Renesas Electronics Corporation (6723) Earnings Call Transcript & Summary

Hello all. If you like to hear this session in English, please click the globe icon on the bottom and select English channel. Thank you very much for taking the precious time to attend Renesas Electronics 2023 First Quarter Earnings Presentation. Thank you very much indeed. Today we have prepared simultaneous translation channels, please click the globe button at the bottom of the screen and select the language of your choice. Speakers, you are requested to turn the video on. Today's session is attended by President and CEO, Mr. Hidetoshi Shibata; Senior Vice President and CFO, Mr. Shuhei Shinkai and other staff members. At first, we will hear some words from Mr. Shibata, followed by brief explanation on the first quarter results by Mr. Shinkai followed by a Q&A session. We expect to finish the entire session in about 60 minutes. Also, the materials to be used for today's session are already posted on the IR site of our homepage. Mr. Shibata, please put on your microphone on and begin your statement.

Good afternoon to you all. This is Shibata. I assume that many of you have already seen the presentation. But for the first quarter, we have achieved some upside vis-a-vis the guidance. As for the second quarter, we are expecting nearly flat revenue growth. But on the other hand, the second half is very difficult for us to forecast. There might be some upside. So we'll be making preparations for that. So therefore, we will try to build up a little bit of our channel inventory. Overall, the prevailing situation is changing. So how to hold inventory over the mid-to-long term. We will explain that during the Capital Markets Update Day, which is scheduled for next month so that we can provide you with a comprehensive explanation during that occasion. So there's nothing in particular for me to say, but I would like to have Mr. Shinkai, our CFO, to explain the details. Mr. Shinkai, please, that the floor is yours.

