NEC, the third-largest Japanese electronics company, said yesterday it would restructure its handset business in China, including laying off staff and suspending production of 2.5 generation (2.5G) mobile phones, as it has failed to prosper in the Chinese market.

NEC is the last major Japanese mobile phone maker to reduce its presence in the world's largest mobile market. Japanese phone producers have suffered in China because they have been slow to react to a fast changing, competitive climate. This is greatly due to the firms waiting on orders from headquarters, analysts said.

Furthermore, Beijing has stalled on the licensing of a third generation (3G) standard in the country, something the firms had counted on when entering the market.

NEC Telecom China said yesterday it would "suspend" the production and sales of mobile phones based on the 2.5G mobile system, known as GPRS. Their focus will turn to 3G mobile phones, mainly referring to the Europe-led wideband code division multiple access (WCDMA) standard.

NEC will become the second Japanese mobile phone maker this year in China to sharply cut their staff and operations in the highly competitive 2.5G market in China. "We want to focus on the future," said Cai Li, a spokeswoman with NEC Telecom China, referring to the WCDMA market.

In February, Mitsubishi also closed its handset operations in China, due to slow progress in the market and a global strategic change.

Last year, Toshiba, Panasonic, Sanyo and Kyocera all marginalized their operations of mobile phones in China.

Cai said the restructuring meant cutting the number of employees, especially in handset manufacturing, as well as sales and marketing. She did not specify how many people will be impacted. Services will largely remain to handle existing consumers.

NEC Telecom has about 1,000 employees in seven Chinese cities. The Japanese firm did not have much presence in the 2G's GSM market due to their own unique standard, so the 2.5G mobile phone is their only major business in China.

NEC's factory in Wuhan of Central China's Hubei Province is its only handset manufacturing base supplying mainly the Chinese market. In March, the company announced it would invest US$225 million in the factory, in preparation for China's 3G launch.

The Japanese firm claimed to be the biggest WCDMA equipment provider and one of the top phone makers in that area.

The Japanese electronics conglomerate said on Tuesday sales fell 2 percent year-on-year in the April-September period, but its notebook and mobile phone business dropped 14 percent.

Its global shipments of mobile phones dove 40 percent to 2.9 million units in the period, its fiscal first half year. The severe market conditions had forced the firm to stop launching new models in Europe in that period.

China, which was believed to be the most important overseas market for NEC Telecom in 2004, also saw its shipments fall by 40 percent.

According to the market intelligence firm Analysys International, NEC was not even among the top 10 mobile sellers in the third quarter in China, while it was sixth in 2004.

"The Chinese market changes very fast and is highly competitive, but the slow reaction to market demand has been a common illness of Japanese vendors," said Lin Juan, a mobile phone analyst with Analysys International.

She said that for Japanese phone makers, almost all authority is at the global headquarters, so decision-making takes a long time.

However, in China, there are more than 50 competitors and hundreds of models are released every year, so timing is a critical factor in meeting the needs of customers.

(China Daily November 23, 2006)