Facing intense competition from neighboring Asian countries and lackluster profits, Panasonic Corp. is pulling the plug on its semiconductor business after more than a 60-year history.

The electronics giant will sell Panasonic Semiconductor Solutions Co. (PSCS), one of its subsidiaries, to Taiwanese company Nuvoton Technology Corp. for $250 million (about 27 billion yen), it announced Nov. 28.

“With decreasing sales of audio-video equipment, we took steps toward the use of semiconductors for other purposes,” Ryo Kitaori, executive director of Industrial Solutions Co., which is in charge of Panasonic's semiconductor business, said at a news conference the same day. "But we lacked a sense of speed."

Another official added: "A huge investment was needed, and we were not able to perform well."

The company will sell its PSCS holdings as well as facilities and various stock in China and Singapore as early as June 2020.

PSCS has a semiconductor development hub in Nagaokakyo, Kyoto Prefecture, and a joint venture with an Israeli company runs three factories in Toyama and Niigata prefectures. The businesses and factories concerned will continue operating after the takeover.

A CHANGING LANDSCAPE

Panasonic entered the semiconductor business in 1957, mainly producing integrated circuits and other components used in televisions, air conditioners and other products. However, business performance has been stagnant in recent decades as its sales of home electrical appliances declined globally.

In recent years, the company shifted to making semiconductors for auto components, but overall sales failed to improve owing to a trade war between the United States and China and other factors.

Sales for the business year ending in March 2019 were 92.2 billion yen ($841.7 million), with a net loss of 18 billion yen.

"The shift in the market has been extreme, and we have had a difficult time returning to the black," Kitaori said.

Nuvoton Technology, an emerging manufacturer, mainly sells microcomputers that control electric devices.

The company posted sales of 10 billion Taiwan dollars (about 36 billion yen) for the business year ending December 2018, up 9 percent year on year, with a net income of 711 million Taiwan dollars (about 2.5 billion yen).

A ‘SEMICONDUCTOR NATION’

Dubbed the "rice of industry," the semiconductor business sustained Japan's rapid postwar economic growth.

However, outpaced by companies in South Korea and the United States, Japanese firms involved in the semiconductor business faced an increasingly difficult business environment.

Then known as Matsushita Electric Industrial Co., the company established a joint venture with Amsterdam-based Koninklijke Phillips N.V. and began producing semiconductors in 1957 to work on basic components for home electrical appliances on its own. While televisions and videos produced by Matsushita Electric Industrial prevailed worldwide, the company also increased its production of semiconductors.

By the end of the 1980s, Matsushita Electric Industrial established itself as a top 10 maker of semiconductors in the world. At that time, electronics makers such as Hitachi Ltd., Toshiba Corp. and NEC Corp. also expanded their operations and Japanese companies took 50 percent of the global market, earning the status as a "semiconductor nation."

This peak, however, was followed by an extended decline. With the spread of personal computers, memory chips became the major market for semiconductor manufacturers. A South Korean manufacturer made a massive investment in the business and took a major slice of the market, leaving Japanese makers behind.

As U.S. makers also became overwhelmingly strong in the production of high-performance semiconductors such as central processing units (CPUs), Japanese makers found themselves unable to compete.

According to research firm IHS Markit, the United States overtook the top position in the global semiconductor market in 1993, and in 2013, Japan was surpassed by South Korea.

Japanese makers struggled for survival by establishing alliances with other Japanese firms, but the bankruptcy in 2012 of Elpida Memory Inc., which was founded by the integration of the dynamic random access memory (DRAM) chip businesses of NEC, Hitachi and Mitsubishi Electric Corp., thwarted such aspirations.

Renesas Electronics Corp., which integrated the semiconductor units of the three companies, has also struggled to make headway.

Panasonic reduced its production of semiconductors by turning the business into a joint venture with Fujitsu Ltd., among other measures.

PSCS sought to establish a new core business by working on semiconductors for auto parts and industrial machines, not only for home electric appliances.

Kazuhiro Tsuga, Panasonic's president, said on Nov. 22 at a news conference, "We will cut off the structurally money-losing businesses."

Panasonic also plans to withdraw from producing liquid crystal display panels, and to jointly produce TVs, which has posted a deficit overseas, with other companies. At the same time, the company has yet to find the next business that can turn the situation around.

Atsushi Osanai, a Waseda University professor who specializes in management strategy, said: “Panasonic has divested itself of a money-losing unit without any future vision. This will only generate a revenue improvement in the short term. It is in stark contrast to moves by Sony Corp. and Hitachi Ltd., which kept semiconductor engineers on board and made it a strength of the companies.”

"Semiconductors are the foundation of various technologies," he added. "If human resources are sold off, then Panasonic will lose the power of technology itself."

(This article was written by Yuki Kubota, Yosuke Okawa, Yoshikatsu Nakajima and Aki Fukuyama.)