Thank you very much for coming to IIoT Growth Talk by Renesas Electronics. If you'd like to hear this session in English, please click the globe icon on the bottom and select English channel. In today's briefing session, we have our main speaker, Mr. Sailesh Chittipeddi, Executive Vice President and General Manager of IIoT and Infrastructure unit. Today's agenda. We will have 90 minutes in total, and the first 45 minutes is presentation and the latter half is Q&A session. The material that we are using today has been uploaded to the IR site of Renesas, and we intend to upload the video after this. Sailesh, please unmute and start your presentation. Thank you. Good morning, everyone, and welcome to the Industrial and IoT growth presentation with the focus on industrial automation and motor control. In the past Analyst Day events, we have provided in-depth view of the infrastructure and IoT business. This time, we would like to address the exciting opportunities we see in our industrial businesses which drive secular growth for us. While the industrial business is diversified, there are a few important trends, such as migration to the smart factory, also known as Industry 4.0, move towards sustainability, more standard products versus ASICs, and a move to brushless DC motors, which pivot to drive content growth and drive our expansion in this market. The industrial business has many segments. For example, industrial automation, building automation, smart homes, et cetera. Today, we're gonna focus primarily on industrial automation and motor control. There is some commonality in the products between the industrial automation and motor control applications, and we'll talk about that during the course of this presentation. Nonetheless, it's important to talk about these areas separately. Agenda slide. As we always begin with a recap of our IIBU growth and financials, then we'll do a deep dive into the industrial automation area, what we are doing to pivot for growth by combining analog and power with digital to drive content growth in this segment. We'll then address the emerging role of Wi-Fi connectivity in the industrial landscape, take a deep dive into the motor control area. I will then provide a snapshot of the robotics market and the drone markets, which are fast-growing and display our ability to combine industrial automation, motor control with analog and power. I will then talk to what we can expect from a long-term financial perspective for this area and summarize. The presentation will be a bit longer than normal, so I apologize in advance for its length and also its depth into some of the technical details that are important to understand to get a deep understanding of these areas. Next slide, please. We begin with an update of the financials we presented at our previous Analyst Day. We have included fourth quarter estimates to set the appropriate context. In this chart, you see the growth in the IoT area between 2020 and 2021 of 30%. For the infrastructure area business, we see a growth of close to 18%. In the industrial segment, we see a growth of 15%. None of these results include ex-Dialog numbers. While it's easy to write off the growth in the IIoT and industrial business as a rising tide lifts all ships, I would urge a bit of caution with that viewpoint. We are extremely focused in several of the market areas and not a broad-based point product provider like several of our competitors. With that in mind, let me highlight some of the key drivers. The increase in the infrastructure business, for example, is driven by data center-focused growth. The three product lines fueling the growth are infrastructure power, timing, and the memory interface business, all of which have future growth and very strong potential. On the industrial side, both our ASIC businesses as well as our MPU businesses have shown significant strength as we have strengthened our portfolio. On the IoT side, the growth rates between 2020 and 2021 are driven by our core microcontroller business, which share gains in both the 16-bit and 32-bit cores based on our analysis of the most recent Gartner reports. For MCUs, we will report the specific share gain information at upcoming analyst events. We have also seen strength in consumer power, consumer products, such as notebooks and laptops. If you dig a little deeper and move to the right of this chart, you will see the industrial automation and motor control segments of our business are growing at a very healthy rate of 20% and 30% respectively between 2020 and 2021. The growth in the industrial automation and motor control segments is driven principally by three factors. The COVID-19 has increased end demand as customers have directed more of their disposable income towards home appliances and other upgrades. This is because there's been less money spent, as you'd imagine, towards travel and external other spending that would be done during a normal environment. The second factor is industries upgrading their capabilities to a more modernized network and control solutions. Number three is share gains for our microprocessor and microcontroller products based on recent analysis of Gartner and other industry reports. Two factors I'd like to highlight. The demand continues to outstrip supply in our horizon of visibility. Second, from a supply perspective, the foundries and internal factories continue to be fully loaded. This, coupled with extended lead times for packaging substrates and lead frames, will continue to be a challenge at least through the early part of 2022. While in general, most manufacturers are dealing with COVID-19 related outbreaks at their factories better than in the past, every new variant and outbreak poses a risk on an already stretched supply chain. Moving to the next slide. At the previous Analyst Day, we had shared the financial results of the IIoT and industrial business till the third quarter. Based on the midpoint of our financial guidance, I would like to share our numbers for growth for the overall year based on our estimation. The Industrial and IoT numbers show a promising growth of 23% in revenue CAGR between 2019 and 2021. We see a 31% CAGR in gross margins between 2019 and 2021, and an outstanding improvement in our operating leverage with an operating income growth of 62% between 2019 and 2021, and 38% in EBITDA growth over the same period. Let me reiterate again that the top line growth was achieved both due to the strength of the underlying market demand as well as because of share gains in microcontrollers, microprocessors, power, timing, and memory interface areas specifically. If you discount the end of life associated with previously announced factory closures, our growth rates for these businesses would be even higher. It is interesting to note that the design and momentum of our 32-bit Arm-based microcontrollers has far exceeded our initial expectations, and we will continue to build on those strengths. I will talk a bit more about our competitive positioning in the MCU market later in the presentation during the motor control segment. The improvement that you see in our gross margins was a result of three factors. Number 1, better utilization of our internal factories. Number 2, product mix. Number 3, an improved focus on yield improvement and cost reductions. The flow through improvements in operating income resulted from much more focused R&D investments in areas providing higher returns and a realization of synergy savings from the ex-Intersil and ex-IDT acquisitions. As you can imagine, we're pleased with our progress to date, and we expect to sustain these gains into the future. Renesas has an unparalleled array of customers in industrial automation, whether it's in the Americas, Europe, APAC or Japan. We have a name recognition that one would expect from a company our size and scale, whether it's Rockwell Automation, Emerson, Siemens, Schneider, Inovance, Delta, Mitsubishi or Yaskawa or FANUC. We have an enormous base of customers that's