Trend Micro Inc
TSE:4704
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
6 275
9 063
|
Price Target |
|
We'll email you a reminder when the closing price reaches JPY.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Earnings Call Analysis
Q2-2024 Analysis
Trend Micro Inc
This quarter, the company experienced solid financial performance, meeting and even slightly exceeding internal expectations. Despite a weakening yen, net sales increased by 13% year-over-year. This growth was driven primarily by the enterprise segment, which saw a 16% increase in net sales. Operating income also saw a significant rise of over 42% compared to the previous year, with improvements in operating margins contributing to the positive results.
The enterprise division continued to show strength, largely due to the expanding adoption of Trend Micro's Vision One platform, a next-generation AI-powered cybersecurity solution. The platform now boasts over 10,000 customers, reflecting a 36% attach rate within their existing customer base of 28,000. This segment saw a recurring revenue of $1.25 billion, up 7% year-over-year, with subscription revenues growing by 17%.
While the enterprise segment led the growth, the consumer segment performed within planned numbers, showing a modest 2% increase in net sales. The strategic emphasis was on driving profitability by increasing the Average Revenue Per User (ARPU). Innovative product developments and channel efficiencies were primary areas of focus to boost returns in this segment.
Regionally, Japan met its sales targets precisely as anticipated, and the EMEA and Americas regions witnessed continuous growth. However, there was an unexpected slowdown in Europe, particularly in the public sector, which contributed to a more challenging market environment there. Despite these regional disparities, the overall business remained strong with a total recurring revenue of $1.65 billion.
As part of its strategic shift, Trend Micro continued its transformation from perpetual licenses to a subscription-based model. This shift was evident as subscription revenues grew by 17%, while perpetual license revenues saw a deliberate decline, with much of it transitioning to subscriptions. This move aligns with the company's goal of creating a more predictable and stable revenue stream.
Trend Micro shared several success stories, such as a mega-cap healthcare company in the U.S. opting for their AI-powered platform over a competitor. They also highlighted cases in the oil and gas sector and the automotive industry in Europe, showcasing the effectiveness of their platform in consolidating security operations and providing comprehensive protection.
Cost management played a crucial role in the company's performance. By leveraging AI and other technologies to enhance efficiency, Trend Micro was able to maintain sales and profitability even with a reduced headcount. Cloud-related costs remained flat and labor costs were controlled, contributing to the highest ever net revenue and operating income for the first half of the year.
Looking ahead, Trend Micro is optimistic about its prospects. The company plans to further expand its Vision One platform and increase its market penetration among small and medium-sized businesses (SMBs) through managed service providers (MSPs). The focus remains on driving both top-line growth and operating margin improvements, with a long-term vision targeted towards 2027.
So this is a summary slide sales, 13% growth in net sales and operating income, 42% plus. And -- compared to last year, the operating income margin is 42% plus 8%. And -- so it picked up 12% plus and the pre-GAAP based operating income plus 36%. So last year, there were accounting standard changes. There were a lot of changes. However, this year, things are rather straightforward. So this is the result of this quarter. And looking at these numbers, and this is the progress to date against the annual expectation forecast. The blue is the actual so far.
And at the right top, we have the revenue forecast, the target, and we're steadily working within towards that. And so I think if things continue as is, we'll be able to reach the target. And this is the trend that we see. Now one of the key points this year is the improvement of the margin. As was mentioned earlier, this year, pre-GAAP margin. So actually, operating income improving in the margin as well. And another key point is with regard to the subscription business, enterprise ARR is shown here. Perpetual license renewal -- renewables, that's the top part and then the subscription ARR at the bottom, the dark blue. And if you add them together, 7% growth on perpetual license compared to well-netive 8% while the perpetual or whether the subscription is increasing by 17%. And there will be more details in Kevin's presentation later. So please wait until he gives more details. Last year recoveries this year.
So compared to last year, because of deferred revenue and so forth, there is some negative numbers here, but cash flow-wise, this is rather healthy. -- and this is head count in the first quarter, and there was this onetime changes figure, I say we had some is in the Americas. And then -- so there was a headcount reduction in the first quarter as well as in the second quarter and technical support so the marketing are the areas where we see this reduction. If you ask me if this has been intentional. It's rather about adoption of technology to enhance our efficiency and productivity. For example, generated AI, among others, being increased and that leads to inefficiency gains therefore, sales and profit is still can be maintained with less people. And therefore, we have further reduction in our headcount. That's what happened.
