Ladies and gentlemen, thank you very much for attending Renesas Electronics Earnings Call for the Q3 of Fiscal 2022, despite your busy schedule. We thank you very much indeed. Simultaneous translation is available today. Please click the globe icon at the bottom and select your preferred language. Speakers, you are requested to turn your video on. Today's session is attended by our CEO, Mr. Hidetoshi Shibata, our Senior Vice President and CFO, Mr. Shuhei Shinkai, and Senior Vice President and General Manager of Automotive Solution Business Unit, Mr. Takeshi Kataoka, as well as some other staff. Mr. Shibata will 1st make an opening statement, and then Mr. Shinkai will explain the Q3 results, followed by a Q&A session.
We expect to finish the entire session in about 60 minutes. The materials to be used for today's presentation is the same as the one posted on the IR website of Renesas Electronics. Mr. Shibata, please turn your microphone on and begin your statement. Hello, good afternoon, everyone. This is Shibata. This time around, the results this time, because this is our Q3, so there's nothing so much noteworthy that we should highlight so much. It will be led by Mr. Shinkai later. As far as the Q3 results are concerned, overall, I think I would say the results were in line with our expectation. The end demand for automotive was slightly higher than expected. Towards the Q4, the channel inventory for automotive will have to be replenished to some extent, so that's something.
We believe the demand is quite firm. Other than automotive, from Q3 to the Q4, we have seen an apparent change in the market conditions. PC, mobile, or the weakness in the midpoint are now expanding to the peripheral parts. Peripheral meaning the printers and also rather than the PC per se, smartphones, especially in China, the inexpensive range and also some high-end are some things that we are very concerned about. Therefore, we have provided a sequential guidance this time around. Compared to usual, the guidance numbers this time around are, to some extent, worrisome to me, and we still presented these numbers with some concerns in our mind. That's the frank and candid opinion that I have. The details will be provided by Mr. Shinkai from here onwards.
I will give the microphone to Mr. Shinkai now.
Yes, this is Shinkai, CFO, thank you very much. Allow me to go over with you the Q3 presentation based on the materials we have provided. Please move to the next page. Here we have the financial outline for Q3. If you'll be able to look at the dark blue column, revenue, that's JPY 387.6 billion. The gross margin, that's 67.0%. Operating profit, that's JPY 142.8 billion, meaning the margin is 36.8%. Profit attributable to owners of parent, that's JPY 96.4 billion. Now, if we exclude foreign exchange impact, then the profit attributable to owners of parent will be JPY 115.4 billion. EBITDA, that's JPY 163.4 billion.
As for the currency assumption, that's JPY 135 versus USD and JPY 139 versus EUR. We have the comparison, the numbers for comparison versus forecast in the three following columns, which I'd like to explain afterwards. We also have in the next blue column the nine-month year-to-date figures. Now, again, we have shown the net profit excluding forex impact. This is because we wanted to show the more normal, steady profit level. At the same time, this is something that we went over in the previous session, there's this group cash pooling. Because of this purpose, we have intercompany loans in dollars. This intercompany loans, depending on its valuation, can recognize gains or losses from forex on the consolidated financial expense.
If we have weaker yen P&L, that means we see more loss. Now, of course, we're trying to work to reduce our exposure to foreign exchange. This is specifically about revisiting how we pool cash, and we hope to be able to accomplish that during this year. This currency loss, you will still find this until our Q4, but then from next year, we are trying to minimize our exposure to forex in this form. Now, in Q4, how much we still do believe there is going to be an impact, but then we know that one yen fluctuation can bring approximately JPY 3 billion impact. A weaker yen causes loss and stronger yen causes gains. Moving on to the next page.
Here, now we look at quarterly revenue trend, and Q3 is shown on the far right. Overall, on year-on-year, we have seen an increase by 50%. In Q-on-Q, that's a 2.8% increase. Breakdown, as you can see, Q-on-Q for the automotive side, that's -3.7%. Whereas industrial infrastructure IoT, that's +7.8% Q-on-Q. Next page, please. Now here we look at the revenue and gross operating margin for Q3, starting from the total. Now versus the forecast, if you'd be able to look at the top right. As for the revenue, again, we have been able to find, from the midpoint forward, an increase by 0.9% which is JPY 3.6 million upside.
There has been FX impact by a third, and two-thirds would be excluding the forecast. This mainly comes from the industry, infrastructure, IoT. This margin compared to the forecast, we have been able to surpass this by 0.5 percentage points. There has been some slight positive coming from currency here. Now, we are trying to prepare for any yen appreciation risk. We're trying to make sure that we'd be able to do a currency hedge, so that we'd be able to have this very stronger floor for dollar versus yen. So that means weakly on upside is going to be limited in that sense. Now as for the product mix, we have seen a positive plus slight positive mainly coming from industry, IIoT.
