Separately, according to Nikkei, 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.
Meanwhile, for Panasonic, the handwriting has been on the wall for awhile. The Japanese consumer electronics giant may have had its moment a decade ago, as it developed its home-grown 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.
Late last fall, Panasonic announced its plan to shrink its semiconductor business by shedding about 1,000 employees and outsourcing chip production. Panasonic's internal IC consumption, which accounts for 50 percent of its total output, is expected to fall further as the company cuts back TV production. For Panasonic, which has been exploring ways to restructure its semiconductor business, the proposed merger plan with Renesas and Fujitsu must be a God’s send. Suddenly, it has a place to unload its fabs and engineers.
What’s ailing Fujitsu Semiconductor is the lack of a platform. Fujitsu remains primarily an ASIC company. It may excel in crafting great ASICs for domestic system buyers, but it has never been able to transform its business into an ASSP supplier. Again, the assets Fujitsu Semiconductor could bring to the three-way Japan Inc. chip joint venture remains unclear. Perhaps, more Japanese customers, like NTT Docomo. But surely not many global customers.
Even more mysterious is the proposed scenario of merging all three companies’ chip manufacturing units. How could the combined fabs dumped by the three companies become a viable chip production venture? And, precisely, what role will Globalfoundries play?
This whole maneuver of creating two separate JVs (one for chip design and another for chip manufacturing) could be simply a convenient way for the three companies to unload a lot of assets they no longer want – without being painted as “job-killing” villains in the Japanese society. (Layoffs and fab closures are particularly problematic in Japan)
But a lack of leadership, or an endemic case of indecisiveness (postponing the inevitable year after year), is costing the Japanese electronics industry dearly. Once the highest flying industry in the Land of Rising Sun, the electronics sector is now blindly huddling together — like orphans in a boxcar — with little idea of its future.
There is a Japanese saying: “If we cross the street (river, or whatever) together, there will be nothing to fear.” But right now, the view from the boxcar is pretty fearful, and nobody wants to cross the tracks.
I think Fujitsu make FPGAs for Lattice Semi. Take a printer apart and look at the chips inside. I took a Canon and Epson printer apart as they cost the same as ink (included ink), and I wanted to make some art statements. To go to Avnet for chips as a printer or camera manufacturer means you had no input into the SoC, which is unlikely to work in those highly competitive markets. Any US camera or printer manufacturers (or large TV manufacturers or any commodity electronics?). There is still a very big captive Japanese market, but the next battle could be battery/hybrid vehicles and Japan is unlikely to buy batteries from the USA when they have suck big players in that market. Might as well round them out with power electronics and SoCs as well as there seems to be some margin there. Avnet's shareholders would want to make more than they would allow the Japanese OEMs to make, so no need for greedy middlemen. As for a range of chips, look at TI and Freescale for divergent devices even with an ARM core.
"There is still a very big captive Japanese market, but the next battle could be battery/hybrid vehicles and Japan is unlikely to buy batteries from the USA when they have such big players in that market."
Interesting because I think Toyota is buying their batteries from Tesla for their upcoming plug-in hybrid Prius and all-electric Rav4. Japan and China build laptop batteries, and Tesla connects them up in a way that can be used in a car.
In any case, with each generation of IC, fabs become more and more expensive to build--billions of dollars. It is difficult to do the design and fab in one company because there are few designs that will have enough volumes to pay for the fab (Intel with its processors being the one exception). You can try to achieve this by combining companies, but it can be difficult to get the balance right.
So maybe they are taking the right approach.
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