A generation upgrade, I think, will progress.
[Foreign language]
and for mobile.
[Foreign language]
A modest upside.
[Foreign language]
Could be expected.
[Foreign language]
For auto, the 28 nano, I think, will be a setup outside of China. So for the second half.
[Foreign language]
We had seen some positive news.
[Foreign language]
Our expectation was getting elevated.
[Foreign language]
Of course, at this point, we cannot foresee the exact impact of the tariff.
[Foreign language]
Over the short-t erm.
[Foreign language]
There could be some disruption.
[Foreign language]
We do not want to be disrupted by that.
[Foreign language]
Also, we position this year as the year of the change.
[Foreign language]
Also, with the tariff situation.
[Foreign language]
A lot of uncertainties were looming over the business.
[Foreign language]
Also, auto。
[Foreign language]
is something that we need to be ready for, so.
[Foreign language]
We need to really focus on the medium to longer-term initiatives.
[Foreign language]
From that perspective.
[Foreign language]
especially.
[Foreign language]
with the organic opportunities.
[Foreign language]
We will focus on.
[Foreign language]
Looking at the investment opportunities with a mid to long-term perspective, especially in such an environment that we stand today.
[Foreign language]
Also, for Q1, we don't send the guidance for Q2. I would like to hand over to Mr. Shinkai, and he will give you the presentation on the numbers. Mr. Shinkai, please.
[Foreign language]
Mr. Shinkai, the CFO.
[Foreign language]
We'd like to quickly go over the course of the results based on the presentation material. Please turn to page four.
[Foreign language]
For the Q1 results, please refer to the column in the middle with the dark blue color. The revenue was JPY 388 billion, and the gross margin was 56.7%. Operating profit was JPY 83.8 billion, PM was 27.1%. Planet profit was JPY 73.3 billion, EBITDA was JPY 103.5 billion, currency was JPY 154 against the dollar and JPY 161 against the euro. Compared to the forecast, and compared to the column at the far right, and one point that I would like to note is that, from revenue to gross revenue, the first line from that, oh, give us revenue, excludes the effects impact.
[Foreign language]
To the forecast for, for forecast, we're expecting a 2% revenue growth, but the positive or negative was smaller. Also, Q on Q, it ended up as a 1.2% revenue growth.
[Foreign language]
Next page, please.
[Foreign language]
Regarding the revenue, gross margin, and operating margin.
[Foreign language]
On the top right, we have a difference resulting from forecast. For the revenue, it was - 0.1% vis-à-vis the midpoint forecast.
[Foreign language]
The effects, impact was quite positive. Overall, effects were stronger yen against the forecast, but because the foreign currency demand made itself through, net-net was positive. Excluding the effects, it was small negative.
Okay.
Small upside, but the device revenue was lower. For device revenue, excluding the effects, the forecast was given to + 40%, where the actual was 1.0%.
[Foreign language]
Increase, as I said earlier.
[Foreign language]
For IIoT, compared to the forecast, it was positive, but for the auto, it was negative against the forecast. The reason is because we suppressed other shipments, so that the inventory will not increase too much. For IIoT, the digital power for AI and home appliances had some upside in the demand, so that led to a positive growth. For gross margin, it was + 2.7%.
[Foreign language]
The key factors are the production cost decrease, higher utilization, and better product mix. Production cost benefit was 70% of the benefit. There were multiple reasons. The production fixed cost savings was higher than planned.
[Foreign language]
Specifically, the repair cost and the consumables cost.
[Foreign language]
Were improved. We were able to enjoy the benefit of reducing those. For the power utility cost, we tried to consume less electricity, which also benefited on the cost side. The accounting impact was not fully incorporated. For the inventory right now, we were not able to foresee the rebound from that. There are also multiple cost improvements that led to the supposed growth. It is improved in the utilization rate increase. The database utilization rate was slightly higher than the plan, so that led to a better gross margin. For operating profit margin, compared to the forecast, it was better by 3.1%.
[Foreign language]
The operating margin improved, and also compared to the plan, the cost reduction had a big benefit. For the redevelopment, delay on the R&D OpEx was lower.
[Foreign language]
Q on Q, compared to the bottom left.
