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What's the future for NEC Electronics?

Posted: 05 Nov 2007 ?? ?Print Version ?Bookmark and Share

Keywords:NEC Electronics future? fab lite? IDM model?

NEC Electronics Inc. has outlined its process roadmap, tipping a new 40nm technology while also expanding its wings in high-k dielectrics for ASICs and cellphone chips. But behind the scenes, the Japanese chipmaker continues to retrench amid ongoing losses and a "crisis" at the company.

The self-described "crisis" surfaced in February, when the company announced plans to shut down several fabs. It also exited the structured ASIC and single-chip cellular phone markets, in an apparent move to cut costs and stem the flow of red ink.

Now, the company is reportedly revising its chip-outsourcing strategy. Rumors are heating up that NEC Electronics plans to sell the shares of its joint foundry venture in China!Hua Hong NEC Electronics Co.!to Semiconductor Manufacturing International Corp. (SMIC). Hua Hong NEC is a foundry venture between NEC and China's Hua Hong Group.

In another possible move to reduce costs, NEC Electronics "is also rumored to be seeking a tie-up partner for 45nm LSI production," said David Motozo Rubenstein, an analyst with Jefferies Japan Ltd in Tokyo.

Sink or swim?
The signs point to a quiet and gradual shift from an IDM model to a fab-lite strategy. Still, a bigger question remains for NEC Electronics: Four years after being spun off from parent NEC Corp.!and several management changes later!is the chipmaker heading in the right direction or is it destined to sink?

Clearly, the chip giant is heading in the wrong direction. Once the world's largest semiconductor supplier, NEC Electronics fell to 11th place in the IC rankings in terms of sales in Q2 2007, down from 10th place in Q1, according to iSuppli Corp.

"The main culprit for NEC's decline was display drivers, which suffered a $24 million sales decline compared to the first quarter," according to iSuppli. Citing ongoing losses and lackluster demand in the second half of its fiscal year, Jefferies' Rubenstein remains somewhat pessimistic about NEC Electronics!and most other chipmakers in Japan.

"I am bearish for most Japanese chipmakers with the exception of Toshiba and Rohm," he said. "Rohm is a specialty chipmaker and has an extremely disciplined approach to profit and loss. Toshiba is in a fortuitous position as arguably the technology leader in NAND flash, which is benefiting from a proliferation of applications."

On the other hand, NEC Electronics faces an uphill battle. "Intel and the other big guys have enough scale and market share to make consistent profits," he said. "NEC does not. It is trying to ramp up its system LSI business for games and automobiles. Those businesses have improved somewhat over the past few months, but the company was still in the red in Q1."

For the first half of its fiscal year ended in Sept. 30, NEC Electronics raised its operating profit forecast, due to higher IC demand from Nintendo Ltd's Wii game console, he said. NEC Electronics makes and sells a custom LSI and memory controller for the popular Wii game machine.

"However, the second half [for NEC Electronics] is trending below expectations, and thus the full year should be around the break-even level," he said. "Orders since July for fall products have been sluggish, particularly for LCD drivers in TVs."

Over the years, in fact, it has been a roller coaster ride for NEC Electronics and its parent company in semiconductors. In 1999, NEC spun out its DRAM unit. Elpida Memory Inc. was established as a joint venture DRAM company between NEC and Hitachi Ltd.

In 2002, NEC Electronics separated from its parent, NEC Corp., forming a new and independent semiconductor powerhouse. Then, in 2005, NEC Electronics named Toshio Nakajima as its new president, replacing Kaoru Tosaka, who was forced to resign. The changes followed the company's worst financial performance since 2001.

Nakajima's stated goal was to make the company profitable within its last fiscal year, but that milestone has been pushed out. In May of 2007, NEC Electronics finished the fiscal year in the red, even though sales were up 7 percent over the previous year. And that could be the least of the company's problems. Coping with a "crisis'' amid losses in its business, NEC Electronics in February announced a three-year restructuring plan that included the exit from the structured ASIC and single-chip cellphone sectors. The company, which also terminated 600 engineers, will also consolidate its nine front-end manufacturing lines in Japan to four.

Then, in August, seeking to shakeup the company, U.S. investment firm Perry Capital said it wanted to raise its stake in NEC Electronics from 4.7 percent to more than 5 percent. Perry Capital is said to be pressuring NEC Corp. to give up control of the chip unit. (Parent NEC Corp. holds over a 70 percent stake in the chip unit).

Misconstrued by media
Officials from NEC dismissed the notion that it is in a "crisis." At the time of the announcement in February, the company claimed that its announcement was misconstrued by the media.

