The merger is aimed at the combined company’s top-line business growth.
Renesas Electronics Corp. has signed a definitive agreement to acquire Intersil Corp. for about $3.2 billion in cash.
In an exclusive telephone interview with EE Times, Bunsei Kure, Renesas CEO, and Intersil CEO Necip Sayiner stressed that the merger is aimed at the combined company’s top-line business growth. Unlike other M&As, this isn’t designed to cut the operational expenses of the two companies, they said.
Today, Renesas has a workforce of about 20,000. Intersil has 1,000 employees. Asked about potential layoffs after the merger, Kure said, “It won’t be zero but it will be a very modest amount.”
Sayiner will stay with the new company in a senior management position, and will run a Renesas business unit. His responsibilities will go beyond looking after Intersil’s business, said Kure, but their scope has not been determined.
Survival hinges on inorganic growth
The $3.2 billion takeover of Intersil marks the Japanese chip giant’s first attempt and commitment to expand inorganically. “In order to survive in the highly competitive global semiconductor market in the next five to 10 years, we can’t just rely on organic growth,” Kure emphasised.
Describing competitors who are moving fast and not giving Renesas much time to catch up, Kure explained that he saw M&A essential “for us to buy time.”
Kure also said the Intersil acquisition won’t be the last big M&A for Renesas. “As we improve our financial health, we will discuss the matter with Necip and decide what other pieces we need [to buy],” Kure told EE Times.
Notably, however, the Renesas management team has a poor record in M&A execution. Originally founded by three Japanese electronics companies’ chip divisions, Renesas has been faulted for dithering too long to integrate its acquisitions.
When it comes to merging with a foreign entity, Renesas’ only experience in the past was with Nokia’s modem team. That merger became Renesas Mobile, but it eventually had to fold. At a time when Apple and Samsung, both with internally developed app processors, have been dominant forces in the global smartphone market, Renesas Mobile couldn’t find a design socket.
Asked how confident Renesas is about integrating Intersil, Kure noted that blending businesses after a merger is “the expertise I hope to bring to the table.”
Although he has no semiconductor expertise, Kure claimed his extensive M&A experience with foreign entities while at General Electric, Nidec (a leading Japanese manufacturer of electric motors) and the Industrial Bank of Japan.
Both Renesas and Intersil stressed that the two companies have very little overlap in their product portfolios and geographical markets.
“The areas where our products overlap are so small that I want to say virtually none,” said Kure.
Renesas hopes to combine its own MCU and SoC products with Intersil’s power management and precision analog capability, so that the merged company can offer more complete solutions for embedded systems in diverse markets ranging from automotive to industrial and the Internet of Things.
For the 300 million MCU units Renesas is selling each year, there is “a big opportunity to add our power management capabilities around them,” explained Sayiner. “We see a huge, immediate synergy,” agreed Kure.
First, “cross selling” of each other’s products will “come quickly,” said Kure. In two to three years, he also envisions a rapid boost in sales for such product categories as home appliances and industrial robots.
Renesas MCUs combined with Intersil’s power management/mixed signal ICs are applicable to everything from IoT to Industry 4.0, Kure added. In battery-driven portable devices and sensor products, “we find Intersil’s PMIC very powerful and effective,” he added.
Expansion in China, Korea
The Intersil acquisition will also help expand the Japanese company's presence in automotive, especially outside of Japan. Kure pointed out China and Korea as two such examples.
Asked if Renesas has been shut out of those two geographical markets largely due to anti-Japanese sentiments there, Kure said it’s not necessarily so. “Yes, on the surface, there is anti-Japanese sentiment,” said Kure. “But we are getting some design wins from Samsung in Korea. Our chips are getting designed into certain products like air purifiers and air conditioning equipment by Haier in China.”
Intersil’s Sayiner added, “Intersil has a higher percentage of sales in both of those regions—China and Korea [compared to Renesas], although our revenues from those geographical markets are smaller.”
Intersil as a brand name will not disappear, promised Kure. “We will keep it. And where it makes sense, we will go with double branding.”
The big gain for Renesas will be IP and a product portfolio in “general-purpose analog products such as power management and data converters,” Jonathan Liao, senior analyst for power semiconductors at IHS Markit, said.
Rob Lineback, senior market research analyst at IC Insights, cited Renesas’ gain in power management. He also added that the acquisition “would help expand the Japanese company's presence in automotive (especially outside of Japan) as well as do more business in aerospace.”
Two-thirds of Intersil's $522 million 2015 sales came from industrial and infrastructure systems, including auto and radiation-hardened aerospace applications. Lineback said acquisition by the Japanese chip vendor “might hurt Intersil’s aerospace business, especially with U.S. aircraft makers, but that's not certain.”
According to Sayiner, 12% of Intersil’s business—about $60 million—is from the aerospace market. Kure said that Renesas also has been in the aerospace market through JAXA, the Japan Aerospace Exploration Agency, but its market size in Japan is very small. Given Renesas’ strength in reliability and security, aerospace is a market “Renesas would like to retain very much, if the U.S. government allows,” said Kure.
Closing of the transaction is expected in the first half of 2017, following approval by Intersil shareholders and government authorities. The newly combined entity will be born on July 1.
This article first appeared on EE Times U.S.