments, basically, I believe you will be looking at higher-margin products. On the other hand, there will be depreciation. And is it because that you don't have a clear picture of how these will be appearing in combination? Is that why you're saying you're presenting next time? What is your thought process? And basically, is the expectation that margin will continue to rise?

Thank you for your question. As for the gross margin outlook or the bridging towards improvement of gross margin, was such that rather than depending on growth scenario with various different components, we will be improving our margins. Those were the assumptions. And a substantial portion is based on the expectation that there will be depreciation. On the other hand, looking at the investment for increase in production, the contribution coming from depreciation will become smaller or will be reversed. On the other hand, with the increase of sales, there will be a contribution coming from that to improve gross margin. That is our outlook. But as you just pointed out, depending on the product mix and where we invest, the degree of contribution will have a different mix or a different balance. Based on the production plan, we would like to make appropriate updates.

Follow-up question. I think you will not be decreasing your margin. And because you're not able to clearly quantify the increase in margin. Is that why you're deferring the discussion of that?

Basically, that will be correct.

Yasui-san, UBS Securities.

I have two questions. The first question relates to capital expenditure, ROIC, do you have any plans for ROIC for capital expenditures, given the current -- what is the return period? And how long does it take for recollecting those investments? And the second question relates to Page 6 of your presentation. The SG&A as a percentage of revenue, if the numbers, on a non-GAAP basis, SG&A -- that's the definition, right? So on a non-GAAP basis. So in the absolute amount, SG&A, will this remain flat? Is that your message here? That's the other thing that I wanted to confirm.

If I comment on the second question first, this is non-GAAP basis. And to be more precise, this is adjusted numbers that are used here. So it's almost equal to non-GAAP numbers.

And SG&A, whether that's going to remain flat or not?

That's not really the case, actually. In tandem with the revenues, there are some items that will continue to increase. So we are not expecting flat. [ SG&A ] amount will slightly increase but as a proportion to revenues because that -- the [ account ] will be larger than the increase of variable costs. And regarding the first question, what kind of impact will there be on the ROIC? And will that have any positive impact? Actually, that is a very important decision and the core point that we have to make, when we make the decisions relating to investments. But it doesn't mean that we have a clear-cut formula defined. So ROIC and also the revenue growth, those things are taken into consideration comprehensively and thereby we make a decision. That's it.

It seems there are more questions, but we would like to move on.

