By Mark LaPedus and David Lammers
The consolidation of Japan’s semiconductor industry continues to accelerate, and GlobalFoundries may be playing a key role in a complex deal reportedly involving Renesas, Fujitsu, Panasonic, GlobalFoundries, and, perhaps, Elpida.
According to a report in the Tuesday (Feb. 7) edition of the Nihon Kezai Shimbun (Nikkei), Japan’s largest business-oriented newspaper, Renesas Electronics Corp. , Fujitsu Ltd., and Panasonic Corp. are in talks to spin out their System LSI design and development operations into a separate company. That fabless entity would work with another manufacturing-related spinout, managed by GlobalFoundries, which would take over two fabs now owned by Renesas and Fujitsu.
The report said that if the deal goes through, perhaps sometime in March, the ventures would be receiving funding from the Innovation Network Corp. of Japan (INCJ), a deep-pocketed Japanese investment fund. The consolidation would be finalized in about a year, the story said.
The Nikkei report said the manufacturing spinout would take over Renesas’ Tsuruoka Fab, in Yamagata prefecture (a former NEC fab), and Fujitsu’s logic fab in Mie prefecture. The manufacturing spinout would contract for manufacturing-related services with a new company GlobalFoundries is setting up in Japan. The report makes no mention of any Panasonic manufacturing assets. Renesas operates several others fabs in Japan, making MCUs and discretes, which apparently would not be rolled into the manufacturing spinout.
(Source: Nikkei, Feb. 7)
The story (and the accompanying diagram, at right) also claims that the manufacturing spinout is interested in buying Elpida’s DRAM fab in Hiroshima. In a later report, Nikkei said Elpida officials will meet with GlobalFoundries executives soon to discuss the sale of the Hiroshima fab, but Elpida later said the story was incorrect. The story said Elpida would move DRAM manufacturing to Taiwan.
A GlobalFoundries spokesman said the merger report is “based on rumor and speculation, and therefore we can’t offer any comment.” He noted that there have been earlier rumors about GlobalFoundries buying a fab in Taiwan, and separate reports that GlobalFoundries would buy the Qimonda DRAM facility in Dresden. “We don’t have any announcements to make on this front,” he said.
The report said the ventures would receive funding from the Innovation Network Corp. of Japan (INCJ).
Formed in 2009, the INCJ is a public-private partnership and investment fund. The INCJ says it has an investment capability of approximately 900 billion yen ($10 billion).
Corporate partners in the group include Asahi Kasei, Osaka Gas, Sharp, Shoko Chukin Bank, Sumitomo, Takeda Pharmaceutical, Tokyo Electric Power, Toshiba, JGC, Development Bank of Japan, Panasonic, East Japan Railway, Hitachi, Mizuho Corporate Bank, Bank of Tokyo-Mitsubishi UFJ, General Electric Company of Japan, and JX Nippon Oil & Energy.
The venture unit is no stranger to forming new entities. Last year, for example, INCJ, Hitachi, Sony and Toshiba signed a deal to merge their small- and medium-sized display businesses, which are operated by subsidiaries of Hitachi, Sony and Toshiba, in a new company to be established and operated by INCJ. The new entity is called Japan Display Inc.
Last month, the INCJ established a special purpose company in which it will invest in voice search technology for use in video streaming Web Sites. The technology is the result of research and development conducted by the National Institute of Advanced Industrial Science and Technology (AIST) and a previously established venture business based on AIST technology transfers.
Renesas was established in 2007 when Hitachi, Ltd. and Mitsubishi Electric Corp. merged their respective MCU-oriented chip units. In 2010, Japan’s NEC Electronics Corp., once the world’s largest IC vendor, merged its logic operations into the newly established Renesas Electronics Corp. In 1999, NEC and Hitachi shed their respective DRAM operations and formed Elpida Memory Inc. Hit with an oversupply of DRAM as consumer’s have switched to NAND-oriented tablets and smartphones, Elpida has been in merger talks with Micron Technology.
