On December 20, 1999, just a few days before the arrival of the millennium, two companies that once ranked first and third in the world semiconductor market reached an agreement to withdraw from their once most proud DRAM business and completely exit this market.

These two companies are NEC and Hitachi, and the company born from this is NEC Hitachi, which was renamed Elpida a year later. Its name comes from the Greek word "Elpis" (hope), plus Dynamic (vitality) and Association (union), which embodies the two companies' expectations for the future.

Even after being merged into the Mitsubishi DRAM division, and with the strong reform of the new president, Sakamoto Yukio, Elpida was still unable to complete the desperate counterattack of Japanese memory, and eventually welcomed the end of being acquired by Micron.

But the story of Japanese semiconductors did not stop here.

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In 2001, after the DRAM was stripped, Hitachi Semiconductor once again fell into losses, so the Hitachi management began to plan to adjust the semiconductor business under its control again, and finally decided to completely fade out of the once brilliant semiconductor field, and packaged the semiconductor business (system LSI, microcontroller, non-DRAM memory, etc.) except for DRAM, intending to merge them with the microcontroller department of the next-door Mitsubishi, to establish a company similar to Elpida.

In April 2003, Renesas Technology officially opened for business. In the first year of its establishment, its sales reached 7.9 billion US dollars (about 700 billion yen), surpassing Toshiba, the top semiconductor sales in Japan, and becoming the world's third-largest semiconductor seller after Intel and Samsung, achieving a grand opening.

Compared with Elpida, which was already deeply in losses at the time, Renesas, which was successfully merged, seemed to be able to be slightly intoxicated for a while, enjoying the joy of becoming "the first in Japan" at this moment, but its future for more than ten years later was full of twists and turns.

Betting on mobile

For Renesas, which was merged, it will not miss what Elpida has experienced.First and foremost is the issue of integration. As former semiconductor giants, even after divesting their DRAM business, both companies still have a large scale. They both have production and sales bases in Europe and Asia, and their technical product specifications are not compatible with each other. To combine them is essentially to solve a problem where 1+1 is less than 2.

In the second half of 2003, the two companies began to integrate their core businesses and finally completed the merger in January 2006, which was four months later than originally planned. During such a long period, how did Renesas ensure that performance did not decline?

Firstly, one of the largest markets for system LSI chips is the mobile market. Hitachi already has experience in producing processors and has also manufactured processors for Sega Saturn and Dreamcast game consoles. Renesas can also continue this and take the design and manufacturing of processors as a new starting point, using the growth of the consumer electronics market to offset the inevitable decline during the merger process.

At the business briefing in September 2023, Renesas Chairman and CEO Koji Nagasawa said, "The semiconductor market structure has changed, shifting from a business-centric approach to a 'people-oriented' approach aimed at improving the richness of personal life. Compared with previous years, the growth rate has slowed down, and Renesas' goal is to achieve sales of more than 1 trillion yen and an average profit margin of 10% in the fiscal year 2005."

Renesas President and CEO Tatsuhiro Ito proposed, "In the process of shifting from a business-centric to a people-oriented model, we will focus on ubiquitous technology to develop our business. Especially in the system solutions business, we will focus on specific areas and formulate a platform strategy that integrates advantageous technology and application technology. We will focus on the mobile, PC, and automotive fields, which are expected to achieve growth."

To this end, Renesas has proposed an example of a system solution strategy - SH-Mobile Consortium. Ito believes that products such as mobile phones are not only composed of semiconductor manufacturers and equipment manufacturers but also telecommunications operators are very important. The alliance formed by Renesas will work with operator partners to provide joint marketing, licensing, and technical support for SH-Mobile, and by establishing a complementary relationship with them, it will enhance and expand the influence of the SH-Mobile platform.

This platform has indeed achieved good results in Japan, where operators are extremely strong. During the era of feature phones, until around 2010, Renesas Technology's SH-Mobile series has always been the mainstay of mobile SoCs. In Japan, Renesas' SH-Mobile series, as a high-performance application processor supporting multimedia, even has a market share comparable to the famous Texas Instruments OMAP.

