Japan’s chipmakers mapping out independent futures

Japan’s chipmakers mapping out independent futures
September 1, 2009 – Semiconductor units of Japan’s electronic giants are struggling to figure out their place in the future, battered by the global economic slump and pressured to reduce dependence on their parents.

Fujitsu Microelectronics plans to turn this fiscal year’s anticipated -¥15B (US -$159M) loss into a ¥10B (US $106M) profit in fiscal 2010 with "aggressive cost cuts" and a trimmed product lineup. Much of that depends on consolidation of LSI operations in Japan and its tie-up with top foundry TSMC, initially for 40nm-node manufacturing and recently extended to 28nm. The TSMC pairing was actually Plan B, notes the Nikkei Business Daily, after Fujitsu and NEC huddled in "secret merger talks" last fall; that fell through when NEC’s chip unit chose to merge with Renesas.

Parent company Fujitsu posted a ¥112.4B (US ~$1.2B) loss in the previous fiscal year, and wants to refocus on higher-margin (i.e., not loss-making) software and systems integration, but the chip unit’s "deep hole" makes that difficult, notes the Wall Street Journal. "My mission is to make our company competitive on its own," stated Haruki Okada, president of Fujitsu Microelectronics Ltd., quoted by the Nikkei Business Daily.delayed for a second time to hammer out details of equity stakes and investment ratios. The Nikkei Business Daily reports the decision to delay again was met with equal preparation by a more sobering assessment — scrapping the deal altogether. Negotiations are choking on Renesas massive >¥200B (US ~$2.15B) debt, and NEC’s plea for Hitachi and Mitsubishi Electric to inject another >¥200B; they, in return, want NEC to shoulder the burden, the paper notes. A last-minute scrapping reportedly was averted thanks to a top NEC creditor bank that warned against the risk of having a chipmaking subsidiary.

Meanwhile, in the NEC/Renesas camp (which also includes Renesas JV partners Hitachi and Mitsubishi Electric), official closing has been

Even when/if the pairing goes through, integration will be difficult; both group companies are suffering painful price slumps in microcomputers, but as a tradeoff to increase market shares ahead of the merger — seen as a negotiating tactic in what is expected to be "radical restructuring" after the merger, the paper says, citing unnamed "insiders."

As is usually the case, things tend to run much more smoothly when greased with cash and profits — and that appears to be starting to happen again for Japan’s chipmakers. the Nikkei daily notes that Toshiba, Fujitsu, NEC, and even Elpida could return to the black on an operating basis in September.

Toshiba could achieve "a few billion yen" in operating profits in the September quarter, a quarter ahead of schedule, thanks to improved demand for flash memory (some device sales "have spiked 70%"), offsetting still slumping system-chips. Fujitsu, meanwhile, ses recovery in shipments for chips used in digital cameras, and beginnings of a turnaround in the auto sector; aforementioned costcutting efforts also are taking hold. NEC’s microcontroller business is "steady" and it too is seeing regrowth in the auto sector. Even Elpida, which hasn’t turned a profit in two years, says the paper, is buoyed by DRAM prices which have nearly doubled, and process technology migration has helped reduce production costs.

Operating earnings at semiconductor makers. Toshiba figures represent its semiconductor division; Fujitsu figures represent its electronic device division. (Source: Nikkei)


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