2019_2q_omron_e

37/42 Questioner(3)

Thank you for the presentation. I have 2 questions. My first question is about the inventory. If we look back over the past 10 years, recent levels are relatively high both in absolute terms and months of turnover. Could you provide a little more color about inventory? You indicated that you had moved to proactively procure components. Is the elevated level of inventory due primarily to higher component inventories, or have inventory levels for finished products also risen? Would you say that although the absolute level appears high optically, the provisioning you have done means that the net inventory levels are relatively healthy? Could you also discuss any specific measures you are planning to address the elevated level of inventory? (Oue) If you look at Q2 specifically, there is a relatively significant seasonal impact. As an example, for the SSB business, where sales tend to skew heavily to H2, inventory months as of Q2 tend to be elevated. For HCB, the peak selling season tends to be around Christmas or Singles Day in China (November 11), so we are typically building inventory ahead of this. There has been no change to this seasonality. In addition to this, there are special one-off factors impacting FY2018. EMC is currently in the process of optimizing its production footprint. There has been some inventory build related to the transfer of manufacturing as a part of this process as well. On top of this, as touched upon earlier, there was an increase in component inventory. These two factors are the major reason why inventory as of the end of Q2 is higher than normal. Could I ask for further clarification? Can you confirm that weaker IAB sales have not led to higher levels of inventory levels and that there is no unintended increase in inventory? (Yamada) As explained by Mr. Oue, there are portions of inventory that we are intentionally building in anticipation of selling seasons in H2. In addition, the slowdown in the market was sudden, so there have been some unintentional increases in inventory. The unintentional increases include component procurements as well as some finished products. That said, in our view, the scale of increases in finished product inventory is not large enough to be a significant cause for concern at this time. We did choose to do some provisioning but the product inventory in question is for products that are sellable. We should be able to reverse the provisioning once such products are sold. As such, we are not that concerned. Having said that, we certainly recognize that inventory levels as of the end of H1 are high and we view this as an issue to be addressed. We will be taking measures to address this by the end of the fiscal year. Thank you. My second question relates to OMRON’s ability to respond to change. One of the things you have emphasized is your desire to improve the company’s ability to respond to change. Given that the external operating environment is now in a period of flux, which calls upon the organization to show its ability to respond to change, what would you say OMRON has been able to do differently than before? If there is an example of how OMRON has responded differently this time, could you share it with us? As an example in IAB, I touched upon revolutionary applications within the context of the i-BELT business model. This model significantly increases direct interactions with the customer. For us it means that we can shorten the lead time in understanding specific customer trends. At the same time, this improved visibility is a double-edged sword in that it can lead to over-anticipation of customer demand. In instances where we have advance knowledge of our customers’ plans, we run the risk of running ahead in our preparations and procurements, only to have the customer choose to delay execution or reduce the scale of its investments. This has been a particularly acute issue this year in that up to only a few months ago, the market was extremely tight. This time around, therefore, it is true that the better visibility into our customers’ plans worked against us, since we acted in anticipation of the customers’ plans. In summary, there are pros and cons, but we have been able to develop stronger direct relationships with our major customers. I believe this is a significant step forward in enhancing our ability to respond to change. Thank you. Could you pass the mic to the person next to you please?