Renesas pays premium for IDT, reflects continued auto momentum

The $6.7bn paid by Japanese semiconductor firm Renesas for US chip company IDT, specializing in power management and memory, suggests that the connected car field has regained its mojo after a few setbacks. Any impact of events like crashes of autonomous vehicles have tended to be confined to the firms concerned, such as Uber, and even then only causing temporary blips. Similarly shares in suppliers to automobile OEMs including chip makers have only suffered temporary dips on news of impending trade wars and higher tariffs on components.

The bigger picture highlighted by the Renesas-IDT deal is that chip makers are consolidating to become complete suppliers of silicon for all aspects of automobile processing, as vehicles increasingly resemble large computers. This consolidation is particularly focused on power management, which has become a critical differentiator for the vehicle OEMs themselves as onboard electronics becomes more sophisticated and pervasive, underpinning a growing array of functions.

Renesas, with revenues running around $7bn a year, has competitors including Texas Instruments, at about double the size, and Intel, 7 times bigger, but for which automotive is just one of many sectors. Then there are semiconductor companies for which automotive is a major or predominant sector, of which NXP Semiconductor is the biggest at over $9bn revenues a year. There are also several key chip makers somewhat smaller than Renesas, notably TE Connectivity (TEL), Cypress Semiconductor (CY) and On Semiconductor (ON).

Finally, there is Qualcomm, running at $22bn a year but spread across all sectors requiring wireless communications. The big recent story there was China flexing its muscles in response to President Trump’s imposition of higher trade tariffs on certain goods, by forcing Qualcomm to abandon its proposed $44bn bid for NXP in July 2018. China could do this because it accounts for almost two thirds of Qualcomm’s revenues through mobile chips. This blocked Qualcomm from becoming at a stroke the leader in automotive chips and enables Renesas to close in on NXP by buying IDT – whose annual revenues are about $1.5bn.

With relatively little overlap between the respective product portfolios, IDT was a good buy, but Renesas had to pay 29.5% above IDT’s share price on August 30. On paper this looks far too expensive but the alternative of pulling out would have shown lack of ambition in the sector and handed the initiative back to rivals, so Renesas had little choice if it is serious in wanting to remain at the top table.

Renesas has already demonstrated its semiconductor package for autonomous driving, comprising the RH850 microcontroller (MCU) and R-Car system-on-chip (SoC). The RH850 supports automotive control, driving, steering and braking, while R-Car manages in-vehicle infotainment and advanced driver-assistance systems (ADAS). The latter has been selected by Japan’s automotive components maker Denso for its engine control unit (ECU), while Toyota has chosen the whole package for a range of autonomous vehicles currently under development and scheduled for launch in 2020.

IDT then brings greater expertise at power management and control, which will become increasingly critical as full autonomous driving comes closer and at the same time users demand ever greater range and depth of infotainment. At this stage, IDT is focused more on smart city and urban planning than automotive specifically, but this will dovetail well with Renesas’ autonomous platform as it embraces more V2X communications with roadside and route optimization systems.

IDT is already developing ICs (Integrated Circuits) that modulate the delivery of electric power to multiple devices in the vehicle. The driver here is explosive growth in complexity and sophistication of onboard or cockpit electronics in vehicles over the past decade. Until recently, systems such as steering, braking, traction, and other safety devices, along with entertainment equipment and navigation aids, were all self-contained.

Now they are increasingly integrated as combined infotainment, navigation and control systems, overlaid with advanced driver assistance systems (ADAS). The latter in particular have become a point of differentiation for car distributors by helping to upsell to more expensive models and are also a stepping stone towards full autonomy.

Systems include smart forward-looking cameras using powerful DSPs (Digital Signal Processors) to analyze images, while infotainment head units and instrument cluster displays feature GPUs, SoCs and FPGAs (Field Programmable Gate Arrays) to implement specific functions. These various processors, logic devices, memory and interface circuits demand more power than before at faster load and ever-lower voltage with correspondingly higher current.

Lower voltage is desirable as processing speed increases because of the simple law that electric power consumption is proportional to the square of the supply voltage. Therefore, reducing the supply voltage and increasing the current such as to maintain the same power (which is voltage multiplied by current) decreases power consumption as well as overheating. This does tend to make the circuits run slower which means that other changes, such as scaling the transistors differently, are needed to maintain acceptable clock frequencies.

There are many other nuances and complexities in power management, but the basic idea is to deliver power at variable voltages and currents from a constant supply to different devices in the vehicle. IDT’s ICs achieve this by controlling the DC (Direct Current) to DC conversion, which step voltage down and current up, in devices known as step-down or “buck” converters. These devices can be made in many ways and IDT’s specialty lies in selecting the right ones for given tasks and optimizing them accordingly.

While its acquisition of IDT will expand Renesas into sectors such as robotics, data centers and other connected devices, connected and self-driving is the primary goal, consistent both with recent internal focus and external acquisition. In fact, Renesas owes much of its existing expertise in power management to its acquisition of Intersil for $3.2bn in February 2017.

Intersil already had technology for controlling battery voltage in hybrid and electric vehicles, which raises the question why it needed to buy IDT as well. The company declined to comment on the question of overlap but referred to a conference call elaborating on IDT’s array of robust analog mixed-signal capabilities in embedded systems, including RF, advanced timing, memory interface & power management, optical interconnect, wireless power, and smart sensors.

It said that these in combination with existing MCUs (Microcontroller Units), SoCs and power management ICs would allow Renesas to support the increasing demand of high data processing performance. At least the acquisition reaffirms clearly the direction Resenas is travelling.