Weak yen slows NEC investment

Electronic News, Feb 2, 1998 by Dylan McGrath

TOKYO--NEC Corp. last week said it would spend roughly $80 million less than anticipated on capital expenditures for the current fiscal year, which ends March 31. In a revised financial forecast statement, the company said it would spend 290 billion yen on capital spending in the current fiscal year, down 10 billion yen from the original plan of 300 billion. The company said the cut would occur primarily within its semiconductor sector.

NEC blamed the decline in value of Asian currencies compared to the U.S. dollar for the adjustment. An NEC spokesperson said decisions about how much will be spent on capital expenditures for 1998-99 fiscal year, beginning April 1, will be made in a series of budget meetings over the next few weeks.

"This type of announcement is not coming as a surprise, given the current financial situation in Asia, which is beginning to have a significant effect on Japan," said Elizabeth Schumann, a senior market analyst for Semiconductor Equipment and Materials International (SEMI). "Similar announcements have already been made by Hitachi and Fujitsu. We think this is a short-term phenomenon for several reasons: We hope the governments in Japan and Korea will issue policies promptly to help turn things around. Also, investment is necessary to maintain competitiveness in the semiconductor industry, and I don't think the Japanese or Korean companies will want to be out of the game that long. They are taking a breather, or a wait-and-see approach right now, but we expect to see different types of announcements in the second half of 1998."

Typical Of Strategies

According to G. Dan Hutcheson, president of VLSI Research, NEC's announcement is typical of the strategies Japanese companies are being forced to apply based on the declining value of the yen. Also, he said, Japanese banks have invested significantly in Korea, where the declining value of the won is beginning to drag them down as well. He said the cutbacks in capital spending are bad news for equipment companies, primarily those located in Japan. "Essentially, it's a world war," he said. "Japanese equipment companies supply Japanese companies and U.S. equipment companies supply U.S. companies. Right now, the U.S. is winning that world war, but Japanese companies have become very aggressive on pricing to help their customers."

Japan Purchases

According to SEMI research, Japan purchased roughly $6.6 billion worth of semiconductor capital equipment in 1997, or about 23 percent of the total world market. "If Japanese companies represent not quite one-fourth of the total worldwide market, Korean companies are probably not quite 10 percent," Ms. Schumann said. "So, looking forward to 1998, we are still feeling pretty confident about investment by European and U.S. manufacturers, as well as continued investment by Taiwanese, Chinese and other Asian countries that haven't been hit that hard by the financial crisis." In the amendment to the financial statement for the 1997-98 fiscal year, released Jan. 28, NEC Corp. said poor conditions in Japan's economy have affected the company's personal computers, communications network equipment and other information technology-related businesses, "and have contributed to a fall in sales short of expectations for this financial period." According to the statement, the fall of memory prices from November 1997 is responsible for a predicted shortfall of 350 billion yen in sales.

Mr. Hutcheson said good news might still come from some of the hardest-hit companies by the end of this year. "Some of these companies, like Samsung and NEC are fundamentally good companies, and it's doubtful the IMS (International Monetary Fund) will clobber them."