Ladies and gentlemen, thank you very much for taking a precious time to attend this announcement press release press announcement by Rudas Electronics regarding the start of the acquisition process of Dialog Semiconductor. Thank you very much for your attendance. Today's session is participated by the CEO of Runexus Electronics, Mr. The President and CEO, Hidetoshi Shibata and CFO, Mr. Shuhei Shinkai and also by the CEO of the Alloc Semiconductor Plc, Mr.
Jaramageli. Those are the participants to today's meeting. From now, we will have a word from Mr. Shibata regarding the acquisition of Dialog, after which we would like to have a few words from Mr. Bagheri, the CEO of Dialog and then followed by the Q and A session.
We expect to finish the meeting in 1 hour and 15 minutes. Before we begin the presentation, please be advised that the explanations made during this presentation may contain forward looking statements, and such forward looking statements may include certain risks and uncertainties. And please be advised that the actual results may differ from those projections made in the forward looking statements. Now without further ado, I would like to ask Mr. Shibata, our CEO, to start the presentation.
Once again, good evening to you. I am Shibata.
As
time is limited, I would like to start immediately on the explanation. Now the transaction summary. The equity value
is
estimated to be €4, 900, 000, 000 And this is calculated at €67, 100, 000, 000 67.5 per share. And we have agreed to start the acquisition process together with Dialog because we have some cash on hand. So in terms of enterprise value, this represents €4, 500, 000, 000 or more than JPY 500, 000, 000, 000 And this is going to be an all cash transaction, so we are planning to purchase with all cash. So therefore, we are going to arrange a bridge facility. Of course, there are fluctuations in the exchange rates.
And due to regulations, we are going to prepare a hefty amount of cash. So therefore, JPY 735, 000, 000, 000 is the framework of the facility, of the bridge facility. Then from that, through our course of procedures, before the closing, we would like to finance a portion of this fund through equity issuance. And also, some of the cash on hand will be utilized for the acquisition so that we can bring down the total borrowings of the company. And also, the shelf registration for the equity issuance has already been filed.
For Finance, Dialog is a very revenue driven company. Operating profit margin is going to have credit impact immediately on our business. And of course, I will come back to this topic later. But we have just like the past 2 deals that we have conducted before, we are expecting a similar size of synergy out of this transaction. And finally, regarding the procedures that we are going to follow for the closing, we would like to seek the approval by Dialog shareholders.
We also have to clear the regulatory clearance, including antitrust and FDI related, including CFIUS regulations. We have to clear all these regulations. And then after that, we have to have the hearings and the sanction by the U. K. Court, and we expect to finish this and come to a closing by the end of the year of 2021.
Now let me go into the details from here. This is the outlook overview. At the bottom left, you'll see the underlying to ForT fiscal 2019. The non GAAP basis financial results are presented at the bottom left. Revenue of over $1, 400, 000, 000 and the gross margin, dollars 700, 000, 000 and operating margin of over 20%, gross margin of over close to 50%.
If you look at the upper right, the pie chart, this is the breakdown of the application segments. As of 2019, the custom mix signals accounted for large bulk. And on top of that, advanced mixed signal as well as long sorted connectivity capability are equipped with this company. This company possesses these capabilities. And I'll come back to this topic later.
And also, if you look at the bottom right, as you may know, Dialog previously had a large portion of the business coming from a particular customer. However, over the years over the last several years and of course, due to the leadership of JALA, over the several years, they have been reducing and have started actions to reduce the contribution from these large customers. So in about 2 years' time, by the end of 2023, the dependence on these large customers will come down to around 25%. At this timing, 1 of the reasons why we have shown a strong interest in dialogue is because of this factor. And also, if you look at the pie chart on the bottom left, responses to the charts above, currently, the direct customers account for a major bulk 70%.
But Winifas over the last 2 years or so have conducted a drastic review of our channel strategy and we are aligned with strategic channel partners and have established a good relationship with them. So after the integration of Dialog, I think our large sales force as well as our robust sales channel can be leveraged so that we can expand the sales of many diverse products. The overview of the dialogue products are listed here. Of course, if I go 1 by 1, it's going to consume a lot of time. So please review this slide when you have the leisure of time.
But roughly speaking, in a nutshell, Dialog, power management related, including low power and battery management and ACDC, they have strength in these areas. And of course, again, connectivity, especially low power connectivity, Bluetooth low energy, for example, and low power Wi Fi and also some audio capabilities. They have also a very strong product portfolio in these areas. And in addition to them, also they have IO Link for the industrial segment. So they have very interesting suite of products and therefore but especially low power and power management and power conversion related products as well as connectivity are the areas that we have that we think they have a very strong capability.
Now let me step back a little bit and talk about the M and A strategy of Lunessa and our track record of execution just very briefly. Let me review on this point. Over the last several years, we have a consistent policy for our acquisition. As you can see at the upper part of this chart, in the analog and mixed signal area, within our portfolio of products, there were some areas that we had a shortage. We focused on these areas to supplement our offerings.
And if you look at the far right, the application, for example, industrial applications, automotive applications, IoT, those are areas of application. We start to achieve a well balanced application to improve the balance and try to diversify our applications so that we can respond to those diverse needs with our portfolio. And in the middle, the talent, especially engineers and of course, non engineer talent as well. With the acquisition, we have actively tried to promote these human resources and integrate them so that we can become more global and international organization so that we can reinvigorate our own organization. So those were the rationale behind our position.