And next is cost trends last year, cost was increasing at a higher rate than revenue. And therefore, we are controlling costs better this year. And so you see the results there, especially cloud-related costs to shown in green and this has been rather flat this year. And the reason -- the engineers have done a good job of enhancing efficiency. And so these are some of the contributors. And the yellow part is labor cost. The total headcount has come down slightly. And there the labor cost has not increased that much either. But because of the yen-denominated figures, you might think that has increased, but still that is the current status. And the highlights for Q2 is we had the highest ever net revenues help and highest ever operating income for the first quarter, this is between January and June, for both the net revenue and also operating income for the first half have been the highest ever and operating margin improvement is continuing. That concludes my presentation.
But if you have further questions, we have a Q&A session scheduled later, so please do ask questions later. Thank you.
Hello, everybody. I am presenting from Black had in estates. And the Black hat is the cybersecurity field industry's biggest event in every year or the security, cybersecurity vendor get together. And this year, of course, the biggest topic is not another threat, but it was prostate outage causing the global IT outage and Trend Micro is the longest standing cybersecurity company. And I am the longest standing the most better in the cybersecurity industry. So I share my experience and talking about the balance between IT operations and security operations.
I think the transforming IT infrastructure in the past 35 years, we've seen from the desktop and connecting to local area land and then going to Internet transforming to cloud and now transforming into AI-centric IP operation. And during this time, we've actually seen the changing of cybersecurity or specialty cost base, desktop securities changing organization. But regionally, all of this operation was when we started test security was managed by the IT team. We always talk to the IT managers. And then you move to server, and we're starting to talk to the server, but still is the IT operation team until when Internet come out, gradually, we're seeing all this network operation team also in the picture because of firewall and IPS, all of this come together.
But always, we were working alongside and manage a lot of time, cybersecurity are managed by the IT operations side. Until about 2010, we're starting to see this security operation center. People are setting up a special organization to manage cybersecurity because of [indiscernible] because cybersecurity becomes the center stage and with this leading into IT operation moving into security operations. That was great that people are starting to focus on cybersecurity and set up a special organization to manage it.
However, the balance between security operation and IT operation is now tilted too much, a little bit too much. And the problem is because in IT operation, what we see is very conservative and its impacts on performance is always business continuality and is 99.999%, the downtime is the most important thing that IT operations will manage. While [indiscernible] mainly focusing the index core mean time to detect, mean time to protect lead time to response. All of this is raising a lot of time, security operations people, their mind is just looking at the attackers. And forgot, the main operation security is for ensure the business continuality, not just stopping the attack.
So I think there is a need to rebalance the security operation and IT operation and also understand the slight risk management, not only the cyber attack risk management, but also how do you deploy and manage the cyber security product. Personally, I think across ride, they are originally coming from the reached detection and response EDS build. When you see the side and you just -- that the traffic goes through if you manage it and want to have a very fast depression, it does not impact IPO operation. But when there moving into the protection, endpoint precession side, when you need to stop the traffic, you need to protect the operations -- and that part, I think the mentality need to be adjusted [indiscernible] back to the IT operation part.
So Trend Micro, we have confound the IT operation part, and we have a lot of practice that was doing the EPP, the endpoint protection board. So we have orders like wind deployment and the very strict update management, all of those. I think this time, our customer, and we as a security vendor, we all need to reflect on how we manage our own cybersecurity operations especially at this time because we believe can microbe that AI in customers are now implementing AI. AI will was greatly impacting the business operation and therefore, changing the IP operation. So this whole formula, we call cybersecurity formula, customers' cybersecurity problem x equal to infrastructure change plus user behavior change, minus beater stage.
These are the formula and from customers are implementing initiating an AI project. All 3 of these will be impacted. Already, we see the threat actors are using AI. There's more skin, more sparing and more deep fake. These are the threat actors. They are changing and they are getting faster. But at the same time, customers were implementing AI they need to set up new data assets and authorization and the management of the AI application will be changed. For ES, we're ceding that accelerating the need for a balanced act. At this time, if I take a simple -- a real example, when you deploy any company when they deploy copilot or any AI application, they will find that they originally -- the data was controlled by each of the different applications such as HR application control HR data, finance application, control, fines or sales and marketing applications, CRMs control the customer data.