As of 2005, the SH-Mobile alliance had more than 200 members worldwide, and the shipment of SH-Mobile reached 13 million units in that year, even surpassing the shipment of Sega's Dreamcast game console. Behind the success, Renesas bet on the largest operator in the Japanese feature phone market, NTT DoCoMo. Starting from 2004, it jointly developed the SH-Mobile G series with DoCoMo. Although only three companies in the DOCOMO camp adopted the SH-Mobile G1, the shipment exceeded 10 million units as early as 2007 and reached 50% in the 3G service FOMA mobile phones developed by DOCOMO, which can be considered a hard-won victory.

At this time, Renesas did not forget the equally vast automotive market. It is important to know that Japanese cars were in the limelight globally at this time, and as a Japanese manufacturer, Renesas was able to show its strength. The SH microcontroller designed and produced by Renesas is widely used in automotive equipment. In 2010, automotive navigation was the main application for automotive SoCs, and Renesas launched the SoC "SH-Navi" for automotive navigation systems in 2005, with a market share of up to 97% in Japan and 57% overseas, which can also be considered one of the automotive semiconductor leaders at that time.However, there is a saying that performance can deceive, but financial statements generally do not. Did Renesas' seemingly booming mobile and automotive businesses in the 2000s allow it to break away from the fate of Japanese semiconductors?

The answer is no.

According to Gartner's data, the global semiconductor market size was $177.5 billion in 2003. At that time, the exchange rate of the yen to the US dollar was 115.92 to 1, which was a market exceeding 20 trillion yen. Five years later, in 2008, the global semiconductor market value reached $255 billion, an increase of 44% compared to 2003. From the perspective of the yen exchange rate, due to the appreciation of the yen to 103.38 yen to the US dollar, the market size expanded by 28%, reaching 26.36 trillion yen.

So, what achievements did Renesas, once proud to be the third-largest, achieve in this rapidly growing market?

Apart from growth in the first and second years after the merger, Renesas' performance has been very average from the third year. Moreover, due to the low price of microcontrollers, its profit margin is also pitifully low. Taking the fiscal year of 2006 as an example, Renesas' sales were 952.6 billion yen, but the operating profit was only a meager 23.5 billion yen, with a profit margin of only 2.47%. It seems that the huge sales of nearly 1 trillion yen actually did not have much profit. As the semiconductor market size continued to expand, Renesas was still standing still and could only maintain its existing scale, finding it difficult to expand into a larger market.

In 2008, Lehman Brothers went bankrupt, and the global financial crisis broke out. The sales volume of consumer goods plummeted, and the mobile phone and automotive industries that Renesas relied on for survival were also impacted. In that year, its sales were significantly reduced to 702.7 billion yen, and it even suffered a loss of 96.5 billion yen. In 2009, Renesas' annual sales fell to 702.7 billion yen, still with a loss of 64 billion yen.

Renesas, which has been declining and losing money for two consecutive years, has reached the brink of the cliff.

NEC merger

At the same time, NEC was also facing this situation.

After giving up the DRAM business, NEC's semiconductor division did not stop the decline. So, in 2002, NEC restructured its semiconductor business again, separating the non-DRAM semiconductor division (including system LSI, microcontrollers, and non-DRAM memory) from NEC and establishing NEC Electronics.As the once world-leading semiconductor sales giant NEC, which had defeated Intel, even after divesting its DRAM business, its inherent foundation and strength are not to be underestimated.

Firstly, in the field of microcontrollers, since the 1980s, NEC has been developing V-series microcontrollers compatible with Intel's 8086. In the 1990s, NEC released new generations of microcontrollers such as the V810 series, V830 series, and V850 series. Among them, the V850 series, as the first 32-bit CPU used for embedded applications, was successful and became the main microcontroller used by many companies for automotive applications in the 2000s. The automotive and factory automation fields are the only growth areas for NEC Electronics.

In 1998, during the NEC era, NEC Electronics released the SoC EMMA based on the MIPS architecture of the VR series. Once released, this product was adopted by global set-top boxes and became one of the key products of NEC Electronics. The EMMA platform was used for the transition from the VHS era to the DVD era, and it was also the key value during the transition from the standard definition era to the high-definition era. This platform was later used in Sony's digital high-definition TV BRAVIA launched in 2005, making NEC Electronics one of the main producers of consumer electronics SoC in the late 2000s.

In addition, NEC also participated in the development of game consoles such as PC Engine (launched in 1987) and PC-FX (launched in 1994) in the 1990s, designed and produced a series of PowerVR architecture GPU processors. In the 2000s, the system LSI chips of Nintendo GameCube, Nintendo Wii, and Microsoft Xbox 360 were produced by NEC's Tsuruga factory.

