Japanese semiconductor firms NEC Electronics and Renesas Technology announced merger plans, the two firms seek to integrate their operations by April 2010. Together, they will become world's third largest chipmaker behind Intel and Samsung.
The decision was made "in light of fierce global competition in the semiconductor market," they said in a joint statement.
Demand for computer chips used in electronic gadgets, cars and other products has been battered by the global economic downturn.
The two firms said they would try to improve their finances and operations before merging, so that the new firm would stand on a solid footing in the volatile chip market. They aim to sign a merger agreement in July.