Rambling 'Round
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sharps_eng
The Chinese seem to have a 'team'approach to managing things including their ...
sranje
Great article and fishball graphic
Inward looking Renesas needs to spin outward
Junko Yoshida
4/19/2012 10:49 AM EDT
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.
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.
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patrick_yu
4/19/2012 12:42 PM EDT
aah ...
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WW Thinker
4/19/2012 12:52 PM EDT
Junko, I am afraid that your admiration or positive comment had gone to the wrong persons. Looking back at Renesas Technology or Hitachi Semi in particular, they kept shrinking in at least the past 10 years. Both Sebt and Akao were in the governing & driving seats during the period. Do you honestly expect these two persons know how to and have the wills to fix Renesas? If my prediction is correct, Renesas will become extinct in 20 years time ... Kodak and Motorola were once the pillars of the high-tech industries in US, where are they now? History teaches us, if you become complacent or not willing to take the real actions which will likely hurt many people in short-term, a slow death is mostly certain!
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junko.yoshida
4/19/2012 1:30 PM EDT
I agree with you on the part that if you stay complacent, you won't survive.
But that said, the point of my story here is more about how the Japanese companies should think outside the box. Inward consolidations will not work. It's time to spin off, spin out and sell off some of the teams.
Although it's not a perfect example, I think for Renesas to spin out Renesas Mobile was a smart move. Last time when I met with their representativeis in Europe, I was impressed with the autonomy of that operation. Why was I impressed? Renesas Mobile makes all the pricing decisions of their products -- even those for customers in Japan like NTT Docomo -- in Europe. That was a breath of fresh air, at a time when too many Japanese companies' subsidiaries or spin-offs continue to worry about what Tokyo thinks.
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WW Thinker
4/19/2012 6:11 PM EDT
Renesas Electronics is likened a dynasty. Unless a significant portion of the current management are replaced, so that the lack of accountability (exemplified by the nuclear power station fiasco in Mar2012) are replaced by new thoughts & processes, Renesas will simply not be truly world-class competitive vs its peers in US/Taiwanese/Korean. I often wonder why didn't the shameful management of Renesas (and others like Sony/Panasonic/...) practice the Samurai Spirit which equates to honor and doing things properly.
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t.alex
4/20/2012 11:46 PM EDT
Renesas already had problems since the merging of Hitachi and Mitshubitshi. There are so many overlapping products. Resources are not spent on making a few good products but still maintaining so many product lines. Any new merging will just make it worse.
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Deviant
4/19/2012 8:33 PM EDT
Pat...
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junko.yoshida
4/20/2012 7:27 AM EDT
It’s easy to blame corporate failures on the management, which many people including the press -- ours included -- do all the time.
I am not sure, however, whether many of the Japanese corporations spiraling downward these days can be simply saved by “brilliant” management. Many problems Japanese corporations are facing today are more fundamental, structural and even cultural.
But if Renesas were to miss the annual sales forecast of 885 billion yen, it would be a bad news for Renesas. Currently, there are speculations going on among some in the financial community that Renesas may not make its own forecast -- already revised once earlier this year.
Of course, we won’t know that until early May when Renesas discloses the number. The point is, as one of my sources told me, after this story was posted, “The fact that Renesas couldn't give the bankers better guidance is itself insightful about how the corporate planning group is really dislocated from the actual operations.”
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DMcCunney
4/20/2012 6:09 PM EDT
"Many problems Japanese corporations are facing today are more fundamental, structural and even cultural."
Agreed, but what *can* address them? Any possible solutions start with management.
One issue I can see on a cultural level is the concensus management style common in Japanese companies. I don't think Cheng's notion that "Japanese companies don't really make decisions" is exactly accurate: my feeling is that they do, but their "Bottom up, let's get everyone to agree a change is needed" style makes it impossible to make decisions *quickly*. Once a decision *has* been made, Japanese companies can implement blindingly fast, but reaching that point may simply take more time than a company in the current tech environment *has* to make it.
Another issue is perceptions of the underlying problem. The proposed merger essentially asks "Can several sick companies be combined into one strong one?" Well, maybe, but the resulting strong company is going to be a lot smaller, with a lot fewer people, and focused on fewer areas. This is both a structural and a cultural problem. If underlying motives for proposing this are face saving and preserving employment, the move will founder on unpleasant realities, because the business simply isn't there to support anything like the current unmerged operations, and merging them won't magically make it appear.
It may well make sense to look at spinning off various parts to focus on particular solutions for particular markets, but regardless of whether the end result is one smaller big company, or an assortment of much smaller companies, there will still be a lot less of it than there was at the beginning.
