First quarter consolidated revenue was 150.3 billion yen, down 20.0% quarter-on-quarter and down 19.0% year-on-year. First quarter revenue from semiconductors was 146.7 billion yen, down 20.1% from the previous quarter and down 19.4% from the previous year. Automotive revenue decreased by 20.2% quarter-on-quarter and decreased by 9.7% year-on-year, mainly due to a decrease in vehicle production mainly in China and adjustments in channel inventory. Industrial revenue decreased by 26.2% quarter-on-quarter and decreased by 37.5% year-on-year, mainly owing to decreases in demand for both factory automation (FA) equipment and air conditioners for China. Broad-based revenue decreased by 14.3% quarter-on-quarter and by 21.0% year-on-year.

Non-GAAP gross margin in the first quarter was 39.3%, decreased by 1.2 points quarter-on-quarter and decreased by 8.2 points on a year-on-year basis.

Non-GAAP R&D ⁽⁹⁾ expenses in the first quarter were 27.8 billion yen, compared to 30.5 billion yen and 32.4 billion yen in the sequential and year-ago quarter. First quarter R&D ratio to revenue was 18.5%.

Non-GAAP SG&A ⁽¹⁰⁾ and Other expenses in the first quarter were 24.1 billion yen, compared to 26.0 billion yen and 25.7 billion yen in the sequential and year-ago quarter. First quarter SG&A and Other ratio to revenue was 16.0%.

While Renesas focuses its OPEX (operating expenses such as R&D and SG&A costs) on R&D expenses for future growth, the Group 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-revenue.

Non-GAAP operating income was 7.2 billion yen, equivalent to 4.8% of operating margin in the first quarter, showing a decrease of 12.3 billion yen from the 19.4 billion yen on a sequential basis. Non-GAAP operating margin decreased by 5.6 points from 10.4% in the previous quarter. On a year-on-year basis, non-GAAP operating income decreased by 22.9 billion yen (11.4 points) from 30.1 billion yen (16.2%) due to a decrease in sales revenue and production control leading to a decrease in gross profit, despite of controlling SG&A.

Non-GAAP net income in the first quarter was 6.6 billion yen, and Non-GAAP basic earnings per share was 4.0 yen.

Inventories at the end of the first quarter was 129.8 billion yen, a 14.4 billion yen increase from the 115.4 billion yen in the previous quarter. However, following the acquisition of IDT as of March 30, 2019, IDT’s inventory of 20.4 billion yen has been added. In addition, 13.0 billion yen out of 20.4 billion yen for IDT’s inventory is the amount increased by the market valuation based on the PPA (Purchase Price Allocation) effects following the acquisition. Excluding IDT inventory, inventories at the end of the first quarter reduced by 6.0 billion yen sequentially.

Net cash provided by operating activities in the first quarter was 20.0 billion yen and net cash used in investing activities was 702.1 billion yen. These resulted in negative free cash flows of 682.1 billion yen. Also, IDT acquisition related payments were 685.8 billion yen and the free cash flows excluding the impact from the acquisition was a positive of 3.8 billion yen.

Capital expenditures for property, plant, equipment (manufacturing equipment) and intangible assets, were 1.9 billion yen in the first 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 34.3% as of March 31, 2019, against 56.7% as of December 31, 2018. Debt/equity ratio (gross) was 1.53 as of March 31, 2019.

Outlook for Second Quarter 2019