Sunny Optical Technology (Group) Company Limited (2382) Earnings Call Transcript & Summary

Good morning. Welcome to Sunny Optical Technology Group Company Limited's 2026 Interim Results Announcement. I am [ Crystal ] from the IR department of Sunny Optical. Thank you for your long-term interest and support for the company. Today, we have in attendance, Executive Director and Chairman; Mr. Tan Wang Jiong, Executive Director and CEO, Mr. Wang Wenjie; Director of Finance Center, Mr. Wang; Senior Director of IR Department and Company Secretary, Ms. Wong Pui Ling. Ms. Liu Yanfeng, Director of IR. So now we will invite Mr. Wang Tan Jiong to deliver opening remarks, please.

Honorable investors, analysts, good morning. Welcome to our results announcement. On behalf of Sunny Optical Technology, I would like to thank you all for your continuous interest and support for the company. In the first half of the year, given the very difficult industrial environment, we achieved expectation in terms of revenue and profit growth. So this shows that our strategic judgment is effective. And we have shown some operation results. Looking into the future, we are confident in the future. So first of all, optical market is in structural growth cycle. And there is rapid release of demand for the relevant products. The overall logic in the industry development has not changed. In core verticals, our market position is very firm. So vehicle handset products as well as AI, these are all very good verticals for us. And then we also have very adequate resource guarantee. So the management had encountered different market cycles. So when the market is volatile, we have the capability to seize opportunities. With optics and AI strategy, where we are implementing this strategy in an orderly way, we have confidence to be able to turn end-to-end optical capability into our growth momentum. Now we'll defer to our CEO, Mr. Wang Wenjie, to present our interim results in detail. After that, our management team will answer questions that you have in mind. Thank you.

