* Renesas, two others in talks to merge system chip ops
* Production would be outsourced to Globalfoundries -sources
* Japan chipmakers under pressure for drastic reforms
* Deal is one of many options under review -source
* Renesas, Elpida shares surge
By Reiji Murai and Maki Shiraki
TOKYO, Feb 8 Renesas Electronics
and two other big Japanese chip makers have begun talks to
combine their system chip operations and outsource production in
a government-backed deal, sources said, as pressure mounts for
drastic reforms to confront stiff global competition.
Japan's once high-flying chip sector has been forced into a
a series of mergers and restructuring drives over the past
decade to keep up with aggressive competitors in South Korea and
Taiwan, led by Samsung Electronics, but many
analysts have urged more dramatic moves.
Fujitsu Ltd, Panasonic Corp and Japan's
government-backed Innovation Network Corp, an investment fund,
would also be part of the deal, which envisions outsourcing
production to privately held chip maker GlobalFoundries, the
sources familiar with the matter said. The California-based
foundry is also looking at a possible purchase of cash-strapped
Elpida Memory's plant in Hiroshima, they said.
"This is just one of many options under consideration," one
of the sources said, adding that other areas of the chip sector
were also under discussion and there could be further twists and
turns as talks proceed.
The Nikkei business daily, which first reported the talks,
also said GlobalFoundries would consider buying Renesas and
Fujitsu plants in Japan and that Elpida, which has been battered
by a strong yen and tumbling memory chip prices, would move its
production of DRAM chips to Taiwan.
The news sparked a surge in chipmaker shares, with Renesas
jumping as much as 14 percent to a three-month high of 576 yen
and Elpida climbing to an intraday high of 374 yen, up nearly 10
percent. Fujitsu rose 5 percent to 399 yen.
"The first observation is that it looks good for every
company -- Elpida, Fujitsu, Panasonic and Renesas," said Yasuo
Sakuma, portfolio manager at Bayview Asset Management.
But he remained sceptical.
"It's like the bad parts of a banana, apple and orange
getting put together in a mixer to make juice. If you drink that
it may taste good the first time. But the juice will go bad in a
couple of days."
Elpida said in a statement that the report on the sale of
the Hiroshima plant was incorrect, but gave no details.
Renesas said in a statement that it had made no such
decision, while Panasonic and Fujitsu said in separate
statements that they were considering various strategic options
for their chip businesses but nothing had been decided.
Under the plan, the new company will develop system chips,
which serve as the brains of electronic gadgets and automobiles,
leaving the production to Globalfoundries. The government's
Innovation Network Corp would play a major role in supplying
The Nikkei said the three companies were expected to hammer
out a basic agreement by the end of March and aim to set up a
new company by the end of this year. But one of the sources
suggested the time frame was too ambitious, especially given
that various options were under review. Another said Fujitsu was
involved in the talks but not decided to join an alliance.
Haruo Sato, senior analyst at Tokai-Tokyo Securities, saw
potential snags to an agreement.
"The top management of the three companies would have to
reach agreements on tough issues such as allocation of
resources, including job cuts. I think it will be extremely hard
for them to reach a compromise," he said.
Japanese chipmakers have been hit hard over the past year by
a sluggish economy and a strong yen, with many falling into the
red on an operating basis.
Renesas, itself the product of successive mergers of the
chip divisions of Hitachi Ltd, Mitsubishi Electric
and NEC Corp, reported an operating loss of
33.2 billion yen ($430 million) for the nine months to Dec. 31.
Elpida, set up to take over the struggling DRAM operations
of several Japanese chipmakers a decade ago and now scrambling
to meet debt repayment deadlines in late March and early April,
last week posted a wider-than-expected 43.8 billion yen
operating loss for the October-December quarter.
Speculation has swirled that Elpida was seeking a rescue
deal with U.S. DRAM maker Micron Technology and its
Taiwanese technology partner, Nanya Technology,
although Elpida President Yukio Sakamoto at last week's earnings
announcement played down the need for an immediate equity
Japanese chip industry leader Toshiba Corp, which
has largely remained above the merger fray in recent years, cut
its full-year operating profit forecast by one-third to 200
billion yen after posting a 72 percent drop in third-quarter
operating profit to 10.5 billion yen.