So who you apply using Gen AI, and you want to utilize all this data to generate the business index that help your operation and you need to bring this data silo. You need to let AI application able to consume all this data so that if you ask the AI and say, "Hey, how do I improve the company performance by reducing increased 1% of the profit margin. We would look through all this data, and you will generate the answer, but these create a big problem. A lot of people starting to find out that when they deploy for Gen AI application, we will find that, hey, how come my the junior engineer was able to see all the financial data, which shouldn't be. And my salespeople was able to see all the companies sale structure or the engineers salary. These are the big problem of AI that is impacting the cybersecurity.
And therefore, there is a need to relook into the AI application, how it will impact the IT operation and therefore, design the new cyber security practices alongside with the AI. That's why Trend Micro has been focusing a lot recently and announcing new products to address this type of new risk. And for instance, the employee that was using to meters outside open AI, the public AI service or the company's own application AI application. There is a risk that the workforce misuse those AI services, such as the example of Samsung engineer posting all the source to onto the open AI to us for advice and that will leak the information.
So this is one of the problem first, the employee workforce will have the AI misuse in customers were starting to set up the data center, AI data center and within this type of AI data center. Customer care a lot about AI solvency and they need to make sure or domain knowledge under their control. And therefore, we are working with a lot of company that AI foundry, they were helping enterprise customer train the data turned the AI model. And at the same time, when they train those models, they need to be able to implement good IG, which is a way to filter better and regulate the data usage, enhance data. And those who trendy will implement our cyber too, our own cyber security special train over end to be used by all these enterprise and foundry ecosystem usage.
And -- so Trendmicro now we have are this 4 areas that we want to secure an AI-powered enterprise were micro, securing the AI workforce, safeguarding the enterprise AM, such as we work with and NVIDIA was publishing their service the microservice to enable enterprise to build their own enterprise AI and why they were building that enterprise Trend Micro would have our own cybersecurity AI that can be built into their enterprise AR. And so this is safe bare enterprise. And also, we have all this AI day way that we can secure the next generation AI data center where when they deploy those AI services. They're using the container Rahaat we, and we were able to secure that type of new generation AI data center. And lastly, we also use AI to address the new type of threats.
So for see recently, we published a new service that is a big a detector that we can detect those [indiscernible] conference. Those 3 are real. And we also building that we call the linguistic bread detection because nowadays consumers, their biggest problem is no longer just the virus, the malicious code is someone that was using language, no matter it's a text message, an e-mail, or a phone call or a video conference call that tweak them to do something. That type of scheme. And I think we launched a type anti skin service that can utilize -- we utilize larger language model defense against this type of scheme very effectively. So these are all of the Trend Micro securing AI-powered enterprise. And with that, we, of course, need to work very closely with the infrastructure builder, which is media.
Not only are we utilizing the speed giving you that their best speed, they're computing power. We need to better utilize their computing power so that we can do all those detection and building up the cybersecurity model that deal with the new threats, -- much more faster. But also cybersecurity, we ourselves actually is a data problems. We need to like finding the needle from the big hay. And therefore, we need to consume a lot of computing power to do that.
And I think with the new AI and utilizing NVIDIA's GPU, we will be better handle all this big data and generate solving new customer problems such as the same and soul and the compliance problem that they need to collect all those security logs and find out all the information. So we also will be able to work with MVA closely, we always go together to talk to the enterprise customer, but they were setting up their AI application, and we can, at the same time, do the reference design when they would design their AI application. So that's how we were working with media and -- just yesterday, together with NVIDIA, we were chemo speaking at the AI Summit at the Black Hat.
And yesterday, we also have a joint press release about Teva and maybe together, we are working on the enterprise AI and the governments, they call it AI solvency pulp. And I was fresh on the -- from the platform ourselves. We launched this world trust to assets, Aidan just on August 1, and we already have several of these customers that they were using and they pay for this AI services. And we are very happy that we're starting to see our investment, our research and we come out with securing the AI solution was getting positive feedback. And I believe Trend Micro display is needing was because in Plager thought leader and all the customers saying that our solution is really addressing our AI application problem.
