NEC Sells Factories, Outsources Supply-Chain Management To CelesticaNEC Sells Factories, Outsources Supply-Chain Management To Celestica

Celestica Inc. is expanding an outsourcing relationship with NEC Corp. and buying two plants in Japan in a deal estimated to be worth $2.5 billion over five years. Celestica would take over supply-chain management, subassembly, final assembly, integration, and testing for a broad range of NEC's optical backbone and broadband access equipment.

As part of the agreement, Celestica would buy NEC's plants in Miyagi and Yamanashi, Japan, where advanced optical transmission systems are developed and manufactured. Celestica would also hire 800 manufacturing specialists from the Miyagi plant and 400 from Yamanashi. The deal is expected to close by March 31.

NEC says it's outsourcing its supply-chain management in order to focus on research and development and to improve price competitiveness and overall manufacturing efficiency.

NEC, like many other manufacturers in Japan, is beginning to conclude that outsourcing and focusing on R&D and marketing efforts are the first steps to cutting costs, says Todd Coupland, a CIBC World Markets analyst. "Outsourcing supply-chain management and manufacturing lets manufacturers focus their capital on new product development rather than investing in a new plant," he says. Coupland says he expects to see a lot more outsourcing deals coming out of Japan as the country begins to accept outsourcing as an effective cost-cutting measure.