For example, of InterCell, which was announced in 2016, and IDT that we announced in 2018. And today, we are happy to announce our intent to acquire Dialog in 2021. And with any addition of Dialog, in terms of product and applications, what are the areas that we can expect reinforcement? Of course, this is very difficult to explain, but I'll try to be as simple and brief and concise here in this chart. So on the far right, you see the infrastructure and IoT.
This is the business segment that we called IBU. And the vertical part represents the application, and the horizontal axis shows the product. And dialogue. The products offered by dialogue in this segment is illustrated on the far right. So with the addition of dialogue, especially when it comes to the IoT category, we can further reinforce our offerings.
And of course, if you look at the bottom part, connectivity, power management and sensors to some extent. So those are the products we didn't really have in our portfolio. We can now add these technologies and so that we can offer a more comprehensive set of solutions, especially in the area of IoT and many other applications. That is going to become a reality for us. And other than IoT, if you at the far right, industrial in this area, too, again, at the risk of repeating myself, I believe we'll be able to offer a very differentiated and competitive product with the addition of Dialogues.
So we would like to combine them with our MPU and MCU where we have strengthened and so that we can further expand the sales of ASAL products. And then if you look at the left hand side, this represents the automotive business. The upper right is the high compute area, and the bottom half shows what we call the winning combo. Combining our compute device and analog, in some cases, power. These are the solutions that can be realized through this combination, particular, if I cite a good and easy to understand example in the areas of body and interior, for example, the cockpit LED backlight and also wireless key technology.
And also, there will be some interactions with the ADS, such as the LED for the headlights. Those drivers for the headlights can be incorporated as part of our offerings. So we'll be able to expect the reinforcement of these products, which will allow us to have a more comprehensive and broader product range that we can offer an end to end comprehensive product set, especially in the area of automotive as well as industrial infrastructure and IoT area. Now talking about the portfolio from a different perspective, I would like to share this slide with you. The left hand side shows Renesas' current portfolio by product on the upper hand, upper side, MCU and SOC from the dark blue parts towards the lighter colors.
And then we'll be adding analogs and mixed signals significantly. So the compute device, as you see on the right hand side, 39% MCU and 11% SoC MPU. So they'll become a comparable size. The analog size will become a comparable size, as you can see there. And if you look at the bottom half of this slide, this is the by market, the comparison by market or by application, if you will.
And if you look at the Winasas on a stand alone basis on the left hand side, with the addition of Dialog. Of course, the automotive will continue to be the largest market for us. And of course, we are continuously committing ourselves to automotive. But I think compared to before, we'll have a more better balanced market exposure and the IoT areas will expand further compared to before. And talking about the balance on the perspective of our talents and human resources, just for the sake of simplicity, we have just focused on the headcounts of engineers.
If you look at the upper right, it shows Renesas' human resources and Japanese account for more than half of our total engineers. But in case of dialogue, Europeans account for more than half of their engineers. And if you look at the bottom right, with the combination of UniFirst and BioLog, the 2 companies' integration, the balance between Europe and I think North America will become much more much better balanced with Americas and EMEA accounting for 60% 16% each. So there won't be any concentration in only in a limited area. It will be more well balanced, and that will allow us to have a more well balanced R and D activity going forward.
Next, as for the financial benefit, I think this is self explanatory, so I will skip this presentation. I think I just want to say this is financially accretive as well.
Now let me talk about synergies. I'm just going to give you an introduction. And if you could look at the left hand side, we have the cost saving synergy. On the right hand side, we have by growing the revenue, we will be able to see a revenue driven synergy. On the left hand side with respect to cost synergy, as it says here, SG and A would be the main synergy.
And because the company is going to be integrated, therefore, there will be some overlaps in functions. And they will be streamlined so that it will become more efficient. And compared with Dialog, Renaissance in terms of revenue is 5 or 6x larger. Therefore, by integrating the 2 companies, there will be a scale benefit, and we will be able to reduce cost. On the right hand side, after the acquisition of IDT, when we gave the update, I did touch upon this theme.
But the Dialog products and our products and distribution and go to market approach and our special applications having a complementary relationship. So by combining them, we will be able to provide solutions. And this is going to be very convenient, easy to use for the customers, and we will be able to provide very attractive solutions to the customers. And in the case of revenue driven synergies, it's going to take longer. However, in several years, we believe that we will be able to have a synergy of approximately about USD 200, 000, 000.
And this is just for your reference. So with the Interseal and IDT transactions have generated synergies in the past. And if you look back on the left hand side, we have the synergy with the InterCell and the cost synergies that were able to be attained. And the dark bar shows the actual the light blue bar shows the announced plan. As you can see, when we launched it, we had some difficulty.
However, after 2018, we have been able to achieve the plan. In the same way, with respect to the transaction with IDT, through our experience, our organization learned lessons. So in the time of the acquisition of IDT from the beginning, we were able to have higher actual compared with the plan from the beginning. With respect to the top line, Intacil and IDT are all combined here, But and next month is going to be a strategy update, but I'd like to talk about that more in detail at that time. But in 2020, on a single year basis, acquiring new business is shown on the top right.
