Renesas Electronics Corporation (6723) Earnings Call Transcript & Summary

[Foreign Language] Good morning, everyone. If you'd like to listen to this session in English, please click the interpretation icon at the bottom of the screen and select the English channel. [Foreign Language]

[Foreign Language] So the whole industry is working on this, right? It's nothing really special. We decided to execute at this timing. And last year, we also started to resume -- we resumed the dividend. And this year, we expect to pay out the same amount this year as well, a little over JPY 50 billion. So that would be the summary of this slide. So now I want to pass the floor over to Shinkai-san to give you more details. Shinkai-san, please.

This is Shinkai, CFO. So let me go over Q4 and full year results according to the presentation material. Next slide, please. Here's the disclaimer. So we have respectively updated as well. And here's the Q4 results. Q4, please look at the numbers in the middle, in the blue boxes in the middle for Q4. The revenue was JPY 292 billion. The gross margin was 54.9%. Operating profit was JPY 75.4 billion, and margin was 25.8%, and net income was JPY 71.1 billion (sic) [ JPY 71.9 billion ]; EBITDA, JPY 98.2 billion; and FX assumption, JPY 149 to $1 and JPY 162 to EUR 1. So 3 columns to the right is the change from the forecast. And for the full year actual, we have the dark blue column on the right. Revenue was JPY 1,348.5 billion, and our gross margin was 56.1%. Operating profit was JPY 397.9 billion, and operating margin was 29.5%. Net profit was JPY 360.4 billion. EBITDA was JPY 486.2 billion. For the full year, let me talk about the year-on-year change. Revenue was down by 8.2% year-on-year. Automotive slightly increased year-on-year, and Industrial Infrastructure IoT was down. Excluding the impact of the weaker yen by JPY 11, the revenue declined by 11.7%. Gross margin compared to last fiscal year was down by 0.9 percentage points. For IIoT, the lower utilization and production cost and the revenue mix deteriorated. The operating margin year-on-year, it was down by 4.6 percentage points. Mainly for R&D, the OpEx increased. Also, some acquisition costs was part of the increase in the OpEx. Next page, please. For Q4, please let me refer to this slide. For company total versus the forecast, please look at the top right. For revenue, compared to the midpoint of the forecast, it was higher by 5.1%. FX impact was roughly 2/3 of the impact. And rest was the other factors other than FX. So for the factors other than FX, with the forecast, we were expecting a risk of slowdown in the parts supply, but thanks to the recovery measures taken, the impact, it was smaller compared to your anticipation. So all in all, for automotive, other than that, it was pretty much in line with the projection. We reduced the selling to cut the inventory. For IIoT, there was some change in the product mix, but the result was pretty much on par with the plan. And next, moving on to the gross margin. Compared to the forecast, it was higher by 2.4 percentage points. It was mainly coming from the improvement in the production cost. 2/3 of the improvement came from the production cost improvement for 2 reasons. One is that from Q3 to Q4, we stepped on the brake hard for production and selling. As this was a short-term adjustment, we had to assume that production costs centered on utilities will not fall as much as we had hoped. But in reality, we were able to keep costs down. So that's about 50% of the impact. And another factor was the variable cost that will decrease in line with sales and production. Reflection was conservative. For example, IP royalty cost and logistics cost both come down with a revenue decline, but we did not fully factor those impact in. So all in all, we saw an improvement in the gross margin. The operating margin was better than forecast by 3.3 percentage points. This is partly due to the improvement in the gross margin. And also compared to the forecast, the OpEx slightly declined. Looking at the operating margin for Q4. As we had explained in the previous results meeting, it included a one-off factor. Specifically, the effect of reversal of the provision for bonuses is concentrated in the fourth quarter. For automotive, there was a big recipient of the R&D expenses. Please look at the Q-on-Q change at the bottom right. The revenue was down by 15.3%. As we communicated in the previous earnings call, looking at the waterfall chart, the impact of the stronger yen and the stagnation on the parts supply was smaller than expected. So this Q-on-Q decline of 15% was mainly coming from the channel inventory reduction and the reduction in the sell-through. The impact was half each. And for gross margin Q-on-Q, it was down by 1 percentage point, mainly due to the lower utilization rate. For operating margin, it was down by 2.7 percentage points. It does include one-off factor but OpEx on a Q-on-Q basis came down. The operating margin was down because of the decline in revenue. Looking at the segment details, for Automotive, the operating margin Q-on-Q increased. The one-off development cost payment was made, so that had a positive impact. And for IIoT, the gross margin decline on Q-on-Q was smaller. And this is thanks to the impact of the auto consolidation and the decline was made smaller. And for the Q-on-Q revenue for 4Q, please look at the column at the far right. For company total, year-on-year, it was down by 19.2%. Q-on-Q, it was down by 15.3%. And I have already explained the details. And the second information is also illustrated on this slide. This is the trend for the financial KPIs. Please look at the next page. Regarding the inventory, we have the Q-on-Q trend and the factors behind the change. First, looking at our in-house inventory on the left and also look at the box at top right, please. For Q4 on a Q-on-Q basis, it increased. Initially, we expected to lower utilization to cut the work in progress in the die bank and also reduce what we procured from the outsourcing