NEC hopes to sell plants to foreigners

NEC Corp President Koji Nishigaki has a plan that would once have been unthinkable in Japan: sell domestic factories to foreigners.

Nishigaki will likely make the No. 3 chipmaker's sale of up to ten out of 31 plants in the country to foreigners a key part of a three-year reorganization plan he unveiled yesterday, shrugging off opposition from unions and politicians, analysts said.

Nishigaki's actions may pave the way for other companies to break with tradition to cut costs as Japan's electronics industry reels from the effects of a global technology slump and businesses are hurt by the country's 11-year economic slump.

With the exception of Sony Corp, no Japanese company has ever sold a local plant to a foreigner, fearing mass firings of employees, many of whom expect to spend their entire career at one company.

NEC's Nishigaki may have no choice. It is unlikely he will find a Japanese buyer for the plants, and with NEC's group net income down 72 percent in the quarter ended June -- hurt by lower prices of chips and personal computers -- Nishigaki needs to move quickly to cut costs.

For 63-year-old Nishigaki, who has been with NEC for 40 years, the break with tradition is necessary.

NEC would probably sell "a third or a quarter" of its domestic plants, said Ikuo Matsuhashi, an analyst at Goldman, Sachs & Co. It may want to sell some assembly plants for microchips, personal computers and communication equipment.

Nishigaki has already sold some overseas plants. NEC last December sold its UK mobile-phone factory to Celestica Inc, after selling a networking-equipment plant in Brazil to the Canadian company a year ago.

Celestica is the third biggest of electronic manufacturing service companies that make products under customers' brand name, while Solectron is No. 1.

Domestically, the company said it will sell all shares in a laser printer unit in Niigata prefecture, in central Japan, to Fuji Xerox Co, a joint venture between Fuji Photo Film Co and Xerox Corp Printers and components used in printers accounted for 0.9 percent of NEC's revenue in the year ended in March.

NEC, which plans to sell shares on the New York Stock Exchange this year, "will announce general restructuring measures of each division," NEC spokesman Dan Mathieson said, without elaborating. The company has three divisions: computers, telecommunication equipment and electric components.

Nishigaki would have a hard time keeping NEC's Japan plants.

With higher wage and land prices in Japan, it's cheaper to make microchips, flat panels and personal computers in Korea, Taiwan and other Asian countries.

It costs between US$3 and US$4 to produce a 128-megabit computer memory chips in South Korea, compared with US$5 in Japan, said Michito Kimura, a semiconductor analyst at a market researcher IDC Japan.

The chip sells on the spot market for US$1.70.

Contract manufacturers, or makers of electronics parts to other companies' designs such as Solectron and Celestica can also reduce costs because big orders from multiple customers give them economies of scale.

That's why Nishigaki is betting he can sell domestic factories to such companies, which will benefit from Japan's highly skilled labor and technology to make advanced products, such as computers with DVD players and mobile phones with Internet connectivity.