Struggling Renesas Electronics will outsource part of its microchip production to Taiwan Semiconductor Manufacturing Co. (TSMC), the company said on Thursday.
Renesas struggles to keep up with aggressive competitors while racking up heavy losses, due to the effects of the strong yen.
Renesas gave no details on the tie-up, which it plans to announce next week.
Renesas, which holds a global market share of about 40 percent for microcontrollers, has been manufacturing all of its chips in its onw plants in Japan.
Renesas' Naka factory in Ibaraki Prefecture was damaged in the Great East Japan Earthquake last year.
Renesas was formed by a merger of Hitachi Ltd, Mitsubishi Electric Corp and NEC Corp.
The Yomiuri newspaper reported on Tuesday that Renesas plans to raise 50 billion yen ($630 million) in new capital, while cutting its workforce by about 15 percent.