NEC Eyes IPO, Lower Stake In DRAM Venture
By Reuters
August 3, 2001 10:13 AM ET
TOKYO (Reuters) - Japanese chipmaker NEC Corp aims to take its dynamic random access memory (DRAM) chip venture public and cut its stake in the unit as soon as possible as it focuses on higher-margin system chips, a senior executive said on Friday.
``There are several conditions for doing (an initial public offering), such as profitability, but we're thinking of doing this as quickly as possible,'' Keiichi Shimakura, deputy president of NEC's electron devices company, said in an interview.
NEC plans to steadily shift its DRAM operations to Elpida, a 50-50 joint venture with Hitachi Ltd (6501.T), with virtually all of its DRAM development, production and sales operations scheduled for transfer to the venture by 2004.
NEC has not set a time frame for the IPO, although it could occur anytime after the shift is complete.
``There's a separate issue of whether conditions will permit it or not, but as quickly as possible the company will be doing everything on their own from development to production and sales, and then bring in capital from the outside,'' Shimakura said.
He added that, while it was unclear how far NEC would pare back its stake in Elpida, it could fall below one-third or even 20 percent.
Several of Japan's chipmakers have been dealt a severe blow by a sharp downturn in DRAM prices since last autumn, reflecting a sudden drop-off in demand late last year for personal computers and stiff competition from other Asian producers.
VOLATILE DRAM
NEC, the world's third-largest chipmaker, posted a loss of 15-16 billion yen ($120-$130 million) in its memory chip operations in the April-June quarter, resulting in a more than 70 percent drop in consolidated operating profit for the period.
NEC plans to halt DRAM production at plants in California and Scotland, resulting in combined layoffs of more than 1,300.
It also plans to shut an older test production line near Tokyo, although Shimakura said there are no plans to cut chip production capacity inside Japan.
Investors have generally taken a favorable view of NEC's restructuring, including its plans to distance itself from DRAM.
NEC's shares rose for a fifth consecutive day on Friday, ending 0.22 percent higher at 1,796 yen despite last week's report of a sharp decline in first-quarter profits.
The shares are down 14 percent from the start of the year, outperforming three of Japan's other four other chipmaking conglomerates, although it lags the benchmark Nikkei average (.N225), which is down 11.2 percent.
Only Hitachi has put in a better performance among the semiconductor conglomerates, rising more than 10 percent since the start of the year as investors applauded its rapid success in the data storage business.
NEC also plans a reshuffling of domestic facilities to consolidate plants and replace aging facilities, although Shimakura said details have yet to be worked out and the company was now in talks with its unions about possible relocations.
CUSTOMISED SILICON
NEC is increasingly focusing on system large-scale integration chips: customised silicon used in products ranging from video game consoles to automobile engines and that offer higher margins than commodity-type chips such as DRAM.
Helping buoy the company's semiconductor operations are deals to supply graphics chips for Nintendo Corp's (7974.OS) GameCube console due out this autumn and engine control chips for Toyota Motor Corp (7203.T).
Shimakura also said NEC's robust domestic sales of cell phones, where it now holds a 40 percent market share for NTT DoCoMo Corp's (9437.T) popular Web-enabled ``i-mode'' phones, was boosting demand for his division's baseband chips.
He also noted recent signs of a pick-up in chips used as drivers for liquid crystal displays.
But he remained wary about the outlook for the global chip market, which is reeling from its worst downturn ever.
Regarding comments by Intel Corp (INTC.O) President Craig Barrett on Thursday that the slump in the computer sector has bottomed out, Shimakura said the industry appeared to harbor high hopes for a boost from the planned launch of Microsoft Corp's (MSFT.O) Windows XP operating system in October.
``We're also hopeful about XP, but our hopes have repeatedly been betrayed,'' he said.
He said there were no indications of an imminent recovery in the latter half of this year, suggesting the industry may have to wait until the middle of next year for a full-fledged comeback.
``If demand rises, or even if it doesn't, we're lowering our break-even point so we can generate a profit,'' he said. |
