The Nihon Keizai Shimbun business daily reported earlier that Hitachi, Toshiba Corp and Renesas Technology Corp would invest up to 100 billion yen ($851.6 million) on a new manufacturing line in Japan, with aims of starting mass production of system chips in 2007.
In a joint statement, Toshiba, Hitachi and Renesas -- a venture between Hitachi and Mitsubishi Electric Corp -- said the three would begin considering the establishment of a semiconductor foundry, but that details had not been decided.
Analysts gave a lukewarm response to the news, suggesting it would take a much bigger investment to keep pace with the likes of Intel and Samsung Electronics, which are far more profitable and have earmarked massive funds for advanced semiconductor plants.
The latest plan is a scaled-down version of one floated earlier this year for a venture that also included NEC Electronics Corp and Matsushita Electric Industrial Co, and which would spend up to 300 billion yen on production.
"The original point of this was for Japanese makers to get together and share the burden of a big investment, but the scale of the venture seems to have dwindled down to just 100 billion yen," said Takeo Miyamoto, analyst at CLSA Asia-Pacific Markets.
"There would be doubts about whether a venture of this kind would really be able to compete with Samsung and Intel."
Hirokazu Hashimoto, an adviser at NEC Electronics, Japan's third-largest semiconductor firm and a subsidiary of NEC Corp, has been asked to be president of a venture to prepare for the project, according to a source familiar with the matter.
The venture will be set up in January to assess the project's feasibility and the current plan calls for the line to be built at a Toshiba or Renesas factory, the Nihon Keizai said.
The news had little impact on the companies' shares, with Toshiba ending up 1.16 percent at 695 yen and Hitachi closing 0.25 percent higher at 792 yen. The benchmark Nikkei average rose 1.41 percent.
Japan dominated the global semiconductor market in the late 1980s, with NEC, Toshiba and Hitachi the world's three largest chip makers in terms of sales. But last year, not one was ranked in the top three.
Their fortunes have faded due to the shrinking presence of Japanese electronics makers -- their key clients -- and their inability to grab a significant share in key products such as PC microprocessing units and communication chips for cellphones.
The industry also has a structural problem. Too many microchip makers are spreading limited resources too thin.
Analysts have therefore been calling for consolidation, especially with the cost of new factories rising as production moves to finer circuitry, which allows companies to make chips smaller and more powerful by squeezing on more transistors.
Most advanced chip plants currently use circuitry widths of 90 nanometres, or billionths of a metre, but the forefront is now shifting to 65 nanometres and is expected to shrink to 45 nanometres over the next several years.