SoC business -- low return on investment
Akao made it clear that Renesas no longer regards its SoC business as the company’s core. “We are not going to get engaged in a business whose risk in ROI (return on investment) is too high,” said Akao.
“Unlike microcontrollers or power semiconductors, SoC requires enormous R&D, and yet, its probability to make a lasting impact on the company’s bottom line is very low,” he explained. Reneas will be folding its home multimedia – digital audio, digital video – operation, he said.
The exception to the rule for Renesas' to-be-discontinued SoC business is chips designed for social infrastructure, Akao added. "Such SoCs have a much longer product life, and we plan to continue that business."
When asked whether the company’s SoC business – if spun off – might incorporate Renesas Mobile, Akao said the issue is undecided. “While we believe the potential of Renesas Mobile’s business is very high and it can surely stand on its own if given enough time, we need to be flexible on our decision depending on the circumstances.”
As for the company’s plan for fab sales or fab reductions, Akao noted the overall plan to complete it within the next three years. Some fab sales could happen within the next 12 months.
To the suggestion that Renesas’ renewed focus on MCU and power/analog semiconductors looks much like Infinenon’s business strategy, Akao said, “It happens to turn out that way.” The similarity is not necessarily by design, he implied. While automotive continues to be an important market for Renesas’ MCU business, Akao envisions Renesas playing a critical role in what he calls the “smart society.” Whether in factory automation, smart grids, or smart buildings, MCUs, analog and power semiconductors will be indispensable to support any of those systems in the social infrastructure, Akao explained. Just as developing nations completely leapfrogged the wired telecommunication build-out to embrace wireless infrastructure, Akao is convinced that these nations are likely to jump straight to the smart society. “They don’t need to wait two decades to start building the smart society.”
Assumptions made back in 2010
Looking back, Akao said that he put together a merger/integration plan for Renesas Technology and NEC Electronics based on a number of assumptions. The merged Renesas Technology/NEC Electronics got at that time 50 percent of revenue from Japan and 50 percent from abroad. “We assumed then that the Japanese domestic market, although not growing, would not shrink so rapidly,” he said. “With that assumption in mind, our plan was to grow our overseas market quickly by focusing on China, India and Brazil.” Akao’s first 100-day plan called for the merged company to grow about 7 percent in revenue. Akao also hatched a plan to go after emerging market for chips and components required by the smart society.
Before the company was able to complete the full integration of Renesas Technology and NEC Electronics, Renesas was devastated by the earthquake in northern Japan on March 11, 2011. While no president could be possibly prepared for such a disaster, Akao made the most of that challenging time to pull the company together, win the trust of its foreign customers (by playing no favorites) and embarked on the building of a “fab network” that involves Renesas actively seeking more foundries to fab the company’s chips.
Further unexpected in 2011 was that this was the year when the Japanese domestic consumer electronics industry – which initially looked as though making a slight recovery after the 2008 global financial turmoil – went into free-fall.
By August, 2011, Akao decided to accelerate more structural changes at Renesas. The plan called for reducing the SoC business and slashing the company’s internal chip production. However, Renesas still held some hope to pull off its restructuring plan using its own cash.
At the end of 2011, catastrophic floods in Thailand hit the hard disk drive industry and drove the last nail into Renesas’ coffin. Renesas suffered rapid declines in chip sales. The euro crisis started to affect the Chinese economy as well.
Renesas’ revenue for fiscal 2011 ending in March fell to 883 billion yen (US$11 billion), a 22% drop from the previous year. About 55 billion yen of the decline in sales was directly attributable to the quake, according to Renesas. The operating loss was 56.8 billion yen, a large drop from FY2010's operating income of 14.5 billion yen. The company recorded a net loss of 62.6 billion yen, almost half that of the previous year's figure, which included a special loss of 65.5 billion yen for the damage of the Great East Japan Earthquake.
Renesas quarterly financial results
Source: Renesas Electronics
Despite all these uncontrollable disasters, the hard reality is that Akao will be challenged about whether he should stay to steer Renesas’ future.
Asked what grade he would give himself as a president, Akao drily said with a hint of ironic smile: “We have not been profitable for the last seven years. The answer is obvious.”
Asked if Renesas should have thought of going for a much more drastic fab-lite or fabless plan long ago, like NXP and Freescale, Akao said that he could not speak of the management decision the company made before he became president. Asked further if he believes that any Japan-specific cultural or social issues played a role in slowing Renesas’ changes, Akao said he didn’t think so. He refused to play the usual “Japan-is-unique” card. While acknowledging that different social settings or circumstances could impact how individuals deal with losing jobs, Akao appears to believe that shouldn’t be used as an excuse to explain Renesas’ misfortune.
But there is one thing Akao emphatically noted during the interview.
While he declined to answer what surprises Akao -- a long-time engineer -- may have encountered after he became president, he discussed the supply chain. “Until I became the president, I had not recognized the genuine significance and responsibility for being a semiconductor supplier.”
The earthquake certainly crystalized that thought in his mind. “It wasn’t just auto makers, which was most obvious, but a number of others industries – including those in the business of building elevators and constructing condominiums, for example – got panicky when they thought that they might not be able to get enough MCUs.”
Akao said, “Beyond achievements in financial performance, which is absolutely important, I recognized for the first time what a significant responsibility a chip company bears to keep different industries in different countries humming.”
Related links and articles:
KKR said to target Renesas with $1.27 billion bid
Report: TSMC's Chang says no to buying Renesas fab
White knight or asset stripper?
Renesas seeks $620 million from KKR, says report
Renesas cuts 14,000 jobs; fab sale to TSMC
Report: Renesas Mobile up for sale in re-org
Renesas extends MCU work with TSMC to 40-nm
Reports: Renesas to tie up with TSMC, cut jobs
Renesas: A three-horn dilemma with a three-prong solution
Post quake: 'The finest hour'
of Renesas and the industry