In other words, the winning combination, including cross sell, the top line generating synergy that has created new businesses. And over the past 1 year, it exceeded more than JPY 100, 000, 000. So over the 5 plus years, this can be realized steadily. Then on an annual basis, we will be able to generate about JPY 20, 000, 000, 000. And by accumulating this every year, we will be able to enjoy top line synergies.
And the first step has already been seen. Now let me talk about finance. If there are questions, I'd like to respond to you. But this is expressed here. So if you have time, please take a look at it at your leisure.
On the lower left, as I said earlier, part of the funding is procured in the form of issuance of equity. So we have completed shelf registration of the equity issuance. This is leverage. And of course, we will be making new borrowings. Therefore, the leverage would go up slightly.
But if you could look at the diagram on the right hand side, the end of this year, when we anticipate to close, the equity portion would show and the net debt to EBITDA would be about 3.5x. And from there on, of course, we want to do this actually before, but there will be equity finance and the annual free cash flow will be JPY 150, 000, 000, 000 to JPY 200, 000, 000, 000. And by doing this, in a very short period of time, we will be able to reach a net debt EBITDA margin of 1.0x. This is the transaction milestone is what I have just mentioned earlier, so I'm not going to skip this. Now looking back, I'd like to give you some key takeaways.
Why are we going to acquire Dialog this time? The first point is, like our previous M and A, we are going to implement our consistent acquisition strategy this time as
well.
This is the most important thing I want you to understand. And the second point, I have been repeating myself, but in terms of products and go to market and offerings, dialogue and ourselves are complementary. And therefore, we can generate synergies in a very smooth way. And the third point, for example, in terms of market exposure or a product mix or headcount composition in various ways by having Dialog join us, we can have more well balanced distribution of our resources. And that's how attractive this transaction is.
And the last point, I may be reiterating myself, but as we have done in the past, we are going to have excellent talent join us. And by them joining us in various geographies, we are going to have a more cosmopolitan business and we are going to accelerate our business growth. Sorry for taking so long, but this is it for me for the time being. And I would like to turn over to Giljar to speak. Giljar, please?
Hello, Shibata san. Thank you for inviting me to join this call. I'm happy to be here also to take questions from investors. I also want to extend my welcome to the Dialog Investors and Analysts who may have dialed in to this call today. For those of you who don't know me, my name is Jalal Bagherli.
I am honored and humbled to be the CEO of Dialog Semiconductors since 2015 sorry, 2005. In that 15 years, we have grown the small company of roughly about $100, 000, 000 to over $1, 300, 000, 000 sales worldwide with a very diverse set of mixed signal analog products and with a culture of agility and flexibility and innovation. And we are very happy to also have a very good set of leading top tier customers in both mobile and consumer products already that we've been working on with for a number of years. So Dialog is an innovative provider of integrated circuits that power mobile devices, consumer Internet of Things and Industry 4.0. Shibata san has already talked about the technologies that we have through this presentation.
And I just want to emphasize that we are really focused on power efficient and connected mixed signal products. And I think this is a very sought after capability in today's world. And also to help you understand our market positioning, Dialog Solutions are integral to some of today's leading mobile devices and are the enabling elements for increasing performance and productivity on the go. Our solutions do this by helping making smartphones more power efficient and also shorten the battery charging times. They enable home appliances to be controlled from anywhere, and they connect the next generation of wearable devices.
We have also built a greatly skilled mixed signal engineering and technical talent pool in many locations, particularly in Europe and North America, but also a number of cities in Asia. And that is, we believe, very complementary to Renaissance R and D Resources. For several years, we have successfully executed on a diversification strategy that positioned Dialog for high growth. So we have extended our product portfolio and applied our technologies into new markets such as 5 gs, connected medical and also industrial IoT. Renaissance, of course, is no stranger to us.
We've been they've been an important partner to us in that journey. We have enjoyed a long and diverse collaboration already. In the August of last year, for example, we deepened our collaboration even further by introducing our power management PMIC solutions for the R Car M3 and R Car E3 automotive computing platforms. I believe there is potential for 2 companies to create even greater opportunities for growth in today's increasingly connected world by combining Dialog's compelling low power platform with Renesas embedded compute, analog and power portfolio, thereby creating new system solutions, new winning solutions in the world market. From Dialog perspective, we recognize the benefits of this combination can bring to our business.
We can build and utilize Renesas' extensive sales, distribution and customer support facilities to put us in an even stronger position to provide innovative products for the markets and customers we serve. This also provides a greater career opportunity and benefits of a larger scale technology company to our employees. So I believe for these reasons, we're very pleased with the announcement today. So with that perspective from me, I'd like to hand back to Shibata san, and I'd be happy to take any questions. Thank you.
Thank you, Jiala.
Now let's move on to Q and A. Now I'd like to explain to you how to ask questions. When you have a question, there is a button to raise your hand on the screen and the moderator would point your company name and your name. So when your name is called, please release the mute button and ask your question. We are going to ask you to ask up to 3 questions.
So we are going to start the Q and A session. First from Merrill Lynch, Mr. Hirakawa, please ask your question. Please release the mute button and start asking questions.
Thank you very much. This is Jiroti Yuzor from B0B. Securities. 2 questions, please. The first question is for Jalal.
I'd like to know the mechanism. Why sorry, how you reduce exposure to the biggest clients to like your 50% to 20% in 3 years, while you increased this other sales. So how does it work? That's my first question.
