6723.T FY2025 Q1 Earnings Call Transcript
Date: 2025-04-24
Source: Financial Modeling Prep

Operator: Thank you for making time out of your busy schedule today to join us at Renesas Electronics Corporation for the First Quarter of FY 2025. Simultaneous translation is available today. Please click on the interpretation icon at the bottom of the screen and select your language. Speakers, please turn on your camera. Speakers today are Mr. Hidetoshi Shibata, President and CEO; and Shuhei Shinkai, Senior Vice President and CFO. Staff members are also present. After the brief report from Mr. Shibata, Mr. Shinkai will explain the first quarter financial results, which will be followed by a question-and-answer session. The entire presentation is scheduled to last 60 minutes. The presentation material is uploaded on the IR section of the company's website. Mr. Shibata, the floor is yours. Please unmute yourself.
Hidetoshi Shibata: Good morning, everyone. This is Shibata speaking. Regarding the guidance for the second quarter, the tariff impact is still uncertain. So we have not logically reflected impact of the tariff in the guidance. However, having said that, given with uncertainties, we do see some abstract view about the upside opportunity in downside risk. So, we just reflect some haircuts, but there is no logical background behind that, but it is more of a psychological haircut. And looking at the market view, roughly speaking, sorry for repeating myself, but there are both positives and the negatives that were automotive business. I think there will be some conservatism for many in a wait-and-see mode. Our Industrial and FAE, it seems that no material change has taken place. The inventory correction was nearly completed in Q1 and we observed some very gradual recovery. But looking at in the future, there are still uncertainties running over the tariff impact. And notably speaking, some disruptions may be segment closer to consumers like home appliances, PC, while there could be some spike in the demand before the impact of the tariff maybe in Q1 or Q2. And regarding data center and AI, that's a trend, things have not changed. So steady growth is on the horizon, especially for the second half DDR5, our generation upgrade, I think, will progress. And for mobile, a modest upside could be expected. And for auto the 28 nano, I think it will be a set up outside of China. So for the second half, while we have seen some positive news, our expectation was getting elevated. But of course at this point, so we cannot foresee the exact impact of the tariffs. So, over the short-term, while there could be some disruption, but we do not want to be disrupted by that. Also, we positioned this year as the year of the change and also with the tariff situation a lot of uncertainties were moving over the business, also – is something that we need to be ready for. So we need to really focus on the medium- to longer-term initiatives. So from that perspective, especially with the organic opportunities, we will focus on looking at the investment opportunities with a mid- to long-term perspective, especially in such an environment that we stand today. Also for Q1 results and 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.
Shuhei Shinkai: This is Shuhei, Senior Vice President and CFO. I would like to quickly go over the first quarter results based on the presentation material. Please turn to Page 4. [Indiscernible] the revenue was JPY308.8 billion, the gross margin was 56.7%. Operating profit was JPY83.8 million, operating margin 27.9%. Core net profit was JPY73.3 billion. EBITDA was JPY103.5 million. Our currency was JPY154 against the dollar and JPY161 against the euro. Compared to [indiscernible] FX impact [indiscernible] was smaller for Q-on-Q. It ended up at the 1.2% revenue growth. Next page, please. [indiscernible] revenue, gross margin and operating margin, on the top right we have [indiscernible] the revenue, it was negative 2.1% [indiscernible] in the forecast. The FX impact was slightly positive [indiscernible] stronger yen against the forecast high sales grew net-net positive. Excluding the effect was negative. And so small upside, but with the enhancement [indiscernible]. For FX revenue, excluding the FX, the forecast was Q2 positive result, the actual was 1.0% increase, as I said earlier. And for IoT, compared to the forecast, it was positive. But [indiscernible], it was negative against the forecast. The [indiscernible] because we surpassed our shipment so that the inventory will not increase too much. [indiscernible] the addition of [indiscernible] for AI and home appliances had some upside on that led to a positive growth. For gross margin, it was positive 2.7%. The key factors for the operational cost of decrease on utilization and better product mix. The production cost benefit was 70% benefit. There were multiple reasons. The prediction of fixed cost savings was higher than planned. Specifically, the repair cost and the consumer products costs were improved, and we were able to enjoy the benefit of reducing those. And also with higher electricity costs we try to consume less electricity, which also benefited on the cost side. And also the accounting impact was not fully operated. For the inventory backlog, we would not be able to oversee the rebound from that. And there are also multiple cost improvement that led to this positive growth. It's improved [indiscernible] rate increased [indiscernible] utilization rate was slightly higher than the plan, but that led to a better gross margin. For operating profit margin, compared to the forecast, it was better by 3.1%. The operating margin increased and also compared to the planned cost reduction had a big plan effect. And for the development delay or the R&D, OpEx was lower. Q-on-Q, [indiscernible] the