* Renesas plans to cut 12,000 jobs, sell operations – source
* To announce business tie-up with TSMC after market close
* Shares hit all-time low, down nearly 60 pct in 2 months
* Company aims to raise $1.26 bln to fund turnaround plan
(Adds background, detail, analyst and industry executive
comment)
By Mari Saito
TOKYO, May 28 (Reuters) – Shares in Renesas Electronics
fell more than 11 percent on Monday to a record low
after news it will sell loss-making operations and cut at least
12,000 jobs as Japan’s chip sector grapples with its biggest
shake-out in a decade.
The company’s escalating troubles follow the February
bankruptcy filing of Elpida Memory Inc, Japan’s last
producer of dynamic random access memory (DRAM) chips used in
personal computers, which is in talks with U.S. firm Micron
Technology about a buyout plan.
Renesas, the world’s fifth-largest chipmaker, and its
Japanese peers are struggling to keep up with more nimble and
aggressive rivals such as Samsung Electronics in a
business requiring an ever faster pace of increasingly costly
investment.
The company’s restructuring plan, presented to its banks,
calls for cutting its workforce by more than a quarter and would
be funded by raising more than 100 billion yen ($1.26 billion)
in fresh capital, a source familiar with the situation said over
the weekend.
Renesas will also announce details of a business tie-up with
Taiwan Semiconductor Manufacturing Co, the world’s
largest contract manufacturer of chips, in Tokyo at 3:30 p.m.
(0630 GMT). Media has said it is likely to involve an
outsourcing deal.
The Nikkei business daily reported over the weekend that
Renesas’s restructuring plan, which the company aims to finalise
by July, calls in addition for selling TSMC a chip plant in
northern Japan.
“If it can go through with the restructuring and raise
funds, it will not be a repeat of Elpida,” said Hideyuki
Ishiguro, assistant manager of investment strategy at Okasan
Securities.
Before finalising the plan, Renesas must get approval from
its main shareholders, electronics conglomerates Hitachi Ltd
, Mitsubishi Electric Corp and NEC Corp
, whose chip divisions were spun off and merged to form
the company over the past decade. Combined, they hold more than
90 percent of Renesas shares.
Mitsubishi Electric, whose earnings along with Hitachi have
been bolstered by strong results in the infrastructure business
and by limited exposure to consumer electronics, said last week
that Renesas’s shareholders were prepared to offer support.
“JAPAN INC” ENTERPRISE
But NEC, whose chip division was merged into Renesas just
two years ago, has been hit with steep losses in recent years as
its mobile handset and IT hardware businesses struggle.
Shares in NEC tumbled 9.2 percent on Monday, while Hitachi
and Mitsubishi Electric were both flat, in line with Tokyo’s
benchmark Nikkei average.
Renesas was down 10.6 percent at 244 yen, after falling to a
record low of 238 yen. The shares have fallen nearly 60 percent
over the past two months as worries mounted about its business,
compared with a 15 percent drop in the Nikkei.
“I think it is very likely that Hitachi and the major
shareholders will give support, so I do think the reaction today
is a little excessive,” said Okasan Securities’ Ishiguro.
Renesas’s loss-making system LSI unit, which makes
system-on-chip products combining processing and other functions
that are used in a range of digital electronics, has been a
major drag on the company as Japanese consumer electronics
makers cut production of televisions and other goods.
Sales in the system LSI division fell 35.5 percent in the
year that ended on March 31, the worst performance among its
major divisions, including the world-leading division making
microcontroller chips for automobiles that was hurt badly by
last year’s earthquake.
Media reports have said Japan’s government is pushing a plan
to combine troubled system LSI businesses from Renesas,
Panasonic Corp and Fujitsu Ltd into a
government-backed company that would focus on chip design, while
selling off factories and outsourcing manufacturing to contract
chip makers.
Analysts note that Japanese system-on-chip makers have
suffered from their willingness to over-customise chips to suit
the needs of customers in Japan’s consumer electronics sector,
undermining efficiency and sacrificing profit margins.
While analysts have long urged Japanese chipmakers to take
advantage of the so-called fabless model that focuses on chip
design operations while outsourcing chip fabrication, Renesas’s
experience as a receptacle for other companies’ unwanted chip
operations bodes ill for such “Japan Inc” enterprises.
Analysts and industry executives have said a major factor
behind Renesas’s problems was a reluctance by executives from
its various parent companies to relinquish control, hobbling the
ability to make bold restructuring decisions such as closing
down plants or discontinuing product lines.
“The major problem that Renesas faces is its own management,
which is comprised of executives from its major shareholding
companies,” said a Japanese chip sector executive, who asked not
to be identified because of the sensitivity of the issue.
“The problem with these firms that are the product of
mergers of ‘big name’ companies is that they are not prepared to
take on restructuring that is required and to do whatever
necessary to survive.”
($1 = 79.6000 yen)
(Additional reporting by Maki Shiraki and Dominic Lau; Editing
by Edmund Klamann and Robert Birsel)
