The talks between Renesas and NEC Electronics about a link-up are a volte-face for NEC.
Until quite recently, it had been assumed that NEC would get together with Toshiba.
See: NEC and Toshiba talk turkey
NEC always knew it would have to do something significant at the 32nm generation on which the semiconductor industry is now entering.
NEC could not afford its own fab. It had a natural antipathy to go from making 90 % of its wafers to giving up all control over manufacturing by going to a foundry. So it had to form an alliance.
Pressure to consolidate came from two other sources: the Japanese government which has been promoting the idea of semiconductor consolidation for many years, and the New York private equity house Perry Capital which has been stalking NEC Electronics for some years, buying its shares, trying to buy a 25% stake (a move rejected by NEC Corp), and trying to get representation on its board (also rejected by NEC Corp).
So, NEC Electronics was under pressure from all sides to find an ally. Toshiba was the natural choice.
NEC and Toshiba have been technological allies for many years being one of the two groupings for Japan’s famous VLSI Project of 1976 -1980, which gave the Japanese semiconductor industry the lead in memories.
As recently as last January, Japanese news sources reported that NEC and Toshiba were in talks to integrate their fab operations.
But since then, there have been ructions at Toshiba resulting in a de-emphasis on semiconductors.
See: End of Toshiba's NAND dream
Atsutoshi Nishida, the boss of the Toshiba group, made a big bet on NAND flash which proved extremely costly when the NAND market collapsed leaving Toshiba with debts of around $20bn and losses of around $3bn for its 2008 financial year.
Last month, Nishida was replaced by an expert in nuclear energy generation - corporate senior vice president Norio Sasaki who has managed heavy electrical machinery operations, including nuclear power generation equipment, and was a leading player in Toshiba’s 2006 purchase of nuclear power company Westinghouse Electric.
Toshiba corporate decided that the group would cut back on semiconductor investment and re-focus on broadcasting and power generation infrastructure.
That may have been the trigger for NEC deciding to cosy up to Renesas and Matsushita, which has recently absorbed Sanyo’s semiconductor operations.
A Matsushita-Sanyo-Renesas-NEC Electronics grouping would be the third largest semiconductor company in the world. While NEC has Nintendo as one of its customers whose fabulous success with the Wii will make it a most attractive ally to Matsushita, which is the world’s largest consumer electronics company.
Matsushita and Renesas have developed world-leading process technology which will be a big draw for NEC, while linking up with their Japanese neighbours will rid them of the unwelcome attentions of their American stalker.