Bloomberg News

Renesas Shares Extend Two-Day Drop, Fall to Record: Tokyo Mover

May 28, 2012

Renesas Electronics Corp. (6723) fell to the lowest level on record in Tokyo, extending its two-day drop to as much as 25 percent after the company was said to be planning to cut 10,000 jobs and raise 100 billion yen ($1.3 billion).

Renesas plunged as much as 16 percent to 206 yen, the lowest since its July 2003 initial public offering, and traded at 210 yen as of 10:25 a.m. The stock fell 11 percent yesterday. The world’s biggest maker of microcontrollers for cars presented a restructuring proposal last week to its workers union and lenders Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., a person briefed on the matter said May 25.

The company, 91 percent owned by NEC Corp., Hitachi Ltd. (6501) and Mitsubishi Electric Corp. (6503), posted a net loss of 62.6 billion yen for the year ended March 31. Deteriorating profit margins, unclear plans for restructuring, difficulties managing short- term debt, market-share losses and potential write-offs prompted Bank of America Merrill Lynch to cut its share-price estimate on Renesas to 150 yen from 410 yen yesterday.

“We expect Renesas Electronics to continue to suffer from low margins,” Merrill Lynch analysts Simon Dong-je Woo, Mikio Hirakawa and Jennifer Kim wrote in a report dated yesterday. The parent companies “are not much interested in injecting fresh capital into Renesas as their respective core businesses are no longer semiconductors,” they wrote.

Selling Shares

Renesas will explain the restructuring proposal to its main shareholders this week, according to the person, who spoke on condition of anonymity because plans may change. It probably will ask the three companies to buy shares, the Yomiuri newspaper reported May 22, without saying where it got the information.

The major shareholders of Renesas may consider taking “some kind of action” to support the chipmaker if asked, Kenichiro Yamanishi, president of Tokyo-based Mitsubishi Electric, said May 21.

NEC (6701), the top shareholder of Renesas with a 35 percent stake, has no plan to make an additional investment in Renesas, NEC spokesman Takehiko Kato said yesterday. Hitachi hasn’t received any requests from Renesas, spokesman Hirotaka Ono said May 22.

The proposed job cuts would amount to almost a quarter of Renesas’s 42,800 employees. The company may need to eliminate about 12,000 jobs, Takeo Miyamoto, an analyst at Deutsche Bank, wrote in a May 23 report. Job cuts may reach 14,000, Kyodo News reported May 26, without saying where it got the information.

Selling Plants

“We acknowledge the need for job cuts, though nothing has been decided,” Shinichi Iwamoto, a senior vice president of Renesas, told reporters in Tokyo yesterday.

Renesas may sell some of its 19 production plants in Japan, including one in Tsuruoka, Yamagata prefecture, the Yomiuri reported May 27 after saying last week the company plans an alliance with Taiwan Semiconductor Manufacturing Co.

Renesas was formed in 2010 after the merger of money-losing chipmakers Renesas Technology Corp. -- a venture between Hitachi and Mitsubishi Electric -- and NEC Electronics Corp.

Elpida Memory Inc., which shares the same origin as Renesas, filed for bankruptcy in February after posting losses for five straight quarters because of falling prices of the main memory used in personal computers. The Tokyo-based company was formed in 1999 after merging Hitachi and NEC’s dynamic random-access memory business. Mitsubishi Electric later separated its DRAM unit and combined it with Elpida.

Renesas makes semiconductors that are used in products ranging from automobiles to consumer electronics for tasks including triggering air bags in cars and controlling DVD players. The company’s customers include Apple Inc. (AAPL:US), Sony (6758) and Nintendo Co., according to data compiled by Bloomberg.

To contact the reporter on this story: Shunichi Ozasa in Tokyo at sozasa@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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