Japanese venture will tap outsourcing avenues at Chinese electronics firms Japan's Renesas Technology hopes to double sales in the mainland market to US$1 billion within two years, helped by demand for its mobile-phone and consumer electronics chips. The world's No3 semiconductor manufacturer, a chip-making joint venture between Hitachi and Mitsubishi Electric, expects as much as US$500 million in sales to Chinese electronics firms this year. The two Japanese companies combined their chip operations to form Renesas in April this year. According to data from research firm iSuppli, Hitachi was ranked No18 on the mainland market last year with US$253 million in sales, while Mitsubishi was No27 with $210 million in turnover. 'China is the most strategic market for us in the next three to five years,' Renesas president Hideyuki Yoshizawa said. Renesas has US$300 million invested in the mainland market, primarily in testing and packaging facilities in Beijing and Suzhou, which employ a combined 1,800 workers, and two chip design centres with about 140 engineers. Its main product lines are in the mobile, automotive, digital consumer electronics and networking segments. But its biggest business in China is handset chips, accounting for about 35 per cent of its mainland turnover with sales to domestic brands such as Ningbo Bird, TCL Mobile Communications and Amoisonic. Of handset chips, most were for global system for mobile communications phones, Renesas Greater China vice-president Michael Cheung Siu-kui said. But it has had sales of about US$3 million to $4 million per month for xiaolingtong chips since the January. The company expects to benefit from government efforts to encourage mainland handset makers to produce more of their own designs rather than relying on re-badged kits mostly from South Korea and Taiwan, which involve little research and development. 'The Chinese government is promoting technology-intensive investment, so they are asking the handset makers not to buy finished products,' Mr Cheung said. He said this increased opportunities for Renesas because its customers, especially larger clients, were strengthening their designs. About 30 per cent of its chips sold into the mainland market were designed at its research centres in Beijing and Suzhou. But despite the central government push to develop domestic chip design and manufacturing, Mr Cheung said Renesas had no concrete plans to shift semiconductor production to China in the next 12 months. Such a move would help the company benefit from breaks on the value-added tax, which the central government has offered global chipmakers to lure investment into the country. Renesas has 11 wafer fabrication plants - nine in Japan and two in Germany - which use older technology. Just 10 per cent of its in-house chips are made at a line-width of 0.18 microns or smaller. For advanced processing technology, it has turned to Taiwan Semiconductor Manufacturing and Powerchip Semiconductor. Powerchip has been making micro-controllers and chips for Renesas' xiaolingtong handsets. But those orders were unlikely to be heading for mainland foundries soon because they lacked the advanced processing capabilities that Renesas needs. 'The technology in China is still trailing,' said Mr Cheung, adding that it had discussed outsourcing production of liquid crystal display drivers to foundry Semiconductor Manufacturing International Corp of Shanghai. 'They are definitely a target for us.' He also said the company had no plans to transfer ageing chip tools from Japan to China, which other chipmakers have done in recent years to extend the life of their equipment. Still, Mr Yoshizawa held out the possibility that Renesas could expand its testing and packaging operations in China, beginning with its Beijing and Suzhou facilities. The mainland has been successful in attracting testing and packaging investment because the operations are labour intensive and China has an abundant supply of low-cost workers. Mr Yoshizawa said most of the company's future expansion for testing and packaging operations would be outside Japan.