NEC Corp, Japan's second-largest chipmaker, will use Taiwanese companies more to assemble personal computers so it can devote resources to its software and services business, which remains profitable.
"We will ask Taiwanese companies that have factories in China to assemble 50 percent to 70 percent of our PCs" by March 2003, NEC Executive Vice President Akinobu Kanasugi said in an interview, adding it has held talks with several companies. NEC now farms out less than 10 percent of its PC assembly to Taiwan.
NEC, whose shares are the third-worst performing on the Nikkei 225 stock average this year, is overhauling its PC business, turning assembly plants into customer support centers to recoup losses related to its manufacturing operations.
"Japanese personal-computer makers are shifting production to China to cut costs," said Katsuaki Furutachi, who helps manage about ?150 billion (US$1.2 billion) in Japanese equities at Asahi Life Asset Management Co. "NEC's move is unavoidable because it must follow its peers."
NEC's Taiwan suppliers include Arima Computer Corp (
The shares of Arima rose 1.5 percent to NT$26.70. First International rose the maximum-permitted 6.8 percent to NT$14.85.
Tokyo-based NEC, Japan's biggest PC maker, is among several of the country's largest electronics makers expecting record losses this fiscal year after PC demand slumped, leading the semiconductor industry to its worst year on record.
NEC is cutting 14,000 workers in the 12 months ending March 31 and is closing unprofitable factories. The company expects its PC business to return to profit in the second half of next fiscal year, Kanasugi said.
The chipmaker wants operating profit at its computer business, which includes PCs, servers, software and services, to post a gain of more than 30 percent in the fiscal year ending March 2003, Kanasugi said. NEC expects its computer business to post an operating profit of ?73.5 billion this fiscal year.
Sales next year will be little changed or slightly less than the current fiscal year, Kanasugi said. "Hardware revenue will see a double digit percentage decline, while we will have a 15 percent rise in software and service sales," he said.
In October, NEC transformed its PC assembly plant in Gunma prefecture, north of Tokyo, to a PC repair center, and shifted all production capacity to a plant in Yamagata prefecture, Japan.
After NEC farms out the job of assembling PCs to Taiwanese companies, the number of employees making computers at the company will fall to 3,500 from 5,000, said Sonoko Fujita, a spokeswoman at NEC's computer unit. More than 1,000 workers will switch jobs within NEC.