NEC Consolidates, Refocuses Its PC/Server Business Worldwide, Narrowing Scope of North American Operations to Enhance Profitability - Company Operations

Edge: Work-Group Computing Report, Nov 15, 1999

Packard Bell NEC undertakes additional restructuring, virtually closing Sacramento operations and outsourcing production; NEC Computers International B.V. (NEC-CI), assumes leadership role for all global PC/Server business outside of Japan and China; North American operations to be managed through new legal entity, NEC Computers Inc.

(NECC), a subsidiary of NEC-CI; Michel Fromont named NEC-CI's CEO; Jeff Cooke to continue to lead North American commercial operations as president and COO NEC Corporation (NEC) (Nasdaq:NIPNY) Tuesday announced that it is reorganizing its personal computer/server business globally, consolidating all operations outside of Japan and China under a new legal entity, NEC Computers International B.V. (NEC-CI).

This includes activities in The Americas, Europe, Asia-Pacific and the Middle East. NEC will continue to manage its own PC/server business in its home market of Japan and China. The change will be effective January 1, 2000.

Commercial operations in North America will be part of a new entity, NEC Computers Inc. (NECC), a wholly owned subsidiary of NEC-CI. NEC-CI expects to generate revenues exceeding $2 billion in the year 2000.

NEC has named Michel Fromont, currently president and CEO, Packard Bell NEC Europe, as chief executive officer of NEC-CI. Reporting to him for North American operations will be Jeff Cooke as president and chief operating officer for NECC.

NEC said that its European business continues to be profitable and growing, while Packard Bell NEC in the Americas (PBNEC) has reduced its losses significantly while still struggling in a fiercely competitive marketplace.

Fromont indicated that the new company would largely intensify its focus on corporate system integration and service supporting the Internet.

Packard Bell NEC has tried hard to complete its turnaround. The company's 1999 financial plan called for reducing its losses by $500 million from 1998 levels to approximately $100 million. The company is on track to lose $150 million -- a substantial improvement, but still placing the company in a cash shortage. The resulting restructuring will reduce the size of the company to less than 20 percent of its current base of 2,600 employees. All functions and locations are affected. The restructuring is expected to be largely complete by year-end.

As part of this restructuring the company will outsource its manufacturing/production operations. Negotiations are currently under way to identify a partner. Concurrently, the company will dramatically reduce its overhead (G&A) costs, essentially closing its operations in Sacramento, Calif. The company notified its staff there of the action on Nov. 2. Most are expected to work through the 60-day notice period (carrying them through the end of the year), after which they will be eligible for a severance package. The site itself is in the process of being sold to a developer. All outstanding loans to the City of Sacramento and accounts with outside vendors will be settled.

PBNEC also said that it is negotiating to sell its call center operations at Magna, Utah, with the expectation that existing jobs will be transferred to another party. The company will continue to provide all warranty service and support for its products. "We are confident that with these actions, along with our corporate strategy of focusing our strength on Internet-related fields, we can provide corporate customers worldwide with products and technologies they need," commented Koji Nishigaki, president of NEC Corporation. "We can do this in a very efficient manner, providing various solutions through improved teamwork and in partnership with NEC's system integration and software companies."

While acknowledging that the restructuring actions in North America are significant, Fromont said they are all designed to enhance the competitiveness of the new company's core commercial business in the future, and how it supports NEC's overall corporate strategy.

"The consolidation of all operations under a global structure will help us capture additional efficiencies as well as help us better serve the computing needs of the growing number of companies with global operations," Fromont said. "Our brands will be carefully targeted in markets where they can continue to build equity and loyalty over the longer term. At the same time, we will have a full, homogeneous product line and a service structure on a global basis."

Fromont further indicated that it will continue to develop, market and support certain niche products, such as the NEC Z1 -- a highly regarded, flat-panel, all-in-one PC introduced in July that has enjoyed strong sales and reviews.

"We will remain a player in those market segments where we can be both strong and profitable," he said. "We also will continue to invest heavily in product development to bring NEC's technological edge in desktop, notebook and handheld PCs and robust servers to the marketplace. The company's current line-up will be on full display at the NEC booth at Comdex next week.