Friends from the investment community, good morning. So now I will present our interim results. In the first half of the year, global geopolitical uncertainties persisted, compounded by rising memory prices, impacting costs and intensifying competition in the vehicles market and handset product market, creating a turbulent internal environment. Despite this, Sunny Optical maintained steady progress. Our core businesses in handsets and vehicles with our leading positions remain solid and are key pillars of our revenue. XR and Pan-IoT businesses, 2 growth drivers continued to demonstrate that full chain vertical integration and hardware/software combination capabilities showing significant growth momentum across multiple areas. Furthermore, we actively develop our optical interconnect and embodied intelligent sectors, accelerating commercialization and creating new growth engines. Overall, all business segments made steady progress in the first half of the year, solidifying the presence and anchoring the future. Next, I will share with you in greater detail. A review of our performance, business highlights, future outlook and ESG achievements. First, business performance review. In the first half of the year, our company achieved revenue of RMB 21.9 billion, up 11.5% year-on-year, with revenue growth coming from the combined effort of the 3 major segments: Vehicle products, XR and IoT. Gross profit side, our gross profit margin in the first half was 19.5%, down 0.3 percentage point year-on-year. On the profit side, net profit attributable to shareholders was RMB 1.81 billion, up 9% year-on-year. Despite increasing pressure of rising memory prices, we still achieved double-digit growth in both revenue and profit, demonstrating our resilience through economic cycles and validating our operational capabilities. In the first half of the year, I said that revenue growth and profit growth will not be lower than 7%. And some people asked why 7%. So I just said that it is roughly around well, 7 is -- means up and then 8 means down, okay? So in the first half of the year, we have achieved our mission, and we have not changed our full year guidance. So on this slide, Here, you can see other products centered around Pan-IoT. So the revenue share of other products has increased from 10.9% in the same period last year to 18.4%. So you can see from this pie chart, the change in the share of this segment. So well, this is a part where we need investors understanding more than in other areas. So there are actual changes in the overall gross profit structure. Besides handsets, vehicles and XR products, revenue share of other products in the broader Pan-IoT sector has increased from 10.9% in the same period last year to 18.4%, gross profit share has risen from 18.2% to 32.6%, making it the company's second largest source of gross profit. The market's perception of Sunny Optical is largely limited to the handset industry. But today's data shows that businesses such as Pan-IoT sector have not only contributed to revenue growth, but have also played a major role in profit generation, indicating our diversified strategy is rapidly entering a harvest period. So as Mr. Wang just mentioned, so this is a structural change in the optical industry. And overall speaking, the trend is a very positive favorable one. On this slide, so it is about management efficiency, solidifying the foundation for long-term development. Regarding cost control, total operating expenses was down 0.2% year-on-year in the first half of the year. Expense ratio decreased by 1.3 percentage points from 12.3% in the same period last year to 11%, offsetting external pressures through improved management efficiency. It is important to note that the decrease in expense ratio while revenue growth was achieved were not due to a reduction in R&D expenses. R&D expenses reached RMB 1.65 billion in the first half, a year-on-year increase of 1%. Sales and distribution expenses and administrative expenses both decreased while effectively controlling non-R&D expenses, we continued to maintain future oriented R&D investment, balancing current operating results with long-term capacity building. Rise in operating quality can be testified in the following areas. First, we have very good asset liquidity, strong debt repayment ability, and we maintain a low interest-bearing debt ratio. Our return on net assets has steadily increased for 4 consecutive years and profitability has continued to improve. Two, net cash flow from operating activities increased by 45% year-on-year. Quality of profits continued to improve. CapEx was up 10.6% year-on-year with continued investment in strategic initiatives, mainly directed towards major overseas clients, XR, Pan-IoT and production-based construction, providing strong support for future revenue growth. Now let me talk about our business highlights. Handset products. Global smartphone shipments declined by about 6% to 8% year-on-year in the first half of the year. So in the second half of the year, the number will even be bigger. So well, at least in the first half of the year, there was the impact from memory costs in the second half of the year, I think that this number is going to be even bigger. Facing this downward pressure, our company accurately identified industry trends focused on high end market demand and delivered