DealBook: Japanese Manufacturers Help Save Chip Maker Renesas

Yuriko Nakao/ReutersRenesas Eletronic’s advanced microcontroller chips are seen as important to Japanese industry.

TOKYO — When a magnitude 9 earthquake knocked out a chip-making factory at Renesas Electronics, Toyota Motor and other manufacturers dispatched hundreds of workers to help get the plant in northeastern Japan running again.

On Monday, some of Japan’s largest manufacturers pitched in again, contributing to a $1.8 billion bailout of the struggling company.

In a statement, Renesas said eight Japanese manufacturers, including Canon, Nikon, Nissan, Panasonic and Toyota, would contribute about $145 million to the deal. A government fund, the Innovation Network Corporation of Japan, will provide the rest of the aid.

The effort underscores the importance of the company’s advanced microcontroller chips to Japanese industry and the country’s reluctance to give the technology to foreign players.

The capital injection will help Renesas increase spending on the advanced microcontrollers used in cars and electronic devices, the company said. To prop up its finances, Renesas, which is based in Kawasaki, had requested an additional 50 billion yen, or $606 million, from the government.

Although Renesas rebounded swiftly from the quake and tsunami that struck Japan last year, it has been less successful in dealing with rivals like Samsung Electronics of South Korea. As Japan’s major manufacturers have stumbled in the face of tough competition and a slowing global economy, Renesas has struggled to turn a profit. On Monday, Renesas forecast a net loss of 150 billion yen for the 12 months through March 2013, after losing 62.6 billion yen in the previous 12 months.

Shares in Renesas rose 3 percent to close at 308 yen in Tokyo on Monday. The company has lost 35 percent of its market value this year.

The industry is under pressure in Japan. Elpida Memory, a Japanese manufacturer of dynamic random access memory chips, filed for bankruptcy protection in February. Elpida is being acquired by Micron Technology, a chip maker based in Boise, Idaho.

Despite the industry challenges, Japan wants to maintain control of Renesas.

In August, reports surfaced that Kohlberg Kravis Roberts & Company, the American private equity firm, had offered to invest as much as 100 billion yen in Renesas, which sent the company’s shares soaring. But the potential deal also raised concerns about foreign control of a company that supplies many of Japan’s leading manufacturers.

Japan’s reliance on Renesas stems, in part, from the company’s legacy.

In 2003, Hitachi and Mitsubishi Electric merged their semiconductor businesses to form Renesas Technology. Then in April 2010, Renesas joined NEC Electronics, the former semiconductor division of NEC, to create the current company.

As a result, manufacturers that once employed several preferred chip suppliers ended up largely buying products from one, Renesas. In addition to automotive microcontrollers, Renesas supplies specially tailored chips for electronics companies like Canon and Ricoh.

In the bailout plan announced on Monday, Renesas said it would sell 1.25 billion new shares for 120 yen each to the government fund and the Japanese manufacturers, giving them a 69 percent stake in the chip maker. That price represents a deep discount from the company’s closing price of 308 yen on Monday in Tokyo.

The aid package follows 161 billion yen in syndicated loans Renesas secured from four Japanese banks in September, and 97 billion yen it received earlier from banks and its major shareholders. In return for that support, Renesas has promised to sell or close eight of its 18 plants in Japan within three years, and to eliminate more than 7,000 jobs from its global work force of roughly 43,000.

Fuminori Sato for The New York TimesRenesas’s Naka factory in Japan. Renesas supplies 40 percent of the world market with a crucial car computer chip.

Prototype: Using Aluminum to Lighten Manufacturers’ Load

But innovations in their design and manufacture may play an important role in creating a fleet of more environmentally sustainable cars and trucks.

Taylor Hopkins, 24, was part of a five-student research team at Ohio State University that recently created three novel designs for shipping pallets. Ordinary pallets are made of wood; the students’ prototypes are made of aluminum, which lasts longer.

The aluminum pallets are also much lighter than wood pallets, which saves fuel during shipping.

“We were presented with the problem of, try and come up with a new pallet that we thought could make an impact environmentally,” Mr. Hopkins said. “We ended up going with aluminum just because it’s very widely used and it’s lightweight.”

Aluminum is also significantly more expensive than wood, which means that the students’ designs are unlikely to become the industry norm soon. But the technology behind them could be useful to carmakers, which have started to embrace aluminum as a means of building lighter, more fuel-efficient vehicles.

“This project is such an interesting microcosm of the challenges that the transportation industry in total is facing, in moving from heavy steel to lightweight aluminum,” said Randall Scheps, automotive marketing director of Alcoa, and chairman of the aluminum transportation group at the Aluminum Association. Mr. Scheps said the student team looked at various methods of joining, or bonding, metals. It also looked at forming, or bending, metals, and at recycling. “These are all issues that the auto industry is facing,” he said.

Companies and foundations have been looking to young innovators for environmentally sustainable and cost-effective solutions to real-world problems. In the case of the shipping pallets, the project was funded with a grant from the Alcoa Foundation, which wants future engineers to think about use of lightweight materials. (Although the use of aluminum clearly benefits Alcoa, an aluminum company, it did not have to be used in the project.)

It’s an issue that has taken on urgency in Detroit in anticipation of Obama administration fuel-economy regulations that will require American vehicles to average 54.5 miles per gallon by 2025. Ford, for instance, that producer of macho, all-terrain trucks, is working on an aluminum version of its popular F-150 pickup.

Dr. Glenn Daehn, a professor of materials science and engineering at Ohio State and the students’ research adviser, says the aluminum shipping pallets are an example of “using simple projects to inject ideas into how we might make lighter-weight door systems or seats” — research that Ohio State is working on with companies like Honda and General Motors.

Mr. Hopkins said welding is an issue in dealing with aluminum. “There’s just a certain property of aluminum that if you heat it up too much, or for too long, it loses a lot of its strength,” he said.

To get around that, the students relied on “conformal interference joining technology,” a method of joining metals through a process involving electromagnetism, as opposed to heat.

Then there was the question of how to make the pallets cost-effective. Aluminum pallets on the market can cost more than $200 each, in part because they are welded by hand. Aluminum pallets are used to ship materials that must be kept sterile, or that will be stored for long periods.

But the students’ models are all estimated to cost less than $75 each. That was achieved by making the designs simple enough so they could be mass-produced.

“They weren’t some crazy designs that would take 20 hours to produce, where you’d have to do it one at a time,” Mr. Hopkins said. “Our designs can be automated. They only have two, separate pieces in a couple of them.” That makes it possible to “knock them out in a short amount of time,” he said.

WHILE the project could eventually affect how cars are manufactured, it may not change the world’s shipping pallets. According to Edgar Deomano, technical director of the National Wooden Pallet and Container Association, wood pallets, which account for 90 percent of the domestic market, are not going away, mainly because of cost.

“A recycled, or repaired, wood pallet could go for as low as $3 each,” Mr. Deomano said.

As for the argument that wooden shipping pallets are responsible for deforestation, he said: “That’s a false impression. Our industry is able to recycle pallets again and again. You don’t have to cut down more trees, you just have to repair existing pallets.”

Dr. Daehn says he remains hopeful, however, that a company will “step forward and commercialize” the new aluminum shipping pallets.

“We need more than a student project to do that, but I think we’ve shown them the promise is there.”

In the meantime, the project has already served Mr. Hopkins well. After graduating from Ohio State in June, he was hired as a metallurgist at Valbruna Slater Stainless in Fort Wayne, Ind.

“It was definitely one of my résumé highlights,” he said.