Renesas Electronics announced on Tuesday it would buy Integrated Device Technology for $6.7 billion, looking to supply more comprehensive batches of automotive chips. The company said that the deal would give it radio frequency, interconnect, timing and other chips that could be vital in building future automotive and industrial devices.
“This acquisition will bring us complementary, market-leading analog mixed-signal assets,” said Bunsei Kure, chief executive officer of Renesas, which holds around 30 percent market share in automotive microcontrollers. “IDT’s products combined with our MCUs, SoCs and power management ICs will enable Renesas to widen its product offerings as well as to expand its reach into areas such as the growing data economy-related space.”
The acquisition is the latest bet that the autonomous car of the future will resemble the inside of a data center. It combines two companies in different businesses: Renesas is the second largest maker of microcontrollers used to control systems ranging from windshield wipers to collision avoidance in cars, while IDT targets data centers and wireless communications. The deal is expected to close in the first half of 2019.
IDT’s technology includes timing integrated circuits that act as the time keepers inside electronic devices, which could have increased importance to enforce the lower latency required for automatic collision avoidance and other functions. The company’s RapidIO and PCI Express interconnects are used to move information inside servers and could be repurposed to connect cameras, radar and other sensors to support high-reliability sensor fusion.
"Renesas acquired IDT to broaden its reach in analog and wireless," said Kevin Mak, an automotive analyst with Strategy Analytics. "IDT’s position sensors and signal conditioning devices would be complimentary to Renesas and so there should be some immediate expansion of its automotive portfolio. There may also be significant IP from other areas that will become more important to automotive, such as IDT’s clocks and timers."
The company’s radio frequency and millimeter wave devices used in cellular infrastructure could be reused to connect cars to each other and the cloud. IDT’s signal conditioners prepare signals from vehicle sensors so that information can be processed more quickly. Demand for its memory interfaces could also grow as more storage and memory chips are installed in cars. IDT also plays in the wireless charging and motor control markets.
“Assume that Renesas looks at everything through at least a partial automotive lens,” Phil Amsrud, IHS Markit's senior principal analyst for automotive semiconductors, told Electronic Design. “But it was not clear to me right away that this is an obvious combination." He added: "There is no shining star like there was with the Qualcomm and NXP combination. It was easy to see how those two would fit into the automotive space."
Renesas faces challenges to taking full advantage of the deal. Even though the deal gives Renesas, which has around 20,000 employees, access to new markets like data centers and communications infrastructure, IDT’s automotive and industrial business is relatively small, analysts said. The company’s chips are largely not protected against high temperatures, vibrations and other factors in automotive applications where high reliability is needed.
“If you want to design something to meet automotive requirements today, you really have to bake it in from the beginning,” said Amsrud. “You have to build it into the technology nodes and processes up front, instead of hoping that you can catch up on the back end.” One possibility is that Renesas takes IDT's engineering and technology to build new automotive chips rather than shoehorn IDT's existing products into cars, he said.
Renesas, which reported profits of $1.2 billion and revenue of around $6.95 billion in 2017, has bought its way into new businesses before. Last year, the second largest supplier of automotive chips bought Intersil for $3.2 billion to move into analog semiconductors and other chips increasingly required to manage battery levels in electric and hybrid vehicles. The chips can also be used to boost the efficiency of industrial controls systems and robotics.
It was the first major acquisition following the company’s long recovery from an earthquake that severely damaged its manufacturing plants in 2011. The incident disheveled the Japanese company’s business, touching off massive layoffs and withdrawals from unprofitable operations amid almost constant changes to its executive ranks. Renesas is betting on the market for collision avoidance and self-driving systems to reinforce its bottom line.
The latest deal is estimated to boost margins and earnings by 1.6 percent and 18 percent, respectively. The company said that it would pay $49 per share—an approximately 30-percent premium to IDT’s August 30 share price—to take over San Jose, California-based IDT, which employs around 1,700 people. Renesas announced that the deal would be funded by more than $6 billion of debt financing, with the remainder in cash.