Hello all. If you'd like to hear this session in English, please click the globe icon on the bottom and select English channel. Thank you very much for joining us for Renesas Electronics 2021 Q3 result presentation session despite your busy schedule. Today the session will be simultaneously interpreted. Please click the channel at the bottom of the screen. I n attendance today are Representative Director and CEO Hidetoshi Shibata, Executive Officer and CFO Shuhei Shinkai, Executive Officer and Head of Automotive Solution Business Takeshi Kataoka, plus other staffs. CEO Shibata will say a few words of greetings in a minute, and then CFO Shinkai will explain Q3 results, which will be followed by a Q&A. In total, we will have 60 minutes. Presentation materials used today are the same as the ones uploaded on our website. Shibata-san, please turn on your microphone. [Foreign language] Hello, everyone This is Shibata, CEO. This time, there's a bit of a news that I'd like to introduce at the outset first. In August, we were able to close the Dialog acquisition, and so that is now consolidated. It may be difficult for you to really see the continuity of the numbers, and so this is something we'd like to explain during the presentation. If you have any further questions, please do raise them. Second, maybe you have already seen our slides, but then, there is an increase in channel inventory this time. I do believe some of you would want to know more about that, and so therefore we do have a slide to explain more about the channel inventory. Now, as a conclusion, there is nothing for you to worry, but then there is an area where we do want to pay attention to. That is also something that we hope to be able to offer explanations so that you'll be able to have more understanding. At any rate, it is not something that you would have to worry so much. Also, we also do have a slide of order backlog. This is sort of related to the channel inventory, but the numbers coming from Dialog, we still do not have the full set of numbers at this point. We do have the order backlog numbers from Dialog. When it comes to those, the programs to secure the orders for Renesas, this is something that is to be completed in November when it comes to the numbers with Dialog. The numbers that we have for order backlog, some of them is still under analysis and so we would have to be careful. Now, Dialog, there's a lot of engineering culture, and this is something that I have shared with the analysts. Perhaps on the other hand, when it comes to sales and supply chain, I think I would say perhaps Renesas do have a bit of a lead in that sense. Now that we have been able to integrate the company, we hope to be able to better the integrated company. Also, we do have towards the end of the presentation deck. Now this time, we have also acquired an Israeli Celeno Communications company. We have also made announcement of this acquisition. This is something that I have been saying for the past, but when it comes to connectivity devices, there are a little more that we'd like to add to the portfolio and so I have been saying that and, the acquisition with Celeno does supplement our initiatives in that sense. That concludes my introduction. With all that in mind, the details will be introduced from Mr. Shinkai. With that, I'd like to ask Mr. Shinkai. [Non-English content]. This is Shinkai, I am the CFO of the company. I would like to give a presentation about Q3 results using the materials. First of all, page four, this includes Dialog numbers in the middle dark blue column, please look at. Revenue was JPY 258.4 billion and the gross margin 55.2%, OP margin 83.9% and the profit and loss attributable to owners of parent JPY 62.9 billion and EBIT JPY 103.6 billion. Next page, please. This shows the numbers excluding a Dialog contribution in the months of September. From the top, revenue JPY 244 billion and gross margin 55.6% and operating profit JPY 80.2 billion and profit attributable to owners of parent JPY 60.2 billion and EBIT JPY 99.4 billion. The change from July, revenue up by 1.4% and gross margin above by 2.6 points and operating profit at JPY 10.6 billion up, which is 3.9 percentage points up. Next page, please. Regarding the revenue, I would like to explain about the quarterly trends. Year-over-year 44.6% up, and quarter-over-quarter 18.6% up. Dialog, excluding Dialog contribution in Q3, the year-over-year 12%. Industrial and infrastructure IoT, where Dialog has a major impact. Excluding that, year-over-year 22% and quarter-over-quarter 11%. Next page, please. The Q3 our gross margin and so on and so forth. In the top right you can see the projection the gross margin 3.5 percentage points up. First of all, revenue Dialog contribution in absolute terms JPY 18.4 billion, of which JPY 15.1 billion from