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Hi. Can you hear me? First of all, we would like to go to the fourth slide. And on Page 4, you can see the summary of the quarter. You can see 4% increase on net sales, and we have also shown an 11% increase in operating income. And we're seeing this in terms of year-over-year growth. As for goodwill amortization, you can see that there is an increase by 12% on a non-GAAP basis. And in a pre-GAAP basis, yen-denominated basis, it's plus 1% and 3% on a non-GAAP basis. And also, if we exclude currency exchange rate fluctuations, there is an increase by 7%. And so for the first time, we were not able to visit our customers. But in terms of net sales as well as operating income, we have been able to generate results. So this is a major highlight of this quarter.
In regard to our progression against the plan, if you look at this, we are looking at this in terms of last year's results. And in blue, we are showing the results of this fiscal year. You can see that in terms of operating income, in regard to the situation here, we'll be explaining about why we have this particular situation. But in terms of the business trips and so on, there had been certain types of expenses that had been planned that had not been used. And so therefore, this has impacted our operating income. But as things normalize during the second half, we believe that it will come closer to plans.
And here, this is the numbers for a dollar-denominated basis. On a yen-denominated basis, we're looking at net sales growth by region. And then Page 8, you can see net sales growth by region. And it's minus 1% for North America, but for other regions, we are seeing growth. As for North America, in regard to what happened, there will be materials to explain this, but the first point is that there has been a decrease in the consumer sales, and there was also the network security TippingPoint impact for the second quarter.
If you look at Page 10, this is on a constant currency basis, revenue growth. And the -- if we exclude the acquisition of TippingPoint, there had been a 6% to 7% growth rate, and we have 7% impact if we exclude the exchange rates for this particular quarter, and we are seeing this impact here.
If you move to Page 11, this is the sales by segment. And in Japan, for both consumer and enterprise, we're seeing growth, especially in the enterprise market. Because people are working at home, we have seen very good growth in Virus Buster sales, as for the -- there has been network-related sales for the enterprise bucket, but then it's a negative number for North America for the consumer market as well as the enterprise market. This is because of our sales channel in North America. And there is a decrease in overall sales in the North American market, and there's also a TippingPoint impact. The reason why the revenues for TippingPoint has been going down is because there is a certain amount of share that is being taken away from us. And we have this impact as well of firewall and IPS that is switching to next generation.
The next for the enterprise market, Hybrid Infrastructure protection and User Protection, we are looking forward to double digit growth in sales. And in User Protection, we're seeing negative results. But overall, it has been an 8% increase in User Protection, it's minus 3% year-over-year basis. We had not anticipated a high-growth rate, but, on a year-over-year basis, we have these negative numbers.
Next, this is something that we have been disclosing starting this fiscal year for the SaaS-deployed instance growth. And once we entered June, and we're seeing things flat compared to the previous month, but there has been a switchover to these kind of products. And compared to the previous month, it may seem that things are flat, and we have not disclosed yet. But for July, we see that, once again, we are seeing increases. So we're just seeing a temporary phenomena here in June. There may be some cases where there are decline in the numbers, and we do believe that there may be some decline that can be anticipated for this particular year.
This is the percentage of share by region, and then the pre-GAAP sales is shown here. This is shown on Slide #16. And if you look at Slide #16, you can see the revenue before adjusting deferred revenue. So it's on cash based terms. So if currency exchange rates used for 2019 are planned for 2020, then we can see that we're seeing a slight growth in Japan. It's flat in North America and plus 6% for APAC, Middle East and Africa. And we had to look forward to growth in Japan and EMEA. And so we are following our plans accordingly.
This is Page 17, looking at the growth of our revenue and pre-GAAP numbers. In terms of enterprise versus consumer, in this quarter, work-from-home demand has made great contributions. So pre-GAAP consumer revenue net sales is quite high. Virus Buster sales from Japan is a major contributor.
We move to Page 18. Deferred revenue, there is nothing special to comment.
Moving on to Page 21. This is our cost structure. Compared to the first quarter, which was the previous quarter, the second one from the top, stock options, acquisition-related costs has increased in the second quarter by about JPY 600 million. Major factors include stock price changes. When the stock price goes up, there are some stock price-related compensations. And also administration costs, this is actually down by about JPY 1.7 billion compared to the previous quarter due to lack of travel. This was not a planned reduction, but compared to the first quarter, more people are working from home. And customer visits are banned, and, therefore, we are seeing some savings there.