revenue excluding the FX, it was negative 0.9% that was revenue was positive 1%. Well for gross margin, it was 1.9% of growth Q-on-Q. The Yen depreciation furthermore and utilization rate increased those were the main reasons. And for the Q-on-Q gross margin, I would like to make one additional comment regarding the depreciation cost. On FY'25, for the production of equipment and facilities, there would not be the change in the life cycle of the equipment and also how we are using the equipment but we assess that to better reflect the reality and we advise the usable way and with now the depreciation period was revised again. Also, previously, on depreciation period was over five years, but this was extended to eight years. Positive from Q3 onward, this will be implemented, and it will not reflect us in a retrospective manner. So the impact is a reduction of depreciation cost by ¥3.1 billion from this quarter. On the operating income margin, our OpEx increased Q-o-Q. We made efforts for cost control, but in Q4 of 2024, there was one-off cost that led to cost reduction also Q-on-Q, the cost increased. And by segment, for Automotive, the operating margin in previous Q4, there was a one-off factor, which was the receiving the development cost Q-on-Q basis, the operating margin went down for two there was the one-off factors in Q1, when we put the reserve of the litigation fee also on Q-o-Q. Compared to the revenue growth, the operating margin did not grow as much. The next page, please. This is showing quarterly revenue trends. Please refer to the column on the far right for the 1Q results. Overall, we had a decrease 12.2% year-on-year and plus 5.5% Q-on-Q. However, exchange impact excluded, we had minus 16.8% year-on-year. You can see the breakdown by segment below. Please go to the next slide. And these are showing financial numbers and their trend for your reference. Please go to the next slide. And 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 amounts and DOI both decreased. DOI was decreased by two days. For die bank, we mainly received replenishment from the foundries for smartphones and AI servers, digital power, die banks 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. 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. And the bottom right is showing channel inventory. You can see in the first quarter, a sell-through was higher than expected, mainly due to IIoT and overall channel inventory was reduced more than expected, both actual amounts and WOI decreased Q-on-Q. For automobiles, our channel inventory decreased but mainly for Japanese companies sell-through increased more than our expectations. And as a result, the WOI increased slightly. This goes back to what I said about reduced shipment when I explained about the revenues. As for IIoT, our sell-through increased from our expectation and 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. And as for the upside, we will cover upside from the in-house inventory. And 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 sell-in side, we have been conservative. On the other hand, for the sell-through in the second quarter, we assume that sell-through will be greater than sell-in, resulting in a decrease in channel inventory and WOI. However, there are still some uncertainties with respect to sell-through. So 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. And 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. So 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. But 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 ¥302.0 billion; gross margin, 55.0%; operating profit margin of 25% exchange rate assumption is ¥142 to the dollar. This is a ¥12 higher Q-on-Q and ¥156 to the euro, which is ¥5 increase from Q-on-Q. I would like to give additional information on the revenue. The midpoint forecast is ¥302.0 billion. As you can see on the right-hand side, this is minus 15.8% year-on-year and minus 2.2% Q-on-Q. This Q-on-Q of minus 2.2%. And the breakdown to the device revenue, the appreciation of the yen will be minus 7.0%. So on the second line, you can see increase by 4.8%, excluding exchange impact. On the other hand, Altium impact results in minus 0.5%. So device revenue, excluding the FX impact is plus 5.3%, as you see on Line 3. And so this 5.3% increase Q-on-Q is broken down as follows: Automotive is slight increase. On the other hand, IIoT mainly contributes to this plus 5.3% increase. And as for the impact of Altium, minus 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 longer in the second quarter than in the first quarter, and this results in the revenue numbers. And the gross margin of 55.0%, this is minus 175 basis points Q-on-Q, and this is mainly due to exchange impact and increase in manufacturing costs, one-third are coming from the exchange impact and two-thirds from the manufacturing costs. We have increase in utilities both in unit price and usage volume resulting in increased costs and also repair cost 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 215 basis points decrease Q-on-Q. Major reasons are the exchange impacts and the decrease in the gross profit margin. And 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. So overall cost increases. So that’s the forecast for 2Q. And 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 JPY18.1 billion, and this is onetime costs related to structural reform, business sales, goodwill related the write-off, 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 highlights. And Altium PMI, as part of this effort, although small in scale, now Altium acquired a company called Part Analytics and 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 in the embedded world, Renesas 365 has been launched. This concludes my explanation. Thank you very much.