Dialog. For Dialog, the one-third is from FX impact. The automotive minus, industrial and infrastructure plus, and the gross margin, the upside, and Dialog negative 0.3%. Other than that, product mix improvement and improvement in the production cost effectiveness and the manufacturing costs. We had conservative assumptions, but actually the manufacturing cost is more or less in line with the plan. The sales expenses went up, but because of the consolidation of Dialog. In other areas the expenses went down. Other than Dialog, centering around the SG&A, the numbers declined. Next page, please. Inventory. As Shibata said at the outset, combining our inventory and the internal inventory, I will explain about the reasons behind the decline and the increase using another slide. Our inventory as of end of Q3 increased for both automotive and infrastructure IoT. As shown in green here, it includes inventory evaluation increase. Next page, please. Next page, please. Page 10, please. The previous one. Go back by one page. Yes, this is it. Sales channel inventory and WOI. Regarding WOI, both automotive and industrial infrastructure went up. The channel inventory does not include Dialog. In the first half of next year, this exercise shall be completed. Next page, please. On the left-hand side, you can see the Renesas inventory. On the right, you can see internal inventory. The left one, Dialog portion, which was consolidated in Q3 and in Q4, because of the seasonality, shipment will progress, but in absolute amount, it will decline. Advance purchase orders have been made and therefore this is the reason for increase in Q3 and the trend is likely to continue into Q4. The work in progress in Q3, responding to increase in demand, input has been increased and also due to the improvement in production costs at Naka plant, it increased as well. Some semi-finished products which are in chip form increased because of slow-moving parts. In the back-end process, this is likely to continue to some extent and therefore work in progress is likely to remain virtually the same going forward. The finished products in Q3 due to the logistics and the supply chain problems, there is a stagnation, but the EOL products have been increasing. Q4, we assume that supply chain issues will continue to some extent and therefore, it is likely to be at the same level. On the right-hand side, you can see channel inventory. If I may start explaining about the industrial infrastructure IoT, it increased significantly, Q on Q, and there are several factors. The first one is the increased demand and responding to such increased demand. We have shipped goods in advance in order to respond to increased demand, MCU, SoC, and memory interface type products. A change in distribution, this is a technical factor, from direct sale to a channel sale, distribution has been changed. The third point is postpone the shipment. The consumption timing, which was scheduled at the end of the quarter, has been postponed to the next one. The fourth point is mismatch of a product. Unless a BOM are prepared, the products cannot be finished, and therefore, cannot be consumed by end users. Take for example, the shortage in the CPU power management IC cannot be shipped or consumed. Various countermeasures have been implemented in order to counter this problem. For example, what is in short have been shipped given higher priority. We are taking a rather conservative and cautious view towards this. The first point is the irregular increased demand, and the second one is the change in distribution, and the fourth one is the fact that we are taking a conservative and cautious view. On the right-hand side, in Q4, we will continue to act on increased demand, and therefore, absolute amount is likely to increase. WOI will be decreasing in Q4. The bottom half, automotive, in Q3 and Q4, it seems to be increasing in Q4 from Tier 1, the pool. The consumption of inventory had an effect. Just like industrial and infrastructure, some product shipment have been postponed. On the right-hand side in Q4, OEM production recovery is anticipated. Therefore, absolute amount will increase. However, in terms of WOI, it will decrease because of increased demand. Moving on to the next page. The front-end process, wafer input basis, Q3, 12 inches. The Naka plant recovery had a positive impact. The eight-inch is leveled off on a high level, 85% or slightly above 85%, which is in line with our assumption. Next page, please. EBITDA and cash flow in Q3. EBITDA was JPY 103.6 billion and JPY 256 billion for three quarters. On the right-hand side, the GAAP cash flow was JPY 75.6 billion in Q3. EBITDA yield, the reason why the cash flow yield is low is because of a payment of tax and bonuses. If you look at the gray portion in Q3 onwards, the machinery and equipment