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Japan's Renesas to unveil turnaround plan this week -sources
July 2, 2012 / 10:16 AM / 5 years ago

Japan's Renesas to unveil turnaround plan this week -sources

* Chipmaker plans to cut workforce, halve domestic plants

* Renesas to secure 100 bln yen in loans from shareholders - sources

* Shares slump 55 percent in past year

By Mari Saito and Maki Shiraki

TOKYO, July 2 (Reuters) - Japan’s Renesas Electronics Corp , seeking to dispel pessimism over its viability, will announce as early as Tuesday a plan to lay off a third of its workforce in return for loans from its shareholders, sources familiar with the matter said.

The chipmaker, whose shares have slumped 55 percent in the past year, has been struggling with rising overseas competition and fragile finances. Renesas posted a net loss of 62.6 billion yen ($784.6 million) in the year ended March, its second annual deficit since merging with NEC Corp in 2010.

The company will get a total of 100 billion yen in loans and other forms of financial support from major shareholders Hitachi Ltd, Mitsubishi Electric Corp and NEC as well as four banks in exchange for an ambitious restructuring plan, the sources said, declining to be identified ahead of an official announcement.

Under the rehabilitation plan, which will be presented to the company’s labour unions on Tuesday, Renesas will cut at least 12,000 jobs and halve the number of domestic plants to focus on its core business of making microcontroller chips used in cars. The division is also the company’s only profitable business.

Renesas, the world’s leading supplier of microcontroller chips, would be able to restore its financial health and eke out a profit if it follows through with the proposed steps, said Akira Minamikawa, principal analyst at IHS iSuppli.

“But in the long term, many automakers are diversifying their suppliers to include competitors like Fujitsu Ltd and Infineon (Technologies), so Renesas’ 30 percent share in the microcontroller market is likely to fall,” he said.

UNPROFITABLE CHIP UNIT

Renesas also competes with companies such as Samsung Electronics in system chips used in consumer electronics including televisions.

Unable to keep up with the high cost of upgrading infrastructure and hurt by production cuts at many of Japan’s consumer electronics makers, Renesas’ system chip unit posted a 35.5 percent slump in sales in the last fiscal year.

Japanese media reported last month that Renesas was looking to sell its system chip plant in northern Japan to Taiwan Semiconductor Manufacturing Co, the world’s biggest contract chipmaker.

Renesas has also been in discussions with Fujitsu and Panasonic to merge their system chip operations, sources have said.

Renesas would need around 300 billion yen, including the 100 billion yen needed to fund its restructuring, to close down its system chip facilities and invest in new infrastructure, said Katsuhide Takahashi, director of credit markets at Citigroup.

“There is no guarantee that there won’t be a cash crunch three or six months from now,” said Takahashi.

A source familiar with the matter has said a few overseas investment funds were interested in investing in Renesas but the talks are still preliminary.

The Nikkei business daily said last week that Renesas is in talks with U.S. investment fund Kohlberg Kravis Roberts & Co to raise another 50 billion yen in capital.

“LAST CHANCE”

The mounting concerns at Renesas come after the February bankruptcy of Elpida Memory Inc, Japan’s last remaining player in the dynamic random access memory (DRAM) chip market.

Analysts say Renesas, which like Elpida was created as a receptacle for unwanted chip divisions, could suffer the same fate if it does not act quickly.

“What happened with Elpida showed that even with government assistance, a chipmaker cannot survive if it fails to exit a troubled business when it can,” said a Japanese chip executive, who declined to be named due to the sensitivity of the subject.

“This is Renesas’ last chance and everyone knows it,” he said.

Shares in Renesas, which fell to a record low of 198 yen in May, rose 3.6 percent to close at 317 yen on Monday.

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