partners. But this was not happening at full speed. And also at the end of the year, yen was weaker. And also DOI, because of the revenue decline, increased to 120 days. For Q1, overall, we expect the inventory to slightly go up, but the DOI is expected to come down because of the revenue increase. In Q4, we reduced the die bank, so we are going to replenish that. So that's why the utilization rate is expected to go up in Q1. Overall, the short-term lead time order is still coming in big volume. So in order to support this, we will not reduce the inventory too much. So with the revenue growth, we expect the DOI to go up. And regarding sales channel inventory, so from these results, we have changed the definitions of some numerics here. Let me explain on that. When we manage the channel inventory, so we revised the definition this year to match accounting management more with the reality. So the price of inventory, which is in bar chart, so we have been using the book value at a distributor, which was including the margin of ship and debt transactions. Instead, we changed it to the net selling price basis. So the bar height and the price should be much closer to the actual sales price. So I believe this will be more appropriate to reflect the reality. The WOI is just a result of the division, so it won't be changing much. But due to the difference in the price, then the bar height will be smaller. On this slide, we have updated retroactively with this new definition. In Q4, the sales channel inventory, both actual amount in WOI decreased Q-on-Q. In Q1, so both automobile and IIoT, we plan to reduce the channel distribution inventory furthermore. So we'll maintain the inventory to stay lean. Next slide, please, utilization and CapEx. Starting with utilization, in Q4, it was around 30% as forecasted, but it came out to be a little just under 35%. So we have a slight increase. In Q1, we plan to have a slight increase on utilization, a little over 40% is expected. So we had reduced reduction on WIP in Q4, but we plan to increase them into Q1, including die banks. And CapEx is as shown on the right-hand side. Next slide, please. Q1 forecast, right in the middle in blue, dark blue, the revenue midpoint forecast was JPY 309 billion and gross margin will be 54%. Operating margin will be 24%. The FX assumption, JPY 155 to $1, JPY 161 to EUR 1. And let me touch on more details on that, first with revenue. The midpoint forecast is JPY 309 billion. Year-on-year, it's down by 12.2% and it's up by 5.6% Q-on-Q. This Q-on-Q change, 5.6%, so it says it's down by 0.1%, excluding foreign exchange impact. And for device revenue, plus 2.2%. Let me explain on this. So yen impact was 5.7% positive for FX impact. Then the Altium consolidation impact is minus 2.3%. So device sales would be 2.2% accordingly. And starting with device, so total revenue, excluding FX and Altium software sales is excluded, it is shown over here as device revenue. It's up by 2.2% Q-on-Q. Automotive and infrastructure, industrial infrastructure, IIoT, are both increasing Q-on-Q. And also Altium portion, this is down by 2.3%. So from Q1, we are changing the revenue recognition rule for this portion. And let me explain, elaborate a little bit more on this. So Altium revenue for software and license sales, that's both on the on-premise type and subscription type, so they basically were recognized mostly upfront at the time of the contract. But at the same time, the business itself has been migrating to the cloud service. So the subscription-based contracts are expanding right now as a form of software provision. The cloud service percentage is increasing year-by-year. So cloud service, subscription service assumes a continuous service provision. So it is consistent to recognize revenue over the period of provision. Therefore, so instead of booking the revenue upfront at the time of contract, we decided to change the revenue recognition to be prorated over the service period. And so this is starting this fiscal year. From PMI perspective, we believe it will be best applied from FY 2025 because of the consolidation. So at the time of the change, the revenue booking timing will be temporarily delayed, resulting in a decrease in sales temporarily. After that, the stable revenue recognition becomes possible. And from Q4 into Q1, we will see a temporary decrease because of this. And that is about 2% or so, as I mentioned earlier. But the fundamental business continued to grow. And from Q2 beyond, along with the business expansion and contract accumulation, we expect to see increases to come Q-on-Q. So that was for the revenue. Then let me talk about gross margin, 54%. So the Altium, the revenue recognition rule changed. Excluding this impact, it's almost flat. So improvement due to increased capacity utilization will be largely offset by price mixes. Then OP margin, 24%. Excluding Altium impact, it's going to be almost flat Q-on-Q. So the one-off impact seen in Q4 will be offset by controlling the expenses. Those are the forecasts for Q1. Going into appendix, let me also touch on some of the pages, first on Page 14, balance sheet. So we have completed the former Altium PPA calculation. So we have retroactively revised the results. So the acquisition cost, JPY 6.4 billion. And of that, 70% will be the goodwill and roughly 30% intangible fixed assets. Amortization period weighted average to be 14 years and annual amortization cost is going to be about USD 149 million. So going to Page 16, right here, we have added the impact of Altium in the recurring item. In Q4, we have JPY 8.4 billion as nonrecurring items. This is mainly structural reform-related costs, as such a onetime impact. Next, on Page 18. Let me go over highlights on the left. Altium PMI, PPA is completed and PMI progressed. Especially, we made progress on financials. And we changed the revenue recognition standard starting from this year '25. In the middle, dividend, continuing last year, we will continue to pay out dividends. And the Gen5 update is on the far right. This is all from me.

