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 for taking part in Renesas Electronics Corporation 2022 Q1 earnings call. Today, we have simultaneous interpreting available. Please select your preferred language from the globe mark at the bottom of your screen. Now, please make sure that the speakers turn your video on and let us see you. Thank you very much. The attendees today are Representative Director, President and CEO, Hidetoshi Shibata. Senior Vice President and CFO, Shuhei Shinkai. Senior Vice President, General Manager of Automotive Solution Business Unit, Takeshi Kataoka. We also are being attended by other IR members. Our CEO, Mr. Shibata, will give an opening remark, followed by overview of our first quarter result by our CFO, Mr. Shinkai. We then will open the floor for questions. The entire session is expected to last for 60 minutes. The presentation material we will use today can also be found in the IR page of our website. With that, Mr. Shibata, please turn your mic on. The floor is yours. Ladies and gentlemen, hello, my name is Shibata. For this time around for results, we have quite a lot of information to communicate. As much as possible, we would like to ensure that you correctly understand where we are standing. Q1 sales exceeded our guidance. On the other hand, one of your concerns may be about inventory, whether it be in-house inventory or channel inventory, which have both gone up somewhat. When you look at the actual details, of course, to a certain extent, volume has been going up, but there are other factors such as currency rates, as well as price fluctuation and ship and debit. Due to the way we do the transactions and the changes we've made, there is some impact from there. In order to run you through the details, we have prepared a slide. I hope I can give detailed explanations as much as possible. Another area of your interest may be utilization rates at our factories. There was an earthquake in March this year, as you may remember, and because of that, we experienced blackouts. There was an impact on production, and from the second half of March, we have inputted more wafers. Therefore, when it comes to utilization rates, they are extremely high on the surface. However, the losses associated with the earthquakes are not accounted for in the utilization rates. Therefore, it doesn't mean that the high utilization rates are going to directly translate into higher revenue going forward. We have also shown you a chart regarding the build-up of backlog, but this time around, we haven't included it in the presentation. Reason being, some analysts have been asking us about this before, but for the rest of the year, as well as we head towards next year, like last year, we have been engaging in an upgraded exercise like we've been doing from last year. For this year's backlog, we would like to go through a refresh. The current numbers, if we show it to you'll basically see that it has built up. We might give you expectations that may be misleading. That's why we have decided not to include that page in the presentation. For the backlog refresh, as well as for next year's order intake, so far, as of the end of July, we would like to conclude this process. We are working on that right now as we speak. If the timing works out well, in the next results meeting, we will be able to provide more information. Apologies that we haven't included that slide this time around. Also, from this time around, the PPA of Dialog has been concluded, the GAAP numbers include these numbers now. For CapEx levels, on Analyst Day, Mr. Shinkai, the CFO, has explained about this. When you look at the appendix, CapEx continues to be at high levels. Compared to sales, it's close to 10% of total sales. That's how high CapEx continues to be. This is also noteworthy. Finally, a share buyback has been announced, which is a considerable size, which we have announced for the first time. This concludes my opening comments. The CFO, Mr. Shinkai, will give you the details now. Over to you. Hi. Yes, thank you. This is Shinkai, CFO. Allow me to go over with you the first quarter 2022 result using my presentation materials. Let us jump to slide number three. First of all is the disclaimer, and you did hear from Mr. Shibata. We are now going to be reflecting PPA of Dialog, and so that's exactly what you heard from Mr. Shibata. Here, now we look at the first quarter result, and please look at the dark blue column. Revenue, that's JPY 346.7 billion, with a gross margin of 58.4%. Operating profit is JPY 135.5 billion, with a margin of 39.1%. Profit of attributable owners of parent, that's JPY 90.1 billion, with EBITDA JPY 155.2 billion. As for currency, you can see the rate here, versus dollar, that's JPY 115, and versus euro, that's JPY 130. If you look at the far right, you'll be able to see the change from the forecast, and this is something that I'd like to go over with you in the following page. Please take us to page five now. Here we look at the quarterly revenue trends. In Q1, you can see the bar on the far right. Overall, that's a year-on-year 70.2% growth, and QoQ, that's 10.3% growth for the total revenue. Excluding Dialog, it's 47.7%, and QoQ, that's 14.5%. For automotive and industry infrastructure IoT, you can see the details on the slide. You can see that, with the Dialog, for automotive, year-on-year, that's 47.59%, and QoQ, that's 17.0%. Likewise, for IoT, year-on-year, that's 50.2% increase. QoQ, that's 12.5%. Please move on to the next slide, page six. Here we look at the revenue and the gross and operating