NEC shutters European PC biz
Server making outsource
NEC has confirmed that it will shutter its European PC operations. After announcing hefty fiscal Q3 losses and 20,000 worldwide job cuts last week, the Japanese technology conglomerate will also outsource its European server manufacturing.
"We presented to our employees yesterday the fact that we intend to exit the notebook and PC business and focus on the development of our value proposition, which is centered around servers and infrastructure," Gaetano La Rosa, executive director of operations at NEC Computers France, tells The Reg.
NEC's factory in Angers, France makes desktop and notebook PCs, servers, and related products based on parts shipped in from Japan and other countries. The factory employs 362 people, and the company has about 140 additional European employees.
According to La Rosa, the factory will be shutdown, and all but 90 European employees will be laid off.
An anonymous tipster tells The Reg that all but three UK employees will lose their jobs. According to the tipster, the trio will manage enterprise accounts. NEC's UK office did not confirm the report.
La Rosa was blunt about NEC's reasoning behind its decision, saying that NEC has seen a 35 per cent decline in revenues for PC and notebook sales in the past three years and that the company's shipment market share had fallen to a paltry 1 per cent. "That market share is a big issue and a strategic handicap," he admitted.
The PC industry has been consolidating worldwide. In Europe, according to La Rosa, the top four vendors account for more than 60 percent of sales. Across Europe, NEC Computers has lost €23m so far this fiscal year (which ends in March) and €78m cumulatively over the past three years. And considering that somewhere between 80 and 85 per cent of revenues at NEC Computers Europe came from PCs and notebooks, it is not hard to see where the losses are coming from.
According to Reuters, NEC's European operation ships about 400,000 notebook and desktop PCs, which is about 13 per cent of NEC's worldwide PC sales. This is a pretty big piece of business to walk away from, even if it is not profitable. But with NEC expecting to report a 290bn yen net loss ($3.2bn) when it ends this fiscal year next month and with NEC having dominant PC market share back home in Japan, exiting PCs in Europe is a quick way to help profits.
La Rosa says that NEC did not shut down the PC business without a fight. A few months ago, NEC hired an investment banker (whom he did not name) to try to sell off the PC business. But this effort was unsuccessful.
NEC Computers has a total of 505 employees in Europe, and after the Angers factory is shuttered, the division will have 90 sales and marketing people to peddle servers, storage, and other products that NEC still wants to sell across Europe. La Rosa expects that the layoffs will be finished by the middle of 2010 or so.
With NEC shutting down PC manufacturing operations in Angers, the factory no longer has volumes sufficient to justify making servers at the location. To that end, NEC is going to farm out the assembly of servers to a third party. La Rosa says that the decision had not yet been made on who the contract manufacturer might be for servers, but said that assembler would be chosen by the end of 2009 or early 2010. As for those jobs staying in France, it doesn't look likely. "I would say that the probability of the assembler being in France is low," La Rosa says.
The PC business is cutthroat these days, and more than a few vendors are making some painful choices in Europe. In early January, Dell shut down its PC and server factory in Raheen, Ireland, and moved manufacturing and 1,900 jobs to Lodz, Poland. This has hurt the Irish economy, which has been benefiting from the stimulative effects of the Dell plant since 1991. And back in November, German IT conglomerate Siemens sold its 50 per cent stake in the Fujitsu-Siemens Computers partnership in Europe to Fujitsu for €450m.
Having paid money to get all the server and storage biz the partnership controlled in Europe, Fujitsu is expected to sell off the European PC business it now completely controls. But Fujitsu might not have any more luck finding a buyer than NEC did - at least not at a price it can live with. The rumors suggest that Chinese PC giant Lenovo, which ate IBM's ailing PC business several years ago, might be interested. ®