NEC Corp.'s electronic-components business, which begins a new fiscal year this week as a separate, independent unit, plans to substantially boost capital spending and expand its alliances in an effort to resume growth, company officials told EBN last week.
The unit, NEC Electron Devices, will increase capital investments by 20% in the fiscal year that begins this week, to about $1.7 billion from $1.4 billion last year. Much of the investment will be used to upgrade some of NEC's chip-fabrication plants to an 0.13-micron process technology, said Kanji Sugihara, president of the business unit.
The investments could be higher, he said, if NEC decides to build a new system-on-a-chip fab in Kyushu, Japan. Additional funds will be allocated to upgrade a fab NEC jointly owns in Shanghai, China, called NEC Hua Hong Semiconductor, he said. That operation will substantially raise the company's output of LCD driver ICs, which are in short supply.
In addition to the joint venture in China, NEC is teaming up with rival Hitachi Ltd. with the official launch this week of NEC Hitachi Memory Inc., which will develop and produce DRAMs.
"I expect such joint ventures will become more popular [for us] in the future, especially for semiconductors that are in short supply," said NEC chairman Hajime Sasaki.
For the fiscal year ended March 31, memory chips represented about 21% of NEC's estimated $9.8 billion in semiconductor revenue, while system-LSI devices accounted for 63% and discrete devices 16%. Sugihara said the revenue breakdown in the next couple of years should shift to 30% for memory, 60% for system LSI, and 10% for discrete devices.
Overall, sales at NEC Electron Devices ended the fiscal year flat from last year, at about $11.3 billion. Sugihara said chip sales should rise substantially this year, but overall Electron Devices revenue will probably grow just 11% due to unfavorable currency-exchange rates and because NEC's non-chip businesses are struggling.
Sugihara noted that NEC's capacitor, flat-panel-display, and battery operations are all in the "scrap and build" mode and are shifting their focus to more lucrative end markets, such as wireless devices and consumer products.
NEC Electron Devices is one of three "semi-autonomous" companies NEC has formed as part of its effort to cut costs and target various Internet-related businesses. The other independent units are NEC Networks, which will focus on communications equipment, and NEC Solutions, a provider of IT systems and software.
Each will be run as its own profit/loss center and will be free to make its own decisions regarding acquisitions, spending, and market focus. Parent NEC, however, will retain oversight capabilities and must approve capital spending over a certain amount.
NEC's move reflects a dramatic shift in Japan to break down decades-old traditions and adopt Western-style management practices to remain competitive. NEC will, for instance, offer stock options and other incentives to managers of the new units.
Still, NEC doesn't have any immediate plans to spin off the new units or take them public, Sasaki said. He added that the company's first step in that direction would be to sell off or merge smaller businesses such as monitors and software.
Several vertically integrated companies in the United States and Europe, such as Harris Corp. and Siemens Corp., have spun off their chip businesses into separate companies that now carry different brand names.
Matthew Sheerin contributed to this report.