TOKYO — Renesas Electronics, beating its own estimates, reported Wednesday, Aug. 6, that its semiconductor sales in the April-June quarter grew to 201.2 billion yen (US$1.97 billion), up 4.9 percent from the previous quarter. Operating income was 27.0 billion yen, an increase of 10 billion yen over the last quarter.
Driven by increases in automotive sales and general-purpose products, the company’s first-quarter chip sales grew both quarter-by-quarter and year-on-year.
This uptick, however, is hardly a proof of Renesas’s full recovery, according to CEO Hisao Sakuta. During a press conference in Tokyo on Wednesday, Sakuta described Renesas as “a patient still in the hospital.”
Today, the new management team at Renesas is focused on gross margin. Simply put, without an adequate gross margin, a company can’t pay its operating and other expenses and build for the future. Sakuta said that the most urgent task for Renesas, “still fighting for survival... [is] to improve our gross profit rate.”
Sakuta, during Q&A, asked a rhetorical question: “If you’re a customer, would you do business with a company who might go bankrupt?”
Renesas’s gross margin has been steadily improving in recent quarters -- helped by foreign currency exchange rates, a host of structuring reforms (closing a number of its own fabs and laying off employees), and selective focus on the company’s product mix. Noting that the company’s estimated gross profit rate is 38.3 percent during the second half of the current fiscal year, Sakuta said, “Our goal is to improve it to 45 percent in three years.”
Renesas Quarterly Financial Results
Sakuta, former Omron president and chairman, bluntly offered a few of the “gory details” of the end-of-life (EOL) product negotiations Renesas is engaged in with its customers.
Beyond its commitment to further “structural reforms,” Renesas badly needs to unload unprofitable products, even though some of those chips are in critical demand by customers, according to the Renesas CEO. Renesas simply won’t be able to make certain chips due to the closing of its own fabs. In some cases, Renesas needs to end the product because the company sees that customer applications are shrinking.
While ending the production of certain parts and components is surely the most critical step in restoring the company’s gross margin, it’s the most controversial (and grossly unpopular) among customers.