TOKYO Confirming the speculation that followed poorer than expected quarterly results by parent NEC Corp., NEC Electron Devices said Tuesday (July 31) that it will cut 4,000 employees, consolidate production and slash capital spending by 42 percent as part of a radical restructuring.
Hardest hit in a far-ranging set of cutbacks will be NEC Semiconductors UK Ltd. (Livingstone, Scotland), where monthly capacity of a 200-mm line will be reduced from 28,000 to 15,000 wafers over the second half of the current fiscal year, and 600 jobs will be cut from the plant's staff of 1,600.
Kanji Sugihara, president of NEC Electron Devices, which sells semiconductors as well as design and foundry services, said the company will close its 150-mm fabrication line at NEC's Sagamihara plant near Tokyo and shift other 150-mm fab lines in Japan to locations that have both 200-mm and 150-mm lines.
The company will also consolidate and reorganize three semiconductor assembly companies NEC Fukuoka Ltd., NEC Oita Ltd. and NEC Kumamoto Ltd. into NEC Semiconductors Kyushu Ltd., which will be established in October 2001.
Furthermore, two assembly plants of NEC Yamagata Ltd. will be merged into one location in the second half of this fiscal year, Sugihara said.
About 200 of the job cuts will be made at still undisclosed plants in southeast Asia, he said.
"Through the above structural reforms, a total of approximately 4,000 employees will be reduced worldwide, including a reduction of approximately 2,200 contracted employees," Sugihara said.
Investment will also take a hit, as NEC Electron Devices attempts to reduce its fixed costs by 7 percent compared to the last fiscal year.
Overall, NEC will cut its capital expenditures in half compared to last year, Sugihara said. This spring the company announced it would invest about $1.37 billion in fiscal 2002, but the company is now cutting that figure by $400 million.
Facing a packed auditorium at Tokyo's Japan Federation of Economic Organizations, Sugihara told reporters and analysts that NEC will freeze its planned investment of roughly $160 million to increase production capacity of 200-mm wafers at the company's Shanghai Hua Hong NEC Electronics Co. Ltd. NEC had planned to boost monthly production there from 20,000 to 25,000 wafers.
The cuts at Electron Devices come as the company aims to reduce its break-even amount by about $806 million after it reported about $80 million in losses for semiconductors last Friday (July 27). Management has cut the company's net profit estimate for the six-month period ending this September from roughly $120 million to about $24 million.
The performance of NEC Electron Devices has been a concern to NEC president Koji Nishigaki. "Our semiconductor business and Electron Devices are now in poor shape," Nishigaki told EE Times several weeks ago. "The semiconductor side of our business has become a big headache."
NEC as a whole actually remained profitable in the last quarter, accruing almost $30 million in operating profit and a net profit of about $6.5 million. Consolidated sales for the three-month period ended June 30 increased 6 percent over the year-earlier three-month period.
But the plunging semiconductor market wrecked havoc with NEC's bottom line, despite a net increase in net sales for NEC Electron Devices. Sales of electronic devices were down 28 percent year-to-year and the division lost $140 million at the operating level, said Scott Foster, senior vice president of equity research at Lehman Brothers in Tokyo.
There were some bright spots amidst the gloom, however. Despite the $80 million loss at Electron Devices and the $120 million loss in semiconductors for the quarter, the company eked out a $40 million profit for logic and discrete devices, according to Hitoshi Shin, first vice president at Merrill Lynch & Co. (Tokyo).
"We can say that NEC's steady, company-wide rationalization efforts have both enabled them to avoid a bloodbath and created a sound and understandable basis for recovery," said Foster.
Sugihara's vagueness on how NEC would handle its relationship with Elpida Memory Inc., its DRAM joint venture with Hitachi Ltd., angered some fund managers and analysts attending the Tuesday briefing.
In an extended question and answer session where they were repeatedly quizzed about NEC's DRAM plans, senior executives said the company would lessen its exposure to 64-Mbit densities while Elpida charged into production of high-density parts produced in 0.13-micron technology on 300-mm wafers.
Sugihara said comparatively little about Elpida, which is intended in part to reduce NEC's and Hitachi's exposure to the commodity DRAM market. Sugihara said he could see no recovery for the DRAM market in 2002, but predicted a modest 15-to-17 percent rise in demand in 2003. NEC will continue to supply DRAM to Elpida for the "time being" on a contract manufacturing basis, he said, and will then fully withdraw from the DRAM market in 2004, when NEC will become one of the majority shareholders in Elpida, he said.
"I just don't get the commitment to a commodity DRAM business that has been losing money for seven years," said one analyst who attended the briefing, who asked not to be named. "If they let DRAM go, they would double their stock price.
"Everyone would like to ask them, 'What the hell are you wasting your money on Elpida for?' It's a mystery to me," the analyst said.