enviable. We've added only a select list of customers for industrial automation in the space on this page, as it's unlikely that we could fit all the customers we have. I'd like to emphasize two important takeaways from a customer angle that is important to understand. A, we observe that the emerging customers in the APAC region tend to adopt newer technologies and ramp faster to production than regions with traditional strength in the industrial markets such as EU and the Americas. Number two, the other trend we observe is an increased willingness on part of certain customers to transition from the more traditional ASICs to MPU-based solutions. While we see the move from ASICs to MPUs in its early cycle, we are also seeing traction for ASICs with our established customers in these segments. Renesas always has had a rich heritage of being strong in ASICs and SoCs. However, the newer ASIC wins, unlike in the years past, are at a much better margin structure and are driven by our overall strategy to reuse IP as opposed to seizing every point solution opportunity that comes along. This, of course, as you can see, is reflected in our improved financial performance. The industrial customers have some of the longest life cycles and very strict reliability requirements, second only to automotive. This plays to our strengths. Outside of the infrastructure segment, the industrial segment relies on the most advanced substrates when it comes to packaging technology. As I mentioned earlier, the substrate lead times are in some instances stretching as long as 52 weeks, making restoring demand and supply in the near term quite challenging. From a customer perspective, we continue to be in a situation with demand in excess of supply, and we continue to see low inventories in the channel. Let me now do a deep dive into the industrial automation area, and here please bear with me as this might be a level of technical detail that some may only have marginal interest in, but it'll be helpful to set the context for the discussion that comes later. This is the industrial automation pyramid, which enables the smart factory, referred to more commonly as Industry 4.0. Think of it as three layers of the pyramid. The analysis layer at the very top, which handles most of the computational functions. Although intelligence is moving more to the edge, the heavy-duty computing is still continues to be handled in the cloud. This is referred to as the analysis layer, right? Moving one layer closer to the factory floor, you have the factory automation systems and the process factory monitoring and control systems, which are the system monitoring and control systems that bound the control layer at the top and at the bottom. In between, you have the system industrial network, which could be either proprietary or it could be standard. Increasingly, there are standards such as EtherCAT, EtherNet/IP, PROFIBUS, or PROFINET more recently. This is referred to, by the way, as a control layer, right? The support of the software in these protocol stacks makes the delivery of integrated hardware and software platforms as vital to the success in this marketplace. Traditionally, this wasn't the case. The semiconductor companies just delivered the ASIC functionality and left the software integration aspects to the customers. That is changing. Moving one layer down to the system monitoring and controls link level, which connects to, at the very bottom, the smart sensors and the actuators, that is handled via what are called as field networks. There you'll hear terminology such as IO-Link, Single Pair Ethernet, HART, or AS-i. As you can tell, moving to the right of this chart, whether it's the control layer or the access layer, Renesas products, be they digital, analog, power, timing, or standard products, enable the move to this highly integrated smart factories of the future. It is clear from a longer-term perspective that with the advent of 5G and Wi-Fi 6 and 6E, wireless connectivity technologies will play an increasingly important role at the edge or the endpoint. They're not gonna play a dominant role at the control layer because that's different. At the access layer you will see Wi-Fi 6, Wi-Fi 6E and 5G technologies play an important role. As can be expected, looking at this pyramid, right? From a unit sales and revenue perspective, the growth in the IA market would be driven by the access layer products. There's many more of them, obviously, and that's where MCUs play a much more important role. At the control layer, on the other hand, the MPUs play a much more major role. Let me dive one level deeper into the control and communications layer. As mentioned earlier, there are a variety of standard and proprietary communications protocol used in the industry, right? Between the remote inputs, local power communications, and gateway down to the access layer. Here, Renesas' MPU products as well as high-end MCUs and interface devices, referred to as R-IN in this chart, are complemented very nicely by solutions from the former Dialog division, with sensors for analog front-end ASICs as well as communication ASICs. Here's where I'd like to remind you, while Dialog has been primarily viewed as a power and connectivity company, its acquisitions of Creative Chips and Adesto Technologies and S3 Semiconductors have key industrial IP, where we're leveraging the combined portfolios of our recent acquisitions to gain content in this market. We expect to leverage Dialog skills to augment areas such as building automation and Ethernet-based connectivity. The control layer requires much more computational capabilities than the access layer and need, as I mentioned before, a higher level of software integration. Several of these standards are emerging, and developing capabilities to integrate the stack is a key element of being successful in this segment. Here, Renesas' close partnership with large industrial customers is extremely helpful. Moving to one layer below, which is the access layer, this is where the sensors and actuators reside. Renesas has the right solutions to address not only the communications pathway, but also whether it's the IO-Link Master, the IO-Link device on the sensor side, or seamlessly combine the transceivers and actuators from the former Dialog with the Renesas portfolio to grow content. You can see on the right-hand side, we've listed the list of products from Dialog as well as from Renesas, which we can put together seamlessly to handle the sensor and the actuator side. One additional point, we're also one of the few companies that on the very edge where you see sensors and actuators that can combine a variety of sensor solutions, be they air quality, be they humidity, position, flow, or the most recently announced thermopile sensors. Again, this is an area where we expect to see quite a bit of growth. On the left-hand side of this chart, you see the potential of growth of just the IO-Link Master and the IO-Link device side of the business in terms of units. Hopefully, it positions this as a long-term growth prospects beyond the 2022, 2023, 2024 timeframe, because the industrial business takes a long time to come up to peak production. The slides covered to this point should provide good context on the breadth of our portfolio and content growth at a product level, right? To address the needs of Industry 4.0. Let's take a look at our products till 2020. On the industrial automation business, as highlighted earlier, we have both digital products as well as analog products, both on the control system side as well as on the terminal side. Right? Our breakdown of revenue in 2020 again was led by MCUs and ASICs contributing to over 75% of the revenue. We also have a rich portfolio of analog, power, and interface products as can be seen. In addition, our standard products, which we have not spent a lot of time on today, include things like op-amps, memory products, timing products, power management devices, delta-sigma modulators that help us drive content