Good afternoon, ladies and gentlemen. Thank you very much for joining us in spite of the busy schedule for the Renesas Electronics second quarter 2026 earnings call.

With regards to the starting time of this earnings call, I would like to deeply apologize for making the change on short notice. We have simultaneous interpretation channel available.

Please use the interpretation icon at the bottom of the screen to choose the language of your choice. Please, could I have the speakers turn on their videos, please?

In today's earnings call, we have our CEO, Mr. Hidetoshi Shibata, as well as our CFO, Mr.

Shuhei Shinkai, as well as our other staff attending this earnings call. First, we will have our CEO, Mr.

Shibata, give you an opening remark, and then Mr. Shinkai will be explaining about the second quarter earnings, and that will be followed by Q&A.

We're planning to spend a total of 60 minutes for the earnings call. The materials that are used in this earnings call are the same as the materials posted on our webpage IR site.

Mr. Shibata, please turn on your mic.

Hello, my name is Shibata. As Sato-san mentioned earlier, very sorry about changing of the time on short notice.

In regards to the earthquake, we've had to make some internal confirmation work, very sorry we had to change the time for this earnings call. As for this earthquake, of course there are some things that are not yet known, but overall speaking, the impact to our earnings should be limited.

As for the Nishiki factory, the back-end factory, the full production has been resumed and the impact seems to be limited. As for the Kawashiri, the front-end factory, this accounts for about 13% of the company-wide sales, and already the wafer testing has been resumed and in operation.

Now for the pure water and the water leakage, repairs and confirmation has been going on, and there has been some damages to the facilities which we are trying to repair and resume. We expect the production to resume on August 5.

As for the die bank and the inventory, fortunately speaking, we have secured those beforehand, we think that these impact on our performance should be limited. As for the Kyushu area, OSAT partner has been impacted by the earthquake as well, and as of today, their outlook, we think is going to be limited on the business as well.

All in all, the impact of the earthquake should be limited to our results. However, on the other hand, when it comes to our customers' situation, there are some cases that supply chain has been suspended, we need to be very carefully monitoring them in the future.

That is about the earthquake. In terms of the human safety and the injuries, it is limited and nothing serious.

At the same time, as for the Takasaki site, the 6-inch, the power plant that is for the front end and also for the power analog R&D site is also at this site. From now on, we will take our time and gradually suspend and close our operation which has been already announced, and please refer to that information.

In looking back the second quarter versus our guidance for automotive and IoT, both has been very strong, and we have exceeded our expectation. As for automobiles overall, there has been quite a strong demand, especially in Japan.

The Gen 4, R-Car, has been going very well, and from the first quarter, there has been some increase compared to the first quarter. In some cases, the inventory were too decreased, and then they had to increase it.

As for IoT versus guidance, overall, it is exceeding. For industrial, that is about data center and in China has been very strong, and it's exceeding the guidance.

For infrastructure, up until now, the GPU customers have been our significant customer group, but when it comes to ASIC, demand it is also strong, and which is exceeding our expectation. As for the IoT area, there are some issues of memory shortage in some areas, but as for our customers, the memory shortage issue has been absorbed to a certain extent, and we have strong sales for those customers who have secured the memory beforehand.

For the third quarter, like it was mentioned earlier, the impact of the earthquake to our business itself should be limited, but for the supply chain and the automobile, especially, we need to carefully monitor moving forward. Those are the unknown parts, but in terms of the automobile, overall speaking, versus last year, we are doing very well.

Sequential, the end demand we expect to be quite flat. As for IoT, we expect things to be quite strong continuously, especially industrial, and also in the infrastructure area, the strength from the second quarter should be continuing.

On the other hand, as for IoT, like I indicated earlier, the memory price hike and the memory shortage impact has been seen to a certain extent, and overall, we expect a slight increase. Like I mentioned earlier, for our main customers, I wouldn't say they were not impacted, but there are some customers who have been able to absorb their impact and which we would like to sell strongly, so that's why we expect a slight increase.

From the second quarter to third quarter, we expect the strong demand to continue. That is our current situation and the outlook for the third quarter.

