First quarter gross profit was $685 million and gross margin was 37.6%, 60 basis points above the midpoint of the Company’s guidance. On a sequential basis, gross margin increased 10 basis points, above normal seasonality, mainly benefiting from favorable product mix, improved manufacturing efficiencies, and lower unused capacity charges partially offset by normal beginning of year pricing changes for major customers. Gross margin improved 420 basis points year-over-year, benefiting from strongly improved manufacturing efficiencies, favorable product mix, lower unused capacity charges and favorable currency effects, net of hedging partially offset principally by normal price pressure.
Combined R&D and SG&A expenses in the first quarter were $568 million compared to $570 million and $571 million in the sequential and year-ago quarter, respectively.
First quarter other income and expenses, net, registered income of $17 million compared to $25 million and $28 million in the prior and year-ago quarter, respectively, mainly due to lower R&D funding.
Impairment and restructuring charges in the first quarter were $5 million compared to $24 million and $28 million in the prior and year-ago quarter, respectively, mostly related to the set-top box restructuring plan announced in January 2016. The Company continued to make progress on its restructuring of the set-top box business. Exiting the first quarter of 2017, the restructuring plan was on track and achieved a run-rate of about $126 million of the total $170 million of targeted annualized savings expected upon completion.
Operating income in the first quarter of $129 million was stable in comparison to the prior quarter and increased by $162 million on a year-over-year basis.
First quarter operating income before impairment and restructuring charges(1)was $134 million, equivalent to 7.4% of net revenues, decreasing from $153 million, or 8.2% of net revenues in the 2016 fourth quarter mainly due to lower revenues. On a year-over-year basis, operating income before impairment and restructuring charges(1) improved by $139 million reflecting higher revenues, improved product mix, manufacturing efficiencies, better fab loading and benefits from the set-top box restructuring plan.
First quarter net income was $108 million, equivalent to $0.12 per share, compared to a net income of $112 million, equivalent to $0.13 per share, in the prior quarter. On a year-over-year basis, net income improved by $149 million from the net loss of $41 million in the year-ago quarter.
Cash Flow and Balance Sheet Highlights
Capital expenditure payments, net of proceeds from sales, were $219 million during the first quarter of 2017 compared to $100 million in the year-ago quarter.
Inventory was $1.20 billion at quarter end, up 2.5% from the prior quarter. Inventory in the first quarter of 2017 was at 3.8 turns or 95 days.
In the first quarter, the Company paid cash dividends totaling $53 million. Today, ST’s Supervisory Board has proposed to the 2017 Annual General Meeting of Shareholders to declare a cash dividend of US$0.24 per outstanding share of the Company’s common stock, to be distributed in quarterly installments of $0.06 in each of the second, third and fourth quarter of 2017 and first quarter of 2018 to shareholders of record in the month of each quarterly payment.
ST’s net financial position(1) was $518 million at April 1, 2017 compared to $513 million at December 31, 2016. ST’s financial resources equaled $1.98 billion and total debt was $1.46 billion at April 1, 2017.
Total equity, including non-controlling interest, was $4.77 billion at quarter end.