expansion. As a great example, what I'd like to provide you is our newly launched PMICs that combine with our RZ-based microprocessor units. What's the advantage? The advantage is the customer doesn't have to go figure out how to combine a PMIC with the microprocessor. We've done all the hard work of integrating the system and providing a complete solution to the customer by enabling this PMIC to work with our RZ device. They don't have to worry about the rails, what rails carry what power or so on. This is a hugely differentiated factor and allows us to be a one-stop shop for our customers. However, what I'll highlight is, even though the revenue is largely digital-focused today, over time, we're gonna pivot more to the MPUs taking on ASIC content, and we're gonna increase the analog and power and other standard product content together with the connectivity content from Celeno to drive market expansion and growth. Over time, expect the balance of this chart to change a little more richly towards MPUs, analog products and other devices. It is worth mentioning that the MCU part of the industrial automation pie chart is almost entirely today driven by motor controller-based MCUs. As I mentioned earlier, I'll focus on the MCU portion and some of the exciting developments there later during my presentation. Since the industrial automation area is heavily driven by MPUs, I wanna take a moment at ASICs for the control layer. Let me spend a bit of time talking about a competitive position for this market, right? Our MPUs are based on 64-bit Arm-based cores and operate using a Linux environment. We currently have the number 2 market share in network and real-time control. If you look at it, the advantages of our products certainly are real-time CPU performance, security, connectivity, scalability, and functional safety. You hear the word functional safety here. It is becoming much more important in industrial networks. Originally, functional safety originated in the automotive environment, but in the industrial environment, it is taking on much more importance, and the standards for functional safety are a little bit different, of course. Next, our general purpose MPUs with the RZ/G and the RZ/A series have the number 1 share in the 64-bit Linux market. In addition to the strengths that I described before on the real-time CPU security, connectivity, and scalability, the other advantage we get with our products are they offer a highly efficient AI accelerator as well as all-in-one software packages for vision AI. Our MPUs or our AI MPUs are also focused on providing advanced vision features at the lowest power. This, in a nutshell, explains our position in the MPU market, where the RZ/T and the RZ/N series are key products for the control layer. Okay? The general purpose products go to a variety of different applications, and the RZ/V products are primarily focused on vision market as of today. Okay? Let me give you an example now of driving content growth in industrial automation, all the way from the control system to the terminal. Whether it's power line communications, which is PLC, whether it's human machine interface, HMI, or whether it's computer numerical control, CNC, or closer to the terminal, whether it's the remote IOs, the AC drives, or the AC servos, our comprehensive solutions are very well suited to meet the market requirements. What we are doing is combining our MCUs and MPUs with analog products to drive more growth and more profit. As you can tell, what you'll find is by combining the digital with the analog for the PLC, servo, and multi-axis assembly robots as examples, we can grow in the PLC case from $20-$30 of content by combining our portfolio. On the servo side, we can go from $6-$15 or a 2.3x multiplicative factor in the AC servo side of the business. On the multi-axis robots, we can go from $10-$25. Clearly, you can tell as to our excitement around this market by combining a rich portfolio of MCU with analog power and other standard products. This was something that we would not have been able to do as recently as five years ago, but are now in a unique position to tap into the market to take advantage of this scenario. Let me now move to the Gartner estimates of the industrial automation segment is expected at about 11% growth between 2020 and 2025. Please remember, the industrial market will continue to grow at a healthy clip for us because of content gains well beyond this regime. Because between 2022 and 2025 is a fairly short horizon to look for industrial market growth. Moving to the major market trends that are driving growth at a macro level, there's a few things. First is the reshoring of production due to geopolitical tensions, as well as investment in new industries to address sustainability challenges. If you talk to the executives at any of the major industrial firms, they will tell you one of the key challenges is sustainability. That means driving power and efficiency far better than we've ever done in the past, moving to cloud-native applications, having intelligence move to the edge, which is already happening because the advent of AI moving from core to the edge of the network, and functional safety, all of which drive growth for Renesas in the IA segment. I wanna spend a little bit of time talking about wireless connectivity next. The newest addition to our portfolio, which is wireless connectivity, is obtained via our acquisition of Celeno. I'm excited to update you on the developments there. Previously, standard Wi-Fi was not adopted in the factory floor because the frequency interference effects of what happened there. This led to a variety of proprietary protocol adoption. However, it is expected that with the change, with increased adoption of Wi-Fi 6 and Wi-Fi 6E, an opening up of the 6 GHz frequency band, in addition to the more traditional 2.4 GHz and 5 GHz that we all use, that it'll get increased adoption in this marketplace. Together with 5G deployment in the cellular area, Wi-Fi 6 and Wi-Fi 6E offers the potential to be one of the technologies that can open up wireless connectivity in the factory floor and offer seamless connectivity to the cloud. What are the key features, right? The key features in Wi-Fi 6 are really massive MIMO, meaning connecting far more devices than you could previously. Scheduling, target, and wait times, so you can schedule a factory, and then you can target it, and you can wait. The extended range in the factory floor. In addition, there are technical features, such as the availability of 6 GHz that I mentioned earlier. 1024 QAM or Quadrature Amplitude Modulation. Spatial reuse of the uplink and downlink technologies, which allows radio units to transmit data simultaneously to multiple stations, right? This allows you to get inputs from multiple different sensors located across the factory floor and send it to the same radio unit. In addition, there's a technical capability developed by Celeno called Wi-Fi Doppler Imaging. What is this Doppler Imaging? It can enable one to localize position of objects using Wi-Fi, a single Wi-Fi access point. What can it be used for? It can be used for things like directing airflow based on where the people are located in a room to things like object tracking on the factory floor. These are the kinds of things that will provide a strong foothold as Wi-Fi 6 and Wi-Fi 6E gets embedded in the industrial environment. The primary benefit, moving to one level above, which results from the access layer, are a much higher network capacity, signal reliability, lower latency and wait time, so you don't have to wait as much time for getting the information, and most importantly, mitigating crowded networks. This means that over time, the use of Wi-Fi 6 and 6E will increase in addition to other wired standards at the edge of the access layer. We do not expect Wi-Fi 6 or 6E, for obvious reasons, to play a major role in the control layer. How do we put all of this that I've told you into a growth story for industrial automation, right? Putting