2019_1q_omron_e

30/36 Questioner(2)

Thank you for the presentation. I also have 2 questions. My first question is about the profitability of IAB. There is a slight overlap with the previous question, but in Q1, IAB reported a ￥7 billion Y/Y increase in sales, but OP fell ￥2 billion Y/Y. Normally, I would estimate a ￥7 billion Y/Y increase in sales would generate an increase of around ￥3 billion at the OP level. By implication, this suggests that fixed costs rose ￥5 billion. Alternatively, it could be interpreted to mean that, excluding increases in fixed costs, IAB’s ability to generate profits has deteriorated. Is this something we should be concerned about? First of all, IAB’s added value ratio has continued to improve. If you look at slide 5, we show increases in expenses such as fixed manufacturing costs, SG&A and R&D of ￥2.1 billion, ￥5 billion and ￥1.3 billion respectively. Roughly 60% of this approximately ￥8 billion increase is investments for IAB. These represent advance investments for IAB. The immediate impact on profits is negative, but these investments have a positive impact on the added value ratio as advance investments make it possible to roll out many new products with higher added value. We also have a strategic focus on areas with higher added value. Therefore, the added value ratio has continued to improve from last fiscal year. Thank you. My second question relates to the rising uncertainty on the back of US-China trade friction, which you referred to several times in the presentation. Are there specific developments you are seeing now, such as signs of changing trends in China? Can you be more specific about your concerns or comment on specific changes you have observed? I would be grateful for more information on this point. At this stage, we haven’t seen any specific changes. Normally, if we were heading into a recession, the first signs of change would come in capex spending. Typically when corporate managements start to harbor concerns about the economy, the first reaction is to curtail capex. Currently we are carefully monitoring the behavior of corporate managements in an effort to discern signs of change. Thank you. Next, the person in the third row, please.