Despite NEC Electronics' profound accumulation and advantages, it has been in trouble since 2005. From 2005 to 2009, it only achieved short-term profitability in 2007 due to the success of Nintendo Wii. In other years, although the MCU business performed well, the costs of developing advanced processes around SoCs increased day by day, leading to continuous losses.

With the arrival of the financial crisis, NEC's main markets—white goods and consumer electronics—declined. The success of EMMA and Wii was not enough to offset the overall decline of the company. In 2009, NEC Electronics' top management realized that if the sales did not exceed 1 trillion yen and the profit margin did not exceed 10%, the company would not be able to continue to exist.

At this time, NEC Electronics, relying solely on its own strength, was powerless to turn the tide. Its ultimate choice was to join forces with the Japanese manufacturer Renesas Technology to keep warm. In April 2010, Renesas Technology and NEC Electronics merged into a new company, and the name was taken from half of each name, giving birth to Renesas Electronics.

After the merger, the first problem faced by Renesas Electronics was how to integrate the strengths of three companies, get rid of years of losses, and avoid the fate of bankruptcy and acquisition. At this time, Renesas was no longer the world's third and Japan's first glory, and a little carelessness would lead to repeating the fate of Elpida.

On July 29, 2010, Renesas held a press conference in Tokyo and announced the outline of the "100-day plan." The so-called "100-day plan" refers to the plan to implement the new policies of Renesas within 100 days from the merger on April 1, and it is positioned as the top priority project of the new Renesas.The plan essentially proposed two main concepts, namely "reducing fixed costs" and "expanding business in a growing market". Following these two concepts, Renesas initiated what may be the largest reform plan in the history of Japanese semiconductors.

Brave as a warrior cutting off his own arm, after the merger was completed, the new Renesas announced that it would focus on "SoC business", "microcontroller business" and "analog & power business" in the future. At the same time, it announced that it would reduce its scale and withdraw from some businesses, and outsource the mass production of advanced process chips starting from the 28nm process, transforming into a Fablite company.

Reducing scale is easy to understand, which is a large-scale layoff. In 2010, when the merger took place, Renesas had about 48,000 employees. By 2015, Renesas had less than 20,000 employees. In the reorganization process of four or five years, about 28,000 employees of Renesas were laid off. In October 2012, Renesas received a total of 97 billion yen in financial support from its parent companies (NEC, Hitachi, and Mitsubishi). About 90% of this fund was used in a large-scale early retirement plan. The actual number of applicants for the plan, which was initially expected to be 5,000, reached more than 7,000 people. This huge cost even led to the depletion of Renesas' cash flow.

What about withdrawing from some businesses? Since 2010, Renesas has been cutting businesses almost every year. Almost all unprofitable businesses have been eliminated, and only a few stable core businesses have been retained.

In July 2010, Renesas acquired Nokia's wireless modem business and released R-Mobile A and R-Mobile U for general products (portable music players, portable navigation systems, etc.) in September 2010. The former integrated the original Renesas Electronics' SH-Mobile and the original NEC Electronics' EMMA-Mobile, while the latter integrated the SH-Mobile for mobile phones (feature phones) and the original Nokia's modem.

In 2011, Renesas released the first processor for smartphones and tablets, R-Mobile APE5R. It thought it could rise with the trend of smartphones, but it did not expect that the originally signed object and the backing of Nokia was already in trouble, and later sold to Microsoft. In the end, only a few Japanese mobile phones chose to carry Renesas' processor.

Facing the impact of Qualcomm and iPhone, the alliance built by Renesas in the era of feature phones was quickly disintegrated. Renesas' mobile department even had a deficit of 4.5 billion yen at the end of 2012. In the end, Renesas could only helplessly choose to close this business, sell the small Komoro factory and power amplifier business of the mobile phone power amplifier IC back-end process to Murata Manufacturing, and sell the R-Mobile processor assets integrated with Nokia's modem to Broadcom, completely bidding farewell to the mobile market.Renowned Renesas' Tsuruga factory (inherited from NEC) established a 300mm wafer/40nm process line in 2008, which was also the most advanced process factory in Japan at that time. It manufactured GPUs for Nintendo Wii and Microsoft Xbox 360, as well as for the Nintendo Wii U released in 2012. However, the sales of the Wii U, released in 2011, quickly fell into a slump, with only 160,000 units sold in 2013, less than 2% of the 9 million sales target. The Tsuruga factory, which heavily relied on Nintendo's orders, also fell into losses and was eventually closed in 2013 and sold to Sony in 2014.

