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TOKYO – Nikon plans to cut 2,000 jobs, or 10% of its workforce, mainly due to a recession in its core camera business and structural changes in the global semiconductor industry, highlighted by the sluggish performance of leading US chipmaker Intel.
The Japanese multinational is conducting a price-cutting offensive in the semiconductor manufacturing equipment market, according to industry officials.
Nikon, once the world’s largest manufacturer of semiconductor manufacturing equipment, has seen its market share fall to 7%, affected by structural market shifts symbolized by the US chipmaker Nvidia overtaking Intel in terms of market capitalization.
While Nikon has been supplying 70% to 90% of its chip-making machines to Intel, it is now seeking new customers with a price-cutting strategy to reduce its over-reliance on the Santa Clara, California-based company. a securities analyst. said.
Nikon is reportedly marketing the machines to chipmakers in China and elsewhere. However, in early November, Nikon President Toshikazu Umatate admitted that the efforts were proving challenging, saying: “We have not progressed in developing new clients as quickly as expected due to the effect of the crisis in the new coronavirus “.
Nikon had expanded its semiconductor production machinery business at the same time as manufacturers of household electrical and electronic equipment that manipulated computer chips. But as these companies went offline or successively cut back their chip manufacturing operations in the 2000s, Nikon has increased the supply of its products to Intel.
When Nikon fell into financial difficulties in 2002, Intel provided it with a development cost of 10 billion yen ($ 96.33 million) by accepting convertible bonds issued by the Tokyo-based company.
It seems that the long-standing mutual trust between the two companies is starting to backfire.
Nikon sold nine chip-making machines in the April-September period, half of what it sold in the same period a year earlier, Nikon said at an earnings briefing in November. “Unit sales of semiconductor exposure machines fell dramatically in part because a major customer’s investment in them has ended,” Nikon said, referring to Intel.
“As the chip business has reached a difficult phase, we may need to review it flexibly, depending on the situation of our main customer,” Umatate said.
But of more serious concern is Nikon’s small presence in the market for equipment for the extreme ultraviolet (EUV) process of transferring patterns from circuits to silicon wafers. While demand for cutting-edge technology is expected to increase, Nikon has withdrawn from developing such equipment due to the high costs involved. The withdrawal came when Nikon’s management at the time concluded that the economic rationale for the operation could not be justified, according to the company.
ASML of the Netherlands, the world’s largest supplier to the semiconductor industry in providing lithography systems for integrated circuit manufacturing, is the only company that has been successful in commercially producing EUV equipment.
So Intel has acquired the ASML equipment, but it is taking time to build new production lines. Meanwhile, the US chipmaker is losing competitiveness, industry analysts said.
Intel, which has been producing semiconductors on its own, will consider turning over production to a major contract manufacturer, Chief Executive Officer Bob Swan said in late July.
Swan made the statement apparently because Nvidia, which has overtaken Intel in market capitalization, has succeeded in its business model without chip design and development fables but outsourcing production.
If Intel cuts its own semiconductor production, Nikon is likely to be directly affected by a drop in sales of its chipmaking machines.
In fiscal year 2020, ending March 31, 2021, Nikon is projected to report 430 billion yen in consolidated sales, a sharp drop from 840 billion yen in fiscal 2015. The projected decline in sales is attributable largely to an expected drop in sales to 140 billion yen. , from 520 billion yen, in the division of cameras and other imaging devices.
The division is forecast to incur an operating loss of 45 billion yen in the current fiscal year. Of Nikon’s four divisions, operating profit is expected only in semiconductor and liquid crystal display panel production devices, although it will likely be 1 billion yen.
Nikon is also in an unfavorable position relative to its domestic rival Canon in the market for stepper motors that transfer circuit patterns to silicon wafers in the chip production process. Although the two companies divide the market for flat panel display equipment, Nikon does not produce deposition devices used to make organic electroluminescent panels in the downstream process. A Canon subsidiary is considered to have the largest share of the world market for these.
In the market for mirrorless cameras that have alienated users from single lens reflex cameras, Canon is also making headway in development and sales.
Also aggressive with new operations, Canon is expanding its corporate monitoring camera business through Axis Communications, a Swedish company that specializes in network cameras for physical security and video surveillance, which it acquired in 2015. In addition, Canon is planning a review of their business portfolio, including commercial printing services and medical equipment.
As China struggles to increase domestic semiconductor production in the wake of U.S. sanctions on chip exports, industry officials said Nikon had an opportunity to win customers among Chinese chipmakers.
In addition to its plans to find new customers, the company also has the strategy of actively expanding its chip business for the maintenance of existing equipment and the production of peripheral machines, including test devices applicable to EUV technology and various other lines. chip manufacturing.
Under a structural reform plan announced on November 5, Nikon will reduce the division’s operating expenses by 63 billion yen by transferring camera production from Japan to Thailand and cutting jobs. By focusing production on cameras for photography professionals or enthusiasts, Nikon will look to push the division to black numbers in fiscal 2021, despite operational reductions.
The reform, while drastic, may end up simply saving the company time if Nikon fails to reverse the chipmaking equipment business and develop new areas of operation.
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