Renesas Electronics Corp, Fujitsu Ltd and Panasonic Corp are in talks to merge their chip operations, four sources familiar with the matter told Reuters on Wednesday.

The three firms are considering spinning off their system chip design and development divisions, with production to be transferred to California-based Globalfoundries Inc, which is planning to set up a company in Japan, the sources said.

The government-backed investment fund Innovation Network Corp

is likely to be involved in the project, according to the sources.

The Nikkei newspaper has also reported that Elpida Memory Inc officials and Globalfoundries would meet this week to discuss a possible sale of Elpida's Hiroshima factory.

Elpida said in a statement that the report on the sale of the Hiroshima plant was incorrect, but did not specify what element of the report was wrong.

(Reporting by Reiji Murai; Writing by Nobuhiro Kubo; Editing by Edwina Gibbs)