Below that, you can see the green line, cloud JPY 2.2 billion, and which is 70% growth compared to the previous year. SaaS agent, again, is growing at 70%. So SaaS business growth is causing the expenses to go up. But it's not a negative factor for us. Trend Micro's customers and products are shifting more towards SaaS. So from the investor's perspective, you can see how much cost increase is related to this particular segment of the business. Other than that, I have nothing to comment on this slide.
Moving on to Page 23, cash flow. 41% year-on-year growth from the operating cash flow, operating activities. Major factor is accounts receivable collection, but even when we exclude that, we are seeing a double digit growth. For this quarter that's just ended, there's been some negative impact on the economy in general, but our cash flow seems to be quite solid.
Page 24 shows the headcount status. In the previous quarter, there was a minor decline. But we didn't really hold any hirings. We want to continue to hire as planned, but it is difficult to conduct interviews. And the hiring managers cannot really see the candidates face-to-face. So it's challenging for them to hire those people. So we have increased headcount by 90, but we are still recruiting many positions. In the second half, we will continue to see the increase in the headcounts, mostly in sales, marketing. Because we are covering a bigger product portfolio, we want to strengthen our sales force so that our customers will use more Trend Micro products. And secondly, SaaS products and next-generation products, we're really focusing on those. So we are trying to increase the research people there.
Now summary over this quarter, operating income is up, but ordinary income is down. This is mostly down to the exchange loss. In the first quarter, we had exchange profit of about the same amount. So 10% net income growth is maintained for the first half. So although we have a negative ordinary income for this particular quarter, for the 6-month period, this is going to be offset by the exchange gain that we had.
Moving on to Page 27. This is a Q2 highlight. Despite the fact that there were no customer visits, both the revenue and operating income grew, which is the first time for Trend Micro. And the consumer business in Japan is growing very fast, and the operating cash flow was very strong.
Page 28 shows the lowlights. Again, it's the same thing. When we cannot visit customers, it is extremely challenging for us to acquire new customers. We have to sell additional products to existing customers. We already have established relationships, so it's easy to talk to existing customers. But new customers means that we have to win them over from competition, so simple online communication will not suffice. It's very much limited. So without actual physical visits, it's very difficult to acquire new customers. That's a negative factor. And TippingPoint sales has declined in the second quarter.
Moving on to the 6-month period. Page 30. 5% increase in net sales and 7% increase in ordinary income because of the offset of the exchange loss; and operating income, 10% up, and the net income is 11% up. Nonoperating items don't influence these numbers very much.
I will skip some slides and jump to the projection, the annual projection on Page 36. This remains unchanged. 3 months ago, we said that it remains unchanged, but the factors behind this is different. COVID-19 had a major impact from March, and the long-term outlook was completely invisible. Environment was very uncertain. So if we want to change the projection, we have to work into the assumptions. So we decided not to change the projection. This time around, the reason is different. As you could see from the previous slide, we could maintain increased sales and gross profit even in this quarter, which means, in the second quarter -- excuse me, second half of the year, we are expecting the environment to improve somewhat compared to the second quarter. It may not recover very quickly, but slowly. We are beginning to get in touch with our customers, so we are expecting our projection to play out as we had expected.
And that's all for me. And if there are any questions, I'd be happy to provide more details. Thank you very much.
This is Eva Chen. I'm CEO of Trend Micro. I'm here to talk to you about how to enable resilience in a changing world. No doubt we are in a changing world, and cyber security is an ever-changing industry. I think when you choose a cyber security solution, you are not just buying a product. You're choosing a partner that's traveling with you to this changing world. And therefore, you're probably not just want to know what technology you have or what product you -- do you build. You probably want to know about, who is Trend Micro? Who is this company that I'm going to travel together? So I'd like to take this chance to talk about who is Trend Micro and why you can trust Trend Micro as your cyber security partner.
Trend Micro has -- exists for 30 more years. 30 years ago, I co-founded this company, and we were very -- simple focus. We want to have -- provide peace-of-mind computing to all the PC users. Along the way, for 30 more years, we kept that simple line security. We only do security for 30 years. And I'd like to think those 30 years is like a symphony, the same thing, but we have different chapters. Every time when there's infrastructure change, when there is user behavior change, when there is threat landscape change, we need to change our solution to adapt to the new changing world. So 20 years ago, we come out with Your Internet Virus Wall [ when connect ] just come to exist. And 10 years ago, we were the first one to provide the cloud security, and we want to secure the customers joining to the cloud. And now in this super hyperconnected world, we are -- our mission is to secure your connected world.
