Chipmakers Renesas, NEC Electronics to merge by next April

TOKYO, April 27 Kyodo -
Struggling Japanese chipmakers Renesas Technology Corp. and NEC Electronics
Corp. said Monday they will aim to integrate their operations by April 1, 2010,
while promising to complete structural reforms to shore up their deteriorating
financial health.
The merger will create not only Japan's largest semiconductor maker in sales,
surpassing Toshiba Corp., but also the world's No. 3 chipmaker, trailing Intel
Corp. of the United States and Samsung Electronics Co. of South Korea.
The move is likely to trigger further industry-wide realignment among other
remaining players like Toshiba and Fujitsu Ltd. as chipmakers across the globe
join hands to counter a severe slump caused by stagnant demand and erosion of
chip prices, experts say.
The two companies said they will work out details such as the new entity's
integration ratio by the time they ink a contract at the end of July.
NEC Corp. President Kaoru Yano said NEC Electronics, a chip unit of NEC, is
likely to be the surviving company following the merger and will maintain its
listing on the First Section of the Tokyo Stock Exchange.
''For realignment of the semiconductor operations, there is no point in simply
integrating red-ink companies,'' Yano said at a joint press conference in
Tokyo.
''By the time of the merger, we will ensure healthy finances in order to
maintain the company's listing,'' he said.
Hitachi Ltd. President Takashi Kawamura added that Renesas and NEC Electronics
may study the use of public funds as one of their options to shore up their
financial standing.
Before the integration, the two firms will together cut about 200 billion yen
in fixed costs by slashing capital spending and closing some production lines.
NEC Electronics had already cut nearly 86 percent of its temporary positions by
March.
For the just-ended fiscal 2008, Renesas, owned 55 percent by Hitachi and 45
percent by Mitsubishi Electric Corp., anticipates a group net loss of about 200
billion yen, while NEC Electronics projects a group net loss of 65 billion yen.
The two companies hope to raise their global competitive edge in the key areas
of microcontrollers and large-scale system integrated circuits, which are
mainly used in digital appliances and automobiles.
Renesas President Yasushi Akao said the new firm will aim to achieve about 60
percent of its total sales abroad by expanding sales of its microcontrollers in
Europe, the United States and Asia.
The deal would be the first major realignment in the industry since 2003, when
Renesas was founded through a joint venture between Hitachi and Mitsubishi
Electric.
The new entity combining Renesas, currently Japan's No. 2 semiconductor maker,
and third-ranked NEC Electronics is likely to become a consolidated affiliate
of Hitachi, NEC and Mitsubishi Electric.
It will control about a 5.1 percent share of the global semiconductor market,
behind industry leader Intel's 13.3 percent and Samsung's 6.8 percent,
according to data compiled by information technology research firm Gartner Inc.
''We felt this combination would be best in creating a semiconductor company
that can ride out the current harsh conditions and succeed globally after this
recession,'' NEC's Yano said.
Analysts said Toshiba, which seems to be lagging behind in the industry
shakeup, will likely pursue a merger of its loss-making semiconductor
operations with Fujitsu or companies abroad such as Taiwanese chipmakers.
''It's already a foregone conclusion that semiconductor makers cannot survive
alone,'' said Yoshiharu Izumi, an analyst at JPMorgan Securities Japan Co.
''There will be more developments.''
==Kyodo