Renesas Electronics has revealed its three-pronged business strategy, which highlights the integration of development environments. The announcement follows closely after the report of up to 10% job cuts at the company.

The strategy comprises:  (1) formulation of growth strategies by optimizing business portfolios, (2) realization of merger synergies, such as the integration of development environments, technology platforms and various infrastructures, and (3) implementation of structural reforms to create a business structure with stable profitability and resistance to changing market conditions.

Renesas Electronics began its business operations April 1, 2010, through the integration of NEC Electronics Corporation (TSE: 6723) and Renesas Technology Corp. Targeted to achieve sustainable and robust growth, the new business strategy has been formed by reviewing all of the former companies’ respective management resources, including technologies, products, design and development environments, manufacturing, sales, material purchasing, and business processes, to maximize the merger synergies, and by evaluating measures to achieve the company’s business goals.

Details of the new strategy:

1) Formulation of growth strategies: Aim of 7 to 10 percent CAGR

1.1) Optimize business portfolios
Depending on their marketability and advantages, Renesas Electronics will classify all of the company’s businesses and products into three categories: 1) expanding and growing business, 2) ongoing core business, and 3) shrinking business. By concentrating management resources on expanding and growing business, the company aims to achieve 7 to 10 percent CAGR (Compound Annual Growth Rate) growth in its semiconductor sales.

1.2) Enhance businesses supporting social infrastructures
Renesas Electronics sees the advanced information-communications area centering on the developing cloud-computing, the social- and living-environment areas including smart grid technologies and automobiles, and the entertainment area including multimedia and digital consumer electronics, as the company’s focused business markets and plans to aggressively expand these businesses through a distinct product lineup enhanced through interdivisional cooperation. Renesas Electronics especially plans to focus on its businesses in the advanced information-communications area utilizing the wireless modem technologies acquired from Nokia Corporation.   

1.3) Expand overseas business     
Renesas Electronics addresses the Chinese market, which continues to expand as the world’s manufacturing base of electronics devices as well as the world’s leading consumer, and aims to launch products that meet the demand of the Chinese market. On October 1, 2010, Renesas Electronics will appoint a local representative as the top executive of its sales company in China, Renesas Electronics China, and the company will develop a new organization capable of making seamless decisions from marketing, design, sales and back-end manufacturing on a timely basis. Supporting these changes, Renesas Electronics plans to expand its product lineups to 1,000 products for the Chinese market, particularly with microcontrollers (MCUs) for smart meters, which boast 80 percent share in the Chinese market. As a result, the company expects to expand its sales ratio in the Chinese market from approximately 10 percent in the current fiscal year to approximately 20 percent by March 2013.   

Through the strategies outlined in (1.2) and (1.3), Renesas Electronics also aims to increase its overseas sales ratio from approximately 50 percent in the current fiscal year to approximately 60 percent by March 2013.

    
2) Achieving merger synergies: Generate cumulative 40 billion yen by March 2013 through merger synergies Through synergistic results generated by integrating development environments and technology platforms, material procurement, and various infrastructures, excluding dis-synergistic elements such as IT investment, Renesas Electronics aims to achieve cumulative cost containments of 40 billion yen from the current fiscal year to March 2013.


3) Implementation of structural reforms: Reduce fixed-cost by cumulative of approximately 70 billion yen by March 2013 through structural reforms

3.1) Determine policies on advanced process development and manufacturing Renesas Electronics plans to use outside foundries on all of its 28 nanometer (nm) and smaller geometry semiconductor products. In line with this change, the company has positioned the 300 millimeter (mm) wafer lines at Naka plant and Renesas Electronics Yamagata Semiconductor’s Tsuruoka plant as manufacturing facilities for the company’s basic products, especially for systems-on-chips (SoCs) up to 40nm, and MCUs that are expected to further miniaturize from their current geometries.

Renesas Electronics will continue its research and development (R&D) of advanced processes by unifying existing development structures, including the continuation of the　technology research project with IBM for fundamental research of advanced process technology.

3.2) Construct a “fab network”
To strengthen its business structure to become resistant to changing markets, Renesas Electronics will construct a strategic “fab network” including outside foundries. Through this network, the company aims to improve manufacturing efficiency by restraining large-scale investments to increase in-house manufacturing capacity, and by promoting large wafers, miniaturization, and production concentration.    

3.3) Apply impairment accounting to long-term assets of part of Renesas Electronics’ plants As a result of the strategy mentioned in (3.1), to shift from in-house production to outsourcing to foundries, outlook for the production, which is mainly composed of advanced products, of the Tsuruoka plant (300mm wafer line) has changed. Therefore, Renesas Electronics applied impairment accounting to long-term assets at the Tsuruoka plant to address the change in a plan to recoup the investment.

In addition, since there is currently no plan to make a large-scale investment in the 8-inch (200mm) wafer line at Renesas Electronics America’s plant in Roseville, California, and with the current scale, Renesas Electronics no longer expects to recoup the initial investment, so the company has applied impairment accounting to long-term assets at the Roseville plant.

As a result, Renesas Electronics expects to record total impairment loss of 33.1 billion yen in the fiscal year ending March 2011.

3.4) Streamline human resources
Renesas Electronics will streamline approximately 5,000 human resources, mostly in the current fiscal year and completed by March 2013, by optimizing business portfolios and by realigning the manufacturing structures. Renesas Electronics also plans to scale down current outsourcing of design and development to companies other than Renesas Electronics Group companies to two-thirds of the current volume by March 2013. In addition, as part of its plan to expand overseas businesses, the company will raise the number of overseas employees from 29 percent in the current fiscal year to 32 percent by March 2013.

Renesas Electronics believes the faithful implementation of these sales expansion measures will fortify its growth strategies with the aim of achieving 7 to 10 percent CAGR growth for its semiconductor sales from the current fiscal year through March 2013. The company also aims to smoothly implement structuring reform measures and promote cumulative cost containments of approximately 110 billion yen in three years to build a business structure for sustainable and robust growth.