procured for to respond to the fire which took place in Naka plant, and it's JPY 6.5 billion. Here, allow me to touch more about, for example, automotive business. On Q-on-Q, there's an improvement of 5.4 percentage points. Now, again, this comes from the Naka factory improvement, and so therefore, there's 2 percentage points about improvements in the production. Otherwise, the impacts come from, for example, production cost decline as well as better efficiency. That's the automotive business. Going to industrial business, there's a 0.2 percentage points improvement, and there's the Dialog that comes in here. Excluding Dialog, it is at 1.9 percentage points of improvement. Now moving on to the next slide. Here we look at Q4 and full year forecast. If you look at the middle blue line, for revenue from the midpoint forecast, that's JPY 298 billion, which is a Q-on-Q 15.3% increase. Gross margin, 53%, which is a QoQ minus 2.2 percentage points. Operating profit margin, that's at 28%. QoQ, that's a decline by 4.5 points. First of all, for the gross margin, we have the Dialog impact and also the product mix impact. Compared to the previous quarter, it's been declined. There's also the variable cost for it. For the operating profit margin, because of Dialog integration, OpEx is now going to concentrate more to happen towards the year-end. Now for the full year, we also have the figures on the far right. Please, we'll just move on to the next slide. Now here we look into the sell-in and the sell-through for the demand. Here we look at the Q4 forecast. Now first of all, let's look at the sell-in. Again, for total that's 15.3% like we introduced earlier. For automotive, late single digit and then for IIBU, 20-some percent, double digit. When it comes to sell-through, we are seeing a double-digit% increase for all. Moving on. Here we look at the order situation and order backlog, and it goes back to what Mr. Shibata was saying at the outset. On the right, top right, you see what's in green. This is about some of the initiatives for long-term and outlook. We still have not been able to include all the Dialog figures. At the moment, it is still an ongoing process in obtaining all the numbers. Now this is just a reference slide. Here we look at Dialog revenue and breakdown per quarter. On this gray part, which is about licensed PMIC, in 2018 October, that was the time when Dialog was able to sign a license contract with a major customer. That is how the numbers have been trending very well. Based on that license, we are able to keep track of the business size. Now you can see that in Q4, that gray bar pretty much disappears. This is cleaned off in next year. Now I'd like to jump into a few slides in appendix, starting from slide 21. Here we look at the balance sheet. With Dialog acquisition, we have JPY 530 billion in goodwill. PPA, we are going through the process. From Q1, we should be able to reflect all the numbers. Moving on to slide 23. Here we have the GAAP versus non-GAAP reconciliation. In Q3, operating profit, that was on non-GAAP, 83.9, and then in GAAP that's 53.8. There is like a JPY 30 billion amount of reconciliation. Out of that, there's part of the PPA, JPY 8 billion, and then there's also the NAKA cost. There's also a JPY 9 billion amount coming from Dialog adjustment. Please also turn to slide 26. This is about CapEx trend. Again, there has been a procurement of equipment after the fire. In Q3, the decision has been made to complete that by Q3. In Q4, this is really about some of the CapEx required to enhance the resilience of the factories. Turning to page 28. This is again something that Mr. Shibata did mention at the outset. As of today, we have been able to put forth this announcement of the technology tuck-in, and again, this is about Celeno, a startup company in Israel. That concludes my presentation. Thank you very much. [Non-English content] Let us now begin our Q&A and allow me to explain how to ask a question. If you have a question, please click the raise hand button on the screen. I will call your name and your company name. When your name is announced, then you will be able to speak. Please unmute yourself and ask a question. In the interest of time, please ask up to two questions at a time. Let us begin the Q&A. If you have a question, please raise your hand. [Non-English content] Mr. Sugiura from Daiwa Securities, please unmute yourself and speak. This is Sugiura from Daiwa Securities. Thank you for this opportunity. My first question is about the guidance for Q4. First of all, excluding the effects of a Dialog consolidation, revenue, gross margin and operating profit Q-on-Q, how it is likely to evolve? Also, only the revenue numbers of Dialog has been disclosed. I would think that it is flattish from Q3 to Q4. Would you elaborate on