So Trend Micro, over 30 more years, we have built to be a strong, resilient company that can be always here for you for cyber security. What kind of company Trend Micro is? First of all, people. Trend Micro people are very passionate about security and very passionate about people because security is about protecting people. You want trend there to be the people who care about people. I think you can -- we can show that. During this pandemic time, I'm really proud of Trend Micro's employees. Not only they were protecting, we make sure they are safe, they work from home. But we -- trenders worldwide using our global infrastructure. We donate sourcing the necessary PPE and donate to all the organization that is in need and helping other industry that is in need. So people. And these are the people that realize that we need to always put customers first, not just our solution first.
When trenders come to you, when Trend salespeople come to you, you might find that they are not pushing our solution so aggressively against competitors because in Trend Micro's people's mind, we are helping customers to build a safe, secure environment and our only competitor is hackers. We want to collaborate with all the other security vendors so that we can together provide our customers successful cyber security.
And lastly, Trend Micro is very financially very strong. We have $1.5 billion in revenue in 2019, and we have been profitable ever since we go IPO. Why is this important? Because when the world is changing, we have the financial stability to keep our experienced researcher together with Trend and continue to build our knowledge. And during those bad times, we have the money to invest in R&D and continue to provide new solution for our customer. So with these people, customer-minded, customer-first mindset and financially strong foundation, Trend Micro will be able to help customer to using new technology. And together, we can transform our cyber security, adapt to this connected world.
What is this connected world? I think we all see this new technology, cloud, IoT, big data, AI, automation, 5G is going to be more so. All of this new technology, certainly, new things and good things. For instance, it can prevent up to 95% of the adverse drug event, even enable the mobile payments. And of course, it will transform our new lifestyle. For instance, especially in this pandemic world, our shopping behavior have changed and switched to online shopping. And in the factory, also, still, we can see the Smart Factory. It will reduce the planned outage by 50%. So all these are great things, but, unfortunately, all of this also means that we are even more relying on digital information, digital infrastructure. And therefore, this type of transformation has introduced new risk. Cyber security becomes even harder and hacker are become even more malicious and determined.
We saw that 73% of our organizations had at least one breach last year, and 21% had 7 or more. So experience breach is almost not like -- who will experience breach is plain. And all this risk, we've seen, sadly, is a challenge in light of COVID-19 in the pandemic world, because of more work from home. Therefore, the shift in additional infrastructure needed to support the remote working needed for greater agility and flexibility. And the hackers, we've seen that 220x more increase in spend from February to March and 260% increase in malicious URL hits from February to March. Every hit means a risk introduced into an organization to have the breach to [ rehappen ].
And therefore, we think in this era of digital transformation, we need to -- we believe that organization must be resilient, resilient to attacks, resilient to outage, resilient to breach, so that we can keep the organization to prepare for, withstand and rapidly recover from cyber threats, so they can be free to go further and do more.
That's why, in Trend Micro, we believe all this transformation, digital transformation that customers are experiencing such as multi-cloud migration and new cloud-native application. These are the important transformation. We also see that services moving to the cloud, more and more organizations are adopting the SaaS solution and users are work from home and more mobile. And the manufacturer, the extended network and operational technology would enable more this automation or the different type of industry.
So in this transformation, cybersecurity is very difficult to detect and respond because we are experiencing all the different type of security tools. And even though we have all the [ sense ] and technology, but there's a overload and silos of visibility that make threat hunting and skilled -- the threat experts hard to perform their jobs.
So Trend Micro's solution we introduced is -- we believe that we need to have a platform to enable our customer to have total visibility and detection and response coming from all the different infrastructure, including hybrid cloud, including user environment and in the network defense. So this year, we introduced cyber security, the Trend Micro Cloud One platform for security services platform for the cloud builders. So when you're transforming your infrastructure to cloud or you're building the new platform, new application on the cloud, you can use this platform for compliances, for scanning and to secure the workload. All of them are integrated in the Trend Micro Cloud One platform.
And on the user side, we can detect and respond from Endpoint, from email, from network, from server, from cloud, integrate all of this solution. You have the [ cloud, whole ] visibility to see where this threat come from? And how do I prevent and recover fast from this type of attack? And on the network defense, we expand our solution to not only for the traditional PCPIP or work -- office work. We expand to IIoT, IoT solution for Smart Factory, for connected consumer and connected car.
All of this solution is delivered with our cloud excellence. Cloud excellence means that we fully leverage the power and agility of the cloud, and we have focused on delivering this solution through SaaS deployment. We are seeing a lot of our new customers and old customers moving to our SaaS solution. Now this -- up to this year, we already have more than 300,000 customers with SaaS deployment.