Renesas' SH microcontrollers were once used in smartphones and digital home appliance products, but by 2011, they had completely shifted to automotive applications and could only be produced in Japanese factories. When the Great East Japan Earthquake occurred in 2011, Renesas' Japanese factories were damaged, and they began to choose TSMC for automotive SoC foundry on a large scale, and SH microcontrollers basically faded out of the mobile phone market.

In 2012, Renesas launched R-Home S1 for digital TVs and home multimedia servers, which was based on NEC Electronics' EMMA platform. However, no manufacturers were willing to carry R-Home S1, and it was announced to be discontinued in 2013. Since then, Renesas has exited all consumer SoC markets except for automotive.

In addition to the above-mentioned shutdowns, Renesas also sold a large number of old factories: In 2012, the Renesas North Japan Semiconductor Tsugaru factory (Gofukawa, Aomori Prefecture) was transferred to Fuji Electric, becoming Fuji Electric Tsugaru Semiconductor; in 2013, the Renesas North Japan Semiconductor Hakodate factory, Renesas Kansai Semiconductor Fukui factory, Renesas Kyushu Semiconductor Kumamoto factory, and the back-end manufacturing support business of Hokkai Electronics Semiconductor were transferred to J-Devices; in 2015, the Renesas Tsuruga factory (5-inch line) was transferred to TDK; in 2018, the Renesas Kochi factory was closed and transferred to Maruyama Industrial Co., Ltd. … …

By 2017, Renesas had basically completed the reform of cutting off its arm, from a huge compound semiconductor group to a healthy semiconductor company. Not only did sales pick up, but it also achieved profitability for several consecutive years, which is not easy.

Focus and Acquisition

Some people may wonder why Renesas can survive, while Elpida went down before it, both with mergers, both with deficits, and both with financial crises. What is special about Renesas?

It has to be said that the self-rescue of Japanese car manufacturers behind Renesas is indispensable.

At the beginning of its establishment in 2010, Renesas received 206.3 billion yen in financial support from its parent companies Hitachi, Mitsubishi, and NEC. In October 2012, Renesas raised a total of 97 billion yen from the three major shareholders of Hitachi, Mitsubishi, and NEC, and their trading banks, to support the development during difficult times. After more than 300 billion yen in cash was invested, the prospects of Renesas were still not clear.

At this time, the senior management of the three major shareholders began to waver, whether to continue to invest money into the bottomless pit? Or to get rid of the hot potato in time? At that time, there were rumors in Japan that Renesas would be sold to the foreign Kohlberg Kravis Roberts (KKR), which has the successful experience of helping to rebuild the semiconductor department (i.e., NXP) that was split by Philips in 2006 due to financial problems.At this point, the Japanese government and Japanese companies could no longer remain idle. Elpida had already been sold to Micron, and if Renesas were also lost, it would not only weaken Japan's influence in the global semiconductor market but also allow crucial automotive chips to fall into the hands of foreign companies. Which Japanese car company could bear the risk of losing stable supply and rising chip prices?

Therefore, companies such as Toyota formed a lobbying team, urging the Japanese Ministry of Economy, Trade and Industry to "protect the semiconductor of the sun flag," intending to let the country take action to ensure that Renesas stays in Japan and is not affected by the capital of other countries.

In 2013, Renesas received support of 150 billion yen from a public-private alliance composed of nine companies, including the Japan Industrial Technology Innovation Institute (INTJ), Toyota Motor Corporation, and Nissan Motor Corporation. Among them, the Japan Innovation Network Corporation became the largest shareholder with a 69.16% stake, while the stake of Renesas' parent company NEC, Hitachi, and Mitsubishi was reduced to 6-9%, no longer being the largest shareholder. In fact, Renesas completed a nationalization.

In 2015, Renesas initially completed structural reform and began to move forward. Under the leadership of the new CEO, Renesas made the decision to focus on automotive semiconductors and vigorously develop analog chips. Analog chips are often overlooked because of their low profile, but they are the most produced semiconductors in the world. In 2021, the shipment of analog chips was 215.1 billion, while the shipment of DRAM, an indispensable electronic product, was only 22 billion, and the former's shipment was 10 times that of the latter.