strong results. Handset products revenue remained generally stable with slight year-on-year decrease of 0.8%, leveraging our industry-leading 5 group AOA technology and comprehensive miniaturized packaging processes, we achieved mass production and delivery of multiple high-end products. Periscope prism products supported by core capabilities in ultra-precision, optical processing and molded glass have undergone continuous iteration and upgrades, achieving breakthroughs in optical performance and structural design. Market share of high-value main cameras and periscope steadily increased and supply share of high-end product lines several key customers further expanded. Furthermore, substantial progress was made in expanding the lens sets business with related products successfully entering mass production and being delivered, establishing our benchmark position in the portable telephoto lens field. Regarding major overseas clients, the revenue there from handset optical lenses has increased significantly. And introduction of new product categories will also contribute new growth, laying a solid foundation for achieving our annual growth targets. So for overseas key clients last year in the first half of this year. So actually, the guidance is more than 100%. We won't change this guidance. Actually, the pace will even be faster. For vehicle products business, first of all, let me update you on the latest progress of the spin-off listing. The company submitted application on 26th January 2026, and we're currently awaiting regulatory review. Due to the large number of IPO applications at present, we're updating the prospectus and financial data until 30 June 2026, while awaiting regulatory review. After the end of June, they will have to start whole cycle of data. Regarding performance, although the overall vehicle product market face pressure in the first half of the year, we achieved a 10.6% year-on-year revenue increase by driving technological breakthrough and product launches, further consolidating our leading position. XR business. Revenue was up 11% year-on-year, with SG and AR glasses related products growing by over 50%, serving as the core engine for our company's XR business revenue growth. Meanwhile, addressing the core demand for lightweight and highly integrated AR glasses. The company leveraged advanced optical design and ultra-precision mode processing capabilities to achieve breakthroughs in products such as high-performance lightweight prisms and ultrathin VID lenses. With industry-leading miniaturization packaging technology and large-scale, high-precision assembly processes, we achieved a due improvement in performance and size of optomechanical products, accelerating mass production and delivery and relying on industry-leading assembly and testing processes, we achieved a small batch mass production of lightweight full-color AR display modules. Next year, there will be even bigger production. So this is a business that is very positive in the future. For AR glasses in the first half of the year in our report, at that time, we were not very optimistic because comparing last year and this year, the revenue will decline further slightly. But right now, revenue will not fall. But when it comes to big explosive growth, that has to be next year. So for Pan-IoT business, this is a better area, optical components are our core underlying capability. We have built a complete technology chain, including optical design, optical processing, mode processing and optical coating. This change serves as the common technological foundation for all business areas, and it's the fundamental support for our expansion into forward-looking directions. In the field of robotics, our full stack vision solutions cover a variety of technical routes, including monocular DOF or DOF binocular and multiview fusion and the entire process from camera modules system solutions to complete our whole device JDM is completed independently. Lawn mower vision system solution integrates computing power based on multiple well-known chip platforms natively supports complete functions such as depth engine neuron network engine visual accelerating engine and ISP and has been much produced and deployed by several leading global brands, achieving end-to-end delivery of optics, algorithms, computing power, platform and whole device integration. In terms of warehousing and logistics, the full stack mission solution has covered a scenario such as AG VR/MR and warehouse management and has been applied in the logistics scenarios of leading overseas companies. The active binocular depth camera has been extended to industrial scenarios such as robotic arm positioning and grasping. High-end microscopy instrument market is showing strong growth momentum. AI medical microscopy products have achieved breakthrough in pathological testing, gene diagnosis and other scenarios, resulting in significant increase in orders. Semiconductor wafer defect detection equipment has achieved a major breakthrough with leading industry clients and has expanded horizontally to fields such as glass waivers. The concentrated Implementation of these achievements, strongly demonstrates our integrated vertical integration capabilities, leveraging technological accumulation and continuous innovation in the broader IoT food, our advantages in combining