And in Trend Micro, with all of these solutions, we are recognized by the industry leader -- as the industry leader by industry analysts in all of the different enterprise security layers, Endpoint protection, email security, cloud workload security and detection and response.
So all this are provided from a central intelligent -- threat intelligence Trend Micro research group. From this research group, we have 15 research centers around the world with deep cybersecurity expertise, where we also are the global leader in vulnerability disclosure. And just last year, we blocked and detect 54 billion and more threats for our customers worldwide. And we work with a lot of law enforcement, not only using this technology or threat intelligence, we help. We want to help secure the work by beating down the back guys as we, in the engineer group, we say we beat the bad guys. And we work with Interpol, EUROPOL. We are a very integral solution with the law enforcement for providing a secure, connected world.
So I hope this introduction to you about who is Trend Micro and what we're providing let you understand why we believe Trend Micro can be your trusted partner and traveling through this changing world. And we can be the one that help you to achieve your resilience in this ever-changing world. Thank you.
Now I would like to begin my presentation. I am Omikawa.
For the FY 2020 Q2, Japan business update will be made. And first of all, please go to Page 2. And in the Japanese market in 2020, we are now looking at customer success in the remote management era. We see that with the shift to the cloud, the situation in our customers is becoming more and more data driven. And customer success is something that we are emphasizing our efforts more in. There are 3 points. It's necessary to expand cloud security to accelerate digital transformation, as Eva Chen has mentioned just now. And so we will continue our efforts here. The second point, we will have to accelerate the shift to the SaaS model, and we will provide the Trend Micro XDR. Here in Japan, we have started specific efforts in this area. The third point is to promote the IoT business. And gradually, we are building up a solid mechanism for this.
On Page 3, if you look, if you look at the fact that in 2020, originally, the Olympics and Paralympics was supposed to be held. And from METI, there was the DX report about the 2025 problem. In 2025, if you fail to achieve digital transformation, it will be necessary to shift from legacy systems to a world-class system. Otherwise, Japan is going to be in trouble. And there was a report on this from METI. And remote work and remote management were things that were supposed to be carried out this year, and there was also the 5G and IoT efforts. But because of COVID-19, the coronavirus pandemic, we are seeing that there has been a tremendous momentum in shifting to digital transformation throughout the world, and this has become even more necessary for Japan.
Next, in regard to the commercial business update. We are looking at Hybrid Infrastructure protection. And we are doing overall quite good business with a 32% increase in gross sales in the Hybrid Infrastructure protection, and we're also seeing an increase -- but a 27% in Deep Security. And for Deep Discovery, we're getting large deals. And so we're seeing great growth in Deep Discovery. And we also talked about Cloud One. And in terms of cloud security, we have the Cloud One effort. And in the Deep Security area, we have Cloud One securities supported. And Deep Security has continued to show growth. And the gross sales has increased year-over-year by 19%, and the number of customers have increased by 27%. And there has been a 13% increase in new gross sales. We have been able to get 2 large deals, and there are several large deals amounting to tens of thousands -- millions of yen. And this is the result of our continued efforts in this area.
Meanwhile, for the lowlights, we talk about this constantly, but Deep Security is growing. However, including AWS and so on, the growth rates are not as high as other areas. So it's very difficult to achieve digitalization here. And so therefore, it will be necessary to collaborate more with cloud integrators. And you must look at the customers that cloud integrators are delivering to. So by working more closely with cloud integrators -- and we want to have a greater penetration in this area. So we have reflected on this, and we're looking at cloud integrators and how we can strengthen our relationships with them. And we have not been able to carry out a variety of different events. But we want to be able to develop new businesses, but we have not been able to do so because of the current pandemic.
Next, in terms of User Protection, the highlight is that in new areas, we have increased our gross sales by 5%. And in terms of cloud-based security service for small and medium businesses, we have continued growth. And we also have cloud management. And in the Cloud Edge, we have a strong partner business, and we're seeing increase in the gross sales by 20% and in the number of customers by 50%. And in each quarter, we have been increasing our business here, so that we have been able to increase and there's also Apex One SaaS. Partners have increased here. We have 4 or 5 new partners. And so in Apex One SaaS for cloud management service, we are making our efforts.
And as a lowlight, as Mahendra Negi has mentioned, in the SMB area, for our partners like Niko or NTT, it has been difficult to carry out visits. And also, we have partners like Otsuka. They have not been able to visit customers. And so we have not been able to achieve the growth that we had wanted to. That is a low light.
