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May 29, 2006 11:32 am

NEC and Matsushita seek mobile phone tie-up

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NEC and Matsushita are in talks to extend their co-operation in the mobile phone sector in an effort to ensure survival in the overcrowded Japanese market, NEC’s president said on Monday.

The expanded collaboration would focus on handset manufacturing and could include the joint procurement of components and further collaboration in research and development.

The discussions between the first and second largest mobile manufacturers highlights the difficulty of competing in the sector, where the high development costs and short shelf lives of handsets have put pressure on manufacturers’ profitability.

“We have agreed with Matsushita to start detailed talks on furthering our relationship. We are not ruling out any options [about what form that co-operation will take],” Kaoru Yano, NEC president said on Monday.

“We have to take advantage of economies of scale, otherwise we cannot survive,” he said.

NEC suffered a sharp deterioration in profits last year due in part to a downturn in its mobile phone business, which made an operating loss of Y25bn ($220m) last year and is expected to lose another Y15bn this year. Matsushita posted an Y8.4bn operating loss in its mobile phone business last year but hopes to make a Y6bn profit this year.

The two groups already co-operate in 3G technology research.

In Japan, where there are more than 10 manufacturers competing in a saturated market, the cost of releasing new handsets featuring advanced technologies has been a huge burden on manufacturers.

“If things continue as now, we will collapse,” a Matsushita representative said.

Japanese handset makers, which have dominated the domestic market, also face increasing competition from foreign manufacturers, which have started to target the Japanese market.

Mr Yano ruled out a straightforward integration of the two wireless businesses of the groups.

“We will not integrate management [of the mobile phones businesses],” he said, explaining that “this is a very important business so neither company wants to give it up.”

Mr Yano suggested co-operation could include joint procurement of components and further collaboration in R&D.

He also conceded that the groups were not likely to immediately become a major force overseas but would have to concentrate first on reviving their Japanese operations.

“The first thing is to win in the Japanese market,” he said.

He admitted that NEC’s strategy of taking advantage of its expertise in 3G technology, had not borne fruit as expected, due largely to the different ways in which Japan’s 3G market and Europe’s 3G market have developed.

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