Good morning, everyone, and thank you for joining the IIBU presentation. Next slide, please. I'll begin by covering the financials from 2019 to 2021 and had covered based on estimates, when I spoke to you last in December. And I'll provide the actual outlook for the current quarter, provide some color on what we're seeing by segment for calendar year '22. After that, I'll discuss trends driving the growth. At previous Analyst Days, we had provided deep dives in the Industrial segment in December and the IoT segment in September of '21. I'll briefly touch on those areas, but I'm going to focus this time largely on the power domain for data center and overall for computing. I'll also address a couple of new growth vectors; a, the metaverse because there is some interest on this topic last time around; and b, talk a little bit about our new ForgeFPGA family before summarizing. Next slide, please. Let me begin with our financial trajectory between 2019 and 2021. The results here that I'm sharing are based on actual revenue growth. IIBU revenue growth had a 25% CAGR between 2019 and 2021. And EBITDA grew by 42%, gross profit by 33% and operating income by 68%. The top line was achieved due to strong growth in each of our 3 segments: Industrial, IoT and Infrastructure. The increased leverage that you see in the bottom lines, is a result of better utilization of our factories, price increases as well as a focused effort on cost improvement and targeted R&D investments. At the bottom right-hand side, by segment, for the IOT, Infrastructure and Industrial businesses, revenue grew by 74% on the IoT side due to inclusion of Dialog in fourth quarter '21. For the Infrastructure, grew by 19% and for the Industrial, by 20%. Okay. Next slide, please. Let me now share our growth on a quarterly basis. Based on our guidance actuals, we expect, between the first quarter of 2020 and first quarter of 2022, to see a revenue growth of nearly 46%. And we expect to see EBITDA improvement of 59%, gross profit improvement of 51% and an operating income improvement of 84% but looked at it quarterly. Once again, moving into 2022, we see growth across each of our 3 segments. By segment for IoT, Infrastructure and Industrial, for the IoT segment, we expect to see growth of 70%. And remember, this is our full quarter of ex-Dialog included for that segment, 29% for the Infrastructure side and 32%, respectively, for the Industrial portion of our business. 2022 promises to offer sustained-growth opportunities for our business. Turning to the outlook on the next slide, by segment for 2022. For industrial automation area, we see sustained growth because of increased push to efficient factories and sustainability, which is driven by our customers. On the home appliance part of the Industrial segment, we see moderating growth after a significant spurt that we saw during the COIVD pandemic. In the broader industrial market, which is typically power tools, motor control, et cetera, we see a move towards much -- drive towards much more improved performance, which is driving growth. In the IoT mobile segment, we see normalized growth after the share shifts from Huawei, which occurred in 2021. In the laptops, notebook -- Notebook segment, enterprise and gaming growth offset some decrease in the Consumer segment. In IoT for other broad-based applications, we continue to see strength across the broader market. The Infrastructure Data Center segment promises to be one of our strongest growth segments in 2022, with growth in both hyperscalers as well as in cloud computing. In the 5G area, deployment is largely today in the sub-6 gigahertz segment. While we see slower growth in the millimeter wave domain, we expect that this trend will continue for the next few years. I'll also mention that our inventory levels continue to be low across each of our product segment and well below normalized run rates. Next slide. IIBU's mission is moving intelligence from the core to the endpoint sustainably, which is aligned very well with the Renesas mission, that Shibata-san outlined before, to make people's lives easier. The big opportunity that we see, from a trend perspective, is that the endpoint data-creation growth has a CAGR of about 85% from 2019 to 2025. We expect this trend of driving intelligence from the cloud to the sensor edge, is going to continue to offer us significant opportunities for growth. You might have seen this chart that I'm showing before, in the form of a bullseye chart that I represented before. But here, I'm kind of trying to highlight a slightly different point. So this -- I'm highlighting it, by the way, of a pyramid. So the base of our pyramid is embedded processing, whether it's MCUs or MPUs. Above it, it's all about what Shibata-san mentioned, the software, the user experience, security and embedded AI to build capabilities for ease of customer use. Above it, are the 4 major elements that we've added to enhance our capabilities around embedded computing. And these are basically powers, sensors, connectivity and actuation. If you recall before, these were the 4 quadrants of the circle. From a connectivity perspective, we have fully integrated our Celeno and the Dialog teams within our existing organizations, okay? So the next step of this is, we are working towards developing a common graphical user interface, or GUI, so that the look and the feel of Renesas products is the same for all its customers, regardless of the acquisitions that we've done. So the customers, when they see us, see one Renesas, and not ex-Dialog, not ex-IDT and not an , but rather one user interface. By focusing on superior application support and outstanding customer reach, we expect to sustain a path to grow faster than market with exciting new products. Next slide, please. Touching briefly on the industrial market, next slide, please, I'd like to focus on the number of new products that we're introducing. It's pretty obvious that there's significant growth between 2019 and 2023. To remind you, RZ family, as a whole, on the MPU side, has 4 major product groupings. Number one, RZ/V for vision-based AI, RZ/G for general-purpose microprocessors and RZ/T and RZ/N for industrial automation and networking. Our industrial ASSPs are primarily focused on sensor signal conditioning, and if you recall, the access layer in the industrial automation arena, right? That's, kind of, what we're focused on. How do we scale it? Shibata-san mentioned scaling. So we scale our RZ devices, on the basis of higher performance, at lower [Audio Gap] costs. We scale our general-purpose products by way of platform software and expanded application support, and we expand our access layer portfolio on the industrial ASSP side by combining Dialog solutions together with Renesas, right? And the interesting thing that I'd like to announce today is, we are launching our RZ/Five, which is a RISC-V-based MPU, to address the gateway -- IoT Gateway market. So this is a major expansion in our application space that we're going after. If you look at the right-hand side, between 2021 and 2022, we expect to drive design in growth of over 180% in those 2 years. This, together with a significant increase in new products, is a leading indicator of our growth for the Industrial segment. Moving next to the IoT and the Connectivity business. Next slide, please. I'd like to capture the progress in the IoT 32-bit core or the advanced IoT cores. To begin with, we have our proprietary products with the RX family. We have shipped over 1 billion units, making it one of the most widely deployed 32-bit proprietary cores in the