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Operator: Thank you for taking the time to join the Renesas Electronics First Quarter 2026 Earnings Conference Call. Simultaneous interpretation is available during the call. Please click Interpretation icon at the bottom of the screen and select a language. At this time, speakers are asked to turn the video on. Joining me on the call today are Hidetoshi Shibata, Representative Executive Officer, President and CEO; Shuhei Shinkai, Senior Vice President and CFO; and some members of the staff. After initial remarks by Mr. Shibata, the first quarter results will be presented by Mr. Shinkai, which will be followed by Q&A session. The earnings call is expected to last for 60 minutes. The materials that will be presented are the same as those posted on the IR page of the company's website. Shibata-san, please turn on the microphone. The floor is yours. Hidetoshi Shibata: Good morning. This is Shibata speaking. The earnings results this time had the effect of the divestment of the timing business during the period. Because of the decision to divest the timing business, it may be more difficult to understand the numbers than is the case usually. Later, Shinkai-san will explain and would like to provide a thorough information so that apple-to-apple comparison is possible as much as possible. All in all, I believe we had good Q1 results. Generally, in comparison to the guidance that we issued last time, we had stronger results overall. And as a result and since our outlook is that demand will be growing, we wanted to build up channel inventory, but we were able to do so by a smaller margin than we expected, and we will have to increase channel inventory more. Automotive demand was also stronger than expected. It is still small, but generation 4 SoC R-Car is ramping up very successfully. On the other hand, the previous generation of R-Car and micro controllers are also showing strong growth. Automotive results were, therefore, strong. As for sectors other than -- segments other than automotive, data center AI may be attracting much attention. Data center AI and client-side AI were both growing strongly. Regarding these, towards the end of last year, there was a major earthquake in Taiwan, as some of you may recall. Our partners were affected by that large earthquake. Originally, to begin with, the supply -- demand supply was already tight. And on top of that, because of the earthquake, the supply is not catching up. And after Q2, we did our best to catch up. Demand is very strong. But because of the rate-limiting factor of production, the first quarter, there was an impact from that. In Q2, we have overall strong outlook. Of course, there are some products where there are strong seasonal factors, and there may be a decline as a result of such seasonality factors. But overall, the impression is that results are very strong. Automotive is strong, and other segments are also strong, especially in nonautomotive segments. If I may repeat, we have to catch up with demand. The bottleneck is on supply constraint. And if we can successfully address this, we may be able to see results better than the guidance that we will be issuing today. So execution is the key. That is the overall situation. The conditions are very strong. And for the foreseeable future, it will -- we anticipate the conditions to be strong. Now I would like to turn it over to our CFO, Shinkai-san. Shuhei Shinkai: Thank you very much. This is Shinkai, CFO. I would like to present the results from Q1 based on the slides. Next slide, please, Page 3. This -- what you're seeing on the screen is the disclaimer. In February 2026, timing business transfer was announced. After the announcement from February onwards, in non-GAAP reporting numbers, timing business is excluded. In Q1, only January, the month of January is included. And beyond February, timing business is not included anymore. But for the sake of apple-to-apple comparison, we also included numbers, excluding timing business entirely for comparison's sake. Next page, please. Financial snapshot. In Q1, non-GAAP results are shown on the fourth column from the left in the table. Revenue, JPY 372.3 billion; gross margin, 59.2%; operating profit, JPY 125.4 billion; operating margin, 33.7%; EBITDA, JPY 146.2 billion; net profit, JPY 102.9 billion; exchange rate dollar, JPY 156; euro, JPY 183. Timing business trends -- regarding timing business. Last time on February 5, at the current time of the last earnings call, we announced a forecast, which included 3 months of timing business. However, in actual, only the month of January is included. And therefore, for apple-to-apple comparison, based on forecast and actual results or for both forecast and actual results, it would be better to exclude timing business. So pro forma number are prepared as shown on the rightmost 3 columns. It says after adjustments for timing business, assuming that there is no timing business in