For the production recovery and production cost was pretty much in line with our forecast. Operating expense, we have seen a decline by JPY 6.4 billion of R&D and SG&A. OP margin, we have been able to see this increase by 2.3 percentage points. Now, Q-on-Q is also shown on the bottom right. For the OP margin on Q-on-Q basis, we have seen a decline by 1.7 percentage points. Now, as for the revenue, there has been a positive currency impact, but then if we exclude currency impact, we have seen a negative trend. We have seen a positive growth in IoT.
For the gross margin, we are seeing a net minus 1.6 percentage points, which has some slight positive impact coming from currency and product mix. This is something that we have been able to see as some slight positive due to IIoT. As for their production recovery due to post-process, mainly, we have seen a decline.
Gross margin.
Therefore, gross margin on Q-on-Q, we have seen a decline by 1.6 percentage points. R&D this also has increased by JPY 2.5 billion. Now, next, we look at this per segment, if you'd be able to look at left-hand side. Gross margin and operating margin, you can see that there is a bit of a difference between segments on Q-on-Q. For gross margin, the production recovery, automotive has more internal production, and so that is why we're seeing a contribution more on this automotive side. From Q3, in other words, from the 2nd half, we are going to be revisiting how we calculate the cost of provisioning.
In other words, this was something that we did allocated the same rule for the entire company, but now we're going to be looking at this per business segment. That means that this is going to have positive impact to the margin for the IIoT, but not so for the automotive. If you look at this on a total company basis, the impact is neutral. Our next page is about the inventory. Later on, I will be talking about the Q-on-Q change as well as the future forecast. At the moment here, we look at the in-house inventory. Now, the total DOI it has increased by Q-on-Q. It increased at automotive, but then for IIoT, it has declined.
The increase we're seeing on the automotive side is because we have this advanced purchase for die bank for work in progress. For finished products, this is because we're doing advanced production, which I would like to go on explain later on. Now next is about the inventory in the sales channel side. Again, on the far right, we have the total figure. You can see that WOI on Q-on-Q basis has been on decline. Now, we're seeing a decline in automotive, some slight increase in industrial infrastructure IoT. Moving on to the next slide, here we look at the analysis. 1st of all, starting with the left-hand side, this is about the in-house inventory.
We have been seeing an increase in Q2- Q3, and 30% of that was coming from currency, and 10% was through the valuation, inventory valuation change. Now, if we look at the details, for example, the raw materials, we wanted to make sure we have a good BCM response. In other words, if we know there's a material at risk, we make advanced purchase, for example, wafer or substrate or maintenance parts. These are some of the items that we decided to make some advanced purchasing, and this is something that we'll continue doing in Q4, so there will be a slight increase here. Next is the work in process. In Q3, there was advanced purchase order as well as increase in die bank inventory.
Now, as for the advanced purchase, this is something that we did touch in our previous session, but we are trying to do some ramp-up production, and so we wanted to make sure we'd be prepared. We're basically talking about automotive SOC. For die bank, again, we wanted to have good BCM response, especially for products that we are internally manufacturing. That is why we're building up our die bank inventory. This is something that we are able to do well for the legacy type of products, but then when it comes to some of the growth products, we do not believe we have ample inventory yet.
For the work in process, likewise, in Q4, we are going to be increasing building the die bank inventory, especially for some of the products that we need to supply more, which means that work in process, especially for the automotive side, will keep on increasing. On the other hand, for industry infrastructure IoT, we will be looking at the demand trend to lower down the wafer start, but then we do have to look at some of the lead time. That means we will still see a tentative increase in inventory in Q4. But then from thereafter, from Q1 next year onwards, we'd like to make sure we optimize the inventory level.
Now for the finished goods for Q3, we wanted to prepare for anything that we will be decreasing the utilization rate for Q4, especially in post-process, and that is something that we did in Q3. Q4, for the automotive side, we are going to be increasing the advanced production for automotive side. Also, for the channel, sales channel side inventory. Now, what we can see for both automotive and IIoT is that we are going to be responding to the end demand. In other words, we do not want to eat or consume too much of the future demand at an early stage.
For that perspective, again, this is something that we did touch upon in our previous session, but in Q3, we have decided to hold down the inventory for ABU, automotive side, and IIBU in Q4. Now, for the IIBU in Q3, we have implemented measures for the end demand. In other words, we know the end demand there on Q-on-Q is flat, and inventory level has also remained flat. In Q4, we are again going to be responding to the demand level. Now, for the end demand, we expect it is going to go down Q-on-Q. In other words, that means WOI is going to slightly increase. For the automotive side, the replenishing of the inventory, we believe we have been able to accomplish that at the point of Q2.
