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.
Memory chips account for most of Samsung's semiconductor sales.
Semiconductor makers worldwide are forging alliances, seeking government help, or cutting jobs to survive a sharp downturn.
Japanese chip makers once commanded 80 per cent of the global market but are fighting for survival amidst stiff competition from South Korean and American rivals.
NEC, which also makes telecom equipment and mobile phones, expects a group operating loss of 30 billion yen for the year ending 31 March 2009 against a profit of 120 billion yen. The company reported a quarterly loss of 24.8 billion yen.
Fujitsu, which competes with IBM and Hewlett-Packard , cut its annual operating profit forecast by two-thirds to 50 billion yen after registering a quarterly operating loss of 25.2 billion yen, against a 46.7 billion yen profit a year earlier.
Elpida Memory, an outfit of NEC and Hitachi Ltd, Mitsubishi Electric Corp and Renesas Technology, faces mounting losses this year.