that, including IIBU situation, so on and so forth. Shinkai, I would like to respond to that question. The revenue impact, excluding Dialog Q-on-Q, 6% up is anticipated. ABU and IIBU. ABU, the higher end of the single digit and IIBU. Double digit, slightly above double digit or in the middle of a double digit. It's like a 5 or 6% growth overall growth. What about the gross margin and operating profit? Gross margin up excluding Dialog 1.8 percentage point and operating margin 3.4% Q-on-Q. My second question is for Shibata-san. Sorry, I may be asking the same question over and over again. Demand forecast for the next half a year or one year. The customers' patterns of placing orders has been changing, you said in the past, and there seem to be some sweet spots, but it seems to be changing. In the next half a year and as well as one year, what is your demand forecast? Half year, up till the first half of next year, the forecast remains more or less the same, and overall it'll be solid. As of today, I maintain that view. The only concern is not the demand aside, but supply side and logistics. [Non-English content] Compared with the beginning of the year, I am somewhat more confident to somehow manage the situation. Supply and management, we are having tough time. Without that, demand up until at least the first half of next year is likely to grow steadily. That is the picture we have in our mind. As you rightly pointed out, the TI results we are looking at. The laptop or PC related will be the focal point. Like, Chromebook is slowing down recently and the desktop terminals have been ramped. It seems to be slowing down recently. Note, a name brand, the platform generation change is one factor and the Windows 11 has been introduced. It continues to be robust. The strong ones and not so strong or weakening ones, the situation is very mixed, as Shinkai said. Unless the product mix is optimal, we will not be able to sell enough products and inventory will build up. Like TI, customers are becoming selective. In the past, customers wanted to buy anything that was available, but now they are changing their behaviors. Unless the things are packaged in a set, they don't want to buy. The midterm inventory of finished goods seems to be increasing on the customer side. Therefore, we are taking a very cautious view because we don't want to increase inventory without any justifiable reason. The name brand seems to be robust, but we must be agile to respond to the future movements. Otherwise, inventories will further build up. We will remain cautious. Our exposure, smartphone and laptops, are not so huge and therefore, overall, the automotive, industrial and IoT in a broader sense, are doing quite well. Those are being the drivers. Up till the first half of next year, it'll be quite robust. Thank you very much for easy to understand response. Thank you very much. Next, Fujiwara-san from Citigroup. Please unmute yourself. [Non-English content] This is Fujiwara from Citigroup. I hope you can hear me. Yes, we can. Thank you. Yes. Thank you very much. I also have two questions. First, you just talked about PCs, but then, can I go back to sales channel inventory? WOI has been able to see execution going up and now when you look towards the year end and also to the beginning of next year, and I guess WOI is going to start to decrease, but then what about the channel inventory? Do you think it is going to increase from here, Rob? Is that how you see it? Or do you think it's going to be flattish, or is it going to decline? At the same time, you just talked about PC and you said there's a lot of inventory there. But then, this finished product or interim products for PC, that's what's behind this inventory. Is there anything else like FM or for home appliances? For example, perhaps there is a constraint to the production because of component, there's not enough components. Do you think in the end, it is going to be very much a similar feature with PC inventory? Yes. Allow me to answer that. For the channel inventory on actual value, we do expect it is going to increase. That's something that we did illustrate in page 10. For example, if you'd be able to look at where the arrow is going, this indicates our expectation as for what could happen from now on. For IoT, it's going to be flattish on absolute value, but then for automotive, WOI, well, absolute value itself is going to increase. This is something that I did mention earlier, but then from Q4 and onwards, we expect that there is going to be healthy demand, and so we have to cope with that. That means we have to make sure that we will have a good inventory amount even in this channel side because we need to respond to the increasing demand. Now, what we're finding in PC happen in other areas? I think that's your concern. Now, of