margin for Q1. First, the total figure is something I would like to highlight. Versus forecast. You can see that the details on the far-right box. First of all, as for the revenue, it has increased by 3.2% versus forecast. That's JPY 110.7 billion. Of course, there is the currency impact, which is 40% of the total of the difference. Otherwise, be it automotive, industrial, infrastructure, IoT. For automotive, there's 20%, and for industry, that's about 40% improvement. Now, what are the reasons behind the improvement? We have been able to see shorter lead time for what we produce internally, and then also we have been able to do better in terms of the outsourcing as well. Next, for the gross margin, we have been able to do better by 2.8 percentage points versus forecast. Out of that, the better product mix has been able to contribute 70% of this improvement. In other words, most comes from better product mix. As for the production recovery, it was a slight increase versus forecast. Because there was a stoppage of production and, because of the earthquake, I mean, the result, it was very flattish. Operating profit, that's declined by JPY 3.7 billion. That is why we have ended with an increase by 4.6 percentage points. Now, I would also like to highlight the QoQ transition. Again, for the revenue, that's JPY 37.2 billion increase. Out of that, 20% comes from currency, and, otherwise, automotive would have like 60% industry, would have like 20% contribution each. As for the gross margin, that's 4.2 percentage points or so improvement, but most of that comes again from the product mix. As for the operating expense, because of seasonal reasons, Q1, you can see the trend has gone down. That is why we have been able to see an improvement of 7.7 percentage points on QoQ. Now, for segment, you can see this more in the middle, but this time there is no highlight. I would like to just go further to slide seven. Here we look at the inventory, first of all starting with the in-house inventory. Of course, there's also the channel, sales channel inventory, but I'd like to talk about some of the trends as well as what kind of forecast we have. First of all, let us look at the overall, inventory. If you look at the far right, the company total, you can see the DOI figure. QoQ, it has increased. If you look at this per business unit, you can see the automotive has gone a bit down, but it is increasing on industrial infrastructure IoT. Moving on to slide eight. Here we look at the inventory for sales channel. Again, from this time, we have included Dialog. For 2021 Q3 and onwards, you can see the figures including Dialog now. Like, so again, total, QoQ, it has been increasing. If you look at the automotive or industrial, infrastructure IoT, they're both increasing QoQ basis. Moving on to slide nine. When we try to look at the reasons of this change of in-house inventory and sales channel inventory, the summary is here. We also do have some of our outlook from Q2 and onwards. First of all, starting with the in-house inventory on the left. What is really common is around the inventory valuation, in other words, increase in COGS, as well as the forex impact. Currently the yen is weaker, and so that is really accounting for half of the Q/Q change. This inventory valuation is something that we expect to continue to happen from Q2 and onwards as well. As for the materials, the supply, especially this, some of the materials, that is really short in supply, there is a lot of advance order and that is really accounting for 10% of this QoQ transition, and this is something that we also expect to happen on Q2. Especially because there is going to be this more advance type of order, making for some of the more supply-tight type of materials. Now, also, when it comes to the demand, it is basically something that we try to outsource. Also, for the front, for the some of the chip, nowadays, BGA substrate or testers, that always becomes a bottleneck, which is something that is always becoming an issue. The impact from the earthquake, some of the work in progress has been scrapped and so that amount of QoQ change is accounting for 20%. From Q2 and onwards, we still do have to make sure we be able to keep up with increased demand. At the same time, especially for some of the production risks, we do expect that it is still going to continue. Especially for the post-processing part. Also, for the finished products, there has been some impact from the Shanghai lockdown. That is why we have seen an increase in the finished goods, which is accounting for 20% of this increase in the finished goods. Now, logistics risk is something that, we expect to still linger in Q2. Again, the finished goods, we expect that the level pretty much would be the same, will be kept the same from Q1, into Q2 and onwards. Also, there's also some of the trends behind the sales channel inventory. First, with the, industrial infrastructure IoT. Now, ever since Q4 to Q1, some of the increased QoQ on an absolute value base and DOI, we are seeing some reasons behind that, which can be summarized into three bullet points. First is really about trying to keep with the increased demand. In other words, trying to make some advanced, sending or shipment. Especially, in Q4, there were some high demand seen in some of the key items, which we are now seeing a decline now. This transition is accounting for 70% of the QoQ change. At the same time, we're also seeing some impact of adjustment with ship and debit, which is also increasing value-wise of the inventory, which is accounting