NEC and Renesas reportedly in merger talks to create world's No.3 chipmaker

NEC Electronics Corp. and Renesas Technology Corp. are reportedly in final negotiations to merge their operations and form Japan's biggest semiconductor maker by sales. The Nikkei business newspaper reported today the companies aim to reach an agreement this month and are likely to complete the merger in 2010. It didn't cite any sources.

Both companies are facing heavy losses in the current economic downturn and have decided it would be difficult to survive on their own, the paper said. The merger would create the world's third largest chipmaker, behind US's Intel Corp. and Korea's Samsung Electronics. The companies both issued press releases that they had made no such announcement, and had not decided on a merger.

If Renesas and NEC Electronics were to merge it would be the first big deal in the Japanese semiconductor 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 Electronics have many duplicate products. They both make microcontrollers and system chips which are used as the brains of devices such as televisions.

Pressure for consolidation in the chip sector has been rising amid a slump in prices and demand. Renesas expects to have made a net loss of Y206 billion and NEC Electronics a net loss of Y65 billion in the year to March 2009.

The semiconductor business requires massive upfront investment for production equipment, and selling prices face constant downward pressure as technology advances. A merger would allow the two companies to phase out older, less productive lines and get better economies of scale.