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December 16, 2009

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Renesas forecasts profit in first year

STRUGGLING Japanese chip makers NEC Electronics and Renesas Technology said they aim to turn an operating profit in the first year after their mergera next April by outsourcing production and eliminating business overlap.

But a decision will not be made on whether the merged entity needs to consolidate production facilities until 100 days after the merger, executives said.

The newly formed Renesas Electronics Corp will seek a net profit in its second year by consolidating sales forces and revamping its product lineup to target growth overseas, they said.

The merger of NEC Electronics, 65 percent owned by NEC Corp, and Renesas, a joint venture between Hitachi Ltd and Mitsubishi Electronics, will create the world's third-biggest chip maker after Intel Corp and Samsung Electronics.

But the two have many overlapping businesses, and analysts have said no merger would be effective without consolidation of the two firms' cutting-edge chip-making lines. An improved outlook may be dampening the urgency to cut costs.

The two loss-making chip makers expect the current boost in demand for microchips used to control automatic functions in cars to continue until March, and are hoping the worst is over in the global economy.

"There won't be a huge recovery, but there won't be a huge dip either," NEC Electronics President Junshi Yamaguchi said, citing demand from China and other emerging economies and adding that the bottom was past in Japan, the United States and in Europe.

Renesas Electronics aims to lift overseas sales to 60 percent of total revenues, up from 44 percent at the end of March.



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