Okay. So I think we have been investing in diversification of our technologies for a number of years. So it's continuation of bringing, if you like, bearing fruit from that investment. The investment is both organic, so we invested in a number of new products. As an example, in our LED growth or, if you like, our low energy Bluetooth, many other products.
And also, we've made a number of acquisitions. So for example, we bought a company called Silego about 3 years ago, which provides customized mixed signal products. And last year, we bought also a company called Adesto, which will improve our product range in the industrial IoT market. So combination of the growth drivers, both organic and inorganic, meaning through acquisition, will help us to reach that goal. And we can have we have a track record in doing this.
If you look at our last 2, 3 years, and Shiba Dassan mentioned on his slide, already reduced the reliance on our largest customer significantly. And I can tell you, as of end of 2020, because that data was not available at this point, we reached 55%. So where you can see the 66% last year sorry, in 2019 is now reduced already to 55%. And we expect by end of 2021 to be in the 40% region. So it's a plan that we've executed by investment, by diversifying customer base is on track.
Just a quick follow-up. Is there any volatility for you to reduce the exposure to the biggest clients into 2023? Do you believe that there's exposure to the biggest client is steadily decreasing? I think
Sorry, go ahead.
What would be the risk?
The reason for so we have diversified in our largest client also. So when we talk about diversification, it's both outside and also inside the largest customer, right? So the type of the products that we are doing inside the largest customer are smaller ASP and are much more varied. In the past, we had a very big concentration in only 1 product category, which was the main PMIC and that was multiple dollar part. But since licensing that technology to our biggest customer, we are focused on a number of smaller areas, for example, like what we call sub PMIC, what we call charging, we are charging products.
We have product called CMICs, which are configurable. So these are, by nature, are lower ASP. So but there's many it gives us more stability because there's many of them. There isn't 1 product that could destabilize our revenue.
With
respect to
With respect to your second question, I would like to ask Mr. Shibata or Mr. Shintani to answer this question. So JPY 270, 000, 000, 000 of equity issuance, according to our understanding, net debt to EBITDA ratio should be less than 1x. That is your target.
And on the other hand, when we go to the strategic meeting,
the EBITDA
ratio is 3x or 2x. Some of the management said that it should be around 2x or maybe 3x net EBITDA margin ratio. So when we look at the future balance sheet and seeking stability, How are you going to achieve this? Can you elaborate on this point for me, please? I think I've been talking about this before.
So I think I will be reiterating myself. But in the snapshot, 3.5 times, is it going to be too large? I don't think necessarily. So if you are generating enough cash flow and there is a pay down prospects, then I don't think you have to worry that much. So once the paydown target is to be set, what would be the target?
That would be about 1 times. So I talk about it when I talk about IT, but it's the same. And this time, particularly, we are going to issue equity, and that's the reason why you're asking this question. But with respect to bridge facility, we are going to procure that from the financial institutions. And in the future, when we become more global in the future and to realize more globalization, when it comes to different financing, we want to try to globalize financing as well.
So through the capital market, through insurance of bonds, we might be able to finance our business. So from that standpoint, the credit rating is going to be very important index. Therefore, with respect to rating, we want to maintain investment grade rating so that we can continue our business. So with that in mind, we have this plan. So with the current credit rating, S and P and Moody's is BBB- so this is a very low level.
So I believe you're going to target a higher rating. Yes. We want to maintain of course, at least want to maintain or to improve. Thank you.
Okay. Now we'd like to entertain the next question, Mr. Yatsui from UBS Securities. Please start your question after unmuting yourself. Hello.
This is Yasui from UBS Securities. Can you hear me? Yes, well, I hear you. Thank you. I have a question 3 questions actually.
1 is about this is a question for Jalal, okay? So Citi Microelectronics, I think they participated in this acquisition bid, and I think Bagunisas won, I think, the deal at the end of the day. So if possible, can you elaborate the reason why you selected Runesas as your partner over other candidates? Is there any particular reason why you have selected Runesas? My second question, this could be answered by anybody.
But regarding the SINA U. S. Relationship, there are so many political and geopolitical risks. Given the current regulatory environment, do you anticipate any delays or spending a lot of time to get a clearance regulatory clearance for this deal? Or is there any possibility of this deal going crashed as a result of regulations?
And my final question, this is a question for both Ya'Lar and Shibata san. Recently, the M and A activities in the analog market is still happening despite the very extensive surge of the stock prices. Both large and small scale deals are continuing. So in this analog market, with these M and A activities becoming so active, in 5 years' time from now, what do you expect the market will be look like in 5 years' time? Do you think competition will reduce and the profit margin will improve?
Or will there be a big giant controlling the markets, controlling the supply chains more strongly? What kind of market reorganization do you expect or consolidation do you expect in this market? I would like to hear from both of you for the third question. All right. So Jalal, can you answer your the first question?
And the second question, I would like to answer the second question. And for the third question, Jalal. Is that okay? So Jalal, please begin.
Okay. I hope that I follow the complex routine. But so in terms of the process, of course, we had multiple interested parties in acquisition of Dialog. And as you know, the Board has a duty, fiduciary duty, to look at the overall value of the offers, but also responsibility to all stakeholders. So in at least in the U.
