Earnings Report: Renesas Anticipates Revenue Decline Due to Inventory Issues

Leading semiconductor manufacturer Renesas Electronics Corporation (TSE: 6723) projected a significant revenue decline in its Fiscal Year '24 Q3 Earnings Announcement. CEO Hidetoshi Shibata indicated that weaker-than-expected demand has necessitated further inventory reduction, announcing an expected revenue drop of approximately 20% in Q4.

The company's CFO, Shuhei Shinkai, reported Q3 revenues of 345.3 billion JPY, a gross margin of 55.9%, and a net income of 86 billion JPY. Despite challenges, automotive growth continues to remain stable year-on-year, with the company managing inventory levels in key segments while addressing supply chain difficulties.

Key Points: Renesas expects a revenue decline of around 20% in Q4, with 15% attributed to currency-excluded factors.
Q3 revenues reached 345.3 billion JPY, with a gross margin of 55.9%.
The acquisition of Altium is impacting segment allocations, particularly in industrial infrastructure and IoT.
Supply challenges in the 40-nanometer MCU market have led to inventory surplus.
A cautious outlook has been established for Q1 2024, with continued expectation for inventory reductions.

Company Outlook: Renesas is managing inventory levels to address channel issues, particularly in the automotive and IIoT segments.
The company aims to strike a balance between capturing opportunities and managing risks, focusing on medium and long-term cost management.
Future acquisition opportunities and the digitalization strategy post-Altium acquisition are prioritized concerning shareholder returns.

Negative Highlights: Q4 revenue forecast is expected to drop to 278.5 billion JPY, with gross margin declining to 52.5%.
Supply chain issues are anticipated to impact the automotive sector, particularly in SoC substrates.
Free cash flow is expected to decrease due to performance and rising debt levels.

Positive Highlights: Automotive business growth remains stable year-on-year.
The transition to DDR5 memory interfaces is viewed as a positive development.
The company plans to launch IGBT and SIC power devices next year.

Missed Opportunities: The company missed initial forecasts due to weakening demand in the automotive sector over the summer.
DDR5 memory interfaces faced delays in qualification, slowing the anticipated launch.

Q&A Highlights: Management discussed unexpected increases in short lead-time orders at the start of Q3.
No further deterioration in demand was noted in September.
The company will maintain consistent dividend payments despite challenges.
HEV trends are rising, while EV growth is stagnating, which does not significantly impact Renesas.
Renesas is progressing in a challenging market environment with a strategic focus on long-term planning and cost management. While the automotive sector continues to be a stable source of growth, the company maintains a cautiously optimistic outlook, particularly in the power semiconductor market. Renesas is committed to delivering results and improving its performance in the upcoming quarters while effectively managing risks and seizing opportunities.

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