forecast and actual results. The shaded columns are actual or pro forma basis, JPY 369.1 billion in revenue. This is above our forecast by 1.4%, and gross margin is 59.1%, above 1.1 percentage points from forecast. Operating profit, JPY 123.7 billion. It is above the forecast by 2.5% (sic) [ percentage points ]. Gross operating margin is 33.5%. And based on this pro forma basis, I would like to turn to the next page. This shows revenue, gross margin and operating margin in Q1. This is a pro forma basis number. Company total is given on the leftmost column shaded in blue. Revenue is up by 1.4% from the forecast. About 8% of that -- 80% of that is due to yen depreciation, and the remainder is due to automotive segment, especially with Japanese clients outperforming. And gross margin was above forecast by 1.1 percentage points. About 1/3 of that is due to mix improvement and 2/3 is due to a decline in manufacturing expenses. As for the mix improvement, to begin with, we expected deterioration in mix. But rather, it was flat. It did not deteriorate. Those that will be impacting gross margin the most are power products with a lower gross margin than company total. And in comparison to forecast, the results were lower due to some supply factors. As for manufacturing expenses, fixed cost decreased, and COGS decreased. Maintenance expenses were also reduced. And we had a more conservative forecast. As for operating margin, up 2.5% (sic) [ percentage point ] from forecast. Gross margin increased and the revenue increased. Aside from those, operating expense decline impact accounted for about 1 percentage point. Expense decline, however, was mostly onetime or there is a time differential which will be booked and therefore, expenses will be booked in Q2. So that will be a deteriorating factor for Q2. In the next column, Q-on-Q results, generally, it is repetitive with what I have already presented. Regarding gross margin, it improved due to depreciation of the yen, and mix was flat. Operating margin, because of increase in volume and a onetime factor improvement, we had declined Q-on-Q. By segment shown on the right, automotive, there is nothing noteworthy. Industrial, infrastructure, IoT, if you could refer towards the right bottom in operating margin, Q-on-Q, there was a significant improvement by 9 percentage points. OpEx seasonality was one factor. And there is also a decline from the higher level from last year. And Q-on-Q, a 10% increase was recorded in revenue, and there's operating leverage. And the 3 percentage points is accounted for by all of these 3 factors each. Next, revenue by quarter. This is based on non-GAAP numbers. For the first quarter up to January, the timing business is included in the non-GAAP results. So we have company-wide and by segment results year-on-year and Q-on-Q. Please refer to the numbers on the right-hand side. Please go to the next page. This is about inventory. On the left-hand side is in-house inventory. For the first quarter, on Q-on-Q, both inventory actual amount and DOI increased in line with our expectations. As for the second quarter, in terms of the actual amount, we are expecting flat to increase. On the other hand, for the DOI due to increase in revenue and in the scale, we expect DOI to decrease. As was mentioned during the previous earnings results announcement for the buffer and making advanced arrangements for certain risks. Our target for DOI is 150 days. But considering the risks, both diebanks and finished products for accommodating buffer needs for shorter deliveries, this is a policy that we will have. And on the right-hand side is the channel inventory. For the first quarter, the channel inventory increased Q-on-Q. As for automotive, we'll sell in and sell-through had upside compared to the expectations. We had originally planned for expansion of the channel inventory. But due to the increase in sell-through, we were not able to achieve the expected increase. And as a result, the channel inventory decreased. As for the industrial, infrastructure, IoT, generally speaking, we were able to have a slight buildup of the channel inventory, mostly for data centers. For the second quarter, looking ahead to anticipated demand, the policy is to continue to build up channel inventory, but we expect a higher sell-through increase. As for the ratio in terms of WOI for automotive and IIoT, we expect WOI to decrease. Looking by segment for automotive, we expect the increase in demand and also to respond to short delivery demands. The policy is to further build up the channel inventory. As for IIoT, including the mass market and for the general market, we continue to build up inventory. And also for data centers, we have new products before certification, we plan to have advanced shipments and also for mobile mass production ramp-up before the high season, we will also have advanced shipments. So these are mostly advanced shipments. And from the actual amount basis, we plan to continue