Thank you very much. We'd like to move into the Q&A session. Let me explain how you can ask your questions. [Operator Instructions] So first from Goldman Sachs, Takayama-san, please.

So looking at the Q1 revenue mix and also the profit, how you build those plants. Earlier, you mentioned about the automotive and non-auto, the revenue is likely to go up. I think this is the 2.2% growth. And within automotive, can you give us the breakdown revision. And also for the non-auto business, like industrial machinery and data centers and other applications, are there any difference in the recovery of those end markets? And I think you mentioned that in Q1, the product mix will deteriorate a little bit. Maybe the automotive business is going to grow faster. But in Q2, looking at the sales in effect, if the revenue is to go up, I get there's no one-off in the Altium. So if the revenue goes up, your margin should go up. Is that going to be the way we should be looking at your performance going into Q2 and beyond?

Yes. So this is Shibata. Let me first respond to your question, and Shinkai-san can follow later. Looking at Q2 and beyond, of course, there are a lot of uncertainties. But looking at the direction of the margin, like the Takayama-san said, I think that's how we see things play out. So I'll be repeating your comment, and by that the ASEAN revenue recognition change will be absent in a way because it's going to be concentrated in Q1. And also, I think, what's going to be growing has a relatively good margin. So that's the feeling we have for the future outlook. And looking at the Q1, specifically, like Takayama-san rightly pointed out, there's nothing to reflect in your comment. But looking at the region, Europe, and I guess Japan as well; Europe maybe in terms of impact, but it's not going to be a rapid growth, but it's going to be growing from the low base in Q4 because in Q4, mainly with the European clients, a lot of attention was paid to the balance sheet. So short term, there was a movement to reduce the inventory. As a rebound from that, I believe Q1 is going to grow versus Q4, and that's how we see the automotive business. At the same time, looking at China, with the Chinese New Year holidays, I think there was some pulling of demand from Q4, taking the demand from Q1. So because of that, I think there's going to be a sequential decline. But other than that, we do not foresee any abnormal trend. So have I answered your question?

