Real consolidation starts: Hitachi and Mitsubishi merge systems chip business

By Paula Doe
WaferNews Contributing Editor

In divesting and merging their systems chip businesses, Hitachi and Mitsubishi Electric have finally started the kind of major restructuring that Japanese industry pundits have been urging as the best hope for reviving Japan’s struggling semiconductor industry.

Executives at the press conference announcing the spin off of the chip business stressed how they now aimed to focus on businesses that provided stable growth. “We can see growth for semiconductors in the future,” said Mitsubishi Electric President Ichiro Taniguchi. “But it’s impossible for any one company alone to maintain stable operations.” That has provoked some considerable snorting from semiconductor folks, who note that this sort of unwillingness to invest strategically in volatile chip markets is exactly what has been wrong with Japan’s big semiconductor makers’ senior management.

The new $5.3 billion (700 billion yen) combined company will have a clear focus on the microcontroller market, where it claims a market-leading 24% share, surpassing Motorola. While combining forces saves on overlapping development costs, some observers in Japan think the most important change may be handing management over to semiconductor industry pros. “Success of the venture will depend on how well it can escape the spell of its corporate parent,” notes Nikkei Microdevices Editor-in-Chief Yosuke Mochizuki, “and let the new company management, not the old companies’ management, make decisions about strategic investment and investing in downturns.”

Hitachi will divest all but 20% of its current chip operations to the new joint venture. It will continue to make the IC cards, power devices, radio frequency, and optical communication devices most related to its infrastructure businesses, according to Nikkei Microdevices Online. Mitsubishi will hold on to only about 40% of its chip business, also continuing to make its own RF and optical communications chips. The companies are also looking at spinning off the even more volatile flash memory business in another format, but noted they could only do one thing at a time.

Though Hitachi is the much bigger semiconductor company, Mitsubishi’s influence in the new venture is likely to be greater than many expect. Taniguchi explained that the balanced 50-50 ownership was “a very Japanese approach.” But Mitsubishi’s system chip sales are doing relatively better, thanks in part to its large scale embedded DRAM technology. Mitsubishi expects its SoC sales to be around $ 2 billion (264 billion yen) (-19%) for the year ending March 2002, coming within shouting distance of Hitachi’s projected $2.2 billion (285.6 billion yen) (-28%).



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