NEC slimming down its business

NEC has reached an agreement to transfer the bulk of its electronic component business to one of its subsidiaries, Tokin Corp., the two companies announced Tuesday. The deal is part of NEC's ongoing reform plans, which will see the company focus solely on the development and production of system LSI (large-scale integrated circuit) chips.

Tokin had been in talks with NEC since September last year to acquire the company's electronic components business, according to Yuhichi Haneta, the president and chief executive officer (CEO) of Tokin. This integration is expected to result in cost reductions in product development, manufacturing, sales and procurement, the company said in a statement.

Tokin will establish a new company to absorb NEC's production of relays, batteries and capacitors. In exchange, Tokin will issue shares to NEC, which will increase NEC's stake in Tokin to 66.6 percent from the current 40.6 percent.

The new company, which has yet to be named, will begin operations on April 1, 2002 and no layoffs are planned. All NEC employees at the affected units will be transferred to the new company, said Kouji Nishigaki, president and CEO of NEC.

The new company will have an estimated value of 170 billion yen (US$1.4 billion) and is expected to post revenue of 200 billion yen by 2003, with a target operating profit rate of more than 10 percent, Haneta said. NEC and Tokin expect the company to maintain an annual growth rate of 15 percent, said Nishigaki.

Influenced by the global economic downturn, Japanese electronic makers -- which once made everything from rice cookers to nuclear power stations -- are now reducing and consolidating their businesses. In August, Fujitsu Ltd., followed by others such as Hitachi Ltd., Matsushita Electric Industrial Co. Ltd., Toshiba Corp. and Kyocera Corp., announced restructuring plans that included layoffs and downsizing of some business units.

"After this (deal), we will keep looking for other merger and acquisition opportunities for businesses we are planning to reduce (in scope and size)," Nishigaki said at a Tokyo press conference.

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