If you'll refer to Page 8, the Consumer Global and Japan business. The highlights are, as already mentioned, for Q2, in the consumer area, on a year-over-year basis, there has been a 29% growth in the consumer area. And so there had been a reluctance of people to buy PCs, but with our partnerships with the retail stores we've been able to show increased sales and in online sales. In areas like Yodobashi Camera e-commerce business, we have been seeing very good growth in online store operations. And online sales has increased tremendously because of the lockdown. And so we're pursuing this as well. And also from mobile distributors, there have been smartphone shops that were not operating at full business hours. And so in this area, because the smartphone shipments have gone down, there has been a tough situation. But we were able to establish very good partnerships. And as shown on the right-hand side, we have been able to solidly increase sales because there are more and more focus on security issues. And users are more aware of this. And so because of this, in terms of mobile, our customers have increased in number.
And as for Wi-Fi protection, on a global basis, we are seeing increased sales in this area. As for the security service through line account. There may be cases, such as URL or so on, that needs to be tested. And so there is the Virus Buster check that is under testing. And the official delivery hasn't started yet, but there's a QR code that can be used. And it is possible to take advantage of the Virus Buster check on a trial basis for testing purposes. It's an application that's offered free of Charts. So we hope that people will take advantage of this.
As for lowlights, now there is the Symantec Norton threat. And Symantec has been spending a lot of investment here in Japan and rebates. And they are attacking the market aggressively. And so it's necessary for us to take advantage of our sales channel to compete.
Both in Japan and globally, we have a challenge of Home Network Security. We need to do a better job of communicating this business.
Moving on to Page 10. IoT focus areas. This is a quick recap. We have Smart Factory, 5G, local 5G, connected cars and connected consumers.
And on the next page, Page 11, we can find that some of the important highlights of second quarter. Industrial control systems security product sales has been very solid since the beginning of Smart Factory. FireEye HIPS by TXOne. And we also have Safe Lock and Portable Security from before. And you can see the growth numbers here. EdgeFire is a new segment. And one particular company, they started to use this as a global standard for their organization. And we have already shipped more than 400 units. Edge IPS order was placed for Q3 as well by the same organization. OT and the factories need to be connected and protected, and the operation can never stop. There is a heightened demand, and the start is very solid.
On the right-hand side, you can see the 5G and local 5G status. We don't have a nationwide network, and the devices are not really installed in each household. It's not like the factory, but DOCOMO has open innovation cloud. To the 9th of May, they talked about security services using our technology. So they made another announcement. Including local 5G, we want to build specific customer references, and we're working very closely together with DOCOMO on this.
On the next slide, on Page 12, you can see the connected car. This will take a long time, but we have published white papers. And the international standard for automotive cybersecurity will be established soon. We have returned white paper to help with that effort. We will not see anything specific so quickly, but this is going to be a multiyear project. Both inside and outside of the vehicle, we want to take advantage of our security operations center and participate in POCs and demonstrations.
In the fourth pillar, connected consumer. In the second quarter, in fact, one consulting company in the construction industry with more than 500 employees decided to use Virus Buster for home network for their employees. The idea is if an employee has to work from home using a company PC, they had concern with the security level of the home network. So this company actually tried and tested our home network protection, and we received a huge order all of a sudden, and we were surprised by that. And we spoke to the customer. And the customer said they wanted to make sure that the home network of their employees were secure. And they provided this Virus Buster for home network for their employees. I really think that there are other demands like this. So including this particular customer, we're working on R&D so that we can provide even better approach of monitoring, for example. We are continuously working with this customer.
Now Page 14 shows future outlook, second half in the next 6 months. IT environment. Lifestyle -- work style are changing because of COVID-19. Cloud usage will be promoted even further. Meaning that we need stronger security for cloud. Implementation and management must be easy. So there is an acceleration toward the shift to cloud style security. [ Bike ] sales and the partner sales, both will be enhanced, strengthened. And the second point is a remote working. And studying [ Zero Day ] initiative and the remote learning are expanding.
And although not shown here, remote diagnostics for health care is another opportunity that we are looking into -- in relation to remote security. Now it is difficult to have faceless communication -- physical communication with our customers, but we are trying to do web seminars and different approaches to communicate better with our customers online.
And that is all from me. Thank you very much for your kind attention. Thank you.
This is SMBC. Can you hear me? My name is Kikuchi. I have 2 questions. Recently, in the announcement of the business results, the impact of the coronavirus was anticipated. And that it's most likely that the negative effects would be greater. But can we assume that unlike what Mr. Negi said at that time, there had not been that much of a negative impact? Or will there be a greater impact negatively appearing soon?