[Foreign language]
For the revenue, excluding the effects, it was - 0.9%, and device revenue was + 1%. For gross margin, it was 1.9% of growth. Q on Q, the yen depreciated, and the utilization rate increased, those were the main reasons.
[Foreign language]
For the Q on Q gross margin.
[Foreign language]
I would like to make one additional comment regarding the depreciation cost. From fiscal year 2025, for the production of equipment and facilities.
[Foreign language]
Without the change in the life cycle of the equipment, and also how we are using the equipment, we reassessed that, and to better reflect the reality, we revised the usable life. With that, the depreciation period was revised again. Also, previously, on average, the depreciation period was over five years, but this was extended to eight years. From Q1 onward, this will be implemented, and we will not reflect this in a retrospective manner. The impact is a reduction of depreciation cost by JPY 3.1 billion from this quarter. For the operating margin, OpEx increased Q on Q. We made efforts for cost control, but in Q4 of 2024, there was a one-off factor that led to cost reduction. Q on Q, the cost increased. By segment, for automotive, the operating margin, in the previous Q4, there was a one-off factor, which was the receiving the development cost.
A Q on Q basis, the operating margin went down for auto. For IIoT, there was a one-off factor in Q1. We put the reserve of the litigation fee. On Q on Q, compared to the revenue growth, the operating margin did not grow as much.
[Foreign language]
The next page, please.
[Foreign language]
This is showing quarterly revenue trends. Please refer to the column on the far right for the 1Q results. Overall, we had a decrease by 12.2% year on year and + 5.5% Q on Q. However, exchange impact excluded, we had - 16.8% year on year. You can see the breakdown by segment below. Please go to the next slide. These are showing financial numbers and their trend for your reference. Please go to the next slide. This is the inventory status. We have our own in-house inventory and sales channel inventory. Starting with the top right, this is showing the in-house inventory in first quarter Q on Q. Both actual amount and DOI both decreased. DOI was decreased by two days. For Daibank, we mainly received replenishment from the foundries for smartphones and AI servers, digital power.
[Foreign language]
Daibanks were mainly replenished. On the other hand, the consumption of finished goods and also the appreciation of the yen at the end of the quarter resulted in a decrease in the actual amount. As for the second quarter, the production plans are expected to remain largely unchanged, and inventory levels are expected to remain roughly flat.
[Foreign language]
We want to support short-term demand, so we don't want to limit inventory too much. This has been the policy, and we will continue with this policy. The bottom right is showing channel inventory. You can see in the first quarter, sales through was higher than expected, mainly due to IIoT, and overall channel inventory was reduced more than expected. Both actual amount and WOI decreased Q on Q. For automobile, mobiles, channel inventory decreased, but mainly for Japanese companies, sales through increased more than our expectations. As a result, WOI increased slightly. This goes back to what I said about reduced shipment when I explained about the revenues. As for IIoT, sales through increased from our expectation. As a result, channel inventory decreased steadily. In the second quarter, in the base case, we plan to reduce channel inventory for both automotive and IIoT.
The intention here is to keep inventory lean due to the large uncertainties. As for the upside, we will cover upside from the in-house inventory. In order to assess the impact of tariffs, as Shibata mentioned at the outset, we are being rather conservative in our views, particularly on the sale-in side. We have been conservative. On the other hand, for the sales through, in the second quarter, we assume that sales through will be greater than sale-in, resulting in a decrease in channel inventory and WOI. However, there are still some uncertainties with respect to sales through. If the situation turns downside, both inventory and WOI will be higher than expected in the second quarter. Please go to the next slide. This is showing utilization rate and CapEx. On the left-hand side is the utilization rate.
In the first quarter, we had a slight increase in the utilization rate from forecast. From the second quarter and beyond, we expect overall utilization rate to be flat from the first quarter. Depending on the factories, there may be increased production. However, some others are slightly reducing their utilization rates due to holidays. Overall, we expect the rates to be flat. As for the capital expenditures, we continue to see the same trend. We will have a lot of capital expenditures outside of production. From this fiscal year, we have been imposing stronger control over CapEx from the viewpoint of cost and cash management. In the next slide, this is the Q2 forecast. Please refer to the dark blue column in the middle. The midpoint forecast is JPY 302.0 billion, gross margin 55.0%, operating profit margin of 25%.
