2019_1q_omron_e

32/36 Questioner(4)

I have 2 questions as well, primarily just to confirm some numbers. First, on IAB sales, China showed strong growth. Could you provide me with a breakdown by industry as well as commenting on the sustainability of the current strength, please? Earlier, you indicated that smart phone-related investments were weaker in China as well, which seems to imply that non-smart phone growth was more than 20%. Can you comment on the drivers? I realize that you don’t specifically disclose growth for the 4 focus domains, but could you provide some qualitative comments on where you saw strength and the sustainability of current trends? If we compare IAB for China in Q1 FY2018 to Q1 FY2017, last year’s Q1 was significantly pushed up by smart phone-related investments. The driver in Q1 FY2017 was smart phone-related. However, the situation was completely different in Q1 FY2018. Smart phone-related investments are down significantly this year, on dramatic cuts by Chinese handset makers. This had a major impact on our business in China. That said, other digital industries, such as semiconductors and others, have remained firm, offsetting the negative Y/Y impact from smart phones. The other focus industries, automotive, food & beverage and social infrastructure, continued to show double-digit growth. The 10% level we disclosed for China in Q1 reflects the combination of these industries. The overall growth rate for China has moderated relative to last year. We are seeing mixed conditions for the various industries but the reported growth rate is an aggregation of all of the industries. If we look at the fundamentals, while there is variation between industries, we believe we are well positioned to capture opportunities in order to grow our businesses. If that is the case, and I apologize for taking up so much time, although monthly trends are not necessarily meaningful, is it fair to assume that you have not seen any major changes in recent monthly data? We haven’t seen real change in the most recent month although we have a higher level of concern. As you are aware, it has become very challenging to predict the impact of global geopolitical tensions either in the short-term or the medium- to long-term. We are monitoring developments very closely but frankly speaking, at this stage, we don’t really know how things will play out. I would guess that senior managements and investors around the world would all say the same thing at this point. At this time, everyone is very concerned and we are all watching for potential clues. That said, if you look at the high-level global trends, such as labor shortages on a global level, or global demand to automate manufacturing, the underlying trends are unchanged. In the short-term, there is a lot of volatility related to geopolitical tensions. Obviously, we will respond to the resulting changes in the operating environment. However, in my opinion, it is more important to ensure we are positioned to capture the medium- to long-term growth opportunities in order to grow, as well as ensuring we maintain a good balance between responding to near term developments without losing sight of the longer-term opportunities. Understood. My second question is about the waterfall chart showing the Y/Y changes in operating profits. Earlier you commented on the rough segment breakdown for the increase in SG&A. On a full-year basis, you have indicated that SG&A will increase by ￥14.6 billion. Would it be possible for you to tell me how much of this would be for IAB? Also, given that the increase reported in Q1 was relatively large versus the full-year plan, could you provide specifics about the advance investments you made for IAB in Q1? Was it headcount or facilities? I would like to assess the impact going forward, so I would be grateful for any information you could share. On the increase in SG&A on a full-year basis, investments for IAB will account for around 60 － 70%. In terms of how to view the expenses incurred in Q1 relative to the full year, I touched upon it during the presentation in talking about enhancements to our front office capabilities. In terms of expenses, we incurred expenses to expand our network of ATCs. As well, we have been hiring talented sales people and, in particular, sales engineers on a global basis. We believe this will be a key contributor to our future success, so we have been accelerating our hiring activity. On the investment side, we have been accelerating investments for IAB during FY2018 and we expect we will gradually get to a cruising altitude. The key will be ensuring we can fully capitalize on the advance investments made so far over the remainder of FY2018. I understand. That means that we should expect to see the Y/Y contribution from added value grow in magnitude from Q2 onward. Is that fair? That is certainly what I am hoping to see! Thank you. Could you pass the mic along to the next person, please? Thank you.