My name is Shinkai, the CFO of the company. Regarding the results for the first quarter of 2023, I would like to use the materials that is posted on the IR site and begin my explanation. On Page 3. This is a disclaimer. On the fourth point, in October of last year, we completed the acquisition of Steradian and the numbers are reflecting the purchase price allocation of that transaction, one more thing is that, a heads up towards the next earnings call. Our company is currently in the middle of integrating the [ ERP ] system, which is expected to complete sometime in the middle of 2024. At the beginning of the fourth quarter, i.e. -- in the beginning of October, we are planning to switch over some of the ERP systems. So before the switch over, we are planning to conduct some advance shipments. And therefore, this could have some certain impact on the results for the third quarter. We are currently scrutinizing the impact of this. So the details will be explained when we announce the second quarter results the next time. The next page, please. This is the actual snapshot for the first quarter. If you look at the middle columns, revenue came in at JPY 359.7 billion. Gross margin was 56.2%, Operating profit, JPY 124.8 billion, and OP margin was 34.7%. Profit attributable to the owners of the parent was JPY107.5 billion. The number, excluding the foreign exchange impact was JPY 106.8 billion. EBITDA, JPY 144.3 billion. Foreign exchange was -- we used JPY 133 to the dollar and JPY 142 to the euro. Compared -- as per the changes from the forecast, if you look at the far right columns of the table, I would like to explain them later in the subsequent presentation. This time, again, in order to present the cost out level of our profit, we have indicated the profit level without including the foreign exchange impact. The improved cash flow invested of intercompany transaction was changed in the fourth quarter. And there was no major changes in the foreign exchange level as of at the end of the first quarter and versus the fourth quarter, and therefore, the foreign exchange impact was insignificant. Next page, this is the quarterly revenue trends. The first quarter revenue, if you look at the far right there, overall, revenue achieved a year-on-year increase of 3.7%. And on a quarter-on-quarter basis, there was a decline of 8.1%. However, when the foreign exchange impact was excluded, which was significant, as you can see on the fourth page, the page before, on a year-on-year level, we recorded a decrease of 6.3%, on a Q-on-Q level a decrease of 2.5%. For the breakdown between automotive business and IoT business, those are already described to be low. Next, I'd like to go over the revenue and gross margin as well as operating margin for Q1. And so first of all, I'd like to go from the company total. And if you'd be able to look at the top right versus the forecast, the operating margin was able to do better by 2.2 percentage points. As for the revenue, it has been a 1.3 point above the midpoint level. However, almost half comes from currency. And in another words, the remaining half comes from non currency. Now for both automotive industry infrastructure, IoT, we have been able to surpass our forecast. And now going into the gross margin, this has been better by 1.7 percentage points versus the forecast and major reason really is because of the product mix. And in terms of FX, it has been pretty much in line with our expectation. Product mix has gone plus a positive, a slight positive coming from currency mix. And as for the product mix, pretty much has been in line with our expectation. There has been a bit of a decline in production recovery. And -- as for R&D, SG&A, operating expense, it has been slightly under our expectation. Now bottom right shows Q-on-Q trend. As for the OP margin has been flat Q-on-Q. As for revenue, including FX there has been a decline by 8.1%, but excluding FX, there's a decline by 2.5%. As for gross margin, it has gone positive by 0.2 percentage points, and major reason comes from the decline in production recovery as well as increase in production cost. And so the mix of that -- so offset by the mix -- better mix. And as R&D, SG&A has gone down. And also -- in addition to seasonality, there has been better cost control during this course of time. On the left-hand side, there is a table for each segment and for Q-on-Q decline -- Q-o-Q change for gross margin and OP margin. So we know that automotive side relatively has been able to find a better mixed recovery as for industry infrastructure IoT. And there has been some recording of a large inventory valuation allowance. And so that is why you see some difference in the gross margin. And also for industry infrastructure IoT, there has been a decline in revenue size, and this is what pulled down as you can see and OP margin decline on a Q-on-Q basis. Please move to the next page. Here, we look at our in-house inventory. Now on the right-hand side, we have the DOI for the company total. And so it has gone up by Q-on-Q. It is now 107 days. And per segment, for automotive side, we can process DOI as well as the absolute value-wise, it has been increasing and industry infrastructure IoT. The exact value has peaked out ever since Q3, and so DOI is pretty much flat. Please move on to the next page. Here, we look at sales channel inventory as well