By John Rogers
Japanese technology giant NEC Corp will reorganize itself as a provider of hardware, software and services for the internet, the company announced Tuesday. As part of the overall restructuring plan, the firm’s home electronics business will also be dissolved and absorbed into other parts of the company. News of the sweeping reorganization came as the company warned of a continuing decline in its financial performance, just seven months after announcing plans to cut 15,000 jobs.
The new business plan calls for the creation of three separate business units, each focused on the internet. The first, NEC Solutions, will house the hardware business and cater to corporations, individuals and government and public sectors. NEC Networks, meanwhile, will provide communications equipment and services to network operators. The third unit, NEC Electron Devices, will manage the company’s semiconductor business.
From a revenue standpoint, the businesses will account for roughly 47%, 32% and 21% of overall sales, respectively. NEC Solutions will have about 50,000 staff, while the other two units will each boast 40,000. Beginning with the fiscal year beginning April 1, business results for the in-house companies will be broken out, NEC said.
Each of the new units will be given wide-ranging authority NEC said, with regards to the management of human and capital resources. Power to decide and implement policy will be transferred from company headquarters to the new units as long as the in-house companies act within the range of corporate guidelines.
To accommodate the decentralization of power, the company headquarters will be slimmed down from 2,200 staff to just 300, with 900 of those jobs shifting to the new business units. In addition, the NEC board of directors, which currently consists of 37 executives, will be reduced by half for speedier decision- making.
The company will also restructure money-losing NEC Home Electronics, which it describes as one business of particular concern although it gave no specific plans for how the unit would be broken up nor a timetable for its dissolution. Meanwhile, Biglobe, NEC’s internet service provider, is expected to become a driving force for the parent company. The business is expected from about three million subscribers currently to 10 million or more by 2002.
Separately, NEC lowered its earnings forecast for the fiscal year ending in March 2000. It now expects to report a group net profit of 10bn yen ($93.9m) and group pretax profit of $30bn yen ($281.7m) on revenue of 5 trillion yen ($47.21bn). Earlier, NEC had been expecting net income of 25bn yen and pretax profit of 50bn yen on overall sales of 5.05 trillion yen..
The company blamed the downward revision on poor sales of memory chips and a weak international market for communications devices. It said that domestic sales of cellular phones and PCs were strong, however. The rapid appreciation in the value of the yen over the past six months has also hurt overseas revenues.
Adding to the poor performance, the restructuring activities will result in a one-time loss of 100bn yen, NEC said. Some extraordinary gains will also be recorded from the planned sale of securities and real estate assets to pay down debt. The company said it aims to reduce its interest bearing debt by 600bn yen ($5.63bn) over the next three years.