And also, in regard to TippingPoint's decline in revenues, is it because of the firewall situation and not because of the coronavirus?
Yes. In regards to the first question, in regard to the coronavirus infections, we're still seeing an increase in the number of infections, so we don't believe that everything is over. The second quarter has finished, but we believe that things will continue in the second half, and there are still uncertainties. But on the other hand, there could be further deterioration in the economy. And so, therefore, we're not thinking of increasing our outlook. As for the firewall situation, it's more of the firewall and the IPS situation that impacted TippingPoint rather than the coronavirus.
I see. In regard to the efforts for firewall or in regard to this impact, are there some structural issues?
This is not something that's happening for the first time, but I think that Eva Chen can explain more in detail. But when there's low network speeds, there is this aspect of the firewall. But there may be some cases, though, that when the bandwidth is limited in the case of companies, as for the IPS and more shift to the cloud, perhaps Eva Chen can comment on this.
Yes. I think Trend Micro's TippingPoint actually best performed when it's totally turned on for this inspection. A lot of time, we win against firewall or next-generation firewall for IPS only when we compete with their IPS function. But if customers want is they want just not the high speed, but just firewall, IPS, everything is altogether. And their major buying reason is firewall. They will go for the next generation firewall. And that's where our TippingPoint market, especially in the midsize customers, it will decline. But our TippingPoint road map, we have been very aggressively pursuing and developing that TippingPoint in the cloud, what we call the Cloud One network security module, which means that customer has a lot of their data center migrated onto the cloud. And in front of those cloud data center, they would need very high-speed IPS to protect their application behind those cloud workload. And therefore, our TippingPoint road map and, we believe, the future growth will come from the Cloud One network inspection, network security module, which is integrated together with our Cloud One workload, Cloud One storage, Cloud One configuration scanning, all of this together. So that's where I think we're different from the next-generation firewall market.
In regard to the second question, you've made a new announcement today. And in 1.5 months, you have been moving forward with this kind of effort about the buyback of shares. And I'd like to ask about, what is the purpose of this JPY 5 billion in buyback of shares?
Well, we're looking at the dividend situation, and there's also excess capital that we have. And we, on occasion, carry out buyback of shares. And so therefore, we are looking at return to the shareholder through this.
In your presentation, I may not have heard the detail about this, but there was no comment about this aspect. Why was that the case? That was a point that you could have emphasized.
Well, in our case, as we've already shared, we are giving priority to dividends to our shareholders, and we have a buyback program, but this is not something that we had ever appealed when we made our financial result reports. If there's a payout ratio, that's something that we decided upon. But -- and we didn't think that this was a point that needed to be emphasized.
But the stock prices are not going down in your case. It's at a high level. So was there is some situation where a large shareholder wanted to sell or is it just a normal buyback program at the market?
It's just a normal buyback from the market. This is not because of external pressures or it's not from any pressure from shareholders.
I would like to unmute the microphone for the next person.
Morgan Stanley Securities. My name is Tanaka. I hope you can hear my voice.
Yes, we can hear you.
I have 3 questions. First question. Well, TippingPoint was just mentioned. On a pre-GAAP basis, maybe there is no more room for decline. But in terms of revenue or net sales, it's showing negative growth. You didn't disclose this, but on a quarterly basis, what is the revenue size or the net sales size of TippingPoint?
We do not disclose that information. And as Eva mentioned, we are shifting to cloud. And the cost of sales will change accordingly. Therefore, we don't want to give you specific numbers to mislead you. Please just follow the information. As introduction, TippingPoint was the biggest factor. That's all we can say for now.
With regard to TippingPoint products, as Eva has just explained, how confident are you that it's going to succeed? How much confidence do you have?
After the acquisition, our TippingPoint products don't seem to be very successful on an organic basis. So yes, please. Please answer the question.
We're very confident because of the moving to the cloud and the cloud migration, new application that is developing on the cloud. And if you want to protect those cloud application, the best way is to inject a layer of protection on the cloud. And that's what our Cloud One platform means. And I think the network protection in the account, IPS content inspection is the key. And Trend Micro's speaking point, we have the best GBI knows about the vulnerability, database and the fastest engine, which is totally the trial for a cloud data center to be able to use this type of inspection engine. So of course, I'm totally very confident that this will be the new mean shifting to the cloud.