Although Renesas already has a certain advantage in the automotive market, in the rapidly changing semiconductor market, relying solely on the company's internal technological development is obviously not enough. In order to make up for the shortcomings, expand its product lineup, and restore its vitality, Renesas started a merger and acquisition journey and started buying globally.

In 2016, Renesas Electronics initiated the acquisition of the American analog technology company Intersil and completed the acquisition on February 25, 2017. This acquisition of $3.219 billion enabled Renesas to obtain Intersil's innovative power management and precision analog solutions, supplementing the shortcomings in the field of power management for intelligent, mobile, and high-power-consuming electronic devices, and further expanding the business from automotive electronics and consumer electronics to industrial and infrastructure, mobile computing, and aerospace fields.

On September 11, 2018, Renesas announced the acquisition of the American analog chip giant IDT for about $6.7 billion, and the acquisition was completed on March 30, 2019. Through the acquisition of IDT, Renesas obtained supplements in the fields of radio frequency (RF), high-performance timing, storage interface, real-time interconnection, optical interconnection, wireless power, and smart sensors, complementing Renesas' microcontrollers, system-on-chip (SoC), and power management chips obtained from the acquisition of Intersil, further consolidating Renesas Electronics' leading position in the automotive, industrial/IoT, and data center/communication infrastructure markets, creating more comprehensive solutions, further entering the communication, computing, consumer, and industrial fields, and expanding the business growth opportunities in rapidly growing markets such as IoT, 5G, and industrial fields.

On February 8, 2021, Renesas Electronics will acquire Apple chip supplier Dialog for 4.9 billion euros ($5.92 billion), with a 20% premium. This acquisition will expand Renesas' influence to a broader customer base and explore more growth potential in key growth areas (industrial infrastructure, IoT, and automotive fields). Dialog's BLE, WiFi, and audio SoC are highly complementary to Renesas' microcontroller (MCU)-based solutions. It will further differentiate Renesas' system solution products and expand its coverage in high-growth areas.

In addition to these three major mergers and acquisitions, Renesas also acquired the Israeli startup Celeno for $315 million in 2021, acquired Reality AI with advantages in the field of artificial intelligence and Stellagian with advantages in radar technology in India in 2022, and acquired Pantronics with advantages in wireless technology in Austria in 2023.In January of this year, Renesas announced the acquisition of Transphorm, an American gallium nitride (GaN) power semiconductor supplier, for $339 million. This acquisition will grant Renesas access to GaN internal technology, thereby expanding its business scope in the rapidly growing markets of electric vehicles, computing (data centers, artificial intelligence, infrastructure), renewable energy, industrial power, and fast chargers/adapters.

Focus and acquisition have become the magic weapons for Renesas' revival.

In conclusion, over the past decade, Renesas has transformed from a huge deficit after merger to the last semiconductor giant in Japan. The hardships it has gone through are self-evident, especially under the backdrop of the decline of Japan's semiconductor industry. To carry out in-depth reforms under this pressure, any mistake in a link could completely remove it from the semiconductor industry. When Renesas' performance steadily increased and returned to profitability, I believe every employee who has gone through this process will let out a long sigh.

After 2016, Renesas' bold acquisition seemed risky, but in fact, it allowed Renesas to stand firm in the field of automotive semiconductors and establish its own competitive advantage. In 2019, Renesas proposed the concept of a successful product portfolio plan, that is, to make full use of the product line to achieve more single-board combination sales. Today, this concept has developed into more than 400 successful product combinations, making Renesas a true system-level solution provider. Without a series of mergers and acquisitions, this concept would not have come into being.

What's more interesting is that, as mentioned earlier, when Renesas was in trouble, the Industrial Revitalization Corporation of Japan (INCJ) extended a helping hand. At that time, the domestic situation in Japan was generally not optimistic about this investment of hundreds of billions of yen, thinking it was a futile effort.

But in fact, since 2017, INCJ has started to sell Renesas Electronics shares in stages. On November 14, 2023, INCJ sold the last shares, and the shareholding ratio dropped to 0.00%. However, Renesas' stock price during this period has maintained a steady growth and has not fallen sharply. Moreover, INTJ's revenue from selling shares in August 2023 exceeded 1.4 trillion yen, and it obtained a return of about 10 times the investment amount, which is also very rare in the semiconductor industry.

Why can Renesas become the last hope of Japan's semiconductors? Perhaps everyone can see one or two from this successful investment.