course, quality-wise, maybe we will see something very similar. For example, I think the same thing could be said with decreased production by OEMs here for the auto side. You don't have all the BOMs, you don't have all the parts, and so therefore you cannot complete the products. I think this is going to be the same story elsewhere as well. FA, healthcare, auto, compared to PC, I do believe the unit price for the product, finished product is much higher. The consumers or the clients, they probably would just not want to finish to the extent they have without having the full product, because that is going to be too much of a burden capital-wise. We do have to be careful where, how things would develop. What's going on in the PC, that lumpy situation in PC, like, sometimes you'd be accelerating, sometimes you'd be stopping, I don't think that would happen in other areas like auto. For the time being, we do believe it is going to be important that we keep up with the robust demand and be able to increase our shipment. That's my response. [Non-English content] Thank you very much. My second question, you also introduced about the order trend. In total company-wise, that's JPY 1.2 trillion size now. I take that is going to be there. That is the amount of order that will last till 2022. Now, this JPY 1.2 trillion worth order, if you look at on quarter to, quarter-to-quarter trend, within that JPY 1.2 trillion, I have to be sticky in asking this. Does this include some tentative order, not a complete official order, but then does it include some of the tentative order? Yes. In terms of the capacity, I do believe we've been able to secure the necessary capacity, and I think this is the best way to answer. As you know, when it comes to the components or parts or the wafer for foundries, it's difficult to really attain a full commitment into the future. We do believe that there is a level that we have been able to come to an agreement. There's also some stretched amount that we have included within the yearly plan. Now, if we look back the previous trend, it seems like as we go down the road, we should be able to see the actual numbers, and we cope with that, and that's something that we have been doing. Of course, we do not believe that all the numbers will be filled if we don't really make any proactive movements. We have Mr. Kataoka, Mr. Shinkai, and I myself, we all do communicate with the suppliers on a day-to-day, day-by-day basis, and so that we'd be able to secure enough supplies that we need. Double ordering or phantom order. [Non-English content] Double ordering or phantom order. How much of that would be in here? That was your question. That's a million-dollar question. That is something that we always talk about internally. [Non-English content] Now from, for example, some of the non-cancellable, non-returnable order that we obtain from the clients, it's if we include that, the bar here should have been much higher. We decided to sort of make our own judgment in introducing this number, because sometimes we'd find some inflated order. We did a lot of hair cutting. After that, we have been able to build up the number, and that is exactly what you find on slide 16. Of course, there will be some inflated order. Some of that still might be here, but we did try to make sure we do enough hair trimming. We did make our own decision in seeing that this is a more probable number. Now, if maybe we could have been too conservative, and in that case, we'd have to keep on making sure we have enough supply, but then maybe there still could be a bit of a phantom order remaining here. Maybe that could be the case. We will have to see. We did do a lot of robust haircutting before we introduced this number, so I am pretty comfortable with what we have here. Thank you very much. I got that. Thank you. Thank you, Mr. Fujiwara. Can the secretary make a correction? Slide nine. Mr. Fujiwara said that talked about the channel inventory. For auto business, there are. If you look at the gray line, IIBU on nine weeks, and for ABU, on ABU, that's 7 weeks. In total, 8 weeks strong. The dotted line is, like, 11. To give a follow-up. [Non-English content] Next, Kojima-san from Nikkei BP, please unmute yourself and ask a question. This is Kojima from Nikkei BP. Thank you very much. I have two questions as well. Naka plant had fire, and I think you made hard efforts to ensure the replacement products or the production. What is the current situation? That is my first question. Also this Israeli company that you have bought. That company in Israel and Dialog, I'm wondering, are there maybe some overlapping products? I would like to respond to the second question. Regarding your first question, I would like to invite Kataoka-san to the microphone because he did work marvelously for this deal. Celeno's