Operator: Thank you for the presentation. Now we’d like to go into Q&A session. Mr. Shibata, please turn on camera. [Operator Instructions] So the first question is from Mr. Takayama from Goldman Sachs. Please unmute yourself and ask your question.
Daiki Takayama: 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 the tariffs mean less volume for your – to a certain extent, the supply chain sharing will be done with the tariff? So can you explain the actual impact to the tariff?
Hidetoshi Shibata: Yes. So psychological haircut is what I said in my comments. It’s like a midstream growth percentage point haircut. I guess that’s fair to say. On our operation, we fixed the currency because otherwise, it would make it difficult to manage the business. So with the fixed currency basis, we can round it down. So there’s no logic behind that. It’s very emotional and psychological. And regarding the effect of the tariffs, as you pointed out, the direct impact would not be that material. And for indirect impact, of course, within the supply chain, well, there could be some share of margin. But more than that, I think the impact may be greater on volume. Of course, it depends on the products and depends on the future outlook. But generally speaking, if the product is priced at JPY3 billion and if we price like 25% normally, the volume will come down. So I would expect the volume decline as the indirect impact of the tariff.
Daiki Takayama: Also, to confirm, you mentioned round down. Also in Q2, you have had this level of expectation as revenue, and you reduced that outlook by a mid-single-digit percentage point? Is that right?
Hidetoshi Shibata: Yes, that is correct.
Daiki Takayama: My second question is for IIoT. I want to understand this difficult trend for different businesses. [Indiscernible] are increasing their market share, so the mix and as mobile upside, I think those are the three key factors. From Q2, I expect the trend to continue as you expected Q1, as you look forward to the second half. Are you seeing some signs of weakness?
Hidetoshi Shibata: I would try to not to mislead you, but this is about the second half. So from Q3 onwards. Well, it's really difficult to see the future, but at this point, to a certain extent, in trying to see our business growth, but we do see some positive data. For example, in Q1 – no, in Q4. compared to the earnings – if you ask, are we more optimistic or pessimistic, we are slightly more optimistic. And I'm repeating myself again, but I do to the tariff. At this point, it's difficult to first perceive the impact on the volume. So that factor needs to be discounted. But looking at the specific factors in the second half, we do see some positive signs of trend.
Daiki Takayama: You are mentioning that from Q3 onward, but in your Q2 guidance, you have mentioned about the activity going up by roughly 5% in effect. You mentioned that it's mostly from IIoT or non-auto business. Also, is this upside coming from the different factor?
Hidetoshi Shibata: Yes, for Q2, the demand will not go up substantially by different factors. But as I said earlier, in Q1, the channel inventory has been nearly pretty corrected. And with that, looking at the underlying demand, we will be shifting reflecting the underlying demand. So our sell-in should grow to a certain extent. And sell-through may be more stabilized or maybe just a slight pickup from the trough. So that's how we see the trend. So the end demand may be weak. But if you ask is it positive or negative, we see some positive growth. And then we are selling because the inventory correction has been completed, so they should grow.