for 30% of the change. From Q2 and onwards, we still do expect that we will have to keep up with the continuous increase in demand. Within the channel, we have to make sure that we always be able to offer the optimal product mix. DOI, we expect there is going to be a decline. As for the automotive space, again, there has been some advanced shipments due to increased demand and also decreased production of OEMs, is also another factor that we are finding. In Q1, we have been seeing an increase. For Q2 and onwards, we still expect that there is still going to be some continuous increase in demand. Just like in industrial infrastructure IoT, we always have to make sure that we be able to keep a good inventory, product mix. Moving on to slide 10. Next is utilization rates. On a wafer input basis, we show the trends here. As Mr. Shibata explained at the beginning, on a wafer input basis, we show the trends, so this is not on an output basis. Also for Q1 numbers, for Yamaguchi and six-inch lines, it has been taken out of the denominator and that is why it is higher. On a wafer input basis, it was more than 85% utilization. For Q1, the number of operating days was less, so eight-inch QoQ decline was seen. For twelve-inch lines, like mentioned earlier, we were inputting more for recovery purposes. Next, please turn to page 11, where we talk about EBITDA and cash flow. It was JPY 155.2 billion in Q1, and operating cash flow was JPY 89.6 billion. Free cash flow was JPY 64.4 billion for the first quarter. For operating cash flow in Q1 and QoQ, decline is due to seasonality. Also, the cash out for CapEx was JPY 25.2 billion in Q1. For this fiscal year, we believe that the trends are going to be about the same throughout the year. Please turn to page 12. Here is the Q2 forecast. If you look at the navy part in the middle, for revenue, the midpoint forecast is JPY 375 billion on a QoQ basis. If you look two columns to the right, we're expecting +8.2%. For gross margin, we are expecting 57.5%, which will be -0.9 points on a Q1Q basis. For operating margins, our forecast is 36.5% or a -2.6 points on a QoQ basis. For currency rates, we are expecting JPY 124 against the dollar and JPY 134 against the euro. Let me also simply, briefly talk about the details. For revenue, FX impact is accounted for quite considerably. If you exclude that, close to 2% QoQ revenue growth is expected. For gross margins. For production, number of operating days as well as earthquake recovery is expected to be positive, but due to mix deterioration as well as raw material prices going up, we're expecting a net negative impact. For operating margins, for operating expenses due to seasonality, Q1 was low, but we're expecting a bounce back and then higher OpEx. Therefore, we're expecting margins to decline. Please turn to page 13. On March 16th, the earthquake occurred, and here we summarize the impact. In Q1 and Q2, you could see the details of the impact on the slide in the chart. Let's move on to page 14. This is about share buybacks. First of all, for the summary. About 8.65% of total number of issued shares or 168 million shares of common stock will be bought back. We have also entered into the tender agreement with INCJ for the equivalent amount. We will be buying at JPY 1,190 a share, which is a 12.44% discount to the closing price of yesterday, April 26th. The maximum total acquisition price will be JPY 200 billion in total. We will be able to improve the free float ratio, as you can see on the right-hand side, and also resolve the overhang concern. non-GAAP EPS accretion is going to be 9.5%. For the leverage ratio, compared to end of March, we will see a deterioration of 0.4 x. Moving on to the appendix, I would like to pick up some slides. First of all, let me talk about page 18, which is about the balance sheet. PPA impact related to Dialog has been retrospectively accounted for from this time around. Next is page 20. For PPA impact, we show the analysis here. Compared to the past two acquisitions, for Dialog's business and the product life cycle, it's relatively shorter, so the allocation to intangible assets is smaller and the amortization period is shorter. For the bridge, if you look at the right-hand side, due to the conclusion of the PPA, in Q1, it was JPY 27.5 billion, which will be a run rate going forward. Please turn to page 22 next. Here is CapEx trends. On a decided basis, about JPY 35 billion, more or less, will be the CapEx. The majority of it will be for production increases. We will also be investing into offices as well as future investments will be made as well. That concludes my presentation. Thank you very much for your kind attention. Thank you very much. Now we'd like to open the floor for questions. We're going to have Mr. Shibata and Mr. Kataoka also join in. Allow me to go over with you how you are to ask your question. The moderator will ask if you have any question, and if you do, please select the Raise Hand icon on your screen. We will select, call your name and company name in the order for you to ask your question. When your name is called, then, that is a cue for you to be able to speak up. Please make sure you unmute yourself in asking your question. Now, due to constraint, please make sure that you will ask a maximum of two questions each. If you have any questions, please raise your hand. From Daiwa Securities. Mr. Sugiura, please unmute yourself and you can ask your question. Thank you very much. This is Sugiura from Daiwa Securities. Thank you very much for taking my question. My first question is about