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- 00:57:48.8 I have two questions. On the four global focus industries, because you have aggregated sales into a single bucket, frankly I don’t really have a clear sense for what is actually going on. You talk about the digital industry, but this feels like you are using analog-era terminology to describe the industry. You say that you can leverage program controllers to capture the OLED and semiconductor investment boom and I understand that this is driving sales of higher value-added products, but can you provide more detailed information on this? In my view, this is really the only meaningful takeaway from your results and the ability to assess this is therefore very important. Can you provide a breakdown of sales and a more detailed explanation, please?
- 00:58:48.2 I apologize but we do not disclose the breakdown of sales for the four focus industries because of the strategic implications such disclosures would have on our business.
- 00:59:03.0 I also feel that talking in broad brushstrokes about the strength in China smartphone is potentially misleading. Investments in semiconductors and OLED are increasing, so I would expect that players in adjacent areas such as yourself would be carrying significant order backlogs. It appears that the vast majority of players are unable to fully meet demand. My guess is that it is precisely because OMRON also finds itself in this situation that you have been able to achieve a dramatic improvement in margins. However, the China smartphone market is already fully mature and is effectively no longer growing. Despite this, you claim that OMRON’s performance is driven by the strength of China smartphones. I question whether it is advisable to make this attribution. I think you run the risk of sparking concerns in the minds of investors. Already, the China smartphone market is dominated by only four players, Huawei, Oppo, Vivo and Xiaomi. What I have heard at almost all of the analyst meetings I have attended so far is that the four China smartphone players are currently adjusting production amidst talk of a capex overhang. In spite of this, you claim that IAB sales has grown on the back of growth in China smartphone investments and expansion of production lines. Given the backdrop, as it stands, I do not find your statements very convincing. I understand that you cannot disclose a sales breakdown, but can you at least provide a better, easier-to-understand explanation of what is happening specifically with semiconductor, OLED and smartphone investments?
- 01:00:58.6 OMRON is in the business of providing manufacturing equipment. When we say China smartphone investments, our business is not limited to only the Chinese smartphone players. We are supplying equipment for the production of smartphones taking place in China. This includes the smartphone handset manufacturing by the global players at their own plants in China as well as at the EMS players with whom they are partnered. The end customers are expanding their production capacity and designating equipment vendors throughout the supply chain. As the global players prepare for the rollout of new models, we saw a significant increase in investments in China. So when we talk about China smartphone demand at OMRON, we are not just talking about the four local China handset makers.
- 01:01:44.8 What you are saying still does not align with my understanding of the market. If you combine all four or even the three largest China smartphone players with Samsung and Apple, essentially, they represent the market. My understanding is that we are already at zero growth for handsets as a whole. On that basis, therefore, I still do not understand what further value can be added, and what added value you provide that is prompting an increase in investments. In the absence of a more detailed explanation of what it is that is driving IAB growth, I fear that the strong growth we have seen may be no more than a one-off. Obviously, I do not doubt that the growth you are seeing is real but what you have said so far makes me worry. It would be helpful if you could provide a more detailed explanation.
- 01:02:35.0 Our focus industry strategy as applied to smartphones is not limited purely to handset assembly. Our definition of digital goes beyond end products to include more basic devices such as semiconductors and passive components that are the building blocks for the end products, the production equipment used to make these building blocks, as well as the basic control panels going into this production equipment. In other words, for the focus industries, we are covering the full value chain upstream from a particular product. Therefore, when we say smartphone, we are referring not only to the actual handset but the entire value chain related to the end product, including the basic elements that go into the production equipment for components. It is the totality of the value chain that we are referring to when we say digital. Furthermore, smartphones are not the only source of demand in digital. We are also seeing IoT-related demand, as an example. We cannot disclose further details of what and where but as an example, we are seeing an increase in semiconductor investments related to data centers. Semiconductor investments have been generally strong recently on the back of data center and smartphone-related demand.
- 01:03:25.8 Thank you. So in other words, given that semiconductors may be the easiest to understand, the best way to understand it is that you are seeing demand emerge from across the processes related to semiconductors. Thank you.
- 01:03:42.5 Thank you. We will close the Q&A session. We would be grateful if you can take the time to complete our feedback sheet. This concludes the Q1 FY2017 results briefing for OMRON. Thank you for your participation today.
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