software and hardware and in optics plus intelligent manufacturing of complete systems will continue to be strengthened, further solidifying the foundation for a multi-scenario expansion and complete system business. This summarizes the achievements and progress of our various business units in the first half of the year. Future outlook. So this is so about handset products. Rising memory prices. And also there is a shortage of capacitors. So there is a delay and return of semiconductors. So all these factors continue to impact the handset industry with overall shipments expected to decline 13.9% year-on-year for the year. This is an estimate. So perhaps it will be even bigger and continued pressure expected next year. However, amidst this pressure, structural opportunities are also clear. The trend towards high-end products continues to strengthen and the direction of optical upgrades remains definite. For our company, the fundamentals of our handset business remain solid, we'll continue to cultivate the high end market strengthen core capabilities such as actuator technology and multigroup AOA technology, delver deeper into vertically integrated module solutions and further enhance product coverage and supply share with core customers. At the same time, more and more handset customers are extending into new areas such as handheld imaging and extend lenses. The demand for optical capabilities, these new scenarios is highly compatible with our underlying capabilities, which will bring more growth opportunities to us. Furthermore, revenue from major overseas clients is projected to grow by over 100% in 2026. I mentioned this point earlier. So this brings substantial revenue and profit increase to our handset business. Full year handset product business revenue is expected to remain flat year-on-year. In the vehicle business sector, the trend of autonomous-driving upgrades remains clear. In 2026, the global L3 regulatory framework will be implemented more rapidly, and robotaxi will launch commercial operations in multiple cities, and there would be an increase in the number of cameras in vehicles. And then there is a faster iteration in functions and then multi-sensor fusion solutions combining vision and LiDAR are gradually becoming mainstream, which will be an opportunity for our vehicle product business to grow in the future, leveraging our long-standing market proven innovation capabilities, diversified product portfolio and cross-business synergy advantages, we have established deep partnership with global customers. So when it comes to Sunny Smart Optical Tech Co. Limited, we are now in the quiet period of IPO process. And we are not able to provide specific revenue and gross margin guidance at this time. But overall speaking, for vehicle products, that would be very good prospects. So apart from handsets, lens and also AR. So there would be quite a good enhancement in prosect for LiDAR and so on. So all these need our optical core capabilities and other module capabilities as foundation. XR. The focus of the XR market is shifting entirely from traditional head-mounted displays to smart glasses. Among them, smart glasses without this place have already achieved large-scale demand, mainly driving demand for lenses camera modules and overall system integration. While AI glasses with display functions are in the accelerated product verification stage, which places higher demands on optical wave guys, display optical engines, spatial perception and system integration and significantly increases optical value of individual units. Behind these 2 product lines lies our deep expertise in optics, precision manufacturing and mass production delivery. We have built a vertically integrated system-level capability across the entire XR value chain, encompassing optical-based components, multi-element optical modules, optomechanical systems, integrated hardware and software systems, and enabling it to flexibly seize market opportunities based on different technology routes and customer needs. Leveraging this foundation, we have established deep partnership with leading global brands and have successfully secured large-scale AR product orders from top players, which will contribute significantly to growth starting next year. As AR glasses move from technology verification to mass production, we can expect more and more end-user brands to establish comprehensive collaborations with Sunny Optical. Full year XR business revenue is expected to exceed RMB 2 billion and is expected to achieve year-on-year growth. In the first half of the year, it is around RMB 8 billion. So looking at the current progress, I think there are a lot of opportunities. AI is moving from cloud-based question and answer to on-device interaction and from virtual world into real-world scenarios, and devices need to continuously receive their environment, understand their space and then translate judgments into actions. Visual perception has therefore become an indispensable foundational capability for AI hardware. I think you all know this -- and this trend presents 2 types of opportunities. One is the emergence of new hardware driven by AI, such as smart glasses, wearable devices, not only wearable devices. Some companies in terms of some box stage lights and also pans, well, they have added AI to all these different items