NEC to sell 2 telecom equipment operations

TOKYO: Japanese electronics maker NEC Corp said on Monday it will sell the

manufacturing operations of two domestic units that develop and make telecoms

transmission equipment in a bid to cut costs and bolster flexibility.

The company said it was negotiating the sale with several electronics

manufacturing services (EMS) providers, which it did not identify. It expected a

definitive agreement by the end of the year and a closing by next March.

The operations employed 1,200 and posted combined sales of 110 billion yen

($900 million) in the business year ended in March, a spokeswoman said.

"Through the alliance with the EMS company, NEC intends to improve the

price competitiveness of its products, production lead time and flexibility to

better handle fluctuations in market demand," the company said in a

statement. NEC, also the world's third largest chipmaker, has been hit hard by

this year's info-tech slump and the worst downturn ever in the global

semiconductor market.

It recently forecast a 150 billion yen consolidated net loss for the business

year to next March and has unveiled a steady stream of restructuring plans to

trim its workforce and consolidate its production facilities. Just two weeks

ago, Solectron Corp, the world's biggest EMS provider, announced an agreement to

make computer servers and workstations for NEC.

The deal included the leasing of an NEC manufacturing facility in Ibaragi

prefecture, north of Tokyo. Solectron also struck a deal last year to take over

operations at Sony Corp plants in Japan and Taiwan as Japan's electronics

behemoths come under pressure to cut costs and boost profitability.

Two other major EMS providers, Flextronics International Ltd. and Jabil

Circuit Inc, have launched Japanese units this year in hopes of tapping the

fledgling market.

NEC will combine and sell manufacturing assets of the two units, NEC Miyagi

Ltd. and NEC Yamanashi Ltd., which make optic-fiber transmission systems and

equipment for high-speed digital subscriber line services. NEC also expects to

sign a multi-year contract with the EMS partner for manufacturing services for

the products now made by those operations.

The two units will retain their design and development functions, while NEC

Yamanashi will hold on to its Otsuki plant that makes optical devices and

optical submarine cable systems. NEC's shares ended Monday trade up 0.33 per

cent at 1,230 yen, in line with the benchmark Nikkei average's modest 0.66 per

cent rise. The announcement came after the market closed.

NEC's shares, like those of many other big Japanese electronics

manufacturers, have taken a beating this year as investors abandoned the

info-tech sector. NEC is down 41.1 per cent since the start of the year,

compared with the Nikkei's 24.2 per cent drop.

(C) Reuters Limited.