Exchange rate assumption is JPY 142 to the dollar. This is a JPY 12 higher Q on Q and JPY 156 to the euro, which is JPY 5 Q1 increase from Q on Q. I'd like to give additional information, on the revenue. The midpoint forecast is JPY 302.0 billion. As you can see on the right-hand side, this is a - 15.8% year on year and - 2.2% Q on Q. This Q on Q - 2.2%.
[Foreign language]
The breakdown to the device revenue, the appreciation of the yen, will be - 7.0%. On the second line, you can see, increase by 4.8%, excluding exchange impact. On the other hand, Altium impact results in - 0.5%. Device revenue, excluding the effects impact, is + 5.3%, as you see on line three. This 5.3% increase Q on Q is broken down as follows. Automotive is a slight increase. On the other hand, IIoT mainly contributes to this + 5.3% increase. As for the impact of Altium, + 0.5%, this is due to a technical reason. In the first quarter, new sales recognition standards have been introduced. Because this shift took place midway through the first quarter, the timing, or rather the periods for which these new standards are applied, are longer in the second quarter than in the first quarter.
This results in the revenue numbers. The gross margin of 55.0% is - 175 basis points Q on Q. This is mainly due to exchange impact and increase in manufacturing costs, one third coming from the exchange impact and two thirds from the manufacturing costs. We have an increase in utilities, both in unit price and the usage volume, resulting in increased costs and also repair costs and project costs to optimize the production footprint. This contributes to the increase. We've continued our efforts to reduce costs, but looking at Q on Q numbers, operation-related cost increase and project-related cost increase were bigger than cost reduction. As for the 25% operating profit margin, this is a 215 basis points decrease Q on Q. Major reasons are the exchange impact and decrease in the gross profit margin. Also, we have factored in R&D expense increase.
This is mainly SOC for automotive, generation 5, our car R&D increase contributes to the increase in R&D. For example, hiring more people in India and procurement. Overall cost increases. That is the forecast for 2Q. I would like to also provide an explanation on the appendix slides. Please go to page 16. This is the non-GAAP to GAAP reconciliation. Second from the right, the non-recurring items appear to be large. There is JPY 18.1 billion, and this is one-time costs related to structural reform, business sales, goodwill related, the right of RIF and other structural reform related costs, as well as provision for litigation costs are included in these one-time items. Please go to page 18. This is the highlight. Altium PMI, as part of this effort, although small in scale, Altium acquired a company called Part Analytics.
For the divestiture of RF business, I talked about goodwill in relation to the sale of business and the fixed asset impairment. This comes from this divestiture of RF business and the embedded world. Renesas 365 has been launched. This concludes my explanation. Thank you very much.
Thank you for the presentation. Now we'd like to go into join the session. Mr. Shibata, please turn on your camera. I will explain how you can ask your questions. Those of you who have questions, please use the raise hand button. We will call upon your name or your affiliation. When your name is called, you will be able to raise your question. Please unmute yourself and ask your question. Given the interest of time, we would like to limit the two questions per person. The first question is from Mr. Takayama from Goldman Sachs. Please unmute yourself and ask your question.
Yes, thank you very much. I have two questions. First, Mr. Shibata mentioned in his comment that there was some modest haircut to the guidance. What is the magnitude of that, and what exactly do you mean by that? I guess this will be subject to the tariff. What would be the direct impact and the indirect impact to your business? I would assume the direct impact will be small, but would the tariff mean less volume for you? To a certain extent, the supply chain sharing would be done through the tariff. Can you explain the actual impact of the tariff?
Yes. The psychological haircut is what I said in my comment. It's like a middle single digit percentage point haircut, I guess it's fair to say.
For our operation, we fix the currency, because otherwise it will make it difficult to manage the business. We fix the currency basis, we kind of round it down. There is no logic behind that. It is very emotional or psychological. Regarding the impact of the tariff, as you pointed out, the direct impact will not be that material. For indirect impact, of course, within the supply chain, there could be some share of burden, but more than that, I think the impact may be greater on the volume. It depends on the product, and depends on the future outlook. Generally speaking, if the product is priced at JPY 5 million and if the price spike is 25%, normally the volume will come down. I would expect the volume decline as the indirect impact of the tariff. To confirm, you mentioned round down.
