The restructuring plan announced by NEC Corp. on Jan. 26 will cut about 5,000 regular employees by September, with an additional 5,000 workers on outsourced contracts set to lose their jobs.
The job cuts, which come only three years after NEC axed 20,000 jobs in 2009, were disclosed as the firm admitted it expected to lose 100 billion yen (about $1.3 billion) in fiscal 2011.
About 4 percent of NEC’s regular work force of 113,000 staff will go. The rest will be cut mainly from outsourced operations. The company will slash 7,000 jobs in Japan, including 2,000 regular employees, and 3,000 regular workers will be dismissed overseas, according to the company.
In spring 2010, NEC outlined a plan to increase its overall sales to 4 trillion yen ($52 billion) by fiscal 2012 from the 3.58 billion yen in sales posted in fiscal 2009. The company intended to increase overseas sales from 20 percent of all sales in 2010 to about half by fiscal 2017. The idea was to aggressively market cellphone base stations, corporate-use IT systems and large computers overseas.
But the ambitious plan was hit hard by the strong yen, which has been hovering below the 80-yen mark to the dollar, and by the European sovereign debt crisis. Sales of its communications infrastructure business--which the company had seen as the main driver of expansion--lost steam as investments in cellphone base stations nose-dived in Europe, along with weak overseas sales of server systems and large computers.
NEC has now recorded sales falls in five straight years since fiscal 2006, when they peaked at 4.65 trillion yen. Sales are expected to drop to 3.1 trillion yen in fiscal 2011.
Company President Nobuhiro Endo said, “We offer a wide assortment of products and services, but many of them are not very competitive in overseas markets.”
The maker’s cellphone business is forecast to post an operating loss this year for the second consecutive year. NEC has been particularly slow off the mark in launching new smartphone models and was forced to cut its estimate of shipments of cellphone units from 7.4 million to 5 million.
Endo plans to restore profitability by moving from manufacturing all products in-house to working with other manufacturers. NEC said it will maintain development and production capabilities in certain high-end product areas in which it has market-leading technology, but will entrust development and production of other parts of its range to external companies.
In an attempt to rejuvenate its cellphone arm, NEC laid out a plan to outsource product development and manufacturing to overseas makers. That is in stark contrast with its longstanding policy of developing cellphones at its Japanese plants. The manufacturer also said, “We will consider procuring server systems and large computers from overseas makers.”
The new focus on immediate profit growth will carry the risk of a long-term loss of human resources and production technology and thus of the ability to expand the firm’s business. To avoid that prospect, NEC will have to work on how to make money from its original technologies, while propping up its short-term finances through partnerships with other companies.
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