Yes. If I may ask a follow-up question for the automotive business. I was expecting the key client in Japan to recover, but I guess it's not going to be such a big recovery, but I guess more recovery is expected from a European client from the end of last fiscal year. Is that the correct understanding?

Yes. As I mentioned earlier, in Q4, with the European clients, many of them cut their inventory quite significantly. So I think that's going to go back to the run rate we saw prior to Q4 to what we have been seeing in Q3.

So for nonautomotive, industrial, IoT and infrastructure, within infrastructure, the related thing that were pushed back, I guess, is going to come back. Do you see any change in the recovery of different end markets for the non-auto business?

Yes, for the industrial machinery, we expect to see continued inventory correction. So we are a little bit negative on that. But having said that, I've said this many times, but the inventory correction trend, I think, is now very close to the bottom because the rate of reduction has moderated. And the first thing, like AI and the cloud infrastructure, our outlook is expecting a big growth. But from the overall business portfolio, the exposure is still relatively small. And also, we have to be cautious about this point. For the home appliances, we expect a big growth in Q1. And I'm thinking that there could be some pulling of demand to address the tariff issue and also some one-off demand that supported the subsidy that is provided when consumers buy new appliances. So our view is cautiously optimistic. It's not an event-driven spike, and we do not expect a big rebound from that with the demand declining. Also, at the same time, we don't expect this growth from Q4 to Q1 to continue at this level. But for the home appliances, I think we can expect some substantial growth. And for PC and mobile, there's the seasonality. So they will be coming down.

I see. And also my second question is, looking at FY '25 from the management perspective, you want to grow higher than the industry average and so that you will be evaluated in a good way from the equity market. I think last year, you tried to build up the inventory in the first half quite actively and tried to capture the demand in the second half. But I think you're going to be more cautious for this fiscal year. So the operation may be slightly different. And from a long-term perspective, you have done many initiatives, such as the acquisition of Altium. Also, would you be able to enjoy the fruit of those initiatives so that you will be able to outpace the industry growth?

Well, I understand your expectations. And regarding how we manage inventory and also the shipping, I think Shinkai-san mentioned this partially. But for the channel, we're still cautious, and we want to ship in accordance with the demand in the end market. And for our in-house inventory, we would like to have some robust level of inventory. So the strategy is not that different from that of last year. But compared to last year, it's not like we are very cautious, but we will focus on the short-term trend and not to have too much inventory. And it's difficult to say how things will play out for this fiscal year. But short term, our efforts to date should bear fruit. And if the competitors are required to conduct inventory correction, we're hoping that we can outpace the growth of those competitors. And also in terms of growth, the size is not that big, but for the automotive, the ADAS application is an area that we see steady growth, we expect that to continue; and also AI cloud. And also, last year, we were not able to really walk our talk, but with the DDR5, finally, we were able to resolve the power management issue for DDR5. Also from Q3 this fiscal year, we expect a big contribution. So it's not just AI, but cloud infrastructure, including AI, and also the automotive ADAS applications are areas where we can uphold our expectations.

Next question from UBS Securities, Yasui-san.

This is Yasui from UBS. My first question is on automotive business. In Q4 and Q1 forecast, so JPY 180 billion revenue. I think there's a lot of adjustment for them. So at some point, hoping to get back to JPY 180 billion, and that's what we hope to see at some point. But when would that be? Also increased content to bring you back on a growth trend. When do you expect to happen? That would be my first question. My second question is data center business, which is still a small business, but that's attracting a lot of attention. So can you maybe elaborate as far as you can disclose, especially PMIC and market share, because of the NVIDIA situation, attracting a lot of attention. So please share to us about the market share. And data center itself forecast will be also appreciated.