or devices. So these are new categories that have grown from scratch. The other is the reshaping of traditional optical equipment by AI, intelligent imaging, industrial vision, microscoping instruments and high-end testing equipments are moving from simply capturing and seeing clearly to automatic analysis and decision support. Imaging equipment is transforming into intelligent decision-making equipment. These 2 types of opportunities mature at different paces. Our strategy is very clear. So the demand is clear, and we prioritize opportunities with clear demand and the conditions mass production and scale up quickly. At the same time, we continuously validate commercial value of areas such as robot vision, data acquisition and intelligent industry devices through real projects. So if there is the opportunity for mass production, then we'll prioritize it. At the same time, we'll continue to invest into further R&D. These will present important opportunities for the future. To seize these opportunities, we will deeply integrate our 3 capabilities, optical sensing, hardware and software collaboration and large-scale manufacturing. Technically, we possess complete capabilities from optical design and ultraprecision machining to imaging, display and spatial perception modules. In terms of products, we focus on image enhancement, multisensor fusion, 3D vision and etch intelligence, strengthening algorithm hardware synergy and extending towards system and complete device integration. In terms of industrialization, we collaborate with customers to define products, streamlining the entire process from verification, quality control, cost optimization to large-scale delivery. This capability has already been validated in smart glasses and smart imaging products. Next, leverage customer projects and mass production results to replicate this capability in areas such as robot vision data acquisition, industrial inspection and intelligence microscopy. The significant growth in Pan-IoT and related businesses that you've seen earlier is a direct result of this strategic move as AI hardware is deployed in more scenarios, our value as a comprehensive optical component and system solution provider will become increasingly prominent. This growth curve has only just begun to rise. Revenue from Pan-IoT business within other products grew by about 50% throughout the year. The group maintains our original guidance for full year revenue and net profit growth, with revenue and net profit, excluding the share swap transaction expected to grow by no less than 7% year-on-year. We will continue to develop new sectors and verticals. So there are 2 clear directions already. One approach is to enter the optical interconnect field by focusing on core optical components, our precision optical design manufacturing processes and large-scale mass production capabilities are highly aligned with optical requirements of optical interconnect, its core capabilities such as glass molding technology and precision structural component processing enable us to undertake the production of key optical components for optical modules such as lenses, isolators and FAUs. On the left, these are already been produced. Second, we'll focus on embodied intelligence and build a full dimensional perception product matrix. The core of embodied intelligence is a complete closed loop of possession decision execution. We will take vision perception as the core, leverage our advantages in sensor hardware and coordinate multidimensional capabilities such as visual algorithms and joint encoders to gradually extend from industrial and commercial robots to humanoid robots providing full stack vision solution that integrates software and hardware and deeply empowering the embodied intelligent industrial chain. Regarding these 2 directions, we will increase resource investment to transform our technological capabilities into commercial results. The new track is not a crossover, but a natural extension of the same core competencies. In the optical area with core components being our entry point, we will expand the area and develop the area. That is our capabilities and assets. So next, ESG achievements. In 2026, we also made solid progress in ESG governance. In terms of external ratings, the FTSE Russell ESG score improved from 4.0 to 4.5, reflecting the recognition of Sunny Optical's sustainable development practice by international authoritative institutions. Regarding internal objectives, the 2025 performance target for sustainability-linked bonds was successfully achieved. Greenhouse gas emission intensity decreased by 32% in 2025 compared to the 2021 baseline year, exceeding the established target of a 20% reduction. This is not merely an improvement in data, but also approved that the company has indicated the concept of sustainable development into our long-term strategy. In the second half of the year, we'll continue to maintain a steady and progressive development of our core businesses, deepen the cultivation of our common technology platform capabilities, continue to consolidate our leading decision in existing businesses, seize the industry opportunities brought about by expansion of AI industry, accelerate commercialization of emerging tracks and repay the market's long-term trust with certain growth. This concludes my presentation. Thank you.