Clearly, though, part of the company's strategy is simple: cut costs by shutting down older fabs and assembly plants. "They have a lot of older capacity," said Joanne Itow, an analyst with Semiconductor Partners. "It's a cloud over their heads." Junshi Yamaguchi, executive VP and board member for NEC Electronics, said the corporate restructuring process is still "moving forward." Officials from the company claim it is looking for "break-even" results for its current fiscal year ending in March 2008.

Regarding SMIC's possible acquisition of Hua Hong NEC, there is nothing to report, Yamaguchi said. "This is a rumor," he said. "Nothing has happened."

In total, NEC Electronics outsources only some 10 percent of its overall IC production to third-party foundries. One of its foundry partners is Hua Hong NEC, it was noted.

Yamaguchi still considers NEC Electronics an IDM!as opposed to fab-lite!but its vertically-integrated model is falling apart. Last year, for example, Japan's Dai Nippon Printing Co. Ltd (DNP) acquired NEC Electronics' captive photomask shop. The move enabled NEC to cut costs, while handing over that business to DNP, one of the world's largest merchant mask shops.

NEC plans to trim capital investments to $582 million this year, a cut of $300 million from last year's expenditure. About half of that sum will be earmarked for the introduction of a 55nm process at the company's Yamagata fab, its sole 300mm plant.

The fab has a capacity of about 14,000 wafers a month. It could be expanded to make 25,000 wafers a month. The fab makes ASICs, mobile devices, SoC LSIs and products for Nintendo's Wii game console.

Earlier this year, NEC Electronics started offering its CB-55L platform for cell-based ICs developed on its UX7LS 55-nm process technology. It also introduced a high-k film in the process. The introduction of the high-k dielectric is said to reduce leakage current to one-fourth and would improve total power consumption by 40 percent over the previous 90nm generation introduced in 2002.

The 55nm process, with high-k dielectrics, is up and running for its ASIC lines. NEC Electronics exited the structured ASIC market, but it is still pushing cell-based designs. "The number of ASIC starts has reduced," Yamaguchi said. "However, there is still [a need for] ASICs."

After ASICs, the company will develop mobile-phone devices, based on the 55nm process and high-k technology. Next, NEC Electronics and Toshiba Corp. are co-developing a 45nm process, which is due out next year or so.

NEC Electronics is tweaking the process and will actually roll out a 40nm version of the technology. Like its 55nm process, the 40nm technology is geared for ASICs, mobile devices, among other chips.

At 32nm, there is some uncertainty at NEC. The company may have suffered a setback when a proposed joint foundry venture in Japan failed to transpire. Fujitsu, Renesas, NEC and Toshiba were attempting to devise a joint foundry for the 45nm node and beyond, but the parties could not agree upon the terms.

Lingering questions
So, many questions linger at NEC. Will it co-develop the 32nm process with Toshiba? Or will it shift that production to the foundries?

Another question over time is whether its U.S. fab will remain strategic. Last year, NEC Electronics said it would expand its fab capabilities in Roseville, California. Under the plan, the company would add a 0.15?m process using 8-inch wafers, in addition to the current 0.35?m and 0.25?m processes using 6-inch substrates.

The primary objective for this expansion is to meet demand from customers in the automotive industry. The company also expects to see an increase in demand for 0.15?m technology from designers using general-purpose semiconductors.

Semiconductor Partner's Itow sees no need for NEC to shutter that fab. "It's very strategic for their automotive business," she said.

While NEC sorts out its fab strategy, the company is expanding its product lines for new and emerging markets. Today, the company has three business units: discretes (analog, display drivers, compound ICs); SoCs (ASICs, ASSPs); and microcontrollers.

In May, NEC Electronics announced eight MPEG encoder chips that target the personal computer TV tuner markets. The devices enable OEMs to build multimedia PCs that receive and record digital and analog television broadcasts. At the time, NEC Electronics also introduced two additions to its EMMA lineup of system LSI chips for digital AV devices.

In July, Adcore-Tech Co. Ltd, the joint venture established last year by NEC, Matsushita Electric Industrial, Panasonic Mobile Communications and Texas Instruments Inc., has started sampling mobile phone makers the W-CDMA baseband processor it was set up to develop.

The licensed architecture employs multiple small-scale DSPs to simultaneously achieve high peak performance, low power consumption, low cost and high portability.

In October, NEC Electronics unveiled NaviEngine1, the industry's most powerful single-chip system LSI solution optimized for car navigation systems, the company claimed. Based on four CPU cores using the ARM MPCore technology with symmetric multiprocessing (SMP), NaviEngine1 is capable of simultaneously processing multiple streams of information needed for car navigation systems, including vehicle location, driving directions and navigation functions.

The chip delivers high-speed parallel processing performance of up to 1920MIPS at 400MHz. In addition, NaviEngine1 has 2D and 3D graphics using the POWERVR SGX 535 graphics core by Imagination Technologies. It has a system LSI chip with built-in serial ATA functions.

- Mark LaPedus
EE Times




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