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Further cuts at Renesas show woes of Japan chip industry

Renesas Electronics Corp.’s Naka factory in Hitachinaka, Ibaraki Prefecture, one of the firm’s main semiconductor plants, could face new personnel cuts as the chipmaker seeks to make progress in its rocky corporate turnaround.

Publication Date : 23-01-2014

 

Renesas Electronics Corp.’s decision to undertake new personnel cuts indicates the chipmaker remains saddled with too many workers and has not sufficiently benefited from the weaker yen or the economic recovery spurred by Abenomics, the economic policies of Prime Minister Shinzo Abe.

The firm’s troubles are emblematic of the state of the domestic semiconductor industry, which has foundered in the face of competition from South Korean and other overseas rivals.

Renesas marked an after-tax loss of 12.8 billion yen (US$123 million) in its mid-year settlement of consolidated accounts in September.

Yet sales of the firm’s microcontrollers, which are used to control automobiles and digital home electronics, were brisk, mainly to domestic automakers.

A weaker yen has also had an impact, with sales rising 1.8 per cent to 417 billion yen ($4 billion) from the same period the year before.

Operating profit, which indicates the earnings of the firm’s main business, flipped from 23.3 billion yen in the red in the same period the year before to 20.6 billion yen in the black this year, one sign of improvement.

Renesas’ management plan, announced in October 2013, set a target for increasing its operating profit rate, or the ratio of sales to operating profits, from the current 5 per cent to at least 10 per cent for the term ending in March 2017.

At the time, Renesas Chairman Hisao Sakuta hinted at the possibility of more personnel cuts. “We need to decisively tackle the issue of reducing fixed costs,” he said.

Renesas was formed by integrating the semiconductor businesses of Hitachi Ltd., Mitsubishi Electric Corp. and NEC Corp. This make-up has led to management inefficiencies in handling a diversity of domains, from production and technological development to sales, according to a source with knowledge of the company.

The firm set a goal in 2012 of halving its 18 domestic factories, but 14 plants are still running. A plan is in the works to shutter three factories, including the Tsuruoka plant in Yamagata Prefecture and the Kofu plant in Yamanashi Prefecture.

An early-retirement programme and other measures have reduced the workforce from about 47,000 at the end of fiscal 2010 to about 34,000 at the end of fiscal 2012, but it is clear the turnaround is lagging.

Renesas holds the largest share of the global market for automobile microcontrollers. However, since some carmakers and electronics manufacturers are both customers and stockholders, it is often difficult for the company to get the upper hand in price negotiations, the source said.

The firm aims to break out of its predisposition to operate in the red while continuing to develop new products, but with difficult negotiations between labor and management over personnel cuts all too likely, the future of Renesas’ turnaround remains as difficult to predict as ever.

 

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