By Mike Green
Electronic News, 3/2/2007
Saturo Ito, president of Renesas Technology, sat down with Electronic Product News—a sister publication of Electronic News and Electronic Business—to discuss business since the divestiture, the future of 3G and 45nm development. What follows are excerpts of that conversation.
Q: In the past, Japanese electronics OEMs tended to produce everything needed for their end products in-house. With the spin out of Renesas this all changed, and now it is more a question of focusing on competences and outsourcing the rest. Has this been successful? Has the revenue that your firm has generated exceeded what would have been expected from Hitachi’s and Mitsubishi’s semiconductor divisions had they stayed as they were?
Ito: I feel we have been successful so far. There have been some plus and minus sides, but overall I am very pleased with the progress we have made. In terms of revenue it is hard to say what we would have done as separate entities, but I am confident that it would not have been as good as what we have achieved with the new company. We had a great synergy straight away, and over the last couple of years we have put the necessary management infrastructure in place to move the combined operations forward. We lost certain things, such as the LCD drivers business due to massive price erosion in this area. We also announced that we would get out of the flash business. Instead we have focused all our efforts on key areas like microcontrollers. Here we have increased market share over the last three years, and currently own 23 percent of the total business. I don’t think any cultural changes have been necessary. The strong work ethic of our employees has always been there. We have strived to ensure that company loyalty is maintained. I think our people are very motivated as they are now part of a more focused company in which they can see how their work links in with our overall success, and that can only be a good thing.
Q: Will there be other spinouts or mergers of this nature?
Ito: To be honest I don’t really know. I don’t think I can really comment on what our competitors should or shouldn’t be doing.
Q: How large a percentage of your business comes from Europe, and do you see its value waning in the future as the Far East becomes stronger in high-tech manufacturing?
Ito: There are two aspects to consider when looking at our European business. First, there are the direct sales into this region. Second, there is the knock on effects that it can have to our global sales. Demand creation is the engine that lies at the heart of our success. With such a great deal of design being done in Europe, its importance shouldn’t be judged on revenue alone. Currently 10 percent of our total sales take place here, but we fully appreciate that it has a far greater value. Even if the percentages change in the future the need to adequately address this region would not change.
Q: What are the key market sectors here for you, and where do you see the best opportunities for future growth?
Ito: Mobile, industrial, and automotive are all key to us, and we will continue to focus much of our operational strength on to them. With the increasing complexity of semiconductor technology needed to cover automotive designs, we clearly see great potential for our MCUs here. Metering is becoming very important. We have just completed a contract with a major Italian utility firm for remote metering systems, and legislation is being put in place that will mean other contracts of this kind are likely to follow across Europe. Energy conservation in areas like white goods will be very important, too. Medical could be another area of interest for us. The personal devices for home monitoring are likely to become very popular. Smart-card technology for security applications is also likely to be an important market in the near future.
Q: How much of your business in Europe comes from distribution, and which distributors do you partner with?
Ito: Around 23 percent comes through distribution. We partner with companies like Arrow, Avnet, Glynn, MRC, DigiKey, Abacus, and a number of local firms.
Q: Renesas has been deeply involved in the development of external memory technology, in particular MMC cards. Do you see these becoming more prevalent in mobile phones due to the large amounts of data that will need to be stored/transferred, or will mini HDDs take the main part of this market?
Ito: I think flash is likely to dominate here. Rotating magnetic storage is only really going to be suitable for certain areas from a technology standpoint, and sheer economics dictate that in some other areas it just won’t be able to be competitive. As we have now decided to divest our interest in flash, this is not a major concern for us. We will continue to develop on-chip flash, as this proves important for our SoC and embedded control product portfolios. Other than that we will be mainly working on emerging memory technologies, such as MRAM and phase-shift.
Q: How much do you currently spend on R&D, and how is that broken up between the various product lines in your portfolio?
Ito: We spend around 150 billion yen (about $200 million) each year, which equates to 20 percent of our total revenue, and is far higher than the average for companies within the semiconductor industry. It is difficult to break it down, as there are a lot of shared technologies that benefit a broad number of products. Software is becoming a larger proportion of our research budget all the time as a greater chunk of the innovative element within each semiconductor device moves away from the chip itself.
Q: With multiple microcontrollers now appearing in everything for motor cars to white goods, are we going to start running out of places where we can put them. Where are the pickings likely to be richest in the future?
Ito: MCUs will continue to grow. That is for sure. There is a movement towards SoCs at the high end of this sector, but it should have a 5 percent CAGR nevertheless. For Renesas this isn’t good enough, though, and this is why we want to increase market share. As already mentioned, we have 23 percent of the TAM (total available market) currently. We want to get up to 30 percent in the near future. We are strong in the 16- and 32-bit, but we need to get a greater strength in the 8-bit space. In order to do this we have to be cost-effective, but since we have good high-end technology, it is just a matter of translating this in to the lower-end devices. The introduction of the R8C Tiny product line will help us to achieve this goal. The general trends in electronics are to enable greater comfort and greater safety. Our company slogan ‘Everywhere’ reflects the fact that semiconductors will become ubiquitous. There are clear opportunities for increased growth within the mobile arena and home networks. I can’t see any shortage of places to put chips.
Q: You have been working with companies like Matsushita on 45nm technologies for your SoC solutions. What have been the major challenges?
Ito: It is going smoothly. There are many technological challenges involved in moving to 45nm. The new immersion lithography techniques that we have pioneered, and other things like exotic materials will help to enable this evolution, but the cost of building manufacturing sites, individual product design costs, and the short lifecycles of product all make it harder to get the return on investment. Therefore, the economic challenges need to be considered, too. 90nm will cover microcontroller products for the foreseeable future, but our SoC devices will need to utilize leading-edge technologies. We will outsource some of our production as well as using our own capacity. At the same time we will look to continue partnerships with firms like Matsushita, so that we have access to the latest semiconductor technologies but offload some of the huge costs involved.
Q: You have had great success with the SH Mobile processor platform. What is your road map for future products?
Ito: We have two sides to our SH Mobile offering. There is the multimedia processor product line, which will mainly cover audio, HDTV, DVB-H, GPS, etc. We also have a 3G baseband line. With this second part we are working with companies like DoCoMo in Japan, and plan to get this out into the global market in the near future.
Q: Why do you feel the 3G revolution that we have talked about for so long has still to materialize?
Ito: I think it will happen. In Japan, all new handsets are 3G-enabled, and mobile TV is becoming more commonplace all the time. The rest of the world is still behind, but that is mainly because regions are coming at it from different [starting points]. In the U.S. and Europe the development of mobile technology is led primarily by business, rather than entertainment needs. I think that the early adopters of this technology in the West will be driven by different objectives, but in the long-term 3G will be enjoyed by everyone.