2020_2q_omron_e

35/37 Questioner(4)

(Questioner 4) Thank you for the presentation. I have 2 questions. My first question may be a little blunt for which I apologize in advance. Could you talk about possible negatives resulting from the heavy focus on improving IAB’s ability to generate profits? I understand that progress is generally smooth and that you are able to simultaneously grow sales while also improving the GP margin. However, the implied H2 forecasts beg the question of whether you are passing up opportunities to win business because you are overly focused on improving profitability. Is it simply the case that your forecasts reflect cautious assumptions? I would like to confirm that we don’t need to worry that you are losing share. (Yamada) We are not focused on improving GP margin at the expense of either share or revenue opportunities. The improvements in GP margin are a reflection of enhanced product capabilities. When you see topline declines of this magnitude, you would normally see manufacturing fixed costs increase, which would depress GP margin. However, we have been able to minimize such cost increases in percentage terms as a result of our improved product capabilities. That said, there is always the question of how aggressive we should be in pursuing business opportunities from the perspective of maintaining a balance with profitability. We are constantly grappling with this difficult question. The reason why we are choosing to focus on providing total solutions packages is because it prevents our customers from cherry-picking individual components such as sensors from other suppliers. The flying trigger solution we highlighted earlier is a single package that has been fine-tuned for a specific application. This allows us to sell all of the relevant components to our customers. This is how we want to compete. (Questioner 4) To reiterate, the reason why your forecasts look weaker than your peers is because your assumptions are more conservative; is that fair? (Yamada) I would not use the word conservative. We expect the current challenging conditions will persist throughout H2. (Questioner 4) Understood. My second question is about growth investments for IAB. In particular, I am interested in how you think about M&A. The acquisitions you have made over the last few years have allowed you to improve the product lineup significantly. Are there still areas within your product lineup that you feel are insufficient? Or, are you more focused in strengthening your engineering resources or software capabilities? Which areas do you think need to be enhanced? (Yamada) There are 3 areas that needed to be strengthened. The first is our SE (Sales Engineer) resources. As noted in the presentation, in conjunction with the build-out of our ATC locations, our aim was to staff the ATCs with SEs. We then invited our leading customers to collaborate with us at our ATCs to develop solution packages that addressed their issues. Our strategy has been to then package the resulting revolutionary applications (170 so far) for broad deployment. I believe we have largely secured sufficient resources in this area. The second area relates to our product categories, which we have described in the past as ILOR + S. I stands for Input-use sensors, L for Logic or controllers, O for Output, R for Robotics and S for Safety. From this perspective, there are still areas within Output devices where there is room to expand the product lineup with devices such as servo motors or other items that drive motion. Enhancing this area will come from a combination of improving our internal development capabilities as well as M&A. The third area would be channels that give us access to new customers, where we would acquire the channel by acquiring a competitor. This could be a strategy we could adopt in markets like China, India or South America, where our penetration is still relatively low. We could consider buying a local industrial automation player with strong ties to local customers, effectively buying the customer base. These would be the three areas in IAB that I would like to improve. (Questioner 4) Understood. Thank you. (Okumura) Are there more questions? Could you pass the mic forward please?