Hitachi Ltd, Toshiba Corp and Renesas Technology Corp are likely to scrap their plans to jointly make chips due to expectations that such a venture would not make money, the Nihon Keizai Shimbun reported on Friday.
The three companies had said in January they would set up a planning company to look into the feasibility of setting up an independent microchip foundry, taking aim at a market dominated by TSMC and other Taiwanese chip makers.
The plan was billed as a chance for Japanese electronics makers to battle back onto the centre stage of the global semiconductor market, which they ruled in the late 1980s when NEC Corp, Toshiba, Hitachi were the world's top three makers.
But the three Japanese chipmakers could not agree on various issues, and they concluded they would not be able to produce enough chips to ensure profitability, the report said.
Spokesmen at Hitachi and Renesas, a joint venture between Hitachi and Mitsubishi Electric Corp, said the planning company was due to decide on the project's feasibility by the end of June, but nothing had been decided yet. Toshiba officials were not immediately available for comment due to a company holiday.
The costs of chip development and production are rising rapidly as technology moves to ever more intricate circuitry, making it increasingly difficult for chip makers to go it alone. Despite the reported decision not to pursue the three-way foundry venture, Japanese microchip makers need to keep seeking ways to sharply boost their capacity or to pool their resources to better compete with larger overseas rivals, analysts say.