NEC cuts 20,000 jobs, consolidates 6-inch lines

NEC joins fellow Japan-based companies Toshiba and Hitachi in reporting losses and restructuring operations on declining demand.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 1/30/2009

Amid a massive December quarter loss, NEC Corp has stated plans to cut more than 20,000 jobs as it seeks to save $889 million (80 billion yen) over the next two years.

Revenue for NEC's fiscal Q3 was down slightly at $10.5 billion (948 billion yen) from $11.6 billion (1.05 trillion yen) in the year-ago quarter. Loss, however, climbed substantially to $718 million (64.62 billion yen) from the $29.1 million (2.62 billion yen) loss recorded in the year-ago quarter.

The Japanese electronics giant's semiconductor and component units were especially hit hard in the quarter, with revenue falling 25.5% and 30.6% respectively on a year over year basis. For the fiscal Q3, semiconductors recorded revenue of $1.41 billion (127.3 billion yen) and components recorded $318 million (28.6 billion yen). The company noted declining demand for PCs and display, as well as for automotive semiconductors, as the reason for the revenue falls within the two business units.

Approximately 10,000 full-time employees and the same number of contract/outsourcing staff will be impacted by the workforce reduction. The job cuts are expected to be concluded by March 2010.

Looking to its full fiscal year, ending in March, NEC said it now expects a $3.22 billion (290 billion yen) loss. NEC had projected a $166 million (15 billion yen) profit as recently as October 2008.

NEC also cut its full fiscal year revenue estimate to $46.7 billion (4.2 trillion yen), down from its previous forecast of $51.1 billion (4.6 trillion yen) in sales.

Fellow Japan-based company Hitachi has also forecasted a net loss for its fiscal year ending in March and said it will cut 7000 jobs in response to falling demand. Like NEC, Hitachi's expected fiscal-year loss of $7.7 billion (700 billion yen) came in contrast to the $166 million (15 billion yen) profit the company forecast in October.

Toshiba Corp, also based in Japan, offers further example of the country's economic slowdown. Toshiba Thursday announced a $1.76 billion loss for the December quarter and is expected to spin off its system and discrete chip operations to lower costs. Recent reports have suggested NEC is in talks with Toshiba on a possible chip alliance that could help ease both companies' financial pains. NEC did not return requests for comment on the rumored alliance from Electronic News .

Japan's Renesas Technology has further reported a 2500 employee reduction and guided for fiscal-year sales down 72% and income down by about half.

6-inch consolidation

NEC's job cuts and earnings announcements came this morning, one day after NEC Electronics America announced it will close the six-inch wafer fab line at its manufacturing facility in Roseville, Calif, by the end of March 2010. With the action, the Roseville plant will exclusively offer 8-inch wafer production. 

The move was not entirely unexpected. The closure is part of a broader decision by NEC Electronics America's parent company NEC to consolidate select six-inch fabrication lines worldwide as it aims to improve global manufacturing efficiency.

NEC Electronics America first announced in February 2006 the expansion of its 8-inch wafer fab line and said the 6-inch line production levels were expected to decline over time. NEC Electronics America said in a statement that the 6-inch line uses mature, 0.35- and 0.25-micron process technologies and that the decline in demand for products using these technologies has accelerated due to the market downturn. 

The 8-inch line at Roseville focuses on NEC customer requirements in the automotive, consumer electronics, and computer industries.