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NEC says it cannot meet demand for its semiconductors

NEC Electronics Corp, the world's sixth-largest chipmaker, may pay other producers to make more of its semiconductors for liquid-crystal displays because its plants can't meet rising demand for mobile-phone screens.

"We are getting a sense of solid demand for LCD chips from customers," President Kaoru Tosaka said in an interview, without naming the companies that may make its chips. NEC Electronics is the world's biggest maker of color LCD chips, he said.

The Kawasaki-based company is benefiting from higher shipments of mobile phones and other consumer electronics using its semiconductors. The company's shares, which were included in the Topix index on Aug. 26, have risen 81 percent since NEC Electronics sold shares in an initial public offering in July.

"NEC Electronics management knows how and what to concentrate their resources on," said Soichi Yamazaki, an in-house analyst at Fukoku Capital Management Inc, which manages the equivalent of US$4.3 billion. "It's got a good earnings outlook."

Its shares, though, climbed too rapidly, he added.

Besides LCD chips, sales of semiconductors used in camera-equipped cell phones, DVD recorders and digital cameras are also rising while sales of chips for game consoles and communications equipment are slumping, he said. NEC Electronics makes processor chips for Nintendo Co's GameCube video-game console and semiconductors used in Toyota Motor Corp's automotive engines.

Given the company's exposure to different parts of the semiconductor market, NEC Electronics won't change its earnings outlook for the fiscal year ending next March, Tosaka said.

The company expects net income of ?10 billion on sales of ?340 billion in the six months ending this month. For the full year ending next March, it forecast net income of ?26 billion on ?705 billion of sales.

Last week, NEC Electronics said it wants to increase semiconductor production capacity by 15 percent to 20 percent in the year ending next March, investing in plants that make chips with smaller circuitry widths.

The increase wouldn't include chips for LCDs because such chips typically have bigger circuitry features, spokesman Hisashi Saito said.

Still, NEC Electronics hasn't decided whether it needs to invest in or build a factory capable of making semiconductors from silicon wafers measuring 300mm across, a diameter 50 percent bigger than most producers currently use.

"I can't say we need 300mm plants right now, but we may reach the point where such factories are necessary in the future," Tosaka said.

Building and equipping a factory capable of cutting chips from 300mm silicon wafers typically costs as much as US$2 billion.
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