all this together, as I mentioned earlier, SAM is gonna grow by about 11% based on Gartner's estimation. In our case, the triggers for market share are the design and acceleration of NPUs, MCUs 32-bit design and conversion, and the analog products, be they winning combinations or more complete system solutions. What we expect to happen for us as a result of our content gain strategy, we expect our serviceable overall market will grow faster than SAM at 14% with including end-of-life products and 18% without the end-of-life ASICs associated with shutdown of our EOL legacy products. One thing I'll mention, we expect the headwinds associated with EOL to be largely behind us by the end of calendar year 2022. The fact that our SOM growth exceeds the SAM growth is an encouraging signpost for our content expansion strategy. To provide a bit more color on the analysis, a lot of this growth is occurring in the access layer and is driven by the MCU product line by nearly a 7% growth between 2020 and 2025. Let me now change gears and move to the motor control side, which spans both the IoT as well as the Industrial segment. However, I'm gonna focus on motor control today, and the focus there is primarily on the Industrial segment and not on the IoT side. Let me begin, as I did before, with our customer base. Irrespective of geography, the motor control area is one where we have an enviable base of customers. Whether it's power tools, electric motors, machine tools, or the range of applications that motor controls go into, our products have the advantage of years of engineering know-how to support customers in this marketplace. Whether it's WEG in Brazil, Grundfos in Europe, Hitachi in Japan, or the range of other customers, over the years with our microcontrollers, especially our inverter-based products, we have developed deep understanding of the market requirements. Even though I've listed Nidec here in the Americas, the division that we deal with is Emerson Electric, which was acquired by Nidec, which is the reason why I've shown Nidec as being in the U.S. Additionally, we also deal with Nidec in Japan, but I just wanted to show you the depth of relationships we have globally. As you can tell from the chart, whether it's the Americas, Europe, APAC or Japan, we have a strong base of key customers to drive our innovation engine. The major trends we see from our customer base is twofold. Move towards brushless DC motors because of electrification and focus on sustainability, driving improved motor efficiencies. As with the IA area, supply continues to be constrained in this market due to limited front-end supply. Although the packaging technology that is used in motor controllers is typically not as advanced as you would see on the IA controller side of the business. In the composition of the typical motor control system are gears, motors, and encoders. Those are the three major components of a motor system. The motor types that are primarily used are BLDC motors, which are used for air conditioners and refrigerators, AC servo motors, which are used for industrial automation, fan motors for the PC and server areas, and stepping motors for printers and cameras. What you'll find, the move from AC motors to BLDC motors and efficiency improvement are a big trend that we're capitalizing on, as I'll highlight later in the presentation when I address the motor controller driver market. I would like to provide an example of how we're combining our digital, analog and power in the bottom half of this slide. If you look at the bottom half, the blue shows our digital portion of a BLDC motor. The light blue or greenish color represents the analog portion, and you can see a 3x-5x improvement in the content growth for this market. Moving to the next slide. Our market-leading strength in motor control historically has been due to our microcontroller products with proprietary cores, be they the RL78 or the 32-bit RX solutions. We have now strengthened our portfolio with 32-bit Arm-based RA controllers. At the extreme high end of this chart, the 600 MHz and greater, we have our low end of the RZ/T MPU family. The range of applications we support start with ceiling fans, mixers, and grinders on the very low end, to home appliances on the mid-range, to the very high end, to things like robotics, robot arms and so on. These, this is a differentiator for us. Let me now move to our competitiveness on the MCU front. This is a chart which shows our competitors' positions and when they introduced various products. If you recall, between 2010 and 2018, Renesas lagged some of our leading competitors in the Arm ecosystem. We have worked aggressively to address these gaps, both from a hardware as well as software with our flexible software package or FSP approach. Let me now highlight how we've caught up with our Arm MCU portfolio by comparing where we were relative to the leading competitor. As is seen, the competitor has had focused on the Arm family, starting on the far left, almost as far back as 2010, with products to address the very low end and the very high end, and had closed a lot of the portfolio by 2019. Let's move forward to 2019. We came in in 2018 and started with our RA2 and our RA4 and our RA6 families. Those cover the mainstream and some of the low end and the low power consumption devices. By 2020, we had a full suite of products covering the entire range from the low power consumption to mainstream to high performance, right? The competitor is obviously not standing still, but I'm pleased to report as we exit the year, we will have caught up. Without divulging too much about our RA family, we are in a position to either be on par or ahead of our competitor by early next year with the latest Arm Core products, which Arm is introducing into the marketplace. So it's very likely that we will be one of the first customers with the most advanced Arm Core in the marketplace. We do not expect our competitors to be standing still, but we have worked aggressively to address a lot of the gaps in the market. As you will see in the upcoming Analyst Day presentations, we will have gained. It will show us as having gained share in both the 16-bit as well as the 32-bit MCU market. Next slide. In the motor controller area, whether it's specifically for industrial equipment or for home appliances or for air conditioning, with 24% share on industrial equipment and 29% for home appliances, we hold a dominant share in the marketplace. If we expand the market analysis to include all motor control applications, we estimate our market position to be in excess of about 20%. I'd like to remind you that of the motor control market, 55% of it is because of MCUs. The strength that we have in this marketplace is leading inverter technology, scalability, functionality, and low power, which results in high performance, system cost reduction, and time to market improvements for our customers. Our motor driver technology, which is the analog and the mixed signal portion, has its origins in the hard drive motor control business, with the teams having tremendous strength in design and algorithms. These, for example, go into hard drives from Toshiba and the like. As the HDD market over time continues to decline, we have repurposed the capabilities of this engineering talent towards brushless DC motors, which offer much more growth prospects for us at the much more stable business over a longer period of time. Our portfolio spans a wide domain from pre-driver analog front ends all the way to the 3-phase motor controller driver SIPs. With the suite of products that we're introducing over the next 12 to 18 to 24 months, we think we will be in a very competitive position to serve the entire voltage range from 30 volts to 110 volts. Click on the next slide, please. We've covered the entire portfolio and the entire market motor driver ASSP. If you move to the design-in opportunities, you see a 9x growth in our opportunity funnel. Our strengths in this market arise from