And I could say Trend Micro currently is the leading 1 in the AI security deal. So -- that's all -- that's our -- the last 1 is our Trend Micro's slogan, everywhere in Las Vegas now is imagine with AI secure restrain, that's our strategy for AI. Thank you
Thanks, Eva and Mahindra. Hi, everyone. My name is Kevin Sims, and I'm the Chief Operating Officer for Trend Micro. I'm here to give an update on our Q2 2024 performance from a business perspective. If you've been following us, you've seen probably quite a bit of awareness building around us as a cybersecurity vendor focused in on using AI in our security offering, but also quite uniquely by protecting AI infrastructure for our customers, and I'll tell you how we've been doing.
From a Q2 standpoint, we were very pleased with our overall Q2 performance. We did beat our internal plan numbers in both net sales and operating margin. And that's with a backdrop of -- in Q2 of a continued weakening yen. That actually has a fairly big impact on our overall operating margins, and we were very happy to actually finish just above our internal plan numbers. So nice performance overall. The growth and the performance continue to come from our enterprise part of our business. Enterprise net sales up 16% year-over-year, which was great to see. We just issued a press release talking about we now have 10,000 Vision one customers, so very, very strong adoption of our market-leading cybersecurity next-gen AI platform. From a consumer standpoint, the other part of our business, net sales were within our planned numbers at plus 2%.
And what we said was we were going to really focus in on driving more profitability within the business. And that has been our focus, increasing the ARPU, which we saw in Q2, very focused in on the efficiencies of the channel. So overall, just a nice quarter for us. From a regional standpoint, Japan finished right on its number. So that was by design based on renewals. Growth continued to come from the EMEA and the Americas region, which was great to see. And probably the only surprise for the quarter was in Europe where we did see a market dynamic where we saw a protracted slowdown, in particular, in public sector transactions.
We don't foresee that to be a long-standing one, but we did see a slowdown in Europe that we did not anticipate. From a total business recurring revenue standpoint, sitting at $1.65 billion now, we've been really focused in on building up that recurring revenue stream. and some nice growth. But you can see where that growth has been coming from, and that has been the large enterprise part of our business. We still really like the small enterprise and consumer part, and we're optimistic in the second half that we will start to see some lift there. in small enterprise, we just announced that we're taking our market-leading Vision 1 platform and making that available to MSP partners that are servicing small enterprises.
So we think that, that's actually going to be very helpful for giving us some lift. And then in the consumer space with the things that we're doing from a product innovation standpoint, we'll continue to actually focus in on ARPU expansion. However, we also think that AIPC will actually cause an increase in PC shipments, and that will cause us to lift as well. If we drill into the enterprise part of our business, $1.25 billion, 7% year-over-year growth. But where that's coming from is in our subscription part of our business. Again, we're really trying to move to this more ratable subscription-oriented type business, up 17% with $831 million and you can see the decline in the perpetual and that's by design for the most part, actually 50% of that decline is actually movement from perpetual licenses into subscription. So we're going through that transformation.
So it seems to be unfolding exactly what we've thought. We're very fixated on the large enterprise part of our enterprise business. We have 28,000 existing customers today, and we're focused on expanding those customers with the additional modules that we have. We have 11 modules in our platform and getting that expansion motion going. From a large enterprise recurring revenue standpoint, this is one of the ways we measure how we're doing from a platform perspective. So we saw really, really good attachment of our Vision One connected ARR. But we're also seeing our on-premise business move more and more in getting attached to this part of our SaaS part of our business, up 45% quarter-over-quarter.
And even when you look at that 10% decline, actually 87% of the movement that's happening there is actually customers that are moving and adopting the Vision ONE platform overall. From a large enterprise recurring revenue standpoint, this is the largest, those 28,000 enterprise customers that we have. When we look at that, it's $1 billion, growing at 9% year-over-year great compounded annual growth rate. So some really nice growth over the years, but still continues in Q2 here. But in particular, you can see where it's coming from, from a -- the biggest growth area that we have is our AI-powered next-gen SOC. That's up 26% year-over-year.
