Hisao Sakuta, Renesas CEO

Reducing the number of production facilities is central to Renesas' restructuring. The 10 front-end and 10 back-end facilities the company had two years ago had been cut to 9 and 4 by last March, at the end of fiscal 2013, and plans call for further rationalization to pare the numbers to 7 and 2. In the same timeframe, the employee headcount on a consolidated basis has been slashed to less than two-thirds: from 42,800 to 27,200. Sakuta commented that the company had no option but to act decisively despite the deeply distressing human cost.

Following the closure and sale of fabs, Renesas is boosting production of end-of-life (EOL) LSIs. The company has been negotiating with its customers on sharing the cost risk posed by EOL products manufactured in advance for stock. There are unpredictable factors—how long will inventory of any given product need to be kept? what will customer demand actually amount to? In other words, some EOL products may end up gathering dust instead of being used.

The Innovation Network Corp. of Japan (INCJ) together with eight major customers, including the country's major automakers, threw Renesas a lifeline in the form of a 150 billion yen capital injection last September. This has led to suggestions that Renesas isn't applying its EOL scheme to customized products for automakers for fear of offending its saviors.

Sakuta dismissed this speculation, questioning why customers who offered Renesas a helping hand financially would be unwilling to be equally helpful when it comes to business matters? While conceding that negotiations with the automakers are naturally tough, he said progress is being made.

With production of EOL devices for stock expected to peak at as much as 20% of total production within the next 12 months, the plant utilization rate has risen to roughly 70% on average—a high rate for Renesas that raises profitability. Though the first-quarter results were better than expected, Renesas realizes this was largely owing to the temporary surge in production of EOL devices, which makes the company look healthier than it actually is.

Optimum HR deployment
Renesas got through most of the costly restructuring in fiscal 2013 and is proceeding to the next phase centering on efficient deployment of human resources. Hence, Renesas has not reported a large special loss for the first quarter and does not envisage doing so for the second quarter.

As of August 1, Renesas reorganized the R&D and design functions, previously dispersed among three subsidiaries and the headquarters, into two units and HQ, eliminating overlapping functions.

The headquarters is not a sanctuary. Taking the opportunity of the imminent redevelopment of the headquarters building, Renesas intends to streamline staff functions, redeploying people as necessary, based on a review of the tasks and missions of the 2,000 personnel at HQ. Post-restructuring, hiring the right people commensurate with the new operations will pose a challenge, according to Sakuta.

Forming ecosystems
Selection and concentration are the company's watchwords in its ongoing restructuring. The agreement in June on the sale of Renesas SP Drivers to Santa Clara, California-based, Synaptics is a recent major deal. As Renesas SP Drivers was a highly profitable operation, the deal raised eyebrows. But Renesas went ahead and disposed of the unit because drivers are a distraction outside the scope of what it defines as its core business, according to Sakuta.

Renesas is also applying the process of selection and concentration to future applications with big potential, such as advanced driver assistance systems (ADAS) and next-generation power devices. Rather than seeking to expand its business solely through in-house efforts, Renesas intends to establish ecosystems involving partners whose strengths complement those of Renesas. "As a team, not as Renesas alone, we want to build a strong presence in the market," said Sakuta.

Renesas divided its businesses into two domains—automotive and general-purpose devices for industrial applications, from this fiscal year. It takes pride in its top position in the automotive-use MCU market and intends to continue strengthening its lead. The revolutionary innovations in the automotive sector, however, threaten to sideline a company that sticks to a chip-based business model.

As a supplier of devices for credit cards and electronic toll collection (ETC) systems, Renesas has capabilities in security technology, too. But Sakuta conceded that building large systems with multiple layers from hardware and middleware to application software has not traditionally been Renesas' strong suit. So in view of the emergence of ADAS and other developments, Renesas intends to cultivate ecosystems by joining forces with partners to create the systems. Although sensor systems are essential for automotive applications, Renesas does not manufacture sensor devices or intend to do so. But Sakuta envisages attractive solutions by integrating Renesas MCUs and sensor technology partners.

Renesas intends to pursue a similar strategy for next-generation power devices. Although Renesas' product portfolio includes silicon power semiconductors, "Our ability to shift to SiC power devices is limited, and so when we need SiC power devices, a partnership will be the best solution," said Sakuta.

The first quarter results
For the first quarter of this fiscal year ending March 2015, Renesas reported an operating profit of 27 billion yen, making it the sixth successive quarter in the black. Both sales and profit for the quarter surpassed the forecast announced in May on the occasion of the announcement of the results for the last fiscal year.

For the first quarter, sales were 209 billion yen (US$2.1 billion*), operating profit was 27 billion yen and net profit was 21.2 billion yen.

*Original figures are in Japanese yen. The exchange rate is roughly US$£±=100 yen.

Renesas only announced a forecast for the second quarter (July-Sept), predicting a slight decrease of key figures: sales of 203.7 billion yen, a decline of 2.6% from the first quarter, operating profit of 19 billion yen, and net profit of 6.8 billion yen. The automotive sector is expected to maintain the same level as the first quarter, but sales of industrial-use semiconductors are expected to drop several percent. The company does not expect to record a large special loss attributable to restructuring for this quarter.

Press releases:
Renesas Electronics Reports Financial Results for the First Quarter Ended June 30, 2014
Notice Concerning the Difference between Forecasts and Actual Financial Results for the Three Months Ended June 30, 2014

Related articles:
Discontinuation of certain ASICs will help bottom line, but auto sector untouched (July 28, 2014)
Synaptics to acquire Renesas' LCD driver business (June 12, 2014)
Renesas back in the black with full-year operating profit (May 12, 2014)
Sony acquiring Renesas' Tsuruoka fab for CMOS image sensor fabrication (Jan. 30, 2014)
Renesas to cut workforce by about 25%: media report (Jan. 22, 2014)
Semiconductor fab reorganization (Jan. 7, 2014)
New Renesas intent on carving out superior position in the global market: CEO (Oct. 30, 2013)
Renesas gets its 150 billion yen capital injection(Oct. 1, 2013)
Renesas to close two more fabs in further restructuring(Aug. 6, 2013)
Renesas appoints CEO and COO (May 10, 2013)
State-backed INCJ taking 69% stake in Renesas to support restructuring (Dec. 11, 2012)