market. Moving then to the ARM-based ecosystem, what you'll see is, the design in growth for the RA has surpassed the record of RX in less than 2 years since the launch. On the far left, right, you look at the RA8 family, which is the most advanced ARM/Olympus core. With the RA8 device, we're going to establish industry-leading performance in the ARM ecosystem. This reflects a major transformation in our MCU journey, which began 3 years ago, as Shibata-san mentioned, was a change in strategy. We have also launched two RISC-V-based products, one for motor control in record time, and I'm incredibly pleased with the team for doing this. And the second one is voice-based application. With a portfolio of products consisting of proprietary cores, ARM-based cores and RISC-V cores, we're well positioned to take advantage of the evolving landscape in the microcontroller area. Looking at the bottom and talking about user experience and ease of use of customers, we solicit active feedback from both internal users as well as external users on their software and experience to make users life easier, right? In the world of AI and tiny machine learning, we're expanding our ecosystem partnership. Today, I'd like to announce a strategic partnership with Arduino for expanding our microcontroller ecosystem. Arduino, based in Italy, with over 30 million users, is one of the largest hardware and software platforms available to microcontroller users in the marketplace. We're also partnering with SYNTIANT for voice-based AI technology. Next slide, please. Microcontrollers need to connect seamlessly, right, with the cloud in the external world. With the recent acquisitions, whether it's Wi-Fi, Bluetooth or partnerships for NFC and UWB, we now offer easy access to our cloud -- to the cloud with our MCU-based solutions. Further, if you move to the right of the chart, with Sequans, we're now covering NB-IoT and LTE Cat-M as well as Cat-1 solutions and are now able to offer a comprehensive cellular portfolio to complement our MCUs. We have launched over 30 new winning combinations with our connected portfolio since the acquisition of Dialog and Celeno, and we'll launch another 15 before the year is out. Much as power has complemented our portfolio in the past, connectivity is going to be a major emphasis for us in 2022. Our software and user-experience focus should allow customers to access the cloud with the fewest clicks and make their lives easier. Next slide, please. Now, changing the focus to the Infrastructure area, we see strong growth in the power domain for data center as well as client and mobile computing. There are two major categories of products driving growth in data center and client computing markets. First is our digital multi-phase controllers and the second is a Smart Power Stage. Our controllers are extremely well suited for the needs of the advanced CPU cores, which have very stringent power requirements. With the controllers, we offer the smart power stages that complement these products. To give you an idea why this is important with each CPU controller, you will have between -- for each CPU controller, you'll have between 8 and 15 Smart Power Stages. So you can easily see why you're seeing the kind of cascading growth that I'm showing in these charts. On the mobile computing side, on the other hand, the products that are driving the growth are industry-leading battery chargers that came from Dialog, fuel-gauge ICs that are Renesas' and USB-PD solutions that also came from Renesas. So those are the 3 major drivers of the mobile computing side. Next slide, please. The previous slide covered power from a CPU perspective, right? So you have the processor on one side of the compute. On the other side of the compute, you have the memory stuff. So the other side is the dual-interface memory module side. What has changed from DDR4 to DDR5 is, unlike the prior generation, the power management, I see, resides on the DIMM module, highlighting the revenue scaling opportunity. So before, you'd have one for a system. Now, you have one for every DIMM board, so that's a huge scaling opportunity. Renesas is the market share leader and the only PMIC supplier currently approved for Intel's Alder Lake. Our market traction is clear, by looking at the level of engagement with our customers. We're increasing our DDR5 PMIC design in, as you can tell, between 2020 and 2022 by a factor of 4, and we expect that with each improving generation of DDR5, this attach rate will be a benefit to Renesas, assuming we continue to execute. Next slide, please. At each of these sessions, I've highlighted an important facet of what Shibata-san calls 'this sprouts to growth', one of which is the metaverse. Again, on the metaverse, there's the cloud side, which is compute-intensive. And the other side, which is the AR/VR Glass side. Renesas has products that support both the compute side with PMICs as well as on the memory side with PMICs, memory interface products, SPD hubs and temp sensors. On the compute side, there's an opportunity to have multiple digital controllers and power stage in a board with a BOM of up to $72. On the client side, which is the VR/AR Glass side, with the host apps PMIC, we have a bill of materials of $3. And then on the Total Wireless Stereo side, which is the TWS side, illustrated there, the charger PMIC offers a system BOM opportunity of about $3.50. Next, I'm going to cover the GreenPak family, which -- to ForgeFPGA. Most of you are familiar with the GreenPak family, which is mixed signal technologies put together with a state machine for a controller. We've spoken about that extensively at the previous session. So this time, I'd like to focus on the right, which is really the ForgeFPGA family. The ForgeFPGA is -- essentially offers very easy-to-use software capabilities for the industrial IoT market. To be very clear, we do not intend to compete with Altera, Xilinx, Lattice or Microchip in the PLD or FPGA space. ForgeFPGA is very unique. It is low-gate-count, low-power and low-cost solution, optimized for IoT applications. The biggest problem with an MCU, typically single-core MCUs, is that they're single threaded, meaning that they can handle only one function at a time. FPGAs, on the other hand, can hand multiple -- can handle multiple functions at a given time. But the problem with FPGA is cost. The ForgeFPGA actually handles that. It avoids the high cost and software complexity of a typical FPGA. The product supports around 5,000 gates, offers half the power consumption of competing FPGAs in the market. And at volume, the price will be at or around $0.50. We also avoid the traditional FPGA development struggles on software by offering free development software to accommodate both new and experienced FPGA users with what we call the macrocell mode in an HDL mode. Next slide, please. To summarize, we see solid opportunities for growth, both on the top and the bottom lines as into 2022. Inventory levels continue to be good. We've integrated both Celeno and Dialog. And as Shinkai-san mentioned, we expect to achieve or exceed our synergy plans for those businesses. We've expanded our ecosystem of partners, with strategic partnership with Arduino and SYNTIANT. Our roadmap and design and traction offer continued prospects for sustained growth. To reiterate, our financial model of far greater than SAM. A gross margin of at or greater than 60% and operating income of between 30% and 35%. What I will tell you, is we have significant leverage to improve the bottom-line performance, as we grow the top line. Thank you for your attention.