And the second biggest category that we have is e-mail security -- that's built into our platform. And a lot of customers are now taking us up. They're trying to consolidate vendors and have fewer cybersecurity vendors that they're keeping track of, and it's a nice, easy add-on module for us.
The #1 sales motion we have though is to go out to the 28,000 customers that we do have and make sure that we're getting Vision One attached. And as I said earlier, we have 10,000 now that have that attached -- that's a 36% attach rate. So we still have a lot of runway to go within our own installed base. We added 500 customers up to $236 million in next-gen SOX specific ARR that's up 26%, and the NRR is quite strong in that platform because that's where our module expansion is happening, 114%. We know that as we add modules, both the retention rate and the ARR impact is much greater. And we have 56% of our customers with one module. So a lot of green space for us to go after.
Here's 3 customer examples. The first one is in the U.S., a mega-cap health care company in the U.S. This was an existing customer of Microsoft. They ended up replacing Microsoft with us. They loved our AI-powered platform. They love the visibility and the protection that they can get. But fundamentally, they wanted to consolidate security vendors, and they were looking for endpoint, e-mail and cloud all consolidated within that single view that single console. The middle one is from EMEA, it's in the oil and gas sector. And I really like this one because it shows both the power of the consolidation story.
But also, these folks were really obsessed with getting better visibility from an attack surface standpoint, but they also were looking at deploying AI and they like our security for AI-based applications. So how we can make sure that their LLMs are protected from LLMs poisoning and all the other threats that they have to be thinking of. The last one is in the automotive industry in Europe, a really, really nice expansion Again, it was the power of our platform, endpoint, e-mail and cloud, but also our MDR services that we have available. So they wanted us as a second set of eyes. So that is just all part of our offering that really, really gives customers the confidence in our platform story overall.
So [indiscernible] years with consumer, actually a nice quarter for consumer. We got some growth. It was right on plan. We've been fixated on getting growth within that mobile channel, specifically, and we've been doing that. We saw the ARPU increase. It's been increasing pretty well, in particular, in Q2. So our expansion story with larger packages is working quite well, and that will continue to be our strategy, while we are aggressively going after the IPC.
Finally, let me leave you with this road to 2027. If you recall back to our December conference, IR conference, we have laid out a business model that we were pivoting towards, and I'm so pleased to see that we're executing very, very nicely towards that road to 2027. We're already seeing the dramatic changes in restructuring that we had done, focusing on getting the top line going, but fundamentally a real focusing on operating margin, and we're seeing that. We look at 2023 at a 13% operating margin, now sitting at an 18%. So really nice overall movement towards this new model that we put in place.
So very pleased overall and how we're executing and feel very poised for the second half where we will start to see the -- I think, the fruits of our labor and the model kicking in even stronger. With that, thank you very much, everyone, and look forward to the questions after.
[Interpreted] -- in speaking, and I like to explain the situation of Japan. I show this slide, enterprise, SMB and the consumers -- these are the 3 pillars of business in Japan. So this is typically weaker of our enterprise business. But as was explained earlier by Kevin, Japan is lagging behind other countries in terms of vision in business. Because of that impact, the attach rate is a little bit lower than the rest of the world. As you can see on the slide, [indiscernible] is really driving the growth of and users increasing standard target large enterprises contact is 16.8%. And we are increasing this every quarter. We show side and other countries reaching 37% time Japan is definitely lagging behind. But our challenge is how to catch up with restorable house quickly we can catch up.
Yes. [indiscernible] risk management is very unique for micro, including disparagement for post even counties at a high level. Starting this year, we have actually accelerated this initiative. This effort follows me -- so the managed service provide biosecurity experts in terms of the security operation tail support, we definitely see the demand growing. For this past service provided point fourfold larger compared to the same quarter last year. Within Japan, et engineers working for the same company for [indiscernible] gaining trust of the customers and providing this business over many years. Now looking at the [ SMB ] business, Health is growing steadily. Looking together with the partners, we definitely see positive growth. coverments now. Last year, we introduced XT in this segment for Q2. Especially for this second quarter just for this quarter, 2,400 companies started using [ XT ] And in total, we have companies who has users. At the end of last year, it was several hundreds, but now we have more than 700 companies using XDR. Separating risk is imminent for B and then they need high level for security. People together with our partners be providing this service to the customers and systemic TMB of cadet has been released.