K. Context, so they will need to consider shareholders primarily, but also employees' benefits, also suppliers and customers are considered in the overall scheme. And I think the other considerations are normally the certainty of execution, the reputation of the acquirer. So when you look at that quite a number of, I guess, elements in that matrix, we decided that Renaissance is the winning bid because of the reputation of prior acquisition, the reputation of how they manage their employees and the talent and the extent of the technology platform, the distribution system that Renaissance has built successfully over the years. I think this is a really good home for dialogue.
This was our conclusion. I hope I answered your question.
I would like to follow on with the second answer. For the second question, I would like to try to answer the question. Of course, in our interactions and with the meetings with the analysts, I have conveyed these measures from time to time. The reason why we have tried to select the dialogue was the point that you mentioned, Mr. Yasui.
As you see on this slide right in front of you, for example, in the past, we have if you compare with InterCell that we have acquired in the past, Every sensitive product and applications, there are not so many in the case of Dialog. They don't have so many sensitive products in their portfolio. It's more like IoT centric. And of course, there are some mobile handheld related products in their portfolio, but those are the main product offerings of Dialog. So in terms of national security, in that context, the hurdle for the integration of Dialog, I won't say it's 0.
I think the national security related hurdle is reasonably low that we can we are very well positioned to overcome. And also the other major element is the antitrust related implications. And again, here, because we are having a complementary combination between us and dialogue, so in a particular market or in a particular product range, we are not likely to own a significant percentage of the market. Therefore, we don't foresee a significant barrier for this integration. Of course, we are maintaining a cautious view.
And of course, the points that you mentioned, we have conducted a multifaceted review and examination. As Jalal pointed out, the transaction certainty was also reviewed. And from our perspective, I thought that this combination is great. Okay. Regarding the outlook for the market consolidation, I would like to ask Jalar to comment first.
Go first, Jalar.
Thank you, Shibaisa. So I think it's 1 of those areas where it's very hard to predict 5 years from now, right? So 1 thing is the momentum for the consolidation continues because scale is becoming more and more important and global reach is more and more important. So the smaller companies cannot compete with the larger companies necessarily in all areas. So that momentum continues.
So you may we may end up I'm just predicting, I have no crystal ball beyond what everybody else has. But I think there may be bigger analog entities, of course, by combining smaller analogs, but they've become niche. I think there is a better case for system companies, companies which have multiple solutions. And this is what we also seen in our own business. So we were very focused on power management ICs for a number of years, and it's been very, very good.
But in the last 3, 4 years, our diversification meant that we could add charging or LED drivers or Bluetooth or other areas. And when we go to a customer, they prefer to buy multiple components from the same vendor because of the setup on the system, because of the quality, because of relationship and history and track record is much easier than choosing 5 people to deliver the same system components if you can buy from 1. So in that sense, I think companies are now striving to achieve this approach, which is how to combine you cannot necessarily provide everything, but if you can do the key components, multiple key components for a particular vertical or a system solution, then that's the winning solution, I think, in the future. So that's my view.
We talked about the competitive environment, so I would like to comment in that regard. I'll try to take over that part of the question. Perhaps for the time being, for the near term, especially the markets will be divided between the China centric market versus the U. S.-centric market. So when you think that the consolidation that is happening right now, these consolidations are mainly happening outside of China.
So for those markets outside of China, financially well disciplined player are the consolidators are especially those companies that have very robust financial discipline. So of course, the competition is quite fierce, but I don't think this is likely to translate into a margin decline and price decline immediately. As Xiaola mentioned, because this is driven by the customer needs, we are providing solutions based on the request from customers. So when that happens, it's not that we are going to hamper each other just based on prices because the solutions are different from vendor to vendor. So I don't think the current consolidation will have an adverse effect financially on the company.
It is rather considered to become a tailwind for us. That's all for myself. Thank you.
Now from Citigroup Securities, Mr. Ishihara, can you ask your question? Please release the mute button and start asking questions. Yes. My name is Tsujira from Citigroup Securities.
I would like to ask you 3 questions. First question from 2016, this is going to be the 3rd largest acquisition, Mr. Shibata. As a company, as a result of this acquisition, You probably see an ideal company. Are you closer to the idea?
Or you going to say that still it's unbalanced and you need to increase further in certain areas? If they are, what are some of the areas that should be increased? This is my first question. I often receive such a question. And Mr.
Asi asked earlier, but the competitive environment is going to change. So it will never be perfect at a certain point. And on the other hand, this is going to be 1 major step forward, that's for sure, particularly in the area of connectivity. BLE, low power, Wi Fi can be internally produced. So this is going to be a big step forward.
But on the other hand, when it comes to connectivity as an example, we have collaborated with outside partners. We've announced them cellular based technology, used narrowband technology and UWBs. There are other technologies that we cannot incorporate inside such as the connectivity technology. Wi Fi, low power is very strong in terms of the dialogue, but Automotive GTX is going to further expand and high power Wi Fi will be necessary in the near future. So if you think of that, these areas that I have talked about would be the areas where we need to further make enhancements.
But I think I have mentioned this before as well, but the M and A that a company scale is going to be important, but there is going to be another tuck in technology focused small transactions could be done in parallel. So I've been looking for such an opportunity. So in certain way that could be another way of strengthening our technology. So for the time being, as a result of this transaction, we have been able to issue equity and borrow money. Therefore, we want to be able to deliver the performance that will satisfy our shareholders.