In Q2, you may have had this level of expectation of revenue, and you reduced that outlook by a mid single digit percentage point. Is that right?
Yes, that is correct. Thank you. My second question is for IIoT. I want to understand the specific trends for different businesses. The AR5 Gen3, you are increasing your market share, and also the AI PMIC, and also mobile app size. I think those are the three key factors. From Q2, do you expect the trend to continue as you expected in Q1 as you look out into the second half, or are you seeing some signs of weakness? I will try not to mislead you, but this is about the second half, so from Q3 onward. It's really difficult to see the future, but at this point, to a certain extent, trying to foresee our business growth.
We do see some positive data. For example, in Q1, no, in Q4, compared to the earnings of Q4, if you ask, are we more optimistic or pessimistic?
We are slightly more optimistic. I'm repeating myself again, but due to the tariff, at this point, it's difficult to foresee the impact on the volume, so that factor needs to be discounted. Looking at the specific factors, in the second half, we do see some positive signs of trend.
You mentioned that from Q3 onward, but in your Q2 guidance, you mentioned about the expert really going up by roughly 5% in effect. You mentioned that it's mostly from IIoT or non-OT business. Is this upside coming from a different factor?
Yes, for Q2, the demand will not go up substantially by different factors, risk factors.
As I said earlier, in Q1, the channel inventory has been nearly fully corrected. With that, looking at the underlying demand, we will be shifting, reflecting the underlying demand. Our sell-in should grow to a certain extent and sell-through may be more stabilized, maybe just a slight pickup from the drop. That is how we see the trend. The end demand may be weak, but if you ask is it positive or negative, we see some positive growth. We are selling, because the inventory correction has been completed, sell-ins should grow.
I see, thank you very much.
[Foreign language]
Thank you very much. Next, UBS Securities, Mr. Yasui, please go ahead. Please unmute yourself and ask your questions.
Thank you. This is Yasui from UBS. I have two questions. The first question, the negative factors seem to be abound.
Having said that, within the expectations of tariff impact, if you have any positive upside, for example, anything on the supply chain or for data centers, we are seeing significant changes. Perhaps you want to capture the data center demand ahead of others. At this time, is there any factors for you to think that demand may be stronger for some businesses? Do you foresee any positive factors at this time? That's my first question. The second question, the automotive impact, I believe, is something you mentioned. Companies that can be on the offensive now, taking the approach of wait and see. I would like to ask about the demand situation given that automotive demand is uncertain. Have you seen any differences in behavior amongst your customers? Are they more active in introducing new platforms?
Have you seen any strategic change among your customers? Those are my questions. Thank you.
Regarding your first question, needless to say, this is not something structural or sustained, but looking at the recent situation, for example, PC and home appliances, at least our expectation, perhaps 2Q will have a slight decrease from the first quarter. However, these are areas that will be maintained at relatively high levels. China's economic stimulus measures, the government giving out subsidies for replacement with new products, or because of the 90-day pause on tariffs, maybe companies want to make and sell products during this probationary period. I think there is a mix of both reasons.
Areas closer to consumers, like the PC, consumer devices, and home appliances, these are the business areas that in the near- term may have an upside, maybe they will remain at a relatively higher level or even have an upside. That is the image. As for the automotive segment, towards the second half of the year, as I said in the beginning, there is a topic of Gen4 of our car, but this is small, but the launch of 28 nano MCU launch will be bigger. There are two reasons. The first one is that China clients, China customers continue to be quite robust, and they continue to adopt this into their new platforms for EV. We have the powertrains, and the component chips for the ADAS. We are seeing greater adoption in these areas.
Of course, in the short- term, VV, PHV, which is better, there may be some ups and downs, but the momentum is there. We expect a strong and robust launch, mainly in China, in EV, ADAS, and powertrain. These are the possible areas. The other factor is Japan, Europe. These are the central regions. We are seeing Tier 1 customers and their platforms evolving their generations of their platforms. Partially, this will result in net increase and replacement from 40 nano. 28 nano will replace the 40 nano in increasing manner. The new platforms will be launched, and this gives us somewhat of a certainty. This is certainly a positive factor. Ultimately, the final demand, we are not sure. China's OEMs compare to them. There are greater uncertainties with respect to the demand.