And yes, I have high expectations, too. Second question, not for the second quarter alone, but especially in the United States, compared to your competition, other securities companies, it seems that whether it's pre-GAAP order or net sales, the growth seems to be stagnant. What do you think is the fundamental reason your business is not growing there? And what are your current initiatives or countermeasures? And how are they working out?
You want to answer or...
Yes, you can go ahead.
I can extend my perspective. Frankly, from this quarter, I would say, unfortunately, the growth comes from -- usually that just like Japan, work from home and study from home, the growths come from the consumer products. However, in U.S., our consumer product was not very highly prevalent in the online market. It's only available through Best Buy [ and Sweet Home ]. When the shutdown happened, people don't go to Best Buy in July. So it was, unfortunately, that part of the growth we cannot experience in U.S. And also because of COVID-19, Trend Micro's strength in the U.S., part of it is on the small business, small to medium business. But in COVID-19 this time, they are the ones that got hit most. And therefore, our growth in the SMB segment, we expect [ is really stagnant ]. And other than that, I would say the TippingPoint, of course, is one of the factors that is making our investor market Y-o-Y comparison because in U.S. market, TippingPoint has a bigger portion than in the other regions. So we need to overcome that part even more in the U.S. But in U.S., our hybrid cloud solution has been growing and is aiding for the other region in growing in that, I would say, strategic position.
So we will continue to focus on the growth in the strategic area, which is hybrid cloud growth in U.S.
Network security, Palo Alto, Fortinet, these are the companies, and they have idea close strike and these are conventional. Well, we have a conventional competition like Symantec and McAfee. And I don't think they're performing very well. And that's not really an excuse, but as Eva has just mentioned, we have existing products, but we are shifting to SaaS and the cloud. And we still have a big portion of the sales coming from the conventional products, too. So that is why the growth is not so high in the United States.
I don't mean to be rude, but Symantec and McAfee, they're becoming invisible almost. In other words, you have to compete against the other companies that are really visible in the market.
Yes, I do agree with you, Tanaka-san. And we have to work harder.
Now other than that, what about marketing? Do you have any specific challenges in terms of marketing? And you are so highly [ variated ] in Forrester, by Forrester, but that's not translating into good performance. Why is that?
Well, sales activities need to be strengthened. The U.S. is a huge market. We only have 150 people in our sales force. Our auto and other companies have more than 1,000 salespeople working for them. So in the end, it's a question of how active the sales forces and how much the customers would buy. And yes, COVID-19 impacted the SMBs quite a lot. We need to focus on the sales. Eva, would you like to add anything?
No. I do, really do. I think we have even more opening market, and we can be more aggressive in doing our marketing. We do want to focus on the new way of marketing, which is going through the cloud and infrastructure marketing. So I think we're still figuring out what we call the flywheel. The flywheel marketing means that you find a positive energy. And you start from there, make the customer success. And the customer success will create better product for us from the SaaS platform. And then the SaaS, those better product will get even more customers. That's what we are focusing on. And I agree with your criticize. And I myself, feel like this growth is not enough and we definitely need to work harder and make sure or work smarter to make sure that growth can be even higher.
But I do also want to say that we do want to grow in a way of just buying the revenue. I think we try to balance between our profit margin, our profit growth and our revenue growth. So that's probably it's a bit different than our competitors in the U.S.
I don't mean to criticize. I just want to make sure that you work hard and make the shareholders happy. And third question, in the summary statement, Page 11, you're talking about Cysiv, your consolidated subsidiary. Third Brigade Trend Micro. Well, I think we have [ a set of good ] people. And it's a consolidated company. So it's okay, but, in the future, do you think it will be spun out and it will have a negative impact on Trend Micro? What is the outlook?
With regard to Cysiv, as Eva has explained, it's not just about products. We need to make sure that we provide proper services in order to address the customers' problems. And yes, Trend Micro products can be taken care of by Trend Micro, but the Trend Micro is not the only company that supports the customers. [ MSST ] channel has high potential in the future. So we need to gain more learnings. And we need to make sure that more Trend products will be used. So we are interested in this business. If we try to do this directly, then there's a risk that the channel will be a competition. So we want to have a separate company. And we own 37% of the share. And this is money that is going into this company from venture fund. If you add that, it's 68%. That is why we are consolidating this company. But Cysiv is -- has already spun out from Trend Micro. We are not really participating in the management of the company. So it's an independent entity. And we want to grow -- see the growth in the MSP business.
I see. So Trend Micro's basic solution can be sold by Cysiv. Cysiv is like a partner.