as the WOI. Now WOI has increased Q-on-Q basis. Automotive and industry infrastructure IoT, both is now marking at 8.5 weeks worth. And this slide is showing -- is using FX rate on the management accounting. And so from this fiscal year, in other words, FY'23, the forecast deposit rate has been changed. And so in order for you to make an easy comparison, we also have adjusted the figures from '22 and before to the rate we are using for FY '23. However, the impact of this FX rate to WOI is very minimal. Now here, we look at inventory analysis, starting with the in-house inventory. Value-wise, it is pretty much flat. The raw material for Q1, there has been a slight increase. However, we are expecting a flattish strength from Q2 and onwards. Work-in-process Q1, there has been a decline as expected due to production adjustment. However, the wafer for -- the MC wafer for automotive side, we have decided to purchase in advance from the foundry. And that is why we're seeing more in the back end at the end of Q1. And so in the end, total in Q1 is pretty flat. And in Q2, we expect value-wise, a similar trend or similar level. In other words, work-in-process will go down and buy back will be expected to increase. As for finished goods, in Q1, it was in line with our expectation. And in Q2, we expect there is going to be a slight decline. And now moving into the sales channel inventory on the right hand side. For both automotive and industry infrastructure IoT, we do find the level being as expected in Q1. Now for Q2, we are going to pay close watch to how the trend would be in the second half as we try to adjust our shipment. As Mr. Shibata mentioned, we have to make sure that there will not be any opportunity loss. And so that is why we are going to be increasing slightly the level of sales channel inventory. As for industry infrastructure IoT in Q1, WOI as well as the DOI inventory has increased -- and in -- Q2. In order to make sure we'd be able to prepare for the second half, we are going to be increasing -- building up the level of WOI, that's with automotive. We find that Q-on-Q, there's been increase in absolute value of inventory as well as WOI because we build up the inventory in Q2. We also expect these to increase to make sure we'd be prepared for production increase in the second half. Moving on to the next page. This is about the utilization rate for the front end. And for Q1, we expect -- so this added in 70% and which is pretty much in -- within our expectation. And in Q2, we expect that this utilization is going to decline due to production adjustment. Moving on to the next page. This slide shows gross profit and operating profit trend. And this is a new slide that we have added. And moving on to next page. Now here, we look at EBITDA for Q1, which is JPY 144.3 billion. And also on the cash flow on the right-hand side, operating cash flow was JPY 71.4 billion, and free cash flow was JPY 53.8 billion. Now in Q1, the difference of EBITDA versus operating cash flow would be JPY 72.9 billion. So that is the difference and some of the major items is, first of all, tax payment, which is almost JPY 81 billion, and bonus payment is a little over JPY 300 billion, and there's also been some insurance proceeds. And so some of the major out -- cash out has been offset slightly. Moving on to the next page. Here, we look at Q2 forecast, and please look at the middle blue column. As for revenue, the midpoint forecast is at JPY 366 billion (sic) [ JPY 360 billion ] and year-on-year, that would be a decline by 4.5% and Q-on-Q, that would be increased by 0.1%. Excluding FX, we have also indicated that at the bottom that year-on-year, that would be minus 8.7%, whereas Q-on-Q, that would be increased by 0.1%. As for gross margin, this is 55.5% which is a decline by 0.7 percentage points on a Q-o-Q basis. Major reasoning has to do with the decline in production recovery, which has been -- which will be offset partially by better mix. And as for FX and production costs, we expect it is going to be flattish. As for the OP -- operating margin, 32% is expected, which is going to be decline by 2.7 percentage points by Q-on-Q. But OpEx, it is going to increase due to seasonality. And in addition to this, from April, there has been -- there is going to be a salary increase to our people, and that is also something that is included in the figure. As for FX, the assumption is JPY 132 versus dollar and JPY 143 versus euro. Now moving on to some slides in the appendix deck. And if we can go to Slide 18. Here we look at GAAP versus non-GAAP reconciliation and some of the major items under the nonrecurring for Q1 would be somewhere like fourth row from the bottom is -- this is the Naka Factory Fire Impact and in other words, the insurance proceeds has been recorded, the amount would be -- the amount is JPY 29.6 billion, and this is the amount recorded as part of the nonrecurring item. Next, Page 21. This shows our CapEx. And in the first half of FY '23, there has been like license purchase and also IoT Investment. For example, ERP changes that I mentioned earlier. And so that is why we have -- we expect that we will be marking a little over 5%. And moving on to the next page and this is about Panthronics. This is an NFC solution company, which we acquired. And so this slide has included for your reference. This concludes my explanation.

