The combination of Renesas Technology and NEC Electronics will create the world’s No.3 semiconductor company with combined revenues of $14bn.
However, it is unlikely to be No.3 for long. When Hitachi and Mitsubishi merged to form Renesas in 2003, the merged company became the world’s No.2 company. Now it is No.7.
The deal was pushed by the Japanese government which has been urging further consolidation of the Japanese semiconductor industry for years.
The bad news for the microcontroller divisions at Renesas and NEC is that they are world No.1 and No.3 in microcontrollers respectively. That means the companies will be shedding engineers.
The best thing the Japanese government can now do is to set up the necessary finance, and useful support structures, to encourage the engineers which will be laid off to form new companies.
When Plessey, Ferranti, STC and Marconi suffered disruptive consolidation in the 1980s and 1990s, this was the route many engineers took – much to their own, and the UK’s, eventual benefit.
The Renesas-NEC merger is more than the sum of its parts. That’s because Renesas has developed world-leading process technology with its partner Matsushita.
Matsushita, which recently absorbed Sanyo Semiconductor, moved early to 45nm process technology for system-on-chip (SoC) devices back in 2007, and is said to be moving to 30nm very soon.
This will give NEC’s products, which include the innards of the Nintendo Wii, a technological shot in the arm, and will finally settles the problem of how NEC will make 32nm products - a problem NEC has been pondering for three or four years.
NEC could not afford its own 32nm 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.
As recently as last January, Japanese news sources reported that NEC and Toshiba were in talks to integrate their fab operations. 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.
However, Toshiba has been through a shake-up after a massive investment in fab for NAND left the company with debts of $20bn and a FY2008 loss of $2.8bn. A new corporate CEO has hinted at spinning off the semiconductor division.
So NEC had to look elsewhere for a partner, and didn’t have a lot of choice. The deal is expected to be completed in July.