Japan chipmakers eye merger

NEC Electronics and Renesas Technology, two of Japan's "big four" semiconductor companies, are in talks on a merger that would create the world's third-largest chipmaker by sales and restart consolidation of the fragmented and lossmaking sector.
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People close to the situation confirmed that talks had taken place but NEC said no decision had been made, adding that it could still choose a different partner or a deal other than a full merger. Japan's Nikkei newspaper had earlier reported that the companies wanted to close a deal by the end of April.

A combined Renesas and NEC would lead the world market for microcontrollers, with a share of 30 per cent, and its sales of Y1,235bn ($12.4bn) would trail only Intel of the US and Samsung of South Korea in the wider semiconductor industry.

If Renesas and NEC were to merge, it would be the first big deal in the Japanese sector since the creation of Renesas in 2003. It would also increase the pressure on Japanese rivals Toshiba and Fujitsu to merge parts of their semiconductor operations.

A deal could also lead to the closure of older chip plants in Japan as Renesas and NEC - which both specialise in making microcontrollers and system chips used as the brains of devices such as televisions - have many duplicate products.

Microcontroller chips are often used in car engine control systems and power tools, and are able to control several processes while minimising power consumption.

There is pressure for consolidation in the chip sector amid a slump in prices and demand. Renesas and NEC expect to have made net losses of Y206bn and Y65bn respectively in the year to March.

Industry officials yesterday warned that Renesas and NEC might struggle to reach a final agreement.

The companies would have to deal with ownership issues. Renesas is a joint venture, with 55 per cent owned by Hitachi and 45 per cent by Mitsubishi Electric, while NEC Electronics is a listed company 65 per cent owned by parent NEC.

The most likely structure of a deal would leave all three parent companies with minority stakes, with no cash changing hands and a small number of shares still publicly traded.

That, however, would require NEC to accept losing control of its semiconductor business. "So far, NEC's stance has been to keep control of NEC Electronics," said one person in the industry.

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BY Robin Harding in Tokyo
Source：The Financial Times

Copyright The Financial Times Limited 2009.