Daiki Takayama: Thank you very much.
Operator: Thank you very much. Next, UBS Securities, Mr. Yasui. Please go ahead. Please unmute yourself and ask your questions.
Kenji Yasui: Thank you. This is Yasui from UBS. I have two questions. The first question, the negative factors seems to be around. Being 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. So perhaps you want to capture the data center demand ahead of others? So 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. And the second question, the automotive impact, I believe, is something you mentioned and companies that can be on the offenses now taking the approach of wait and see. So 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? So have you seen any strategic change among your customers? Those are my questions. Thank you.
Hidetoshi Shibata: 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 provisionary period. So I think there is a mix of both reasons. So 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 and maybe they will remain at a relatively higher level or even have an upside. So that’s the image. As for Automotive segment, towards the second half of the year. As I said in the beginning, there is a topic of Gen 4 of our car, but this is small, but the launch of the 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 ADAS. We are seeing greater adoption in these areas. So 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. So these are the possible areas. And 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. And partially, this will result in a net increase and replacement from 40-nano. So 28-nano will replace the 40-nano in an increasing manner. So, the new platforms will be launched and this gives us somewhat of certainty. This is certainly a positive factor but ultimately, the final demand, we are not sure China’s OEMs compared to them, there is greater uncertainties with respect to the demand. Those are largely the factors that I can share with you now.
Kenji Yasui: Thank you very much. I have something to supplement regarding data centers. Data centers are certainly garnering attention. And [indiscernible] auto assembly perhaps they are struggling a little bit. So 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?
Hidetoshi Shibata: Our AI business in terms of growth has been strong. But it only accounts for less than 5% of the total company’s revenues. So whether it’s big enough to shift company’s posture, it is not. But in terms of growth, we do expect the growth to continue to be robust. The reasons I say this are because, of course, I will not go into individual customer’s 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 is currently being mass produced 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, so two companies or three companies are now fighting over the power socket business or maybe segmenting. But overall, we are positioned relatively in a very strong position. So coming from this first quarter to the second quarter, we see steady growth. And furthermore, from the second quarter to third quarter and beyond, of course, these are future quarters. So it’s perhaps better not to have any predictions or estimates in terms of figures, but we do expect steady growth as Shuhei san has just now indicated, the troubles that you refer to are these small mishaps, these – whether they are headwinds or tailwinds for us. For us, there are tailwinds. Thank you.
Operator: Next question is Mikio Hirakawa from BofA Securities, please unmute yourself and ask your questions.
Mikio Hirakawa: Thank you. I have two questions. My first question is on [indiscernible], in the previous earnings call, is that including 2 percentage points by optimizing positively in the cost reduction is making good progress. And at this point, I have a question, cost savings. The uncertainty in uncertain environment, can you achieve the appropriate? And what's your progress at the end of Q1? That's my first question.
Hidetoshi Shibata: Yes. We'll ask Mr. Shinkai to take that question.
Shuhei Shinkai: Yes, regarding the cost reduction plan and the progress. A plan has been mentioned previously for the year that we want to improve the operating margin by 2 percentage point. And in today's earnings call, I mentioned that the impact of the change in the accounting policy, but changing the depreciation expenses is not within that plan. Also if you interpret, we should expect a 3 percentage point improvement approximately on the operating margin. And overall, the impact is no more low ended toward the end of the year. Also in Q1, Q2, the improvement may look modest. Also, it actually be, it may be visible because it's very modest. But the cost reduction program overall is progressing slightly above the plan, also in the second half. We will continue to make efforts that we will reap the benefit of the cost reduction program in the second half.
Mikio Hirakawa: I see. Thank you. My second question is on starting up mostly [indiscernible] yen as deposit. And we made the right level of deposit that's a loop in the market that we may have to engage in the turnaround of Wolfspeed, I think, is a constraint in the market at this point. What is your behavior towards the Wolfspeed situation?