your forecast for your revenue. In Q2, you are expecting some of the negative factors. For example, some of the product that had been disposed, it is not going to be shipped because of the earthquake. Also, there was a TI comment, but then in China, there was the Shanghai lockdown. So there is some expectation that you will have to suffer some impact. At the same time, in your plan on a Q2 QoQ basis, you expect that there is going to be a 10% increase in your revenue internally. Now how do you mean to offset some of the negative factors that I've mentioned? If you'd be able to illustrate that for me per application, that would be helpful. Now, we know that we are finding a lot of dampening economic sentiment. That could cause, for example, some demand trend. If you feel anything as such, can you also share that with us? Also, what do you expect to happen in the second half? That's my first question in regards to the revenue trend. Yes. The announcement coming from TI, yes, I understand that what is happening in China, it is fact that it is difficult to foresee. I think there was someone who commented this in their report. Compared to TI, I believe that we only have to suffer smaller impact from China due to our portfolio. We don't expect such a large impact as TI would be expecting. Of course, places like airports, we know there's a lot of congestion behind logistics. At the same time, it's okay, but when we look at our own plants, especially post-processing side, what could be the future impact? That is something that we have to say that it's a fact that we really don't know how to foresee this clearly. Of course, we have less visibility in terms of demand in that sense. I don't mean to deny risk. I don't mean to deny any chance of going behind our forecast, but I do believe the risk is still within a level that we'd be able to absorb elsewhere if something goes negatively against our expectation. Now, of course, there was the earthquake in March, and there was the blackout after that. We lost power, but that impact has all been included in the guidance that we are showing you today. Now, of course, there was a certain impact from the earthquake. However, we do find capacity to make some internal recovery. At the same time, our production partner that we've been working with since last year, they have been able to really take a deep step support. Even amongst our customer, there has been a lot of support. We through this trilogy or trinity, if you will, the impact from scraps, I think we have been able to control this pretty well. Of course, it's not that we've been able to nullify all the impact. Still, I think we have been able to manage the impact to a good extent. With all that, I think I can say that, yes, this guidance has already factored in all the risk factors that we foresee. Now, of course, you said per application, which is not easy. Especially a smartphone, especially in China, it's weak. Chromebook has become weaker since last year. Laptop PCs, anything from the consumer space, personally speaking, I am a bit doubtful. Now, the numbers that we can see within our system and what information we hear from the customers, if we try to just put the data points, we still are finding good trend, strong trend so far. However, I still do feel we have to be careful. I do have some doubts. Especially in these areas, there's always a mismatch of products, and it's something that we've been seeing since the latter half of last year. In Q1, there still have been some impact of that, and that is why we have been seeing an increase in channel inventory, sales channel inventory. Now, we are going to be optimizing that from Q2. That means we will be sort of controlling the top line to some extent for that. We are trying to just make sure we'd be able to reduce control all the sales channel inventory. Excluding effects, it's going to be a moderate growth of close to 2%. What we expect in the annual terms hasn't really changed from what I mentioned in our previous session. At the moment, what we are seeing seems to suggest a very good, healthy trend. Again, as you all know, a lot of just surprising change can always happen. I think I would like to just make my comment stop my comment to that point. Thank you very much. My second point is about the gross margin outlook that you would have. Within the second quarter guidance, you talked about the impacts of product mix, of some of the impacts coming from materials cost, and sequentially, you're expecting the gross margin to go down. On the other hand, when it comes to revenue, it is growing at this level. I was feeling a bit confused. I felt like you perhaps are having quite a conservative view. What kind of product mix do you expect to see? How much is that going to impact? What is going to be the material cost to change? For example, this product mix, is this going to be a tentative trend? In other words, from Q3, there's going to be a rebound. If you'd be able to share a little more on that. Yes. Thank you very much. I think, Mr. Shinkai can answer your second question. Yes. Let me try. Now, first of all, in terms of the worsening product mix, what's behind that? Now compared to Q1, we're basically talking about automotive, where the shipment is going out, which is going to be, relatively speaking, going to lower the mix. Depending on which quarter, of course, it is going to be a bit volatile. There will be some fluctuation. Now, when it comes to the raw material cost, from Q2 and onwards, I do believe we are going to be seeing more effect from Q2. It's probably