Renesas: A three-horn dilemma with a three-prong solution

NEW YORK – Let’s not sugar coat the three-horn dilemma confronting Renesas Electronics today.

Renesas’ problems include: 1) enormous damage done by the March 11th Great East Japan earthquake; 2) a yet-to-complete reorganization after the Renesas Technology/NEC Electronics merger that took place 17 months ago; and 3) a weak global economy becoming more and more evident in the electronics industry.

Shortly after the half-anniversary of the earthquake, EE Times sat down in Tokyo with Yasushi Akao, president of Renesas Electronics Corporation, in an exclusive interview.

During the interview, the beleaguered Renesas chief looked as cool as ever. He talked about the unimaginable impact the earthquake has had on his company’s financials. He openly acknowledged that much of the money that could have been used to improve the company’s business operations had to be diverted to the unplanned, unbudgeted special losses resulting from the natural disaster. Akao also acknowledged, “It’ll be tough to turn the company into black for the full fiscal year that ends on March, 2012.”

Renesas’ strategy to put the merged company on a growth path has not been spelled out in full. Its execution, by any account, has been delayed at least by a year.

Renesas’ second quarter just ended on Friday, Sept. 30th. Although results had not been disclosed by press time, the company’s own forecast (made on Aug. 2nd) for the first six months of the fiscal year 2011 said that Renesas was expecting a loss of 43 billion yen (approximately $561 million) in net income. The company’s operating income was forecast to be a loss of 35 billion yen (approximately $457 million). To top it off, the “weak global economy,” frequently lamented among chip vendors in recent weeks, will certainly affect Renesas’ third-quarter results.

But if there is a silver lining, it is the power of the crisis, born out of the earthquake, to prompt Renesas’ re-thinking about its redundancy strategy, according to Akao.


More importantly, the earthquake/tsunami’s aftermath has triggered an adult conversation among Renesas, its customers and its customers’ customers on how to bear the costs associated with the new redundancy plan.

Akao said that the idea of a “fab network” had always existed at Renesas. The earthquake, however, clarified its necessity and helped Renesas build specific action plans.

The fab network consists of multiple production lines operated both inside and outside Renesas fabs. The fab network, at a time of crisis, should allow the company to flexibly change the volume and products it produces among those different lines. The goal is to be able to make such changes in real time.

That, however, is easier said than done. The solution has three prongs.

First, Renesas needs to secure multiple production lines.  Second, Renesas’ customers need to evaluate and qualify production lines at different fabs – in advance. Third, the plan also requires each fab to keep an inventory of “semi-finished” products at all times.

Under the new business principle, Renesas hopes to restore production lines at any given fab – no matter what happens, “within one month,” said Akao. “That’s our end game.”

However, much of the fab network won’t function properly if Renesas and its customers fail to disclose and share information – on specifics such as available capacity at fabs, product roadmaps, and qualification processes. Further, they need to agree on how best to share the cost of building in such redundancies.

Renesas is currently talking to a number of customers on that very topic.  “That takes a three-way discussion,” said Akao. It should involve Renesas the chip company, a tier-one parts manufacturer like Denso, and an auto manufacturer as an end-system vendor, for instance, he explained.


Renesas’ vision

Renesas had never made its specific reorganization plan public before the March 11 earthquake. Let alone its full scenario for execution.

Asked how he envisions changes at Renesas over the next few years, Akao noted without hesitation: “We want to be known as a company that brings [semiconductor] solutions closer to the social infrastructure.”

The “in” group includes technologies and products “with a longer life cycle,” according to Akao. “Out” are “shorter life cycle” products.

Renesas has already spun out, in December of 2010, its mobile chip division -- to Renesas Mobile Corp., a wholly-owned subsidiary. Other “non-core” businesses will be either spun off, spun out or shut down, said Akao.

Among its broad product portfolio, Renesas has SoCs for game machines, ASICs for TVs and other consumer electronics devices, and peripheral chips for PCs. Asked if these products are considered “non-core” businesses in the future, Akao said, “We need to sort them out.” The plan is to let go those with a shorter life cycle, or eventually phase them out of the market.

Renesas is expected to become a much slimmer company by 2012. But the company’s focus will continue to be placed on its MCU business. The plan is to expand the sales of its MCUs further, especially in markets abroad, and sell them “as a kit” packaged with Renesas’ analog chips and power devices, said the Renesas president.

In Akao’s view, the semiconductor business, defined by the integration race of logic [and memory] components – reaching “the angstrom level,” is now quickly getting re-defined by who ultimately wins the race to the most effective integration of logic and analog components.

In order to bridge the real world -- essentially an analog world -- with the digital world where computations occur, Akao noted that one always needs sensors to sense the analog world; A-to-D converters to change the analog signals to digital; and a microcontroller to process data. The key is how best to integrate them all – in the most power efficient and cost-effective manner.

Asked if Renesas has a silver bullet to solve the age-old problem of effectively marrying analog and digital components, often produced on generations-apart process node technologies, without paying penalties either for speed or cost, Akao dodged the question. Instead, he said, “It’s a technology issue. If the problem lies in the technology, we will be able to solve it – eventually.”

Renesas today is often described as a microcontroller giant. Will that be an accurate description of Renesas in the future?

“Renesas, the MCU vendor, is an easy-to-understand tagline for our company. But my vision for Renesas is to become a semiconductor company serving the smart society,” said Akao.

Wait. What does the “smart society” mean?

The smart society, in Akao’s mind, includes smart grids, smart homes, electric vehicles, factory automation, home gateways, local networks and others.

As energy conservation continues to be an important social issue, “I see a rapidly growing business opportunity for us,” Akao said. “People are always looking for solutions that help them optimize energy consumption.  I think we are in a good position to come up with the best solutions -- by leveraging our MCU, analog and power devices.”