Rising economic tide lifts Japan's chip giants
By Anthony Cataldo
EE Times
(10/27/00, 02:33:44 PM EDT)
TOKYO ( ChipWire) — NEC Corp. reported earnings this week that far exceeded its earlier forecasts, a feat other Japanese electronics titans expect to match in coming weeks as they disclose midterm financial results. The good news is fueling cautious optimism about an upturn among Japan's top electronics producers as they carve out similar strategies focused on attacking the communications market and striking partnerships to reduce costs.
NEC reported corporate sales of $22.946 billion and net income of $189 million in the first half of its fiscal year, which started April 1. The conglomerate's semiconductor unit saw the biggest surge in sales, rising 21% to $6 billion for the period (see Oct. 26 story).
"Because of the expansion of the Internet all over the world, we have a chance" at a significant upturn in Japan, said Koji Nishigaki, president of NEC.
Toshiba Corp. is feeling the rising tide as well and expects to report net earnings as high as $1.25 billion for the full year, said chairman Taizo Nishimuro. "I do believe the overall Japan economy is on the right track to come back," Nishimuro told EE Times. "The performance of the companies is improving, and capital expenditures are definitely increasing this year.
"The problem has been the decline in consumer spending — that is the main problem with the Japanese economy," Nishimuro added. "But this year the year-end corporate bonus will increase, and that will fuel consumer spending."
For its part, Mitsubishi Electric Corp. expects its semiconductor sales will jump 35% this fiscal year and projects sales will climb 10% a year for the next two fiscal years. Much of this increase is coming from memory products, especially flash memory for code storage in cellular phones. Also, optoelectronics devices will jump nearly 60% this year alone. Mitsubishi is also pushing out higher volumes of ASICs, microcontrollers and power devices.
But the company projects that its revenue from memory devices will decline by almost 10% in fiscal 2002, largely because it plans to keep its DRAM production flat.
Anxieties linger
For most of this year, electronics companies have been struggling to meet rising customer demand in the face of limited capacity, a situation that has pushed up revenues and bulked up profits. Yet electronics vendors with a heavy interest in semiconductors are heeding analysts' warnings about an impending slowdown.
Executives at Toshiba and Mitsubishi, after boosting their capital expenditures significantly this year, said it's likely that next year's capital spending will fall below this year's level. "People are starting to worry about overcapacity, and there are several forecasts for 2002 and 2003 suggesting we may have overcapacity," said Takeshi Nakagawa, executive vice president of Toshiba's semiconductor, display and components divisions.
Yoshiaki Kushiki, a director and member of the board at Matsushita Electric Industrial Co. Ltd., also expressed concern. "We are getting the impression that the economy is steadily recovering, but still we have anxiety that capital spending [may] be excessive next year," he said.
Another worry is that key markets — including cellular phones, PCs and peripherals, audio/video products and newer devices like MP3 players — are showing signs they may not attain the heady growth rates originally forecast. Sales of MP3 players are down 40% from projections, and chip makers are ratcheting down growth expectations for cellular phones in the next two quarters as well, said Nakagawa.
Nevertheless, he expects 100 million more cell phones will ship this year than last. "That's almost the volume of the whole PC or color TV market," Nakagawa said. "In the long term I'm not worried about [a cellular] slowdown."
"The first half was excellent," said Keiichi Shimakura, deputy president of NEC Electron Devices. "But in the second half we already have some concerns. I think there will be a mixture of busy product lines and declining ones."
In some areas, such as DRAMs, Japanese companies are relying more on partnerships as a way to share the risk. Shimakura said Elpida Memory, a joint venture of NEC and Hitachi, will make available by year's end the first samples of its 0.13-micron 256-Mbit DRAM, a part that uses a unique tantalum oxide capacitor structure that keeps cell size to a minimum and die size to a mere 58 mm2. In a market where being early with die shrinks determines competitiveness, Elpida believes it has a winner. "We're going to be half a year earlier than the rest of the industry," Shimakura said.
On the communications front, NEC is aiming at cellular and optical as two growth vehicles. The company aims to supply infrastructure gear, software and as much as half of the handsets needed for NTT Docomo's much-watched third-generation cellular system. Based on wideband CDMA, it's set to go live next spring.
Separately, the company has directed out to the merchant market two groups that have been supplying optical components and modules for NEC's own systems. "They have an aggressive plan to grow their business threefold in the next three years," said Nishigaki.
Toshiba is also experiencing a growth surge, especially for its NAND-type flash devices, used for solid-state data storage; and for the MIPS-based Emotion Engine microprocessors, used in Sony's Playstation 2; for 128-Mbit Rambus DRAMs; and for discrete devices. Based on sales projections, the company believes it has surpassed NEC as the second-largest IC maker, behind Intel Corp. (NEC questions the data.)
Toshiba hopes to see further sales growth as its NAND flash moves into cellular phones for code storage on Web-enabled phones starting next quarter. And before year's end, it expects to roll out processors for networking and digital TV that will be based on the Emotion Engine it co-developed with Sony.
Both Toshiba and NEC are taking on broader roles by providing system and chip design prowess to communications companies. Toshiba is building custom chips for Cisco, Nortel, Marconi and Alcatel as well as for fabless communications-chip makers such as Broadcom and PMC-Sierra.
NEC says that in the last year it has started to provide customers with not only the main system LSI device but also finished system boards or, in some cases, whole system designs. The company has fashioned ISDN modules and palmtop terminals, for example, that include all system elements, Shimakura said.
Divergent paths
NEC and Toshiba in some ways disagree on the best road to profitability, however. Toshiba has been more willing to make agreements with outside foundries to bring up capacity. NEC also has turned to outside foundries but uses them more as a cushion when it can't provide the capacity it needs in-house.
Shimakura said NEC may spend as much or more on capital expenditures next year as it did this year. A large chunk of that outlay would go toward building and equipping new 300-mm wafer lines in Hiroshima, Japan, and in Roseville, Calif.
The two companies are also at odds over how best to deploy engineers around the world, a strategy that is seen as key to fostering closer ties with big customers. NEC will add two design centers worldwide, bringing the total number to 27, and increase the number of engineers at the centers from 500 to 800.
Toshiba's Nakagawa favors sending engineers to work at the customer's site. "In the past we would prepare design centers such as in the United States. But this model doesn't work anymore," he said. "Instead we're preparing special resources for key customers."
The deeper "people" problem executives are still grappling with here is how to focus sprawling conglomerates on a few strong product areas without laying off employees — a conundrum that has kept real corporate reform on a slow track. "A substantive change in employment is not taking place," said Nishimuro of Toshiba. "We do feel we have a social responsibility about employment, and that makes it difficult to cut down the number of employees."
The answer increasingly lies in partnerships. Earlier this month Toshiba sold off its nickel metal hydride battery business to battery maker Sanyo, which agreed to retain the unit's staff. And NEC announced a tie-up with Casio Computer this past week in mobile displays.
"There are many partners we are lining up that we cannot talk about yet," said Nishigaki. "If we cannot reach 10-to-15% market share in an area we cannot survive, so we have to go to other companies to get the power to have critical mass." |
