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- 00:49:25.0 Thank you for the presentation. I have two questions.
The first is about the numbers and the second is about your initiatives. Both are about IAB.
In looking at the Data Book, on page 3 you show the full-year forecast for IAB. You are projecting a ¥1 billion HoH increase in sales for H2 but profits to decline ¥4.5 billion HoH with the OPM falling from just under 20% to 17%. Should we assume that you have simply factored in a buffer to be conservative? Or, is there a specific reason why you expect profits to fall? For example, do you expect price discounting to go back to more normal levels? Please comment if there is something specific.
- 00:50:15.0 We have said that we remain committed to making necessary investments, both in terms of R&D spend or other investments that would be included in SG&A, such as measures to improve our sales capabilities. On the back of the strong results, we will be accelerating investments, including some frontloading, as we look forward to FY2020. This is why you are seeing some variability in OPM despite the fact that the added value ratio or GP margin is not expected to decline. We do not believe that our ability to generate profits will deteriorate.
- 00:50:54.6 Understood. My second question might seem a little mean. On your presentation of i-BELT, while I felt the concept is impressive and that you certainly have the capability to do this, given the fact that you rely on distributors to sell, when you talk about customer-centric sales, it doesn’t necessarily ring true.
I believe around 80% of your sales is done through distributors. As such, I question how much you might be able to do with i-BELT and how fast you might be able to ramp sales.
Also, you talked about deepening your engagement with customers through this process, including the use of the AI controller, but I think this presumes the use of your customers’ data. I believe that manufacturers are generally reluctant to share information with third-parties. So even if you do get access to your customers’ data, I am not entirely clear on how you might then be able to apply this in other ways. Can you comment on the issues and challenges you see?
- 00:51:57.0 Mr. Miyanaga will respond.
(Miyanaga) Thank you for your question. The products that Omron manufactures are technologically quite challenging. This is particularly true of IAB. Therefore, standard practice has been that the distributors are responsible for the actual transaction flows, but the real sales process, including the initial approach for solutions-based marketing has long been done directly by Omron.
We also have an SE team that provides further direct technical follow-up for the customers. Furthermore, on a global basis, we already have 10 automation centers with teams of engineers in place that provide more sophisticated technological solutions such as the function blocks we mentioned earlier. In other words, organizationally, we have three layers of teams in place to directly address the technological issues of our customers.
Separate to the transaction flow going through distributors, almost all of these teams are working directly with customers in make proposals in collaboration with our distributors. On the other hand, for business where the technological requirements are less challenging and it is simply about filling orders, we believe there are efficiencies to be had by using distributors for the cash-cow type of business.
We take more of a portfolio approach to how we address our opportunities, using a combination of methods. The solutions-based marketing is primarily done by Omron directly or those distributors or systems integrator partners capable of providing this level of service. Therefore, our business is not simply a business where we sell wholesale into distributors and have no involvement further downstream.
I believe that executing on i-BELT therefore is only possible because we have the organizational resources in place to do this. This is my first point.
Secondly, on the AI controller. You have asked a very good question. We believe it is possible to split this into two parts. What I mean is that even if the data belongs to the customer, the data is separate from the algorithm. I recognize that the line between the two is not totally clear. Realistically, we think it would be difficult to argue that we have ownership rights to data originating from a customer’s manufacturing process. However, we believe the algorithm that is used to input this data into the controller is an asset that belongs to Omron which we should be able to use as a basis for products.
Even today our products reflect the experience accumulated on site by Omron. There are general purpose algorithms that we incorporate into products that are based on our on-site experience. Obviously, i-BELT calls for a deeper relationship with our customers, but we believe that for the purpose of doing business, it is possible to differentiate between the data and the algorithms that are created based on this data.
- 00:55:25.4 That’s very helpful. Thank you.
- 00:55:30.1 Next, the person in the back.