to build up the channel inventory. And if you could go to the next page, this is the utilization rate and CapEx status. On the left-hand side is the utilization rate based on front-end wafer input. For the first quarter, utilization rate was around 55%. And the previous quarter, the fourth quarter in the previous year, since then, we have seen utilization rate increase by about 6 points. Naka factory 12-inch MCU, 47 MCU and also Saijo digital power products. These are mostly seeing increase in demand. And as a result, we also increased the wafer input. For the second quarter, we are expecting a flat to slight increase from the current state. As for CapEx, as shown on this graph, for the first quarter, we made the decision to invest in capacity expansion. This is a rather substantial investment decision made in terms of the amount, JPY 94 billion in terms of the decision-based investment and 80% of that will be investments for capacity expansion. Specifically, AI, data center, digital power for these applications will be made in-house. Most of these are for front-end investments, Kofu, Naka, Saijo factories. This is for 8 inches. We hope to make these investments for capacity expansion at these factories. And also for the back-end process as well for package and module must increase the production. And for the development, we plan to make investments. For the front end, mostly investments for digital and power products have been completed. So we are now considering investments for the back-end process. Please go on to the next page. This is the second quarter forecast. On the left-hand side, the fourth column from the left in the shaded column, please refer to that. Revenue midpoint forecast is JPY 388 billion; gross margin, 57.0%; operating margin of 29.0% and exchange rate assumptions is JPY 156 to the dollar and JPY 180 to the euro. And in relation to the timing business, the second quarter forecast does not include the timing business. The timing business has been excluded from the non-GAAP results since February of this year. Therefore, it is not included in the second quarter forecast. However, for comparability sake, we have year-on-year and Q-on-Q results adjusted for timing business figures shown on the right-hand side. As for the second quarter forecast, on a pro forma basis, Q-on-Q, this is the 2 right columns. The far right column to be kept in mind as I make this comment for the revenue midpoint of JPY 388 billion. But on a pro forma basis, we expect increase by 5.1% Q-on-Q. And excluding FX impact, revenue is expected to increase by 5.0%. For both automotive and IIoT, we expect both segments to increase. As for gross margin, we are forecasting 57%. On a pro forma basis, that will be minus 2.1 percentage points from Q-on-Q. Due to production absorptions, we expect improvements, but due to FX impact and also mix. This mix also includes a currency mix impact thereof and also increase in manufacturing costs result in expected Q-on-Q deterioration. And as for operating profit margin, we are expecting 29.0%. That will be minus 4.5% (sic) [ percentage points ] Q-on-Q. It's a rather significant decrease. This is due to the deterioration of the gross margin decrease. Excluding that factor, there's also a deterioration coming from operating expenses increase that contributes about 3% and of which 1% concerns onetime factors that was mentioned during the first quarter and the timing differentials. So about 2% is the net increase in operating expenses for the second quarter expected. If we look at the breakdown, first is labor cost increase, the annual salary to be increased from April term. So that will be affecting the second quarter results and also the continued investments in R&D as well as seasonality factors, all contributing to operating expense increase by 2%. As for the FX sensitivity, you can see the table at the bottom. And in the appendix, there are several items that I would like to highlight. Please go to Page 18. So highlights. Please look at the far left, R-Car Gen4 is ramping up. So these are the specific customers that will be using this. And please go to the next page. Regarding Altium, I would like to also give a progress update. First quarter ARR was increased by 8% year-on-year. Compared to the past growth rates, we've seen slight slowdown in the short term, rather than maximizing the ARR growth in the short term, we would like to promote the adoption of platform and also increase in the number of accounts. That has been our priority. And as a result of that, we've seen this result. In some services and some regions, we are seeing transition from the older model to the new model, and this has resulted in a temporary decrease of the ARR. As for our approach to ARR and how we should constitute the transition period, how we should apply the thinking of KPIs that will be updated in due time. And on the right-hand side, we started the general availability of Renesas 365 as shown here. That concludes