2019_3q_omron_e

32/34 Questioner(5)

(Questioner 5) Thank you. The epicenter for what is transpiring now is China, in my view. We saw a similar sequence of events in 2015, which led to profit declines for the fiscal year ending March 2016. Compared to the last time, can you talk about what is different this time, in terms of how your customers are situated, or other changes? Which do you view as being more serious? Please share your views. Over the last three years, you have made significant improvements to the management culture. As a result of these changes, are you confident that OMRON’s resilience in responding to a downturn has improved this time around? Or is this downturn so challenging that you feel that the initiatives you have taken to date are insufficient to help you navigate the tough current conditions? Can you comment and compare the current downturn to the 2015 China shock? (Nitto) First of all, our business and how we are situated now are completely different from 2015. We are much more robust, and are significantly more resilient in the face of challenging conditions. Therefore, we are more confident about our ability to get through the current downturn. In thinking about what happened to OMRON in FY2015, when we had to revise down twice, it is relevant to remember that the main growth drivers were the Backlight business, which is now being targeted for optimization, and the PV inverter business. Neither of these businesses are part of the current core business, IAB. AEC was also growing at the time. These were the key drivers up to 2015. However, we subsequently determined that our core focus should be on IAB and HCB. At that point, the current head of IAB, Mr. Miyanaga, who was my predecessor in my HQ role, was assigned to IAB to review all of IAB’s strategies from scratch. As examples, the G10,000 strategy I alluded to earlier, or the innovative-automation strategy were developed and implemented by Mr. Miyanaga, including the requisite organizational and procedural changes. In the presentation, I talked about how sales from G10,000 customers have held firm and the weakness we saw came from other customers. In 2015, we didn’t have the G10,000 strategy and our business at that time was focused on non-IAB businesses. From that perspective, our business structure is now completely different. If you look at the headline forecast figures, there is a superficial commonality in the form of a major topline decline but the business now is completely different from what it was in 2015. The Backlight business is now being optimized. We have also eliminated or addressed low-profitability businesses through the PPM process. Although some of the business units that have been targeted are relatively small, as CFO I have been consistent in undertaking restructuring where necessary. From the perspective of how our customers are situated, I believe it is possible our customers in China are more cautious about capex this time around. In my view, macro factors, such as financial tightening, appear to have created a situation where there is no obvious and clear growth driver. The government has said that it will make investments, but at this stage it is unclear how much of an impact government measures might have. That said, our China customers must be able to compete globally. They need to address issues of labor or capacity shortages in order to compete with US players. There are winners and losers in China. The weaker players are simply being pushed out but the winners cannot afford to cut back drastically on investments if they wish to be globally relevant. Those who survive in China will benefit from a larger allocation of resources as the weaker players disappear, and will become stronger. We believe those Chinese players we have designated under the G10,000 strategy are those that will survive and get stronger. Given that we have already identified and are doing business directly with the winners in China, as long as we are able to address the needs of such players, we should benefit when the capex appetite in China recovers. Frankly, we are confident that we have gained solid traction and will see a rapid turnaround when Chinese investments resume. (Q) Thank you. (Itagaki) Are there any further questions? Next, the person toward the back of the room, please.