5 Reasons Renesas Ditched Modem Business
MADISON, Wis. — Ailing Japanese chip vendor Renesas Electronics Corp. officially announced Thursday, June 27, what appeared inevitable to the rest of the world: termination of its wireless modem business.
Renesas acquired in 2010 a wireless modem development team from Nokia, all of whom will be affected: 1,100 employees in Finland, 300 in India, and 30 in China.
The acquisition of Nokia"s modem business, when announced, met with skepticism from the industry while revealing Renesas"s ambition to transform from a chip supplier to the world"s mobile technology leader.
That impossible dream, however, went belly-up after a three-year struggle.
So, what exactly happened?
First, the world order in the mobile market, since 2010, has dramatically shifted, leaving power with a handful of smartphone winners (namely, Apple and Samsung) and mobile chip suppliers (Qualcomm, Samsung).
If you are not in iPhone or Galaxy by now, you"ve found that your mobile chips especially those designed for advanced smartphones have nowhere to go.
Clearly, building a company based on advanced cellular technologies of well known pedigree (such as those of Ericsson or of Nokia) wasn"t enough to win the global battle. Neither Renesas Mobile Corp. (RMC) nor the ST-Ericsson joint venture (which broke up earlier this year) was able to survive the violently turbulent market of the last two years.
Second, neither ST-Ericsson nor Renesas Mobile had a credible China strategy.
Both companies lagged far behind their peers in Asia, including Taiwan"s MediaTek, China"s Spreadtrum, and a growing number of China"s indigenous fabless chip vendors, all focused on the now burgeoning low-cost smartphone market in Asia. Neither RMC nor ST-Ericsson had the right product portfolio or development strategy to meet the needs of OEMs and ODMs in China.
Third, let"s not underestimate the workforce needed to develop cellular modems.
The development of modem chips requires engineers with the sort of intimate knowledge and experience that enables them to keep up with constantly changing cellular standards. More significantly, unlike digital apps processors, the work on those cellular modem chips is often never done, even long after the modems are designed, due to a long certification process they must go through. Modem chips need to be field-tested, modified, and approved by cellular operators. And then they get adjusted again. It"s not unusual for modem chip developers to keep more than a thousand engineers.
Fourth, this bloated workforce tends to drain a company"s resources. It"s impossible to maintain, without big design wins.
Both ST-Ericsson and RMC had been in search of buyers for months, but, in the end, they found no takers. In essence, they followed the path traveled by Texas Instruments, Freescale, and Analog Devices years ago, when they all ended up fleeing the modem business altogether. Analog Devices was an exception, but only because the company"s modem group was absorbed by MediaTek.
Fifth, both Renesas and ST-Ericsson suffered from a consolidation nightmare.
As Strategy Analytics analyst Sravan Kundojjala commented in March, ST-Ericsson struggled with "duplication among legacy products, transition to a new product roadmap and constant management changes." The analyst said at that time the JV struggled to integrate multiple companies and execute its original plan. Similarly, Renesas, already a complex (and bloated) entity merged with NEC"s chip pision, had to bring more than 1,100 Finnish engineers into its 100 percent mobile chip subsidiary, RMC.
In an effort to globalize, Renesas moved RMC"s key decision-making functions pricing of chips, development of product roadmaps, and LTE modems to RMC-Paris. Despite avoiding the trap of Japanese timidity, managing a global team proved to be too difficult even for the bold.
The parent Renesas announced that the company will "stop developing activities and sales expansion of the LTE Modem." What remains unclear is where any RMC-developed IP including LTE modems will go, and if they"ll be available for licensing to other companies.
We also do not know whether RMC, as a wholly owned Renesas subsidiary, will also cease to exist, along with Renesas Mobile Europe Oy, Rensas Mobile India, and Renesas Tongxinjishu (Beijing) Co. Ltd. An executive at RMC, when reached by EE Times today, said he"s not allowed to explain.