Having divested its overseas system-level production plants to EMS partners earlier this year, NEC Corp. is now moving deliberately to implement contract manufacturing services on the company's home territory, according to chairman Hajime Sasaki.
In a recent EBN interview at NEC's headquarters here, Sasaki said that unlike some competitors, which are rushing to outsource production, NEC will move "a step at a time" as it looks for new divestiture opportunities and begins to build its own EMS business.
"The sale of overseas NEC plants is now complete," he said. "Now we're studying what to do in Japan. This is a different situation."
In the past few months, the Japanese electronics giant sold off its overseas equipment plants in Oregon, Brazil, and the United Kingdom to contractors that now act as outsourcing partners.
Becoming an EMS provider
Now that it has cleaned house, NEC is establishing itself as an EMS provider in its own right and has already set up an in-house company, NEC Production Systems, to oversee its entrance into the contract manufacturing market. The new corporate unit is still waiting for each of NEC's major business groups-NEC Electron Devices, NEC Networks, and NEC Solutions-to determine how they will proceed.
"Each [in-house] group has its own way of doing business," Sasaki said. "Each is now studying the best way for it to outsource more production or use its own surplus capacity for contract manufacturing for other companies."
A test case is NEC's plant in Nagano, Japan, which ended production of home electronic products in February. "We now want to use that capacity for EMS to keep the plant in operation," Sasaki said. "We have some local customers and are seeking additional EMS business."
However, NEC sees no need to rush its contract manufacturing presence. "We have plants [in Japan]. As we find customers who can use any excess capacity, we will sign them up," Sasaki said. "The market in Japan is changing, and companies are starting to outsource more of their production to EMS plants. We will take advantage of this move."
Sasaki was more cautious regarding any plans to sell off plants in Japan as a follow-on to NEC's overseas streamlining. Sasaki noted that the company's policy toward domestic divestitures is influenced by ingrained cultural traditions and a commitment to lifetime employment that discourage plant closures or overseas relocation.
"We're watching what Sony Corp. did in selling its Nakaniida [Japan] factories to Solectron," he said. "That's a big departure for Japanese companies. It [would not be] out of the question for NEC to take a similar step."
The most revolutionary possibility for NEC would be to simply close plants that are underperforming without necessarily having an EMS company waiting in the wings with an offer. Sasaki said NEC is prepared only "as a last resort to shut down a plant that is no longer competitive and if no other option exists."
NEC is adopting a similarly studied approach toward listing its shares on the New York Stock Exchange and engaging in mergers and acquisitions.
"We're planning to list on the New York Stock Exchange as a way to raise capital," Sasaki said, though he would not say when the listing would occur.
"We need to see the results of our first-half financial statement. If we get good results, then we may move ahead."
Sasaki said shares would be in the form of general market holdings. "We don't plan any new IPO issue. That would simply dilute shareholdings, and this isn't a good time for that to happen."
NEC is also taking a go-slow approach when it comes to acquisitions. While competitors in the telecom market are actively merging and shedding operations, NEC wants to pick up only small to midsize overseas companies that would fill a niche void in its business.
"NEC isn't big on mergers, but we're looking for smaller systems integration firms and network providers who could help strengthen our position, particularly in overseas markets," Sasaki said. NEC is specifically interested in making acquisitions in Europe, where it sees the biggest need to bolster its market position, he said.