Japanese electronics giant NEC said Tuesday it planned to spin off its Internet service provider business, Biglobe, on July 1 and to go public with Biglobe in approximately three years, as part of a restructuring initiative aimed at boosting flagging profits.

The spun-off company will be known as NEC Biglobe. NEC plans to reinforce the new entity through investments by five Japanese firms that will be allocated shares by the end of July.

NEC will own 78 percent of the company, Sumitomo will own 7 percent, Daiwa Securities Group and Sumitomo Mitsui Financial Group will each own 5 percent, while the advertising agencies Dentsu and Hakuhodo will each own 2.5 percent.

The other firms will kick in a total of ¥12.7 billion ($109 million) to buy the shares. NEC plans to increase Biglobe’s capital to ¥10.4 billion ($89 million), up from the initial ¥4 billion ($34.3 million).

NEC hopes to improve Biglobe’s revenues by making it more independent so it can go after e-commerce opportunities more aggressively to improve online sales, as well as its banking and brokerage services.

“Web businesses, especially e-commerce, are logging explosive growth,” said Shino Yoshii, managing executive officer of Sumitomo, according to Reuters. “By injecting our expertise in this field, we would like to expand Biglobe’s e-commerce broadly.”

Shares of NEC rose $0.03 to $6.45 in recent trading.

Facing Larger Competitors

Biglobe is Japan’s fourth-largest Internet service provider, with about 4.4 million paying subscribers, according to the Nihon Keizai newspaper, after Nifty, Softbank BB, and NTT Communications. Combined with the service’s nonpaying members who access web content and email magazines, Biglobe reaches 13.2 million users, according to the Associated Press.

The company also competes with Sony, Yahoo, and Fujitsu in Japan.

However, NEC has seen profits dropping at its chip and cell phone businesses. The Tokyo-based company’s net income fell 47 percent in the October-December 2005 quarter and the company replaced its president this month.

NEC’s Internet business posted revenue of ¥60 billion ($513.7 million) in the fiscal year ending March 2005. The company hopes the Biglobe spin-off will help make the overall company and Biglobe more profitable. It anticipates that NEC Biglobe will reach ¥100 billion ($856.2 million) in sales in fiscal 2008 to March 31, 2009.

NEC Senior Managing Director Toru Katayama will become president of NEC Biglobe.

NEC has been taking steps to improve profitability, including setting up an optical disk joint venture with Sony, and selling its chip and display equipment units to Canon. NEC also recently closed its semiconductor plant in Ireland and sent the work to Asia instead.

The trend of selling off the ISP business is not unprecedented in Japan. Hitachi spun out MyTrip.net, which was acquired by Rakuten.

“Many of the large Japanese industrial groups, like Hitachi, have started dot-com companies and have sold them,” said Gerhard Fasol, chief executive of the consulting firm Eurotechnology Japan. “An ISP does not really fit well into a large industrial conglomerate. I think it’s quite likely that Biglobe will soon be acquired by Softbank, Rakuten, or one of the other pure Internet companies.”