Now, we would like to move on to the Q&A session. [Operator Instructions] BofA Securities, Hirakawa-san.

My name is Hirakawa. On Page 12, you explained about connectivity, that you said that connectivity is your focus area. Now, in that context, Wi-Fi and Bluetooth, you have reinforced your capabilities through acquisitions. But what are the plans to reinforce your seller capabilities. Can you elaborate on that point? That's my question.

Thank you for your question. Yes, on the cellular area, today, we're partnered with Sequans Communication, and we've started -- we've launched, actually, combinations of our microcontrollers, together with their Cat-M and NB-IoT combined solution in the marketplace. We are aggressively launching products, the [ ZY024 ] as well as [ ZY014 ] to go after this particular marketplace. And my expectation is, over time, we are going to be doing a product that is dedicated for both narrowband IoT as well as products that are dedicated towards the Cat-1 market as well. So it is our intent to partner very closely with them and expand the scope of what we're doing in this area. They also, longer term, they offer the possibility of working with us on a 5G solution as well that is focused on the client side, not on the infrastructure side like Renesas is focused. I hope that answers your question.

The next is Atkuchi-san from Newspaper.

This is Atkuchi. RISC-V-based microcontrollers the question. RZ/Five, this time with Taiwan and this technology, using their designed [ IP ]. And in this [ IP ] area, do you plan to do this on your own, going forward? Or will you plan to -- are you planning to use [ IP ] from outside? What is the timeline for the introduction of new products? Could you discuss all of these? And in addition, RISC-V-based microcontrollers ecosystem or -- what is the status regarding the users using the ecosystem, if you could talk to on that as well?

Thank you for your question. So from the RZ/Five perspective, yes, you're absolutely correct. Today, we're using the [ Andy ] score. But we are investing in doing RISC-V development, internally, as well. This is for us, as we -- as I think Shibata-san alluded to this earlier, we are in a hurry to launch products and to get products into the marketplace and make sure that Renesas is in a leadership position. So that's the reason why we partnered to get to market faster with the RISC-V solutions with [ Andy's ], both for the MCU side that I showed earlier as well as on the MPU side. But we have a focused effort of internal development. I expect that by 2023 time frame that we will have products developed with our internal capabilities. From a software and a user-experience perspective, the teams are working actively to develop the tools as well as the tool chains that are required to enable our customers to use this from the get-go. So it's not sequential. It is actually in parallel, that when the product is launched, the software is going to be available at the same point in time. We have a concerted effort on software development, and this is one of the things that we are doing better than we've historically done in the past. So the idea is, yes, get to market faster with partners and then bring along your own technology, in-house, to develop that capability. I hope, that answers your question.

Thank you very much. A follow-up question. Using RISC-V, the resulting microcontrollers, it seems that -- is there any application or manufacturers who are very active in introducing these products? Do you already see signs of active manufacturers product application here?

Right. Yes. The RISC-V products, initially, we expect -- I'm not going to talk about specific customers. Obviously, I can not. But what I will tell you is that the focus for the most -- the initial launch of the RISC-V products is for the China market. And RISC-V is, sort, of application targeted, as you can imagine, right, where you optimize the hardware and the software for the application space that you're after. So I will address the question broadly that it's dedicated to the markets where we see the biggest opportunities for traction, which is the China market today. Hopefully, that answers your question.

I'm sure we have many questions in the queue, but we have to move on to the next session and begin the presentation.

