NEC closing older fabs, moving work to Asia

February 23, 2007 – A wide-ranging restructuring plan unveiled by NEC Electronics Corp. aims to improve profitability over the next few years, by consolidating its facilities in Japan from nine to four; moving a variety of backend manufacturing overseas to elsewhere in Asia; and cutting back capex levels by 30% starting in 2008 once it finishes the bulk of its 300mm manufacturing investments.

In a presentation, NEC unveiled several plant consolidations in Japan, as follows:
– A 6-in. and a 5-in. fab in Kansai; focus will be on a 200mm dedicated line for display, power devices;
– A 8-in. and 5-in. facility in Yamagata, focusing on 300mm leading-edge SoCs and copper interconnects;
– A 6-in. facility in Kyushu, focusing on its 200mm site for flash and automotive MCUs (the company’s Roseville, CA site recently received equipment/process lines from this site);
– A 6-in. facility in Yamaguchi will be kept for multipurpose MCUs and ASICs, as well as display drivers.

Among the company’s backend shufflings are a shift in work from Japan (Kyushu and Fukui) to China (Shougang NEC venture), Malaysia, and Singapore, for a variety of work including advanced SoC packaging (SiP and FPBGA), products where it will increase capacity for multipurpose MCUs, power devices, and quad-flat packages (QFP), and automotive MCUs (QFP). Work for discrete devices will be sent to Indonesia.

NEC also expects to cut back capex by 30% next year, from an estimated ¥100 billion (~US $830 million) in FY07 to ¥70 billion (~$580 million), as it comes to the end of large-scale investments for 300mm operations. The company spend ¥163.2 billion ($1.35 billion) in FY05, half of that for 300mm, and ¥83 billion ($689 million) in FY06 (~40% on 300mm). About a third of the company’s FY07 capex has been slated for 300mm investments, according to the presentation.

The Japanese firm is trying to recover from what are increasingly disappointing numbers — a ¥30B (~$249 million) operating loss in FY07 and a ¥45B ($373 million) net loss, worse than previous forecasts of a ¥7B ($58 million) operating loss and ¥25B ($207 million) net loss. The company did not hold back in criticizing its performance — slides included comments that “management resources were not focused enough, leading to weak products that could not compete in global markets and scattered product lineups,” and that “streamlin[ing] of manufacturing lines was too slow.”

To achieve the consolidations and cut costs, NEC plans to reallocate the equivalent of ~1000 positions, and reduce fixed costs by ¥20 billion ($166 million) by FY08 — even if sales are flat with FY07. That ¥20B breaks down to 20% depreciation (lowering capex), 30% R&D cutbacks (outsourcing costs for cancelled development projects), 15% manufacturing cost reductions, and 35% for “other” costs including fixed costs and personnel.

The goal is to boost the company’s core semiconductor businesses — computing/peripherals, consumer electronics, and auto/industrial — to 70% of total semiconductor sales by CY09, up from 54% in CY06, and 47% three years ago. The main emphasis will be to boost both consumer and auto segments above 20% of chip sales. “Other” products, e.g. communications, multipurpose ICs, discrete, and optical, will be redefined and resorted to get to the 70% figure.


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