Japan's Renesas <6723.T> is in final talks to receive $1.3 billion in financial support from major shareholders and banks, sources said, briefly sending its shares up sharply but failing to dispel worries about the struggling chipmaker's long-term prospects.
Renesas, hit by a strong yen and fierce competition from rivals such as South Korea's Samsung Electronics <005930.KS>, is being urged to take tough restructuring steps after sinking to a 62.6 billion yen ($790 million) net loss in the fiscal year that ended in March.
Sources familiar with the matter said Renesas, whose main shareholders are Mitsubishi Electric <6503.T>, Hitachi <6501.T> and NEC <6701.T>, was likely to receive 100 billion yen ($1.3 billion) in support in exchange for implementing a tough turnaround plan.
Analysts questioned if it would be enough for the world's fifth-biggest chipmaker.
"I think the fact that the shares haven't recouped more of their recent losses shows that investor concerns about the company haven't entirely been removed," said Toshiyuki Kanayama, a senior market analyst at Monex Inc.
"I think this news is good for the shares in the short term, but the outlook remains uncertain," he said.
Renesas shares jumped as much as 21 percent on Friday to a one-month high of 381 yen, before trimming gains to close up 1.3 percent at 320 yen. The stock has recovered somewhat from an all-time low of 198 yen hit in May, but is still well below levels around 600 yen seen earlier this year.
The sources spoke on condition of anonymity because the talks are not public.
LSI STRUGGLES
Renesas, the world's leading maker of microcontroller chips used in cars, had been planning to raise more than 100 billion yen to cover a sweeping restructuring plan that would cut at least 12,000 jobs, sources told Reuters last month.
Japanese media said Renesas' turnaround plan, which involves selling and shutting down several domestic plants and laying off workers, could be finalized as early as next week after negotiations with the major shareholders and banks.
Of particular focus is how Renesas can revive its money-losing system LSI unit - its worst performing division - which makes system-on-chip products combining processing and other functions used in a range of digital electronics.
Sales in the system LSI division fell 35.5 percent in the last fiscal year, becoming a major drag on the company as Japanese consumer electronics makers cut production of televisions and other goods.
Renesas had been in discussions with Fujitsu <6702.T> and Panasonic <6752.T> to combine their system LSI chip operations, but the talks reportedly stalled as Renesas grappled with mounting losses and after the February bankruptcy of DRAM chip maker Elpida Memory .
Fujitsu's president told the Asahi newspaper in an interview this week that his company would be keen on restarting talks if Renesas carries out an aggressive turnaround plan, in a bid to confront global competition and preserve Japan's semiconductor industry.
Japanese chipmakers are strong in technology, but are struggling to meet the funding demands needed for constant plant and technology upgrades to manufacture ever cheaper, faster chips. ($1 = 79.2650 Japanese yen)
