Japan's Renesas Electronics Corp, the world's fifth-largest chipmaker, said it will seek to reduce 12 percent of its workforce and shed half of its 19 domestic plants within three years as it competes with Korean and Taiwanese companies to produce cheaper, smaller chips.
Renesas, a product of successive mergers of the chip divisions of major shareholders Mitsubishi Electric Corp, Hitachi Ltd and NEC Corp, said the job cuts would save the company 43 billion yen ($541.97 million) annually.
The company reported a massive loss in the last financial year and is seeking to avoid the fate of fellow Japanese chipmaker Elpida Memory Inc, which filed for bankruptcy protection in February because of tough market conditions and fierce global competition.
"So they manage to stem the losses now, but expanding their business from here is the next biggest problem," said Toshiyuki Kanayama, a Tokyo-based senior market analyst at Monex Inc. "The challenges are what comes after the painful restructuring."
Renesas, which presented the restructuring plan to its unions on Tuesday, said it will consider selling or consolidating nine out of 19 plants as well as two so-called front-end wafer fabrication lines. The plants under consideration include a system chip unit in northern Japan.
In return for the restructuring, the chipmaker is expected to secure 100 billion yen in loans and other forms of financial support from its major shareholders and four banks. The shareholders have already agreed in principle to provide 50 billion yen in assistance, sources previously told Reuters.
"My decision is based on whether Renesas should no longer exist or whether we should maintain parts of the company. And even though it requires pain and sacrifice, without a doubt, we have to protect Renesas," President Yasushi Akao told reporters at a packed news conference in Tokyo.
Renesas is working towards securing funding for the 5,000 job cuts, Akao said.
NET LOSS
Renesas, the world's leading supplier of microcontroller chips, posted two consecutive years of losses because of massive supply disruptions in the wake of natural disasters in Japan and Thailand.
Akao said the business outlook remained difficult, with the impact from the natural disasters as well as tough market conditions expected to continue.
Selling or consolidating its plants would allow Renesas to focus making microcontroller chips used in cars, its flagship product.
"The microcontroller unit is not a weak business, so it all rests on how much that business can grow from here," Monex's Kanayama said.
Japanese media previously reported that Renesas planned to sell its system chip plant in Tsuruoka, northern Japan to Taiwan Semiconductor Manufacturing Co (TSMC), the world's biggest contract chipmaker. Renesas has already sold another facility in northern Japan to Fuji Electric Co.
Renesas' loss-making system chip division, which produces chips used in a range of electronic devices, is facing intense competition from the likes of Samsung Electronics.
The unit producing system LSI devices, as system chips are also known, has been a major drain on the Renesas' profits because of a strong yen and production cuts at struggling Japanese consumer electronics makers, analysts say.
Shares in Renesas, which hit a record low of 198 yen in May, ended up 9.8 percent at 348 yen on Tuesday, ahead of the restructuring announcement. ($1 = 79.34 Japanese yen)
