DealBook: Japanese Manufacturers Help Save Chip Maker Renesas

Yuriko Nakao/ReutersRenesas Eletronic’s advanced microcontroller chips are seen as important to Japanese industry.

TOKYO — When a magnitude 9 earthquake knocked out a chip-making factory at Renesas Electronics, Toyota Motor and other manufacturers dispatched hundreds of workers to help get the plant in northeastern Japan running again.

On Monday, some of Japan’s largest manufacturers pitched in again, contributing to a $1.8 billion bailout of the struggling company.

In a statement, Renesas said eight Japanese manufacturers, including Canon, Nikon, Nissan, Panasonic and Toyota, would contribute about $145 million to the deal. A government fund, the Innovation Network Corporation of Japan, will provide the rest of the aid.

The effort underscores the importance of the company’s advanced microcontroller chips to Japanese industry and the country’s reluctance to give the technology to foreign players.

The capital injection will help Renesas increase spending on the advanced microcontrollers used in cars and electronic devices, the company said. To prop up its finances, Renesas, which is based in Kawasaki, had requested an additional 50 billion yen, or $606 million, from the government.

Although Renesas rebounded swiftly from the quake and tsunami that struck Japan last year, it has been less successful in dealing with rivals like Samsung Electronics of South Korea. As Japan’s major manufacturers have stumbled in the face of tough competition and a slowing global economy, Renesas has struggled to turn a profit. On Monday, Renesas forecast a net loss of 150 billion yen for the 12 months through March 2013, after losing 62.6 billion yen in the previous 12 months.

Shares in Renesas rose 3 percent to close at 308 yen in Tokyo on Monday. The company has lost 35 percent of its market value this year.

The industry is under pressure in Japan. Elpida Memory, a Japanese manufacturer of dynamic random access memory chips, filed for bankruptcy protection in February. Elpida is being acquired by Micron Technology, a chip maker based in Boise, Idaho.

Despite the industry challenges, Japan wants to maintain control of Renesas.

In August, reports surfaced that Kohlberg Kravis Roberts Company, the American private equity firm, had offered to invest as much as 100 billion yen in Renesas, which sent the company’s shares soaring. But the potential deal also raised concerns about foreign control of a company that supplies many of Japan’s leading manufacturers.

Japan’s reliance on Renesas stems, in part, from the company’s legacy.

In 2003, Hitachi and Mitsubishi Electric merged their semiconductor businesses to form Renesas Technology. Then in April 2010, Renesas joined NEC Electronics, the former semiconductor division of NEC, to create the current company.

As a result, manufacturers that once employed several preferred chip suppliers ended up largely buying products from one, Renesas. In addition to automotive microcontrollers, Renesas supplies specially tailored chips for electronics companies like Canon and Ricoh.

In the bailout plan announced on Monday, Renesas said it would sell 1.25 billion new shares for 120 yen each to the government fund and the Japanese manufacturers, giving them a 69 percent stake in the chip maker. That price represents a deep discount from the company’s closing price of 308 yen on Monday in Tokyo.

The aid package follows 161 billion yen in syndicated loans Renesas secured from four Japanese banks in September, and 97 billion yen it received earlier from banks and its major shareholders. In return for that support, Renesas has promised to sell or close eight of its 18 plants in Japan within three years, and to eliminate more than 7,000 jobs from its global work force of roughly 43,000.

Fuminori Sato for The New York TimesRenesas’s Naka factory in Japan. Renesas supplies 40 percent of the world market with a crucial car computer chip.

A version of this article appeared in print on 12/11/2012, on page B2 of the NewYork edition with the headline: Japanese Companies Help Save Chip Maker.

Article source: http://dealbook.nytimes.com/2012/12/10/japanese-manufacturers-bail-out-renesas/?partner=rss&emc=rss