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Does NEC Electronics-Renesas deal make sense?

Posted: 21 Apr 2009     Print Version  Bookmark and Share

Keywords:microcontrollers  MCU vendors  merger talks 

Loss-ridden Japanese chip makers NEC Electronics Corp. and Renesas Technology Corp. are said to be in the final stage of talks on merging their operations.

Does this deal make sense? No, according to one analyst. The merger of NEC Electronics and Renesas would have a dominate position in microcontrollers (MCUs), but there would be huge integration issues, according to an analyst.

Renesas was ranked as the world's sixth largest IC vendor with Rs.34,887.96 crore ($7.017 billion) in sales in 2008, according to iSuppli Corp. NEC ranked 11th with Rs.28,966.40 crore ($5.826 billion) in sales last year, according to the firm. In total, the merger would result in a company with over Rs.63,640.56 crore ($12.8 billion) in sales, putting it in third place behind Intel Corp. and Samsung Electronics Co. Ltd.

Renesas and NEC were the world's first and third largest MCU vendors in 2008, respectively, according to Databeans Inc. Renesas had 20.1 per cent share in 2008, while NEC had 9.7 per cent, according to the firm.

Renesas also makes analogue products, system-on-chip (SOC) devices, wireless ICs and others. NEC Electronics makes ASICs, consumer chips and other products.

''Merging with NEC's MCU operations would give this one vendor an unheard-of 30 per cent market share of microcontrollers in a market where the biggest of 30 vendors barely trip into double-digit market shares,'' said Tom Starnes, an analyst with market researcher Objective Analysis.

''Although there may indeed be merger talks between Renesas and NEC, we see little of the traditional benefits from a prospective merger between these two firms,'' Starnes said in a report. ''It is no small chore to gain a benefit from the merger of two large microcontroller vendors.''

There are more negatives than positives in such a deal. ''Considering the broad offering of today's Renesas as well as NEC, most of the products seem to overlap rather than provide new synergies,'' he said. ''Without paring down of overlapping families, it will be difficult to provide much financial gain.''

There are other problems. ''Manufacturing costs can be improved by driving more chips through the fabs, but first any newly-acquired chips have to be reconfigured for the new process node in the fab—a very resource-intensive effort. Two companies cannot just be slapped together and see immediate, or even short-term financial benefits,'' he argued.

Still, some observers believe that a merger between Renesas and NEC Electronics could take place this year. Both companies are in deep trouble, and can no longer operate as stand-alone entites amid the current IC downturn.

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