TOKYO In a shakeup that principals said underscores a new willingness in Japan to break business ties to better compete in the global market, Yokogawa Electric Corp. and Ando Electric Co. Ltd. have agreed to combine their measurement and electronic device testing equipment businesses. As part of the move, announced Wednesday (Jan. 31), NEC Corp. said it will no longer be majority stockholder of Ando, and will reduce its 35 percent stake in the company to 32 percent.
Koji Nishigaki, president of NEC, said the deal will let Yokogawa and Ando pool their technological and marketing resources, providing them with a way to gain the firepower needed to compete against test and measurement giants such as Agilent Technologies and Advantest Corp. Unless the two companies have a global base, he said, they wouldn't be able to maintain market share.
For NEC, the move is the latest step in Nishigaki's program to shed non-core businesses and make them independent and profitable. Earlier this year, NEC said it would spin-off its optical semiconductor, microwave silicon and compound semiconductor operations. This time, in selling its stake in Ando (Kawasaki, Japan), NEC will accrue $56 million consolidated profit. But NEC will keep a 2 percent stake in Ando, signaling its desire to maintain a close relationship with the company, from which NEC will continue to purchase equipment, Nishigaki said. But while maintaining a token share represents a face-saving vote of confidence in Ando, NEC's move also sends a signal to other non-core NEC companies.
"Nishigaki is sending a message to all our group companies that they need to show they can add value to our business," an NEC spokesman said. "Those who don't look so strong will have to shape up."
Prior to the move, Ando and Yokogawa together held about 10 percent of the measurement equipment business, and about an equal amount of the ATE market. At the same time, Agilent owns about 30 percent of the measurement equipment market and Advantest owns about the same share on the ATE side, Ando and Yokogawa said. By merging, the two companies hope to achieve a 15 percent market share, or $1.72 billion worth of the global test and measurement market by 2005, said Ando president Masao Motohashi.
The partnership comes five weeks after two other companies similarly decided that bigger was better. Agilent Technologies signed a partnership with assembly-equipment maker Siemens to jointly develop and implement test and process control technologies for electronics assembly lines. Against that background of consolidation, Nishigaki said the move was essential.
"This is not just an M&A the whole picture is changing," the NEC president said. "They [Yokogawa and Ando] have to achieve critical mass."
Operating in 28 countries with 18,600 employees, Yokogawa had consolidated net sales of $2.70 billion in 1999, dwarfing Ando, which has 1,170 employees and had sales of $431 million in 1999. Yokogawa president Isao Uchida described the move with Ando as a result of a new corporate strategy, announced in January, to accelerate sales growth through industry partnerships. But Yokogawa has been trying to grow bigger through acquisitions and alliances for some time. Last November, it bought test equipment maker 3A International Inc. (Tempe, Ariz.), and last July it bought out Hewlett-Packard Japan, which became a wholly-owned subsidiary. Yokogawa had formerly held a 25 percent stake in the company.