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NEC Electronics, Renesas Merging Chip Units

Companies aim to finalize negotiations in July to merge their operations and form the world's third-largest semiconductor maker.

TOKYO (AP) -- NEC Electronics Corp. and Renesas Technology Corp. said Monday they have agreed to merge their operations and form the world's third-largest semiconductor maker.

The companies aim to finalize negotiations in July and combine their businesses from April of next year, they said in a joint press release. Reports of a merger had been circulating for weeks.

NEC Electronics, majority-owned by electronics giant NEC Corp., and Renesas said they are facing increasing competition in the chip industry, and market conditions have deteriorated since the global economy ground to a halt.

The semiconductor business requires massive upfront investment for production equipment, and selling prices face constant downward pressure as technology advances. A merger would allow the two companies to phase out older, less productive lines and better leverage economies of scale.

Other chip companies are also struggling. U.S.-based flash memory maker Spansion Inc. and its subsidiaries filed for bankruptcy in March, and German manufacturer Qimonda AG declared bankruptcy in January.

The announcement was made after the stock markets closed in Japan on Monday. NEC Electronics's stock was up 5.4 percent to 1,080 yen, while the benchmark Nikkei 225 stock average inched up 0.2 percent. Renesas is jointly owned by Hitachi Ltd. and Mitsubishi Electric.

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