That is my view. From now on, we will move on to our presentation and the details of the numbers from the CFO, Shinkai-san.

Shinkai-san, go ahead, please. Hi,

my name is Shinkai. I'm the CFO, and I will be explaining based on the presentation material.

Next page, please. Next page, please.

This is the disclaimer, and please refer to number 4, the timing business. The transfer of the business was closed on July 1st of 2026, and so with regards to that that the reporting segment for timing business used to be categorized for Auto and IoT, but it has been changed to others.

We are retroactively taking the changes for the comparison years to 2025, and this is it. Next is the overview of the earnings call.

Please refer to the bottom blue column from fourth from the left. Revenue is ¥405.3 billion, and gross margin is 58.1%, and OP margin is ¥132.7 billion, and OP margin is 32.7%.

EBITDA is ¥154.3 billion. Profit attributable to owners of parent is ¥113.3 billion, and FX is ¥159 to a dollar and ¥185 to the euro.

Please refer to the shade of four columns to the right for cumulative results. Excluding the timing business impact, the apple-to-apple-basis comparison year on year as well as QoQ is shown on the light blue column on the right-hand side.

On the next page, I would like to explain on the comparison against guidance as well as QoQ. Next page, please.

First, regarding the Q4 result against the expectation which is shown on the right-hand side, I will explain. In terms of revenue, it was 4.5% against the the forecast median, and it was an upside of 4.5%.

More than half was due to FX, and the others were contribution from the increase in demand for automotive and IoT. That was mentioned from the comment from Shibata-san.

The auto and the end market demand was very strong. Also for IoT, in addition to data center, the industry IoT and mass market were better than our expectation.

With regards to gross margin, which is the second line compared to the guidance, it was increased by 1.1 point. The factor was due to depreciation of the yen and also mix improvement and effective mix improvement accounted 1/3 each.

In terms of manufacturing cost, there's increase in labor cost and fuel cost and also maintenance cost increase were in line with the expectation, but inventory valuation that was considered more conservatively were contributing positive. For OP, it was 32.7%, and compared to the median, it was plus 3.7 points.

There was a significant upside. Revenue and gross profit margin improvement in addition to that there is a decline in opex compared to the assumption, and that accounted for more than half in terms of amount of more than ¥7 billion-plus opex reduction.

There are three major factors. One is about 30% is regarding the investments that we're considering where the execution was pushed out.

For example, like the hiring has been delayed or the arrangement with the partners has been delayed or the plan itself were revised, and we might have pushed it to the next period. Because of that, the expenses are expected to be postponed.

Around 20% or a little bit less than 20% are the ERP integration schedule was revised and was shifted to next year onwards. The company that was acquired, the ERP of the company were planned to be integrated and we're planning to execute that in the second quarter, but because of considering the recent supply situation, we realized that it this is not the appropriate timing.

We have postponed that to next fiscal year onwards, and the cost related to that was expected to happen this quarter, but it did not occur. The rest is the timing delay of project and also between Q1 and Q2, we were expecting some seasonal factors that were conservatively considered, but they're not they're not happening.

Next is the QoQ result. In terms of revenue, it was plus 9.8%, and gross margin on a QoQ basis was minus 1.0 point, and this is because of opex increase like a fuel cost and labor cost increase and maintenance cost increase were the reasons for the decline.

OP margin on a QoQ basis was 0.8 point decline. The major factors are the increase in operating costs.

Compared to expectation, the opex were much lower, but on a QoQ basis it has gone up, and half of were the one-time cost increase in the first quarter, and there's a rebound from that, and more than half are the increase in equipment, mostly the labor cost increase reflecting the bonus from Q1. On the right-hand side, you see the segment results.

There's not much to highlight, but the OP margin of Auto has gone down 0.9 point on a QoQ basis, and there was that rebound increase from the first quarter, and that has impacted the Auto business. Next page, please.

Next is the revenue trend on a QoQ basis. I have explained this in the disclaimer, and for the timing business in from the first quarter of '26, it's been categorized into others, which is shown in white, and you see the dotted line, but anything beyond Q1 is explained in the same definition.

