Fourth quarter consolidated net sales were 187.7 billion yen, up 4.2% quarter-on-quarter and down 10.7% year-on-year. Fourth quarter semiconductor sales were 183.8 billion yen, up 4.7% from the previous quarter and down 11.0% year-on-year. Automotive sales increased by 9.1% quarter-on-quarter and decreased by 4.2% year-on-year, mainly due to changes in channel inventory levels. Industrial sales increased by 3.1% quarter-on-quarter and decreased by 20.5% year-on-year. Broad-based sales decreased by 6.0% quarter-on-quarter and by 14.2% year-on-year. Industrial and Broad-based sales decreases were mainly due to reduced demand in factory automation (FA), home appliances and broad-based markets stemming from the economic slowdown in China.

Non-GAAP gross margin in the fourth quarter was 40.9%, 0.9 point above the Company’s guidance, mainly due to an increase in sales and cost containment. On a sequential basis, due to a production decrease to achieve optimal inventory levels, gross margin decreased by 3.5 points quarter-on-quarter and decreased by 7.0 points on a year-on-year basis.

Non-GAAP R&D ⁽⁷⁾ expenses in the fourth quarter were 30.1 billion yen, compared to 30.4 billion yen and 34.3 billion yen in the sequential and year-ago quarter. Fourth quarter R&D ratio to net sales was 16.0%.

Non-GAAP SG&A ⁽⁸⁾ expenses in the fourth quarter were 25.6 billion yen, compared to 25.5 billion yen and 32.4 billion yen in the sequential and year-ago quarter. Fourth quarter SG&A ratio to net sales was 13.6%.

While Renesas focuses its OPEX (operating expenses such as R&D and SG&A costs) on R&D expenses for future growth, the Company is continuing its control of disciplinary SG&A, and aims to sustain long-term financial targets at around 30% which is the sum of the ratios of R&D- and SG&A-to-net sales.

Non-GAAP operating income was 21.2 billion yen, equivalent to 11.3% of operating margin in the fourth quarter, showing a decrease of 3.0 billion yen from the 24.1 billion yen on a sequential basis. Non-GAAP operating margin decreased by 2.1 points from 13.4% in the previous quarter due to production control despite of controlling SG&A. On a year-on-year basis, non-GAAP operating income decreased by 12.9 billion yen (4.9 points) mainly due to sales decreases and reduced production.

Non-GAAP net income attributable to shareholders of parent company in the fourth quarter was 17.4 billion yen, and Non-GAAP net income per share was 10.4 yen.

Inventories at the end of the fourth quarter was 118.0 billion yen, a 23.5 billion yen decrease from the 141.5 billion yen in the previous quarter.

Net cash provided by operating activities in the fourth quarter was 60.0 billion yen and net cash used in investing activities was 13.2 billion yen. These resulted in positive free cash flows of 46.8 billion yen.

Capital expenditures for property, plant, equipment (manufacturing equipment) and intangible assets, were 4.4 billion yen in the fourth quarter. These expenditures are based on the amount of investment decisions made and does not refer to the cash outlays in the cash flow statement.

Equity ratio was 54.1% as of December 31, 2018, against 53.7% as of September 30, 2018. Debt/equity ratio (gross) was 0.37 as of December 31, 2018.

Summary of Full Year 2018 Results (Non-GAAP Basis)

Full year consolidated net sales were 757.4 billion yen, down 3.1% year-on-year. Full year semiconductor sales were 740.5 billion yen, a 3.3% decrease year-on-year. Automotive sales decreased by 3.4% year-on-year. Steady sales from non-Japanese customers despite slowdown in the second half caused by the European vehicle emission regulations and decrease in Chinese sales were offset by weakened demand from Japanese customers in respect to the inventory buildup in FY17. Industrial sales and Broad-based sales decreased by 4.7% year-on-year and by 0.2% year-on-year, mainly due to a decrease in demand in the FA, home appliance and broad-based markets owing to an economic slowdown in China, respectively.