TOKYO -- Japanese information technology provider NEC plans to sell a portion of its stake in semiconductor manufacturer Renesas Electronics and invest the proceeds in growth fields such as facial recognition technology.
The sale is expected to bring in more than 5 billion yen ($45.2 million) for NEC and lift net profit by about 3 billion yen after taxes. NEC has forecast a 10% rise in group net profit to 30 billion yen for the current fiscal year ending March 2018, but its guidance does not take into account the Renesas divestment, which could add about 10% to its bottom line.
Renesas' operations ground to a halt in the wake of the 2011 Japanese tsunami, prompting a rescue led by the public-private Innovation Network Corp. of Japan. With the maker of automotive microcontrollers having made strides toward restoring its business, the fund, which owns about 70% of the Renesas' stock, and other shareholders like NEC are moving to reduce their holdings.
A provisional sale price of 750 yen to 900 yen per share was decided on at the end of May. NEC's voting stake in Renesas -- a combination of direct investment and shares held by a retirement benefit trust -- is expected to fall from 8.9% to the 6% range. Based on those conditions, NEC probably will rake in around 31 billion yen to 37 billion yen.
Excluding the 21 billion yen to 26 billion yen portion attributable to the retirement benefit trust, NEC is expected to reap gains of at least more than 5 billion yen on the sale of directly held shares.
NEC follows international financial reporting standards, meaning that such capital gains are treated as financial income that is recorded as net profit. The sale will have no impact on operating profit.
The proceeds will boost free cash flow, which is forecast at 80 billion yen for the current fiscal but now looks likely to exceed 90 billion yen. "We will prioritize necessary investments for growth," said CFO Isamu Kawashima. The windfall could spur spending in facial recognition technology for its security business, software-defined networking and other areas.
Accounting methods vary by company, however. Unlike NEC, Hitachi does not record proceeds from the sale of shares held for non-investment purposes as net profit but as other comprehensive income. Selling shares in Renesas will have no effect on Hitachi's net profit projection of 30% growth to 300 billion yen.