Rohm to buy Oki chip business: report

By Mariko Katsumura

TOKYO (Reuters) - Rohm Co plans to buy Oki Electric Industry Co chip operations for about $959 million, the Nikkei business daily said, sending Oki's shares 5 percent higher and pointing to a further shakeup in Japan's microchip industry.


Japan's semiconductor makers once dominated the global market with dynamic random access memory (DRAM), the most common kind of chip for personal computers. But they have been hurt by stiff competition from Samsung Electronics Co and others as well as the heavy cost of developing cutting-edge products.

Rohm, Japan's No.8 chip maker and a strong player in custom chips, would be able to bolster its product line-up by adding the semiconductor operations of Oki, which specializes mainly in system LSI chips.

For Oki, spinning off of a business that requires heavy capital expenses would help it focus on its other growing businesses such as information technology systems and printers, analysts said.

"This works for both parties. They are midsize companies in sales and it would be difficult for each of them to keep carrying out capital investments alone," said iSuppli Japan Vice President Akira Minamikawa.

"This would enable Rohm to take advantage of Oki's technology and production equipment in offering products with finer circuitry."

Finer circuitry reduces chip size and enables faster data processing. It also cuts production costs.

But as the industry moves to ever finer circuits, development and production facility costs increase sharply.

Rohm and Oki said in statements that they had not decided on anything, but shares in Oki Electric were up 4.8 percent at 220 yen, while Rohm dipped 1.1 percent to 6,540 yen.

The Nikkei said Rohm and Oki, which is scheduled to brief on its business plans at 0600 GMT, were expected to come to a basic agreement and may announce a deal on Wednesday.

Such a move would create Japan's seventh-largest semiconductor maker in terms of sales and mark the first major realignment in Japan's chip industry since 2003, when Hitachi Ltd and Mitsubishi Electric Corp merged their system chip operations.

Still, the firms' combined chip sales of $3.5 billion are a far cry from the $34 billion at Intel Corp. , the world's biggest semiconductor maker, iSuppli data showed.

Rohm's chip business once had an operating profit margin of over 30 percent, but that slipped to 18 percent in 2007/08 amid intense price competition.

Oki, once one of Japan's comprehensive chip makers, has already pulled out of DRAM production due to price competition with South Korean and Taiwanese rivals, the Nikkei said.

Oki plans to first spin off its chip-making segment. The whole business, including domestic and overseas factories, subsidiaries and more than 5,000 workers, is then likely to be handed over to Rohm, the Nikkei said.

(Reporting by Nathan Layne and Sachi Izumi; Additional reporting by Kiyoshi Takenaka; Editing by Hugh Lawson)
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