In the second quarter, the results are shown on the right-hand side at the top. In total, on a year-on-year basis, it's 24.8% increase, and on a QoQ basis, it's an increase of 8.8%.

The segment breakdown is shown at the bottom, please refer to what's written on the bottom. Next page, please.

The next is about inventory. On the left-hand side, you see the in-house inventory in the second quarter.

On the QoQ basis, work-in-process products has increased mainly on a QoQ basis, and with the production capacity increase, the input has increased. Also because of the seasonality of mobile, we have been working on more products, and there's for there's more work in process.

For DOI, because of the sales increase, the DOI has gone down. For third quarter outlook on a QoQ basis, we're expecting inventory to increase.

We will continue to increase capacity, and because of that, the input will increase, and also die bank will be enhanced. Based on that policy, we're planning to increase inventory.

On the right-hand side, you see the channel inventory in the second quarter on a QoQ basis. The absolute channel inventory amount has increased, but WOI, because sell-through has increased a lot, the WOI has declined.

For Auto and IoT, we had are planning to increase inventory because of the demand, but we have been not been able to increase our inventory in the second half second quarter. In the third quarter, we will continue to increase inventory, but on the other hand, for WOI, because the sell-through size will go up, we're expecting WOI to decline.

On a segment basis, Auto, because of increase in demand, we will continue enhancing our inventory. For IoT, it will be the same in general.

We are planning to enhance inventory, but mainly around the data center segment, the sell-through demand continues to be strong, the WOI will look like it's going down. On a segment basis, there's some difference in color.

Next page, please. Next is related to utilization and capex.

On the left-hand side, you see the utilization rate, and in the second quarter, the actuals were 58%, and the input utilization has gone up compared to the forecast. In the third quarter, we are expecting this to increase slightly.

For capex, as you see here, in the third quarter sorry, in the second quarter, R&D investment were the main capex. Next page, please.

For the third quarter forecast, as you can see on the left-hand side of the please refer to the dark blue center of the table. The revenue median, ¥430 billion, the gross profit margin, 57.5%, operating margin, 32.5%, and exchange rate assumption is ¥159 to the dollar and ¥184 to the euro.

For each of the item, let me give you the background. For the revenue median, ¥430 billion, year on year is up 28.7% and it's up 6.1% QoQ.

As Shibata-san mentioned in the beginning, for automobile and industrial industrial infrastructure and IoT are expected to grow. For automobile, with China, mainly, the new product, the we expect to increase that is a 28-nanometer MCU.

Also, Japan, the channel inventory should be building up. In Europe excuse me, the industry infrastructure with a data center growth, we expect increase.

Also now the the gross margin, 57.5%, so that is down 0.6% QoQ. As for with the there is some improvement from the increased utilization, but with the margin expected to decline QoQ due to rising manufacturing costs.

As for the manufacturing cost, that is for the energy cost, the maintenance cost increase from the summertime. Also, as for the OP margin, 32.5% QoQ to minus 0.2% slight decrease we expect.

QoQ QoQ, the opex should be increasing slightly. As I mentioned about the second quarter results, those things that were not able to be used will also be shifted to the third quarter.

As for the FX sensitivity, you can see here with the ¥1 fluctuation, there is impact of ¥1 fluctuation of ¥2 billion to the revenue and ¥0.9 billion to OP in the U.S. dollar, and ¥0.2 billion revenue and ¥0.1 billion OP to the euro.

For the Q3 forecast based on the constant currency rates, the USD ¥100 and the euro ¥120, operating profit margin will be 27%. Please look at page 17, the GAAP overview, financial results of the GAAP.

In this second quarter, the net profit was ¥149.2 billion because financial income from Wolfspeed-related financial assets was recorded, and so that is a positive impact. Also, the as for timing business transfer gain is not included in the second half, but it will be in the third quarter excuse me, not in the second quarter, but it will be included in the third quarter.

This is about the update on the Takasaki site. Next page, please.

The impact of the Kumamoto earthquake on operations. This is the slide.

It's about earthquake, and that concludes my presentation.

Thank you very much. We will now like to move on to the Q&A session.

