NEC to Sell Off Computer Manufacturer

Tuesday, October 23rd 2001, 12:00 am
By: News On 6

TOKYO (AP) _ Electronics giant NEC Corp. hopes to sell a Japanese computer manufacturing unit to Solectron Corp., a leading U.S. technology components maker, for undisclosed terms.

NEC said Tuesday it expects to complete a deal next year under which Solectron, based in Milpitas, Calif., will take over most of NEC Ibaraki, which produces computer servers, workstations and data storage devices at a plant northeast of Tokyo.

Under the agreement, NEC will establish a new company and transfer the unit's manufacturing operations to it before selling the new company to Solectron. The company being sold will employ about 500 of 650 staff now working at NEC Ibaraki.

NEC Ibaraki's non-manufacturing operations, such as product development and data center operations, won't be included in the deal. About 150 workers are engaged in such operations, and they will stay with NEC.

The NEC Ibaraki business generates sales of 32 billion yen ($261 million) a year. It accounts for less than 30 percent of NEC group's manufacturing.

The planned deal follows a decision last year by NEC's Japanese rival, Sony Corp., to sell an audiovisual equipment factory to Solectron. Solectron has been trying to expand its electronics manufacturing in Japan.

Selling off operations to a supplier like Solectron generally leads to efficient production and cost-cutting. It allows more flexible production at a time when being first on the market can be crucial. It also makes it easier to adjust production quickly to meet fluctuating demand.

Like other Japanese electronics makers, NEC has been battling a global electronics downturn that is expected to worsen after the Sept. 11 terrorist attacks in the United States. NEC is expecting to post 150 billion yen ($1.2 billion) in losses for the fiscal year ending in March.