December 15, 2009 / 10:35 AM / 9 years ago

NEC Electronics, Renesas eye profit, cost cuts

TOKYO (Reuters) - Struggling Japanese chipmakers NEC Electronics and Renesas Technology said they aim to turn an operating profit in the first year after their merger 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 of Renesas, a joint venture between Hitachi Ltd and Mitsubishi Electronics, will create the world’s third-biggest chipmaker after Intel Corp and Samsung Electronics.

But the two have many overlapping businesses, and analysts have said that 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 chipmakers 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 told a news conference, citing demand from China and other emerging economies and adding that the bottom was past in Japan, the United States and in Europe.

By the time of the merger, when NEC Electronics will have absorbed Renesas and changed its name, the two firms’ parents will have shored up the chipmakers with a total 206 billion yen in funds.

Renesas Electronics will focus on microcontrollers to control motors in hybrid and electric vehicles, as well as semiconductors for smart grids and energy-efficient appliances and TVs.

It will aim to lift overseas sales to 60 percent of total revenues, up from 44 percent at the end of March, executives said.

Reporting by Mayumi Negishi; Editing by Michael Watson

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