Good morning to you all. I am Kataoka, responsible for ABU. Today, myself, Kataoka and from Dialog ] joined us for the ABU business, and he is currently responsible for Analog and Power business. So ] the two of us will be explaining the automotive strategy. So please bear with us till the end. Now, first of all, I would like to talk about the progress update regarding the main product for the ABU, which is the MCU RH850 and SoC R-Car Gen3. This is the latest product of ours. So I'd like to talk about the progress of revenue of these two products. The right -- left-hand side, RH850, Gateway, domain control ], those are the major growth areas. And for all these areas, we have achieved a significant growth. RH850, we started off from the 80-nano product -- 40-nano product. And then, on top of that, the 28-nano new product is now being launched. And then, the number of content growth per one car, especially in the growth applications, the adoption rate is increasing. And in fact, the number of units per one car is also increasing. Therefore, with all the synergies being delivered, the market growth, according to analyst data, the Gateway and also ADAS, is expected to achieve a CAGR of 12% to 15% xEV, 20% to 25% is the analyst consensus, but we have been able to achieve a CAGR higher than that. Then, the right-hand side, the R-Car Gen3. This is the third generation of SoC. Again, for here, this shows the timing of new product launch, and the ADAS and cockpits have been achieving a significant growth. And most recently, new Gateway central computers in this area, we have been able to secure design-in. So therefore, this is expected to lead to further growth in the future. Of course, this year, again, the demand is expected to continue to be strong. And for RH850 and R-Car Gen3, up until now and also continuing this year, the revenue for these products, this is confined by the actual supply constraints. So we have not been able to fully catch up with the demand growth. That is the current situation for these two products. Now next page. So here, I would like to talk about the growth pillars for the ABU business unit. First and foremost, if you look at the upper left, the emerging market -- emerging OEMs and emerging regions, we will focus on these high-growth areas, especially when it comes to xEV, Tesla, BYD, all these new OEMs are now increasing their number of units sold at an astonishing level. So in line with their growth, we would like to expand our xEV business. Secondly, the E/E architecture, ADAS and also xEV, those are the emerging applications. We will like to focus more on this opportunity, so that the automotive -- we would like to achieve growth higher than the automotive market growth rate. And the last piece, including Dialog. Intersil, IDT and also Dialog, with all these effects of acquisitions, and our Power portfolio has been expanded. So the digital products that we have been always strong with, at Micron MCUs and the SoCs, we would like to offer a winning combination, so that we can win content and thereby achieve our revenues and also market share. So with all these 3 pillars, I would like to deep dive into each of them. Next page, this relates to our growth for the emerging customers in emerging regions. So the progress and the revenue growth has been presented here for the design-ins last year because we have established a dedicated team. So as a result of that, we have been able to achieve a significant growth in design-ins. Consequently, if you look at the middle part there, the future revenues, based on certain assumptions, based on numbers, we are able to translate into the revenue growth expected for the future. So as you can see there, for revenues, we are, by far, overwhelming the market growth rate, in terms of our revenue projections, based on the progresses. Next page, please. Next page, please. Yes. So the strategy for these emerging customers and regions. There are 4 major pillars from staff on the upper left, winning combo, especially when it comes to xEV, reference designs and also turnkey solutions, we would like to make -- achieve ], so that we can expand our product portfolio. And 2-wheel EVs is also increasing, in addition to 4-wheelers. So including that opportunity, we would like to expand our business here. And if you look at the left-hand bottom, market China, India and Southeast Asia and, of course, U.S., those are the new OEMs there. And of course, [ IP ] platforms are now coming on board. So we will have to target them and expand the scope of our customers. Of course, what is good about them is that these customers are quite fast, in terms of translating into actual sales. And rather than prices, they focus more and attach stronger importance and time to market and also the supply. Therefore, this translates into faster revenue growth and improved revenue gross margin. So we expect these benefits from -- by addressing these opportunities. Now, upper right, because these are the new emerging markets and therefore, the orientation of these customers are, therefore, different. So new business models, new services and new products will