capabilities in the MCU and analog IP, but more importantly, we save on the bill of materials. How do we save it? We get rid of the hall sensor. That for the customer is hugely important. We're offering a sensor-less technology that drives a lower bill of materials. That's the advantage of using our motor driver ASSPs. Moving to the next slide, we turn our attention to industrial analog and power market. Here we have a full array of products from LDOs to DC DC regulators, and I've covered this. We've covered the range from 5 V to 1,000 V. We're addressing a $3 billion SAM opportunity. Thus far, if you move further to the right, you will see a 7x increase in our opportunity funnel. All this I wanna tell you was achieved in a matter of 24 months. We're seeing a very high level of customer engagement in this market. The nice feature of this market is we're already engaged with the customers with the MCU. All we're doing is selling more content into them with both the motor driver as well as the analog and power products in this portfolio. Let's pull the whole story together. Moving to the next slide. If you look at our motor control business revenue in 2020, the MCUs represent roughly 88% of the revenue. As I mentioned earlier, there's an overlap between industrial automation and the motor controller segment. The IA portion of the motor control, as you can look at the bottom of the chart, is about 27% of the revenue. Motor control revenue is from the IA side of the business. Looked at it differently, 27% of IA is motor control, 24% of which is MCUs, 45% is analog, and 100% of our MPU business in motor control overlaps with IA. The end products span the full suite of applications, right? Whether it's IA, servo, inverter, robots, refrigerators and so on. Focusing solely on the end products, 55% of the end product revenue on the motor controller side originate because of our industrial automation. Our customer reach allows us to leverage the full portfolio of acquired companies, be it ex-Intersil, be it Renesas, be it IDT for timing, or ex-Dialog for mixed signal to drive content expansion of our business. Over time, here again, we expect the pie chart on the right to switch to a much more better balance between the MCU digital products, analog power motor driver, and additionally what we call the GreenPAK and HV PAK solutions from the former Dialog's Silego business. Moving to the next slide. If you look at the motor control business between 2020 and 2025, the triggers for a market share gain are the analog products, rolling faster products, rollout with better performance, and a full lineup of Arm MCUs, 32-bit MCUs with a strong design and conversion. We expect a SOM growth in excess of SAM growth of close to 18%. The SOM for other products largely keeps pace with the more market growth. I'm just gonna highlight very quickly two examples in the following slides that show that even though the SAM may seem unexciting, in the 2023-2025 timeframe, we expect robotics and drones to be a major area. In the robotics area, we begin by combining our IA motor control analog power and sensing technologies together with other capabilities that we have in the marketplace. As you can tell, this represents just by 2023 a $370 million SAM opportunity for us. We expect robotics to be an important aspect of growth as we move forward. Moving to the next slide, I'll similarly highlight the drones as being another area which is very nascent today, but also has an important role to play in industrial and delivery services. Delivery services and drones are still in the very early phase of adoption, and whether it's fixed-wing, rotary, or hybrid, we have several products selling into the main subsystems in these areas. I just wanted to provide two highlights in robotics and drones to provide you some context as to how we think of the market and emerging areas where we can leapfrog some of our competitors by providing more complete solution. I began by talking about financials. Let me also end by talking about the financial outlook for the business. The new model is one we're well on the path of achieving. Our previous model was to grow faster than SAM, achieve a gross margin of 55%-60%, and an operating margin of 25%-30%. In the new model, we expect to far exceed SAM, and you can see why we feel confident in our model. We expect a gross margin of 60% and an operating margin of somewhere between 30%-35%. This is something that is, we believe, an achievable goal. Unlike years past, which relied on the ASIC business, we're now far better positioned with higher margin ASICs as well as MPUs and analog products to drive and achieve our new model. To summarize, industrial automation presents a secular growth opportunity for IIBU. Our financial business continues to be strong and shows strong improvement. Our combination of digital with analog power and connectivity allows for growth in excess of the market. The motor control focus on industrial market is gonna serve as a driver for growth. Robotics and drones are just two examples of combining IA motor control as well as analog power and sensing. Our long-term financial model continues to be extremely strong. Thank you for your time. Thank you very much. We would like to open the floor for questions. Before that, I would like to give you housekeeping about how to ask questions. Those of you with questions, please press on the Raise Hand button. We will be calling your company name and your name, and you will be enabled to unmute. Please unmute your microphone and ask your question. Due to the constraint in time, we ask you to limit the questions to two per person. We would like to go into the question now. Those of you with questions, please raise your hand. The first question will be from Citigroup Securities, Mr. Fujiwara. Please unmute and ask your question. Thank you very much. I am from Citigroup Securities. My name is Fujiwara. Can you hear me? Yes, we can hear you. I have two questions for you. The first question, automation. Wi-Fi 6, Wi-Fi 6 Edge. You said that you would be able to utilize that in the future. In terms of the connectivity, local 5G is also talked about. I would like to confirm. Wi-Fi 6, 6E, and local 5G. Will it be competing with each other? Another is that as Renesas, the local 5G and Wi-Fi 6, you would be able to make proposals about the product to your customers? That's my first question. Okay. Thank you for your question. Let me begin by talking about Wi-Fi 6, if you want to go to this slide. The Wi-Fi 6 and 6E is in its early innings when it comes to the industrial area. As I said before, during my presentation, it represents a very good opportunity for us. The reason primarily is this is the first technology where the interference effects are a lot less than in earlier technologies, which used 2.4 GHz and 5 GHz. Do we have a product? The answer is yes. As soon as we close the Celeno transaction, we will have products that are dedicated to address this market needs, and we have targeted customers to go after this particular market. We're very confident that this will get foothold, especially as I mentioned earlier, in the access layer, not in the control layer, but in the access layer and in the edge where there's flow of information between multiple sensors to the access point. So think about it that way. In an industrial environment which is very noisy by way of frequencies, it has features that are differentiating and very important. The second part of your question was really will 5G and 6G Edge compete? The answer is no. They will coexist. Although there is debate as to how much foothold 5G will get on the factory floor, it is very clear based on all studies that we've looked at, that these two technologies will be complementary. You would expect the 5G to get to the access point and the sixth edge to connect to the devices. Think about it as a seamless connectivity between the access point to the sensor network, which is something this technology enables. Think about it