Earnings Call: Q4 2025

May 14, 2025

Summary

FY2024 losses reflected weaker industrial and automotive sales, inventory and material costs, and higher fixed costs. FY2025 guidance targets a return to profit, supported by inventory normalization, cost reductions, and lower investment, amid uncertain demand and intense SiC competition.

Good morning, everyone. This is Azuma speaking. Let me present our fiscal 2024 full-year financial results. We will follow the agenda as shown here. This is our fiscal 2024 results. Net sales JPY 448.4 billion, operating loss of JPY 40 billion, ordinary loss of JPY 29.6 billion, net loss of JPY 50 billion. Extremely bad, the second-worst ever results we have had. Here is the net sales breakdown by market segment. Automotive ended down 2.4% at JPY 223.8 billion. Industrial, down by 23.3%, a large dip down to JPY 57.3 billion. ROHM has been putting focus on selling products to the automotive and industrial market segments, but net sales from these two market sectors ended with a major decline. Going to the lower half, consumer ended with a slight increase, up by 0.7%. Communication is an area where ROHM's sales scale is small at a level of around JPY 20 billion. This segment went down by 3.9%. Computer storage increased by 7.7% due to a strong trend with the servers. It ended at JPY 54.4 billion. Now, the sales trend by region. Japan, accounting for the biggest portion, went down by 10.3% to JPY 234.5 billion. The sales decline here was the biggest. In other regions, like in Europe, it went up by 3.8%, China up by 2.6%, the Americas up by 10.5%. Other Asian countries ended with a slight decline, yet the drop in Japan was still extremely big. Since our sales in Japan declined, the overseas sales ratio increased to 47.7%. It did not hit our target of 50%, but our sales ratio outside of Japan went up slightly. Let us now look at our operating profit in a waterfall chart. Previous fiscal year's OP was JPY 43.3 billion. Full-year dollar to yen rate was JPY 144.4. Fiscal 2024 ended with an operating loss of JPY 40 billion. Average exchange rate was JPY 152.48 per dollar. First, sales decreased by JPY 19.3 billion. Exchange rates changed largely by the Japanese yen becoming weaker, and the JPY 19.3 billion dip is without the Forex impact. Now, if we include the exchange rate impact, sales dropped by JPY 34.6 billion, a major decline. Looking at the breakdown, as mentioned earlier, industrial went down by JPY 17.4 billion, automotive dipped by JPY 5.6 billion. Our two main market segments dropped by JPY 23 billion. Following that, JPY 43.4 billion came from the material cost and inventory impact. Inventory write-down has been included. We had to adjust our production due to the excess production we had carried out two years ago. Another major decline of JPY 43.4 billion. Fixed costs went up by JPY 20.6 billion. The exchange rate impact of JPY 6 billion is included here. That means the organic increase of fixed cost is JPY 14.6 billion. We cannot forget the labor cost and depreciation. In addition, R&D costs within the SG&A increased by JPY 12.8 billion. Amongst that, SiC related cost increased by JPY 13.1 billion. Under the government's Green Innovation Fund project, we have been working on the 5th Generation SiC and the 8-inch SiC. R&D spend related to these increased largely. That is why the SiC related R&D went up by JPY 13.1 billion year-over-year. These three elements combined, our profit decreased by JPY 83.3 billion year-over-year, down to a loss of JPY 40 billion. It has been extremely tough, and we are seeing the worst scenario. Since we posted an impairment loss, we came up with a waterfall chart for the net profit, too. Previous fiscal year's net profit was JPY 53.9 billion. Operating profit went down by JPY 83.3 billion. Non-operating income declined by JPY 15.5 billion. Foreign exchange loss of JPY 12.2 billion. Commission income here is related to the Toshiba thing. Previous fiscal year, it was positive, but due to a backlash, it went down by JPY 6 billion. In addition, we recognized an extraordinary income and loss-related impact of JPY 29.5 billion. Sale of non-current assets, impairment losses, and extra retirement payments. These included add up to JPY 29.5 billion of extraordinary loss. For the corporate income tax, since our taxable income went negative, we saw a positive impact of JPY 24.4 billion. Overall, in total, our net profit went down year-over-year by JPY 103.9 billion, ending at a net loss of JPY 50 billion. Taking a look at the results by segment, LSI or the ICs net sales was JPY 203.8 billion, but profit ended at a negative JPY 700 million. Discretes ended with a big loss. Net sales, JPY 187 billion, net loss of JPY 45.8 billion. We urgently have to improve this. For modules and others, we were able to see a profit margin of slightly below 10%. This is our FY 2025 plan. Net sales, JPY 440 billion. Operating profit turning positive to JPY 4 billion. Ordinary profit of JPY 11 billion, net profit, JPY 7 billion, and an EBITDA of JPY 65.6 billion. Margin-wise, it is still disappointing, but our plan is to turn the figures into black ink. For FY 2025's dollar-yen exchange rate, we have applied JPY 140, JPY 12 stronger than the previous