have to be provided to them. Just an example, RISC-V-based products, for example, as well as cloud-based software services, those environments should be provided. That's another focus area. And the last one, bottom right. Startup mindset organization was set up as a dedicated team, as I just mentioned earlier. With this new team, we will like to catch up and agilely respond to the speed of the new customers and expand our business as a result of that. So the next page, E/E architecture, how do we respond to this market? D-ins and revenue growth are presented on the slide here. Design-ins, the central computers and gateways, these SoCs. We have secured a design-in, and also the demand controls MCUs, so SoCs and MCUs. By expanding our product portfolio, we have been able to achieve a significant increase in D-ins. In 2020, the SoC major platform D-in was secured, so 2020 numbers are outstanding but in 2021 as well. We have been able to achieve favorable increase, compared to 2019 level. And our favorable [ growth ] is expected for this year as well. So therefore, as a result, the revenue growth, projected for the future, is going to be larger than the market growth. Now, in concrete terms, the measures that we have to implement for the E/E architecture, let us explain here. If you look at the left-hand side, one of the strength of Renesas that the SoC, MCU and analog power. So we have a broad portfolio of products. So especially when it comes to E/E architecture, if you look at the R-Car picture there, central zone and actuators, all these different ECUs, domain ECUs, ECUs, ECUs and sensors and actuators. For those opportunities, we can provide many different total solutions -- a total solution. So what is important here is that customers reuse -- software reusability and scalability will have to be enhanced by providing development support. And of course, if you look at the left-hand side, safety, security, IP -- across different products, we have a common structure there. And also, when it comes to winning combinations, including analog, we provide a total solution for our customers. And furthermore, recently, and of course, going forward, we are trying to expand our capability at the bottom there. Traditionally, for each ECU, different development environment was provided. But nowadays, going forward, we would like to have a unified development environment across many different ECUs. So if you look at the right-hand side, based on that, we will provide many different tool sets, drivers, middleware, framework and applications. So we would like to expand the portfolio of software, so that the software and defined cars and software-defined architecture of our customers can be supported to our system-level integration, meaning that the customers, they will move from the ECU-specific optimization to a broader optimization for the entire car. So in relation to this, the collaboration press announcement for this environment was made just yesterday. We made a press release yesterday. Now, talking about the ADAS market here, design-in on the far left, first and foremost, our central ADAS and also camera SoC and safety MCUs. By expanding our product portfolio, we have been able to achieve a significant increase in D-in, just like the E/E architecture in 2020, hundreds of billions in yen of project D-ins were secured. So 2020 number is outstanding. But even for 2021, we have achieved a significant increase, compared to 2019 level. So this will result in a revenue growth by far exceeding the market growth rate in the future. So as for ADAS, the additional initiatives that we are planning to implement. If you look at the left-hand side, traditionally, central ADAS camera and MCUs as well as the related peripheral AHL and other [ camera ] interfaces and PMIC and timing ICs. These have been the products that we offered for the ADAS market in the past. But now, if you look at the Level 2 on the left-hand side, we are products -- benefits was the low power consumption and also the major Tier-1 collaboration, strong footprint among them. Then, on the right-hand side for the next solution in the future. With the acquisition of IDT in 2019 ever since, we have been able to offer the state-of-the-art RF 28-nano and RF CMOS. So with this low power consumption, low noise, radar, analog products, have been expanded, centered on this RF CMOS product. So for the central camera, the radar is added, so the fusion-enabled total solution is now going to be expanded for the future. So if you look at this chart on the right-hand side, Level 3, of course, in a few years' time, the industry will switch to Level 3. So with our composition of products, SoC will be more advanced, compared to before. And also, the camera numbers will increase further. And the radar MMIC will also be added. And compared to before, 4x as many content growth is expected for the future. Therefore, in the ADAS area, we'll be able to achieve a growth rate higher than the market average. That is our plan. Now from here, I would like to talk about the EV market, and the strategy will be explained by Vivek [ Ban ]. Vivek, please take over.

