TOKYO Fujitsu Ltd (6702.T) and Panasonic Corp (6752.T) will merge their chip units in the next fiscal year, sources said, in the latest example of Japanese firms combining struggling units to compete with the likes of South Korea's Samsung Electronics Co Ltd. (005930.KS).
The two companies will announce on Thursday after a meeting of Fujitsu's board of directors that they will begin discussions on forming a joint venture, three sources familiar with the matter told Reuters.
Fujitsu is likely to negotiate to take a majority stake in the venture, which will be a design and development-only firm, one of the sources said. The two are in talks with Development Bank of Japan over funding for the venture, sources said.
Fujitsu and Panasonic could not immediately be reached for comment outside regular Japanese business hours.
Fujitsu and Panasonic's LSI chip businesses, which produce highly-customized microchips used in a range of consumer electronics including TVs and digital cameras, have fallen far behind aggressive South Korean rivals.
The troubles of Japan's once thriving semiconductor industry were highlighted when Elpida Memory Inc ELPDQ.PK, the country's last remaining dynamic random access memory (DRAM) maker, was driven into bankruptcy last February with more than $5 billion in debt.
Elpida's troubles were followed by the Japanese government's $1.8 billion bailout of Renesas Electronics Corp (6723.T), a leading maker of microcontroller chips used in cars.
Renesas, itself a product of the chip divisions of Hitachi Ltd (6501.T), Mitsubishi Electric Corp (6503.T) and NEC Corp (6701.T), was also slated to join the new venture. The company will remain in talks to spin off its LSI business with the two other firms, the sources said.
Fujitsu and Panasonic will not specify their plans for the production of LSI chips on Thursday, but the firms have been in talks with the world's largest contract chipmaker, Taiwan Semiconductor Manufacturing Co Ltd (2330.TW) (TSMC), sources said.
Fujitsu is also due to report its third-quarter results on Thursday.
(Additional reporting by Taiga Uranaka and Mari Saito; Editing by Dominic Lau and David Holmes)