Automotive, when to go back to the past record number, it's hard to tell. But in Q4, we took a deep breath. So we were able to moderate the situation. So we're not too much concerned about the future. The speed of the growth, well, the utilization for Gen 4 may come maybe not this year, but in the year after. So we need to run the business based on Gen 3 for the time being. And so some of the content from '23 are launching so far. So we expect to see them grow. Content increase, 10% growth, if we are able to sustain this level of growth. So we are not too optimistic about the gross level, not so bad, but it's a gradual increase. That's what we hope to see. We cannot have a forecast clearly for such a big growth because it could be potentially the tariff impact. The biggest concern or the uncertainty would be the Chinese player, also non-China OEM market share trend. So that will be the affecting factor. So we are having a big growth in China business. In a short-term period, things may not be bad for us, but it may not be directly answering to your question, but the business in China, of course, we are facing some slight different challenges from the Western countries and Japan, but we want to continue to monitor the situation. And cloud center, I don't want to say too much because I don't want to take it back later after talking about certain things. But things around the processors, the power supplies around the processor, I think it depends on the timing, but maybe half or 1/3 of the market could be maintained as market share. With the customer of a specific customer, when we look at the schedule of their product development, it seems like there will be some ups and downs expected. So it's not like a straight-line growth, but the trend-wise, we have an opportunistic view. DDR5 power management issue is now resolved, and that is actually giving us more visibility to start kicking in from Q3 onward. If that happens, that can be a strong supporting factor for the business. Thank you.

Additional question about data center. For the past 12 months, for different application you have, for the coming year or so, can you give us how much growth you're expecting to come with different application?

Well, hard to tell as well. We will try our best. 10%, maybe we can grow around 10%, hoping to go more than that. 10%, I think we can go beyond 10%, maybe stronger than 10%. Looking at numbers we have right now, for AI, rather than 10%, it's more like something x multiples of some multiples, maybe 3x. More than 2x, that's the impression we have. The general-purpose servers, rather than 10%, I think will be a bigger growth. That's what we expect. So cloud infrastructure business, in total, maybe 2x or so, that's how we forecast. So many things could happen in the short term in this application. So while we are looking at upside, but at the same time, we want to be also cautious, not being too optimistic. So we want to forecast on a quarterly basis.

Let me ask you once again, sorry for being so persistent. So 2x, so including 3 applications for data center, the total is 2x. Or are you just talking about PMIC is expected to go 2x?

It's about the power.

The next question is from Hirakawa-san from BofA Securities.

This is Hirakawa from BofA. I have two questions. Earlier, you mentioned about the R-Car. In FY '24, you had design-ins. I think you may talk about this in the May IR Day. But looking back at '24, how did things go? Especially for the automotive, you talked about the MCU share. So can you tell us, to the extent possible, how things went in 2024? And this is related to your outlook. Earlier, Shinkai-san mentioned that there is going to be a big volume of shipping for the short-term orders. And at this point, from demand to shipment, I guess there are different patterns. But can you tell me the details behind the production to shipment?

Maybe Shinkai-san can answer the latter part of your question. And I will try to address the first part of your question. So Shinkai-san, please?

Yes. So for the short-term lead time orders, the proportion vis-a-vis the total order is increasing slightly. The average lead time, they come in before or disrupting the average lead time product. So there is going to be some disruption. Distributors that have some of those products, and we also have those products in our distribution centers. And it really depends on product. So something we can input the wafer after receiving the order. And sometimes you have to have the inventory. And as an intermediary format, we have to have a die bank. So when we receive the order, we can ship out by just doing the back end of the process. So we will have the finished product and also the die bank to address the short-term lead time orders and also something slightly longer. So we have been creative to address to that type of demand. So I hope this addresses your question.

So during COVID, I think 5 to 6 months before you had to fix your order, but now because there are many different patterns. But you can only have visibility over the firm of order over the next 2 months or 3 months. Is that right?

It really depends because we do have some long-term lead time orders and also other short-term lead time orders. But compared to before, the short-term lead time orders are increasing. During COVID, when demand was very strong, the production planning had to be established for us to stably supply. So from a long-term perspective, we fixed the demand and the orders, but that's not the environment that we live in today. So it's different. So we do get those type of short-term lead orders as a natural course of our business.