going to stay at a relatively higher range or higher cost. At the same time, you mentioned about the revenue. Yes, I understand it does seem to be high, but then it is just going to be like a +2% growth excluding that FX. I think we do believe everything is aligned in that sense. Thank you very much. A follow-up question. On the material cost, when you try to procure the raw material, you're going to be procuring from foundry, and the cost is going to start impacting from this quarter, or are you talking about some of the raw material costs that you're seeing in your internal fabs? Both. All. Foundry, OSAT, and our internal factories, all materials, all the items, components that we need, as well as electricity. Related to that, in other words, the fuel cost, the surcharge is all going to kick in from Q2 and onwards. What is going to be your strategy action for that, if I'd also be able to ask that from you? Well, one thing is, first of all, try to work on cost reduction, so that, and also to make sure we be able to work to reduce the raw material cost. Of course, in a short time period, we need to make sure we procure ourselves, so we're not going to expect the raw material cost to start dropping that immediately. Also at the same time, we want to make sure we be able to transfer some to the price. Thank you very much. Thank you for sorry for taking time. Thank you very much. I know gross margin is going to be a bit of a challenge anyway. It's not that we expect that there's going to be a real healthy growth, so don't expect that because there's going to be the raw material cost. The raw material cost increase, the magnitude of that is really intense. Perhaps, sometimes, there will be some items that, the price is just going to go up by ten times, so we're not going to be optimistic here. Thank you. Thank you very much. Thank you. The next person is from Citigroup Securities, Mr. Fujiwara. Please unmute and ask your question. Hello, I'm Fujiwara from Citigroup. Can you hear me? Yes, we can. Thank you for taking my question. I have two questions too. The first one is for in-house inventory and sales channel inventory, you gave us the details. For the customer inventory that's beyond sales channel inventory, how do you view it? Especially for automotive, YoY revenue has gone up by 70%. When you look at channel, we have been seeing a slight increase. As automotive is not fully recovered, you may think that customer inventories are building up. Do you view it that way? And what do you think about the continuity of the current trends? Mr. Kataoka will take your question as he is here with us. This is Kataoka speaking. As you rightly pointed out, OEMs originally were planning an increase in production. However, they are not able to secure sufficient materials, and also there's impact in China as well. The impact for us is not that large, but we have the war happening in Ukraine as well. For OEMs, against their existing plan, they are reducing production. This is an impact that is coming through. From our point of view, when you look at tier one customers and their inventory levels, it has been increasing as a fact. However, it is not at a dangerous level yet. That's how we view it. Ballpark figure-wise, one or two months' worth is what we're assuming. For tier one, that is. Of course, it differs by product as well as by customer. We are in the process of optimizing, so with the customers, we are closely communicating. For products where inventory is building up, we will not allocate it to that specific customer. We will give it to customers that are asking for that product. We are taking those types of actions. We are not only optimizing just for automotive, but on a Renesas-wide basis. For 40nm, we have it for automotive. For 16-bit microcontrollers, we have it for automotive. If we think that it's growing for automotive, we will allocate it not for laptops. We are trying to optimize overall by taking these types of actions. That's all for me. For key customers and our product inventory levels, actually, we have a good idea of the details because we share the information with our customers. As Mr. Kataoka explained, although it was a little bit vague, for which products and how many are at the customer side and what kind of way it's being used, we are aware of how it's being used and how high the inventory levels are as we trace the inventory levels. Overall, although there is buildups in partial areas, we don't think it's fishy overall. We do believe we are still in a firm situation. Thank you very much. My second question is the following. You announced a share buyback worth JPY 200 billion, which is quite considerable. Regarding your way of thinking for share buybacks, there... Regarding shareholder return, is it going to stop here, or are you going to consider additional opportunities, whether it be for share buybacks or for increased dividends? Well, I can't really speak to the future, but at this point in time, for this year, I think, this is enough when it comes to share buybacks. That's all from me. Thank you very much. That's all from me. Thank you. Thank you very much. Next, BofA Securities. I'd like to ask Mr. Hirakawa, so please unmute yourself. Yes, this is Hirakawa from BofA Securities. Thank you very much for taking my question. My first question is again about inventory. I know you've been able to give a lot of details behind the inventory, but then I was listening to that. Non-auto versus IoT, it is already exceeding your target. Whatever I hear, even at the end of Q2, it seems like that situation