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Japan Inc. swims in troubled seas

Posted: 09 Feb 2012 ?? ?Print Version ?Bookmark and Share

Keywords:chip manufacturing? chip design? Japanese IC industry?

Nikkei has reported the potential merger of the SoC design/development divisions of Japan's three big electronic companies, Renesas Electronics, Panasonic Corp. and Fujitsu Semiconductor, into one new company. Nikkei is Japan's economic journal.

Nikkei also reported that the three companies will spin off their chip manufacturing divisions and create a new entity focused on production. That joint venture will reportedly receive a huge capital infusion from a Japanese government-backed investment fund called Innovation Network Corp. of Japan (INCJ), and Global Foundries is reportedly expected to become a part of that joint venture.

The Nikkei report is sketchy at best since none of the Japanese companies supposedly involved in the deal is talking.

The blueprint for such a complex merger/joint venture plan has fingerprints of Japan's bureaucrats at Ministry of Economy, Trade and Industry (MEITI) all over it. Practically speaking, such business engineering makes little sense.

The plan may salvage the weaker players of the three (read: Fujitsu and Panasonic) to survive for several more years through government handouts. But the move threatens the potential winner of the three (Renesas Mobile) with a reduction to irrelevancy in the already very competitive mobile SoC market.

Let's break down the proposed deal.

First, Japan's semiconductor companies have already undergone a series of consolidations. Renesas merged with the chip division of Mitsubishi, then with NEC's chip division in 2009.

Even now, Renesas is still sorting out all the assets it acquired through its various transactions. But Renesas made a strategic decision in 2010 to spin off Renesas Mobile, as a 100 percent subsidiary, solely focused on SoCs for the mobile business.

In particular, for Renesas Mobile, which is looking to become "the Qualcomm alternative" in the mobile world, I doubt the infusion of Fujitsu Semiconductor's mostly ASIC-centric business and Panasonic's mostly inward-looking captive LSI development business could help advance its cause. Not much, in my opinion.

Meanwhile, for Panasonic, the handwriting has been on the wall for a while. The Japanese consumer electronics giant may have had its moment a decade ago, as it developed its homegrown Uniphier LSI chips, originally designed as an engine for a host of the company's own digital consumer electronics products. A good idea at the time, and the company indeed harbored ambitions of extending its chip business to external customers. But that plan has steadily faded as SoC power houses in Taiwan like MStar and MediaTek have emerged in the last several years.

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