Short-Term Pain, But Long-Term Upside, At Renesas Electronics

In the month since I last wrote about Renesas Electronics (OTCPK:RNECY)(6723.T) the shares had been doing pretty well relative to the overall semiconductor space and peers/comps like Texas Instruments (TXN), Infineon (OTCQX:IFNNY), and STMicroelectronics (STM). Unfortunately, Renesas announced that there would be further inventory corrections in the second quarter related to product transitions that would pressure gross margin, and management didn’t explain it particularly well.

While the market for microcontrollers in general, and particularly those used in advanced automotive applications, is going to be intensely competitive, I believe Renesas’s share price still undervalues the opportunity. The company has strong share across its addressed markets, has been increasing R&D and trimming SG&A, and has shown that it can integrate large acquisitions. While longer lead times across the chip sector are a threat, and Renesas may be pressured by weaker comps in auto in 2018, the longer-term outlook is still quite attractive.

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Short-Term Pain, But Long-Term Upside, At Renesas Electronics