Those are largely the factors that I can share with you now.
Thank you very much. I have something to supplement regarding data centers. Data centers are certainly garnering attention. The BEV Auto Assembly, perhaps they are struggling a little bit. In relation to the supply, maybe this is lagging behind. Will this have any impact on the demand? Have you seen any increase or decrease?
Our AI business, in terms of growth, has been strong, but it only accounts for less than 5% of the total company's revenues. Whether it is big enough to shift companies' posture, it is not. In terms of growth, we do expect growth to continue to be robust. The reasons I say this are because of course I will not go into individual customers or details, but business related to power, this is an endeavor. This is a difficult business.
Just because a company is an established supplier, they will not be called upon and they will not be able to increase their sales. This is not how things go in this business. Given the situation, the generations that are currently being mass produced and the one next and the ones to be launched in the second half, in terms of the platforms that are expected, of course we are working on many trials, and so far we have been able to avoid any troubles. Two companies or three companies are now fighting over the power socket business or maybe segmenting. Overall, we are positioned relatively in a very strong position. Coming from the first quarter to the second quarter, we see steady growth. Furthermore, from the second quarter to third quarter and beyond, of course, these are future quarters.
It is perhaps better not to have any predictions or estimates in terms of figures, but we do expect steady growth. As Yasui-san has just now indicated, the troubles that you refer to, these small mishaps, whether they are headwinds or tailwinds for us, for us they are tailwinds. Thank you.
Thank you very much.
[Foreign language]
Next question is from Mr. Hirakawa from BofA Securities. Please unmute yourself and ask your question.
Yes, thank you. This is Hirakawa from BofA. I have two questions. My first question is on cost. In the previous earnings call, operating profit, you said improving 2 percentage points by optimizing cost. Mr. Shinkai, you mentioned about the cost reduction as making good progress. At this point, how much cost savings in an uncertain environment can you achieve to reflect in the profit? What is your progress at the end of Q1? That's my first question.
Yes, I will ask Mr. Shinkai to take that question.
Yes. Regarding the cost reduction plan and the progress, the plan, as we mentioned previously, for a year, we want to improve the operating margin by 2 percentage points. In today's earnings call, I mentioned that the impact of the change in the accounting policy, like changing the depreciation expenses, is not within that plan. Also, overall, if you include that, we should expect a 3 percentage point improvement approximately on the operating margin. Overall, the impact is more backward-ended by the end of the year. In Q1, Q2, the improvement may look modest. Some may actually not even be visible because it's very modest. The cost reduction program overall is progressing slightly above the plan.
In the second half, we will continue to make efforts so that we can reap the benefit of the cost reduction program in the second half. I see.
Thank you very much. My second question is regarding Wolfspeed with which you put the JPY 2 billion as deposit. You may have to wrap up that deposit. That is a rumor in the market. You may have to engage in the turnaround of Wolfspeed, I think is a concern in the market. At this point, what is your behavior toward the Wolfspeed situation?
To add to Mr. Shinkai's previous comment before answering that question, the cost reduction effort is making steady progress. As Mr. Shinkai said, we are seeing good progress. As I said at the outset, we are also keen to make investments.
This is because of wake-up calls and the global economy separated into different blocks. Despite those noises, we ourselves and also many of the market were in a way dismissing that. I think with this recent event, many companies and countries have been awakened. It's not just ourselves. Like China, who benefited from being part of the supply chain, for China, this will be a bigger wake-up call. Also, how businesses run by the competitors and the clients may fundamentally change. Having said that, in order for us to survive and to be a company that's needed, that topic needs to be addressed with a mid-to-long-term perspective. In a way, utilizing the power of digital. We need to accelerate our investment because with automotive, we see some change in the market share of microcontrollers. Chinese players are really rapidly increasing their presence.
As a countermeasure, we would like to be active in investment. We will be looking at the operating margin. We will not just pursue improvement in operating margin and also have more focus and emphasis on investing for future opportunities. Switching to your next question about Wolfspeed, we are actually in the middle of dealing with that. At this point, there are not many things that I can talk about. One direction is early May, after the Golden Week, there will be the earnings announcement from Wolfspeed and the 10-Q submission. I think that will be one milestone for us. We will be looking at that and hoping that we can make some progress. We are currently working on this issue. In the next two weeks or so, this should make some progress.
