Renesas to ax 28 percent of work force

Renesas Electronics Corp. will cut 28 percent of its work force and close some of its factories as part of a drastic downsizing program demanded by its bankers, according to sources.

The company, which has never recorded net profits since it was established in 2010 through a merger of Renesas Technology Corp. and NEC Electronics Corp., had initially planned to ax 5,500 workers, but the figure has now been increased to 12,000 out of a total work force of about 42,800 people.

Another key component of the struggling company’s restructuring plan is to ask the company's three parent companies--Hitachi Ltd., NEC Corp. and Mitsubishi Electric Corp.--to pump 100 billion yen ($1.3 billion) in additional capital into Renesas. Some of that money would be used to cover severance pay and other costs of the layoffs.

However, while Mitsubishi Electric has indicated a willingness to contribute, officials of both Hitachi and NEC have been more reluctant, the sources said. NEC is struggling with its own business difficulties and may not have the financial leeway to make a contribution.

Renesas will implement an early-retirement program, reduce the number of new hires and ask its parent companies to take on some of the workers. The company also plans to close or sell off some of its 19 sites in Japan, including a plant in Tsuruoka, Yamagata Prefecture.

Hitachi, NEC, and Mitsubishi Electric now own about 90 percent of the shares in Renesas.

If the parent companies are unwilling to provide the additional funds, Renesas will be forced to implement further downsizing measures or seek out other potential investors. Some of the additional capital needed for the restructuring could be contributed by an investment fund created by three major banks.

Renesas has about a 40-percent global market share in microcontroller products used in automobiles, and the company's banks have expressed optimism that Renesas can turn itself around as long as it scales back in unprofitable sectors.

When Renesas was established in April 2010, it asked the three parent companies to provide a total of 200 billion yen in additional capital for various downsizing measures, including plant closures. A total of 67 billion yen was spent on laying off several thousand workers and consolidating plants, but most of the remaining money had to be used to restore and rebuild company facilities damaged in last year's Great East Japan Earthquake.