Renesas' net profit fell by 30% due to weak demand for automotive chips

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Japanese semiconductor (chip) giant Renesas Electronics announced its financial report for the previous year (January-December 2018) after the Japanese stock market closed on the 8th: Due to the rising uncertainty in the global economy, the demand for industrial semiconductors (chips) such as automotive and factory automation (FA) has softened, dragging down the consolidated revenue by 2.9% year-on-year to 757.4 billion yen, the consolidated operating profit, which shows the profitability of the core business, shrank by 14.8% to 66.8 billion yen, and the consolidated net profit, which shows the final profitability, fell by 30% (down 29.3%) to 54.6 billion yen.

Last year, Renesas' semiconductor business revenue decreased by 3.1% year-on-year to 740.5 billion yen. Among them, the automotive business (including automotive MCU, automotive system-on-chip (SoC), automotive analog & power control chips) revenue decreased by 3.4% year-on-year to 398.5 billion yen; the industrial business (including industrial MUC, industrial SoC) revenue decreased by 4.7% year-on-year to 187.2 billion yen; the general semiconductor business (broad based, including general MCU and general analog chips) revenue increased by 0.6% year-on-year to 151.3 billion yen.

Looking at the performance of the previous quarter (October-December 2018) alone, Renesas' consolidated revenue shrank by 10.7% year-on-year to 187.7 billion yen, of which semiconductor business revenue fell by 11.0% to 183.8 billion yen, consolidated operating profit fell by 37.8% to 21.2 billion yen, and consolidated net profit fell by 42.5% to 17.4 billion yen.

Looking ahead to this quarter's (January-March 2019) performance, Renesas estimates consolidated revenue to be 149.7 billion to 157.7 billion yen, a decrease of 19.5% to 15.2% from the same period last year. Among them, semiconductor business revenue is estimated to be 146.2 billion to 154.2 billion yen, a decrease of 19.7% to 15.3%, and the operating profit margin is estimated to be 5.5% (16.9% in the same period last year).

Based on non-GAAP accounting principles, Renesas estimates that its consolidated revenue for this quarter will be 149.5 billion to 157.5 billion yen, of which the semiconductor business revenue is estimated to be 146 billion to 154 billion yen, and the operating profit margin is estimated to be 4.5%.

Renesas's financial forecast for this quarter is based on an estimated exchange rate of 1 USD to 109 JPY and 1 EUR to 124 JPY.

Japanese media such as Kyodo News and Nikkei reported that Renesas President Wu Wenjing officially announced the plan to reduce staff (layoffs) at a financial report conference call on the 8th. Wu Wenjing pointed out that "negotiations (layoffs) have begun with the labor union. We hope to build a strong profit structure by reducing fixed costs."

Wu Wenjing did not specify the specific scale of layoffs, but according to Japanese media reports, Renesas plans to lay off about 1,000 employees, accounting for 5% of the Renesas Group's total employees (about 20,000), mainly in Japan, by recruiting voluntary resignations. The estimated resignation date is the end of June this year. This will be the first time since 2014 that Renesas has conducted layoffs of the same scale by recruiting voluntary resignations.

According to the quotation of Harvest XQ Global Winner System, Renesas fell 5.24% on February 8, closing at 615 yen. So far this year (as of the close of February 8), its stock price has risen by 23.0%; in 2018, Renesas' stock price fell 61.92%.

The China Association of Automobile Manufacturers released statistics on January 14, pointing out that China's new car sales fell 2.8% year-on-year to 28.08 million units in 2018. According to Japanese media, China's new car sales fell for the first time in 28 years (since 1990), and the main reason for the decline was the US-China trade friction, which impacted consumers' willingness to buy cars.

The Japan Electronics and Information Technology Industries Association (JEITA) issued a press release on November 27, 2018, stating that the World Semiconductor Trade Statistics (WSTS) Association, in its latest forecast report, has revised down its forecast for global semiconductor sales growth in 2019 from the 4.4% annual growth estimated in June to 2.6% annual growth, citing the US-China trade friction (trade war) and many uncertain factors in the global economy. The annual growth rate will hit a new low in three years (since 2016, an annual growth of 1.1%).

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