is not really going to change. That was my understanding so far. I know what your intentions behind this, but when do you think you'll be able to come back to the more optimal target level? Can you share that with us? That's my first question. Mr. Shinkai, would you go for the first question? Yes. For the IoT for Q1, now, I did mention that there's the FX impact and also the valuation difference, which is included. That is what I said, which is in regards to the total company level. Also, from specific customers, there's just a business and, there's been some, for example, some delays, the timing, and that did impact the DOI. In other words, at the end of Q1, there has been an increase in inventory. However, when it comes to sales, it's something that, for example, happened back in Q4. If you look at QoQ, that seems to have declined the revenue. If you try to do some division, it does makes the figures seem to go down. If you try to level it down, you'd be able to find that I expect that we should be able to come to the more normalized level soon. That's my response. In other words, from Q2, for example, in the industry, infrastructure IoT, the DOI is jumping up. We can expect it's going to go behind that normal line level. Well, there's of course other factors, so it doesn't mean that it would clearly just go down below that range level. There are still some uncertainties before I'd be able to say that. This tentative spike, we're not that worried. I see. This is really going to be the more or less the level that you're finding. There might be some ups and downs throughout this year. Is that correct? We're expecting basically it's going to go below the spike that we just observed. Thank you very much. Also for the revenue for Q2, for FX, excluding FX, you said that it is going to be increasing by approximately 2%. On a volume basis, and if you try to look at this per product, the product mix, what is going to be contributing to the revenue growth? Mr. Shinkai, please. You talked about the volume as well as the product mix and how that contributes to the revenue. Now, I believe basically the contribution is coming from volume increase. I did mention the breakdown, but the gross margin, I talked about the gross margin, but next is going to deteriorate quarter-on-quarter. In other words, what is going to contribute to the revenue is going to be the volume growth. In other words, it's not really the price hike, it's the volume. That's correct. Thank you very much. Now that's all for my question. Thank you. The next person is from Nikkei, Mr. Eguchi. Please unmute and go ahead with your question. This is Eguchi from the Nikkei. Can you hear me? Yes, we can. Thank you for taking my question. Regarding the supply chain and upstream in procuring materials and also for downstream, regarding your products. First of all, for upstream and material prices increasing, for gas procurement, apart from Ukraine, there has been impact from Belarus as well. Do you expect that pricing pressure is going to become stronger? Secondly, for production volume, are you concerned about any supply constraints that may have a negative impact on production volume in upstream? For downstream, in the back-end process, there are some volume constraints due to some fab bottlenecks. I think you mentioned that earlier. For logistics and so forth, are there any risks that you will not be able to ship as much as you've expected downstream? That's my question. For logistics and shipment risks, I think, that's a constant. It's nothing new. You, for example, back-end process in Malaysia last year due to COVID was affected, and there were some disruptions. We believe these kinds of trends are going to be ongoing. It's a new normal that we're facing. For upstream, I think it was in the previous results call or in the Analyst Day call. We think we're going to be okay for the time being. However, compared to the first half of March, the impact from Ukraine has been changing in nature. Seems that the situation is going to be prolonged, and based off that assumption, we are conducting a review. Just to repeat, this impact is not going to be specific to us. Whether it be foundries or an industry-wide basis, we are having discussions around what kind of measures should be implemented, and we are starting to implement the measures where we can. Although there are uncertainties, we will be fine for the time being. Thank you. My follow-up question is for, material prices and pricing pressure with the increase, do you think the pressure is going to grow stronger? I do believe so. Because inflation is still ongoing, and for energy, I believe that, supply is going to become tighter. Pricing pressure is probably going to stay strong. Thank you. My second question is regarding, automotive. Compared to the first half of last year, seems that the supply situation is becoming better. For IGBTs as well as power and microcomputers that you supply, when you look at it by product, is there any difference regarding demand and supply? Are you able to respond to all of the inquiries made? Are there any differences? Mr. Kataoka will take your question. This is Kataoka speaking. For XEV, it is growing, as you know. Demand related to that, especially from China, where XEV is growing, continues to be strong. Even if we're able to ship, other semiconductor manufacturers are not able to supply in some cases. That leads to a decline in demand as well, but we don't want to speak about other companies. It happens on a case-by-case basis. Like I explained before, for the new products