Shibata-san, please turn our video on. First, I would like to explain how we take the questions.

If you have any questions, please use the raise your hand button on Zoom, and we will be asking the company name and the name in the order of raising your hand. Once you are pointed, you are able to ask, please unmute yourself.

Because of time limitation, we are limiting two questions per person. Thank you very much for waiting.

Now, first, from BKBP, Kojima-san, please ask your question. Please unmute yourself and ask other question.

This is Kojima from BKBP. Can you hear me?

Yes, we can hear you. I would like to extend my deepest condolences for impact from the earthquake, and I would like to ask you the impact of the earthquake.

This time, the impact on the performance is going to be limited, is what you have explained. The impact of the earthquake itself compared to 10 years ago, is it fair for us to believe that the impact was smaller than 10 years ago?

The second is that I'm sure you're taking different countermeasures, but the restart of the operation seems to be pretty fast. Is there any effective countermeasure you have taken?

There are many things that are still under confirmation, but as of now, compared to 10 years ago, the impact from the earthquake is smaller. In the first place, the size of the shake in the factory, if we talk about the level of the shake at the factory, I believe was much smaller than the earthquake 10 years ago, as a fact.

Obviously, we had experience from the earthquake 10 years ago, and we have been gradually taking countermeasures against the earthquake, and in some cases, we have been placing the equipment on top of the anti-seismic facilities. In some cases, we've had some BCP inventory that we used to call a little while ago.

By taking those different countermeasures, well, the shake itself was smaller, and with the combination of those countermeasures, we are able to restart the operations earlier than before, and that is our assumption at this point. Thank you very much.

Thank you very much.

Thank you very much. Next, from Daiwa Securities, Mr.

Okawa, please ask your question.

Thank you very much for today. This is Okawa from Daiwa Securities.

I have two questions. One is that for the third quarter, the gross margin plan, I want to ask about There are some energy costs you mentioned.

When it comes to utilization and the revenue should be strong, maybe I'm thinking that my gross margin could be higher with a higher utilization. Like you have been mentioning about the data center complexity, and that's limiting the earnings increase, we know.

How do you view the gross margin moving forward?

Yes, Shinkai-san can answer that.

Yes, for the third quarter gross margin, QoQ 0.6% decrease is what I mentioned. When I break this down, the improvement from the utilization increase is 50 basis points plus, and the increase production cost is 100 basis points minus, and net-net-wise, 0.6 percentage point.

The impact from the FX is not so much. As for the mix, is almost quite flat, plus-minus 0.

As a result, as you can see, the impact of the mix is not really likely. Moving forward, the outlook, when it comes to utilization, like I mentioned, for the third quarter and the fourth quarter gradually will increase, and we will expect some contributions from those.

As for the manufacturing cost, and so because there are some hurdle costs that will be linked to it, and there's not much certainty about that, and I think after summer, it will be peaking out. Thank you.

Thank you. My second question is about the data center-related business.

This time for ASIC, you said have significantly increased compared to a plan. Is it about the share or the supply?

I think last time in the call, you said that might be a bottleneck, and is it that they turned out to be fine? Digital power and memory how do you compare them for the memory data center?

For the second quarter and the third quarter as well, as you can see from the major MPU earnings, the MPU has been very strong, and as a result, our memory interface as well has been growing quite strongly and continuously. When it comes to digital power, both as well is both strong.

As for digital power and memory interface, the difference could be that the spread of the customer base. For power, we have the ASIC customers, several of them, and GPU customers as well.

We have multiple customers as such, and for each of their products and depending on their generation, the share could be changing quite a lot. I think I would be repeating myself from before.

As of now, I think we are in a very good position. I'm confident about that.

In order to maintain our good position, we have to do a very strong execution. That is very important.

If we can do that, I think we will be able to maintain our high share. For the second quarter, what was very good is that based on our assumption, I think as of now, demand for the customers that we have been supplying quite exclusively have been very strong, and they are coming to us for their business, and that's why things have been very strong.

When it comes to supply, the WOI numbers, you can see in those numbers as well that we are seeing continuous tightness. Everywhere you look, everything seems very tight.