I think that is going to be the responsibility for us at the time being. Thank you. Thank you. My second question is about cross selling. As revenue increases, you enjoy certain synergies.
So the synergy as a result of cross selling will be realized in about 4 or 5 years. That was announced. So if you look at by different applications, I believe you have different time lines by applications. So what are some of the areas that you can realize earlier? And what are areas that will be realized at a later date?
This is my second question. So I think you're right in saying that. For example, when it comes to automotive, it does take time no matter what you do. If it's 4 or 5 years, it will still be a small amount. But compared to that, our IoT, some include handheld ones, but this area has shorter cycles.
Therefore, by focusing in this area for the time being, we want to generate synergies. And particularly in this case, in comparison with IDT or in comparison to Intisell, Gerald himself mentioned that our sales force and the channel can be utilized so that you can promote sales. And I think it's going to be very effective. So these are the areas without us trying very hard, I think we will be able to increase revenue very quickly. Thank you very much.
This is going to be my third question. Now going back again to M and A. This time, you're going to issue equity to acquire the company. So are you thinking of the possibility of issuing equity in the future in the short term? In the past, you have been using mainly debts, and I could imagine the size.
But if you include equity financing, I think you will be able to target a larger company. So can you elaborate on this point for me, please? This is my third question. Of course, we don't know what's going to happen in the future. But as of today, I'm not thinking about what Mr.
Hojula has asked right now. There are 2 points. I may be reiterating myself, but today, we are going to make an announcement in order to integrate dialogue. So we have to make this a success. So I need to focus on this first.
And when we think about integration, a margin of equals could be possible. But to a certain extent, if we know the size, then we will be able to have a successful integration. So from that standpoint, the integration of Dialog is very comfortable to us. Thank you.
Okay. Thank you. Thank you for your question. Now we would like to take on the next question, which is from Deutsche Securities. Robert Sanders, please begin your question.
Great. Can you hear me? I hope so. A question for Hitoshi Shabata san. Why do you want to go back into the smartphone industry when most automotive and industrial semi cos are running away from that industry?
Do you feel it's not possible to be successful in industrial IoT without being successful as well in consumer IoT? My second question is for Jalal. Were there other bidders above Renesas' offer price that maybe you felt would be too much of a risk from a regulatory point of view or maybe they were not all cash bidders? And do those losing bidders have the right to come back with another bid or have they kind of forsaken their opportunity for now? Thanks a lot.
Hi.
I'd like to answer the first part of the question. You talked about the large customers of Dialog, and it's connected on the other side of the coin with that respect. And as Jeolla mentioned, the dependency on such customers, those large scale customers are likely to come down significantly and sharply over a short period of time. We are in the middle of that process. So it's not that we are reentering the smartphone market.
It's just that the centers on the low power connectivity products of owned by Dialog using those technology that has great affinity with the smartphone. The smartphone is just 1 part of those products that offer great affinity of the assets owned by Daiwa. It's not that we don't we dislike smartphones, but in the past activities of the company, smartphone business had so much volatility. So we were not so aggressive in that area so far. But given Dialog's business and their relationship with the customers and the percentage to sales, we believe it's very positive, quite positive to have smartphones exposure to some extent remaining to some extent.
And also in a practical evaluation, it's not more black and white. It's about we have to consider in the continuity what will be more positive, and I think this decision is more positive in that regard. So my second question is from Jalal. Can you begin?
Yes. Hi, Robert. Thank you for the question. So I think that as I explained, the range of considerations that our Board considers for looking at offers. And I think what I will say is that Renaissance all cash offers followed extended discussion between Dialog and Renaissance as well as discussions with a number of other potentially interested parties.
Of course, the Board is mindful of his fiduciary duties in recommending this offer. And in second part of your question is, as you know, we are a U. K.-based company and the acquisition can be done on the U. K. Takeover code.
And that code by has scope for future bids post any announcement. So that's always a possibility. And if something like that should transpire, the board has to consider any incoming approaches. But so that's my point.
On.
Next,
SMBC Nikko Securities. Mr. Watanabe, please. Please lift the mute button and please ask questions. My name is Watanabe from SMBC Nikko Securities.
I would like to ask you 3 brief questions. Now with respect to Automotive PMIC, with our car, you're collaborating. Therefore, I believe that there is considerable visibility in this business. If we currently look at I don't know what the current size is with that dialogue. However, if you think of the current business in the future, it's going to be a new cross sell, but it is a current platform cross sell.
So if you can tell me about what's going to happen in 3 years, if you could disclose this. It's going to be difficult to give you figures, but I don't think the size is not going to be that considerable. Please forgive me with this answer. My second question is about producing a dialogue products in Renaissance. So you're going to have in house production so that you can reduce costs.
Is it possible to do that? Of course, we will not exclude any possibilities to consider. But having said that, if you look at the current situation, our 8 inches fab has high utilization rate. So there is some room in the 300 millimeter fab. The 300 millimeter fab is going to be used for analog products.
Then there's going to be considerable volume or else it's not going to work. So we have to take some time to consider that possibility. Thank you. So this is my last question about the retention of talents. I think it's good that you will be able to enjoy diversity.
However, according to the way we keep Japanese talent, I think it's very difficult. And I think you'd introduced us already at the time of IDT, but in what way are you going to retain the talented people from dialogue? This is going to be my last question. I may be reiterating myself, but talent is a very important element of acquisition of So we want to make sure that the talented people will be retained so that they will be motivated and willing to work. So we need to have such an environment that we create.