products are not overlapping with Dialog's products. Wi-Fi advanced version, here it says Wi-Fi 6 and 6E, but inclusive of Wi-Fi 5. Celeno is a tiny company that focuses on Wi-Fi with 150 employees. It focuses on Wi-Fi products. On the other hand, Dialog up to generation 4 of Wi-Fi, and it's a low power focus products. In addition, Dialog Bluetooth low energy, inclusive of that other connectivities Dialog also offers. What was lacking in Dialog, the newer generation of Wi-Fi, will be covered by this company. Celeno, obviously, there has been progress in the client side technology development and access point. These tiny companies need to earn money by working on access points. Now, IoT and client products are becoming more enriched and therefore I thought it would be a good timing and also if millimeter wave development become prevalent, then the last one mile Wi-Fi capability will be very much needed. This will be excellent combination. Kataoka-san will respond to your first question. This is Kataoka. The alternative of production, there are several of them. First of all, the wafers were produced at other factories, and the mature products were produced at other plants of Renesas, and in 300mm TSMC. Because of that, for example, something which was only internally produced is now made at TSMC as well. Sustainability has been enhanced, and we would like to capitalize on that benefit going forward. We can have a dual fab system so to speak. We can choose either we want to make it at Naka or TSMC, so on and so forth. Also, the growth the bump process the special process like that we only handled internally, but a certain overseas manufacturer made those things for us. This company has been very supportive. TSMC was very supportive, but this other overseas company was very supportive as well. Production flexibility has been dramatically increased. With that, companies overseas, we would like to continue our transactions in order to ensure flexibility going forward. That is the current situation. I see. Because of that fire, you came up with these improvements. Yes. I mean, in a way it may seem odd, but we have been able to reduce our cost of our production eventually. Thank you. [Non-English content] From Goldman Sachs, we'd like to invite Takayama-san. Mr. Takayama, please unmute yourself. Yes. Thank you very much. Can I go back to Q4 gross margin and OPM? I think you were saying that it's going to decline and SG&A and expense is going to increase towards the year-end. I think you said that. For example, as you increase revenue, I felt like, for example, the OpEx, et cetera, seems to be more. Or do you think Q3 was too high? Is there any reason behind explaining Q4? I think that's something Shinkai-san should answer. Mr. Shinkai, please. Certainly. In Q3, I don't know, was it too high? Maybe. About gross margin line, in Q3, there was the auto side product mix which worked well. On the other hand, Q4 seems to have dropped or worsened. Now when it comes to variable cost, for example, be it ingredients or some of the procurement from the foundry, we're seeing the price increase there. That is also impacting. That is something that we have included in the forecast. Now for the OpEx, in Q3, there has been a conservative spending and on the other hand, Q4 would be increasing and there's also that year-end concentration of expenses. That is why OP margin Q1Q is going to decline, and that is what we expect. That's my explanation. If I may add, gross margin dropping, one-third of that comes from Dialog and another one-third comes from, again, the product mix change. Or not one-third, a quarter is from Dialog and quarter from product mix. The remaining half, again, comes from the price increase for the raw materials, and also other production cost increase. In that sense, if you look at Q1 next year or first half, depending on the product mix and depending on the cost, we don't know. We should still have to see how things would go. For example, of course, we don't know the timing of when the raw material costs will start increasing. Do you think you should be able to start to find better gross margin as you try to be able to level off the materials cost? Because I'm not exactly sure if Q4 is higher or lower than the normal level. Well, that is a good question. Thank you. At the moment, when it comes to raw material, it is very unstable at the moment. It's very difficult to define what is normal level now. The numbers that you are seeing here, I guess we should be trending a bit higher. That's what I hope. Thank you. Also my second question. Again, the actuals for Q3 for auto and non-auto, what is the growth rate excluding Dialog? I think you were, Shinkai, Mr. Shinkai did touch upon that. Can I hear again, ABU versus non-ABU? Yes, Mr. Shinkai, please. Can I go back