that way. The answer is yes. Celeno has access point solutions. It also has edge-based solutions for IoT. Now Renesas can offer a complete suite of products, which it could not do before. Thank you so much. I understood very well. My second question related to motor control. In the area of motor control, industrial equipment and home appliances, I understand that you're very strong. You talked about that in your presentation. In order to grow your share, what kind of application will be growing? You are strong in industrial equipment and home appliances. Do you think they would be the core for the growth, or would there be another growth from other applications? Could you mention about that? Yes. I did touch on two applications, and there are others that I'm hoping I'll highlight, save something for a future analyst day. Certainly from a motor control perspective, there are a few things that are driving growth. One is the amount of applications that are needed are expanding from the typical AC motor type situation to more electrification driving based growth opportunities. In addition, when you think about the two examples I gave, robotics and drones, those are kinda sample examples of what we can think. You can think about other examples like 3D printing and so on, that will assume more importance as a function of time. We're also in other applications that move more towards, for example, brushless DC motor technology is being increasingly used for things that it wasn't used for before, where it replaces AC motors. An example being lawnmowers, right? If you've seen some of the technology that is being adopted at the home appliance level. Those are things that are moving much more. For us, if we take advantage of some of the capabilities that we're offering with our RA product, we should be able to grow share in some of these markets that before we were not necessarily focused on or could take advantage of. Now with the Arm ecosystem and with our ecosystem partner strategy that we've developed, we're going after more verticals than we did in the past. Think about it as with the Arm ecosystem, we have a lot of ecosystem partners that are going after selected applications that before with our proprietary core, Renesas would have to go and attack on its own. I hope that explains what I'm trying to convey. Yes. Thank you very much. That will be all from my side. Thank you very much. I'm Mr. Hirakawa. I'd like to ask you some question. This is the first question.[crosstalk] You talked about increasing the share as well as the size of the market, which was very easy to understand. You want to be more sure about increasing the share and the industrial and the motor. You talked about the 7% share and most recently, was that 5% which is growing to some percent? If there is such a movement in the share, then I would like to know those facts. That's the first question. Okay, the 7% growth. If you look at the table, and I think our team will be able to give you the exact breakout by market segment on what's driving our SoM expansion. But I've said 7% increase in SoM between 2020 and 2025 on the MCU side of the business. And that is pretty much based on our design-in funnel that we see today. It's based on our data, right? Because it takes a little bit of time for design wins to convert into revenue, right? Sure. That means that we can expect that, yeah, that 10% target in the motors and 8% target industrials, you're pretty sure because you have got design-in. Is that correct? Correct. Correct. Yeah. Thank you very much. This is my second question. Thank you. My second question. Earlier, there was a mention about the local 5G and Wi-Fi. You have the Wi-Fi and the Bluetooth assets. Another connectivity with respect to Celeno, the use of Celeno, what kind of development do you expect? This is my second question. Okay. With Celeno, there's two things that we will push towards, right? We obviously have. There's actually more than two things, but let me highlight a couple of things. One is the Wi-Fi 6 and the Wi-Fi 6 Edge access point solutions, right? Which we never had before with the Dialog acquisition. Dialog was primarily focused on Wi-Fi 4 or the 2.4 GHz frequency range. With Celeno, we have both Wi-Fi 5 and Wi-Fi 6 solutions, as well as on the edge side of it, Wi-Fi 6 Edge solutions or the client solutions. We're also, as a part of the development cycle, will be working or developing Wi-Fi 7, which is the next major milestone for this particular ecosystem. These technologies will have use in the industrial environment and add to the portfolio that we had with Dialog, which is primarily focused on low power connectivity. In the industrial environment, you generally don't need that low of power. It is much more about accuracy of signals and how good you can pick up signals from the client to the access point without interference. That is an important element of what we will be doing. In terms of 5G, it's too early to discuss what we're doing in that area. Please stay tuned. We could have something interesting over the next few years. Thank you very much. Thank you very much. We would like to move on to the next question from SBI Securities. Mr. Izumi, your question please. Please unmute and pose your question. Thank you very much. This is Izumi from SBI. On page 14,[crosstalk] industrial automation, main market is control system side and terminal side. There are two major portions. Going forward, if we look at the breakdown of the revenue, is it control systems which is bigger or is it terminal side which is bigger? I would like to have an image of that. And going forward, the growth potential and the share gaining potential, which has bigger potential? I think control system is CNC PLC. I believe you have higher share, but Rockwell and Siemens. I don't think that you would be able to go into their market. Probably terminal is the area of growth, is what I imagine. Rockwell and Siemens. If they are coming in, then I would like to know about that. If you could talk about the growth potential for both separately. Yes. Thank you for your question. You're absolutely right. I mean, in terms of content growth, I think I spoke about this very briefly during my presentation. The growth, obviously, if you go to the pyramid, right, that we had earlier on in the presentation, you can think of it as a scale of the market proxy, as a proxy for the scale of the market. You wanna go to the pyramid a couple of slides earlier? Back. Back. You'll actually see that most of the device sale right occurs at the bottom half. The access layer is the one where you'll have most of the unit growth, if you will. Assuming that the unit growth is gonna increase with the number of sensors and connections to the remote IOs, to the PLCs or the gateway, from a content perspective, that's where you should see most of the content growth, right? That is reflected in our revenue numbers as well, which show MCU as being a very big component, right? When you move to the control layer, on the other hand, the MPUs, the software, the stacking becomes much more important. There, we have to work much more collaboratively with the Siemens of the world because they own a lot of the IP at the factory automation level, right? We can just provide the system industrial network aspect of it, but we are definitely not gonna enter into the factory automation area or the process control area. We're gonna enable them with everything between the system industrial network and the system monitoring and control. Yes, good question. We will absolutely see more growth in the access layer than you would on the control side. Although, you know, from a margin perspective, both will be very. Control layer should be very healthy, right? Because obviously we're adding software content, so there should be some value provided by the customer for it. Hope that answers your question. Yes. Understood very well. Thank you very much. The terminal side, the access layer, will have higher potential? Yes. That's