So from the past, we have been really engaged in this in a company wide basis. So in the past, when we acquired Intasil and IDT, I don't think I should brag, but I think things went on very well. Therefore, I'm not concerned about this at all, particularly in this industry. The equity incentives, including the working level engineers, is applied to extensive talent. Therefore, it can we already have the incentive that can be used overseas as well.
And we want to upgrade them so that they will be much easier to use. And way of work. Japanese companies make decisions very slowly, and some people don't like that. They get fed up, But that's not going to be good. Therefore, I'll be talking about this next month as well, but the Renaissance already has a culture.
And we want to make this a more innovative culture, and we are fully engaged in this. So we are not trying to retain people with the financial benefits, but we want to make sure that people really enjoy working for our company and have the environment where people will really like to work. So we are working in a full fledged manner. So I think this will be received well by the Dialog employees. This is going to be a follow-up question.
When it comes to equity incentive, this is an incentive to the Renaissance equity? So the equity price going up as a whole is going to be working as an incentive to the employees, right?
This is from Mr. Marika from Credit Suisse Securities. Please please begin your question after muting unmuting your microphone. Hello, this is Marika from Credit Suisse. I have 3 questions.
The first, regarding the equity issuance, INCJ is the major shareholder. What is their intention regarding the equity issuance? Or what is their reaction? Because by 2023, they are supposed to sell off 32% of their ownership. But
in the
next 1 year, you are going to issue approximately 11% of your outstanding shares as new acquisitions. So what is the reaction of Inc. J, INCJ? I'll go 1 by 1. Yes.
From INCJ, you may know very well. We received 1 Board sitting on our Board and 1 corporate auditor is sent also from INCJ to our Auditory Board. So including the issuance of equity, we had conducted a very extensive discussion during our Board discussion and have decided on this equity issuance as a result of that. I think that will serve as the answer to your question. Okay, got it.
Now the second question regarding dialogue situation, the future revenue prospects have been expanded according to which you said that the exposure to the large customers will decline. In relation to that explanation, what is the prospects that you have already for the designing? What are how likely are the is that going to materialize? Because in 2023, the percentage of large customers are coming down to 25% to 30%. So when that happens, the gross margin, we expect that to improve from 50% to around 55%?
Alvar, can you answer that question? I would like to ask you to answer that question.
Hi. Yes. So this chart shows the percentage of the revenue. So I just want to make 1 point. So but it doesn't mean the revenue is flat.
So the expectation is to revenue also to grow, by the way. So just because it's 25%, 30%, it doesn't mean it's 25%, 30% of today revenue. It's 25%, 30% of 2023 revenue, which is much larger than today. So this is point 1. Point 2, of course, the custom fully custom, fully dedicated solution to any customer because they're very, very high volume typically attracts lower margin than more standardized product that you can sell to broader markets through distribution or to many different customers because each customer then buys a smaller volume of that product.
So therefore, their prices can be much higher. So if you bear that in mind, then you can look and if you reduce the concentration of 1 large or maybe a handful of very large customer with very high volume typically means that your margin over time, your mix will improve and your margin will improve. What it will be in 2023, I think it is I don't want to give a number because that would be unfair to Shiba Inu san 5 years in advance to tie his hands. But certainly, that direction is given for me that he will be able to achieve much better margin than today.
Thank you very much. My third question, the Automotive PMIC, how you roll that out? Of course, you are collaborating with ARC already. But when I look at the Dialogues homepage, for MCA, PMIC, importance is already explained there in your homepage. So dialogues, PMIC, technology, especially low power PMIC, I think that's been stressed in your presentations or your explanations.
So how can they be applied to Automotive? Can you cover the whole lineup? Or is it limited to only certain number of applications? Can you comment on that 1? I would like to answer that question.
And, Jialae, if you want to jump in, please do so later, okay? Technology wise, there's no problem. We can apply these technologies to automotive solutions. So for our car PMIC, a reference board is already designed. Also, if I may add 1 more comment.
On top of that, functional safety, if I talk about that 1, when it comes to the MCU for the powertrain core, it has to be sales safe. So the circuits will have to become redundant and so that 1 even if 1 fails, the other 1 will take over. In order to ensure functional safety, there are some procedure requirements that we have to fulfill. And if we have been able to satisfy that today, it's not the case yet. But this is an area where Runesas has expertise.
So just like in the case of Ingersoll, so long as we have the core management core technology, we can utilize our own resources so that FUSA add on can be applied. And thereby, we shall be able to make a very expensive product that can be applied broadly to Automotive Solutions. And of course, if you look at the track record so far, intercell management, power management at last are now combined with our SoCs and the D ins, the design ins are now making progress. And of course, for 1 thing, automotive takes times in general. And the other thing is that we now need to have a lot of human resources for development.
Intersil's power management capability has been strong. But of course, especially when you look at the data centers, the power management requirements are so strong. So it's just about a constraint of resources. We have to fight for the resources. So when dialogue is added, we can immediately expand the talent pool for power management.
And when the pool is larger, the optimization is easier done. So in terms of resource allocation, I think we'll be able to have a much more efficient resource allocation and that will accelerate our initiatives. Gerard, if you want to add any comments, please do so now.
