Two big players in Japanese chip making, NEC and Renesas are to merge their operations in a deal which could pave the way for government help.

NEC Electronics and Renesas will integrate their operations from early next year, as long as shareholders, and regulators, approve. As part of the deal Renesas will issue shares to Hitachi and Mitsubishi Electric in exchange for 78bn yen (£523m). Once the merger is complete the new firm will issue shares worth 122bn yen (£818m)to NEC, Hitachi and Mitsubishi Electric.

This effectively gives the new firm 200bn yen (£1.34bn) in funding and will give NEC 33.47 per cent of shares, Hitachi Ltd 30.73 per cent, Mitsubishi Electric a 25.14 per cent stake and Japan Trustee Bank 1.54 per cent of the business.

Chipmakers, which require massive investment in chip making plants, have struggled as credit lines have tightened, making financing harder and more expensive to find. This has been made worse by collapsing customer demand.

The two firms have been looking at alternatives since signing an initial agreement in April. The combined firm will jointly develop and market three distinct products - microcontroller units, system on a chip units and discrete products - but should be able to sell them to a wider group of industries.

The investment could herald more financial help from the new Japanese government which is looking more favourably on requests from companies which are already committing their own money to get through difficult times.

Anonymous Economy Ministry officials told Reuters: "Nothing is certain. But it would be easier to get understanding (from the public and politicians) if the parents are also willing to help out. Semiconductors are important for Japanese industry as a whole."

The full statement is here. ®