like R-Car and RH850, new products are currently ramping up. Therefore, demand is extremely strong in this stage, and we haven't been able to ship sufficiently in that regard. That's where we are right now. Thank you. Thank you very much. Next, from Goldman Sachs, we'll ask Mr. Takayama. Please unmute yourself. Thank you very much. Can you hear me? Yes. Now, I was listening to all the discussions so far, and margin management and top line management, I'd like to ask those two points. At the moment, margin management, so far, it seems like Q2 you're going to slip. After that, of course you've started with a very high point. What do you think is the optimal direction for you? Now, listening to you, I hear a lot of things about, for example, some of the non-auto areas seems like the growth is going to dampen and there's also some discussions about cost increase pressure, including raw materials. Are you able to offset that with product mix or a price hike? Do you think you'd be able to come back to that, for example, Q1 level, for our gross margin? When you looked at Q1, you mentioned that we're not supposed to expect even a step higher level. That I think that you're saying that we should not be surprised if the number starts to slide down. The margin level for Q3 and onwards, what is your view? That's what I wanted to hear a little more. Well, on a short-term perspective, especially on quarter by quarter, there will be some ups and downs, of course. But I myself, I don't want to just suddenly say we're going to aim for 60%. I don't want to be that simple. But then if it's going to be on a small ups and downs, then if we'd be able to talk about a range, I would feel comfortable, for example, if we're in the range of like 55%-60%. We will be making future investment. We want to accelerate growth. That's what I would like to use. For example, I would like to invest with that. For example, like 58%, 57%, 56%, of course, if it just keeps on sliding down, it would not be good. It doesn't mean that just because we're on, we're now looking at 57%, do we now have to jump back again to 58% or 59%? Do we have to push ourselves? I don't feel so. Thank you. What about the top line management? In 2023, I do believe it is quite difficult for you to speak on this, but looking at the order backlog, if you'd be able to take revenues from that, and you're talking about trying to freshen the backlog. What is the action that you're taking at the moment? And what will be your further action? What kind of assumptions or discussions do you have inside the company? And if you want to generate revenue, what is your top focus at the moment? I'm sure you'd be able to, for example, take advanced orders so that you'd be able to fix the type of numbers you'd be able to expect. But what kind of actions are you taking so that you'd be able to secure good revenue next year? Thank you. I think this is something that we did discuss in the previous discussions that we've had. There's this concern that perhaps this trend that we're observing right now would turn otherwise. If you just try to trace the backlog, it seems like it's always growing steadily in our case. We always have to ask ourselves, "Is this genuine?" Is this really linked to the genuine end demand? I always feel a bit uncomfortable when I look at the trend. This exercise that we've been doing from last year, would this suffice as we try to look into next year? We have to think about that. At the same time, we have to look at this high order, we also have to discuss, do you need this much? We actually are starting that type of discussion. Honestly speaking, maybe the level of order may not have to be that high if, for example, we'd be able to guarantee what we offer. That's the type of discussions that we might be able to have in the end. By doing that, we do believe we'd be able to sort of level off. That's how we expect for the backlog level to start to decline, and to also have a more new, fresh backlog for the next year. That's what we're trying to do in starting this round of talks with our customers. We have to relook at the order. If we look at the non-cancellable, non-returnable type of order, we have to discuss with the customers, is this really the amount that you really need? We are starting that type of dialogue. Depending on the application or sector, the level of visibility is pretty different. However, if it's an area where you can have good visibility, well, of course, backlog, it's not always linked to everything. This cloud data center, or if it's for automotive, we can expect some strong momentum. That's the feelings that we get. Of course, that doesn't exactly link to what numbers we'd be able to expect. We want to take the next three months or so that we'd be able to have better visibility on what numbers we'd be able to expect. To add, in the negotiations that you're having, I'm sure you'd be talking about the supply, the tight supply. In other words, there are a lot of discussions I'm sure you've had. For example, it's going to be tight throughout the year, or perhaps things might be better for the latter half of this year. What is the negotiation, the discussion that you have? Well, the discussion really hasn't changed. From the latter half of this year, there might be some level of normalization. That's my personal feeling. However, when we see strong end demand, then from that particular sector, some people are wondering that they may not be able to procure enough parts. We do need to separate what kind of discussions we're having. We're not talking about all