And for the design-in, from last year, we had made some changes. And this year, we are considering how we can change this. So focusing on your particular question, how things went last year, if I may offer some indications or if we track the design-in trend as we have done to date, last year for automotive, it did grow by high single digit. There's a big portion from R-Car, and MCU was also very brisk. So in terms of looking at the direction, I would say that it was not bad. That's my frank opinion. Having said that, from some time ago, I have been trying to make some implications, but the tracking of our design-in to be fundamentally changed in my view. So today, we will have an internal discussion on that topic. So we are now trying to revise this. So in terms of how we treat the numbers, we want to start from scratch. But the auto revenue recognition was made into a pro rata basis rather than upfront. So we would have to make changes accordingly because that type of indication will give you a sense of is it going up or going down, but it's hard to give you a long-term trend. So we would like to revisit how we track this. But on an apple-to-apple basis, as a direction, as I mentioned earlier, the automotive is growing by high single digit.

And as a follow-up question, not looking at the apple-to-apple number, but I want to get your feeling, Shibata-san. So as a direction, it's moving into the positive direction. That's your view. Is that correct?

Well, for the automotive MCU, it's not bad. It's actually pretty big, frankly speaking. And also for the big car business negotiation, the R-Car, this was true for Gen4, but it's something that we cannot really foresee. So when things are good, it will grow and vice versa because it's a very limited market. It's a rapid cycle and very volatile. But MCU is not bad actually.

Next question is Yoshikawa-san from Morgan Stanley MUFG.

This is Yoshikawa from Morgan Stanley. I have one question. Non-GAAP SG&A and R&D. In Q4, the number was about JPY 85 billion. Q1 will be, from the difference between gross profit to OP, it will be a little less than JPY 93 billion. So Q4, I think you had drops in various elements. But in the coming quarter, the Q1 level is going to be the base level. And looking at Q1 and the percentage, it will be about 30% of the sales, the revenue. And looking at your financial model, R&D will be about 16%, SG&A will be 8%, total 24%. So currently, the revenue being low, I guess you're exceeding by about 6 percentage points. So if you were to grow revenue along with the gradual recovery, how are you going to control the level of spending? Shinkai-san to answer this question.

I'll have Shinkai-san to answer this question.

About the numbers, so that is correct, about the JPY 93 billion for Q1, that is correct. So the trend from there, we are focused on R&D and SG&A, but including COGS, cost run rate to be lower. We are currently working on that. So cost improvement impact will be seen throughout the year and into second half gradually. A part of the impact is also included partly in the first half forecast. On a run rate base, the latter half of the year, maybe a little over 2 percentage points improvement on the base cost, and that will be executed at the cost level. Other than that, the revenue growth is expected. That's my answer.

Next question is from Nakano-san from NIKKEI.

My name is Nakano from NIKKEI. I have two questions. My first question is, in FY '24, can you give us the summary of FY '24? The competitors said that last year was the worst year in the last 10-plus years. But what is your view of how you did last fiscal year?

Well, the overall summary of last fiscal year, I guess things trended as they should.

I see. So the second question is the timing of the mass production for Kofu and also the production commencement of MCU [Foreign Language].

So I don't have any update, but as a trend, it's going to be pushed out. As I communicated in the last earnings call, we have become more cautious.

Is that because of the market environment? Also, when you say you're more cautious compared to the last time.

Yes, the market is one factor. And we look at our portfolio and what needs to be mainly manufactured in Kofu is something, but we are going to discuss as a fundamental strategy, not just for the short term.

So for power semiconductors, now the market is weak. And I guess you have to compete against the Chinese players in terms of cost in the future. And looking at the business environment, how do you see things playing out? How are you going to compete in the current market environment?

For power semiconductors, at this juncture, we have a very severe view. But on the other hand, the AI data center switching devices and other product that is used in that application, it's not going to be customers sacrificing quality over price. So in the power semi segment, we never had intended to become a big player. So we are focusing on the target customer in this addressable market. So that's the main direction that we are pursuing, which is unchanged. And we have considered to use the silicon IGBT. But in the last 2 years, the market has dramatically changed. And also with the rise of the Chinese players, our thinking has changed from that, and we're not looking at the silicon IGBT that much.

And with the factory operation, do you have a major change in your business strategy?