And this has accelerated the sales, which actually grew 1.6% more old compared to the same quarter last year. And the ARR is really growing at 14% on a year-on-year basis. Last but not least, is in the business -- we have been device security products, which has been a focus in this segment. On the margin side, with the bar graph [indiscernible] because of the product switch and inventory, there was a big peak right now. This has settled down and we have come back to the normal level of market inventory. 20% of our sales, we need to do and device security, to security products but have eluded to that. In other words, consumer security environment is becoming complex and starting from August, we have started providing services to solutions to deal with the deep fake [indiscernible] phone calls. And over the last week or so, it is sitting very well because of heightened demand. I'm sure that people receive a lot of fortunate phone calls. And these phone calls can be booked and also once this is registered.
And if you find number tries to call back, you will get noticed about that as well. So this is a very good solution. PC shipments started in Japanese stores, and we have launched a related product as well. And it is again growing. In terms of the collaboration with official institutions, we have 40 collaborations, more than 20 [indiscernible] out of 47 pre pictures are collaborating with us right now, in terms of the security education or law enforcement. Through the collaboration with the police, Trend micro is now becoming more widely used, including our efforts in anti-fraudulent initiatives.
We now hear from Daiwa Securities.
I have one question, a simple one. On Page 25, active customers, the numbers there. The subscription that is supporting cloud. It's not quarter-on-quarter, but on a year-on-year basis, I still see a decline. And Vision One is [indiscernible] and additional functions are added. And I think you're trying to improve ARPU and the overall sales has been growing. It's true. I can see that. Now the subscription customer number decline. How do you view that? And do you expect that you can turn around and increase the number of users?
And I'd like to answer. This is Negi speaking. So one thing is -- amongst these numbers, there are some overlaps double counting. In the subscription number, for example, the lower part, perpetual is mentioned there. Those might be used by the same user. And so I think it, excuse the picture a bit. And as was mentioned in the presentation, we are focusing on enterprise, especially the large enterprise, 28,000 using with regard to Vision One. And therefore, rather than focusing just on the new member of the customers, I think the focus should be how much upside we can have in terms of VISION one deployment, our attachment.
So rather than focusing on the number customers, we would like to focus more on more potential or actually managing customers that we already have. XDR for SMBs, for example, these are another focus areas. And so the numbers should come back.
Okay, in terms of schedule, when do you expect that to happen? Maybe the total number of users decline continues to Vision One additional functions and features can be added and you can actually have the same users use more functions? So [indiscernible] is one approach, is there going to be a time in which you will really should focus to the increase in the number?
Well, 420,000 companies altogether. We don't have any particular target number, for example, of $450,000. But next year, we don't have that kind of a numerical target. Yes, sales increased. Yes, we did have a sales increase and other targets and therefore, in time, we hope that things will recover, hopefully. However, that is in itself is not the objective or target.
As account sample, what is the per customer. Well, I understand that as long as you have more sales from one user that would be good. So just roughly, how much upside do you expect? Is it a 30% increase for user that you can expect?
As was mentioned in the presentation, the visual connected modules -- there will be more modules being used and that translates into more sales by tenfold. Yes, the sales can increase by 10x. It depends on the customer and the customer timing of doing that or increasing their modules and in small SMBs maybe they buy once, and then they don't have other ones to buy, but we're talking about the 28,000 large enterprise customers that we're focusing on. I hope this answers your question.
28, 000 companies?
Our focus, therefore, for against -- or with regard to the 28,000, we are trying to have the sales increase.
Sales per customer is what I wanted to understand better about
Yes. 3 weeks in Japan. Actually, in the past 2, 3 weeks, we have carried out large events where end users gathered and there were user presentations, and also managed service to partners and their customers, the SMBs are also presented in such events. And so it was quite nice. In other words, we have certain focuses and we have examples and then the users can spread the word to other users and partner companies are using our products, and they have positive things to say about us.
And therefore, including partners and users, we are visiting them. Of course, the focus is to increase the number of cases that we can reference. And we would like to also, of course, catch up with new users as well. So we're working on those ends.
Okay. I understand. Therefore, the sales per customer and its potential, we have no clue as how much you are expecting as a potential going forward or the upside? So please inform us going forward as well as you can?
