NEC Announces Financial Results for First Half Fiscal 2000 -- Year to March 31, 2000.

TOKYO, Japan--(BUSINESS WIRE)--Oct. 25, 1999--

NEC Corporation (NASDAQ: NIPNY) today announced financial results for its first half of fiscal 2000, which ended September 30, 1999 and the financial results forecast for the second half that ends March 31, 2000.

Background to Financial Results

During the first half of fiscal 2000 (six month period to September 30th, 1999), Japan's economy saw the implementation of the largest scale measures ever by the Japanese government to stabilize the financial system and invest in public works to boost the economy, halting the downturn in the economic environment. Looking at consumer spending together with the equipment and employment situations, there are few indications of fundamental recovery and meanwhile the Yen has risen in value causing a continuation of these economic difficulties. Regarding the world economy, the United States economy continues to expand, while the European and Asian economies progress on the path to recovery. Against these favorable trends, however, there are still problems in some countries such as the unstable political and economic situation in Russia, and the damage Brazil has taken from its currency crisis.

Though the electronics industry has seen continued sluggishness in the worldwide semiconductor market situation, the recovery of South-East Asian economies, investments in information technology and increased consumer spending in Europe and the United States have lead to a more favorable outlook. In Japan, falling semiconductor prices, stagnant individual consumption which has caused difficulties for the consumer electronics sector and poor corporate business results delaying information technology investments are among factors affecting the business environment in which NEC operates. Furthermore, a low rate of investment in networks by domestic communications carriers has continued, resulting in static demand for communications equipment. The personal computer and mobile communications markets, however, are faring well, creating demand for electron devices and giving some hope for an improving business environment.

It is in this environment that NEC has launched and developed an expanding range of new products while focusing management energies on cutting costs and expenses. As a result, consolidated sales for the first half of the current fiscal year to September 30th, 1999 amounted to 2,267.5 billion Yen, a 7% increase compared to the first half of the previous fiscal year (year ending March 31, 1999). The consolidated figure counts the results from Packard Bell NEC, Inc., included since the second half of the last fiscal year (year ending March 31, 1999).

Profitability on a consolidated basis during the first half of fiscal year 2000 (year ending March 31, 2000) suffered from price erosion in the semiconductor memory market and the rising value of the Yen together with business restructuring expenses at subsidiary companies. The resulting operating loss of 7.9 billion Yen and a net loss of 48.8 billion Yen, represent falls of 23.2 billion Yen and 29.1 billion Yen respectively against the same period in the year before.

Non-consolidated sales amounted to 1,747.7 billion Yen or a 3% increase on the total from the first half of the previous fiscal year, and ordinary losses were 19.3 billion Yen, down 32.7 billion Yen versus the same figure from a year ago. Net profit benefited from a recovery in the value of securities held by NEC with the rise of stock prices, resulting in extraordinary income for net profit of 1.2 billion Yen or a decrease of 8.8 billion Yen from the figure in the first half of the previous year.

Background to Consolidated Sales, and Profit/Loss Situation

- Communications systems and equipment

- Sales: 700.5 billion Yen

(2% decrease against the same period in the previous fiscal year)

- Operating income: 11.4 billion Yen

(79% decrease against the same period in the previous fiscal year)

Sales of cellular telephones have been favorable but restrained

investments by domestic communications carriers, the economic

difficulties of South-East Asian nations and the rising value of

the Yen have resulted in decreased sales totals and a significant

fall of 79% in operating income.

- Computers and industrial electronic systems

- Sales: 1,026.2 billion Yen

(17% increase against the same period in the previous fiscal year)

- Operating income: 16.2 billion Yen

(13% increase against the same period in the previous fiscal year)

The continuing favorable situations in the domestic personal

computer and systems integration businesses have contributed to

both increased sales and profitability.

