Thomson SA of France has consistently denied that the talks it has been holding since last autumn with SGS Microelettronica SpA of Italy would lead to the two companies merging their semiconductor interests, but according to the Wall Street Journal, sources close to Thomson in Paris insist that a merger is the aim of the talks. Thomson took a big leap up the ranks of the world’s chipmakers when it acquired bombed-out Mostek last year, but the combined businesses of the two state-owned companies would still create only the world’s twelfth biggest chipmaker – and the second in Europe after Philips. The two companies have substantially complementary portfolios, and are already working together on 4K and 16K EPROMs. Both have plants in the US – Thomson through Mostek in Texas, SGS with its own new one in Arizona. Thomson is primarily the European Motorola second source, and is working on several leading edge telecommunications parts and signal processing chips; SGS is the European Zilog second-source, for what that’s worth these days (though the combined company would have the muscle to buy Zilog if it wanted it), and also has joint ventures with AT&T on specialist chips. Since Zilog is second-sourcing the AT&T WE32100, and expects to get masks for the new WE32200 shortly, acquisition by SGS of Zilog from Exxon, which wants shot of it, would not ruffle any feathers. Both do CMOS and bipolar.