NEC, Hitachi Plan to Support Japanese Chipmaker Renesas

NEC Corp. (6701) and Hitachi Ltd. said they plan to support Renesas Electronics Corp. (6723), the world’s largest maker of microcontrollers for cars, as it seeks financial aid following at least five straight quarterly losses.

The details of that support hasn’t been decided, Takehiko Kato, a spokesman for NEC, and Atsushi Konno, a spokesman for Hitachi, said separately yesterday. The two companies, which hold their annual shareholder meetings tomorrow, and Mitsubishi Electric Corp. (6503) own a combined 91 percent of Renesas.

Kawasaki, Japan-based Renesas asked for assistance after posting losses amid a slowdown in demand for chips used inside TVs and computers. Banks and major shareholders reached “broad agreement” to provide 100 billion yen ($1.3 billion) in support to Renesas, and the company may cut more than 12,000 jobs, the Asahi newspaper reported June 19.

“Renesas must be saved,” said Edwin Merner, president of Tokyo-based Atlantis Investment Research, which manages $300 million. “But it must consolidate operations and must be better managed.”

KKR & Co. (KKR) and Silver Lake, two U.S. private equity funds, are in talks to invest “several tens of billions of yen” in Renesas, the Yomiuri newspaper reported today, without saying where it got the information.

“Nothing has been decided,” Yoichi Kobayashi, a spokesman for Renesas, said by phone.

Silver Lake and KKR declined to comment in separate e- mailed responses to questions from Bloomberg News.

Mitsubishi Electric

Renesas rose as much as 7.4 percent to 348 yen and traded at 338 yen as of 10:14 a.m. on the Tokyo Stock Exchange. Japan’s benchmark Nikkei 225 Stock Average gained 1 percent.

Hitachi and Mitsubishi Electric will provide a combined 34 billion yen in loans, the Asahi reported. NEC, Japan’s biggest maker of telecommunications equipment, proposed extending payment deadlines, the report said.

The major shareholders of Renesas may consider taking “some kind of action” to support the chipmaker if asked, Kenichiro Yamanishi, president of Tokyo-based Mitsubishi Electric, said May 21.

Renesas posted a net loss of 62.6 billion yen in the year ended March 31 as orders for system chips used in consumer electronics and personal computers fell. The strengthened yen also eroded earnings from overseas, while last year’s record earthquake in Japan and subsequent flooding in Thailand disrupted production.

Sales of system chips plunged 36 percent in the year ended March 31, compared with a 12 percent drop in sales of microcontrollers, Renesas said May 9.

Sony, Samsung

“The decline of Japanese consumer electronics in the global market is the major reason” for the slump in orders, Shinichi Iwamoto, a senior vice president at Renesas, said in a June 19 interview in Tokyo.

The company’s customers include consumer-electronics makers Sony Corp., Panasonic Corp. and Sharp Corp. (6753), which posted a combined 1.6 trillion yen in losses last fiscal year amid declining TV demand and competition from South Korea’s Samsung Electronics Co. (005930) and LG Electronics Inc.

The company said it supplied 42 percent of car microcontrollers, which run systems including airbags and brakes, last year. Renesas makes between 60 and 70 percent of chips used in cars built by Japanese automakers including Toyota Motor Corp. and Nissan Motor Co., according to Kunihiko Onuma, head of Hitachi’s automotive systems unit.

‘Indispensable’

The microcontrollers are customized and difficult to replace, said Mitsushige Akino, who oversees about $600 million at Ichiyoshi Investment Management Co. in Tokyo. Japanese automakers were forced to suspend output after the March 2011 earthquake and tsunami partly because Renesas’s main factory was damaged.

“For Japanese automakers, it’s indispensable,” Akino said.

About 50 microcontrollers are used in a typical car for power windows, doors and navigation systems, according to Renesas.

Microcontrollers offer an operating profit margin of about 10 percent, according to estimates by Yukihiko Shimada, a senior analyst at SMBC Nikko Securities Inc. in Tokyo.

Renesas got 43 percent of its semiconductor sales of 786 billion yen from microcontroller chips last fiscal year, according to the company. System chips accounted for 26 percent.

Previous Support

As part of restructuring, the company sold its high-power amplifier business to Murata Manufacturing Co. in March. Fuji Electric Co. agreed to buy Renesas’s factory in northern Japan on July 1, it said March 28.

Renesas, which operates 19 factories in Japan and six plants overseas, is also increasing outsourcing of production to companies including Taiwan Semiconductor Manufacturing Co.

The Japanese company plans to raise its share of the microcontroller market to 35 percent in five years by targeting customers in emerging markets, while the alliance with TSMC will help cut fixed costs and raise profit margins, Iwamoto said June 19.

Renesas, formed in 2010 after mergers of two unprofitable chipmakers, previously got 206.3 billion yen from NEC, Hitachi (6501) and Mitsubishi Electric. The company targeted a profit last fiscal year with plans to cut jobs and focus on its main microcontrollers business. The three shareholders told Renesas that the aid was the last they would give at that time.

Renesas failed to meet its profit goal as it company was “too slow” in making changes, said Ichiro Takamatsu, a fund manager at Tokyo-based Bayview Asset Management Co., which manages $2 billion.

Getting loans for restructuring this time “will help erase immediate concerns about the company’s survival,” Takamatsu said. The money still wouldn’t be enough on its own to turn around Renesas’s business, he said.

Renesas must make its growth strategy clear, and its revival plan must be carried out quickly, Akino said.

“The company should just focus on microcontrollers for autos,” Akino said. “Speed will be important.”

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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