fiscal. Here's ROHM's net sales forecast by different markets. This does not show any growth or trend of the markets itself, but shows how we believe ROHM's sales would be. Starting from the automotive, we assume that it will be down by 4.8% year-over-year. SiC device sales are growing mainly for Europe, but we still see uncertainties due to the reciprocal tariff. We believe that recovery is uncertain. That is why we expect a slight dip. Moving to industrial. Some customers are still in their inventory adjustment, although others have already de-stocked. Due to this, we foresee a 9.2% decline in the first half. Things are to improve towards the second half, and thus we have included a 4.5% increase here. Yet, on a full-year basis, we assume that our sales will be down by 2.6% year-over-year. Looking at the consumer market, amusement has been extremely strong. For home appliances, we are now seeing a last-minute demand for the air conditioners. That is one thing, and the other factor is that replacements from the central ACs to individual ACs are happening, which is causing an increase. Yet, we don't know if this will be ongoing throughout the year. So far, we see that the growth from the amusement will be big. Now to the communication. Set aside the smartphone device volume, this time we are seeing a low trend with the accessories. That is why our expectation is that there will be a decline even further versus the previous year. Looking at the computer and storage, we expect a growth in sales for servers, but overall it will still be weak. We assume that it will recover from the second half, but we will see a 5.5% dip year-over-year on a full-year basis. In summary, we guide our automotive full-year sales to be JPY 213 billion, down by 4.8% year-on-year. We expect an up by JPY 5.4 billion with the xEVs, the SiC business increasing in Europe. Talking about industrial, we are seeing a slight recovery with the energy sector, but still it is in adjustment phase overall. Therefore, we expect a negative growth here. Going below to the consumer. At the very bottom, it says Others. In here we have the amusement, which has been extremely strong. Thanks to this, we expect a year-on-year increase of over 10%. Communication, as mentioned earlier, there are some markets with a large decline with the accessories. Thus, we expect a decline of 18.5%. Computer and storage, too, we hear that the servers are doing slightly better and we are getting business, but still it will be down versus the previous year. We have guided to have a negative growth. This shows the breakdown by region. For Japan, we see a large contribution from the amusement business in the consumer market segment. Yet year over year, sales will be almost flat at JPY 234.6 billion. For Europe, we are seeing a positive trend year over year with the automotive. Still, the growth will be limited to a level of 2.5%. China, both the automotive and consumer are seeing a big decline, a year over year dip of 6.3%. The Americas will be seeing a decline in the communication and automotive. Thus, we guide it to be down by 3.7%. For other Asian markets, a large drop in consumer and automotive, down by 8% year over year. Just to reiterate, we expect the dollar to yen exchange rate to be JPY 140 this fiscal year, and that impact is to be around 5% plus. That means net sales will be more or less equal to the previous year when including the Forex impact. So we can recover the JPY 40 billion loss to a positive figure of JPY 4 billion. Can we do that? We have three areas here. We are expecting a sales decline of JPY 8.4 billion. Since we apply the JPY 140 per dollar exchange rate, which will be an impact of around 200, excuse me, JPY 22.3 billion. Therefore, our organic sales is to actually increase by JPY 13.9 billion. The breakdown can be found below. Amusement in the consumer market segment is a large contributor. Moving to the material cost and inventory impact, we assume it to be JPY 25.5 billion positive. I said earlier that we incurred an utilization loss of around JPY 49 billion in the previous fiscal, but this will get normalized, and that is why we have made it JPY 25.5 billion here. The third one is thanks to our corporate planning team. We changed the depreciation method, which will help us reduce the depreciation. This will be a positive JPY 12.9 billion. Lastly, the fixed cost. We expect this to be up by JPY 14 billion. Since we apply the JPY 140 exchange rate, the impact will be JPY 9 billion and the organic reduction of fixed expenses will be JPY 5 billion. Amongst those, the R&D spend and those related to SiC will see a positive JPY 6.9 billion year over year. You can expect that things will be normalized. This is how we will largely improve the numbers to bring the operating profit up by JPY 44 billion from the previous fiscal and end with a positive JPY 4 billion. Looking at our CapEx. Since fiscal 2021, we were increasing it by around JPY 40 billion annually. We were slow in curbing our investment. Our plan is to cut this from JPY 133 billion down to JPY 85 billion. What makes it difficult is that when the equipment lead time was still very long, we had the LTAs with some of our counterparts. We are still negotiating with them whether