Just now, two Japanese chip distributors merged

 01

 Establishing Multiple Service Points in China

Ryosan Ryoyo HD will reportedly become the wholly-owned parent company of Ryoyo Electro and Ryosan through a share transfer. Headquartered in Chuo-ku, Tokyo, Ryosan Ryoyo Electro President

 Moritaka Nakamura will serve as President, and Ryosan President Kazuhiko Inaba will serve as Vice President. The share transfer ratio is 1.32 for Ryosan: 1 for Ryoyo Electro. Both companies will be

 delisted on March 28, 2024, while Ryosan Ryoyo HD will be listed on the Tokyo Prime Market on April 1, 2024.

According to public records, Ryoyo Electro was established in 1961, at the dawn of the semiconductor era, as a distributor for Mitsubishi Electric's semiconductors. Over time, its business expanded

 alongside the growth of the electronics industry. Although Ryosan is a subsidiary of NEC, Ryoyo Electro belongs to the Mitsubishi Electric Group and has "no connection" (as stated by Moritaka

 Nakamura, President of Ryoyo Electro).

Currently, Ryoyo Electro focuses on IoT (Internet of Things) business, blending its historical role as an electronics distributor with two business models: semiconductors/devices and information &

 communication technology (ICT). Its product lineup includes brands such as HP, Intel, NVIDIA, Mitsubishi Electric, Seiko Epson, Sitronix Technology, and Rochester Electronics.

Headquartered in Tokyo, Japan, Ryoyo Electro has overseas sales offices across Asia, North America, and Europe, including locations in Shanghai, Dalian, Shenzhen, Hong Kong, and Taipei, China.

Founded in 1953 by Fujio Mori, Ryosan primarily sells semiconductors, electronic components, and electronic devices, and provides solutions. Headquartered in Tokyo, Ryosan has

 approximately 50 sales locations worldwide. In addition to Japan, Ryosan has overseas locations in Asia, North America, and Europe, as well as offices in Shanghai, Hong Kong, and

 Taiwan.

Ryosan's official website lists its suppliers as Renesas Electronics, ON Semiconductor, Microchip Technology, Nexperia, Winbond Electronics, Macronix Electronics, Transcend,

 Faraday Technology, Everspin Technologies, and Yamaha Corporation. According to the "2022 Global Top 50 Electronic Component Distributors Revenue Ranking" published by

 Electronics Market International, Ryosan ranked 19th.

After the merger, the two companies will be on par with Macnica Holdings (HD), Kaga Electronics, and Lester HD.

Restructuring of Japanese chip distribution companies is not new: in 2003, Macnica and Fuji Electronics merged to form Macnica Fuji Electronics HD, and in 2007, UKC HD and Vitec

 HD merged to form Leicester HD.

02

Strong Alliance

Chip Distribution Faces Crisis

In May 2023, Ryoyo Electro and Ryosan announced they had signed a basic agreement for business integration. This integration comes amidst significant environmental changes in

 the industry driven by the rapid adoption of new technologies, driven by the acceleration of the Internet of Things (IoT) and digital transformation (DX). The functions and roles

 required of electronics trading companies are evolving, including the impact of intensified competition among trading companies and geopolitical risks associated with mergers

 and acquisitions between semiconductor and other manufacturers.

In a previous interview, the presidents of both companies expressed their desire to address common issues through business integration. "There are over 20 semiconductor-related

 trading companies listed on the Japanese market. Each company has its own unique characteristics, but the businesses they develop are not exactly the same, and the sheer

 number of them is truly diverse. We hope to connect with a wide range of customers to enhance our added value. In discussing industry trends and the challenges we face with

 Ryoyo Electro President Moritaka Nakamura, we felt we could achieve more together and reached a consensus on the direction we should take."

The two companies have now reached a final agreement to integrate their businesses through the establishment of a joint holding company. They stated that after the merger, "as a

 new core group in Japan's electronic trading industry, we will leverage the long-accumulated management resources of both companies—including strong customer relationships,

 high-quality products, and solutions—within the new framework. We will implement strategic initiatives aimed at further enhancing corporate value."

The merger is expected to generate significant synergies. While Ryosan has a strong customer base in the automotive sector, Ryoyo Electro serves many clients in the medical field.

 This integration will consolidate and expand their combined customer network.

On February 7, 2023, Ryoyo Electro announced it would acquire 18.71% of the outstanding shares of Ryosan, a competitor, for 15.7 billion yen, becoming its largest shareholder.

 While both companies were surprised by Ryoyo Electro's acquisition of Ryosan shares, they remain committed to integrating the two companies on an equal footing to achieve

 their long-term goals. "We are currently considering the future of the combined company," the company stated.

Ryosan has a strong presence in the equipment sector through distribution agreements with companies like Renesas Electronics, while Ryoyo Electro is strong in IT, including

 servers. Chip distributors are vulnerable to supplier incentives, making it difficult to stand out from the crowd, especially during the current semiconductor downturn.

Japan is facing a decline as a semiconductor consumer. According to world semiconductor trade statistics, the Asia-Pacific region, including China, will account for 58% of

 semiconductor sales in 2022, followed by the United States at 25%, Europe at 9%, and Japan at 8%. Japan's market share was 23% in 2000. Japanese semiconductor distributors

 such as Sun-Wa Technos, Kaga Electronics, and Ryoyo Electro are accelerating their overseas expansion, hoping to expand into emerging markets amidst the continued decline of

 their domestic market. The merger of these two Japanese chip distributors can be seen as a sign of crisis in the chip distribution industry.

Furthermore, mergers and acquisitions among chip manufacturers may also be a major factor in the restructuring of Japanese chip distribution companies. Renesas Electronics

 acquired Intersil in 2005 and IDT in 2007. Since 2008, Renesas has seen a trend of terminating its distribution agreements with semiconductor trading companies, most recently

 with RYODEN (formerly Ryoden Shoji) at the end of February 2011.

In short, while the power relationship between chip distributors and chip OEMs has remained largely unchanged, chip manufacturers are increasingly focusing on direct sales,

 leading many distributors to lose their agency rights. This has become a crucial factor for the survival of distributors, and mergers and acquisitions have become a survival option

 for semiconductor distribution companies. The merger of Ryoyo Electron and Ryosan may accelerate industry restructuring and reshuffles.