what I have understood. Correct. My second question is industrial automation. Embedded systems, do you think that the importance will increase? We think simply about factory automation. Outside of that, there are various detailed embedded solutions which we don't have visibility to. If you could, give us your take on that area, I would appreciate it. Yes. It's again, you know, look, in that area of factory automation, yes, you're absolutely right. There are several things that are starting to play a role when it comes to embedded systems, right? In addition to just the CPU aspect of it, which I alluded to, there's another aspect in embedded systems that's equally important in factory automation, which is the role of AI and what it plays in that environment, right? I didn't talk a whole lot about it. Over time, that is gonna become far more important. The embedding of intelligence through a neural processing unit and a CPU is gonna gain more importance in that environment as well, right? Because it's no longer sufficient. The computational requirements at the factory automation level are gonna increase. Without a doubt, right? It's gonna increase. As it increases, and the ability to handle data becomes more important. Whether it is plain data, whether it's video processing or something akin to it, which provides a ton of information, that aspect will take on importance. Embedded players that are focused, right, independent of us, that are focused in that environment, are gonna have to play an important role. The role of libraries, compilers, and what you provide for embedded systems in that area is hugely important. You know, it's gonna be an area which will be exciting in the future. It's not the industrial environment of the past. It's actually more the factory of the future. That's how you should think about it, as the level of efficiency and productivity improves. Hopefully that answered what you're looking for. If there's not, please let me know. Thank you very much. I'm okay. Thank you very much. Understood very well. Thank you. Thank you. Next, from UBS Securities, Mr. Yasui, please ask your question. Please unmute and please speak. My name is Yasui from UBS Securities. Can you hear me? Yes, we can hear you. Yes. I have two questions. The first question is about the moving to intelligence in the factory. If the final requirement is such that there are differences in the local region. I think the question is a little different from what you presented today. However, the Chinese market is quite invisible. If you can, if you have some visibility about China, then I hope that you can talk about that. That's the first question. Thank you for your question. What I will tell you is two things. First and foremost, the China market is an area that you should watch for disruption when it comes to the industrial segment. The reason I would say that is based actually on what we have seen. Pre-COVID, when I had an opportunity to visit China, one of the things that we've seen is the multiplicity of companies that are focused in this segment, right? As opposed to the traditional large players that you've seen of yesteryear. Now, a lot of these players in this market are very fast-moving, do not have a lot of the enormous reliability requirements or product lifecycle requirements that the traditional players do in this market space. What they have done is, they have been quicker to adopt in the move to the standard microprocessors and rely on suppliers such as ourselves to do the work in terms of housecleaning the stack, the protocol stack, and the work associated with it. Expect this area, industrial, to be an area that will be disruptive over time with the participants in the China market playing a major role in the disruption. They're fast-moving, they're adopting technologies faster, and they move, in general, much, much quicker than the traditional customer base in this market. View it as being something similar to what happened, if you recall, in the telecom disruption when the traditional players in the telecom markets, the Lucents, the Alcatels, all got disrupted by the Huaweis and the ZTEs of the world. It is not gonna happen in the next two years, but over a 5- 10-year horizon, please stay tuned. This is gonna be an exciting area for disruption. Thank you. My second question about 16-bit, 32-bit core. From the standpoint of the software engineering, I think this is a very intensely competitive market. Earlier, there was a roundtable with Mr. Shibata and he was thinking about developing environment which is going to be easy for the user interface, user requirement. Software-based efforts, if you could just elaborate that for us, I would appreciate it. Thank you. Thank you for your question. There is a few things that we are doing to make life easier for our customers, right? Which is the Renesas objective, as Shibata had mentioned earlier. Making user experience, there are a few things that we've done, and I'll give a few examples that come to the top of my mind. The first is, you know, allowing people, for example, I have a smartphone in front of me right now, right? I will show you, share with you, gosh, I hope you can see it, I know I can't. Unfortunately. Okay, let me move closer to myself. So this is an application that we've developed, right? Where an engineer or a customer anywhere can go in and figure out which MCU to use. It makes things very easy for an engineer in the field to use the particular MCU and to be able to target what is needed for their particular application. It's very easy to use. Even somebody that's not deeply technical like myself can happen to use this technology. The second element of it is the flexible software package which was developed. If you remember what was done before, we believed in turning in a complete software solution to the customers, but that's not what the customers wanted. The customers wanted a level of flexibility where they could alter the code, and we would provide a base code. In addition, three things can be done. One is, how easy is your product to use when you give them the kit, right? Right off the box, if you give an engineer a kit, within three clicks, he should be able to use the system. That is our objective. Number 2, right? If you have a sensor network or you have something that is a wireless connected network, how quickly can you enable that particular kit? We've spent a lot of time thinking about this Quick-Connect IoT that you might have heard about. The third thing, which allows you to plug in any sensor and work with our MCUs, plug in any kind of connectivity mode, and it works with our MCUs. That's an element of it. The third element of it is the ultimate judge is the parties like a university student or somebody that is relatively green. How fast can they come up to using your software package and your MCUs? We have created a working team that gets input actively from our customers and even users that are highly critical that can submit feedback online. We react to that feedback through what is called a user experience interface, and our teams prioritize based on the order of importance. What needs to be addressed very quickly? Are there potential bugs? What do we need to do to address some of these elements while keeping security at the top of our mind, relative to what we do? Hopefully, that answers what you're looking for. Thank you very much. Thank you very much. Now, we would like to ask the next person, Mr. Ishino. Please unmute and present your question. From Tokai Tokyo Research Center. My name is Ishino. Can you hear me? Yes. Thank you. Thank you very much. Considering next year, metaverse, which is a world being newly introduced, I think that the investment will be accelerated. Metaverse has a lot of burden on the GPU, and I think that you would have business opportunities there. What kind of business opportunities do you already have? If you can, to the extent you can elaborate, I would like to know from you. Thank you for your question. The