By Mari Saito

TOKYO (Reuters) - Japan's Renesas Electronics Corp, the world's fifth-largest chipmaker, said it wanted to reduce its workforce by 12 percent and shed half of its domestic plants within three years to compete better with aggressive overseas rivals to produce cheaper, smaller chips.

Renesas, a product of successive mergers of the chip divisions of major shareholders Mitsubishi Electric Corp, Hitachi Ltd and NEC Corp, said the job cuts would save the company 43 billion yen ($541.97 million) annually.

The company reported a massive loss in the last financial year and is seeking to avoid the fate of fellow Japanese chipmaker Elpida Memory Inc, which filed for bankruptcy protection in February because of tough market conditions and fierce global competition.

"So they managed to stem the losses for now, but expanding their business from here is the next big problem," said Toshiyuki Kanayama, a Tokyo-based senior market analyst at Monex Inc. "The challenges are what come after the painful restructuring."

Renesas, which presented the restructuring plan to its unions on Tuesday, said it will consider selling or consolidating eight out of 19 plants, which includes a plant that was successfully sold to Fuji Electric Co Ltd this week.

Another plant in southwestern Japan could also be included in restructuring in the future, the company said.

In return for the restructuring, the chipmaker is expected to secure 100 billion yen in loans and other forms of financial support from its major shareholders and four banks. The shareholders have already agreed in principle to provide 50 billion yen in assistance, sources previously told Reuters.

"My decision is based on whether Renesas should no longer exist or whether we should maintain parts of the company. And even though it requires pain and sacrifice, without a doubt, we have to protect Renesas," President Yasushi Akao told reporters at a packed news conference in Tokyo.

Renesas is working towards securing funding for the 5,000 job cuts, Akao said.

The total number of job cuts at Renesas may add up to at least 12,000, including the cuts announced on Tuesday as well as other businesses that are likely to be sold off, sources told Reuters in May.

NET LOSS

Renesas, the world's leading supplier of microcontroller chips, posted two consecutive years of losses because of massive supply disruptions in the wake of natural disasters in Japan and Thailand.

Akao said the business outlook remained difficult, with the impact from the natural disasters as well as tough market conditions expected to continue.

In an effort to battle the persistently strong yen and cater to a growing number of overseas clients, Akao said Renesas would move more of the chipmaker's packaging and testing facilities abroad. Continued...