Well, I'm not sure about your question. So what is the intention of your question?

So the SiC production, could that be suspended or the production plant can be scrapped out?

Well, it's not just for SiC business, but those things can happen for any of our businesses.

Next question, Okawa-san from Daiwa Securities.

I am Okawa from Daiwa. I have two questions. First is on automotive business. MCU is going strong so far. So what is the reason for you being so confident about strong MCU at this point? Also, the software behind vehicle has been the trend so far. How do you feel the response? And ASICs are out there, and what are the opportunities and risks? And can you comment on this? And that would be my first question.

For MCU, at the beginning of last year, we have been talking about MCU and nothing really changed from what I said. We are trying hard and other players also, competitors are trying hard as well. Sometimes, our target may be off or sometimes the target is right on the spot. And we're all doing the same thing, and the others are also doing the same thing. And last year, we saw the drop in MCU share in automotive, and that was because of the mis-specification, we thought we were taking ahead of the trend, but it wasn't going in that direction. But we redefined the road map. And recently, the redefined road map has been really aligned with the trend so far. It fit. And so we are providing what the clients want, and we get designation for our product, and we are receiving large projects. That's what we saw last year. SDV still, there's no clear direction. It's not visible yet. At the super high level, rather than SoC or the high computer and trying to have a concentration on computing, that's been visible like a gateway product for that Gen5 R-Car usage covering this section. So inside MCU itself, SDV impact or not, how it plays out, honestly speaking, we don't really see clear direction yet. So R-Car scalability we'll pursue and make sure to reinforce that. And other customers, so we want to offer flexibility and architectural definition of customers. I know this is nothing new, but we want to continue reinforcing this. And I think that is the best approach for us. And as we see more SDVs, then software-oriented development need is increasing. So preparing the virtual environment and the customer software development shift left, so they can start early, so we provide tools to allow that to happen. That is going to be important. And we are working on that, and we'll continue to do so.

And my second question is industrial. As a mass market, can you explain splitting these 2? Compared to 3 months ago, any change in your forecast? And what will be the bottom for those 2 categories. Can you give us your comments on that?

That, what I said in the past, will not really correct. Actually, it makes it difficult for me to make a future risk comment. But as far as we forecast, as mentioned earlier, inventory correction is moving forward towards 0, but still small-sized inventory correction could actually drive the demand situation and that could continue throughout this fiscal year. I know there's a different view on that. There's some voices to see the increase recovery in second half, but it could stay stagnant throughout the year on other voices. So this year, we want to go back to basics. So we want to address the basics. From the perspective throughout the year, the current situation could drag and continue. That's how we intend to operate this year. But again, last year, sometime from Q4 into this Q1, this size of inventory correction would not be expected to come. It's going to be quite small, if any, in the second quarter or beyond. Industrial mass market, how different is this, so it's hard to tell because mass market is very difficult to forecast. I won't be able to give you any meaningful response, I guess, it's hard to tell. Looking at our numbers only, I think the mass market could show a faster recovery, I feel. Q-on-Q sequential numbers, looking at them, mass market shows the bottom, I guess, hitting the bottom earlier than the industrial. So the mass market is moving faster.

Also Octopart held by Altium, this also can be utilized for early indicator for the overall sector. It doesn't seem to have a big improvement in movement, but there's a slight increase so far. So compared to industrial, mass market could moderate slightly earlier than industrial.

I know. Sorry, I won't be able to give you any clear answer to that.

I know. I know it's difficult.

Thank you very much. I know that we have more questions, but we are now close to the time to finish. So lastly, I would like to invite Mr. Shibata for his closing remarks.

So I know that the expectation is building up for idiosyncratic growth for us, but we don't have that kind of a view, but we now have a more steady outlook. So in a real sense, we can really focus on rolling out initiatives for achieving long-term growth without being disrupted by the short-term challenges. So that's the reflection on the results and also the outlook for this fiscal year. I hope to enjoy your continued support.

Thank you very much. So with that, we'd like to complete Renesas Electronics Fourth Quarter and Full Year Earnings Call for FY '24. Thank you very much for joining us today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]