Thank you very much. Now we'd like to move on to the Q&A session. Mr. Shibata, please turn your video on. [Operator Instructions] Now are there anyone who has any questions.

Daiwa Securities, Sugiura.

This is Toru Sugiura from Daiwa Securities. I have a question. First question is about the outlook of the semiconductor market. I would like to hear your comment from the President. And also vis-a-vis the market trend, which area do you think you'll perform and underperform. Please also let -- please also explain the context or the background behind your statement.

That is a very difficult question to answer. If I divide by segment, the PC, as we explained the last time, we believe the trend will bottom out in the second quarter of this year. But after bottoming out, how strong will the recovery be is something that we have to carefully discern because -- first quarter and second quarter, the inventory adjustment at the user level has made a significant progress in the first and second quarter. So therefore, in the second half, I think we shall be able to record revenues based on actual demand. So we are foreseeing a slight recovery. So I think this is an area that we are expecting sales growth in -- on par with the market growth. So if we are on par with the market, then mobile and consumer are also related. In these areas, there's nothing that we are going to act differently from the market in particular. So I think we are also expecting comparable growth as the market. So towards the second half of the year, this will likely soften further in this market. So against this, for smart meters and other industrial applications in a broader context. There are still some sense of uncertainties and lack of transparency. But based on our current best guess, I think some level of strength will be -- will continue like -- more likely continue. So therefore, we are expecting comparable growth as the market, and I think that is what we are foreseeing right now for this segment. And other than that, cloud data center, these segments. This from before, is an area that we have been having a huge expectations, which is not really happening yet. It is the upgrade of the server platforms. And in the second half of the year, if this happens successfully, then we think this will have an opportunity to achieve a content gains higher than the market trend or the market average. So this is one of the elements that I talked about when I talked about the upside during my statement. So maybe until next year -- maybe the transition may be delayed into next year. But I think if things goes smoothly, we shall be able to see the transition before the end of the year and that could be one of the drivers for us to achieve higher than the market growth. And the last piece for us is the automotive segment. Overall, while there are still a lot of lack of transparency. So we are not trying to be over optimistic. But one of the tailwind factor for us will be the OEM in Japan, the portion is still relatively large, but the Japanese OEMs towards the second half of the year, relatively speaking by global comparison, the production volume is forecast to be relatively robust. So if that turns out to be the case, I think that will serve as a tailwind for us. And also, the other factor would be China. Some time ago, economic stimulus has been speculated and discussed about, and we're not really -- nothing clear has been announced yet. But if these are implemented in the second half of the year, that will also be a positive factor for us. So maybe China will be only on par with the general market, but this could potentially be a tailwind for us as well. Another thing is about ADAS and EV related. These things will be a tailwind for us to some extent. However, the proportion to the total automotive segment is still not that significant, only 15% in total. So this could become a tailwind, but it is not likely to offset the overall trend in the automotive market according to our assumption. And also cloud and data center, I forgot to mention one thing about cloud and data centers, the generative AI. If things go smoothly and kick off, I think this will be a good level of -- a certain level of tailwind for us. So China and therefore, cloud data center and the generative AI, those 3 things. The potential upside sources for us in the second half of the year. That's according to our assumptions right now. And then besides that, PC flat or slightly higher than before; mobile consumers continue to decline; industrial good flat in a good sense. Those are the assumptions that we have.

My second question has to do with the pricing. You talked about increasing -- so we see the utility cost increasing and you're thinking of the pricing level. But then you still do have uncertainties to how the market would go. And so what is your thought in regards to the price strategy that you have in mind?

Yes. So for price strategy or our thoughts behind price. Basically, we want to think of this on an annual basis. So for example, for FY '23, -- at this moment, we're not expecting for us to really start changing the price in a sizable manner. You mentioned about increasing utility cost. Now in second half, we do expect there could be a further increase, which means we'd have to work on cost reduction on raw materials, so forth so that we'd be able to absorb this increase. That's my response.

UBS Securities, [ Nicholson ].

This is [indiscernible]. I have 2 questions. My first question is something that I know, Mr. Shinkai did mention. This is about gross margin for automotive side, which is increasing, and you talked about better product mix. And if you could talk a little more about this product mix? And how do you think this will develop into the future? What is your outlook? So that's my first question.

Mr. Shinkai, can you take this question?

Yes, I certainly will. So for the product mix for the automotive -- within automotive, there has been some slight improvement in the product mix. And this is something that happens currently, but device -- when device price changes, this does impact the mix. So that's one factor behind. And also from Q1, we are seeing benefits from the pricing and which is also part of the better mix impact. Now our outlook from here on. As for the automotive business, this is where we do have a large portion where we do produce within our internal factories. And so the utilization rate does have an impact to our numbers. And so in Q1 and Q2, the input-based utilization rate, this is something that we're showing, but we're expecting this is going to go down. And that means the production recovery will start to go down, which relatively speaking, is going to have an impact to the automotive side. So thank you. In other words, there will be some negative sides. However, when it comes to the cost -- in other words, pricing and the mix will be the 2 factors that will give you a positive impact from Q2 and onwards. Am I correct in saying so? Well, this goes back to what Mr. Shibata was mentioning. So -- it is not that we expect a Q-on-Q change because this is something that we look at this on an annual basis. There could be some change in the product mix.

I'd like to move on to my second question. On May 19, the Capital Markets Day. And during that occasion, you'll talk about the mid-to-long-term trends inventory holding, but we are expecting top line growth for the company. So -- at the current moment, do you have any message that you plan to convey at the Capital Markets Day? So just give us a preview, if you could.

