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NEC carving out chip business

nec computer
NEC makes medical monitors, computers and electronic displays, as well as chips, and is focusing on computer services  

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan -- Computer maker NEC Corp. will spin off its chip business as a new public company, as part of its efforts to restructure.

Tokyo-based company NEC will keep on making computers and electronics, with an emphasis on computer services as well. The decision may signal the start of its exit from the chip business.

NEC has been one of Japan's "Big Five" chipmakers, a group that also comprises Toshiba, Fujitsu, Hitachi and Mitsubishi Electric.

But it revealed Thursday a plan to split off its chip business as a separate subsidiary in November. It hopes to sell 30 percent of the company to the public after the split.

Offering 'as soon as possible'

The process will be one of "kaisha-bunkatsu," or separation of business, NEC stated in a release. It expects the subsidiary to have total sales of 700 billion yen ($5.5 billion) and 25,000 workers.

That offering will come "as soon as possible," President Koji Nishigaki noted at a press conference.

nintendo gadgets
The cheapest memory chips go in all sorts of goods and gadgets but competition from competitors in Korea and Taiwan is fierce  

Japan's chipmakers have found the going hard in the industry's toughest downturn (full earnings roundup).

They are competing with a flood of cheap chips from Korean competitors such as Hynix Semiconductor and Samsung Electronics, as well as competitors in Taiwan.

NEC will now carve out its chip business, NEC Electron Devices, and most of its chip operations. It will keep its NEC Solutions and NEC Network divisions.

They will "concentrate further on IT and networking-integration solution business," the company said.

"As broadband and mobile Internet penetrates further into society, highly reliable systems to support this development are being urgently required," the company explained.

Most but not all chip operations

NEC makes high-end computers and also trades places with Fujitsu as the largest maker of personal computers for sale in Japan.

Its NEC Electron Devices division makes electronics such as displays and transistors. It also oversees the chip business, which ranks only second to Toshiba in Japan.

The planned carve-out would include most but not all of NEC's chip operations, because the company combined its memory-chip business with Hitachi in 1999. That will stay separate.

But NEC as a whole is increasingly focused on broadband and Internet growth. The company gets one-fifth of its sales outside of Japan.

The chipmaking business was siphoning cash from the other operations. Nishigaki said that chipmaking requires large amounts of investment to stay competitive.

Companies such as Toshiba have exited the cheapest lines of chips altogether, selling the business to Micron Technology of the United States.

In Tokyo on Friday, NEC stock leaped 4.8 percent to 1,001 yen on the decision. That helped the Nikkei 225 index up 0.8 percent to 11,832.23.




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