Right. If it's only Trend Micro, it's not good. Cysiv will be dealing with other security products as well outside of Trend Micro's product portfolio, so that they can provide security services to the end customers.
Now we'll have the next question.
Just one question from my side. It's in regard SaaS. In a pre-GAAP with negative numbers for us, and I think that the SaaS [ network ] has started, but in this transition, is there some GAAP? I think there was a 1-month free trial that is being offered in the United States. And is that impacting any? Or is it purely because of the pre-GAAP negative results? Could you give us the background for this?
There is the SaaS aspect, but that's not a major factor. The major point is the decline in TippingPoint sales. And also, aspect of the multiyear renewal.
What about the SaaS?
Yes, the customers may be preparing for SaaS.
And perhaps 1 year ahead, when you're shifting to SaaS and you've launched in the United States, but in Japan and Europe, has there been a full launch? And also in regards to the 1-month free trial, is that going to be carried out?
Yes. This will be carried out. Mr. Omikawa?
Yes, for Apex SaaS, this has been launched, and there will not be any trial period. There's many existing customers. And so we're doing business as normal. We'll be aggressive here.
Allow me unmute the next person's microphone.
This is Hori with Mizuho Securities. I have 2 questions. First question is about administration costs. Negi-san, you said that it may go back to the normal level after COVID. When you look at your employees, well, I think it's really quite reasonable and working from home has increased in the fourth quarter. I don't think it's a simple of question of multiplying it 4 number of quarters, but I think there is some continuity as well. Some of that may -- you may start seeing new customers and success might go up again. Or like what we saw in the first quarter, expenses may continue to decline over time. So can you please explain some of these different factors?
From my perspective, I don't think everything would go back to the way it was. The virus is still out there, but the environment and buying behavior of the customers is changing. So customer visits will not account for everything. So the expense will go up from the second quarter level, about JPY 3 billion or maybe less is my expectation. Omika-san, would you like to comment?
Thank you for your question. We would never go back to the way it was. And our salespeople feel that customers sometimes tell you to visit them. Just for education or greetings, but we try to minimize the number of people who visit. And we will bring some devices, and the engineers would join online. So it's a mixture of a physical visit and online visit.
And in terms of marketing expenses, number of entertainments would, of course, reduce. Online exchange will increase as far as marketing is concerned. Online events may increase. And the physical events will decrease. Maybe we'll have more mixed events, and the question is, how can we sustain that? We are more focused on those online events. We will be using different approaches compared to how we used to do things before. We will never go back the way it was. And I think the way we work will be more efficient.
I also want to mention about this. A lot of these costs are actually external events was canceled. For instance, before it was Mobile World Congress that we need to fly a lot of people to Spain to attend that or that just passed the black hat. There was a lot of people who will fly in to join those type of big events. But this time, this year, or this event was canceled. And therefore, the cost, of course, goes down. But in the future, we don't know. Maybe 1 year, 2 year later or this big event come back and we work joining all these events. So it's not just our own people face-to-face meetings with customer, but all these big events was canceled.
My second question is to you, Omikawa-san. In your presentation, you talked about the consumer business at both Japan and global. Norton was - it's getting really aggressive in terms of [ sales marketing ] Now in the past, especially for the Japanese market, I hear there was a moment when you got really aggressive with your sales activities but it never lasted. Do you think it will just subside as to what do you think you have to be really have money is in there because it's something different from what is was before? Or -- well in Japan, do you think that this will be able to subside after several quarters? Or do you think you have to be really careful because it's different from before?
Thank you for your question. Let me talk about the Japanese market first. We are trying to move through the situation. We're looking at the data. Every week, we know where the data is going. And when we pay the rebate, of course, there is a lot of activity that happens in that area. But we look at the store shipment data and -- but data is not really moving very much. It's only an increase of single digit percentage, and that goes back down again. So after the fiscal year is over, I'm sure that the budget is being controlled by APAC. And APAC will probably abandon this current project. So we just have to withstand this.
We should look at this from the customers' perspective and the partners' perspective and really think about how to fulfill customers' requirements and focus on online activities. And that's exactly what we're doing right now. So although the competition is throwing a lot of money into their activities, we're convinced that they cannot beat us.
Australia and New Zealand, we have markets there as well. And we have not experienced any big impact so far. I know the competitors get very active on a seasonal basis, but the efforts never last because they cannot maintain strong trust relationship. But in our case, it's the same people, same faces supporting the same customers for many years. This is our strength. This is our continuity. So we will not be beaten whether it's in Australia or New Zealand either. Thank you.