my presentation. Thank you. Operator: We will now open the floor for questions. Shibata-san, please turn on the video. [Operator Instructions] If you have any questions, please press raise hand icon at the top of the screen. Participants will be called on by name and company name based on the order their hands are raised. [Operator Instructions] In the interest of time, I would like to ask the attendees to please ask no more than 2 questions. First, from Goldman Sachs, Takayama-san, please. [Operator Instructions] Daiki Takayama: This time, you emphasized the rate-limiting factor of supply, supply not catching up with the demand. Towards April to June quarter, what are you focused on to address the bottleneck? And what can you do to increase sales more? As for CapEx, when will CapEx start to make contribution? Is it in the second half of the year? What is the pace that you expect to increase supply with and as a result, sales? I believe the digital power mainly are performing strongly. You've also mentioned that automotive performance was also strong. Is there any supply constraints regarding automotive. But conversely, why is demand so strong from automotive segment or automotive segment? Hidetoshi Shibata: As for the capacity of Renesas itself, realistically, I believe we will be having a contribution -- contributory effect from the beginning of next year. So in a step-function way, we are not expecting increase in supply in a step-function way. Bottlenecks change constantly in a small way. What are we doing recently to address bottlenecks? We are looking at testers. Even when we receive wafers, since the number of units of tester is not sufficient, so wafer just lay idle. In some cases, we have placed orders for testers quite some time ago. But as you are aware of, overall, there is a shortage in general. So we would like to receive tester earlier and by greater number even by 1 unit. And as we continue these efforts, we expect bottleneck to be resolved and shipment to increase. If this is successful, then it could be an upside factor in Q2. On the other hand, some products -- concerning some products, as I discussed earlier, last year, on December 27, there was an earthquake in Taiwan, and there were also subsequent earthquakes, and there was also a blackout. And that resulted in a wafer being a bottleneck. Wafer side, we are making efforts to pull in. Depending on what the product is, the situation is different. But we want to pull in incrementally. We want to increase gradually. We are making a great effort in this, and we will continue to make these efforts. Gradually, we expect capacity to increase. As for suppliers, especially beyond -- Q3 and beyond, suppliers are already increasing supply as these materialize, then Q3 and beyond. In particular, regarding wafer, which I mentioned earlier, I believe that we can expect significant increase in supply from some time in Q2, at the earliest, supply begin to increase. If not, we expect wafer supply to increase from Q3. As for automotive segment, I did not mean to emphasize that the performance is extremely strong. It is stronger than we expected. Mainly, for one thing Gen4 R-Car, [ 40 ] nano MCU and Gen3 R-Car are also contributing. R-Car fluctuates from quarter-to-quarter as we discussed before, but the trend is a stronger trend. I have covered this last year as well. The environment surrounding automotive industry has changed and more so than we expected. I believe there is a tendency to continue to use previous generations products. As for 28-nano microcontrollers, we see steady growth. But in particular, because China is large, especially some customers in China, their production and sales are affecting our results. So there is some volatility in the short term. But overall, the trend is a smooth growth. Microcontroller, the older generation, newer generation in ARCA, older generation, newer generation, we are seeing ramping up of the new generation, not by a very large margin, but steady increase. And as for older generation, they are being used more longer than we expected. And I believe the combination of these resulted in stronger results. Daiki Takayama: I see. Second question is about price environment. I would like to understand better some non-Japanese players are commenting to the effect that there may be price increase. How do you see the situation? And what are the developments that you expect? Hidetoshi Shibata: That is a question that is difficult to address because of different expectations from investors and our customers. Raw material, transportation, as you know, costs are rising. There are also supply constraints. Memory price, as a result, is increasing. And when necessary, our competitors are also increasing their prices. That is the actual situation. Given this situation, it would be very difficult for us alone to not increase price. So at some point in time, by certain magnitude, by some magnitude, we may have to adjust our price. Operator: