Asia's chips in consolidation wave

CNN's Kristie Lu Stout

HONG KONG, China (CNN) -- Asia's ever-volatile chip sector has seen months of mounting consolidation as rivals seek to share risks and rewards.

Talks are underway for the U.S.-based Micron Technology to take over the memory chip operations of Korea's Hynix Semiconductor.

And earlier this week, Hitachi and Mitsubishi Electric announced they too are in talks to merge their system chip businesses. The two chipmakers are also teaming up with NEC, Toshiba, and Fujitsu in a separate next-generation chip-making tie-up.

Japan's Asahi newspaper reported on Wednesday that the five Japanese electronic giants would jointly develop a high-capacity semiconductor that will be just thicker than one-millionth of an inch.

Some chipmakers are pulling out of the memory chip business altogether. Toshiba last year announced a sale of its U.S. memory chip business to Micron.

Fending off a global slump in chip demand and slackening sales, Asia's chipmakers are pairing with rivals to share the costs and risks of chip production.

"The cost of new capacity is increasingly quite substantially," said Pranab Kumar Sarmah, analyst at Daiwa Institute of Research. "Fabs (fabrication plants) are becoming more and more expensive."

New fabrication plants designed to build 12-inch silicon wafers are slated to cost up to $3 billion, compared to $2 billion for a previous-generation 8-inch wafer facility.

Silicon wafers provide the surface area on which microchips are etched.

'Natural' consolidation

Analysts say the current consolidation in the semiconductor sector is not surprising.

"It's a natural consolidation," said Bear Stearns analyst Keon Han. "Expenses for research and development are rising. The chip sector requires billions of dollars for research and development expenses, capital expense."

In addition to mounting production costs, industry players say that consolidation in the sector also brings about much-needed standardization in technology.

"The alliance is a reflection of people realizing that technologies are getting more and more complex," TSMC chief financial officer Harvey Chang told CNN.

"It is expensive if everyone wants to work on their own technology platforms. So people want to establish more common technology platforms to make the application easier."

Analysts also say to expect more pairings as memory chipmakers struggle to cut losses.

"I think it will continue," said Sarmah. "As long as there is consolidation in the industry, it's good for the longer-term health of the industry."