Renesas Technology: Good digestion
The merger that created Renesas Technology went off without a hiccup, creating a formidable chip competitor.
By Drew Wilson -- Movers & Shakers, 11/1/2004
One giant Japanese company swallowing another during the worst chip industry downturn seemed like a sure bet to set stomachs churning. The Japanese aren't known for fast changes, and megamergers aren't a traditional practice in Japanese business.
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| Koichi Nagasawa, CEO, Renesas Technology |
At the end of March, the first full year after the merger, Renesas reported sales of $7.97 billion and net income of $79.4 million. With those figures came the distinction of being the world's largest microcontroller maker and the third-largest chipmaker (behind Intel and Samsung Semiconductor), according to iSuppli.
Microcontrollers have been a key focus for Renesas, comprising about 30 percent of revenues. According to iSuppli, Renesas increased its microcontroller market share by 0.6 percent in the first year of the merger, compared with the combined market share of Hitachi and Mitsubishi in 2002.
"This is quite an accomplishment when considering all the merger-related distractions and drawbacks," says Koichi Nagasawa, Renesas' CEO.
Given market conditions, management expects a rosy report at the end of 2004. The total microcontroller market in 2003 was $9.98 billion, and is expected to show a 29 percent increase in 2004 to just under $12.9 billion, according to Semico. Digital-consumer products and systems for the automotive market are driving the growth.
Nagasawa believes microcontroller ICs are at the core of a significant trend in electronics: ubiquitous networked devices. Ubiquitous computing, the so-called "third wave" of computing, promises to connect a wide range of common items such as digital cameras, medical devices, cars and even clothes to proliferating broadband and wireless networks.
Renesas' market focus will be tightened on three strategic segments: automotive, mobile, and PC/AV. Japanese companies such as Sony, Canon, Nintendo, and others are the leading suppliers in these segments. Therefore, because Renesas is largely a domestic supplier, with some 60 percent of revenues coming from Japan, management believes it has a home player's competitive edge.
"Microcontroller products require the designer or application engineer to have a lot of discussion with the customer over the digital consumer solution, so in that sense we have an easier chance of design wins," Nagasawa says.
Renesas is also making impressive headway in the hot flash-memory market. The company produces AND flash, similar to NAND flash. The two types go into similar products but differ internally. The company grew flash revenues 73 percent in 2003, capturing about 10 percent of the market. Renesas still trails Samsung Semiconductor and Toshiba.
Nagasawa believes his company is set to seize a larger share. Renesas had difficulties getting AND-flash costs down but has succeeded in reducing the size by 30 percent, making the technology a cost-competitive challenger to NAND, he says.
Given its origins, it's not surprising that Renesas is Asia-focused. Efforts to get design wins in the US or Europe are underway, though these regions will not see much of a sales increase because the bulk of their products are transferred to China for manufacturing, Nagasawa says.
Speaking of China, the country is a major focus for Renesas. The company opened a China operation in July to implement a sales strategy around production and engineering support. The new company will manage all aspects of business locally, including financial management, R&D, market research, investment planning, and strategy development.
Renesas also runs backend chip operations on the mainland and six design and application sites for support and product development. Chinese engineers have already designed microcontroller-based products for Renesas, Nagasawa says.
Renesas' sales target in China is about $900 million in 2004 and $2.7 billion by the end of 2007. Currently the company has 3000 mainland employees, but that's expected to rise to 5000 by 2007. "We are putting in a lot of effort to increase sales in China" Nagasawa says.
During the first half of 2004, Renesas saw strong demand for its chips in the digital-consumer, automotive, and GSM mobile sectors.
Loading has been 100 percent through 2004, though in some areas, such as digital consumer, Nagasawa expects the number to drop slightly due to a second-half slowdown. But automotive will remain strong. In fact, automotive microcontrollers have been on allocation in 2004.
By the end of 2004, Nagasawa forecasts 10 percent revenue growth for Renesas.
Merger completed, Renesas management now turns its sights to the next phase of operation: improving profit while galloping ahead in technology.
In manufacturing, synergies from the merger are beginning to bloom, Nagasawa says. Advanced process chips designed by both companies are being manufactured in one fab, the 300-mm Trecenti Technologies plant. In addition, cross-production of products is taking place. For example, a Hitachi-designed LCD driver is made in former Mitsubishi fabs. "We spent one and a half years after the start of Renesas on such kind of a synergy," Nagasawa says.
By leveraging the complementary strengths of each company, Renesas aims to improve profit and drive the growth of next-generation semiconductor technologies.
All front-end processes beyond 150 nm have been unified to the process used by former Mitsubishi. "For process nodes beyond 130 nm, we have reduced the number of masks by integrating the strengths of both production lines," Nagasawa adds.
About $90 million of $800 million in capital investment will go to the 300 mm fab in 2004. The rest of the budgeted investment will go toward upgrading the company's other wafer fabs.
Renesas is currently turning out 12,000 300-mm wafers per month at 130 nm in the Trecenti fab, ramping to 15,000 by year's end. Racing ahead, Renesas stepped into 90-nm pilot production and is accelerating 65-nm process development, aiming for volume production by 2006.
For memory products, the 300-mm wafer fab gives a 20 to 30 percent cost savings over competitors who produce flash on a 200-mm line, Nagasawa says.
Profit is forecast to rise more than 30 percent in fiscal 2004, exceeding the projected 10 percent revenue growth.
