Japan slams on the brakes with worse than expected Q2 results

By Paula Doe

WaferNews Contributing Editor

Worse than expected second quarter results have spurred more cutbacks in capital spending at Japan’s big chipmakers, as companies look for ways to curb losses without laying off workers.

Japan held up reasonably well in the first calendar quarter, but figures for the April through June period, from those Japanese companies who have started to release figures quarterly, were significantly below the guidance they gave as recently as May, and substantially below most Japanese analysts’ expectations as well. Results are presumed to be similar or worse at the companies who still only release figures twice a year.

Fujitsu now said it will cut capital spending on semiconductors another 26% from what it planned this spring, to $1.1 billion (?140 billion), a 30% decrease from last fiscal year. Biggest cuts will come in flash memory, where the company now plans to add only 28% more capacity, to expand from 36 to 46 million units/month by March 2002. It was planning a 67% increase, to 60 million units/month. Fujitsu will still invest in advanced logic and compound semiconductors. The company expects its semiconductor production to drop by 25% for the year through March 2002.

Fujitsu also said it will announce major restructuring plans shortly, reorganizing its semiconductor manufacturing and looking aggressively for acquisitions and partnerships. It plans to write off some $2.4 billion (?300 billion) in extraordinary losses in Q2 andQ3 from this restructuring.

NEC will cut back its semiconductor capex by approximately $360 million (?45 billion), about 29%, reducing its capital budget to $960 million (?120 billion). It plans to freeze the $160 million (?20 billion) expansion of its Shanghai fab, but maintain its 20,000 wafers/month capacity and convert production from DRAM to logic. The company will also close down its 150mm line at Sagamihara and gradually consolidate its other 150mm production as well. NEC also plans to combine its three back-end assembly companies in Kyushu into one company, and consolidate NEC Yamagata’s two back-end plants into one.

But executives said that the company intended to continue as planned with its investment in 300mm 0.13-micron production at Elpida Memory, jointly owned with Hitachi, aiming at capacity of 10,000 units/month by August 2002. Total investment for the fab is budgeted at around $600 million (?75 billion). NEC President Koji Nishigaku said at a company briefing that if 300mm memory production didn’t work out, they could always switch Elpida over from DRAM to logic. By year’s end, when NEC stops DRAM production in Scotland and switches to logic production in China, total wafer starts will drop about 8%, or 29,000 units/month, trimming wafer consumption from 260,000 to 240,000 wafers/month.

Mitsubishi Electric plans to cut spending by about $80 million (?10 billion), or 12%, to $560 million. It plans to cut the number of its assembly and test contractors in half, from 20 down to 10. The subcontractors and its own subsidiaries that oversee them employ about 2,000 to 3,000 workers total. But the company said it still plans to spend more than $8 million (?1 billion) to double capacity at its joint venture fab in Beijing, bringing it to 50 million units/month by 2003. Mitsubishi plans to make 50% of its key systems chips for digital consumer products at the China plant, up from about 20% now.

Toshiba says it will cut capital spending again, down to $625 million (?75 billion) for the fiscal year through March 2002, as its struggling DRAM business now looks like it will wipe out the company’s total corporate earnings for the year.

That’s a 46% reduction in capex from what was originally planned just in April, and another 25% cut beyond that announced a few weeks ago.

Hitachi has not announced any changes in its capital spending plans, but its major capital budget item this year, expansion of capacity at Trecenti Technologies, its 300mm venture with UMC, can at least be done in incremental stages as needed. The company plans to add capacity in more modules like its first, making only 7,000 wafers/month, which can be added in a few months. Hitachi said it worked with its equipment suppliers to make tools with half the throughput at half the cost for economical production at small volume.

At Matsushita Electric Industrial, President Kunio Nakamura aims to reassert control over the company’s highly independent subsidiaries in hopes of eliminating overlapping investments and wasteful competition between company units. He plans to close or combine some production units of Matsushita Electronic Components and Victor Co. of Japan, has instigated an early retirement program, and has directed managers to use their bonuses to buy Matsushita products.

While these companies have announced modest reductions in workers, few expect major cutbacks, so major savings will have to come from other sources to restore profits. “Most of the companies still have kept the lifetime employment system,” noted Dataquest analyst Takashi Ogawa. “Therefore, it might be difficult to force drastic restructuring compared to foreign companies.”

Of the 4,000 workers NEC plans to let go, only 300 are permanent employees in Japan. The 300 workers from Toshiba’s closed Yokkaichi DRAM line will be moved to other jobs, many apparently simply to the other DRAM line at Yokkaichi.

“Although the Japanese companies are restructuring for survival,” said Ogawa, “Restructuring without clear direction, including reasonable strategies, does not always give the chance to revise enough.”


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