So this is every year event. So therefore, there's no major changes that could only happen in just one year timeframe. So basically, the target model will be maintained for now. So all the things that we have communicated to you until the last time we'll talk about the progress thereof and also share with you the information as to the probability of achieving our medium-term targets so that we can enhance our conviction level.

Then we would like to move on to the next question. Fujiwara-san from Citigroup Securities.

Citigroup Securities. My name is Fujiwara. I will -- also like to ask 2 questions. One is that relating to IIBU, which was covered by the previous question. IIBU [indiscernible] and also sales channel. The sales channel has come down to your target level by and large. So towards the second half, because of upside, you also talked about the possibility of increasing inventory. And you said that there is a -- there might be some upside opportunities in the cloud area. So in what other areas are you expecting some upside? That's my first question.

If I talk about it by application, cloud, as I mentioned earlier, cloud and also /AI -- cloud/AI would be the area and also for China, is also the primary area that we are focusing. So then, on the contrary, are there any other areas where you have excessive inventory that will get a long time for adjustment? I don't think we'll see that program because both in-house inventory and channel inventory, we have managed them very carefully, both of them. So right now, rather -- we are rather concerned about that we get too shy because of the past experience because this could lead to lost opportunities. So we would like to avoid any supply crunch because of this. So we would like to keep a little leeway there.

My second question, the second quarter utilization rate may come down on a Q-on-Q level. That's what you mentioned, I think. So if we are believing -- you also mentioned that during the last earnings, we released that the Q2 will be the bottom. So in terms of utilization rate, the Q2 will also be the bottoms? And then can we expect that in the fourth quarter, you will be able to achieve an increase in utilization? Would that be correct?

Yes, second quarter bottom. As you rightly pointed out, that is our assumption. Yes, and in the third and fourth quarter, whether there will be an increase and pickup in the third quarter and stay there and remain flat. I think that's something for the future. It's very difficult for us to predict. So we would like to make the second quarter bottom and achieve an improvement in the third quarter. That's included in our assumptions.

And a follow-up question. Recently, your inventory level, there was a slight increase in automotive segment, but you're not really increasing your inventory overall. So I think when the demand recovers, your utilization will also recover. So is it right to consider that there's no significant deviation between your production volume versus the end demand?

Yes, I think that is correct. So as far as automotive is concerned, there are some changes in -- when you look at the breakdown of it because, relatively speaking, Europe those mega Tier 1s in Europe mainly. In these customers, the inventory buildup was too excessive, I think, according to how we see it. So for those customers, the sales and the active demand for them will depend on the adjustment at the customer side. And therefore, there will be a depreciation until that is resolved. But when it comes to Japanese customers, the lean inventory holding has been continuing for some time. So right now, at the actual demand basis, I think we have been able to consume based on actual demand. But if there's any upside in the demand, there will be a deviation. So we would like to be prepared for that. But I think we are making shipments according to actual demand. I think we can say if you say that. Thank you.

Mr. Takayama from Goldman Sachs.

This is Takayama from Goldman Sacs. My first question. So I know this already has been asked to you today, but you are trying to prepare for a potential upside from here. Now looking at you from outside, we know that there's server. I mean, it's not really going strongly. Of course, you are trying to make sure you'd be able to look for platform changes. But then at the same time, we also hear that Chinese automakers are not really being aggressive -- strong. Now when you still say upside, you still do have visibility enough to increase your inventory? Is this the way to take it? I just want to confirm your nuance? Or are you just expecting some optional opportunity, and that is why you want to make sure that you would not lose your opportunity.

Well, it's really about the second one you mentioned in other words, it's really about the option -- opportunity that we might be able to find. Now in terms of inventory, yes, we have been increasing this on an absolute value, but then the baseline revenue itself is also increasing. And so -- we have tried to manage this in a quite a lean manner as I feel. And if this -- if we find some upside to the revenue, the trend, that means there could be a chance that we will fall short of our inventory. So even if there's an upside trend in the revenue, we want to make sure we'd be prepared and the platform change in generation. Now even if it does not happen this year, we expect that we should be able to find opportunity next year, and that is why we want to be selective in trying to find where we want to be able to build up and so that we will not find any opportunity loss. Now with that said, it's not like we have this full visibility, we are trying to prepare ourselves for the possibility that we see ahead.

