Last week I did a deep dive on Tokyo-based Renesas Electronics Corporation, the world's largest supplier of microcontrollers, or MCUs. While a well-established company with a decades-long record of market success (particularly in automotive), Renesas is not necessarily a household name. However, the company's recent push into the Industrial Internet of Things (IIoT) and Infrastructure space has been catching the attention of a larger audience, myself included. With connected devices and intelligent endpoints proliferating in seemingly every aspect of modern life, it is a heck of a time to be a top player in the MCU business. And make no mistake, the company's IIBU (IoT and Infrastructure Business Unit) seems to be making hay while the sun shines.
This week, I tuned into the company's Analyst Day to gain a better perspective on its overall progress. Here are some of my key takeaways.
Bolstering safety and resiliency at production facilities
Renesas was briefly in the headlines in the spring of 2021 for a fire inside its Naka factory in Japan. Though there thankfully no casualties due to the incident, it slowed down Renesas's 12-inch wafer production when automotive supply chains were already reeling from the Covid-19 pandemic fallout. Renesas tackled the story head-on at Analyst Day, leading off its 2021 Progress Report with an enumeration of the preventative safety measures taken since the fire and the company's production bounce-back (see Figure 2 below). These include equipment upgrades at Renesas production sites geared towards early fire containment, such as automatic fire extinguishers, sprinklers and sensitive smoke detectors, which it says will be completed by the end of 2022. On the personnel side, Renesas is putting resources towards sharing best practices and learnings across production sites. A new team will focus solely on improving fire resiliency across Renesas facilities, spurring competition through factory evaluations and rankings.
A peek at company culture
When I'm beginning my coverage of a company, I don't only look at its IP portfolio. I also like to know a thing or two about the company culture—how it treats its employees, how it impacts the communities and environments it operates within, how it advocates for positive social good, etc. You can have a great product on your hands, but if you can't retain the good faith of your team, your supply chain and your customers, it likely won't matter how fast your chip performs. Good CSR and good business go hand in hand—don't believe me, look at Cisco.
Based on what I heard at Analyst Day, Renesas appears to be hitting some good notes on that front. Through its TAGIE initiative, Renesas strives to foster a culture that is:
- Transparent- Every employee, from the leadership 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 quickly taking corrective measures when necessary.
- Global- Employees are encouraged to improve their language skills and use numbers and data to convey information to a worldwide audience.
- Innovative- Renesas prioritizes the innovation and creativity of its employees, encouraging them to seek out novel solutions to improve their work and drive positive societal change.
- Entrepreneurial- Renesas holds that individuals in the company should behave "professionally, voluntarily and independently" as if they were running their own business.
We see elements of this initiative in other companies, but the one point that stuck out to me was the emphasis on being entrepreneurial. It's an interesting thought that allows for a measure of employee creativity and autonomy while also giving workers a more personal stake in what they're doing. This seems likely to encourage responsible, well-thought-out decision-making within the creative latitude Renesas gives its employees. The other thing I like to see in this area is how companies implement such initiatives and how they measure progress for accountability. While I have not seen Renesas's hard data around any of this, the company's efforts purportedly include employee surveys on company culture, HR performance reviews, recruiting, training and more.
A look back on 2021 financials
As the event doubled as an Investor Day, we also got a snapshot of its financial progress (see its non-GAAP numbers in Figure 3 below). Renesas's final adjusted revenue for 2021 was 889 billion yen, up from 636 billion yen in 2020 and 620 billion in 2019. Its gross margins for this past year were 54% (up from 43% in 2019 and 48% in 2020), and its operating margins came in at 29% (12% in 2019 and 19% in 2020). The exciting part is the comparison of this year's gross and operating margins compared to the company's long-term targets—50-55% and 25-30%, respectively. As you can see, Renesas is already basically there.
Renesas also highlighted the ongoing diversification of its financing sources. While the company was funded exclusively by a term loan in 2019, its funding sources had expanded by 2021 to include U.S. green bonds, U.S. senior bonds, a JBIC loan, an additional term loan and equity.
Dialog and Celeno acquisitions integrating nicely
Partially responsible for Renesas’s impressive growth into IoT and Infrastructure are two recent acquisitions. Dialog Semiconductor, acquired last summer, has a wide portfolio that centers around the standard and custom integrated circuits needed to power IoT and Industry 4.0. This includes offerings for battery and power management, Wi-Fi, Bluetooth low energy and the industrial edge. Israel-based 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, complimenting 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 original 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’m not worried about Renesas falling short of these targets.
I believe Renesas delivered what it needed to at this week's presentation. On the hard side, the company gave us evidence of growth and some optimistic projections for the coming years. On the softer side, it was great to peek under the hood at Renesas's approach to company culture. While I did not include details on Renesas's IIBU and Automotive business strategy in this write-up, given the time I spent on strategy last week, that information was also there for anyone who needed it.
All in all, it was a solid, well-rounded presentation that gave me plenty of reasons to keep covering Renesas. I'd advise other industry watchers and investors to do the same.
Note: Moor Insights & Strategy writers and editors may have contributed to this article.