We have decided to hold down the sell-in amount at Q3, looking at the end demand. There still was this strong trend in the end demand, and that is why WOI has declined. In Q4, we do want to be careful as we foresee how the end demand would go. Q3, we did sort of decline the inventory amount, and so we hope we'd be able to build up again in Q4. Q-on-Q, we expect WOI to increase here. Moving on to the next page. Here we look into the utilization rate. Now, here, in Q3, the input basis was 85%. In Q4, we expect there is going to be a slight decline.
Towards the year-end, there is going to be the regular maintenance at each of the fabs or factories. That is why the operation or utilization rate will be declining. That is why we expect the utilization rate in Q4 is going to go down. Please move on to the next page. Now here, there is not much points that I would like to highlight, but Q3 EBITDA was under JPY 63.4 billion. Operating cash flow, JPY 144.9 billion. Free cash flow was under JPY 28.3 billion. That's the highlights here. Moving on to the next page.
This is the forecast for the Q4. If you look at the dark blue portion in the middle of this table, revenue at the midpoint is estimated to be JPY 385 billion. Q-on-Q, two columns to the right, down 0.7%. For the gross margin, 54.0% is projected on a Q-on-Q basis. This represents a decline of 0.3%. For the OP margin, 30.5% on a Q-on-Q basis, this is a negative 3.6 percentage point. The currency rate, we are seeing JPY 144 to the dollar and JPY 142 to the euro. If I can add some more comments regarding the details here.
For the operating revenues, if you exclude the currency impact, the foreign exchange impact, automotive almost flat and IIoT negative growth is projected here. For the gross margin, product mix, IIoT is going to decline, therefore we are projecting a deterioration of product mix. For production recovery, as I mentioned earlier, in the year-end and new year period, there's a regular maintenance plan, so the utilization operation day is going to come down, and therefore, the production recovery is going to come down. For the production cost, we are expecting a Q-on-Q increase because of the power cost increase and also the startup cost for the Kofu factory, and also the regular maintenance costs are also included in here. The next page, please. If you can go to page 17, this is the non-GAAP and GAAP reconciliation bridge.
In the Q3, of course, for the primary non-recurring items, the Yamaguchi plant's equipment sales, approximately JPY 8 billion were recorded. The next. This is CapEx, the status of CapEx. Up until the Q2, the big-ticket items production increase investments have been completed. In the Q3 and Q4, the mid single digit is decided for the capital expenditures. That's all for myself. Thank you very much for your attention. Thank you very much. Now we would like to move on to the Q&A session. Shibata-san, Kataoka-san, please turn your video on. Now, let me explain the way to raise your question. If you have a question, the moderator will ask you to raise your hand. If you are asked to raise your hand, please push the Raise Hand button.
We will call your name and company name in the order of the hands raised. When your name is called by the moderator, you'll be able to use the microphone function. Please unmute your microphone before asking your question. Due to time restrictions, we may have to ask you to limit the number of questions to two questions per one questioner. Now we would like to move on to the Q&A session. If you have a question, please indicate by the Raise Hand button. Now from Daiwa Securities, Sugiura-san, please unmute yourself and begin your question. This is Sugiura from Daiwa Securities. I thank you very much for this opportunity. I have two questions. One is about the Q4 guidance for revenue. Your assumptions used for that, I would like to ask some supplementary questions.
For automotive it's flat, excluding the foreign exchange impact according to your explanation. The finished cars production status, how are you projecting this? What's your assumption for the production of finished cars? For IIoT, you're expecting a decline on a Q-on-Q basis. I think there are some seasonality and there are some decrease for the sales to some customers. Does the projection this time around include something larger than that in the decrease? Can you divide by industrial and infrastructure and IoT for the projected numbers of sales for those different subsegments? For automotive, a flattish growth is projected by and large. On the other hand. Our direct customers in many cases are the tier one suppliers.
Those tier one suppliers inventory level, we have to keep a very close eye on the inventory level of those tier ones. Although the automotive market is expected to be flattish, but the device consumption at the tier one level compared to the Q3 is expected to slow down in the Q4. Maybe slow down is slightly different in terms of nuance, but we have made our advanced orders in the Q3, so we are going to go through an adjustment period in the Q4. I think that is a more accurate description. The sell-in of our devices, if that remains flat, the channel inventory will increase. That's how we look at it at this point of time.
For the IIoT business, industrial, this applies to many different companies, but I think industrial encompasses many different components. Hardcore factory automations, if I limit that conversation to that segment only, I think the growth is still continuing and solid numbers are expected for that segment. On the other hand, when it comes to printer related, that I said at the outset, and also PC peripherals, in the Q3 we are expecting a significant drop compared to the Q3 in the Q4. For many other things, low teen, when foreign exchange is flat, a low-teen level of decline is projected. For the IoT portion, broad-based, long-tail customers are many of them included here.
