TOKYO (Reuters) - Shares in Renesas Electronics (6723.T) fell more than 11 percent on Monday to a record low after news it will sell loss-making operations and cut at least 12,000 jobs as Japan's chip sector grapples with its biggest shake-out in a decade.
The company's escalating troubles follow the February bankruptcy filing of Elpida Memory Inc ELPDF.PK, Japan's last producer of dynamic random access memory (DRAM) chips used in personal computers, which is in talks with U.S. firm Micron Technology (MU.O) about a buyout plan.
Renesas, the world's fifth-largest chipmaker, and its Japanese peers are struggling to keep up with more nimble and aggressive rivals such as Samsung Electronics (005930.KS) in a business requiring an ever faster pace of increasingly costly investment.
The company's restructuring plan, presented to its banks, calls for cutting its workforce by more than a quarter and would be funded by raising more than 100 billion yen ($1.26 billion) in fresh capital, a source familiar with the situation said over the weekend.
Renesas will also announce details of a business tie-up with Taiwan Semiconductor Manufacturing Co (2330.TW), the world's largest contract manufacturer of chips, in Tokyo at 3:30 p.m. (0630 GMT). Media has said it is likely to involve an outsourcing deal.
The Nikkei business daily reported over the weekend that Renesas's restructuring plan, which the company aims to finalise by July, calls in addition for selling TSMC a chip plant in northern Japan.
"If it can go through with the restructuring and raise funds, it will not be a repeat of Elpida," said Hideyuki Ishiguro, assistant manager of investment strategy at Okasan Securities.
Before finalising the plan, Renesas must get approval from its main shareholders, electronics conglomerates Hitachi Ltd (6501.T), Mitsubishi Electric Corp (6503.T) and NEC Corp (6701.T), whose chip divisions were spun off and merged to form the company over the past decade. Combined, they hold more than 90 percent of Renesas shares.
Mitsubishi Electric, whose earnings along with Hitachi have been bolstered by strong results in the infrastructure business and by limited exposure to consumer electronics, said last week that Renesas's shareholders were prepared to offer support.
But NEC, whose chip division was merged into Renesas just two years ago, has been hit with steep losses in recent years as its mobile handset and IT hardware businesses struggle.
Shares in NEC tumbled 9.2 percent on Monday, while Hitachi and Mitsubishi Electric were both flat, in line with Tokyo's benchmark Nikkei average .N225.
Renesas was down 10.6 percent at 244 yen, after falling to a record low of 238 yen. The shares have fallen nearly 60 percent over the past two months as worries mounted about its business, compared with a 15 percent drop in the Nikkei.
"I think it is very likely that Hitachi and the major shareholders will give support, so I do think the reaction today is a little excessive," said Okasan Securities' Ishiguro.
Renesas's loss-making system LSI unit, which makes system-on-chip products combining processing and other functions that are used in a range of digital electronics, has been a major drag on the company as Japanese consumer electronics makers cut production of televisions and other goods.
Sales in the system LSI division fell 35.5 percent in the year that ended on March 31, the worst performance among its major divisions, including the world-leading division making microcontroller chips for automobiles that was hurt badly by last year's earthquake.
Media reports have said Japan's government is pushing a plan to combine troubled system LSI businesses from Renesas, Panasonic Corp (6752.T) and Fujitsu Ltd (6702.T) into a government-backed company that would focus on chip design, while selling off factories and outsourcing manufacturing to contract chip makers.
Analysts note that Japanese system-on-chip makers have suffered from their willingness to over-customise chips to suit the needs of customers in Japan's consumer electronics sector, undermining efficiency and sacrificing profit margins.
While analysts have long urged Japanese chipmakers to take advantage of the so-called fabless model that focuses on chip design operations while outsourcing chip fabrication, Renesas's experience as a receptacle for other companies' unwanted chip operations bodes ill for such "Japan Inc" enterprises.
Analysts and industry executives have said a major factor behind Renesas's problems was a reluctance by executives from its various parent companies to relinquish control, hobbling the ability to make bold restructuring decisions such as closing down plants or discontinuing product lines.
"The major problem that Renesas faces is its own management, which is comprised of executives from its major shareholding companies," said a Japanese chip sector executive, who asked not to be identified because of the sensitivity of the issue.
"The problem with these firms that are the product of mergers of 'big name' companies is that they are not prepared to take on restructuring that is required and to do whatever necessary to survive."
($1 = 79.6000 yen)
Additional reporting by Maki Shiraki and Dominic Lau; Editing by Edmund Klamann and Robert Birsel