Hitachi-Mitsubishi Deal to Create Microchip Giant
Mon Mar 18, 4:25 PM ET
By Edmund Klamann
TOKYO (Reuters) - Electronics conglomerates Hitachi Ltd and Mitsubishi Electric Corp said on Monday they will merge the bulk of their semiconductor operations early next year to create the world's third-largest chipmaker.
The announcement breaks new ground in the ailing Japanese chip industry's struggle to consolidate its resources and regain its former glory, after a protracted IT slump and fierce foreign competition drove it deeply into the red.
"By combining the two companies' world-class technological strength and human resources, I think we can speed up our development capability and achieve the best possible allocation of our resources," Hitachi President Etsuhiko Shoyama told a news conference.
The companies said they would make preparations over the next year to form a joint venture combining their operations in so-called system chips, used as microcontrollers for a wide variety of products from cars to consumer electronics.
Shoyama said the venture's revenues, at about 700 billion yen ($5.39 billion), would make it the world's third-largest chipmaker, after Intel Corp and Toshiba Corp
Hitachi is the world's eighth-largest chipmaker, while Mitsubishi Electric does not rank in the top 10.
Shoyama added that ownership of the venture, which would take over about 80 percent of Hitachi's semiconductor revenues and about 60 percent of Mitsubishi Electric's, would likely be split 50-50.
News of the consolidation plans came after the Tokyo share market closed.
AFFINITY FOR ALLIANCES
Analysts have long insisted that further restructuring and consolidation were needed in Japan's semiconductor industry to stop the bleeding of red ink.
"This is a business with hefty development costs that require economies of scale, so if they don't combine they may not be able to compete," said UBS Warburg analyst Yoshiharu Izumi.
Japan's five chipmaking conglomerates expect to post a combined $11.47 billion in consolidated net losses in the year to March 31 and cut tens of thousands of jobs, largely due to massive losses on making standard memory chips such as dynamic random access memory (DRAM) used in computers.
Hitachi alone accounts for about a third of that amount.
Monday's announcement is not the first time Hitachi and a partner have rocked Japan's semiconductor industry with news of a strategic joint venture.
During the last chip industry downturn in the late 1990s, Hitachi and NEC Corp, the world's sixth-largest chipmaker, announced they would transfer their DRAM chip operations into a 50-50 venture, Elpida Memory Inc.
The DRAM market was long dominated by the Japanese electronics conglomerates, but all have since either abandoned it or dispatched it to a joint venture, spurred by a collapse in prices last year as demand growth for personal computers and cellphones ground to a halt.
Japan's chipmakers also failed to keep up with the hefty investments made in the sector by rivals in South Korea (news - web sites), the United States and elsewhere.
DRAM DISASTER
In the wake of the DRAM disaster, they have shifted their focus to system chips used heavily by the auto and consumer electronics industries, where Japan remains strong.
But Hitachi and Mitsubishi Electric officials reiterated their companies' commitment to the semiconductor sector despite recent setbacks.
"The IT bubble has burst and it's temporarily come to a halt, but there is no doubt that the semiconductor industry will grow in the long term," said Mitsubishi Electric President Ichiro Taniguchi.
The two companies played down the possibility their venture plans would derail alliances in system chips with other companies.
Mitsubishi Electric is cooperating with consumer electronics giant Matsushita Electric Industrial Co Ltd, maker of Panasonic goods, while Hitachi is working with French-Italian chipmaker STMicroelectronics, the world's third-largest chipmaker.
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