Last week, I did a deep dive on Tokyo-based Renesas Electronics Corporation, the world’s largest supplier of microcontrollers, or MCUs. Although a well-established company with decades of market success (particularly in automotive), Renesas isn’t necessarily a household name. However, the company’s recent push into the industrial Internet of Things (IIoT) and infrastructure space has caught the attention of a wider audience, myself included. With connected devices and smart terminals proliferating in seemingly every aspect of modern life, it’s time to be a major player in the microcontroller industry. And make no mistake, the company’s IIBU (IoT and Infrastructure Business Unit) seems to be making hay while the sun is shining.
This week, I tuned in to the company’s analyst day to get a better perspective on its overall progress. Here are some of my top takeaways.
Strengthen the security and resilience of production facilities
Renesas briefly made headlines in the spring of 2021 for a fire at its Naka plant in Japan. While there were fortunately no casualties from the incident, it slowed production of Renesas’ 12-inch pads as automotive supply chains were already reeling from the fallout from the Covid-19 pandemic. 19. Renesas tackled the story head-on during the analyst day, beginning its 2021 progress report with a listing of preventative safety measures taken since the fire and the company’s production rebound (see figure 2 below). These include equipment upgrades at Renesas production sites aimed at quickly bringing fires under control, such as sprinklers, sprinklers and sensitive smoke detectors, which it says will be completed by the end of 2022. On the staff side, Renesas is dedicating its resources to sharing best practices and learnings across production sites. A new team will focus solely on improving fire resistance at Renesas facilities, driving competition through factory ratings and ratings.
An overview of the corporate culture
When I start my coverage of a company, I don’t just look at its intellectual property portfolio. I also like to know a thing or two about the company’s culture – how it treats its employees, how it impacts the communities and environments in which it operates, how it champions positive social good, etc. You may have a great product in your hands, but if you can’t maintain the good faith of your team, your supply chain, and your customers, it doesn’t matter how fast your chip works. Good CSR and good business go hand in hand – don’t believe me, look at Cisco.
From what I heard during the analyst day, Renesas seems to have good marks on this front. Through its TAGIE initiative, Renesas strives to promote a culture that is:
- Transparent- Every employee, from the management team down, should have a clear understanding of company strategy and policy.
- Agile- Renesas seeks to be proactive in responding to changes, predicting likely outcomes and taking prompt corrective action if necessary.
- Global- Employees are encouraged to improve their language skills and use numbers and data to convey information to a global audience.
- Innovative- Renesas prioritizes the innovation and creativity of its employees, encouraging them to seek new solutions to improve their work and drive positive societal change.
- Entrepreneurial- Renesas maintains that individuals in the company should behave “professionally, willingly and independently” as if they were running their own business.
We see elements of this initiative in other companies, but the one thing that stood out to me was the emphasis on entrepreneurship. It’s an interesting thought that allows a measure of employee creativity and autonomy while giving workers a more personal stake in what they do. This seems likely to encourage responsible and thoughtful decision-making within the creative latitude Renesas grants its employees. The other thing I like to see in this area is how companies implement such initiatives and how they measure progress on accountability. While I haven’t seen concrete data from Renesas on this, the company’s efforts allegedly include employee culture surveys, HR performance reviews, recruitment, training , etc
A look back at 2021 finances
As the event doubled as an Investor Day, we also got a glimpse of his financial progress (see his non-GAAP numbers in Figure 3 below). Renesas’ adjusted final revenue for 2021 was 889 billion yen, compared to 636 billion yen in 2020 and 620 billion in 2019. Its gross margins for the past year were 54% (compared to 43% in 2019 and 48% in 2020), and its operating margins stood at 29% (12% in 2019 and 19% in 2020). The exciting part is how this year’s gross and operating margins compare to the company’s long-term goals – 50-55% and 25-30%, respectively. As you can see, Renesas is basically already there.
Renesas also highlighted the ongoing diversification of its funding sources. While the company was funded exclusively by term loan in 2019, its funding sources expanded in 2021 to include US green bonds, US senior bonds, JBIC loan, additional term loan and equity.
The acquisitions of Dialog and Celeno fit perfectly
Two recent acquisitions are partly responsible for Renesas’ impressive growth in IoT and infrastructure. Dialog Semiconductor, acquired last summer, has a broad portfolio focused on standard and custom ICs needed to power the IoT and Industry 4.0. This includes offerings for battery and power management, Wi-Fi, Bluetooth low energy, and industrial edge. Israeli company Celeno, acquired in December, provides advanced wireless communication solutions such as Wi-Fi 6 and 6E chipsets. Both companies currently operate as wholly owned subsidiaries of Renesas, complementing its portfolio of MCUs, MPUs and SoCs, wireless ICs, sensors and power management technologies.
We learned at the event that Renesas is on track to exceed the company’s initial revenue and cost synergy projections for both acquisitions (see Figure 4). Given the company’s track record of successful integration with its acquisitions of Intersil and IDT, I have no fear that Renesas will not achieve these goals.
I believe Renesas delivered what it needed in this week’s presentation. On the hard side, the company has given us evidence of growth and optimistic projections for the years to come. On the softer side, it was great to take a peek under the hood at Renesas’ approach to corporate culture. Although I have not included details of Renesas’ IIBU and automotive business strategy in this article, given the time I spent on the strategy last week, this information was also available to anyone who had any. need.
All in all, it was a solid and comprehensive presentation that gave me plenty of reasons to continue covering Renesas. I would advise other industry observers and investors to do the same.
Note: Moor Insights & Strategy writers and editors may have contributed to this article.
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