I would say maybe some demand decline is anticipated, but rather than that, I think inventory adjustment is something that we see more strongly. In terms of device consumption from Renesas, a 10% or so decline is projected if the foreign exchange is assumed to be flat. Cloud and data center, that will continue to remain flat, remain solid. Firm growth is expected there, so that's the overall picture that I am anticipating. Thank you very much. Now my 2nd question is about your profit margin. This is a question relating to your profit margin. Shinkai-san mentioned and gave us some qualitative comments during his presentation. Once again, let me ask this question.
The Q3 actual for automotive and the semiconductor gross margin has come down quite a bit, so what is the major factor behind this? Also for the guidance for the profit margin for the Q4, I have a question. Gross margin and the SG&A, you know, because of the Kofu factory startup cost, I think, the SG&A is expected to go up. From Q3 to Q4, ABU and IIoT, if you divide between the two, what are the factors that will have a negative impact on the gross margin? Once again, can you streamline that and then explain to us, if you can give us a breakdown of the impact from each element to the extent possible, that would be appreciated. Okay. That will be answered by Mr. Shinkai. Shinkai-san, please answer.
In Q3- Q4, the bridge between Q3- Q4, I'll try to organize that and come with comment on that. From Q3- Q4, three percentage point decrease in the composition for that will be product mix.
40% of that. Production recovery and production impact, 20% or slightly more than 20%. Production cost, slightly less than 20%. That is the breakdown. As far as the product mix is concerned, on a macro basis, automotive flat, IIoT negative. The product mix will deteriorate. That impact is something that we account for. Also for automotive, inside automotive, the internal mix within automotive, there is a slight impact from that. For one thing, the low margin. Those products with relatively low margin, those sales are expected to grow, and the high margin sales, product sales is expected to come down. That's one thing. Also, there are non-device sales that we don't have a final outlook developed yet. We have just made a conservative projection for those.
For those reasons, the Q-on-Q product mix is expected to decline or deteriorate. Just as a confirmation, for the product mix, automotive accounts for about, and for the utilization decline, also have a stronger impact on the automotive because in-house production is higher. The production recovery will be affecting both segments, so IIoT and automotive. For the gross margin of the automotive side, it is going to decline higher in the Q4. Yes, so for the production cost, those are the production costs in relating to internal production. Just like the production recovery, the automotive is going to go up.
Thank you very much. Next.
My question is about your ABU inventory level. Now, the inventory of sales channel have been increasing, but then you have the decline you've mentioned that approximately JPY 160 billion amount of sales. If the production level is going to continue as today, that's really the level of the revenue. Now, I know, for example, about a supply chain saying that because of supply chain issue, in other words, semiconductor, they're going to be reducing their production volume. For example, how much sufficient is the supply for semiconductor for automotive purpose? For example, is it going to be really rare, like just one out of 1,000 is not going to be enough? Well, since we have Kataoka-san here, why don't we 1st ask Kataoka-san to answer? Yes.
Do we have enough, is there ample supply? That's something I would like to respond. Yes, there are some products where the supply is still short, and that is why, for example, people like Toyota would be making their announcement. In other words, they're saying that they're going to be declining their production level. They have been making a downward revision compared to what we announced initially. That is something that we are observing. If you look at this on a macro level, the shortage is becoming more gradually getting more relaxed or the situation is becoming gradually better. Because we're hearing these announcements like Toyota, we do want to be careful.
That is why we have. That's what's behind the adjustment of the inventory in Q3. Yes, and also for the 1st part of the question. Now, in a nutshell, there's still areas that we don't know. This Q3 level, is it going to continue? Would that give us better visibility? That is quite a difficult conclusion to make. My feel is that there probably will be yet a little more increase from what we're observing right now. What's behind that is again, something that we've been discussing from before. In other words, there's more EV, ADAS, there's the production volume, contents growth. There's a lot of talks behind this.
What is holding down this increase, I guess has to do with what you asked as your 2nd point. In other words, the components required to make a car, will the OEMs, car OEMs, have sufficient parts? That's really the theme. Talking about our own device mix. Again, you heard from Mr. Shinkai. SOC, there is this advanced purchase. But then, for example, 40nm MCU, we would very much like to make an advanced purchase, but then even if we do that, we're going to be eating away, consuming that right away. So even if we have, no matter how much we have, we never will have enough. How much supply can we secure? We do have to look at that.
Those are some of the factors that we have to look at. Ever since last year to this year, as you have been observing, we still have to ask if this current trend that we're observing is going to give us a large growth next year. We still are not exactly sure. At this moment, we do believe there is still a chance that we will be finding growth next year. That's my answer. Thank you very much. I know there are two questions, and I know I was trying to make it technical, and that was supposed to be one large question. I'd like to ask a little more, which is about foreign exchange. Again, I want to be technical, and I'm going to be asking a little more questions here.