Next, BofA Securities, Hirakawa-san, please? Mikio Hirakawa: This is Hirakawa of BofA Securities. The first question is regarding gross margin for the second quarter, how we should think about that. As per Mr. Shinkai's presentation, we have the breakdown. But looking at that, what I struggle to understand was that sales is expected to be flat Q-on-Q. However, you're expecting 2% decrease. How should I think about that? How -- to what extent risks are incorporated? Is there any upside? If you could talk about those things, I would appreciate that. And also for power, gross margins, low mix deterioration is expected as per your presentation, but what is the contribution in terms of OP margin? That's my first question. Hidetoshi Shibata: I will ask Mr. Shinkai to respond to those questions. Shuhei Shinkai: Regarding gross margin decreasing by 2 percentage points. As for the breakdown, due to the production absorption, we expect a slight improvement, but because of the FX impact and the manufacturing cost increase, we expect the overall deterioration. As for the contribution and the breakdown, FX impact is 1/3. Manufacturing costs is about 2/3 in terms of the impact. As for the FX, second quarter, we expect the depreciation of the yen -- appreciation of the yen. So in terms of that FX, there is an upside based on our current view. As for the mix, there is the product mix. And also currency mix, that's also impacting the results. For the second quarter, the yen portion is expected to slightly increase. And the foreign currencies upside would decrease in turn. Therefore, the currency mix will also contribute to the deterioration. In terms of the product mix, we have the legacy power products. These are low gross margin products, and shipments of those products is expected to increase Q-on-Q, and this will impact the overall gross margin. As for the manufacturing costs, this accounts for about 2/3 of the overall impact. For the second quarter, there is a unique factor to the quarter. The utility cost, the energy costs, with higher temperatures, of course, utility costs will also increase. And the operating expense, when I talked about that, I mentioned this briefly, due to the merit increase, we also expect labor cost to increase. And the periodic repairs and maintenance, this will be done during the Golden Week holiday. And also in preparation for the capacity expansion, there will be some inspections done, so contributing to overall increase in costs. And as a result of the manufacturing cost increase and contributing to lower gross margin for the second quarter. Hidetoshi Shibata: If I may supplement, as Mr. Shinkai already gave the forecast for the second quarter, but generally speaking, as for the currency and product mix, simply, we expect fluctuations. Power for AI demand. We have low gross margin products to high gross margin products. There is a rather wide range of products with gross margin levels. And our customer -- in customer share is also expected to change drastically. So it's a bit difficult to forecast, but our intention is to have higher gross margin products and higher customer share. And if this starts to be realized, then if we have an increase in power for AI demand, this should not contribute to the lower gross margin. But for the time being, we expect some fluctuations. And generally speaking, as Shinkai already mentioned, manufacturing costs are expected to increase given the current crude oil situation. And according to the media reports, we should expect the impact in 6 months' time or so. So maybe looking at the second half, we should expect impact in terms of the energy costs. So generally speaking, we do not expect gross margin to continue to rise. So the key is how to manage the manufacturing cost increase, including the energy costs through such measures as improvement in mix. For example, for products for AI, by improving the mix, we can absorb, to an extent, the increase in manufacturing costs. So you should not expect this to have a steady increase. Shuhei Shinkai: And sorry, I forgot to answer another part of the question. In terms of the OP margin, we should expect a positive contribution, positive impact. Mikio Hirakawa: Another question. Maybe I misread. But on Page 9, the FX, JPY 156 to the dollar is the assumption, and the second quarter -- that's for the first quarter. So would that have any impact Q-on-Q? Sorry for the euro, in terms of the euro FX sensitivity, I don't see much impact. Would that have a much impact in terms of the JPY 1 fluctuation. That's rather a limited impact, correct? Shuhei Shinkai: Yes, the currency mix has a bigger impact, bigger yen. This is an expected increase in sales for Japanese customers contributing to that. Mikio Hirakawa: I see. I understand. And this relates to my first question. For the automotive business, you said that it's stronger than your expectation. But on the other hand, for the second half, demand for automotive is still