Also, I hope to ask for your patience for another couple of weeks. Are we going to be involved in the management of Wolfspeed? At this point, my answer is no. With the lift perspective, the SiC demand and the EV takeoff, and also with the change in the geopolitical situation, I think a lot of things will be changing. Also, we are open to what we are going to do over the long run. At this point, we are not going to roll up our sleeves to deeply get involved in the turnaround of Wolfspeed. At this point, we have no intention of doing that.
Thank you very much for your answers.
[Foreign language]
Next, Daiwa Securities, Mr. Okawa, please unmute and ask your questions.
Thank you for today. I am Okawa from Daiwa Securities. I have two questions. The first one, IIoT segment.
There may be some overlap, but the second quarter forecast, just IIoT, it's a 10% growth Q on Q. You have industry, infrastructure, and IoT. If you break down by these different areas, what are the growths respectively? Texas Instruments had an announcement this morning, and they were quite aggressive for the industrial business, but I didn't get that from this presentation. I was wondering if there are any differences. That's my first question. Thank you.
[Foreign language]
Thank you. Industry, this term is always difficult. What do we mean by industry? I think depending on the answer, we mean different things. Industry automation, factory automation, the so-called these things, the hardcore industrial, if we only look at that, I don't think this is going to have a very strong performance. The end demand is moderate.
As I said before, the inventory reduction is now completed. In terms of sell-in from us, we expect a growth in the second quarter. However, given the current situation, investments into factories are unlikely. There may be some semiconductor factories to be constructed in the U.S., but elsewhere, we cannot expect much. At least that's my thinking. In terms of industry, normally we may refer to energy, or in our case, we have home appliances, or we call them smart appliances. All these things may or may not be included. It depends on the categorizations, how you look at it. As I said before, sequentially Q on Q, there may be some ups and downs, but the underlying trend remains strong. Perhaps this area may also be impacted by China-related factors and some last-minute demand or rush demand.
Whether these things continue in the second half or not, we have to be cautious in observing. At least for Q1 and Q2, we think that this remains quite robust. As a data point that I can share with you, MCU for non-automotive segments, this is mainly for industrial, and this is used in broad-based markets. For this business, looking at the current booking trends so far, it is very robust. In terms of the four product group segmentations, it is the strongest, actually, of the four. If TI is saying that this area is strong, then that's the same for us. We are strong. Given the current situations, it's unlikely that huge investments will be made into the industrial area. We should reserve a cautious view on this. Thank you very much.
The second question regarding the software, the new platform between Renesas and Altium, what has been your views so far? What has been the reaction? Other companies are also making investments into the software area. Is there any area that you would like to strengthen going forward? Is there any area that is currently lacking? Is that why R&D expenses are going to increase?
We've only just showcased this. The full-scale launch will be next year. It is still early to talk about it. I think that at a glance, what you see on the screen and in videos, you may feel that there may be similar products out there. What is decisively different is that in the background, all the data is connected.
In the past, there have been similar things, similar products available, but interpreting data or data being connected to something else or the validation, the verification, all of these things were done manually by human. What we've showcased is that everything is connected, data is all linked, and everything is automated. That is the fundamental difference. At least technology-wise, the launch and the preparations have been going steadily. I myself am very much looking forward to the launch. The remaining challenge is what to be put on top of this. I call them ingredients. What devices, what solutions can be on board? This requires a substantial effort. We need to be on top of that to ensure success. The technology that goes into the platform, there's no doubt about it. I am very confident.
What is to be placed on top of this platform is going to be a significant challenge for us. Okawa-san and others, I hope you will have a critical eye on this. What is lacking today? Largely, there are two things. Function-wise, some of the functions are already there. For PLM, product life cycle management, this is where we are still lacking. This is an area that needs to be addressed. Of course, we are working in an organic manner, but perhaps at some point in the future, bolt-on something like an acquisition may be necessary. There is nothing concrete that we are currently considering. This is something we have been talking about since before. We may need something in the future. Our platform is for the broad-based market for a broader audience.