What is your currency, the sensitivity to currency? For example, on an annual basis, can you tell us? Also, now we know this currency is fluctuating, and is this currency change fluctuation changing your share? Because the Japanese products from outside, people outside must be really cheap. Do you think this is going to give you an opportunity to increase your share? Can you give us your view?
Now, for the market share. Well, just because yen is weaker, it doesn't mean that the price in dollar is going to be lowered. Basically, we do not believe we're going to see any contribution like that from currency. But as for sensitivity, let's ask Mr. Shinkai. Yes, for the annual basis, I think that was your question. If we look at the Q4, allow me to just talk about the Q4 base as a baseline. The assumption of the currency for Q4 is, again, we did talk earlier about how we try to make a currency hedging of the currency.
That means JPY 1 fluctuation versus dollar, that means to the revenue, that is going to change by JPY 1.2 billion and gross profit will be JPY 600 million, OP will JPY 300 million. As if this is for a euro, likewise, JPY 1 fluctuation can change the revenue by JPY 300 million of GP by JPY 300 million and OP by JPY 200 million. Thank you very much.
Thank you. Now from Goldman Sachs, I would like to invite Takayama-s an to raise a question.
Hello. Thank you very much for the opportunity. I have two questions. I think I'm allowed two questions. My 1st question is about the foreign exchange. As Shinkai-san mentioned, the hedging. You mentioned that, from next year onwards, you might review the way of hedging so that you won't have any impact on the non-recurring basis. Once again, why are you doing this, and why are you going to change the practice so that you won't have any profit impact, just like other companies? Can you give us the rationale behind this decision? Shinkai-san can comment on this further.
Yes. The reason why we are going to review the methodology is because the cash grouping inside the group is something related to this. I'm talking about the currency. If you can look at page four, the profit, the foreign exchange gains and losses that will have an impact on the profit attributable to the parent. In order to minimize the impact, we are doing this. The currency impacting the profit would be the financing expenses, and that means intercompany loan balance, which is denominated in dollars. Depending on the foreign exchange level, this will grow or shrink, and that will have an impact on the consolidated profit. Therefore, the intercompany loan rather than intercompany loan, we would like to look into other methodology for cash pooling.
By doing so, the impact on the financing expenses can be minimized. That's the rationale behind this. Therefore, maybe you misunderstood with something different.
All right. My 2nd question, I'm sorry, is about does not have any direct relationship with what you have commented today. After the Q4 guidance, some events that could have some impact on the Q1 performance, I would like to summarize the pros and cons. These expenses may no longer be there, but for the raw material cost, I think could be somewhat better reflected. The utilization, I think there is something you can do more. On the other hand, the IIBU, which is expected to decline, may moderate. To the extent possible, to the extent that you have visibility, can you give us your projection and guidance into the Q1?
Then after that, over the longer term, I think, 25-30 percentage points is something that you are projecting for the longer term. Do you have any feeling that you will be able to manage within that range over the longer term? That's the point that I would like to confirm. Well, after all, everything is dependent on the semiconductor demand changes on a macro basis, and that will change the outcome significantly. The question is very difficult for me to answer. The level that we are currently projecting, if the fluctuation turns out to be within the range that we are projecting, and maybe Shinkai-san can add some comments later if need be.
The possibility, if there's going to be a negative impact, that one element that could have a negative turn to the negative would be the production recovery. At this point of time, the demand is not likely to change significantly to the pessimistic side. If that happens, we may have to shrink the production quite significantly and therefore the production recovery will have a significant negative toll on us if that turns out to be the case. Product mix, as you rightly pointed out, for the short term, PC, mobile, and peripherals and also the high-end smartphones, those are the things that we have concerns about at this point of time.
If the demand for them declines in the future, the IIBU product sales is likely to come down and therefore in comparison with ABU automotive, the product mix overall for the company will deteriorate. Those are the two things towards next year that could have the negative downward pressure on us. Those are the primary two components that may have a downward pressure into next year. Mr. Shuhei Shinkai, did you have anything? I have. I share the same view with you. In fact, the production recovery impact, I think, will have the biggest impact on the gross margin, I believe. Therefore, depending on the outcome of that, the results may look quite differently depending on the production recovery trend. Overall, the cost is rising, including raw material costs and also the personnel costs.
Those things could be passed on, for example, or some other methodology can be used in order to absorb such impact so that we shall be able to maintain the operating margin within the level that we have just mentioned. I think that's reasonably possible for us to do.
The raw material cost and other costs, passing on those costs, you believe the environment allows you to do this quite smoothly without any problem, is that correct?
Well, whether that's smoothly or not, or swiftly or not, I'm not really sure. We are meticulously trying to convince customers to gain their understanding. That remains unchanged. Thank you very much.
Thank you very much. Next, BofA, Mr. Hirakawa, please unmute yourself and ask your question.
