Renesas Electronics plans to acquire IDT for $6.7 billion, targeting autonomous driving and the Internet of Things

The development direction of digitalization, intelligence and electrification in the automotive industry is triggering a wave of mergers and acquisitions among automotive semiconductor manufacturers. The comprehensive strength in the fields of autonomous driving, Internet of Things, wireless business, etc. may become a competitive point in the future of the automotive semiconductor industry.

"The global semiconductor market is currently extremely competitive, and it is not enough to simply enter the competitive threshold. Just like in the World Cup, you have to aim for victory and then do your best." On September 11, Wu Wenjing, president and CEO of Renesas Electronics, a major automotive semiconductor manufacturer, said this at a press conference on the acquisition of IDT.

This acquisition is an important step for Japanese company Renesas Electronics to expand its semiconductor business. According to the official statement of Renesas Electronics, the two parties have signed a final agreement. According to the agreement, Renesas Electronics will acquire the US semiconductor company IDT in an all-cash transaction at a price of US$49.00 per share, with a total equity value of approximately US$6.7 billion.

IDT's current market value is approximately US$5.44 billion. The acquisition price is equivalent to a premium of approximately 29.5% to the unaffected share price of IDT common stock as of August 30, 2018, and Renesas Electronics plans to finance the transaction with cash reserves and approximately 679 billion yen in bank loans.

Wu Wenjing said at the press conference: "If the transaction goes smoothly, it can be completed within 10 months, and hopefully it can be completed by the end of June 2019." Within these 10 months, the acquisition must also be approved by IDT shareholders and relevant regulatory agencies.

However, Qualcomm's previous acquisition of NXP for $44 billion was unsuccessful, which has also led to concerns about Renesas Electronics' acquisition of IDT. Although $6.7 billion is definitely a high price in the Japanese semiconductor industry, compared with $44 billion, the scale is not large, and it does not involve monopoly in a niche field. Therefore, many industry insiders believe that the probability of encountering antitrust review is not high.

Differentiation and complementarity

As early as the beginning of September this year, there were rumors that Renesas Electronics would acquire IDT. Later, Renesas Electronics issued an announcement saying that it was interested in the acquisition but had not yet made a decision. Then, in less than half a month, the acquisition was basically settled.

Renesas Electronics is one of the top three automotive semiconductor manufacturers in the world and an important semiconductor company in Japan. It was born from the business merger of three established Japanese electronics companies. In 2003, the semiconductor divisions of Hitachi and Mitsubishi Electric were reorganized into Renesas Technology Corporation. In 2010, Renesas Technology merged with NEC Electronics under NEC to become today's Renesas Electronics.

However, Renesas Electronics suffered a heavy blow after its establishment. The earthquake and tsunami in Japan in 2011 seriously affected its factory production. With the help of the Innovation Network of Japan (INCJ), Toyota, Nissan, Panasonic and other companies, Renesas Electronics was reorganized and reborn, and set a strategy of focusing on the automotive industry, mainly producing the core chips behind automotive parts.

As of the end of December 2017, Renesas Electronics' revenue for the previous fiscal year was US$7.105 billion, a revenue gap of about US$2 billion from the industry leader NXP's US$9.256 billion. Currently, half of Renesas Electronics' revenue comes from the automotive industry, and the automotive business revenue mainly comes from the global market outside of Japan.

IDT was founded in 1980, which is older than Renesas Electronics. As of the end of March 2018, IDT's revenue in the previous fiscal quarter was US$843 million and its loss was US$12.14 million. IDT used to be an IDM (vertically integrated semiconductor manufacturer). As the semiconductor industry became more and more integrated, the business model eventually shifted from IDM to a fabless model. Products also expanded from high-speed SRAM (static random access memory) to RF, timing products, etc.

NXP acquired its peer Freescale in 2015 to become the champion in the field of in-vehicle semiconductors. However, the application scenarios of IDT, the acquisition target of Renesas Electronics this time, are not limited to the automotive field. It has many products in the fields of communications and consumer electronics, which happen to be differentiated and complementary to Renesas' most famous MCU (microcontroller) and SoC (system-on-chip) products.