Thank you, Kataoka-san. Good morning. Let me take the opportunity to explain the growing and expanding presence of Renesas in the EV market. If you look at design-ins, we have seen a very strong opportunity pipeline and a very strong momentum to secure design-ins. Relative to 2019, in 2021, we achieved design-ins that were 420% to the '19 levels. As far as revenue is concerned, we expect EV revenue to grow significantly from where we are today, at a healthy CAGR of 40% and significantly contribute to the expansion of revenues for our Automotive business. As we all know, the market for EV is growing at a healthy rate of 25%. We at Renesas anticipate that our growth will be a lot faster than the market, based on the products that we are bringing into this space. When I talk about products, not only the strength in our digital and MCU space but also our growing product portfolio for analog and power. As we look at the products here, Renesas has invested, and we are very excited about our broad product portfolio. In fact, we believe, in the market today, we have one of the broadest and most diversified product portfolios within our competitive space. With that broad portfolio, we expect our content to increase in EV solutions, and we also expect that our products and silicon would be used in multiple places, and a lot of these products are also used many times within a single system. With the investments that we have made in the past and also the acquisition of Intersil, IDT and now Dialog, we have a very rich portfolio of products that we can offer in the EV space, with very well complement what Renesas was previously offering with MCUs, SoCs and power solutions. Specifically, in analog and connectivity, we see a lot more opportunities with the new products that we have. And overall, the serviceable market that we see with the products that we have, has expanded significantly. A quick comment on the power side -- power device side. We are actively investing in differentiating our MOSFET and IGBT solutions. We also recognize as Renesas that silicon carbide will be an important technology for the EV market, going forward. And we are evaluating and exploring options to -- internal and external options to make sure that we are able to offer SiC-based products in the future. Next slide, please. Further strengthening our broad portfolio, is our focus on offering differentiation. We want to make sure that we are achieving best-in-class performance. We are performing well against the key indicators for a product line, a very strong focus on improving cost competitiveness on our products. We are working diligently to make sure when those products are put together in this system, we are able to highly optimize the system and deliver those products as fast as possible. Starting from the left side of this slide, in the analog space, we believe we have a portfolio which establishes some of the best-in-class analog offerings for EV. For example, we have very highly-precise battery-monitor circuits for the battery space. For the growing sensor space, we have developed very sensitive and accurate position-sensor devices. Complement that with our connectivity solutions that we acquired through Dialog and Celeno recently and also other analog solutions that we can put together to complement our other offerings, we have a very broad portfolio of analog devices for the EV market. In addition to that broad portfolio, we're also very focused on scalable analog, where we are offering solutions based on the type of application that it is getting integrated into, scalable battery-cell monitors based on number of cells that are integrated in a particular application or it could be scalable functional drivers, gate drivers, based on the type of current and device strength that we need to support. In addition to that, in our analog space, we have more config-able and flexible parts to help our customers with flexibility, as they evolve their solutions. In the power space, which is also our discrete space, very exciting area for us also, we are continuously adding differentiation to our products, making sure that our power solutions have the best efficiency, best thermal performance, best packaging and the best power [ consumption ] possible. There have been investments done recently, and will continue to happen, to improve our IGBT offerings as well as our MOSFET product lines. As I mentioned before, we do absolutely see the importance of silicon carbide and [ GaN ] in the EV market, going forward. And through partnerships and other decisions we take, we will share in the future our plan on how to service the growing silicon carbide market. In addition to analog and power, our digital continues to be our strength. We are offering optimized digital solutions, which are scalable, based on the application. As was mentioned by Shibata-san, software is also very, very important, and we are focusing to make sure that our software is delivered along with our hardware, and the combination of software and hardware provides the best optimization for our customers. Wherever relevant, we also have specialized IP, whether it is for AI or for security or for motor control that we integrate within our compute engines. With a combination of our analog, power and digital capabilities, along with our strong focus to improve our methodology and focus on reliability and functional safety, where we have always received very good feedback from our customers, we are in a great position to offer complete system solutions, integrating our digital, analog and power content, and also enable fast time to market for our customers with these solutions. Next slide, please. With the broad portfolio and the differentiation I talked about, Renesas is positioned to succeed and offer complete platforms for EV applications. We have the capability not only to offer digital, analog, power and software together but also make sure that the interaction of these products is optimized to offer the best system performance possible. There are some examples of EV applications shown here, whether it is for traction inverters or onboard chargers or for battery management systems or even simple supplies for different sections of the Car space. If I look at traction inverter, for example, we have the full lineup of what is needed for the system to be put together, we have all the products, whether it is taking accurate position-sensing information that is processed by our MCU or having integrated IP for motor control inside the MCU or having power management IC that is driving the MCU with very strong understanding of the load and performance of the MCU, so that the PMIC can optimize the MCU performance, or having scalable and a range of gate drivers that are driving our IGBT and MOSFET devices or the feedback that you get from those power devices back into the gate drivers. That whole system can be offered by Renesas and is being actively optimized to give the best performance at a system level. If you look at, quickly, the battery management solutions, which is another area we can offer turnkey solutions. We have [ A cell ] qualified MCUs and battery management solutions. Battery management solutions, which offer highly accurate and scalable options. When we combine that hardware with our ability to offer application software, driver software as well as specialized software that has a better, quicker understanding of the battery health, we offer complete solutions for our customers to integrate that in their products and go to commercialization as fast as possible. Next slide, please. With the portfolio of products I talked about, and obviously, the focus on differentiation, we are absolutely expanding and accelerating Renesas' presence in the EV space. We see a lot of opportunities to work with different partners around the world. And through our winning combos and reference designs, we are enabling those partners to adopt our solutions as fast as possible. Also, with our winning combos and our system capability, we are able to offer turnkey solutions and support, which is becoming very important for emerging markets and emerging opportunities in China, India and other regions. In Renesas, we're also very uniquely placed, based on our capability to validate complete solutions for digital, for analog, power, along with our software. We have test facilities in Renesas, which can put systems together and validate them for the right system use cases. We have troubleshooting facilities, even our own demo car, which can integrate our advanced solutions to demonstrate the right performance. Also, many customers struggle with functional safety, quality and reliability. We have a very rich history and know-how to deliver in that space, and we continue to expand our capability to offer the best solutions possible to our customers. With a strong portfolio that I talked about and also the differentiation that we are strongly focusing on, we are continuously investing to expand our innovation for EV. We are very, very focused to improve the cost of the total solutions that the customers can enjoy from Renesas and also to offer products for the lot of opportunities that we see in the EV space, we are continuously looking at increasing capacity, front-end capacity that Shibata-san and Shinkai-San talk about, so that we can service those growing capacity needs in the future. Thank you .