Thank you very much. BofA Securities, this is Hirakawa. I have two questions, too. Now, 1st question, I know, it's the same question, but Texas Instruments have given their outlook, and on my side, it's really going to go down. Still, it is still seeing some growth, strength. Texas Instruments, TI, did not really mention about how strong or robust or continual strength they'd be able to find on the automotive side. What is your perspective on the automotive side semiconductor? That's my 1st question.
I already said what I need to say. I don't really have any additional comments other than what I mentioned. Kataoka-san, would you have anything?
Well, this is Kataoka. Yes, we know that OEMs, they want to keep on producing more. They want to increase their production volume by 10% or 20% next year versus this one. Of course, they want to have more revenue. If there's going to be content growth, that is also something that is favorable. If that is all achieved, then we should really see a good growth in demand. Every time, I mean, this is parts, we're not just talking about semiconductors. There's always this part shortage, which does limit the production volume. Probably, the production volume is not really going to change from this year.
If we'd be able to keep that in mind, I think that's one way to discipline ourselves in thinking how we'd be able to keep the inventory. That's my response. In other words, it's not about the OEMs, the production volume demand, but it's really about how much parts could be supplied, and that's what's going to determine your semiconductor business as well as the relationship with the OEM's production volume. Is that the way to take it? Contents, number of contents as well as the car production volume probably would be some of the indicators. For the past two years, this is something that we've been doing, but we know that we have really been focusing on capturing the high growth market, high growth customers.
This is something that we have been trying to change over the past two years, and I think this is something that we have discussed in the past. That is why our sales in the China is actually increasing at the moment. There are, of course, pros and cons to these activities. This secular growth, in terms of secular growth, China market as well as India market, of course, India market could be scale-wise smaller, but then these two markets are really supporting the overall activity. When it comes to our device family, we know there still are very, very tight items yet. Sometimes we would not be able to find such a high growth here.
That is why it goes back to the comment, like, we hope to be able to have a good growth even though it may not be a dramatic growth. Thank you very much. My 2nd question is something that we saw at the very end of the presentation. That was about capital expenditure plan. Kofu power semiconductor is going to have a large portion in that CapEx. Now we know that when it comes to power semiconductors, there is going to be a lot of investment. Many people are going to do that. Renesas power semiconductor, how do you see the competitiveness in terms of your technology, and how do you mean to secure your accounts? What is your outlook into the next fiscal year? That was my 2nd question. Now, the competitiveness of our product, I don't know.
If I say this too much, I might be misunderstood, but I know our products are being very much highly appreciated by our customers, so we're not that worried about our competitiveness in that sense. What we do have to be very concerned is the macro situation in terms of demand and supply. At the moment, when we look at things in the longer term, needless to say, there's going to be more shift to SOC, like in the auto space. Anything for the affordable areas or anything for industrial areas, IGBT growth is still going to be very strong. We feel confident in making our investment. We know if all players are still going to just keep on adding the capacity, then there may be oversupply, and that is going to be a concern.
We don't want to determine looking at how others could be building up their capacity. It's really about building our technology, and if we find a customer that would appreciate our work, those will be the customers that we want to transact with.
It is something that we have tried to do, but it's something that we want to focus even more. Not just Mr. Kataoka, but I am also going to be participating in really building our customer base, because that is going to, in the end, work as a differentiator in how we be able to offer our products. It is something that we have tried to do. We do feel confident in what we are doing now.
Thank you very much for your response.
Thank you very much. The next question is from Eguchi-san from Nikkei Shimbun. Please unmute yourself and begin your question. My name is Eguchi from Nikkei. Can you hear me? Yes, I hear you. Okay, let me begin my question. The 1st question regarding automotive business.
You explained earlier, so I would like to reconfirm once again, if that is possible. To some extent, the automotive semiconductor shortage is now beginning to moderate on a gradual basis. Does that means that the number of items that is insufficient is coming down? Or is it rather because the overall supply is enough but the tier ones and OEMs are not fully supplied? Does that mean that only a particular sector is facing shortage? Or do you see an overall shortage across the board? That's the 1st question. Among the products that you offer, are there any products that you have not been able to meet the demand? If there's any of such product, can you identify which component is facing shortage?
Well, from before, the general direction has not been changed that significantly. In terms of the total quantity, I think we have a good supply already. I think we are quite sufficient, and that remains unchanged from before. Still, having said that, there are some components that still have some insufficiencies, and over time some of them have made a transition, for example. Some of them, the shortage level is now moderating. Previously, if you make up the list of components that have undersupply, the quantity was so large in terms of shortages. Of course, the list, the items on the list is now also coming down.
In terms of the variety of components in shortage and the quantity in shortage is now coming down, and therefore I would say that the supply-demand tightness has moderated. As far as our devices are concerned, if there's any shortages, I would say, as we have communicated for some time before, the 40nm MCU, this is still very tight. Once we produce it, that will be sold off immediately. They'll sell immediately. There's a very tight demand and supply situation for that product on a macro basis. Depending on some products, such as the analog semiconductors mainly, as we have stated from before, the mature node processes, especially, those that we outsource to foundries for production, they continue to face a shortage.