It's not like we had a breakthrough around that, but we have been trying to gradually increase supply. From here on until the end of the year and next year, the step-function type of increase is something we're working on right now, and if that could happen, I think we will be able to increase revenue based on the supply capability increase.

As of now, the incremental supply capacity increase is what we are working on and responding to the situation. Thank you.

Thank you very much.

Let me move on to Takagi-san from Sankei Newspaper. Please unmute yourself and ask your question.

This is Takagi from Sankei Newspaper. Can you hear me?

Yes, we can hear you.

With regards to the earthquake, I'd like to understand how you're going to communicate the information from the CEO. You mentioned that the impact on the performance has been explained, and you had changed the timing of the earnings call to confirm the status.

With regards to communicating the information, I'd like to understand how you think of the importance of communicating the information, and I believe this is important. There were other major earthquakes like the Great East Japan Earthquake, and also you had experienced the earthquake in Kumamoto 10 years ago.

Is there anything you were extra careful of in communicating the information?

This time, there was nothing particular, but ever since I assumed the CEO position, I have been trying to be most transparent about communicating the information.

I think there's confusion in the line. Yamamoto-san, can you mute yourself, please?

Thank you.

Therefore, we try to disclose as much information as possible. Of course, the situation can change, but at this point, for whatever information that we are aware of at this point, we have disclosed as much as we can at this point.

That's all.

Thank you. One more question is that this time the impact on the business performance is limited, and also the damage was relatively limited, too.

For the semi industry, the impact that's given on the economy in general is increasing. With regards to the overall recovery of the economy in Kumamoto, what is your intention, or what is your idea around promoting the recovery in Kumamoto as a region?

As soon as possible, we want to bring the utilization back to full utilization, and of course, we need to do some catch-up production as well. With that, we would like to try and recover the damage, and hope to major contribution as we can.

Of course, the economy is important, too, but most important is ensuring the safety of the lives and of the people. We're not an industry that has the strong foundation.

Compared to other industries, there's a limit to what we can do, but even with that, we will do whatever we can, and try and contribute as much as possible to have the situation recover.

Thank you very much.

Thank you.

Thank you very much. Next question from Mizuho Securities, Mr.

Yamamoto. Please ask your question.

This is Yamamoto from Mizuho Securities. Do you hear me?

Yes, we can.

I have a question about the semiconductor chip price. The peers have been hiking their price, and we hear news like that.

As for Renesas, for the automotive, IoT, and micro and analog, maybe by usage, by products, or you can tell us what's your view, and what's happening with the pricing? Any comments you can give us about the pricing in the current situation?

Yes, I understand what you're asking, because I have to respect one side and also the other side as well when I answer. From July 1st, some of the products, we have revised the pricing, and as a result, for the second half of this year, we will see the effect of that price hiking.

I don't think it's not like a significant price hike that become a news headline or anything like that. It's not like we have done so across the board or anything like that, but we have done the price hike for those that we really had to, and made our adjustments as such.

From third quarter earnings onwards, I think we will see the effect of those initiatives.

Okay. From the third quarter, all of a sudden the GM goes up, or it's not like that then, I see.

Because from before, you have adopted the surcharge system for passing on the cost hike to the price. With the tight demand and supply situation, maybe you have not really hiked your price.

That conventional system is still in place?

Yes, that's right.

I see. Thank you very much.

That's all for my question.

Thank you very much. Next, from Jomo Newspaper, Mashita-san, please unmute yourself.

This is Mashita from Jomo Newspaper in Gunma Prefecture. Can you hear me?

Yes, I can hear you.

Thank you very much. Earlier, in Takasaki, you announced the gradual closedown of the Takasaki factory in Gunma Prefecture.

I'd like to understand from Shibata-san, the CEO, in terms of the reason why you have decided to close down the Takasaki factory. According to the material, you mentioned that the basic policy is to maintain employment, I'd like to also understand your thinking about the employment.

As we have announced already, this is basically in line with what we have announced. Takasaki factory is a 6-inch factory, and ever since the operation started, it's been more than 50 years.