Thank you, CEO, for the presentation. Now we will move on to Q&A. [Operator Instructions] Maybe on the second row, please, the lady in white.

Thank you, management. I am Kyna from Citi. I have 2 questions. So looking at your results and the resilience of your results, well, we feel very encouraged. In the second half of the year, can you elaborate on which businesses will exceed original expectations. So for pressure in the second half of the year, which businesses will be more resilient. For gross profit margin in the second half, what would be [indiscernible] Product structure will continue to see changes. So that's my first question. Second question, just now regarding progress in the associates or affiliated companies, there has been some progress. And there is investment from Beijing on the company. So it seems that in terms of spare parts and components, you have accumulated some achievements. So for customer resources, you had mentioned a bit. So can you share more? Regarding customer resources, penetration and strategies, can you share more information?

So you asked 2 questions, right? The first question is regarding gross margin in the second half of the year of the old products. So how can we improve it further? The second question is about optical communication area, right? You are talking about optical technology. The lady is not using microphone, the interpreter can't hear her. Okay. So how are we acquiring customers? How can we develop business? Okay. So one is a question on gross margin. The other is about customer development. For gross profit margin, for mature and stable gross margin, our direction is very clear. We can only do it by enhancing our own production capabilities. As you know, no matter whether we talk about handsets or vehicles. Looking at the current condition, there would be a big change in gross margin because the demand and supply relationship will determine the basic price already. Technological innovation is the major direction. And we have to go through our -- we have to enhance our overall internal production capability to enhance cost control. In the Wednesday meeting for the first half this year, I said already that competency enhancement must be our internal core direction. So AI and also our internal intelligence or smart production and cost control should be closely integrated so that our overall efficiency, product quality and cost and be effectively controlled. So that is the only way. It is not possible to see a substantial increase in gross profit. The next question is about new product direction. Actually, I made very clear points in my presentation already. You want me to share more specifics on development of some specific areas. Well, it is difficult to answer this question. Now changes very fast, and there are many changes. In the first half, we thought about the road map of a certain industry. But when Trump made some remarks, the situation will all of a sudden change. So the situation is very complicated. So despite that, we will further solidify our core competencies. We are talking about sharing the competencies. We're not trying to find a brand new large area to invest. So I think we should be able to seize this direction. So core optical components and large parts and so on. These are all needed. There's the need for them. And when it comes to development direction of interconnect, now there are many different technologies emerging. And we are also following up these new technologies, definitely, we will have to understand them. But when it comes to actual product use, I think our core optical components and optical instruments will be the core things. So from this perspective, most of our optical communication top vendors will be our customers. So I think this is a very reasonable ecosystem structure. And you talked about investment, right? Now [indiscernible]. Well, there is no relationship with optical communication, where the technology may be related. But -- so we are -- their products are multi-spectrum chips. So we hope that in the handset area, we can see a new product innovation. Every day, we want to see new product innovation. So of course, it can be used in other areas. Just now we talked about optical perception and etch AI. So that can be -- there will be the need of the optical chips. And now we mostly talk about RGB and RGB-D for such acquisition. So internally, we try to develop binocular RGB, spectrum information and infrared information for the whole wavelengths, there's different information that can be obtained. So we are talking about multidimensional information, and we want to integrate it to make our products. So I think this is the perspective or direction of investment. Thank you, Kyna for the question. Next question please.