Some of them still face shortages, so as we speak today, and I think, going into the future for some time, I would say. I'm not really sure if the hand-to-mouth expression is adequate or not, but, once we procure them and supply them, they will sell immediately. So that's the situation. Kataoka-san, did you have any additional comments? As Mr. Shibata just mentioned, the mature nodes in particular, such as the legacy products, such as ASICs, for example, those, not all of them, but, certain ASIC types still have a very tight supply. We are affected by that. Of course, this could be critical to some components of automotive, and that remains unchanged before. However, the degree of severity is now moderated compared to before.
In our case, as Mr. Shibata mentioned, 40nm MCU, this product in particular, we would like to produce even one more, and because once we produce it, that could sell. But because of the capacity constraint and therefore together with foundries, we are working on this to address the problem. That's it. Thank you.
Thank you very much for your comment. My 2nd question, in relation to your capacity, how you plan to expand your capacity and the competitors, Analog, in-house fab, and foundries capacity expansion has been discussed with, I believe. Once the mature node supply situation eases, at which timing the fundamental capacity or the production supply will increase in the near future? Do you think this tight supply situation will continue for some time?
Well, supply demand is also makes sense only when there's a demand. For the near term, I think the demand has a stronger outcome on the impact on the outcome, I believe. Because when it comes to certain production processes, we are distinguishing with multiple products. The underlying compute or computing products or model mobile products, those when those consumer products demand comes down, the capacity will become available gradually. For the short term, let's say in our case, as we have introduced our case from towards next fiscal year.
The capacity will increase gradually, and I believe the competition will also gradually increase their capacities. More than that, depending on the demand side, the supply/demand balance will be affected more by the demand side. Thank you. That's it for myself. Thank you.
Thank you very much for your comment.
Thank you very much. Next from Citigroup, Mr. Fujiwara. Please unmute yourself and ask your question.
Thank you very much. This is Fujiwara from Citigroup. I hope you can hear me.
Yes, we hear you.
Thank you. I have two questions as well. 1st question is about your in-house inventory. Now, I did see that, even for the automotive side, you have been able to come very close to your target level, but then, you're still trying to expand the die bank inventory, like you said. This in-house inventory, as you try to build this up, how long do you think it will take before you have sufficient inventory? I mean, I am thinking that, it's probably going to be the near future when you have ample inventory level, but then when you do, are you going to try to increase your capacity? Shinkai, can you answer that question? Yes.
For the die bank inventory, as I mentioned earlier, as for the growth products, we still do believe we have enough number of inventory. How long is it going to continue? It is going to take a little time before we have ample inventory. Either the year-end or perhaps by Q1 next year, we believe we will be able to have this sufficient inventory level. What is going to be the impact of utilization? Now, this inventory level alone is not going to just push up the utilization. When we'll be able to fill the die bank inventory, is that going to really change? No, we don't really believe so. This die bank, there are die bank which we stock at the foundry.
There are some that we stock in-house, as in-house. Even before we say die bank inventory, the increase of the products in process is not directly going to change the utilization rate of what we have internally in internal production. If I'd be able to ask a follow-up question, for example, for the 40nm MCU and for the growth areas, that's something that you procure from foundry. That's my guess. Other products, if you'd be able to have a good ample inventory through this within this year, do you think you'd be able to have enough inventory for what you produce internally? Is that correct? Still, that's not really going to change your utilization.
Well, to be more specific, for die bank, within the die bank inventory, most of that on value-wise basis is for foundry, for the foundry. For internal production, it's probably like half. In other words, again, this die bank inventory and the buildup of the die bank inventory is not really adding utilization. Even if we'd be able to fill up this, let's say we do not have to keep on building the die bank, that's not really going to really change the utilization.
Thank you very much. My 2nd question. Maybe it's too early to ask at this point, but, how do you see the demand outlook for FY 2023, the year 2023? In this three months, what kind of change have you observed? At the same time, even at this moment, economic slowdown is really being felt, but then, do you see, have you ever heard of any order cancellation? Well, is the cancellation increasing?
No. When we look at the order backlog, it is still very high level. I feel like I have been saying pretty much the similar thing all the time. In the end, it's really about, is this really true? We certainly look at what the peers, other people are saying. Now when we try to compare that with our own operating plan, I do believe the current order backlog level is really going to support our operation into the next year as well.
If we are going to believe what we are seeing, we still can feel confident that we will be able to find growth here. There's always a chance that the situation may dramatically change. It is just a repetition of what I have been saying from before, but the trend that I have been seeing at the end of last year to the 1st half of this year, it's not about trying to build up an order backlog that people would not be able to cancel, because it could be just eating away the future demand. What is important that we communicate together with the customers and really ask, "Do you really need to purchase this today?" We're still doing that type of conversation with our customers.