we can push the schedule out or cancel it to make sure we will not spend more than JPY 85 billion. Ongoing initiatives are taken at the manufacturing and the procurement teams. Next fiscal year, we wouldn't be able to make major investments. Thus, we will be making investments or its judgments based on the certainty of orders. Here's our inventory trend. We still shouldn't be satisfied with the current situation. Among the finished goods, work in progress, and materials and supplies, the raw materials on the right end chart shows our level is too high. We are working to drastically lower the inventory level. For the WIP, we still have the SiC epitaxial wafers, which make the volume slightly high, but we will destock them in line with the demand trend. Since the dotted line part is ascending, some people might question whether ROHM has already been relieved or not. Well, that's not the case. Wherever we can, we will adjust our inventory levels. Next is about shareholder return. Full year dividend for the fiscal year just ended has been fixed at JPY 50. We decided the year-end dividend at JPY 25. That adds up to a shareholder return of JPY 19.2 billion. For fiscal 2025, we haven't decided the breakdown of the interim and the year-end dividends, but our plan is to pay out JPY 50 per share on a full year basis. That means, again, a JPY 19.2 billion of shareholder return to be achieved. We shifted topics to a financial strategy from the previous slide. Our plan was to make JPY 700 billion of growth investment from fiscal 2021 to 2025, mainly on SiC. We bring this down to JPY 610 billion, but still, this is a high level. We will keep on reducing it. The second point is about the Toshiba investment. We returned the remaining bridge loan balance and redeemed the CB that matured in December 2024. The JPY 200 billion bank loan is allocated partially to the working capital. Our free cash flow is improving currently, but still in negative figures. We will work to make it positive in fiscal 2026 with a D/E ratio of not more than 0.5 and a cash on hand of JPY 200 billion in order to maintain a sound financial foundation. There are no changes in the shareholder return policy. This shows our financial and non-financial target and our status quo of our midterm management plan. We were originally targeting a JPY 600 billion or higher net sales. This is now JPY 440 billion. OP margin 0.9%, ROE 0.8%, overseas sales ratio 46.7%. Unfortunately, all of these financial targets will probably end unachieved. The summary can be found on the right side. The effective demand that we had expected ended to be lower, and we ended not hitting our target share. The automotive and power device effective demand turned out to be higher than our expectation. In that sense, our focus area and products were correct, but we didn't see so much growth. Automotive sales were increasing, yet those from the industrial, as I previously referred to, were sluggish, thus we ended with a disappointing result. Mainly with the power devices, we saw an increase with the overseas sales ratio. With LSIs or ICs, our domestic sales still account for the majority, and we haven't been able to achieve our overseas sales ratio target. Looking into the individual parts, from SiC, due to the recent slowdown of battery EVs and the competitive landscape getting fierce, we didn't achieve our target share. The last part is for the entire business. We were slow in responding to changes in the market, had excess CapEx and inventory, and this led to a worsening of our profitability and capital efficiency. For the non-financial targets, some of them have a target year of 2030 or even 2050. Two at the lower part, global female manager ratio of 15% and ratio of female and foreign directors of 10%. These are ones with a fiscal 2025 target timeline. Our global female manager ratio is 13.8%, and we assume that we will most probably manage to hit the target within this fiscal year. These are the structural reforms for us to improve profitability. We position fiscal 2025 up to 2027 as a period for structural reform to make ourselves resilient against changes and have a lean structure to make our foundation even more robust. To that end, we are currently planning our second midterm management plan to go back to our basics to show ROHM's strengths. Sometime in November or before the end of the year, we will be able to announce it, so I hope you look forward to it. The lower part shows our profitability improvement initiatives apart from sales growth. Our marginal profit is high, so as our sales go up, profit will follow, and I suppose you are all aware of that. Even if in case sales does not grow, we still intend to enhance our profitability. As we have already announced, we organize our manufacturing sites and partially shift out from being an IDM. Others include cutting CapEx, optimizing our head count, and pricing. Through these measures, we will improve our situation. Contribution will be around JPY 1 billion from reorganizing the manufacturing sites, JPY 20 billion from curbing investment, JPY 2 billion from head count optimization as we implemented a voluntary resignation. There is inflation going on with various materials, mainly gold. We are currently negotiating