uncertain as what we've heard from the peers. Given the macro environment with what you know so far, what is your expectation for the second half? What is your outlook? Hidetoshi Shibata: Well, it is uncertain for sure. I don't know how I should phrase this. But macro uncertainty affecting automobile consumption certainly exists, and that's a big factor to consider. If there are no such factors, we do not expect such a substantial increase, but depending on what platforms to be launched and other factors all included, we do expect an increase going forward to some extent. So outlook is rather bright. But the Middle East situation is affecting the crude oil prices by and large. And maybe this will result in sales of gasoline cars, hybrid or EV, so all factors that need to be considered. Having said that, as for sales for ourselves, as was shown during Shinkai's presentation, recently, we are seeing stronger results coming in compared to our expectation. So inventory, particularly channel inventory has to be built up. So adjustments, in that sense, have to be made, and that will give the necessary support to an extent. As for our sales outlook, relatively speaking, we have an optimistic view for our sales going forward. That is an honest assessment of where we are. Thank you. Operator: Next, from Daiwa Securities, Okawa-san, please. Junji Okawa: I'm Okawa from Daiwa Securities. I also have 2 questions. First, about SG&A, labor cost increase, R&D cost increase were mentioned. And this accounted for close to 2 percentage point increase. But second half onward, what is your outlook? And Q-on-Q, in terms of percentage, is there going to be an increase? Or is it going to be increasing value? If sales also increases, in terms of percentage, will the increase be more milder? How do you foresee the second half? Hidetoshi Shibata: Shinkai-san, please. Shuhei Shinkai: This time between Q1 and Q2, there were some timing issues of when expenses are booked in Q1 or Q2, and that accounts for 1 percentage point. Adjusting for that, in Q2, operating expense will be about JPY 100 billion or more. And therefore, in Q2, labor cost increase and seasonality factors are taken into account in the second half and this also depends on the foreign exchange rate, but every quarter, JPY 100 billion or so of operating expense is what we generally expect towards the second half of the year. Junji Okawa: I see. Second question is related to business concerning data center. You have decided to make a large capital expenditure. In comparison to 3 months ago, do you see -- do you have different outlook? Doubling growth in AI was your previous forecast. Does that remain unchanged? Intel announced a strong performance. Non-AI may also be an area to pay attention to. And including non AI area, what is your vision in the medium to long term? Hidetoshi Shibata: At least as far as -- until the end of this year is concerned, our outlook remains more or less unchanged. At least it is not deteriorating. And so it is not unchanged in a good sense. As for next year onward, I believe strong momentum will be maintained. Thus, as soon as possible, we would like to increase our internal capacity to capture that stronger momentum. As for non-AI, it's not glamorous, but certainly, it is increasing, growing, and we expect this growth to continue. It is true for power, but memory interface also is one of the driver for profit where we can enjoy the benefits. So we would also like to make sure that we capture that benefit. Overall, I think we are similar to our peers. In the near future, we expect a strong momentum. And because of that expectation, we will need to expand capacity. Towards next year, supplier partners from Taiwan that I've mentioned earlier, we would like to increase capacity further. We are discussing with them as such. And so we believe we will be able to secure necessary capacity. I expect strong growth in a step-function way in the third quarter and also next year. Junji Okawa: As a follow-up, do you have an outlook about share digital power memory interface? Do you expect any change in outlook in positive or negative sense? Hidetoshi Shibata: In memory, in the positive sense, we do not expect any change. Especially in Gen5 and beyond, we believe we are in a good position. We would like to maintain that good position. As for AI power, I have been discussing this on numerous occasions. We would like to maintain our share or increase share. But in the short term, there is going to be a large competition, so we should not become complacent. I believe that is the best way to put this. Thank you. Operator: Next, from Citigroup Securities, Fujiwara-san, please. Takero Fujiwara: This is Fujiwara from Citigroup Securities. I have 2 questions, please. First, related to automotive, earlier, Shibata-san said that automotive mix may change. The other day, in Europe, EVs are selling, increasing in volume. And due to the changes in the energy prices, EVs are now gaining