Over the years, Japan has lost its footing — and share — in the IC industry. In 1985, NEC was the world’s largest chip maker with sales of $2.1 billion, according to IC Insights Inc. Four other Japanese companies were ranked among the top 10, according to the firm. By 1990, Japanese semiconductor companies occupied the top three positions, led by NEC, which more than doubled its semiconductor sales over the five-year span to $4.8 billion. Six Japanese companies were represented among the top 10 semiconductor suppliers in 1990, according to the firm.
For 2011, IC Insights counted five U.S. companies, two South Korean firms, one European, and two Japanese companies among the top 10 semiconductor suppliers. Renesas and Toshiba were still in the top 10.
Indeed, there has been a massive restructuring — and shakeout — in Japan’s chip industry. In many respects, Japanese chip makers have been slow to react to the rapid changes in the IC industry. For too long, Fujitsu, Renesas, Toshiba and other suppliers of logic chips and ASICs were tied to their integrated device manufacturing (IDM) fab strategies and were reluctant to change.
Many of these companies were saddled with too much fab capacity during the down cycles and were hit with massive losses. As a result, many were cash-strapped and unable to invest in new fabs and leading-edge processes. And many were slow to embrace fab-lite strategies when they finally did engage with the silicon foundries.
Unable to react to the changes — and hit by massive losses — Renesas, Fujitsu and Panasonic face the ongoing trend in Japan: consolidation. And Japan’s lone DRAM maker, Elpida, faces an uncertain future amid huge losses and massive debt.
Late last month, Renesas posted a net loss of 2.4 billion yen ($31.2 million) on sales of 222.9 billion yen ($2.9 billion) in the third quarter. “Owing to semiconductor market downturn affected by stagnant global economy and the impact of Thailand’s flood as well as continuous trend of yen appreciation, semiconductor sales for the three months ended Dec. 31, 2011 were below the company’s expectation,’’ according to Renesas.
Renesas also announced revisions to its forecasts for the fiscal year ending March 31, 2012. Net sales are expected to total 885.0 billion yen ($11.6 billion), down 83.0 billion yen ($1 billion) from the previous forecast announced on Oct. 31, 2011. Net loss for the year is expected to be 57.0 billion yen ($741.2 million).
Late last month, Fujitsu reported a consolidated net loss of 4.3 billion yen ($55 million) for the third quarter of fiscal 2011, representing a deterioration of 20.8 billion yen ($270.4 million) from the corresponding period of fiscal 2010. Third-quarter net sales totaled 1.079 trillion yen ($13.842 million), down 1.5 percent from the corresponding period of the previous fiscal year. Sales of LSI devices and electronic components were hit by weak demand, according to Fujitsu.
In its components and device unit, Panasonic’s sales decreased by 15 percent amid a loss. “This result was due mainly to sluggish sales in semiconductors as well as declines in sales of general components and batteries,” according to Panasonic.
Panasonic issued a pro forma comment on the Nikkei report of the System LSI merger. “The media report is not based on any official announcements by Panasonic. Though the company has been studying various plans for growth strategy of the business, nothing has been decided,” Panasonic said in a statement.
Kenji Tsuda, who has written several books about Japan’s semiconductor industry, said the merger appears to be a kind of “shotgun wedding” proposal, with the Ministry of Economics, Trade, and Industry (METI) probably thrusting the idea on reluctant managers at the three semiconductor operations involved.
“Now, global chip companies such as Infineon, NXP and Freescale are independent from their former parent companies. That is quite different from the Japanese semiconductor operations, which remain quite traditional,” said Tsuda.
He estimated that in the case of Renesas, 92% of its shares are controlled by NEC, Hitachi and Mitsubishi, even though it is listed as a public company on the Tokyo Stock Exchange.
Japan falters in chip rankings (Source: IC Insights)