Do you -- I'm sure you have thought about increasing your inventory too much. And in other words, even if you don't find that positive opportunity, you still would be able to manage with the current inventory?

Yes. We do want to be prudent as we try to manage our inventory at any rate.

My second question. So from July and September onwards, you don't have a forecast, but then what is your direction in terms of margin? Of course, it has to do with the product mix, utilization rate. These will all change the margin. But then listening to you, you are seeing that things are bottoming out. In other words, is it correct to undertake this as your margin will not drop?

Thank you. Yes. And as for direction, we are not expecting there is going to be a further decline in the trend.

Are there any other questions? [Operator Instructions] Mizuho Securities, Yamamoto-san.

Mizuho Securities. My name is Yamamoto. I have a very simple question. The second quarter revenue Q-on-Q level flat is your forecast. ABU and IIBU, what is the pluses and minuses for on a Q-on-Q basis that you are forecasting?

By and large, both of them are expected to be performing flat.

Within IIBU, if you break down by subsegments, maybe infrastructure, you are expecting a Q-on-Q increase, but there might be a decrease in the IoT area. So what is the breakdown of that?

If I divide by subsegments, on a quarter-on-quarter basis, there are so many ups and downs, so it's very complicated. But for the industrial, we are expecting strong performance -- quite strong performance. And then for infrastructure, so well for the second quarter, from the first to second quarter, I think so, so strong. And then IoT and consumers, I would say -- there might be a slight improvement, but nearly flat. That is what we -- how we see it. And of course, for many others, the mass market related. Well, it's not that this is a general trend that we are strong. But when you compare first quarter to second quarter, there might be some strong momentum. So then it sounds like everything is -- we are foreseeing a strong trend. But if you look at the individual level, it doesn't seem to be so unfavorable, but there is a general lack of clarity. So therefore, we have to conduct a major haircut and be prepared. That is the operation that we are undertaking. And the automotive, we are forecasting flat.

On the automotive side, without any haircuts on the actual demand basis, is that what you are assuming for?

Yes, that's the current forecast, yes.

Next Mr. Yamasaki from Nomura Securities.

This is Yamasaki from Nomura Securities. I have 2 questions, too. My first question is about your order backlog circumstance. I think it was from mid last year, it has been increasing, but then you back then were saying that you don't exactly have the visibility there, but then it could just be a qualitative comment, but what is your view now? So that's my first question. And also can you give us a little more image for the automotive side? And I think you were looking at 47-micron or you have [indiscernible] advanced MCU. And you also talked about the European OEM inventory, but -- if you have any, like a little more detail here, that is something I would like to know a little more.

So 40 nano MCU -- at this moment, we do believe it is -- the circumstance is still very tight. And looking at the application and customer we do find areas where we still see the situation pretty tight. But then we also do find some customers being able to build some of their own inventory. And so compared to the previous earnings result, we are finding more towards a better balance, but then -- at the same time, if I may speak on a little more pessimistic way, maybe the demand is still being weak. So it is still tight. But compared to the previous earnings call, it is becoming less tight. That is what I feel. And otherwise, it's really hand to mouth. The situation has -- is something of the past. In other words, we don't really sense the situation being extremely tight anymore. And what was your first question? I'm sorry -- Mr Shinkai, do you remember?

It's about the order backlog.

Yes, thank you, it was about the backlog. The circumstance really has not really changed. Looking at the revenue forecast, we do find the backlog is ample and enough to support our forecast, but the backlog itself is becoming cleaner about our lead time. We tried to shorten it, but still, we do find orders more into the future. In other words, but perhaps some customers still do want to make a little more orders in advance so that they feel a little more comfortable. And if this continues, that could mean that we might find some short-term orders coming a little more, which could mean that our mix would become a little more fixed and normalized. Overall, again -- overall, the field that we have has not really changed from the previous earnings, but we do find more solid backlog at this moment.

