NEC Corp, Japan's biggest PC maker, plans to raise 133.9 billion yen ($1.5 billion) via a share issue to help restore its battered capital base as it scrambles to cut costs in search of growth.
News of the capital raising, tipped by sources on Thursday, sent the firm's shares -- which have shed 60 percent over the last five months -- up 10.5 percent on Friday.
NEC, which cut its full-year operating profit outlook by 40 percent last week, is desperate to shore up its capital, weakened by losses at semiconductor unit NEC Electronics and sluggish sales of network systems.
The company, once the world's largest chipmaker, is facing mounting restructuring charges as it seeks to shed 290 billion yen in fixed costs in the year to March and prepare for its chip unit merger with Renesas Technology.
This will help NEC survive, but NEC needs to raise 400 billion yen to 500 billion yen to truly put it on a growth path, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co.
But that kind of money isn't possible unless Japanese electronics firms band together.
Japan's electronics makers have exhausted their resources in fighting one another over a shrinking domestic pie, while devotion to company-specific technologies has often frustrated efforts to merge operations.
But the global downturn has forced more firms to team up. Panasonic has launched a tender offer for Sanyo Electric Co Ltd, while NEC has said it would merge its cellphone operations with Casio and Hitachi.
If Japanese firms want to win against the Samsungs of the world, they have to band together, said one Ministry of Economy official who was not authorised to talk to the media. But if the economy recovers, pressure to consolidate may also ease.
NEC reported a net loss of about $108 million in the quarter just ended, driving its shareholder equity ratio -- a measure of how much shareholders would receive if a firm were liquidated -- to just under 21 percent.
That's roughly half that of peers Sharp and Panasonic, although double that of Hitachi.
The company said it would issue 575 million new shares, including a third-party allotment to Daiwa Securities SMBC, boosting its shares outstanding by 26 percent. The bulk will likely be sold to institutional investors.
It will be NEC's first new share issue in six years.
NEC, which competes with Fujitsu Ltd in telecoms and IT equipment, said it would use some of the funds raised to develop the next generation of communication networks and cloud computing.
Cloud computing delivers computing power as a service over the Web, instead of in computers that customers buy. Users would access their data via centralised data centres.
NEC, which supplies equipment and services to Nippon Telegraph and Telephone, retailer Seven & I and Daiwa Securities, hopes to expand its presence abroad by marketing energy-efficient servers and middleware to help optimise data centre use.
The company, which has a battery joint venture with Nissan Motor Co, said it would also use some of the money in lithium-ion battery production.
Lithium-ion batteries for hybrid and electric cars require long-term investment, and to secure business from automakers NEC needs to demonstrate it has a strong balance sheet.
Before the news sent its stock up, shares of NEC hit an eight-month low the previous day.
Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities said that NEC's plans to raise funds had been factored in since news of a potential share issue first broke in July.
The shares jumped 25 yen to 273 yen on Friday, compared with a 0.7 percent rise in the benchmark Nikkei average .N225.