Mitsubishi Electric Corp. and NEC Corp. unveiled plans to reinforce their semiconductor businesses, betting that demand will remain strong for specialized chips.
But analysts cautioned that demand for advanced memory chips and large scale integration (LSI) chips used for hot products like mobile phones and digital cameras was likely to taper off in the latter half of this year.
“I can’t deny the risk of semiconductor makers being off-target in their spending plans,” said Tsubasa Securities analyst Yoshihide Otake, adding that overcapacity would weigh on chip prices and sales.
Mitsubishi Electric, Japan’s fifth biggest chipmaker, said it will build by 2003 a $1.7 billion semiconductor plant in western Japan on expectation of firm global demand for specialized chips.
NEC, Japan’s number two chipmaker, said on Wednesday it would spin off its business of making high-speed semiconductors used in wireless mobile phones and transmitting data over fiber optic cables.
The news was well received in the market with shares in both companies bucking a broader downtrend in Tokyo stocks.
NEC shares initially jumped nearly three percent on the news, before paring gains to close 10 yen higher at 2,130 yen.
Mitsubishi Electric shares jumped to a high of 765 yen on the news before settling at 751 yen at the close, up 0.4 percent on the day.
While some analysts saw risks of over-investing in advanced chips, others pointed out that growth in these areas was set to accelerate.
In Japan alone, the total output of digital cameras is expected to grow 37.1 percent and be worth 418 billion yen in this year alone, while mobile phone output is expected to grow 14.7 percent and be worth 1.63 trillion yen.
But shares in the world’s biggest mobile phone maker Nokia tumbled overnight after it published weaker-than-expected mobile phone sales for 2000, with fears emerging that the slowdown in demand for high-tech products may not be limited to just a slowdown in personal computers.
Decelerating PC demand has hit firms like Hyundai Electronics Industries, which over-invested in conventional memory chips last year and is now suffering from a glut in DRAM (dynamic random access memory) chips.
Analysts say that the market for newer devices, however, such as more advanced mobile phones will outperform the slipping computer sector.
“The Japanese chip makers made the right call, since when you consider that Nokia’s cell phone sales are up 63 percent year-on-year, there’s further growth ahead for specialty chips,” said an analyst at foreign securities firm.
Still, the companies have committed a lot to what they see as the next big semiconductor markets.
NEC said its new company will be set up in October with capital of 12 billion yen and aims to go public by October 2003.
NEC sells 100 billion yen worth of the special chips a year, nine percent of the world market. An NEC spokesman said the new subsidiary will aim to triple that sales figure in the next three years.
For Mitsubishi Electric, the semiconductor sector has been a key source of profit and helped the company move back into the black in the half-year to September.
A Mitsubishi spokesman said the company hopes to operate the new plant in Kochi prefecture as a joint venture with Matsushita Electric Industrial Co Ltd. and its unlisted subsidiary Matsushita Electronics Corp to reduce investment costs.