The gentleman on the first row.

I'm Huang Leping from Huatai. I have 2 questions. First, just now, when I looked at the handset business, well, in the second half of the year with the growth rates of handset modules business because for whole device manufacturers and upstream vendors in the first half of the year, they differ a lot. So whole device manufacturers decline rate is still okay, but staff manufacturers experienced a 30% decline in business results. So in the second half of the year regarding handset product volume, is it going to be flat with the first half? Or is it because of inventory then the decline in the second half of the year would be bigger? Will that be the case? And what is the opportunity of turnaround. Now for memory, according to market expectation, it seems that the increase is slowing down. So for handset manufacturers, when it comes to specifications and also the mentality in the second half of the year, will specification stabilize? My second question is about optical communications. You just said clearly that you would work on optical components and optical instruments side, I think this is very in line with your strategy. When it comes to optical module, how big will be the room for market development. So of course, for optical components, well, revenue growth is going to be slower. So in one module, how much value is it -- is there?

So first question is about handsets. Right. In first half this year, there was some past inventory. So relatively speaking, things are slower for CIS, I think there is a clear decline in subsequent orders. If you look at the situation in different markets, there are some dilemmas or conflicts, but in fact, there is none. So there is a single-digit decline only. This is surprising, but that's the fact. The number is indeed. So at first, I thought that was not possible. But in fact, this is reflected in the data. And then in the second half, there will still be a decline, and the decline will continue next year. And then as you all know, for sure, it won't be good. So at first, we thought that in the second half of the year, there won't be increase in memory price, then the situation will improve later. But no, that would not happen. There is no volume. There is no volume anyway. So the core is about quantity of volume. And it's not only about memory. So if you look at circuits and other components, there is the same situation. So of course, there are also some like lithium batteries for handsets. So there are now small manufacturers it's not that they don't have production capacity or production capabilities, but then there may not be any supply to them. So if there is no supply for them, then what can you do? They may not even have power supply, okay. When it comes to memory, there is increase in price. So can you choose not to buy memory? Well, for them, it doesn't matter. The ratio, the proportion is more. So handsets will definitely not be good. When our company was -- well, last time I said that we had overseas key customers, and there is a big increase in the business, and so that can offset the decline in other areas. Of course, there will be individual differences. Our high-end business is relatively better, but the overall is still falling. I can still see some supplementary business or replenishment. So there is like single-digit change only if we can maintain this level, then we are already very lucky. So the situation is indeed not very positive. Then you talked about optical communication. So we will move on to -- we will center around optical components and big parts and so on. So basically, as you said, that is our strategy. And this is also in line with the capabilities. This is more reasonable. Otherwise, from LPO NTO to CPU, the CWU and VCO, MLD micro LED, so short-range, medium-range, long-range where I have reviewed all of them. They are very complicated. Yes, we can talk about them. But if we want to work on it, well, we need more capabilities. Our components are in line with the direction. Well, FAU is of this shape now. So when can there be a transition to glass. If we do not understand this, then we may make mistakes, right? Overall speaking, there are not many companies working on components besides there are very few companies which can achieve very big scale. So I think our positioning is reasonable. You talked about the ratio of weight. Well, this is a matter of data. I think the weight is also changing. For optical engines, PIC or EOS. In that area, the weight is increasing. How big is the overall volume? Well, that is a big market. I think we are talking about over RMB 100 billion. If we can have a share, well, if we enter, it is not right for us not to be in top 3, then I think there would be a share of at least like 10% to 20%. We're talking about a scale of a few RMB 10 billion. So there is room for us. But of course, investment won't be small. So my overall conclusion is that we can look forward to it, but there won't be certain explosive growth. In the past, I was driven by emotions. I thought that would be explosive growth, but in fact, there is not going to be one. So it has to be gradual.

Okay. The lady on the second row please.

Mr. [indiscernible], I have a few questions. First, to follow up on handsets. You just said that there is a shortage of many things and prices high, some manufacturers want to use overseas chips starting next year. Will there be some higher-tier projects. So in order to maintain stability, will they use some cheaper, made in China chips, CIS, so that your handset module ASP will be under pressure? That's my first question. Second, semiconductor wafer testing machine. So you mentioned that in your presentation in the past, I seldom heard you talking about this. So can you elaborate, what does this engine do and what is the new market like? And what is the room for development in the future? Then for R&D resources allocation in the first half, your gross profit increase, all of it is from Pan-IoT. So for new products, R&D, resource distribution, how is it going to be like?

China-made CIS chips and overseas modules. So I think this is a matter about configuration of modules. So what you said is the fact price is now more expensive. So people will tend to use cheaper substitutes. And for us, I think we are not the main players here. We work on mid- to high-end business. So for the large companies, for the big companies, there isn't much impact. So we want to get into Korea because we think that Samsung will not decline. Samsung semiconductors and Samsung handsets belong to the same Samsung Group, they internally can do their own distribution and allocation. So they earn a lot of money from memory, and they don't care that there is a small loss for handsets, so they won't lower price. Now our person in charge for Opto Electronics is in Korea. So there is going to be big opportunity there. We are working seriously on it. Domestic CIS chips do not cause much impact on our modules. So Sony, Samsung, we -- there are many other companies. So we have got a normal competitive landscape already. As regards testing, you talked about our testing equipment, wafer testing, so our microscope. So how can it be used in semiconductor testing? I think you can understand. What we are doing, well, we saw them talk about it in the past. So microscopes are used for testing in the future for this testing, when our lens for microscope is enhanced, then we will be able to get into a lot of testing scenarios for semiconductors. Well, in the first half of this year, our equipment company achieved quite good results. What about R&D expenses distribution? Well, this is a very good question. So for our original layout and also handset vehicle business R&D, when projects are being adjusted, this will also be adjusted. So investment will be -- will be strengthened when there is the need for capabilities. So we can use the same group of people in other module design. So we are enhancing our overall system solution algorithms, software capabilities. So this is what we are doing constantly. Of course, every year, we will increase the weight of new areas. So I think in the new categories, of course, product sales is rising. Profit is also rising. So of course, we have to do R&D in order to make things happen. So the system R&D people will increase in number. system solutions, R&D people.

Okay. Next, this gentleman first.