Date: 27/04/2009

NEC and Renesas have begin the process of merging their businesses

The two leading Japanese semiconductor companies Renesas and NEC Electronics have started negotiating to combine their businesses into single one.

With this merger, the combined business with a revenue which can be estimated close to 14 billion US$ is only left behind Intel and Samsung. Along with 3rd position in overall semiconductor market, both will have extremely strong position in some of the key semiconductor markets which include microcontrollers, System on Chips (SoCs), and SRAMs. The combined operations will increase its ranking in many other discrete semiconductor ICs.

In microcontroller (processor-centric chip used in cell phones to automotives) market, Renesas is already a world's number 1 and NEC is a 3rd biggest vendor in the world, just marginally behind Freescale Semiconductor. Not only in Microcontrollers and also in various other semiconductor categories, Renesas and NEC hold one of the top 5 positions. However in the overall semiconductor ranking, they don't figure in the upper part of top ten. Gartner in its analysis published in Dec08 has ranked Renesas at position 7 (one up from 2007) and NEC at position 10 (12th position in 2007). By merging, the combined ranking of NEC and Renesas will scale up significantly in overall and sub categories ranking.

The benefit of merging these two companies is not only in revenue generation; it also helps them to get rid of much of their redundant resources. Due to both the companies addressing the same market and manufacturing nearly same devices, they may have to shed lot of machine and human resources prompting to staff resizing.

This merger throws fresh challenges to European and US semiconductor industry. The companies like Freescale, Texas Instruments, ST Micro, and Infineon who compete with both NEC and Renesas may have to device new strategies quickly to weather this combined competition.

Japanese semiconductor companies have learned good lessons in the previous semiconductor downturns and are cautiously mixing their product categories by studying the market demand variations of each category.It looks like they have learned more from memory and processor. Renesas which formed after merging Mitsubishi's and Hitachi's semiconductor businesses is quite successful, in the same line, this new combination can workout better provided semiconductor market behave in the same way it has behaved in last five years. But the present semiconductor market dynamics may not go the same way. In this highly innovation driven industry, consolidation may not be the best option.

Companies like Qulcomm, Broadcom, ARM are fairly new in semiconductor industry, They are growing well. So the innovation still taking precedence over capital power. Innovation might not happen more on semiconductor fabrication but surely there are lot of opportunity in designing chips of different dimensions (applications and the way they work).