We've recently spent some time chatting with Dan Mahoney, President and Chief Executive officer at Renesas Electronics America, Inc. We discussed how Renesas - the leading automotive semiconductor vendor - has recovered from the terrible earthquake and tsunami that hit Japan on 11th March 2011.  The story is one that blends a well-organised, efficient business recovery with the very human stories of loss, hardship and extraordinary hard work.

In the immediate aftermath, five of the company’s ten Japanese fabs were shut down, although four of these came back on line very quickly.  Worst impacted by far was the Naka fab, which contains 200mm and 300m production and testing facilities, and which provided around a quarter of the company’s automotive microcontroller capacity.

It took a week to sort things out enough to be able to enter the Naka plant with electricity available to enable an initial damage assessment.  Very early estimates were that it could take 6 months to restore the clean room, with full production perhaps not achievable for the remainder of 2011.  However, recovery has been much quicker than expected, due to a number of factors:

• Large numbers of highly dedicated people put in a massive effort.  This was while sometimes themselves living in very basic dormitory accommodation, with limited access to essentials such as running water.  Renesas estimates that across all the company’s recovery efforts, an additional 80,000 non-Renesas people were involved.
• Competitors allowed Renesas to “jump the queue” in gaining access to the replacement equipment that it required from its suppliers.  Although altruism and camaraderie were certainly key motives, there was also business sense in this.  End-product manufacturing that had stopped due to a lack of Renesas parts also meant that competitors were not shipping parts either.
• Renesas shifted much of the Naka product manufacturing to other domestic fabs, including its Tsugaru facility in Northern Japan
• Renesas accelerated its existing plans for the use of outsourced foundries, shifting some products (including some automotive ones) to TSMC and Global Foundries. In some cases this required a temporary relaxation of qualification requirements by customers until the requirements could be completed.

The scale of the effort can be seem in the photo below, which shows the rapid progress over (in this particular instance) a time period of only just over 3 weeks.

The result was that production at Naka restarted for the 200mm line on the 1st June, and the 300mm line followed shortly afterwards on 6th June.

Production is not yet back up to pre-quake levels.  Renesas estimates that will be achieved by the end of September, considerably earlier than first thought.  Electricity supplies throughout Japan remain problematical, and Renesas has brought in a number of on-site generators.  As the site includes a clean room, Naka is exempt from the planned rolling blackouts that still impact much of Japanese industry.

So, now that much of the hard work of the recovery process has been done, what has been the impact on Renesas and the wider semiconductor and automotive industries?

• Dan Mahoney asserts that Renesas now has better customer relationships than before the crisis.  He cites a number of accounts where they had limited visibility and access beyond the engineering teams, but now have good relationships with C-level staff. 
• The installation of new equipment at Naka, and the refurbishment of equipment that could be salvaged, means that yields for some products are now claimed to be higher than they were before the disaster.
• There has been a significant reassessment of the supply chain.  There is a general realisation that – in terms of continuity of supply – things could have been much worse.  If, for example, a similar tragedy had hit Taiwan, then the impact for the global electronics industry would have been much, much greater.  This has led to many customers now requiring manufacturing redundancy of supply as a basis for new contracts.
• This rethink on the supply chain means that the company’s use of foundries such as TSMC and Global Foundries will not be a temporary thing.  Renesas will emerge from the recovery process with about 10 per cent greater production capacity – without having put in any additional capital investment.  
• Although it appears that no firm decisions have been made on whether automotive-grade products that are currently outsourced will be pulled back to Naka, requirements for redundancy of supply makes it likely that outsourced suppliers will manufacture automotive products.
• However, this requirement for redundancy will cost more.  Renesas clearly believes that customers will have to share in this cost.  That is not always easy to achieve in automotive!

The recovery to date, and the dedication and hard work of all of those involved, is very impressive.  The wider industry impact of the disaster has clearly accelerated the outsourcing trend.  Strategy Analytics believes that future fab investment is highly unlikely to be concentrated in regions that already have a high density of such facilities.  

Redundancy of supply and supply chain robustness are now key competitive grounds for automotive semiconductors.  What costs can be passed on to customers remains to be seen.