traction, particularly the battery-powered EVs are rising. Generally speaking, battery cars and EVs, I believe, the semiconductors are used in large quantities. So for Renesas, the fact that EV is growing, what does it mean? But your company's exposure to EV is not that significant. But with the change in the mix for your company in the medium to long term, is it going to be a tailwind? Or is it going to be a headwind? That's my first question, please. Hidetoshi Shibata: In comparison to the peers, we do not consider it to be a tailwind. There are 2 factors to consider here. First, we have Power Discrete, but we do not sell this in large quantities. So SiC MOS companies that sell such products would be directly impacted more by EVs and BEVs in a positive way. That's the first thing. And the second thing, I believe, last year or the year before that, from that timing, in a continued manner, this is something we've talked about. As for our share of micro controllers, as a fact, in terms of EV, German competitor has higher share, and the situation is expected to continue for some time. As I've said before, of course, we are implementing certain measures, and we expect the results of those measures to be realized going forward. But in the short term, for the next quarter and the quarter before that, there are timing differentials. So with a shift to BEV, we do not expect any negative impact on our company alone, but in comparison to our peers, our growth rate would be muted. That's all. Thank you. Takero Fujiwara: This is my second question. Now you made a decision for large investments in capital expenditure, Naka, Saijo and Kofu. I have a question for Kofu factory. So far, we have not seen the introduction of the mass production phase. With this CapEx, I believe that this is mostly for digital power. Now you have a visibility to the start of operations at Kofu factory. And once the operation starts, I believe, the cost would also increase. So how should we interpret the P&L impact? Hidetoshi Shibata: The P&L impact will be explained by Shinkai. Shuhei Shinkai: Yes, we do have a visibility as to the operational start at Kofu. This is going to be 300 [ mm ]. What used to be 8 inches, products using 8 inches will run the lines. So the line change -- the running change is something customers do not readily accept, but we will expect a gradual shift, and we do have visibility now. Hidetoshi Shibata: As for the impact on P&L, Shinkai will explain. Shuhei Shinkai: With the investments that I've covered, the actual start of the production is expected to be FY 2028. And depreciation will start from the time of the start of the production. As for the actual depreciation amounts, the back end and the intermediate process investments are not yet determined. So the finalized amount will be determined after determining these other processes and investments. Takero Fujiwara: I believe the CapEx, JPY 94 billion, and you mentioned about 80% of that is for capacity expansion. Just to get a general idea what will be the allocation to each factory of this investment? Hidetoshi Shibata: Shinkai-san, please. Shuhei Shinkai: Capacity expansion is 80%. So that will be about JPY 77 billion in investments for capacity expansion. About half of that is for Kofu. Over 20% is for Naka, and around 15% is for Saijo. The remaining amount is for the back-end processes. Operator: Next, from Mizuho Securities. Yamamoto-san, please. Yoshitsugu Yamamoto: This is Yamamoto from Mizuho Securities. I also have 2 questions. In the second half, I have a question regarding automotive. Shibata-san said that the demand side, including energy cost increase and consumption were mentioned as concerns. But memory purchasing may be also a difficulty for how long inventory will last maybe concerns for Tier 1. In terms of procurement of raw materials, is there going to be impact in the second half of the year to 2027 in terms of impact on the production of automobiles? Do you have any concerns? Hidetoshi Shibata: Since last time, personally, my view has not changed so much. It is a concern, but it's not materializing. And is this going to be a large impact? I have a sense that it will not be a large impact. DRAM oftentimes is highlighted, but not only DRAMs. For example, PCBs on which devices will be mounted, but PCBs, for example, are in shortage. Because of short supply, it is not possible to produce. That is a possibility. But if I may repeat, many people are anticipating this, and they are taking preemptive measures. So I do not think that there will be too huge an impact. That is my take at the moment. Yoshitsugu Yamamoto: My second question is about price increase. About 5 years ago, I believe a surcharge mechanism was adopted. For the incremental cost, the price will be increased so that margin will not deteriorate for Renesas. I believe that type of price increase was implemented. But often times, American companies also say that because of higher wage price