The semiconductor factories, of course, it depends on the companies, but ourselves, as well as many semi manufacturers, are not producing the production equipments themselves. Right now, the SPEs who are enjoying very strong performance are selling the equipment to us, and we're purchasing from them to conduct the production.

Unfortunately, 6-inch is a very old manufacturing process, and as the industry in total, the 6-inch manufacturing is shrinking. Taking that into account, the maintenance from our suppliers and also the supply of the parts are becoming more difficult.

In those lines, if we continue the manufacturing, if there's any problem with the manufacturing line that would impact the supplies right away, and also it would impact the quality right away. To our customers, we would be giving a significant impact.

Until now, we have been doing our best to do the maintenance ourselves, but at this point, that is becoming very difficult. We have decided to discontinue the production of 6-inch, and for 8-inch plus, where we can still expect the support from the SPEs, we are going to migrate the production and migrate into those products.

Employment is going to be maintained, and for the factory basically will be maintained, and for R&D, we are planning to increase the resources, and we are considering to continue the operation locally. In case of R&D, there are many heavy instruments for experiment, and it cannot be installed in ordinary office spaces, and so we are looking at the different locations.

The employees, we are expecting for them to demonstrate their capabilities in the other locations, and we will start communicating that to those employees. On the other hand, it applies to our factories as well as to the overall manufacturing industry, there's strong needs for human resources.

It's different to before. The employees have more options to choose from.

That is what we're seeing now. If they were to relocate and have to move to a different location, a lot of employees would prefer to work for another company, and for those type of people, we will work to support them to change jobs more smoothly.

Of course, ensuring employment is a very important thing, but at this point, the sensitivity at this point, at least compared to the time I joined this company, has changed. Right now it's easier for the employees to look for jobs.

That is the situation now.

Thank you very much. I have one more question with regards to the Takasaki factory.

I think is a very familiar business in Takasaki, and the residents and the partners have been very familiar with the factory. Shibata, if you have any comments to the people who are in the surrounding neighborhood, please share them.

Once again, for more than 50 years, we have been working with the local people, and the factory has been flourishing along with the local people. To the people as well as the local administration, I would like to thank you deeply for your support.

At the same time, because of the reasons I had illustrated before, physically it's becoming very difficult to continue the operation. I hope we would gain your understanding about the reason why we are closing the factory.

Because the factory is physically difficult to continue the operation, but for the value-added R&D efforts, we will continue the operation, and we will put in the efforts to try and enhance the R&D. Through those efforts, we would like to contribute to the local society, and we look forward to gaining your support so that we can work on the design and development of value-added semi, and we would like to develop the R&D with your support.

I look forward to your continuous support.

Thank you very much.

Thank you. Thank you very much.

Next question, Nishigata-san from NHK. Please ask your question.

Nishigata-san, we can't hear you.

Hello, this is Nishigata from NHK. Do you hear me?

Yes.

Hello. From Kawashiri plant, I want to ask you.

You said that you will resume production from August 5th. Is that going to be in full?

How long do you think you need to reach full operation resumption?

Yes. Now, we don't have a sure information about that.

Since resumption of our operation, maybe I think it will take 3 weeks or so. Of course, each day at a time, we will try to front-load and advance the full operation resumption so that we can report to you, and that you know that everything is back in normal.

As of now, we are expecting about 3 weeks to go back to full operation. That is our target as of now.

Thank you.

Thank you.

Thank you very much. Next, from Nikkei Newspaper, Ochiai-san, please unmute yourself and ask your question.

This is Ochiai from Nikkei Newspaper. At the beginning, you were saying that you're trying to clarify the impact, but you have a lot of confusion in the auto industry and supply chain, and throughout the region, there's a lot of confusion.

This is caused by reasons other than semi, but with the closing of your semi factories, is there any case where your semi products are going to be short in the customer side? Is there any concern?

Or because you were restarting the operation within 1 week of August 5th, is it difficult to see that the auto production is going to be confused?

Yes, I believe the impact right now is going to be limited.

That is great. Thank you very much.

Thank you. Next, from Daiwa Securities, Mr.

