UPDATE 2-Japan's Renesas posts smaller than expected Q2 loss

Mon Oct 29, 2012 3:35am EDT

* Renesas keeps 21 bln yen operating profit for 2012/13

* Posts Q2 5.7 bln yen op loss vs 10.1 bln loss year ago

* Sees 150 bln yen net loss in 2012/13

* Clients buying time to shift suppliers-analyst

By Mari Saito

TOKYO, Oct 29 (Reuters) - Japan's Renesas Electronics Corp , the world's fifth-largest chipmaker, posted a smaller-than-expected operating loss for the July-September quarter on Monday, down 44 percent from a year ago, but still its seventh consecutive quarterly loss.

For the July-September quarter, Renesas logged an operating loss of 5.7 billion yen ($71.64 million) compared with a 10.1 billion yen loss in the same period last year. The result beat a 9.4 billion yen ($118.2 million) operating loss forecast by four analysts polled by Thomson Reuters I/B/E/S.

Renesas, which competes with Samsung Electronics Co Ltd and U.S.-based Freescale Semiconductor Inc in the global market for microcontroller chips used in cars, is trying to avoid the fate of fellow Japanese chipmaker Elpida Memory Inc, which was driven into bankruptcy this yea. Elpida has since agreed to be bought by U.S. rival Micron Technology Inc.

Renesas is in talks for a 200 billion yen bailout by taxpayer-funded Innovation Network Corp and a consortium of the chipmaker's major clients including Toyota Motor Corp, sources with knowledge of the matter have told Reuters.

Renesas kept its forecast for operating profit of 21 billion yen and a net loss of 150 billion yen for the year to March.

The company currently has about 70 billion in cash on hand which is sufficient for its ongoing operations, according to senior vice president Masahiko Sagawa.

The chipmaker said it logged 205.3 billion yen in sales in its semiconductor division, up 22 percent from the previous quarter, as it saw an increase in orders for its custom chips. It expects orders to be sluggish in the coming quarter due to uncertainty in the euro zone, a slowdown in emerging economies and China and risks from souring ties between China-Japan.

Sales in China of Japanese carmakers - key Renesas clients - have been hit by a popular backlash against Japanese products because of a bitter feud That has flared in recent months over rival claims to tiny islands in the East China Sea.

Renesas' full-year operating profit compares with an average 390 million yen operating loss forecast by nine analysts polled by Thomson Reuters.

Shares in the chipmaker, which have fallen more than a third since January, have recovered 53 percent since hitting a record low of 198 yen on May 29. Renesas shares ended up 2.4 percent at 303 yen ahead of the results announcement. Tokyo's Nikkei benchmark average was flat.

Even if it secures a bailout led by the government fund and its key customers, Renesas faces further pain ahead. The ailing company said this month it laid off more than 7,000 of its 42,700 employees in the latest round of restructuring and has promised to halve the number of domestic plants. Japanese media said last week that it might cut an added 5,000 jobs under a plan proposed by the government fund.

The government plan counters a proposal by U.S. private equity firm KKR & Co LP, to invest 100 billion yen for control of the chipmaker. That plan worried Renesas' clients who feared the company's technology would fall into foreign hands.

Hit by a supply shortage after last year's huge earthquake and tsunami forced Renesas to close eight of its plants, Japanese automakers have since turned to U.S.-based Freescale Semiconductor and other chipmakers to diversify their supply chains, analysts say.

"The bailout only prolongs the issue for two to three years. Basically, users think Renesas is in trouble so they're not going to rely on them in the long term," said Akira Minamikawa, vice president and principal analyst at IHS iSuppli in Tokyo.

"The users are diversifying and adding manufacturers, although that can't be done in a year. It takes two to three years to do that, so the clients are basically buying time to do that," he said.

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