Renesas Electronics said: "This acquisition will provide Renesas Electronics embedded systems with analog mixed-signal products, including RF, advanced timing, storage interface and power management, optical interconnect, wireless power and smart sensing. These product lines combined with Renesas Electronics' MCU, SoC and power management IC enable Renesas Electronics to provide comprehensive solutions."

At the press conference, Wu Wenjing specifically pointed out the reasons for the acquisition: "IDT is very strong in the data center field, and we hope to expand this business." At the same time, he also explained another important reason for acquiring IDT: "In fact, Renesas Electronics' target is ZMDI." ZMDI is a German automotive sensor equipment manufacturer that was acquired by IDT for US$307 million in 2015.

Renesas also acquired semiconductor manufacturer Intersil in 2017. Regarding the integration of the two companies, Wu Wenjing emphasized the complementarity between the companies: "IDT has no overlapping business with Renesas and Intersil, and we expect a high degree of synergy in business. For example, in IOT (Internet of Things) and wireless business, Renesas is weak, but IDT is strong."

Adding investment in autonomous driving and the Internet of Things

After acquiring IDT, Renesas Electronics divided its business into four parts, namely the automotive industry, industry, data center and general field. Specifically, IDT's products can be used in ADAS (Advanced Driver Assistance Systems) and vehicle systems in the automotive field; in the industrial field, they can be used in motor system solutions; in the data center, its products can be used in big data servers and optical connections; in the general daily field, they can be used in smart watches, smart homes and other aspects.

In summary, Renesas Electronics is targeting the automotive field, especially autonomous driving, as well as multiple application scenarios of IOT in the 5G era.

In the field of automotive semiconductors, there is no oligopoly at present, and the market share gap between NXP, Infineon, Renesas Electronics, STMicroelectronics, and Texas Instruments is not large. These traditional manufacturers are planning to enter the emerging field of autonomous driving, where future competitors include Nvidia, Intel, and Internet companies such as Google.

Yao Jiayang, an analyst at TrendForce, told the 21st Century Business Herald: "In terms of autonomous driving, Renesas still focuses on automotive central processing units and high-performance automotive MCUs. For example, when it comes to processing millimeter-wave radars, automotive cameras, or V2X, Renesas has back-end automotive processors or automotive MCUs to handle them. Currently, Renesas is almost in the leading position in terms of the manufacturing processes used in automotive central processing units and automotive MCUs."

He further elaborated: "Renesas' H3 and M3 automotive CPUs use the 16nm process, but NXP and TI are currently at the 28nm stage. Although Qualcomm's 820A uses 14nm, in terms of specifications, Qualcomm still lags behind Renesas and other traditional automotive semiconductor companies. Another important feature of Renesas is that it is the only traditional automotive semiconductor leader in Asia and has rich experience."

According to Renesas Electronics' plan, the wireless charging, sensors, advanced timing, RF, and power management ICs brought by IDT and its subsidiary ZMDI will enhance Renesas Electronics' layout in autonomous driving.

In fact, in addition to the automotive field, Renesas Electronics also has a foundation in the industrial and consumer electronics fields. Yao Jiayang said that IDT has millimeter wave products, and its timing-related products are used in the fields of servers and network communication equipment, which will help Renesas enter 5G communication equipment or small and medium-sized base stations.

Previously, Renesas gave up the smartphone market and sold its power amplifier business to Murata Manufacturing. Based on LTE and 5G modem technology, Renesas and Nokia jointly established Renesas Mobile, but eventually dissolved it. Now, IDT may be able to fill part of the market.

However, some Japanese semiconductor industry critics pointed out that IDT has always focused on the high-end communications equipment and server markets, while Renesas has been providing microcontrollers and industrial equipment for automobiles, and the two completely different fields are difficult to coordinate.

Regardless of the integration results, mergers and acquisitions in the automotive semiconductor industry will continue. Yao Jiayang said that as automotive functions develop towards digitalization, intelligence and electrification, companies that intend to enter or strengthen automotive semiconductors will consider "mergers and acquisitions" as one of the means. However, whether the merger and acquisition will be successful depends on how governments evaluate the scale of the two companies and the impact of the merger and acquisition on related industries.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.