Okawa. Go ahead, unmute yourself and ask your question.

Sorry, this is my second time to ask. I have two questions.

One is about the demand environment for automobiles. Overseas semiconductor manufacturers, there are some restocking manufacturers and, or maybe there are some peers with content increase, they're working on.

How's your view on that?

I think both could work. It could be either case.

In case of our business, the Gen 4, R-Car and SoC, we have, and 28-nano MCU as well. I don't know if we can call it content increase, but they are the products that can drive new growth, which we can expect continuous growth.

For instance, let's say that that is the x-axis, and now I'm talking about the y-axis would be the customers' regions. As of now, looking at the situation, relatively speaking, of course, there are some ups and downs depending on the quarters, but as a trend, there are some trends.

The stable growth trend can be seen in Japan and China. On the other hand, there are some uncertainty in Europe, relatively speaking, and the U.S., I don't have a sense that it's going to grow so much, but I don't think it's going to go down, either, it's quite stable, I think.

In that sense, there are some different characteristics in each region, and so there are different product groups in each region we can expect, and also there are some product growth that can drive our business that could determine our growth in the future. As of now, compared to last year, I think we can see strong growth in a moderate pace continuously.

That is our view. In other words, it's not like we can expect a strong growth on and on, but we don't expect cyclical decrease, either.

It could be strong, but slight growth and in stable manner with some ups and downs. That is the growth trend that we expect in the future as of now.

Thank you.

Thank you. My second question is about the SG&A.

What's your view? With the system introduction, you have postponed the ERP release, and so R&D has been shifted, and so because I think you said 6 months ago that you will be more active about that, but with the production very active right now, is the SG&A going to increase gradually, or are you going to be trying to stop the growth of it at some point in time?

Actively speaking, mainly we will be using more SG&A for R&D, of course. We will be using those expense for the environment of the employees' workplace, and mainly R&D would be the target for the SG&A.

We don't expect the SG&A to increase continuously. I hope you don't misunderstand about that.

In terms of the ERP integration pushout, because we wanted to risk any risk that could arise. Like I mentioned in the earlier Q&A session, especially for data center, in a very tight situation, execution is the key.

If ERP should impact the supply in some cases, that's something we really want to avoid. That's why we decided to postpone in a very short notice.

As Shinkai mentioned, those things that were expected to be used turned out to be not used. I think when it comes to R&D, our long-term future growth, there are some capitalized investments and expense investments.

Rather than being very cautious about making investments, I think we want to build a very solid ground right now, and that's how we allocate our budget. My point is that if our budget is very tight, we don't want to really keep on saving money or anything like that.

We are allocating budget to be able to step on our accelerator as well, it's just that it is less than we expected initially. This trend, I think, will likely continue.

I think it's not good to really exceed the expectation neither, the financial outlook based on the guidance, I think we want to try to limit this volatility, so that we do some haircuts in order to do so, so that the range of the change we want to make in a moderate manner as much as possible. Once at the end of the third quarter, I don't know if we will be able to tell you the same thing, but we might need to increase more.

We try to limit the volatility range. That would be my comment.

Thank you.

Thank you very much. We have received some questions, but because we're getting close to the end time, we would like to close the Q&A session.

We will have Shibata-san making a closing remark.

Yes, I think I will be repeating myself, but when it comes to data center, it will be the main thing that is the data center and AI when it comes to underlying demand. The demand itself likely to continue very strongly.

As for consumers and IoT base, there are some mixed situation, but mainly around our main customers, I think we will be able to continue this strength in the business. Also with automobiles, like I mentioned earlier, at least by the end of this year, I think things will continue to be quite moderate and positive trend likely to continue.

Also for this outlook, I hope will materialize. We need to recover from the earthquake, and also the supply chain around the data center, execution is very important.

At the same time, for the mid- to the long-term investment as well as the post-earthquake and the Takasaki related support for the stakeholders will be provided so that we will be able to report to you on that in the next earnings call. We will kindly request for your continuous support.

Thank you very much for your time today.

Thank you. We would like to conclude the second quarter FY 2026 Renesas Electronics earnings call.