NEC Corp is in talks to sell as many as three computer, mobile phone and network equipment plants in Japan to Solectron Corp or other electronics manufacturers to cut costs and focus on designing products.
Japan's biggest PC maker and No. 2 cell-phone maker, which last month cut 4,000 jobs in its chip unit, is talking with several companies that make electronics under others' brands, said NEC President Koji Nishigaki.
He said he talks to Solectron President Koichi Nishimura "very frequently." A sale of three plants could raise as much as ?90 billion (US$750 million), analysts estimate, and would help NEC keep pace with Sony Corp, which sold plants to Milpitas, California-based Solectron in October last year. NEC currently owns 23 factories in Japan that aren't involved in chipmaking.
"The Japanese are very, very late in outsourcing their businesses, so these are positive steps," said Abdul Khalil Ali, senior portfolio manager at Dexia Asset Management Asia Ltd, which manages US$$300 million in Japanese stocks including NEC. The move "will make the company more efficient." One such plant in Japan alone would cost ``roughly between ?10 billion and ?30 billion,'' said Yoshihide Ohtake, an analyst at Tsubasa Research Institute, who rates NEC's shares "average."
Nishigaki's action may pave the way for other companies to follow suit. 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.
Other companies that make electronics under the brand names of other companies include SCI Systems Inc, Celestica Inc, Jabil Circuit Inc and Flextronics International Ltd.
Officials from the Japanese units of Solectron and Celestica declined to confirm whether they are in talks with NEC.
NEC is trimming production and cutting jobs after profit plunged 72 percent in the April-June period amid slumping chip prices. NEC "may have to slash more jobs if the situation gets worse," Nishigaki said.
Nishigaki, who has been saying NEC will offer its shares in New York Stock Exchange this year, declined to comment about when the company will take the step. He also declined to answer whether NEC has filed any documents to Securities and Exchange Commission in the US, suggesting that the plan may be delayed.
The NASDAQ Composite Index halved in the past year, closing at 1,842.97 yesterday, as demand for computers slumped. Dell Computer Corp, the biggest PC seller, said in May it will cut 4,000 jobs and Compaq Computer Corp, the second biggest, will cut 8,500 jobs.
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 and PCs in Korea, Taiwan and other Asian countries.
It costs between US$3 and US$4 to produce 128-megabit computer memory chips in Korea, compared with US$5 in Japan, said Michito Kimura, a semiconductor analyst at a market researcher IDC Japan.
The chip sells in the spot market for US$1.62.
Solectron and its rivals can produce at lower cost because big orders from multiple customers give them economies of scale.
Such companies would 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, Nishigaki said.
NEC has already sold some overseas plants. NEC last December sold its UK mobile-phone factory to Celestica, after selling a networking-equipment plant in Brazil to the Canadian company a year ago.
Domestically, the company 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.
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