Free Renesas from its golden cage called Japan

8/30/2012 8:31 PM EDT

Renesas products are wonderful. This is true for many other Japanese vendors. But they do not have sound product marketing strategy outside Japan. It is very difficult to get samples and quotation to purchase their parts. They should align with appropriate American marketing agent to gain back their lost ground.

8/30/2012 10:31 PM EDT

I think it was easier to deal with the individual companies before the mergers were created. Heck, it might have even been better to take the stronger of the two pre-merger entities and use their name for the final company name, for example, "Hitachi". The name change as well as the merger I think tended to muddle the product lines and brand recognition.

8/31/2012 6:57 AM EDT

Junko,
Very good point.
Extending this idea,in my view, the Japan golden cage,
is the famous "keiretsu" model.
This model is no more working for the semiconductor industry in Japan, mainly because of the decrease of the Japanese consumer electronics sector. The creation of Renesas was a patch to this model, that is clearly not working.Now, what I expect at KKR hands, is the selling of parts of this business , as they did with NXP. In my view, the future of Renesas will be a much smaller company, focused in microcontrollers.

8/31/2012 8:49 AM EDT

Thanks for this another piece of analysis.

As we are now digging deeper into what went wrong with Renesas, let me share my thoughts as I have closely observed and interacted with this company ever since its formation in 2003. Renesas Technology was established as an unlisted entity in April 2003 with the merger of semicon businesses of Hitachi and Mitsubishi (note that Matsushita / Panasonic was never a part of Renesas as incorrectly mentioned in the article).

Renesas actually started on a good note as the second largest semicon company in the world. About 10 Billion USD revenue, 25,000 people, established customer base, and some operating profits. Renesas did inherit a lot of old fabs from Hitachi and Mitsubishi, which they should
have reorganized at that point in time itself. Unfortunately they didn't do that. This is because the management team had no experience of running an independent semicon company. So far, the management team was a part of larger umbrella called Hitachi or Mitsubishi, where they were working in a rather protective environment. Morever, Renesas Technology
was not a publicly listed company, and they were not exposed and answerable to external shareholders and analysts unlike today. Lack of experience, complacency, and initial usual merger issues resulted in almost no structural reforms.

8/31/2012 8:52 AM EDT

In addition, management team (which was actually a bunch of veteran engineers who had only worked in a closed and protective environment with limited exposure to the external world) couldn't see what was coming in the market. While competitors where increasingly going
fab-lite, Renesas decided to retain old fabs and keep investing whatever little money they had in repairing and upgrading those old fabs. While companies were setting up / expanding their design centers in India,
Renesas for some stupid reasons chose to set up a design center in Vietnam, where no semicon ecosystem existed, and till date after 7 years Renesas is the only semicon OEM having a design center in Vietnam! While the world was gearing up for mobile boom, Renesas decided to remain associated with DoCoMo. They did talk about selling their Symbian based G series mobile platform globally, but they never sold a single piece of
this platfrom outside Japan (I have seen presentations where their management talked about doubling the sales of mobile platform with half of sales coming from overseas, but as usual, it was a mere lip service,
they were never serious and didn't do much about it). While the competitors were shifting their focus from Symbian to Android, Renesas chose to remain on Symbian for a very long. By the time they realized this and ditched Symbian for Andriod, market was already captured by Qualcomms and Nvidias of the world.

8/31/2012 8:53 AM EDT

Renesas management team never understood the importance of financial discipline. Semicon business is like Alaskan weather. Alaskan bears work hard in summer so that they can endure long and severe winter. Semicon
guys have to make money in good times so that they can remain in business in downturn. Renesas was barely breaking even in good times. Management never seriously realized that they were an independent company now, and they have to earn their own bread. They always thought
that parent companies will back them up whenever needed. Then the Lehman collapse happened, which no one had anticipated. Yen started appreciating. Taiwanese and US based fabless were maturing and they started giving Renesas run for its money. Renesas was never prepared for all that. Renesas Technology was out of money in no time. Somewhat similar story was repeating at NEC Electronics as well. Government and industry associations intervened, and asked both these arch rivals to merge. A new public listed entity called Renesas Electronics (Renesas Technology + NEC Electronics = Renesas Electronics) was formed. While
the Renesas brand name was retained, color of the Renesas logo was changed from Red to Blue, which was the color of NEC Electronics logo. Management spent hours on discussing about what should be the color and shade of the logo, but they didn't have guts to confort the core issues. Parent companies (Hitachi, Mitsubishi and NEC) shelled out 2 Billion USD (it was actually a financial bailout) to bring some life to the new entity. Though they had more mouths to feed and the burden of old fabs
was also heavier, Renesas managment was still not ready to learn from the mistakes. They choose to sleep over the core problems. One day when they realized that they will be out of money very soon, they were out in the
market looking for another bailout!

