Renesas Electronics Shows Direction Of Renesas Group

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Renesas Electronics Corporation (TSE: 6723), a premier supplier of advanced semiconductor solutions, showed direction of Renesas Group with the outline; 1. Selection and Concentration of Businesses, 2. Structural Reforms, and 3.Operational Changes.

Since its establishment in the merger of April 1, 2010, Renesas Electronics has realized synergies through integration, such as reductions in the cost of materials, more efficient utilization of R&D expenses, and reduction of SG&A (selling, general and administrative expenses); restructured production sites, including the sale of manufacturing facilities; undertaken the selection and concentration of its businesses; and implemented structural measures, such as the introduction of an early retirement program.

Taken together, these measures have yielded a reduction in fixed costs of approximately 20% in the two years following the merger. Then, as we worked to recover from the effects of the Great East Japan Earthquake, which occurred while the above measures were being carried out and had a major effect on our business, we realized once again that the Renesas Group plays an extremely important role in society and industry, and that restoring our financial health at an early date so that we can continue to contribute to the development of society and industry is an essential mission for us. To achieve this mission to society and industry, the Renesas Group is undertaking major reforms in the areas of selection and concentration of our businesses,structural reforms, and operational changes.

1. Selection and Concentration of Businesses
We have identified field, industrial/networking, and general-purpose products and regions where growth is certain in the medium to long term and areas where we can win out the competition, and we will make use of our strengths by focusing on three fields where we can compete effectively.

In the context of trends in the business environment and technology such as the expansion of emerging countries and the middle class in the population pyramid; the emphasis on energy conservation, the environment, and power efficiency; and the fusion of control and IT, we at the Renesas Group are working to make the most of our strengths: microcontrollers (MCUs), which continue to advance and where we already have the No.1 market share worldwide;  technology combining MCUs incorporating low-power-consumption technology and control capabilities with IT; and dependable technology with high reliability and safety deriving from our extensive experience in the automotive and industrial fields. In the automotive field, we are not only utilizing the position we have built up as a solid foundation, but also working with the automotive industry on efforts to create next-generation self-driving “smart cars” and participating in industry projects aimed at the realization of a safe, dependable and convenient driving experience for all. In the various segments of the automotive field, we are collaborating with both customers and strategic partners toward the enhancement of ecosystems, and working to accelerate their expansion worldwide. In the industrial/networking and general-purpose fields we are aiming to expand the presence of the Renesas Group by growing our business through motor solutions with power efficiency as a key and collaboration with design houses in emerging markets.
In addition, we are expanding kit solutions and platform solutions in key fields. Until now the semiconductor business model has centered on supplying individual MCUs, analog devices, and power semiconductor products that customers need to build their products. This device solutions business will continue to be an important source of revenue for the Renesas Group moving forward. At the same time, demand is growing for a model in which customers are provided with kit solutions consisting of combinations of MCUs, analog devices, and power semiconductor devices optimized for their products, and, as products become more complex and attain more advanced functionality, for a model based on platform solutions incorporating advantageous technology and solution menu. We at the Renesas Group are bolstering our efforts to meet a wide range of different requirements according to the circumstances of our customers.
By focusing corporate resources such as personnel and investment on the key fields mentioned above, we believe that we can achieve a long-term competitive position that surpasses our competitors.
2. Structural Reforms
We are carrying out required production reforms aimed at the achievement of a corporate constitution that is reliably profitable, even in the case that risks we experienced before (such as natural disaster and stagnant market) come to the surface.
The basic thinking behind our production reforms is represented in the following three points: (1) Retain and enhance Renesas’s advantageous technology (power-saving and high-quality), (2) Build a flexible production system to correspond market change, and (3) Raise efficiency of production(to realize cost performance for customers).
In accordance with these basic policies, we will continue to operate the Naka factory, Kawashiri factory, and Saijo factory sites as our main front-end production facilities in order to maintain and strengthen our high-quality technology in on-chip flash memory MCU, power saving, etc., at which the Renesas Group excels. Our other front-end facilities will be either scaled back or consolidated on the basis of production efficiency and cost performance. We will continue to operate the Yonezawa and Oita sites as our main back-end production facilities in Japan in order to maintain and strengthen our high-quality technology. However, to boost production efficiency we will expand and strengthen our overseas production facilities. As we scale back the facilities we operate ourselves, the importance of outsourcing will increase, and we plan to strengthen our relationships with foundries/subcontractors as strategic partners. In addition to moving forward with mass production and joint development tie-ups, we will take steps to ensure that our foundries/subcontractors maintain the same standards as our own facilities in the areas of quality, cost, and delivery.

As we implement production reforms within the Renesas Group, we are working to build a flexible production system, including outsourcing, that matches the special characteristics of our customers’ products, while at the same time strengthening our fab network to eliminate supply interruptions in case of natural disaster. In these and other ways we are building a production system that enables us to provide the very best products and services to our customers.
3. Operational Changes
We are carrying out operational changes to support the selection and concentration of businesses and structural reforms described above.
Already, the number of company executives, units, and business divisions in the Renesas Group has been reduced substantially, as we move forward with efforts to slim down the organization to achieve speedier decision-making. In addition, we are reorganizing our research and design centers, establishing production subsidiaries and implementing more unified operation throughout our factories, integrating our Japanese sales subsidiary with Renesas Electronics itself, and focusing corporate resources on key businesses. We are also revising our personnel system, introducing more responsive personnel and treatment policies while strengthening our emphasis on results. In these ways we aim to increase the motivation of our employees. Through these operational changes, the Renesas Group will strengthen its customer focus, boost added value, increase development and production efficiency, and speed up decision-making.

In the three years since the merger that established the Renesas Group in April 2010, fixed costs have been reduced by approximately 210 billion yen, and the company’s break-even point has improved by approximately 370 billion yen. On the other hand, semiconductor sales have dropped, resulting in a substantial current-term deficit in spite of concerted efforts at structural reforms.

Moving forward, we will rearrange our portfolio in favor of businesses in which we are highly competitive and continue broadening our offerings in kit and platform solutions, while at the same time strengthening our device business. We will also carry out further production reforms and efforts to reduce fixed costs in order to achieve a corporate constitution that is reliably profitable without presuming sales growth. In the areas of fixed costs and our break-even point we will make further advances, beyond the substantial improvements achieved over the past three years through structural reforms. In this way we will bring the Renesas Group back into the black at an early date, maintain and enhance the confidence of shareholders, customers, and business partners outside the company, as well as the motivation of the employees within the company, and become once again a company that can make an ongoing contribution to the development of society and industry.

Please refer to the business presentation material on Renesas’ homepage for further details, which were presented with the financial results announcement today.

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