parts because that's too early to come to a conclusion. When it comes to the products that we're providing, if we're finding that our clients are not able to suffice all their parts, we have to discuss how much we'd be able to provide, but we do believe we'd be able to strike the right balance of what we'd be able to offer on our front. For example, in the past, and it's something that still is going, but every day, I mean, there was the day when we were just looking around, everyone was just really surprised and just shouting about what kind of supplies they'd be able to secure. I think that situation is pretty becoming better now. Well, thank you very much for that comment. Thank you. Next, from UBS Securities, Mr. Yasui, please unmute and ask your question. This is Yasui from UBS. Thank you for taking my question. The first question is regarding page 8 in the presentation, where you talk about sales channel inventory. The intention of my question is, when you think about the current shipment levels, how much of that is customer or sales channel inventory increases, what is your estimate? How much of it is contributing to sales channel increases? For example, for industrial, infrastructure and IoT, it was up by 2 weeks higher. You could say that about 50%, 15% is contributing to sales channel inventory increases. Can you give us your sense on that? My second question is regarding share buybacks. This time around, it's from April 20 until the end of May. Is it, why do you have a period when it's just with INCJ? Because it's not a share buyback from the market. When you think about your next share buyback, is it also going to be from INCJ? If you have any thoughts around that, please share that with us. I will take the first question, and if there's any comments that people would like to make on our side, Shinkai-san will take that question. The second question will be responded to by Mr. Shinkai. Just to repeat once again, this is not on a unit basis. This is on a value amount basis that you see on this slide. The base price has been changing, and that has had a large impact. You need to understand that and take that into account when you look at the numbers. When you look at it on a volume or unit basis, we can only estimate because we don't have the exact number, but I don't think it's 15%. I think it's only about 2% for non-automotive. That amount, that's the amount of revenue that was for buildup of inventory. I do believe for automotive, it is leading to end demand, so we're not that concerned. But for industrial infrastructure IoT, I talked about earlier mobile, PC computing areas in particular are revenue that led to, just the buildup of inventory, like I was explaining earlier. Mr. Shinkai, do you have anything to add? Well, it's not something to add, but this page shows sales channel inventory. Our total revenue, we have, revenue that we sell direct and revenue that we sell through channels. For channel sales, it's about 60% of that. This is only about 60% of revenue. That's something you need to keep in mind when you look at this number, these numbers. Next is about share buybacks. Yes. For share buybacks, it's going to be the TOB methodology. For the tender offer period, it is the shortest period from a statutory basis. We have concluded a tender agreement, so based off that, we will be tendering the shares. Because it's a TOB, it is public basically until May 31st. That's all for me. How about the next round of share buybacks? That was my other question. Is it going to be from INCJ? I thought I didn't have to answer that question, and I thought we were done with this question. I really don't know. We haven't thought about that yet. It's a matter of doing this time around first. We'll look at the results. We'll look at the reaction from the market to think about next steps. That's our thought process right now. Thank you very much. Thank you very much. Now I know there are a lot of other hands being raised, but it is now time to close. We'd like to end the Q&A session. With that, Mr. Shibata, would you like to make a closing remark, please? Yes. I think we have discussed all our points already. Again, there's a lot of supply chain confusion which is happening still on a daily basis. We want to make sure we'd be able to cope with that, and that was exactly something that we had in mind in giving our results for Q1 and also giving our guidance. Now, also, in terms of the fundamentals, this is not just about supply chain, but there's also impacts from the inflation. What kind of impact would there be to the end demand, and how can we supplement if necessary, and what kind of action would we be able to take? It's going to be our focus from here. Especially when it comes to shipment, controlling the inventory, this is something that we have to think of. Internally, we're trying to control this on a unit volume base, not value base. If there's anything funny going on, especially, for example, for our second quarter, like I mentioned, it is going to be around PC. We're going to be coordinating some of the inventory. Perhaps at the point of first half result or perhaps later, we do want to address some of the data that at the moment we find a lot of noise. We want to make sure that we'd be able to have more clearer data we'd be able to show you by that time. Thank you very much for joining our session in spite of your busy schedule. I hope for your further support. Thank you. Yes. Thank you very much. With that, we'd like to end our FY 2022 Q1 earnings result call. Thank you very much for your attendance.