to pass the cost to price and expect roughly a JPY 4 billion contribution to profit improvement. That adds up to JPY 27 billion this fiscal and over JPY 36 billion in fiscal 2028. These are improvements that we intend to make, even if in case sales do not grow. This is about strengthening our marketing and development capabilities. During the first midterm plan, we placed focus on automotive, high-value-added products, and developed stable markets. Looking at fiscal 2024, automotive sales accounted for 51%, reaching half of the sales mix. In the short-term perspective, from fiscal 2025 to 2027, automotive will steadily grow. Thus, we assume that the mix will go up to approximately 55%. But if this portion simply keeps on growing, that would be too much concentration on automotive. That is why we aim to maintain the mix of around 50% with automotive, 30% with consumer and others, and 20% with industrial. Our target is to keep a good balance and take challenges in various markets. To give you some background, on the left hand, we have consumer communications, C&S. These are the areas where we keep on advancing our tech innovation. That said, this is where the tech innovation goes on fast. These can be applied to form the basis of automotive and industrial equipment-related technologies and for us to be updated. Moving to automotive, product life cycles are long. It is of a high value-added and profitable business. It will continuously be our focus. Currently, we depend on some large customers, which makes us vulnerable against changes, thus we plan to expand our footprint. With industrial, we will further boost up our manufacturing tech capabilities to secure high profitability from small volume production. In this market segment, we will partially keep our IDM strategy to be resilient against our suppliers' strategies so that we can guarantee long-term supply for our customers. These are our target markets and application. We view ROHM's effective demand to be approximately 32 trillion JPY. We believe that the CAGR can grow up to above 6% towards 2028. Amongst those, the effective demand of our focus area is roughly 9 trillion JPY with a higher CAGR of 10% or more. This is where competition is tougher. On your right, we have the automotive market inverters for the xEVs, onboard chargers, and DC/DC converters for xEVs, products for the ADAS, and the zonal architecture ECUs. These will be our concentration area. This time, we add the consumer market, too, as our focus area, mainly for AI, data centers, and smart home appliances, as the demand is high. These are our focus areas. Let's look into the automotive market. Our portfolio covers power, including SiC and analog ICs. Our target CAGR with infotainment business is 4%, and with auto body on the right top, 8%. ADAS, 11%. We believe xEVs will grow largely, thus our target CAGR is 24%. We partially see some slowdown, but still, this is an area where steady growth can be expected from 2028 till 2030. These remain to be our focus. Talking about solutions for servers. By strengthening our product lineup, we believe to be able to target a four times bigger SAM than today. We have listed both our existing products and products to be developed on the right top. Those within our plans are the high current, low voltage MOS, isolated DC/DC, SoC, eFuses, and more. We will develop new products to expand our SAM. Just to highlight one of those, we have the chiplet technology, which we are currently developing at ROHM. We have our proprietary analog chip technology. We combine this with the foundry's digital microchip technology and come up with a memory. This will be made into a chiplet microcontroller, which is our plan. Expected applications are MCUs for air conditioners and sensors and those for wearable devices. This is how we want to tap into new areas with ICs using our technology. Moving to SiC, an area with high interest. This shows the timeline from year 2000 up to 2025 on the left side. This year, we plan to release the 5th Generation SiC. We started mass production of the TRCDRIVE pack module last year. So these products, along with the 8-inch, will be our mainstay. Reviewing the past, with the market environment we did see the market to grow in line with the decarbonization trend. But currently, the battery EV growth is slowing. Recently, we don't hear topics like ESG so much like we did in the past. Despite all these, we expect the market to grow in a longer term. Talking about our competitors and our share, at first, we were late in making investments when the market started to emerge. We weren't ready with our capacity when we could have gained share. We were slow at first, but now at a slight overcapacity situation. We weren't able to lead the competition, but we did expose ourselves to a wide range of customers. New players enter the market, including those in China. They are showing advantage with performance and cost. Therefore, our competition with the Chinese players is getting intense too. Sales. Due to delays in the sales growth, timing of its contribution to profit is pushed back. We believe we are doing good so far with technology. We will be launching the 5th Generation SiC MOSFETs, and we are working on Gen 6 and 7. We