January 3, 2007 – In a move that may further juggle the top positions among photomask suppliers, NEC Electronics Corp. has agreed to sell its Fabserve photomask manufacturing subsidiary to Dai Nippon Printing Co. Ltd. for an undisclosed amount.

Under terms of the deal, which is expected to close by June, NEC Fabserve transfer its existing photomask manufacturing and sales business to a newly formed subsidiary, which will then be transferred to DNP. NEC Electronics also will transfer its photomask-related equipment to DNP, and the three companies will continue to collaborate on photomask development and manufacturing, to be applied to their respective businesses.

DNP says the deal will expand its R&D and manufacturing capabilities and increase production volumes, and lower overall production costs. For its reasons to get out of the photomask biz, NEC cited the growing burden of increased development costs and capital investment, and a sharp reduction in cost competitiveness for smaller production volumes.

NEC Fabserve, located in Sagamihara city, posted fiscal 2005 sales of about 18 billion yen (around US $150 million), about 10% of DNP’s 1.507 trillion yen ($12.7 billion) during the same period.

Last fall, analyst Robert Castellano with The Information Network pointed out that the race for top market share has tightened between Toppan Photomasks and DNP. Toppan finished 2005 with a 40.1% share in the merchant market vs. DNP’s 31.8% share, largely due to its acquisition of DuPont Photomask, he said, although DNP’s pursuit of alliances with major semiconductor manufacturers could give it an edge going forward.

Castellano also noted that the photomask industry is experiencing slowing growth due to design activity and a shift in capex from memory firms. The surge in memory capex affects photomask sales because millions of memory devices are made from the same mask set, which can be used for months, vs. logic devices or foundries that change mask sets more frequently because of device evolution or new customers, he said.