2019_3q_omron_e

28/34 Questioner(1)

(Questioner 1) Thank you for the presentation. I have 2 questions. My first question is about the outlook for IAB. When do you expect to see a recovery? Which sector and geography will lead the recovery? I realize this is a difficult question, but please share your current view. (Nitto) It is indeed a difficult question to answer. Originally, we had expected semiconductors to recover in 2H FY2018 but we now think it will take a little more time. At a minimum, conditions are likely to be tough through 1H FY2019 in all regions. Furthermore, we don’t have much clarity on 2H FY2019 at this point in time. This is because we believe the current downturn goes beyond what we would expect in a normal cycle. At the base, we have geopolitical tension between the US and China, in which both are vying for technological supremacy. On top of this is a macroeconomic overlay, which is starting to be impacted by spillover from geopolitical tensions. That said, we believe the major underlying trends remain unchanged: global geographical diversification of production bases, labor shortages and shortages of skilled workers. As such, it is a question of how the US-China battle for supremacy is resolved, and the nature of the recovery in semiconductors. We do not have much clarity on timing, but we expect that once the core issues are resolved, there will be a strong and rapid recovery. On the issue of timing, I apologize but, frankly, we don’t really know at this stage. (Q) Thank you. My second question is about IAB’s channel inventory. You have explained the inventory situation at OMRON but can you provide some insight into channel inventory in China or on a regional basis? Is there a possibility that there is inventory build in areas where you do not have good visibility? (Nitto) From our perspective, we don’t believe there has been any effort to stuff the channel and we encourage our distributors to maintain lean inventory levels. However, within China, we think it is possible that channel inventory has increased very slightly, by around 0.1 months. Beyond that we have not seen much change in channel inventory and we believe overall channel inventory is less than 1 month. To the extent that there has been some variability, the range is of the order of 0.1 month or so. We believe this is true on a global level as well. Therefore, we would not expect to see a major drop as a result of inventory adjustments. We recognize there is a risk of a downturn in the event of a major decline in real demand. However, we do believe there is not much risk from the inventory cycle and that we have good control of the situation, including channel inventory. (Q) I would just like to confirm that you believe the downturn in demand you saw from December onward is not the result of inventory adjustments but a direct reflection of weaker end-demand or capex appetite. Is that correct? (Nitto) That is our understanding. For instance, we saw projects that were on the verge of a final decision get suddenly cancelled. This happened with some of our focus clients, the “Global 10,000” (G10,000) client base, but we saw more of this behavior in business we do through distributors. This appears to have particularly been the case for small- and medium-sized customers, who seem to have shelved plans due to a lack of visibility. We believe this is what drove the declines, rather than inventory issues. This is our current market view. (Q) Thank you for that very thorough answer. (Itagaki) Next, in the middle section, three rows from the front, please.