increase is on top of the increase in cost and gross margin as a result will be higher in comparison to before the price increase, but which approach would you be adopting? It may be difficult for you to discuss this, but to the extent possible, if you could share your thoughts on this. Hidetoshi Shibata: It is difficult to say on our part. We would like to do what is best for shareholders and customers what is reasonable for shareholders and customers in terms of pricing. As for surcharge method, it is difficult to implement this in reality in many respects. So we would like to have a more clear-cut way to adjust price. That is all. Yoshitsugu Yamamoto: Regarding automotive, you may have long-standing relations with your customers since the days of the former Renesas, you may not be able to increase price so aggressively, but acquired company's -- the business of formerly acquired company have the leeway to aggressively increase price more in IIBU. Can I have such expectation? Hidetoshi Shibata: Former Renesas and other businesses, we do not make such distinction anymore. In the short term, if we do something radical about price, of course, no customer would like to see that. We would like to be sincere. And I think we focused primarily on customers when we try to be sincere, but we would like to be sincere vis-a-vis customers as well as vis-a-vis our shareholders when we consider price. I hope that answers your question. Thank you very much. Operator: Next, Semiconportal, Tsuda-san please. Kenji Tsuda: This is Tsuda from Semiconportal. Regarding AI and data center applications, you mentioned the digital and power products as products for these applications. You have power and you also have a driver, you have analog, you have MCUs. So this digital power signal chain exists in the company. Are you referring to that? Or what specifically do you mean when you say digital power? Hidetoshi Shibata: In principle, basically, what we mean is using digital technology to manage and control. That's what we mean. Kenji Tsuda: So I think it's a strength of Renesas that you have everything covering the whole range. So are you going to sell in a bundled way right? Hidetoshi Shibata: So we have the control of using digital to control various devices and components. And also for designing such products, we also have the environment. This is what is unique characteristics for us. And in recent media reports, Finally, NVIDIA's strength, CUDA, is now highlighted in more occasions. Of course, those in the industry have been aware of this for quite some time. For our digital power as well, it's same kind of differentiation. That's that. For each individual device performance, of course, we work to further improve and enhance that. But more so, we focus on the use of these devices. That's where we find attractive in our solutions. We provide solutions that are attractive in the usage. Kenji Tsuda: I think 48-volt DC is currently selling. Hidetoshi Shibata: Yes, of course. We also are within the grid to core from grid to core, including GPU, we cover the whole range. We originally focused on core where devices actually operate, but then we've expanded gradually towards the grid, including the 48 volts. So we are still in the process of expanding towards the grid. Kenji Tsuda: I see. So 800 volts that is currently attracting attention. And you will eventually target that area of business as well? Hidetoshi Shibata: We already have solutions for that. Certain GPU manufacturer publication covers our solution. So we do have a full suite. But of course, we intend to further expand and innovate in terms of offering. So yes, your understanding is correct, that we will be pursuing these areas going forward. Operator: Thank you. It is now time to end the conference. We would like to end the Q&A session. But before we end the conference final remarks by Shibata-san, please. Hidetoshi Shibata: At the risk of repeating myself, due to macroeconomic factors mainly, there are uncertainties, uncertainties remain. But despite these uncertainties, we also have several structural drivers that are becoming more visible. And in the meantime, we would like to deliver as much upside as possible. And we will focus on execution. And if all goes well, we hope that we will have higher inventory next year and stronger expanded capacity to achieve further growth. I hope we will be able to realize that trajectory. And we would like to ask for your continuous support on Capital Market Day, which will be held in about 2 months' time, I don't expect any major news, but rather than providing simply an update, we would like to have a good Q&A session, a longer time for Q&A session. And thank you very much for joining us today. Operator: With that, we would like to end Renesas Electronics First Quarter 2026 Earnings Conference Call. Thank you very much for joining us today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
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