Now, we would like to entertain questions. [Operator Instructions] We have Ishino-san from Tokai Tokyo.

Can you hear me?

Yes, we can.

About battery power management. In EV, many batteries are to be installed per vehicle, that is the trend. And the competitor's analog device are increasing shares or they have substantial share. As of now, what is your market share? And going forward, I think that there will be a switch to wireless, and through a series of acquisitions, I believe that you are strengthening wireless capabilities, what is your advantage -- competitive advantage to the extent that you're able to discuss, please?

Vivek, could you address that question?

Thank you, Kataoka-san. It is a very good question. In battery management specifically, we see a lot of opportunity. In fact, it is one of our focus areas. You talked about our competition. We are aware of that. And we also are working in partnerships to offer different kind of battery management solutions, based on number of batteries that are integrated, number of voltage levels that are being desired by the market and at what current and an accuracy level. So we have clear differentiation, in terms of our accuracy, in terms of monitoring, in terms of the software that we offer. And we expect that we will be very successful in the battery management, based on the opportunities and the feedback that we have received from the market. Also, you talked about wireless. Absolutely, there is interest in the market to deliver battery health through wireless communication. We have BLE -- low-power BLE solutions with low interference capability that can be integrated with our battery management solutions to offer a complete, low-cost solution that not only provides a very accurate and quick update of the battery health but also reduces the amount of wiring that is needed within the car. From a market share perspective, we are small, but we expect that, that is the case today. But based on our collaboration and design-in activities, we will be -- we will have a decent portion of the battery management market, going forward.

And what is your target, in terms of market share -- market share target?

I don't want to comment exactly, today, on the market share perspective. We expect to be one of the leaders in battery management in the next 4 to 5 years. We do recognize the huge opportunity that is there. As I said, we will be one of the top players in this space, but I would not like to comment on the exact market share today.

We have already overrun the scheduled time to finish this meeting, so we would like to take the last question from the floor. So this will be the last question. Yamasaki-san from Nomura Securities.

This is Yamasaki from Nomura Securities. Just one point of confirmation. In the material, you said long term, so you talked about the market projection and your revenue projection for long term. What is the time horizon, when you say long term? And my question after that is that for MCU market growth. Compared to before, it seems that the market growth is accelerating, compared to before. And I think that is one of the reasons for the shortage of supply. So what is your projection pertaining to the number of MCUs per one unit and also for the future E/E architecture. When we shift to the new architecture, do you have to foresee any risks? So what is your projection on this matter?

Okay. Thank you very much for your question. I would like to answer. This is Kataoka. I would like to answer your question. The long term, we are talking about 2026 or 2027 as the time horizon. And then -- so based on that, MCU, as you pointed out correctly, we originally, when it comes to domain or when it comes to zones, the MCUs -- I think the price per se will go up because it will become a high end, but we thought that the number of quantities -- quantity-wise, it will come down, up until a few years ago. And the second page, I think, is a good example. But in reality, this is just illustrative. But I think content growth, it's often said that 8% to 20% growth, for content, per annum. But in terms of our MCU, the market has developed faster than expected. So a 40% CAGR is the market growth rate. So I think, for some time, this kind of growth rate will continue. And then, will this last forever, like for 10 years from now? To be honest with you, I cannot predict if that is going to be the case. But definitely, with xEV and ADAS, and the domain control, those applications are growing, definitely. So for the next several years, I think, this kind of growth rate can be expected. Therefore, this is not really a demand issue, but I think we have actually determined [ disclosure ], based on the supply capability of ours. But the inventory is also piling up, to some extent. So that is an area that we have to pay attention to and carefully observe the trends. So we'll keep an eye on that and then try to expand our business on par and at a comparable rate, at least with the market. Did I answer your question?

Yes.

Thank you, everyone, for being patient with us today. As I mentioned at the outset, when we look at last year and this year, there are a great number of uncertainties, but it is not that environment has changed completely upside down. The focus of today's presentations is nothing that is very new, but this is to give you an update on our progress and whether there was upward -- upside or downside to our original projection. That was the focus of presentations today. As for the time allocation and the substance covered and logistics, we welcome your feedback, so we can improve on future events. We welcome your comments and feedback. With this, we would like to conclude today's Analyst Day. Thank you, once again, for your time, and we look forward to working with you in the future.

This is the end of Analyst Day. Thank you very much.