Renesas Electronics Corp, Fujitsu Ltd and Panasonic Corp have begun discussions toward integrating their system chip operations, according to a report Tuesday by Japan's Nikkei news service.

The three will spin off their system chip design and development divisions to create a new company, the paper said.

Under the proposed plan, the three companies' chip manufacturing divisions would be separated from their design divisions and integrated into a joint venture that Innovation Network Corp. of Japan (INCJ), a government-backed investment fund, is creating with Globalfoundries Inc., Nikkei reported.

The new company will develop system chips based on the parent companies' proficiency in image processing, telecommunications and other technologies, the paper reported.

The three companies are expected to hammer out a basic agreement by the end of March with an aim to create the company by the end of 2012.

The JV is also in final discussions to purchased Elpida Memory's lone fab in Japan, Nikkei reported.