So the biggest question might be a cultural one: given the above, can Japan accept the fact that the result will be smaller and employ less people, and what will it do for the ones left out of whatever remains when the dust settles?
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junko.yoshida
4/20/2012 6:35 PM EDT
You wrote:
So the biggest question might be a cultural one: given the above, can Japan accept the fact that the result will be smaller and employ less people, and what will it do for the ones left out of whatever remains when the dust settles?
That's an interesting question. Culturally, and I should say, traditionally, Japanese employees in general have always preferred working for big corporations. But I believe that things are changing -- at a time when a number of "big" corporations are actually failing.
Wouldn't it be logical to think it's better to find potentially a bigger and exciting opportunity at a smaller company?
But would Japanese management accept that?
Spinning off and/or selling off different parts of its own company require bold thinking and bold steps -- most Japanese companies have never gone there before.
But I truly believe it's time.
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DMcCunney
4/20/2012 10:22 PM EDT
"Wouldn't it be logical to think it's better to find potentially a bigger and exciting opportunity at a smaller company?"
Sure would, if the opportunities existed. But the ones I spoke of are the ones *not* retained by the new ventures when the dust settles. What opportunities *exist* for them?
My concern is actually broader and deeper. The single biggest difference I can think of in Japanese culture from the US is that Japanese are members of *groups*. They derive nearly everything from their group membership. This goes far back in Japanese history. Think of the samurai portayed in Kurozawa films like "The Seven Samurai" set in the Edo period. Tha samurai were at the top of the social order, but they derived their status from their service to a lord. They were part of a group defined by being subjects of that lord. If a samurai's lord was killed, he became ronin - masterless - and if he couldn't find another lord to take him into service his propects were bleak. He was no longer part of a group.
In current Japan, the *company* a worker works for defines the group he belongs to. When the tradition of lifetime employment began to erode and Japanese workers faced layoffs for the first time, it was traumatic in a much deeper manner than it is here. They were not simply losing their job, they were being tossed out of their *group*. Reports of suicides by laid off salarymen come as no surprise.
Japan has not evolved the mechanisms to cope with numbers of people who are *not* part of a group. There was no need, as it was an infrequent occurrence. It is far more frequent now, as changes in the underlying economy mean you may not be able to count on lifetime employment, and you may change groups more than once. But you have to have another group to join, and defined mechanisms for making the transition. I think Japan needs to develop both.
"But would Japanese management accept that?"
They may not have a choice.
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akatou
4/21/2012 12:41 AM EDT
Renesas won't survive. I think it is a done deal.
All along, their revenue after merger has been smaller than the sum of pre-merger. What is worse, red figures on their PNL has kept on inflating. The mergers in the past achieved nothing.
The 'Smart Society' is cool as a buzz word, but if you look at their product line, it shows no intention of focusing at a particular segment. It is merely an attempt to justify keeping all the products that they have now.
In short, they still have way too many products.
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WW Thinker
4/22/2012 5:48 PM EDT
The assertion of "Renesas won't survive" should be correct. It is only a matter of when, assuming that the management style doesn't change. Many of the comments also hit the right note by saying that hte culture issues play a big part too. Flip side of the "consensus management" is: if one does not make the decision, he/she doesn't not have to bear the consequence especially when the result is bad. Simply put, no accountability is a big, if not the biggest, factor of why so many large businesses in Japan keep failing. Top management like Akao and Sebt are certainly responsible for the failure of Hitachi Semi (haven't people noticed that majority of the top management team came from Hitachi, not from Mitsubishi and NEC), Renesas Technology and now Renesas Electronics. What is the chance for Renesas in the marketplace which only get toughter than ever, under such kind of management team? You don't need to have Ph.D. degree to know the answer.
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sranje
4/23/2012 5:01 AM EDT
Great article and fishball graphic
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sharps_eng
4/24/2012 4:51 PM EDT
The Chinese seem to have a 'team'approach to managing things including their country. It is hard to pin anything on an individual.
Small companies work well as the team functions effectively, and individuals allow themselves to be subsumed in the excitement of the dream.
In larger companies, new people coming in don't bring that feeling with them, they may be walking wounded from layooffs elsewhere and unless the growing company consciously creates small exciting teams for these incomers to join they will simply convert the happy little company into a copy of whatever sick corporate they just left.
The anthill does work as long as everyone has their place and is cared for, and their 'royalty' can behave very badly and enjoy many benefits and still be tolerated.
But if the ants become hungry and aware of gross inequality, and if someone offers them an alternative dream, as happened in 1917, then look out!
Is there any Japanese history of revolution from below? I seem to recall this is where Samurai came from?
So is there a national spirit that leaders can awaken to present an alternative dream instead of 'more of the same'?
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