People briefed on the talks said the Innovation Network Corporation of Japan, a government-controlled investment fund that backed a similar three-way merger of touchscreen display makers last August, is negotiating to invest in the proposed new business.
Japanese electronics groups have been hurt by the soaring value of the yen, competition from lower-cost producers in South Korea and Taiwan, and unwieldy business structures that have them making hundreds or even thousands of products – with some offering everything from washing machines to nuclear reactors.
The industry has consolidated to some extent in recent years, but progress remains slow. In sectors such as semiconductors, where large capital requirements and narrow profit margins make it especially important to build up scale, the fractured nature of Japan’s industry has put it at a particular disadvantage. The latest consolidation effort centres on general-purpose semiconductors known as large-scale integrated chips, or system LSI, which form the electronic “brains” of devices ranging from mobile phones and video game consoles to automobiles.
Renesas is itself the product of past mergers between the LSI businesses of Hitachi, NEC and Mitsubishi. The deal would leave Toshiba as the only diversified Japanese electronics group with a sizeable system LSI operation. Japan’s last maker of dynamic random-access memory (D-Ram) chips for computers, Elpida Memory, is also struggling and its creditors are urging it to consider tying up with a US or Taiwanese rival.
It is unclear how much INCJ would invest in the new LSI entity. Japan’s Nikkei business daily on Wednesday said the fund, which was set up in 2009 with up to Y900bn ($11.7bn) of mostly government funds to invest, was looking to inject “several tens of billion” of yen in capital. In the deal last August, it invested Y200bn in Japan Display, a combination of the touchscreen businesses of Toshiba, Sony and Hitachi, and took a 70 per cent ownership stake. The INCJ, Panasonic, Fujitsu and Renesas declined to comment.
All three companies involved in the LSI talks have faced financial or operational problems. Panasonic, which is forecasting a record Y780bn net loss for the fiscal year ending in March, said in October that it would scale back its semiconductor division and shift its focus from general-purpose chips to specialised products such as image sensors.
Renesas came to the world’s attention last year after its main factory north of Tokyo was badly damaged by Japan’s earthquake in March and forced to shut down for three months. The company supplies the global car industry with about half its microcontrollers – integrated circuits that move seats, lock doors and wind down windows – and the shutdown was the biggest contributor to a worldwide disruption of automobile production after the quake.
(Nicosia Money News)