NEW YORK -- I’m sure I’m not alone wondering whatever happened to the proposed merger of Japan’s chip vendors – Renesas, Fujitsu Semiconductor and Panasonic’s chip division – reported to be imminent earlier this year.
We may have to wait a few more months for the other shoe to drop.
If you’ve been thinking that this big deal was idle, media-led speculation, I beg to differ. This baby’s still in the womb.
When the consolidation news broke, I asked Ali Sebt, president and CEO of Renesas Electronics America Inc. what’s going on. He acknowledged that Renesas initially got a lot of inquiries on the subject. But he said he’s been reassuring its customers that “business as usual” prevails.
Of course, this is exactly the corporate line predictable from Sebt, a loyal lieutenant of the Japanese company for two decades and a close ally to Yasushi Akao, president of Renesas Electronics (Tokyo).
But taking into account Renesas’ disastrous financial results in the latest fiscal year, nobody – inside and outside Renesas – believe that business is even close to “usual” at Japan’s microcontroller giant.
Although final figures for the year ending March 31st, 2012 haven’t been announced, Renesas earlier this year made a downward revision to its forecasts for both net sales and semiconductor sales. It now expects sales for the year to be about 885 billion yen ($11.6 billion), down from an earlier forecast of 968 billion yen ($12.7 billion).
The company’s net income is expected to stay 57 billion yen ($747 million) in the red.
Some in the U.S. electronics industry believe that this will cost Akao’s job. I, too, believe there will be consequences, but I don’t think chopping the CEO is Renesas’ salvation, especially Akao – who’s one of the most cool-headed CEOs I’ve met in recent years.
Nor do I think the proposed merger of Renesas, Fujitsu Semiconductor and the chip division of Panasonic can help solve Renesas’ fundamental problems, either.
It will surely help Renesas, now the world’s largest microcontroller vendor, get even bigger. But don’t expect profits to follow suit.
Time to spin off, not consolidate
For a Japanese giant already too large, this is not the time to consider “consolidation.” It’s time to think of spin-offs and spin-outs. Renesas needs to package and parcel out some of its divisions, products and technologies to other companies.
To its credit, Renesas has been doing exactly that over the last 12 months. Last October, Renesas reached a definitive agreement last month to transfer its high-power amplifier business to Murata Manufacturing.
Renesas has also announced plans to transfer Renesas Northern Japan Semiconductor's Tsugaru factory to Fuji Electric.
Of course, the question is whether such moves are too little and too late.
When I sat down with Sebt in late January (before the proposed consolidation was reported), he laid out a blueprint for what Renesas envisions as the “Smart Society.” The “Smart Society” concept, first mentioned by Akao and now articulated by Sebt, represents a host of new market opportunities for Renesas, encompassing smart grid, smart car, smart building, smart home and smart factory. Listing what Renesas views as the three dimensions of Smart Society – ”low-power semiconductor technology,” “signal chain” and “emerging applications,” Sebt, with much confidence, noted, “He who can connect all three will rule the Smart Society.” He added: “The market is coming into our crosshairs.”
Renesas, after the merger of NEC Electronics, continues to be the world’s largest MCU vendor, with a 17.3 percent global market share. Its share remained significantly higher than second-ranked Freescale Semiconductor Inc., which increased its MCU market share to 10.1 percent in 2011 from 10 percent in 2010, according to Databeans.
As Sebt himself put it, “We are like Japan Semiconductor Inc. [except for memory].”
Indeed. But that size, a diversified product mix and a vertically integrated business model (doing everything from design to manufacturing), are factors hindering Renesas’ progress .
While I understand that having products in analog, MCU and power is important to enable the signal chain for the Smart Society as Sebt explained, the question is whether all the disparate parts of Renesas are necessary to a successful business in specific segments of the “Smart Society.”
The Smart Society concept might sound pretty cool, but why go for all of it. When you rattle off all those segments -- smart grid, smart car, smart building, smart home, smart factory – it sounds like an awful lot for one company, even a big company, to bite off and chew.