NEC, Fujitsu increase outsourcing

Asia's contract chip makers will likely see their earnings improve sharply this year, as the global economic recovery lifts demand, and as more semiconductor companies worldwide look to outsource more production, reports The Wall Street Journal.

Rising outsourcing orders, especially from Japanese integrated device manufacturers such as NEC Electronics and Fujitsu Microelectronics, are likely to lift the earnings of contract chip makers Taiwan Semiconductor Manufacturing and United Microelectronics of Taiwan, analysts say.

Both NEC and Fujitsu are IDMs - traditional chipmakers that handle semiconductor manufacturing in-house. But as they continue to struggle with losses, analysts say they are expected to boost outsourcing to save production costs.

Taiwan-based LCD TV makers are expected to account for a large portion of the OEM orders from Sony as the vendor plans to increase its outsource volume, especially Sony's three existing partners Wistron, Foxconn Electronics and Compal Electronics, says DigiTimes.

Sony plans to increase LCD TV OEM orders, mainly for inexpensive models, to as many as 40% of its total LCD TV shipments in its 2010 fiscal year from April 2010 to March 2011, sources note. Sony has also started talks with its OEM partners for LCD TV orders for 2011, which may amount to 15 million units.

Sony shipped 5.4 million LCD TVs in its fiscal third-quarter 2009, up 8% on year, but revenues from the segment dropped to $3.76 billion, according to the company.

When companies hire an IT or business process outsourcer, they tend to get a lower-cost way of doing what the company had been doing. That outsourcer generally finds a more efficient way to do a task, and that's valuable, writes Information Week.

However, what innovation outsourcers rarely deliver is the kind of service that reinvents a process entirely, doing a job at some sliver of the cost or in a way that changes what a company can do.

That's because it's extraordinarily hard. And it's that kind of innovation that Xerox must deliver now that it owns ACS, a major business process outsourcing provider that Xerox bought this month for $6.4 billion.