- Electron devices

- Sales: 445.9 billion Yen

(3% increase against the same period in the previous fiscal year)

- Operating loss: 7.4 billion Yen

(an improvement of 16.3 billion Yen against the same period in

the previous fiscal year) Memory and color liquid crystal display 

panel sales have benefited from increased demand in the domestic

personal computer market but have been tempered by the effect of

the wide fall in memory prices during the period resulting in a

operating loss of 7.4 billion Yen.

Anticipated Situation for Second Half, Fiscal Year 2000, Ending March 31, 2000

Looking at expectations for the whole of fiscal year 2000 (ending March 31, 2000), favorable trends such as the recovery of Asian economies and the bottoming-out of the domestic economic difficulties are balanced by slow tempo of private capital investment and individual consumption levels, and worries over the trend of the Yen in currency markets and prices for memory devices.

In such circumstances, net sales are expected to benefit from positive trends in the cellular telephone market, systems integration business, domestic personal computer market and the color liquid crystal display panels and logic IC markets. Against these factors, the overseas communications equipment markets will present tough challenges to NEC's performance, due to the rising Yen and currency crisis in Brazil. Consolidated sales, however, are expected to reach 5 trillion Yen (5% higher than in the previous fiscal year that ended on March 31, 1999) while non-consolidated sales are forecast to reach 3.83 trillion Yen (4% higher than the previous fiscal year).

The forecast for consolidated operating income is 100 billion Yen with net income expected to be 10 billion Yen. This will be after NEC takes extraordinary expenses of 100 billion Yen to accelerate business restructuring measures at subsidiaries, such as NEC Home Electronics, Inc., that will be covered by the generation of 100 billion Yen of extraordinary income from sales of securities and fixed assets, as well as the recovery of losses from devalued securities holdings.

As concerns non-consolidated profits, ordinary income is forecast to reach 80 billion Yen and net income forecast to hit 30 billion Yen. This will be after an extraordinary expense of 180 billion Yen resulting from a devaluation of NEC's investments in subsidiary companies of which 150 billion will be covered by extraordinary income as a result of securities sales, liquidizing fixed assets and recovery of losses from devalued securities holdings.

Management Plan

NEC aims to create a company that enjoys the confidence of its stakeholders and a reputation for "global excellence" as well as to implement concrete measures to meet its four-point management plan for innovating its corporate structure.

The four-point management plan includes:

- The concentration of businesses to become an Internet Solutions

Provider: Through its concept of an "Invitation to the Internet"

NEC will focus the entire resources of the company on the

Internet domain to provide wide-ranging solutions for the needs

of its customers in their interaction with the Internet.

- The promotion of proactive management: With the establishment of

in-house companies (NEC Solutions, NEC Networks and NEC Electron

Devices) from April 2000, a wide range of authority currently

held by NEC's headquarters will be transferred to them, together

with clear and strict accountability for business results.

- Thorough indication of profitability: A distinct focus on

profitability and forward-looking investments, and a clear

balance between them will be targeted.

- Strengthening of corporate governance: A system of company

officers will be introduced at each in-house company, together

with a Board, aimed at promoting their independence while

providing a transparent and quicker decision-making structure.

In order to achieve these plans, on October 1st NEC established preparatory offices for each of the internal companies it will form in April 2000 and the "Office for the Promotion of Management Innovation" to supervise these units.

CAUTIONARY STATEMENT:

The above forecasts are forward-looking statements involving risks and uncertainties. The important factors that could cause actual results to differ materially from such statements include, but are not limited to, general economic conditions in NEC's markets, which are primarily Japan, North America, Asia and Europe; demand for, and competitive pricing pressure on, NEC's products in the marketplace; NEC's ability to continue to win acceptance of its products in these highly competitive markets; and movements of currency exchange rates, particularly the rate between the yen and the U.S. dollar in which NEC makes significant sales.

Editor's note: A summary of consolidated financial results and measures to deal with the Year 2000 Issue are available upon request.