Any other questions? [indiscernible]

My name is [indiscernible]. This may be a repetition, but allow me to ask this question. The OP margin after the second quarter is expected to decline. What is the major factor behind this? Can you elaborate on that point?

Well that will be explained by Shinkai-san.

From the second quarter -- after the second quarter, I will explain the second quarter projection. Well, for the second quarter, 32.0% is the projection. So there is a decline of 2.7 percentage points that we are currently estimating. The operating expense is the big driver here. So there will be some seasonalities. For example, in the second quarter and fourth quarter usually have a larger than usual expenses, and that's one factor behind this. And also in our cycle from April, we have a regular salary increase, and this salary increase this year had a significant sign on a global scale. Therefore that -- this represented in the personnel cost increase and that will have a kick in from the second quarter onwards. So inclusive of that, we are expecting an increase in operating expenses.

Then so the second quarter will see a significant decline, but the personnel cost impact will not be much significant at in the third quarter onwards.

Yes, the personnel costs will remain flat and then other expenses because of seasonality and also remain decrease or increase expenses based on the market trends.

[Operator Instructions] Tokai Tokyo, Mr. Ishino.

This is Ishino from Tokai Tokyo. So on OEMs or the actual manufacturers, they would be designing semiconductor. And could be sending their order to foundries directly. Do you think that could be possible in the future? Do you think of this as a risk or do you not? For example, we heard about Honda's new move. In other words, so Honda's new move, how do you, Mr. Shibata look at the trend?

Yes, thank you for the question. Well, auto OEMs, will they really start developing, designing their own semiconductors, even if they do, it's probably going to be really limited. That is my view. Semiconductor manufacturers oftentimes -- so we probably will see more cases where OEMs would be collaborating together with semiconductor manufacturers more closely to design their semiconductors. That could happen, but then as an example, smartphone makers are -- for example, in the auto side, we find Tesla trying to design their own chip. But then -- we hear that, but then if still -- even if this happens, it's really going to be just very limited cases. Because it is not exactly easy. And it also requires very large investment. In other words, if you want to make sure that your investment would pay off, you have to make sure that you have a very good turnover or top line to make for that. So I think it is really limited.

I have another question. SiC, like, for example, Tesla -- the likes of Tesla, they are saying that SiC is really costly. SiC wafer is really costly. Now I am sure Renesas is also thinking of SiC wafers. Before, I mean, I know that long time ago, it could be different compared to today, but SiC requires a lot of investment. And now if you really want to go into SiC wafer, what is going to be the process -- procedures that you might want to take in going really -- firstly into power semiconductors?

Thank you for your question. The circumstance really changes. And so my message might change over time. Now the SiC doing this on our own at this moment, it's not something that we have in our mind. And so the rule, on the supply basis, we know that it is increasing, and there could be a good ample investment there. And so we don't really mean to go straight into their -- on our site. Now as for the wafer substrate the manufacturing technology on the SiC front, it is still in the early stage. And so there's a very more yield. There's a lot of loss, as you may know, how to slice or how to manufacture. As the technology develops, then you should be able to really obtain much more substrates from the same seat. And when we go to that period of time do we want to have this on our own. I'm sure there's a lot of way perspectives there. But at this point, I do not believe we need to do that at this moment. But then epitaxial wafers, this is something that, yes. It probably would be better if we'd be able to do this on our own, not exactly associated itself. But otherwise, it might be better if we'd be able to internally develop.

Are there any other questions? We still have time. But since there are no further questions, we would like to finish the Q&A session at this juncture. Finally, to close, I would like to have some words from Mr. Shibata.

So -- because the questions were so limited, so that represents the case that we didn't really have something so much in particular to talk about this time around in this earnings call. Next month, we will share with you the progress of our medium-term plan including members from the other representatives other than myself and Shinkai who are responsible for the product line. So if you have the time to attend, we would like to welcome you to that event. Thank you very much for sparing your time for this session today. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]