8/31/2012 8:54 AM EDT

Renesas did inherit the Japanese legacy you have talked about. But they were an independent company and a strong company president at the helm of affairs would have made a big difference. Unfortunately, both presidents (Tsukamoto and Akao) after the first president Ito, were too weak and timid. Mr. Ghosn inherited a nearly bankrupt car company, which he transformed into one of the world's most powerful companies. Shinsei
bank was transformed into a profitable business from a bankrupt company by its management team. New generation leaders of Japan like Mr. Yanai of Uniqlo, Mr. Son of Softbank, and Mr. Mikitani of Rakuten have refused
to bow down to the pressures you have mentioned. These guys are today running healthy and growing businesses.

Regarding "golden cage", I would say that though there were pressures, Renesas remained in the golden
cage at its own choice, because the management team never had guts to stand up and call a spade a "damn" spade. Golden cage was cozy, while the outside world was all about survival of the fittest. In that sense,
the toxic management of Renesas must take responsibility for inflicting enormous damage to the company. If the management team cannot see what is coming in the market, if they cannot make right decisions, if they cannot withstand pressures and do what is good for the company, if they cannot inspire their employees, why do we need such team?

Although KKR deal is now discussed by parent companies and bankers of Renesas, I have my own doubts whether this deal will go through. National sentiments and other pressures that you have mentioned in your article will try their level best to ensure that a sick company remains on a death bed forever.

8/31/2012 1:23 PM EDT

Japan can no longer compete on the basis of its traditional virtues of hard work, sincerity, perfectionism, scale and lower cost ( compared to the US ) alone. Taiwan and So. Korea have overtaken Japan in those attributes. Japan must emphasize innovation - even in Consumer Electronics. It still has large enough domestic financial resources and market to underwrite such a move. But what it does not have are enough English speakers ( the language of Int'l business and technology ), and people with solid theoretical background ( Physics, mathematics ) among the Technical community. They still depend far too much on experimental work than on simulation & mathematical modeling. In my 2 decades of working and managing Japanese Engineers, I have found them very dependable but no match to a US trained Engr. w/ a grad. degree ( MS , PhD ). This is how Taiwan, So. Korea & even China have raced past Japan. If Japan really wants to catch up with the TSMCs and Samsungs of the world then it needs to urgently "buy up" a few top US universities and send thousands of their Engr. students to Grad School here.

8/31/2012 6:43 PM EDT

I hope they don't wind up just selling the brand name to someone else.

9/1/2012 1:11 PM EDT

It's an unavoidable conclusion: Japan's semiconductor industry can only survive as fabless.

9/2/2012 11:25 AM EDT

Renesas' problems are not unlike a large company's problems. If the management allows the different pieces to run free, there will be no accountability. Each piece has to be given rules and constraints to operate within and the corporate management has to have a strategy to tie it all together. Without that, it will fail.

9/4/2012 7:59 AM EDT

Hynix also was a "shotgun wedding" like Renasas. The difference is that Hynix had a near-death experience, and was forced to fire 2/3 of the management. Hynix never had a cushy domestic market to depend on. The slow decline of Renasas may be part of their problem. A short, sharp shock may have been more therapeutic.

9/4/2012 2:44 PM EDT

The problem with Renesas "today" is no different than "yesterday".
It is managed "the Hitachi way". When Renesas was first formed, Hitachi was the dominate organization, most of Mitsubishi's management was pushed out by the sheer numbers Hitachi brought to the merger, ~18 employees from Hitachi and ~9k from Mitsubishi with revenue numbers being less than 10% different. Few remember that Mitsubishi was slightly profitable, several 10's of millions, with Hitachi bleeding away almost $1B. The fabs Hitachi brought were older and manually operated, where the fabs Mitsubishi brought were larger and more automated. Until the former Hitachi management is disposed, little will change within Renesas.

9/4/2012 4:18 PM EDT

Junko, I feel your pain through the words you typed, and I share that.
Just wanted to ask you to keep on doing what you're doing, openly and courageously. You are an amazing journalist.

9/5/2012 3:25 AM EDT

I work for another Japanese company, which is also losing money hand-over-fist. Much of the original article and the comments below apply equally well to my company, too. It has been struggling for many years now and in that time has been continuously centralising design in Japan, which just compounds the problem.