to page 6? Auto, excluding Dialog, that's 51.8% year-on-year and 13.8% quarter-on-quarter. In IIBU, excluding Dialog, that's 22.2% quarter-on-quarter, 10.5%. Thank you. Got that. Thank you very much. Thank you very much. Next, Eguchi, Mr. Eguchi from Nikkei. Please unmute yourself and ask a question. This is Eguchi from Nikkei. Can you hear me? Yes, we can. Thank you very much. Sourcing of materials, I would like to ask you a question. In the past, you touched upon the electricity-related issues in China and, in Q3 material costs are increased and, risks are pertaining to, the sourcing. Overall, do you think that the risk related to the sourcing is rather high? How should I respond to this one? Nikkei and media, I think, this has been making headlines already. Major suppliers price increase impact. That is probably the largest impact on us. The size of the price increase The materials are used for our products in some cases have doubled. However, in terms of the impact of the price increase, the major foundry rose its prices, increased its prices and it's very difficult for us to cope with. Thank you. Another point is this company you acquired. [Non-English content] This Israeli company that you bought, so tech-driven acquisition, this is, I would assume. So this may not have an immediate impact on the business performance. In terms of synergy, to what extent do you anticipate the synergy and how is it likely to be realized? This is a small company which is growing rapidly, like, compared with Dialog. How should I say? We think it's very promising, but whether it is convincing or not, I do not know. Taking a conservative view, in 2022, the non-consolidated number is likely to grow rapidly. I don't know about 2022, 2023 and 2024, combo chip and others. Well, actually it's rather embarrassing, but we haven't had many Wi-Fi related expertise. Connectivity, Wi-Fi, Bluetooth, combo chip is becoming a commonplace. If we can produce things like that entirely in our company, the synergy can be huge. Compared with Celeno, revenue now compared with that, it will be much bigger. In a not so distant future, we should be able to come up with a very impressive number. Thank you. Thank you. Thank you very much. Next, from Wall Street Journal, Mr. Tsuneoka, please unmute yourself. Thank you. Can you hear me? Now, earlier you talked about anything for auto, for next year. You are saying that there should be a robust trend all the way to first half next year. But then, for example, supplying MCU for auto purpose, what is your short-term forecast? Perhaps a little more mid to long-term forecast into like couple of years, three years. Yes. That's exactly why we have Mr. Kataoka here. Mr. Kataoka, please answer that question. Yes. First of all, we know there's strong demand, and I'm sure you know all the OEMs, especially during July all the way to September, there was this reduction in production because of what's going on in Malaysia. Of course, if we try to look into the end of fiscal year all the way to March, they're hoping to be able to increase their production. Now, historically back to like historical high, and so that's what the OEMs are trying to do. When we look at the inventory, OEM inventory level of OEM, it's really historically low. It's going to be important that they start building up their inventory, and that is why we're expecting a very robust demand. That's exactly what Mr. Shibata was saying. Now, we will be increasing the production capacity for Naka Fab. We will be investing for that. Our work with TSMC, you do understand what we're trying to do. Our share in TSMC will be increasing. As we try to go into 2021, 2022, for example, 40nm, the production level is going to be increasing. Now, as we look into the long-term perspective, as you know, production volume of cars is going to increase. Nowadays we're seeing that it's going to be at least 5% or 10% bigger in terms of volume growth. If we look at the semiconductor, how many chips will be included within cars, this is going to increase because there's more electrification and automation. It also has to do with a lot of not just the control units, but then for example, sunroof. I don't think we see so much in Japan except for the really high-end vehicles. But then outside Japan you see more, a lot of sunroofs, sunroof vehicles. This is exactly where analog power, SoC, MCU, a lot of them are used. From that perspective, in the mid to long range, there's a lot of expectation we'd be able to hold here. Again, here we basically offer 40nm, but then there is also a 28nm that is already being offered. How much more can we go into this space is also very interesting, but that's something that I'd be able to say. Well, thank you. There's also one more follow-up question. The Chiba earthquake and eruption of Mount Aso