Kawasaki, Japan NEC Electronics Inc. has outlined its process roadmap, tipping a new 40-nm technology while also expanding its wings in high-k dielectrics for ASICs and cell-phone chips. But behind the scenes, the Japanese chip maker continues to retrench amid ongoing losses and a "crisis" at the company.
The self-described "crisis" surfaced in February, when the company announced plans to shut down several fabs. It also exited the structured ASIC and single-chip cellular phone markets, in an apparent move to cut costs and stem the flow of red ink.
Now, the company is reportedly revising its chip-outsourcing strategy. Rumors are heating up that NEC Electronics plans to sell the shares of its joint foundry venture in China Hua Hong NEC Electronics Co. to Semiconductor Manufacturing International Corp. (SMIC). Hua Hong NEC is a foundry venture between NEC and China's Hua Hong Group.
In another possible move to reduce costs, NEC Electronics "is also rumored to be seeking a tie-up partner for 45-nm LSI production," said David Motozo Rubenstein, an analyst with Jefferies Japan Ltd. in Tokyo.
The signs point to a quiet and gradual shift from an integrated design manufacturing (IDM) model to a fab-lite strategy. Still, a bigger question remains for NEC Electronics: Four years after being spun off from parent NEC Corp. and several management changes later is the chip maker heading in the right direction or is it destined to sink?
Clearly, the chip giant is heading in the wrong direction. Once the world's largest semiconductor supplier, NEC Electronics fell to 11th place in the IC rankings in terms of sales in the second calendar quarter of 2007, down from 10th place in the first quarter, according to iSuppli Corp. (El Segundo, Calif.).
"The main culprit for NEC's decline was display drivers, which suffered a $24 million sales decline compared to the first quarter," according to iSuppli. Citing ongoing losses and lackluster demand in the second half of its fiscal year, Jefferies' Rubenstein remains somewhat pessimistic about NEC Electronics and most other chip makers in Japan.
"I am bearish for most Japanese chip makers with the exception of Toshiba and Rohm," he said. "Rohm is a specialty chip maker and has an extremely disciplined approach to profit and loss. Toshiba is in a fortuitous position as arguably the technology leader in NAND flash, which is benefiting from a proliferation of applications."
On the other hand, NEC Electronics faces an uphill battle. "Intel and the other big guys have enough scale and market share to make consistent profits," he said. "NEC does not. It is trying to ramp up its system LSI business for games and automobiles. Those businesses have improved somewhat over the past few months, but the company was still in the red in Q1."
For the first half of its fiscal year ended in Sept. 30, NEC Electronics raised its operating profit forecast, due to higher IC demand from Nintendo Ltd.'s Wii game console, he said. NEC Electronics makes and sells a custom LSI and memory controller for the popular Wii game machine.
"However, the second half [for NEC Electronics] is trending below expectations, and thus the full year should be around the break-even level," he said. "Orders since July for fall products have been sluggish, particularly for LCD drivers in TVs."