I would like to unmute the next person for the question.
This is Sato at Jefferies Securities. Can you hear me? I have just one question. [indiscernible] Euro number, because Negi-san said that project is growing, which is a surprise. So I don't think it was growing in the first quarter. But in the second quarter, it was seeing situation or , public sector? Is it transportation? Maybe the transposition I'm not sure but maybe this will recover.
Now okay the second half in ability into the pipeline that's the question. And also is the growth [indiscernible] because of the absence of this public sector growth. Do you have any visibility to what happened in the second half in Europe?
We have the visibility in some holidays, so it's not necessarily in the third quarter, but even in the third quarter, I think we can see some recovery. We expect the quarter to be better. And some of the marginal projects in the public sector have been shifted to the next quarter.
One follow-up question. Regarding the [indiscernible] incident, did that had an impact on you?.Are you receiving inquiries in Japan or in the United States, maybe some customers will do switch the brand to Trendmicro?
Yes we have received many inquiries. The customers are looking for other actions, including us. But as you know, we also had our own experience about system. We have improved things. We have built a transparency center, improve transparency and we have provided this content immediately. So I think customers will not immediate switch, but as Eva has explained, security operation is the overall concept. So what can we do about the operation to begin with?
Is the current format really appropriate. This is a great chance for us opportunity for us to reset -- these are in a company risk security operation. From that perspective, we can talk about the ideal vision of how things should be because this is how the operation is thinking about this. So we're getting an opportunity to explain about this overall thinking.
Just one more. [indiscernible] technical integrator when I look at earnings announcement, the cyber security-related business is doing pretty well and [indiscernible] this is guidance in that for Japan, it's a low single digit that's what you said. But 10% growth for Japan, this is lackluster. From the [indiscernible] perspective, everything is accelerating left and right. But to Trendmicro, Japan is missing this way?
About half of this is the consumer sales. Please keep that in mind.
Oh, I see. I understand.
[indiscernible] capability of our partners - orders or will forecast it. The customers are looking for
So what we need to evaluate a different -- the company evaluates different operations, including Vision One and we are looking at operation together with the customer in terms of data handling and speed. People are recommending or beginning to recommend Trendmicro.
So the answer to your question is we want people to understand -- what is good about Trendmicro system integrators and it was integrators, important partners. We have the discovery and other great solutions. So on these 2 fronts, we have to make a business case and we need to make no effort so that the business would include our solutions. And have said system digital [indiscernible] and together, Comico can grow. So we want to be a be half the component of the growth. We are making efforts to that end.
I'd like to mute the next person to ask the question.
From Mr. Is Aniko Securities. My first question is something that I asked in the past. And generally speaking, IT companies, not in the manufacturing but the IT sector company, when they reduce headcount or do restructuring. Well, I think the top line will suffer as a result because we're talking about services that are sold by people. Therefore, the top line will suffer as a result of headcount reduction. Margin or profit margin will increase as a result. So I think more lease it seems like that is what's happening. Now restructuring is the decision by the management and people might say that it was a misjudgment the management or maybe it's difficult to calculate everything. Now what's happening is top line. Is that not the impact of the restructuring or the head count reduction?
If it's not then from Q4 to -- first quarter, I think restructuring has done and headcount reduction happened. And then I think nobody will be motivated after a headcount reduction happens, and therefore, I think sales will suffer by a few percentage points. If that's the case, then -- when you look at your operation after the organizational change, assuming that there has been some negative impacts, how do you plan on recovering from that stage? Or if you still know that's not happening with us. Then maybe it's about your competitiveness. So I need some explanation there. So in your perspective went through this restructuring and also a global change in the reporting line structures. And what was the result of those changes? And what is the current status?
Of course, if there is no such impact. Then how do you explain the top line because that top line might suggest that your competitiveness is lower now.
Okay. So the first profit margin. Well, it's not because of that, that we reduce headcount. Of course, we want to improve margin, now headcount reduction. We just wanted to enhance our efficienc per day. Actually, the profile of the people needed will be changed as a result. And therefore, for example, with this team, maybe support personnel will not be needed in a larger number as in the past. And so it's not just about the near volume or number, but rather the value that each person employee can bring about.
