Toshiba, NEC in talks to merge semiconductor business

Japanese electronics giants Toshiba Corporation and NEC Corporation are in talks to merge part of their semiconductor business as the sharp global economic downturn forces chip makers worldwide to cut production and shed jobs.

Toshiba proposes to combine its system chip business with NEC Electronics Corporation, a semiconductor firm majority owned by NEC Corporation, reports citing sources close to the development said.

The combined business would have annual revenue of 1.5 trillion yen ($16.7 billion), but analysts doubt a merger would help revive a losing business as chipmakers worldwide are grappling with deep losses, falling sales and depleting profits for ploughing back to investments.

If Toshiba's system and discrete chip operations and NEC Electronics merge, that would be bigger than the chip unit of Samsung Electronics Co. But the two are are still ill-equipped to beat their international rivals even as a team, analysts point out.

System chips are used to control multiple functions in electronics or cars, while simpler discrete chips are used in bigger integrated microchips.

NEC and rival Fujitsu Ltd reported sharp quarterly losses and slashed their annual earnings outlooks, while Toshiba, the world's No2 NAND flash maker, warned earlier that it is headed for its biggest annual loss ever.