What a difference a decade makes. In 1990, NEC Corp was the world’s leading producer of semiconductors, with sales of $5bn and a market share of 8.5%, according to market research group Dataquest. The company was helped to those heights in the 1980s by the surge in demand for memory chips – a volatile commodity market characterized by dramatic swings in prices and profit margins. Today, NEC is number two, with half the semiconductor revenues of market leader Intel Corp. And that memory market has been in severe depression for more than three years, squeezing the life out of many vendors, and sapping the profitability of NEC. But although it has been hit, a number of factors have helped insulate NEC from the worst effects of the memory chip price slump. As the biggest vendor of PCs in Japan, it is guaranteed at least one captive customer for its semiconductor output. And through taking control of US consumer PC vendor Packard Bell-NEC, it has another. Alongside that, the company’s vast R&D investments have enabled it to lead the memory sector and be first to market with new products that typically command a premium price. NEC was among the first to release 64Mbit memory chips, and is well advanced with its plans for volume 256MB memory chips in volume. Fabricated in 0.20 micron CMOS process, production of these is set to commence in April 1999.

Less Volatile

But NEC’s size and strength has enabled it to enter less volatile markets, reducing its dependence on memory products to 40% of total semiconductor revenues, compared with 90% for Samsung Electronics Co. These products include low-cost microcontrollers, digital signal processors and custom chips based on MIPS and ARM RISC processors from MIPS Technologies Inc and ARM Ltd. While NEC started off using the MIPS chip as the core of its Unix-based server line, it now uses the chip as its first choice of high- powered embedded microcontroller, using it in products such as digital mobile phones, handheld computers and set-top boxes. Add to that its contract to supply Nintendo Ltd with MIPS microprocessors for the Nintendo64 games console, and NEC can claim a 52% share of the MIPS market worldwide. Another promising new market for NEC is 3D graphics chips. NEC last year developed the PowerVR chip with British firm VideoLogic Group Plc as part of a joint venture to supply chipsets for Sega Enterprise Ltd’s next games console. The first in the new chip family, the PowerVR 250, will also work on PCs and arcade games systems, pushing volumes higher and increasing the prospect of strong profitability from the line – particularly important in a market area where many vendors are actually losing money, despite the relatively high growth in PC sales. But despite all these efforts, NEC will remain in second place in the world’s semiconductor market for the foreseeable future. Ironically, NEC is partly to thank for Intel’s dominant position today. It was the concerted onslaught of NEC and other Japanese semiconductor vendors that persuaded Intel to abandon the memory market in 1984 and concentrate instead on microprocessors.