And so I think the thinking here is that we're enhancing the productivity and efficiency of individual employees that we have. I hope this is in sync with what you're thinking.
The number of these customers are being reduced. And if it because of the reduced number of workers, employees, that's understandable. But if that's not the case, there has to be something else and that might be the competitiveness that is getting less. And if it's a onetime thing, but if it's not a onetime thing, and you see a decline in the total number of customers, and you're now growing in Europe.
And I'm trying to understand why is it because the person in charge changed as a result a temporary delay in order placements? Is that happening? I'm trying to understand the mismatches between the numbers and what is happening. I think there's a confusion in the minds of many people. We use is a major transformation or reform. And as a result, the top line was actually sacrificed temporarily, but you will stabilize things and then you expect top line to grow again, that would be that explanation.
Well, the sales with enterprise is increasing. The total number of the enterprise customers is declining. We have 400,000 or more customers, but we are focused mainly on the 280,000 companies [indiscernible] Product companies. So sales and increasing and the profit margin increasing. We are growing in the sales as well as margin and -- so we really focused on the enterprise segment.
So we shouldn't really pay too much attention to sales for a while. It's not a temporary factor that is causing this sales being rather segment. And well, enterprise is growing, U.S., but I understand, I guess, it is a fact -- or is it subscription is growing.
But still I see this mismatch at least, in my view, it's a mismatch and maybe that's affecting the share price as well. Because of restructuring, has there not been any operation-related impact and reporting line has been restructured as well. And of course, some sales could suffer as a result, but it's not related to what you did with these changes again, you don't have any confusion in your organization?
No, we don't have any concision. As [indiscernible] mentioned in the second half. Sales is going to be increased and also the profit margin will increase -- these are not possible with any confusion on ionization -- and at the end of the day, you might say that the number hasn't increased we say otherwise, we think that in the second half, it will increase.
Okay. I think in the second half, you come out of this confusion. You have restructuring done and the sales increase is not seen, that's rather in something that you don't expect. I was just wondering that organizational confusion might have -- may have caused this stagnation in sales. That's understandable. But if you say that's not the case, then I understand exactly how that came to be or maybe it I have a misunderstanding. But in any case, the past few have been rather disappointing on the quarter.
Yes, we have this plan that we have established. And of course, we will see how we can realize the plan. And we, of course, will try to reach the plan -- and we believe that we can enhance that activity so that we don't need to depend on that many people in terms of numbers, that is -- and so -- of course, it's up to the investors to make the final judgment or decision. Okay. I maybe repeating myself. So I really think and hope that think improve. Otherwise, if something is wrong.
As an I had a second question. In the IR conference last year in December, good reduction. And as in this first to do in nexiscalyear is cost surprised then you can do the business this way? Or do you have to increase the cost in areas where it's necessary? I do think I've got a clear answer about that. I understood that operating margin would be improved in at the current operation.
[indiscernible] in August half the year has passed. On the next fiscal year, I ensure that you don't have to increase the headcount and if you have to increase the headcount. Tthe face is now being pushed up by FX at on basis. FX is typical predict, but I don't think the sales is increasing.
So if I increase the cost in operating margin will re what about operation cost strategy for next year and deeply increase the head count or not? Autumn is actually higher season for new graduates. So how do you intend to deal with headcount and cost control next year?
Effects is not just pushed up the -- for example, 6% growth in enterprise for the recent quarter. So focus for this fiscal year as well as 2027, note is the growth of sales without the impact of effects. [indiscernible] a second the increase is on the platform strategy. So we do platform selling and increased decisions for employees that will push up the cost that cost increase will be slower than the month of sales, and that would include the margin. So we will be hiring some people. It's looked 0 but the profile of the employees will change. And we do increase the sales just by increase in the headcount. The headcount usually increases after summer quarter.
But is your plan not to increase it very much?
It's not really -- [indiscernible] We still hiring people but the profile is different now. So we are getting the new hires as well.
The decrease of headcount, you've seen that the profit is changing. What the headcount looks like based on the hiring process right now?
We expect it to be flat, 6% to 7% is expected and this can go up and down depending on the market condition. But in order to keep the headcount flat, we have to hire the same amount.
Okay, that's all for me.
[Statements in English on this transcript were
Spoken by an interpreter present on the live call.]