Last year, when we made the announcement back in February, we are going to reach a broader audience. That will not be sufficient. We also need to go after the enterprise segment customers. In order to attract them, we may need to come up with something to attract these customers. Maybe very sophisticated simulations or design capabilities may be required to do so. Are we going to acquire them through partnerships or through other means? This is another thing to consider. For now, we've just made this announcement of Renesas 365. Towards the launch next year, we will continue to thoroughly work on the implementation. That is our absolute priority.
Thank you very much.
[Foreign language]
Next question, ask for Mr. Fujiwara from Citigroup Securities. Please unmute yourself and ask your question.
Hi, this is Fujiwara from Citigroup. I have two questions.
My first question is for the up-to-business. We are starting to see some implementation of the tariff and including ourselves. The impact on that tariff, how is the budget going to be shared within the supply chain? What is your view, Mr. Shibata, on that point?
[Foreign language]
Over the short run? Toyota was saying that they will try to make sure that the tariff burden will not go to the component suppliers. The prices can be raised, so Toyota will not be able to bear the burden of that tariff forever. How is the burden going to be shared within the supply chain?
From that point, that's a very difficult question to answer. I'm hoping that the impact will not be material. In reality, the reason could be the tariff or the demand, but at the end of the day.
What is going to be the strong factor in price setting is the competitive landscape of the suppliers. Also, someone said, "I will take the tariff burden, and we will lower the price." That is going to be the biggest determining factor. Also, with the tariff, the demand and the volume upload is uncertain. If there is impact on the ASP, then the situation is going to be very challenging. Also, in a good way, we will try to get the understanding of the client to overcome this. That is about all I can say at this point.
I see. My second question is a little bit more short-term sighted. Looking at the inventory level, the in-house inventory is now close to your target level. I think that has been the case for two consecutive quarters.
Also, with uncertainty still being over the demand, the in-house inventory, do you consider to lower the in-house inventory further? Also, for your Kofu factory, can you give us the update on your Kofu plant?
[Foreign language]
Regarding the in-house inventory.
[Foreign language]
Compared to a few years ago.
[Foreign language]
We should not be proud about this. We have been able to all manage the inventory. At this point, we do not feel the need to make changes here. If I were to point out some needs for change, if the global demand shrinks significantly, then that will mean that the supply will spike. Also, we will try to manage that and control that. We will take countermeasures. As we have seen in the peers' results today, and they have been saying that, also, like that, we have a lot of short-term lead time orders.
We do not want to lose this opportunity. We will have some robust level of dive-out. When there is an immediate request, we will be able to cater to that. At this point, we do not want to reduce the OI from this level. For the Kofu plant, the demand is very uncertain. We have not set any deadline and are maintaining a very extreme conservative view that remains unchanged.
I say thank you very much. I have a follow-up question regarding the Kofu plant. Also, you have taken a pause in taking up the operation. Are there any impairment risks on Kofu?
At this point, for the Kofu plant, we have not decided to downsize permanently or decided not to start the operation. Also, looking out into the future, the power demand will definitely grow.
Also, for the products that need to be manufactured in Kofu, not just over the short- term, but over the next few years, we are working on the development. I think the biggest uncertainty is how long is this pause going to last. In the future, we continue to maintain the view of operating on this plant. At this point, we do not feel the need to make a big impairment.
I say thank you very much.
[Foreign language]
Thank you very much. We are almost at time to wrap up. This concludes the Q&A session. Lastly, Shibata will give some remarks. Mr. Shibata, please.
Certainly, things are uncertain. How to respond to these uncertainties is different among companies, industries, client industries. Situations vary depending on who you are.
Given these circumstances, we are being a bit more conservative than usual given the recent developments. What is more important, I believe this is a wake-up call. Taking this as a trigger, something we have thought about. Going forward, we will be more grounded and focused on improving our long-term competitiveness. That should be our focus. Situations change rapidly. As we have done before, if needed, we will communicate to you and share information with the relevant stakeholders. We ask for your continued dialogue with us. Thank you very much.
[Foreign language]
This concludes Renesas Electronics' 2025 first quarter earnings call. Thank you very much for joining us today.