metaverse has a couple of different elements to it, right? One is the AR/VR aspect of it, on the individual level or the client side of it. There's the compute, which as you absolutely correctly pointed out, is very GPU intensive, right? On the client side of it, we have a lot of engagement. I, you know, the company itself, I will not elaborate for reasons of being careful, but everybody that is participating in the AR/VR segment is working with us on two aspects. One is the analog and the power side of the business, and the other is the MCU side of the business. Those are three areas where we have very good concentration on the AR/VR on the client side. Additionally, some of them are looking at things like wireless power and wireless charging for some of these devices. That's where we have an additional presence. On this side, on the server side of it is very graphics processor and very CPU centric or very AI centric. On this side of it's more has to do with image processing and what you can do with respect to the power performance and a little bit of CPU capabilities and AI capabilities on this end. That's where we participate in the market. I will not talk specifically to customers because some of these are in early phase of work relative to what we're doing. Thank you so much. Experimentally, hyperscalers, when they move the GPU, the burden is so big, and they need to prepare for significant amount of investment. I think the fact that they need to prepare for investment. I think that you would have a lot of business opportunity. That's my view. Is my view correct? Your view is correct for, not necessarily for what we talked about today, but it's important for two aspects, and I'll tell you about those two aspects. Today, we participate with hyperscalers when it comes to handling the flow of information between the CPU to the memory. We have devices which are memory interface devices. As you can imagine, right, memory bandwidth is a huge problem in any hyperscale environment. We have solutions that address that particular market need. Then the other side of it is, as GPUs become much more powerful and much more current consuming, the power and efficiency of these things becomes hugely important. This is where the infrastructure power products that we have, together with some products that we will announce very shortly, will make a huge difference in this marketplace. Today, we're engaged with a lot of the major GPU providers to partner with them in these two specific areas. Not to mention timing, where we already have a good presence. Thank you so much. That was very helpful. Thank you. You're welcome. Thank you. Now fom Nikkei newspaper, Mr. Eguchi, can you ask your question, please? Please, unmute yourself and start asking the question. My name is Eguchi. Can you hear me? Yes, we can hear you. Thank you. The first question, it's not a technical issue, but in the area of industrial equipment, some CAGR is about 10%, I believe. The production capability to support this market growth within the next five years. Do you think you'll be able to secure the production capacity in the market? On top of that, we're talking about your fab and also being outsourced. How are you going to accommodate for this capacity over the next five years? Thank you for your question. It's a good question. We are, as you know, at previous analyst days we have shared, we are expanding our manufacturing capacity internally for our current MCU and MPU products. Simultaneously for some of the more advanced MPUs, which run at external suppliers, we are doing long-term agreements to secure the capacity. With that being said, right, the growth in the market that we see in the market should not be gated on account of capacity. I'll tell you why. We are developing our own long-term plans, which we're in the midst of developing with Shibata-san and the leadership team, of nearly what we need to invest in our factories for the next five years to support the growth targets that we have. Out of that is gonna come an investment plan on what we need to do to support some of the growth that runs strictly in our internal factories. We're in the process of doing that. I think we should be able to conclude that and come up with an investment plan within the next, I'd say six to nine months, so that we can get a lot of the equipment installed in a timely fashion. I do... While I do expect that capacity based on the current situation may be a little tight, we expect that in the time horizon for the growth in the industrial market, the capacity that'll be put in place should be adequate to meet our needs longer term. Thank you. I'd like to ask you another question from a different angle. Earlier, you talked about shifting to IoT in the fab and the Chinese companies may create disruptions in the case of power and analog. I believe that the local manufacturers are becoming very stronger. In terms of MCU and MPU, I believe that you have very high competitiveness, but in the area of analog and power, how would those local manufacturers move? Would they be a rival in capturing the market share, or do you have any other strengths in this area? This is my question. Thank you for your question, but if you can clarify, you're asking about Chinese manufacturers of MCUs and MPUs. Is that correct? Analog. For analog and power, I'm talking about the local Chinese manufacturer. Thank you for the clarification. Yeah, for the power domain is one that is very, very hard. I'm not saying it cannot be done. In power, our differentiation largely comes from developing a mode of controlling digitally using a digital domain to control multiple voltage feeds into a processor. That technology is very hard, and there's only two companies that do it very well in that area. One is Infineon, the other one is us. That's not to say that over a 10-year timeframe, somebody can't develop it. But it's gonna take a long time to develop the kind of capability and the knowledge and expertise that resides in that area. Now, in the simpler analog and power domains, such as simple FETs or simple voltage regulators or commodity parts, can we be swapped out? The answer is yes. In general, we do not try to compete in that area unless we have something differentiating. Even in timing, at the very low end of timing circuits, there are Chinese competitors. When it comes to sophisticated ways of clocking schemes and getting things done, it is not that trivial to take years of experience and just quickly bring that up to speed. That being said, we look at this landscape very cautiously all the time. We never neglect our competition, and we have an eye out for them. In the power domain, we expect them to be strong. In the analog domain, we expect them to be strong. On the lower side and the easier to implement side of technologies. Once it gets more complex, it gets a little bit more challenging for them to do, and then they'll rely on companies like us, at least the system houses, in terms of what needs to get done. I understood you very well. Thank you very much. Thank you very much. We still have some other questions, but it's time for us to conclude here, so we would like to conclude the Q&A session at this point. Sailesh-san, please say a few words to close this meeting. Okay. Thank you, everybody, for taking the time and listening patiently to our view of how we see the IIoT business, IIoT and Industrial business. We look forward to hearing and to seeing some of you at our future Analyst Day events. Thank you again, and we appreciate. I did great. Thank you, everybody, for attending the IIBU and the Industrial Automation and Motor Controller presentation. We look forward to hearing from you on your feedback, as well as to see you at upcoming events where we can shed more light on why we view this as being one of the most interesting growth prospects for Renesas. Thank you again for your attention. We appreciate your time. That concludes IIoT growth talk for today. Thank you very much for your attendance.