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Renesas to license chip designs in move beyond manufacturing

Japanese semiconductor maker joins industry shift toward specialization

Renesas Electronics, which handles everything from chip development to manufacturing, looks to start licensing designs as a new revenue source. (Photo by Hideaki Ryugen)

TOKYO -- Japan's Renesas Electronics seeks to add another revenue source by selling proprietary semiconductor designs, diversifying away from manufacturing to compete with capital-light rivals like Qualcomm.

Renesas will begin by licensing 40 chip designs, including processors and memory chips, out of the hundreds in its portfolio. Potential customers include other chipmakers, as well as electronics manufacturers that supply their own chips.

One of the biggest names in chip architecture is Arm Holdings, the British company acquired by Japan's SoftBank Group for about $31 billion in 2016. Arm's designs for smartphone processors can be found in 90% of such devices worldwide.

Renesas intends to differentiate itself through its strength in a variety of semiconductors, including automotive microcontrollers, along with its fee schedule.

While Arm and other rivals generally insist on upfront payments, Renesas will offer a fee option that corresponds with sales volumes of the devices containing the chip designs. The company aims for at least 10 billion yen ($89 million) in licensing revenue in 2025.

The Japanese group, which was saved from the brink of collapse in 2013 by a 150 billion yen capital injection led by a government-backed fund, has gone on the offensive. This month, it announced plans to buy U.S. chipmaker Integrated Device Technology, its second deal for an American peer following last year's purchase of Intersil.

Both acquisitions add strength in design and development that could provide more technology for licensing.

The move into licensing carries the risk of undercutting the competitiveness of Renesas' own products, but the company believes "the business opportunities created by selling outside the group are greater," according to an executive.

Renesas has received inquiries from electronics companies about technology deals. Compared with capital spending to boost chip output, the costs of licensing designs are lower, contributing to higher profitability.

That will help the company handle the cost of moves to boost its ranking in the industry through research and development and new acquisitions. Though Renesas ranks first or second in global market share for some niche areas, notably automotive chips, it does not make the semiconductor industry's top 10 overall.

As chips become ever more complex, the semiconductor industry is moving away from the vertically integrated model typified by Intel, which does everything from design to production. On one hand, "fabless" companies like Qualcomm and Nvidia have emerged that design chips, but do not manufacture them. On the other side are contract chipmakers, led by Taiwan Semiconductor Manufacturing Co., the world's biggest.

The idea behind specialization is that separating knowledge-intensive design activities from capital-intensive production can boost efficiency. At the same time, there is a growing need for semiconductors that combine multiple functions, such as processing and memory, into one package for use in applications like artificial intelligence and autonomous driving.

Instead of developing these packages from scratch, a chipmaker with strength in processors, for example, could procure communications technology from an outside provider like Renesas, allowing it to shorten development times.

Renesas trimmed its lineup of semiconductors as the result of the manufacturer's restructuring, so it appears the company looks to license technology that otherwise would lay dormant.

At the same time, Renesas will need to develop the customer support services that go with chip designing.

"Arm and other established companies have strength in support for corporations in developing semiconductors," said Kazuhiro Sugiyama, analyst at British research firm IHS Markit.

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