Hidetoshi Shibata: To add to Mr. Shinkai's previous comment before answering that question. Now the cost reduction effort is making steady progress. So as Mr. Shinkai said, we are seeing good progress. But as I said, we are also keen to make investments. And this is because, of course, there will be a short-term impact on returns and the impact on the economy and the demand. But this event that we are observing today to many countries were wake up calls because to date, for many years, there were talks about the global trade being changed in the local economy separated into different blocks. Despite those ourselves and also many of the markets were in a way dismissing that. But I think with this recent event, many companies in the countries have been awaited. It's not just ourselves, like China also benefited from being part of the supply chain for China, this will be a bigger break call also how business is run by the competitors and the clients may fundamentally change. Also having said that, in order for us to survive and to be a company that’s needed, that topic needs to be addressed with the mid- to long-term perspective. We're utilizing the power of digital, also we need to accelerate our investment because a – outside of automotive we see some change in the market share of the microcontrollers. Chinese players are fairly rapidly increasing their presence. And so as a countermeasure, we would like to be active in investment. And that we will be looking at the operation, but we will not just pursue improvement in operating margin and also have more focus and emphasis on investing for future opportunities. And switching to your next question about Wolfspeed, we are actually in the middle of dealing with that. So at this point, there are not many things that I can talk about. But one direction as early May, after the Golden Week, then will be the earnings announcement from Wolfspeed and the 10-Q submission. So I think that will be one milestone for us. So we will be looking at that and hoping that we can make some progress. Also, we are currently working on this issue. Also in the next two weeks or so, this should make some progress. Also, I’d love to ask for your patience for another couple of weeks. And are we going to be involved in the management of Wolfspeed? At this point, my answer is no. With a market [ph] perspective, the SIC demand in the EV take-up 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. But at this point, we are not going to roll up [indiscernible] or to deeply get involved in the turnaround of Wolfspeed. So at this point, we have no intention of doing that.
Mikio Hirakawa: Thank you very much for your answers.
Operator: Thank you. Next, Daiwa Securities, Mr. Okawa. Please unmute and ask your questions.
Junji Okawa: 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. But you have industry infrastructure in IoT. If you break down by these different areas, what are the growth respectively, the 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. So I was wondering if there are any differences? So that’s my first question. Thank you.
Hidetoshi Shibata: Thank you. So industry, this term is always difficult. What do we mean by industry? And I think depending on the answer, we mean different things. So industry automation, factory automation, the so-called these things, the hard core industrial, then if we only look at that, I don’t think this is going to have a very strong performance and the end demand is moderate. But as I said before, the inventory reduction is now completed. So in terms of sell-in from us, we expect growth in the second quarter. However, given the current situation, investments into factories are unlikely and 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. And in terms of industry, normally, we may refer to energy – or in our case, we have home appliances or we call them smart appliance. So all these things may or may not be included. It depends on the categorization, how you look at it. But as I said before, sequentially, Q-on-Q, there may be some ups and downs, but the underlying trend remains strong. But perhaps this area may also be impacted by China-related factors and some last-minute demand or rush demand so – whether these things continue in the second half or not, we have to be cautious in observing. But at least for the 1Q – Q1 and 2Q, we think that this remains quite robust as a data point that I can share with you MCU for nonautomotive 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’s very robust. And in terms of the four product group segmentation, it is the strongest, actually, of the four. So 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. So we should reserve a cautious view on this.
Junji Okawa: Thank you very much. So, 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 and other companies are also making investments into the software area. Is there any area that you’d like to strengthen going forward? Is there any area that is currently lacking? Is that why R&D expenses are going to increase?