Okay. I guess I will answer the question on the PMIC, but I'd like to answer it also a little bit broader with other technologies, if I may. So but on the PMIC, we have world class PMIC library of IP blocks that when we bring that in into Renesas to add to what Renesas already has, it creates really a formidable platform. So you can design PMIC for any processes because we've done so many PMICs for different application processes from many companies up to now. But of course, this then will be focused on the platforms of Renesas.
And there are many, many different applications that require different MCUs, MPUs and different type of power capability. So we can address, for example, in the ADAS system or we can maybe in the future address self driving machines, etcetera. There's a lot of different opportunities that will come over time that the power management can be applied for applied to. But I just wanted to also mention, in addition to the power PMIC, we already have also products qualified for automotive in our CMICs, for example. These are configurable mixed signal products that come all over the automotive designs.
We've recently won some nice brand names in that area. And of course, things like low energy Bluetooth, BLE, can be used and will be. We have already customers for tire pressure monitors using BLE. We have customers for key fob systems, new advanced key fob systems using BLE. And the LED drivers, I think Shiba Dassan mentioned in his remarks, also we already have engagements for headlamp development for cars using our complex matrix drivers of LED sorry, LED drivers.
So all of these will bring in new technologies, which are complementary to very, very strong platform that Renesas has already established in automotive. Our issue in growth in this area has been that we are not a famous automotive supplier. We are not big and we have a piece solution. But I think when you put those critical pieces into a platform like Renaissance with the reputation, with the sales force, with the capability of the MPUs that ReneSas has, it really become a very, very convincing solution for customers to adopt. So I have no doubts that we can expand in this area also.
Okay. Thank you very much. We look forward to your future developments.
In the interest of time, we are going to have a last person ask a question from Masahi Newspaper. Mr. Suzuki, can you ask this question? Please lift the mute button and ask your question. Thank you very much.
Masahi Shimbun, my name is Suzuki. Can you hear me? Yes, I can hear you. Thank you. I would like to ask you 3 questions.
I'm going to ask you 1 question at a time. The acquisition of Intacel, they have PMIC, which is their strength. And this time, your company has strengthened PMIC. So is this really an indispensable technology? And I believe this is the reason why Mr.
Shibata decided to acquire in 5 gs for smartphone. You talked about this in the previous meetings. Can you elaborate on this point for me, please? In 2, 050, without waiting for carbon neutral, the power consumption is really explosively growing. So we want to make sure that the power will be used efficiently.
In addition to not using fossil fuel, this is another important point. So highly efficient power management is important and low power power management is also important. I think for a very long time to come, these are going to further expand in the future. Sorry for talking so long, but this is an important element for sure. Thank you.
My second question, in terms of IoT, there are various products in relation to 5 gs. What are some of the products that you're going to be focusing on? I'd like to ask this question to Mr. Shibata. The definition of IoT is different by each individual.
And as was mentioned by Joel, in terms of our new future, they will be related to wearable products and light health care products. This will be a major ones. And particularly in our case, air conditioner and white electrical equipment. So we used to have very high share, but there was a lack of connectivity. As you know, the white electrical appliances are now connected to the Internet.
And by adding the connectivity, this is irrespective of 5 gs, but in the area of IoT, the solution that we can provide is going to be even more attractive, and they will continue to increase. And in the future, in the industrial area, particularly, 5 gs becomes local 5 gs, and it is going to be used as a different current cellular mode and PLC connectivity that we have and time sensitive network technology. And in addition to that, IO Link can be added. And by doing so, we will be able to provide industry IoT technology that will be needed in the future. So this is going to be the market that is going to realize major growth.
Thank you very much. This is going to be my 3rd question. I'd like to ask this question to Mr. Shibata. And you're going to issue new equities as part of your financing, the equity price is on a rising trend, including your company's share price.
So did you anticipate that the equity price increase would be a tailwind? So when you think of M and A in the future, do you intend to think of further M and As in the future? In respect of our dialogue, we are maintaining and thinking about the acquisition candidates, about 10 of them. And with respect to dialogue from many years ago, they were already in the list of candidates. And equity price is 1 of the reasons.
But the change in the Dialog business structure and also the change of our business structure of our company, many things are combined to take this timing to announce this acquisition. So the list of candidates for M and A is being maintained by us. But as I mentioned earlier, at least for the time being, I have to really focus on integrating dialogue. So a quite sizable M and A is not in our mind for now. But technology tuck in with small M and A is possible.
However, to try to integrate with a major company, I don't I do not intend to do that in the near future. Thank you.
All right. We'll now like to finish the Q and A session at this juncture. Finally, our CEO, Shionn Batta, will say a few words before closing the meeting. Everyone, thank you very much for your attendance. Despite the short notice, we thank you very much for your participation.
And special thanks goes to Jalan. Thank you very much for attending today's press conference. As we said, dialogue and us has a very natural, mutually supplementary relationship to each other. I think the combination is very natural between us. We would like to deliver results more than ever through this combination.
So that's the reason why I set up this meeting. And after this, the results will speak for itself. And of course, we have to you have to give us some time, but we would like to update you on the progress from time to time. With this, we would like to finish today's presentation. Thank you very much for your participation.
That's it for today. With this, we would like to finish today's announcement. The materials and the recorded video will be made available on the Investor Relations section of our homepage. Thank you very much for your time today.