NEC to cut spending on basic chip manufacturing

Coping with over-supply

NEC has said that it will scale back investment in its semiconductor business by as much as 20 per cent next year because of a decline in chip prices it expects will continue into 2002.

In an interview with Bloomberg, Keiichi Shimakura, NEC's deputy president in charge of semiconductors, said that the firm will cut capital expenditures beginning in April by "outsourcing chip-packaging operations to other companies."

Prices for semiconductors have declined as demand for PCs has failed to live up to expectation resulting in a "chip mountain" and in turn lower semiconductor prices.

NEC will outsource more of its basic production processes and concentrate more on technically advanced operations like etching circuits onto silicon wafers.

Despite the move, NEC, the world's third largest chipmaker, remains committed to developing 0.095 micron chip fabrication technology.

Based on a reduction in capital spending by one fifth, NEC expects to spend approximately ¥174 billion ($1.49 billion) on microprocessors for the year beginning in April. This, according to Bloomberg, compares, to a spend of ¥217 billion ($1.9 billion) this year, mostly to upgrade plants and equipment.

Separately, networking equipment chipmaker Bookham Technology said slower sales of fibre-optic semiconductor components to key clients like Nortel Networks will impact its revenues next year. The news came as Bookham announced widening annual losses of £8.5 million ($12.3 million), up from £4.5 million ($6.54 million) a year earlier. Andrew Rickman is stepping down as the firm's chief executive to become an executive chairman, to be replaced by Bookham's president Giorgio Anania.

According to Bloomberg, Bookham expects a decline in sales of its basic products to be offset by increased sales of chips for use in high-speed next-generation networking kit that uses dense wave division multiplexing, or DWDM. ®

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