Hidetoshi Shibata: Well, we've only just showcased this. So the full scale launch will be next year. So it's still early to talk about it. Having said 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 and that is the fundamental difference. So at least technology-wise, the launch and the preparations have been going steadily and I myself, I'm very much looking forward to the launch. The remaining challenge is what to be put on top of this, I call them ingredients. So what devices, what solutions can be on board. And this requires a substantial effort. So 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 about what's to be placed on top of this platform is going to be a significant challenge for us. So Okawa-san and others, I hope you will have a critical eye on this. So what is lacking today? Largely, there are two things. function-wise, some of the functions are already there, but for PLM, product life cycle management, this is where we are still lacking. And 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's nothing concrete that we are currently considering. This is something we've been talking since before we may need something in the future. And our platform is for the broad-based market for broader audience. Last year, when we made the announcement back in February, we are going to reach a broader audience, but that will not be sufficient. We also need to go after the enterprise segment to 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. So are we going to acquire them through partnerships or through other means? This is another thing to consider. But for now, we've just made this announcement of Renesas 365. So towards the launch next year, we will continue to thoroughly work on the implementation. That is our absolute priority.
Junji Okawa: Thank you very much.
Operator: The next question is from Mr. Fujiwara from Citigroup. Please submit yourself and ask your question.
Takero Fujiwara: Hi. This is Fujiwara from Citigroup. I have two questions. My first question is for the Altium business. How we are starting to see some implementation of the tariffs and including yourselves. What are the impacts of that tariff? How is the burden going to be shared within the supply chain? What is your view, Mr. Shibata on that point?
Hidetoshi Shibata: Over the short run, what I was saying that they will try to make sure that the tariff offered in [indiscernible] go to the component suppliers, but the prices can be raised and so they will not be able to bear the burden of the tariffs and vice versa. So how is the burden going to be shared within the supply chain.
Shuhei Shinkai: Well, from that point, it's a very difficult question to answer. I'm hoping that the impact will not be material. But in reality, the reason could be the tariff or the demand but at the end of the day, what is going to be a strong factor in price setting is the competitive landscape of the suppliers. Also some will say, 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 in the volume outlook is uncertain. And if there is impact on the ASP, then the situation is going to be very challenging. Also with a good faith, we will try to get the understanding of the client to overcome this. That’s [indiscernible] at this point.
Takero Fujiwara: 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 the target level, and I think that that's been the case for three consecutive quarters. Also with uncertainties to linger with the demand the in-house inventory. Do you consider to look at the in-house inventory further? And also for your Kofu factory, can you give us the update on your Kofu plant?
Hidetoshi Shibata: Regarding the in-house inventory, compared to a few years ago. We should not be proud about this but we've been able to well manage the inventory. So at this point, we do not feel the need to make changes here. But if we were to point out some news for change. If the drop for demand must shrink significantly, that will mean that the WOI [ph] will spike up. So we will try to manage that and control that and then we'll take countermeasures. But as we have seen in the peers results today, and they have been saying that also like that, they have a lot of short-term lead – short lead time orders. We do not want to lose on these opportunities. So we will have some robust level of – bank. So when there is a immediate request, we will be able to cater to that. So at this point, we do not want to reduce the WOI from this level. And for the Kofu plant, the demand is very uncertain. So we have not set any deadline. And we are maintaining a very extreme conservative view that remains unchanged.
Takero Fujiwara: I say thank you very much. I have a follow-up question regarding Kofu plant. Also, you have taken a pause in taking up the operation. Are there any impairment risk on Kofu?
Hidetoshi Shibata: Well, at this point, for Kofu plant, we have not decided to announcements permanently or decided not to start the operation. So looking 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. So I think the biggest uncertainty is how long is this plant going to last? But in the future, we continue to maintain a view of operating on this plant. So at this point, we do not rather need to make a big impairment.
Takero Fujiwara: I say thank you very much.
Operator: Thank you very much. We are almost time to wrap up. So this concludes the Q&A session. Lastly, Shibata will give some remarks. Mr. Shibata, please?
Hidetoshi Shibata: So certainly, things are uncertain. And how to respond to these uncertainties, it's different among companies, industries, the client industries. So situations vary depending on who you are. Given these circumstances, we are being a bit more conservative than usual, given the recent developments. And what is more important, I believe that this is a wake-up call. So taking this as a trigger, something we have thought about. But going forward, we will be more grounded and focused on improving our long-term competitiveness. That should be our focus. Situations change rapidly. So as we've 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.
Operator: This concludes Renesas Electronics 2025 First Quarter Earnings Call. Thank you very much for joining us today.