I feel like the current situation is just going to keep on as it is into the next year. In other words, very strong order backlog.
With that said, there will be some gradual. Well, we're hoping to be able to negotiate so that we'd be able to find a more optimal level of order. In other words, ask the customer, "Do you really need to order that much?" I know I do have to apologize if we're not really being clear, but in number, if we talk in numbers, we always talk about very strong number. I do always sense that one day, situation may change, and we don't want to feel surprised, and we don't want to be belated in our response when some change occurs. That is why we want to be able to have good negotiation discussion with the customers. If we have to revisit the backlog, we do need to do so. Thank you very much.
Thank you.
Thank you very much. Since we are running out of time, we will now take the last question, and this will be the last question. Sasaki-san from Toyo Keizai, please unmute yourself and begin your question. This is Sasaki from Toyo Keizai. Thank you very much for your very kind presentation. I just have one question, which may be overlapping with the previous question. Regarding the outlook for this next year and the order backlog, I think you have received a very long order going into the future, and the customers are placing large amounts in their orders. I think that will be eating up the demand for the future. Do you think the trough will become larger in the future? How do you see that trend in the future? And what are the countermeasures for that?
You're just going to communicate with the customers and gradually, trim down the actual order and so that you adjust to the actual demand. Is that your countermeasure for that?
All the things that I was supposed to answer was already covered by my colleague earlier. In order to avoid that, we will try to limit the channel inventory, and we would like to ensure that we have a good communication with customers so that we can review the backlog from time to time. Beyond that, if the demand disappears much larger than expected, we may have to anticipate some impact from that. However, as for the inventory and also for the backlogs are concerned, the deceleration risk in the future, we don't want to forget about that and see a sudden change in the future.
We would like to avoid that by all means. Oh, so sorry for the overlapping question. My 2nd question is about your foreign exchange. I would like to ask another question. You talked about the foreign exchange sensitivity earlier and the yen's depreciation I think is a positive factor for your business. But do you welcome this yen's depreciation, or do you see any disadvantage from the weaker yen? Or as a manufacturer based in Japan, what's your view on the financial policy or the monetary policy of Japan? Well, of course, many things have already been conveyed in the media, so our views are not so different from what is reported by the media.
We too, in many regards, maybe this is different from localization, but in many regards we are moving forward and pushing for diversification, as you may know very well. Our employee base, Japanese, account for less than 50% of our total employee base. In-house production and the utilization and sourcing from foundries, in that regard, we are taking a fab-lite approach, the foundry procurement is increasing, and that's denominated in US dollars. If you take these into consideration, the weaker yen will have an increase factor on the cost. In terms of R&D and also for the cost of goods, that will have a negative impact so that we are seeing a stronger impact on cost increase because of the weaker yen and raw materials besides that.
As Mr. Shinkai mentioned, the utility cost, especially the electricity cost, is increasing significantly. The weaker yen has a downside cost increase pressure, which is unfavorable for us. However, on the other hand, through foreign exchange, the revenue, when converted into Japanese yen, is inflated to some extent. That is a benefit side of the weaker yen. When the revenue increases in terms of company operation, that will relax people's mindset. We don't want to sit on that and be complacent about that. If you consider all these things together, as a trend, a moderate depreciation of yen or if the yen stabilizes, if that is the case, I think it will make it easier for us to respond to the situation as adequate.
If the yen depreciates in this very volatile fashion in a very short period of time, that makes our operations more difficult. Again, even if we sacrifice the upside to some extent, we would like to solidify the floor so that we can have a solid operation. Because we are not looking into a near-term future only, in order for us to deliver results in five years' time, 10 years' time, it is more important that we have a solid operation. We hope that there won't be significant volatility in the foreign exchange market. That's our view. Thank you very much.
If that is the case, if so, therefore, a moderate yen depreciation is a welcome development for you, but you don't want to see a hugely volatile market. We just would like to operate the company in view of the currency situation. All right. Thank you very much for your comment.
Thank you very much. With that, we'd like to end the Q&A session. May we ask Mr. Shibata to make a closing remark. Mr. Shibata, please.
Yes. Thank you very much. Now, the Q3 result, I do not believe there were much new news this time around. I do guess your interest would be, 1st of all, about our margin. What determines our margin is really the revenue, solid amount. It is not just about Q4, but we hope you would be able to observe and share information about the upcoming Q1. We're hoping we'd be able to send you the information without misleading you as much as possible. We would like to do this to our best as much as possible and really be able to share with you what we are observing. Once again, thank you very much for spending your time with us in your busy schedule. Thank you very much.
Thank you very much. We will end the Q3 announcement. Thank you very much.