are these impacting production to you? Well Those natural disasters that happened recently, no, there is no impact. I think I'm correct in saying so. Again, Japan is prone to natural disasters, as you know. It is important that we be prepared. We do that, and so even if something happens, we do not believe that we'd be late in coping with what happens. Of course, depending on the size of the natural disaster, there might be some of the fluctuation in production level. It's something that we have to live with. I don't know if this is the right way to say this, but it's probably similar to COVID. We have to live with these natural disasters. In terms of human resource, I do believe we have enough talent or experience with these natural disasters. Even if in the event of some disasters, I'm sure we'd be able to cope with that. Thank you very much. Thank you. The next will be the last question as we are running out of time. From Morgan Stanley Securities, Yoshikawa-san, please unmute yourself and ask a question. This is Yoshikawa from Morgan Stanley. Thank you for this opportunity. Q3 gross margin, I would like to ask you about. Q3 gross margin was good because of a good product mix. Actually, it may have been too good, you said, I think. R-Car grew. Am I right in understanding it that way? If that is the case, at Investor Day, Shibata-san said that you don't have to do anything and still the automotive business would grow centering around the R-Car. If that is the case, it may go down a little bit in Q4, but next year, the gross margin target, probably I can expect that you will be achieving the upper end of the gross margin target range. Well, in terms of the directionality, that may be the case, or I hope that is the case. There are two things we need to keep in our mind. SoC, it's entirely outsourced. Wafer prices have been increasing, as I said previously. SoC packaging materials, the material prices are increasing very rapidly. Regarding a price increase, we have been trying to pass on the price increase to our customers to some extent. However, unit by unit, SoC is likely to have the largest impact from a price increase. The pressure on gross margin from that is probably quite strong. If SoC grows like it did in Q3, then the gross margin may grow rapidly. Once again, you may think, but it's not likely to happen. It is true that SoC is growing so rapidly. Understood. As you said just now, so if the cost is rising, the first round or second round of a price increase might have already happened. The third round and fourth rounds, am I right in understanding that you will be requesting a customer to accept the price increase? Well, regarding automotive business, in various sense, long-term stability is important. We have no intention of changing prices frequently. At the same time, we would like to pass on the price increase to our customers to some extent. More or less, once every half a year, we are requesting our customers to make adjustments. I see. Thank you very much. If I may supplement, in Q3, automotive mix improved because of SoC and MCU. As Kataoka said, the 40 nanometer products increased. That had an impact as well. I see. Thank you. Thank you very much. I know more people do want to ask questions, but it is now time, so we'd like to close the Q&A session. Now, before we close, can we ask Mr. Shibata to give a closing remark? Mr. Shibata, please. Yes. Allow me to summarize once again what we announced today. Within our portfolio, for example, PC portion, compared to the past, is not really going that lucratively, so we do have to keep an eye on how things develop. Fortunately, as a result of the previous strategies, the end market exposure, I do believe we have been able to diversify to quite an extent. From that perspective, I think there's it does give us reasons to have a very strong outlook into the future. For the demand side, our view has not really changed. On the other hand, supply side, it's always tough. Every day, all the executive members are working all together to really make sure that we'd be able to have enough supply. Still, we're at this point, and so it's exactly where we really have to work hard on so that we will secure enough supply. Please do understand that we're really working hard so that we're able to secure the supplies that we need. If there's maybe some of you still would have some concerns, but then at the end of Q4, even for the channel inventory, I'm sure we'd be able to show some evidence that everything was okay. That's exactly how we need to keep our operations going. I hope we'll be able to obtain your understanding. Once again, thank you very much for joining. Thank you very much. With that, we will end our Q3 result announcement for year 2021. Once again, thank you very much for your participation. Thank you.