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Renesas president mum on KKR deal, discusses restructuring plan

Posted: 31 Aug 2012 ?? ?Print Version ?Bookmark and Share

Keywords:SoC business? Fab lite strategy? MCU business? "smart society" strategy?

Yasushi Akao, president of Japan-based Renesas Electronics, gave an in depth interview detailing plans on how profitability can be revived in the struggling chip company. He reached out to EE Times hours after news spread that private equity firm KKR intends to invest $1.27 billion. Akao, however, did not comment on a potential deal with KKR.

As expected, Akao declined comment on the potential KKR-Renesas deal. He offered no specifics on who may purchase the ailing Japanese chipmaker's fabs, or where the company's SoC business may eventually end up.

Initially, Akao declined to provide a statement regarding the potential KKR-Renasas deal. He did not provide specifics on who may buy out the ailing Japanese chipmaker's fabs or where the company's SoC business may eventually end up.

However, he was more than willing to talk.

Instead of brushing off talk of the company's possible liquidation as speculative, Akao took the time to explain. He described his initial Renesas restructuring plan when he became the president of combined entity of Renesas Technology and NEC Electronics in 2010; what assumptions he had made then; how things have changed since; and what he now views absolutely as the key strategies to bringing Renesas back to profitability.

Comparing then (2010) and now, the biggest alteration Akao was forced to make in his vision was to accept a big capital infusion from outside. Of course, a new owner, in turn, means that Reneas eventually won't be able to control its own destiny.

Akao had originally planned to slash cost, reorganize the business and make sweeping changes in Renesas Electronics on its own, by using the gradual revenue growth the company had expectedroughly at 7 percent.

Yasushi Akao

However, Renesas today, two years later, is forecasting a record annual net loss of 150 billion yen for the fiscal year ending March, 2013. This loss matches the 155 billion yen Akao had earmarked for restructuring.

Instead of achieving independence, Renesas had to go back to its parent companies to beg for more money, just to survive. This persuasion has taken longer than anyone had hoped for, but Akao confirmed Wednesday that Hitachi, NEC and Mitsubishi, the three shareholders of Renesas, have agreed to provide a total of 50 billion yen through loans and other measures. Bank of Tokyo-Mitsubishi UFJ and three other lenders also plan to provide 50 billion yen through a credit line, he added.

It's debatable, though, if even 100 billion yen is enough to keep Renesas afloat, let alone restore the company's prosperity. To act on the restructuring plan more quickly, Renesas is likely to need more capital.

Today, it's clear that Akao's original scenario of unilateral restructuring is no longer an option.

While many already speculate that KKR may demand drastic management changes at Renesas, Akao ruled out any plans to step down. During the interview Wednesday, Akao said, "I do understand that a president is ultimately responsible for the company's financial performance." But he said his sense of duty keeps him committed to the job, instead of opting for the easy way out. "I need to make sure that we put a 'process' in place to get the company back on track first. Without accomplishing that, I feel as though I've finished only half the job I'm tasked to do," Akao explained. While his statement is stoic and admirable, it begs the question of whether KKRor any other trigger-happy financial investorwill buy Akao's argument.

Figure 1: Renesas Q1 balance sheet
Source: Renesas.

At the core of Renesas' current restructuring plans lie the following four priorities Akao has in mind.

1. Consolidate the company's current SoC business. In particular, Renesas will stop investing in R&D for SoCs whose life cycle is shorter and ROI is lower.

2. Execute a Fab lite strategy: Reduce the company's nine front-end production lines to seven, either through sales or substantial integration over the next three years. Bring down the company's nine back-end lines to two, by sales and reducing production.

3. While continuing to focus on the MCU business, expand the company's analog/power semiconductor business proportionate to the industry-wide market size/growth.

4. Find a global market opportunity by fostering Renesas' "smart society" strategy.

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