will keep on offering the industry's best on-resistance products. We manufacture the 8-inch wafer at SiCrystal, and even with the 8-inch devices, we believe to launch the industry's top products. The TRCDRIVE pack that I mentioned just now is a truly competitive package, and since we mass produce those, we make sure to be the top runner in the tech field. This shows the SiC sales trend and outlook. The bar chart on left shows the sales trend. The bars behind in a lighter blue color show the SiC business total to be adding up to JPY 40 billion plus. Up to fiscal 2023, the growth trend was big, but fiscal 2024 and 2025, it is getting slower. The darker blue bars on the front represent the SiC for automotive traction inverters. Up to 2025, we expect a big growth, accounting for around 50% of the total SiC business. Going forward, we estimate that the market environment will improve. Although there has been some temporary slowdown, we still see that the market will expand steadily. Our perspective remains the same. Looking at the competitive landscape and share, we think that the oversupply in the market, followed by an intensified competition, will be ongoing. Yet we are seeing an incremental share of the SiC-based traction inverter contents in the battery EVs to be reaching around 19% during fiscal 2025. Launch schedule of Japanese OEMs and Tier 1s is slightly delayed, but once these kick off, as Mr. Ino has been committing to gain the top market share of 30% is something that will become much more probable. About the possibility of demand increasing from the made-in-Europe substrates, although the reciprocal tariff topic is getting calmer now and the Chinese-made substrates are becoming better both in quality and cheaper, still there are growing needs from our customers wanting to have non-China-made substrates. This will be a positive factor for ROHM. Now, sales. We aim to be profitable on a single-month basis in fiscal 2027. Production efficiency will be further improved, and we will be introducing equipment in line with the demand trend. Today, we are limiting these, but once the sales start to pick up, more equipment will be installed. In preparation to that, we are improving our production efficiency and yield. We are seeing more design wins with the power modules, and this will enable us to raise the unit price. That is why we are further promoting our sales. Technology. Beyond the Gen 5 products, we believe to be the industry first to come up with Gen 6 and Gen 7 products. This is the last slide for SiC. Previously, we were saying to make JPY 280 billion in total for three years from fiscal 2025. We have reduced this down to JPY 150 billion. This may change depending on the demand trend. If in case demand drops, we might further reduce the investment amount. Tech-wise, shipment of the Gen 5 samples manufactured on the 8-inch line has already started. Development of Gen 6 and 7 are being accelerated too, moved up from 2029 to 2027. We are on track and probably be able to complete the development in 2027 instead of 2029. Challenges to new technologies must always be taken. We had one more slide with SiC. I earlier mentioned about the 19% share with SiC devices for the automotive inverters. These are based on the calculation of the OEM's battery EV models that are selling or are planned to sell over 50,000 units. That's how we came up with the 19% figure. Our 2027 target coverage of OEMs is 50%. The volume-based share is 19%, but the value-based share is still around 9%. Since the majority of our business is with wafers and chips, and we are not offering so much of the modules, we have to increase the unit price. To meet this end, we are working to add higher value through the module business. Just to reiterate, we have developed the TRCDRIVE pack, a new module for inverters with higher power density, showing 1.5 times that of our peers. We started offering samples from 2024, and so far, we have obtained design wins from four customers. Having three of these laid out will make the automotive power box. We can offer the power module with a cooler. For the modules for onboard chargers and e-compressors, we will start mass production of the HSDIP20 in 2025. Our module lineup is steadily expanding. This is an area with SiC where we hear some concerns. Can we just rely only on battery EV traction inverters? In the past, we said that around 80% will be for battery EVs, yet that will be a bit tough. That is why we have started to expand our SiC adoption to various fields. It is still small in volume, but we have the eVTOLs. That's one. Inverters for pHEVs and HEVs. SiC can be applied not only to battery EVs but to hybrid and plug-in hybrid vehicles for the traction inverters and buck-boost converters. We got a design win from a customer with pHEV and three customers with hybrids. From 2025, 2026, and onwards, our SiC will also be adopted to hybrid cars. Solar inverters are something we've engaged already. We newly started offering a high voltage system, a 2 kilovolt SiC. AI servers are with the low voltage range. We have received some inquiries for a dedicated SiC, and we are currently working on the development. This concludes our financial results and our IC and SiC strategies. Thank you.