Renesas to outsource top-end chips to TSMC

Currently the world’s fifth-largest chipmaker, Renesas along with the rest of the semiconductor industry in Japan face their biggest shake-out in a decade as rivals such as Samsung Electronics force them to tap the technical prowess of contract manufacturers such as TSMC.

Shares in Renesas have fallen significantly recently on news that it would be selling off loss-making operations and cutting a quarter of its workforce, at least 12,000 jobs. These moves form part of a broader corporate restructuring and would likely be funded by raising more than 100 billion yen ($1.26 billion) in fresh capital.

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.

Renesas has said that it will outsource all its output of microcontroller chips with circuitry widths of only 40 nanometers or less, taking advantage of TSMC”s more advanced production technology. Renesas is the world”s largest producer of microcontroller chips for automobiles.

The Nikkei business daily reported that Renesas would also be selling TSMC a chip plant in northern Japan.

“If the business model is correct I don”t think our company would rule out any possibility,” said Cheng-Ming Lin, director of specialty technology at TSMC, when asked about TSMC carrying out production in Japan. “Japan has a lot of great engineering resources. I think this is a place that we can seriously consider but this is really my personal view.”

Renesas will need to get approval from its main shareholders, Hitachi Ltd, Mitsubishi Electric Corp and NEC Corp, whose chip divisions were spun off and merged to form the company over the past decade. Together they account for 90 percent of Renesas shares.

Renesas” loss-making system LSI unit, which makes system-on-chip products combining processing and other functions used in a range of digital electronics, has had a significant negative impact on the business with sales falling 35 per cent in the year to the end of March.

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 have suggested that Japanese system-on-chip makers have suffered in recent years from their willingness to over-customise chips in order to meet the needs of customers which has undermined both efficiency and profit margins.

Renesas Electronics

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