May 28, 2008 – Japan’s Electric Industry Co. is spinning off its chipmaking operation into a new company and giving a majority ownership to Rohm Co., a move that illustrates the history of Japan’s chip industry since the 1980s and the hazard of trying to do business at the leading-edge of technology.

The deal, estimated at ¥100B (~$964M) and “in the final stage of negotiations” according to the Nikkei daily, represents the first major realignment of Japan’s semiconductor industry since 2003, when Hitachi and Mitsubishi merged system chip operations into Renesas. It’s also the first time a Japanese firm will sell its entire chip business to another domestic company, noted the paper.

The new business, Oki Semiconductor Co., will incorporate all of OKI’s semiconductor-related subsidiaries (e.g. Mizayaki and Miyagi), targeting logic and system LSIs utilizing low power consumption, high-voltage processing, digital/analog mixed processing and small packaging sizes. It also will inherit “strengths” in system memories (e.g. P2ROM) and foundry connections, plus newer offerings such as SOI and wafer-level chip-scale packaging. The business will start with about ¥20B (US $192.8M) in capitalization and 6000 employees, with sales targets of ¥155B (~$1.5B) by March 2011.

The Nikkei quoted Oki president/CEO Katsumasa Shinozuka noting that sales ratio of the semiconductor division, which made chips for telephone exchanges, vs. the overall company “has dropped to just a few percent and its synergies with other divisions have all but disappeared.” He added that the firm would maintain a small (5%) interest in the spinoff “due to patent and other issues.”

Wire reports note that the chip division, 13th largest such operation in Japan, posted a ¥3.8B ($) operating profit in its most recent fiscal year, on sales of ¥138.2B ($). No. 8 Rohm saw group operating profits fall 3.1% Y-Y to ¥67,3B on 5.5% lower sales of ¥373.4B, mainly attributed to the US economic slowdown and yen appreciation.