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- 00:28:50.0 Thank you. I have two questions.
First, the strong performance in Q1 was very impressive. However, with regard to China, the digital business, which includes smartphones, tends to be very volatile. Could you comment on the sustainability of underlying base demand, excluding digital, and the visibility that you currently have? For instance, do you have visibility beyond 1H into Q3 that suggests demand will remain solid? Can you see demand remaining firm in Q4? This is my first question.
- 00:29:28.0 China smartphone is the biggest swing factor in my view. In Q1, the major player in this field was actively investing, as you know, in preparation for upcoming new model rollouts. Q1 appears to have been a peak. This certainly contributed to the strong YoY growth. However, we were able to generate more than 20% YoY growth in the three other focus industries, supporting overall solid growth. We do expect this solid trend to continue although there may be a slowdown in smartphone investments. I apologize but I cannot comment specifically on ex-smartphone growth rates.
- 00:30:32.7 Thank you.
It sounds like we can expect a solid overshoot in terms of added value, using the breakout you show on slide 7. Related to this, on R&D, you had initially indicated increased spending which would depress OP by ¥8.3 billion but as of Q1, the net impact on OP was neutral. You have said that you will be proactively hiring for R&D for both IAB and the Other segment, but as of this point in time, have you been successful in your hiring efforts? Have you been able to fully deploy the R&D spend as planned? This is part 2 of my first question.
- 00:31:19.0 I will ask Mr. Takeda to respond.
(Takeda) In response to your question, our progress has been in line with plan. With regard to hiring, we are planning to hire several hundred people, including sales staff for the FA business; as of this point in time, our hiring is in line with plan.
- 00:31:50.2 Looking at it simplistically, if we divide the full year’s ¥8.3 billion by 4, I would assume there should have been a roughly ¥2 billion drag on OP in Q1 related to this. To arrive at net neutral impact implies there was a positive offsetting factor: what was it?
- 00:32:08.2 With regard to hiring, as we have said, progress is in line with plan. However, although we have completed hires, expenses do not kick in until the hires start working, which will come later. Therefore, for Q1, payroll expenses are not up that much. Payroll expenses will increase gradually over time as the new hires begin work.
- 00:32:35.4 Thank you.
(Takeda) Official start dates for Q1 new hires will be in Q2, so you will see an incremental increase to R&D spend from Q2, as alluded to by CFO Nitto.
- 00:32:47.2 Understood. Thank you.
My second question is related to your announcement of a share buyback. Could you comment on the significance of the timing of your announcement? Why now?
- 00:33:01.2 At a high level, our decision was based on the strength of Q1 results. Although there are a number of areas of uncertainty as we look forward, our basic assumption is that operating conditions should remain generally favorable. Although we are prioritizing advance investments, when we projected the cash position as of the end of FY2017, we felt that even after all of our expected investments for this fiscal year, our cash position should allow us to increase our shareholder returns.
That said, our share price has tended to be relatively volatile. The reason why we have chosen to run the share buyback program over an extended period of time is because we think this will allow us to maximize the efficiency of the program. As such, we will be buying gradually over time when we see opportunities. It is our aim to improve capital efficiency and enhance shareholder returns.
To date, our approach had been to undertake buybacks only after achieving a certain threshold level in cash above and beyond our needs. This time we felt it behooved us to be more proactive in this area as we try to improve capital efficiency. This is the backdrop to our decision this time around.
- 00:34:22.2 Understood. Thank you.
- 00:34:25.3 Next, the person in the front row.