Sat, Sep 10, 2005 - Page 11 News List

Hitachi in talks to set up new contract chipmaker

ENTERING THE FRAY The Japanese electronics giant is talking to Toshiba and others about setting up a venture that would go head to head with firms like TSMC and UMC

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Hitachi Ltd., Japan's largest electronics maker, is in talks with Toshiba Corp. and other companies to set up a venture to produce made-to-order chips, said President Etsuhiko Shoyama.

"We're in talks but nothing has been decided yet," Shoyama said in Tokyo. Toshiba's spokesman Keisuke Ohmori declined to comment.

"Sharing the investment burden and risks could be a positive for the companies," said Naoki Sato, an analyst at Morgan Stanley Japan Ltd., who has an "underweight" rating on Hitachi and "overweight" for Toshiba.

The venture would compete with chip foundries such as Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which makes chips according to clients' specifications for devices such as mobile phones and consumer electronics. A Japanese think tank affiliated with the Ministry of Economy, Trade and Industry in March proposed setting up a foundry by 2007.

The Nihon Keizai reported earlier today that the venture will spend as much as 300 billion yen (US$2.7 billion) to build a factory, which will open in 2007, without saying where it got the information. Matsushita Electric Industrial Co., NEC Electronics Corp. and Renesas Technology Corp., owned by Hitachi and Mitsubishi Electric Corp., may join the project, the paper said.

"While we are consulting with other companies in the industry regarding various issues, there are no considerations of such a joint production scheme," said Akira Kadota, Matsushita's Tokyo-based spokesman. NEC Electronics is not involved in any such talks, according to the company's spokeswoman, Sophie Yamamoto. A spokesman from Renesas declined to comment.

The Japan Society for Promotion of Machine Industry, a branch of the Ministry of Economy, Trade and Industry, said in its paper that as much as US$3 billion in investment would be needed, and sales of the customized chips will have to reach at least US$5 billion to recoup the spending.

"Banding together isn't a bad idea as consumer electronics are getting more complicated," said Yoshihide Ohtake, a chip analyst at Shinko Securities Co. in Tokyo. "A 300-billion yen investment won't be enough to make a profitable enough factory."

Companies such as Hitachi, Toshiba, Mitsubishi Electric, and NEC Corp. have seen its once-dominant position erode in the more than US$200 billion semiconductor industry. After taking away the market for dynamic random access memory, the main memory chip used in computers, from Intel Corp., International Business Machines Corp., and other US companies in the late 1970s, the Japanese companies saw their share eroded by South Korea's Samsung Electronics Co. and Taiwanese companies.

Japanese chipmakers have been losing market share to Asian rivals because they have been unable to compete on costs. TSMC is the world's largest supplier of made-to-order chips, while United Microelectronics Corp (聯電) is the second biggest.

Maggie Tan, a spokeswoman for Singapore's Chartered Semiconductor Manufacturing Ltd (特許), the No. 3 made-to-order chipmaker, declined to comment on Hitachi's plans.

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