United we stand, Divided we fall !

In their latest bid to out do the world's largest chipmaker, Intel Corp., Japanese companies, Hitachi, Toshiba and Renesas Technology (a joint venture between Hitachi and Mitsubishi Electric) have decided to come together to produce the next-generation system chips.

It may be noted, that this step comes soon after Intel announced plans for a $US3.5 billion ($NZ5.3 billion), 45-nanometre semiconductor factory in Israel. It has been realized that such mergers are necessary for companies to survive, because, as chip technology moves to finer circuitry, the costs of production grow. Infact, the cost associated with such projects is so high that it is almost impossible for individual companies to shoulder it. With the alliance, the involved Japanese companies hope to save costs and cut time to market.

Aiming for the stars, the three firms have also invited other chipmakers such as Matsushita Electric Industrial Co and NEC Electronics to join the group. They plan to pump in as much as 100 billion yen ($NZ1.3 billion) into the project and setup a production line in Japan. It is expected that the production line will built at a Toshiba or Renesas factory with manufacturing starting in early 2007.

The new company plans to produce system LSI (large-scale integration) chips with a circuitry width of 65-nanometres (one-billionth of a metre) or less. Currently, most advanced semiconductor plants use circuitry of 90 nanometres. The aim is to produce small fast chips that use less power and will enable the further shrinking of electronics items.

Reacting positively to the announcement, Masahiko Ishino, an analyst at Mitsubishi UFJ Securities Co. said, "`When it comes to 45 nanometers, going it alone is difficult technologically and financially. Doing it as a group helps reduce investment risks."

Other analysts however, gave a lukewarm response to the news, suggesting it would take a much bigger investment to keep pace with industry giants like Intel and Samsung Electronics, which are far more profitable and have earmarked massive funds for advanced semiconductor plants.

Voicing similar concerns, Takeo Miyamoto, analyst at CLSA Asia-Pacific Markets, said, "The original point of this was for Japanese makers to get together and share the burden of a big investment, but the scale of the venture seems to have dwindled down to just 100 billion yen. There would be doubts about whether a venture of this kind would really be able to compete with Samsung and Intel."

The announcement did not have a large impact on the companies' shares either, with Toshiba up 0.58 per cent at 691 yen in early afternoon trade and Hitachi unchanged at 790 yen.