NEC, Fujitsu see first quarter sales rise, profits fall

First-quarter profits tumbled at two of Japan's largest electronics companies, NEC Corp. and Fujitsu Ltd., as they were hit by sharp declines in several business areas, the companies reported Friday. The two also revised down their financial predictions for the coming months.

Both companies reported increases in consolidated net sales during the first three months of the current fiscal year. NEC said sales rose 6 percent year on year, to 1.1 trillion yen (US$9 billion, as of June 30, the last day of the period being reported) while Fujitsu reported an increase of 2 percent, also to 1.1 trillion yen.

The harsh business environment in several sectors hit profits at the two companies, with Fujitsu faring worse. While NEC said operating profit slid 70 percent to 3.7 billion yen and net profit dropped 72 percent to 800 million yen, Fujitsu reported a first quarter operating loss of 42.3 billion yen and a net loss of 55.4 billion yenThe electronic devices and semiconductors businesses of both companies were hit by continuing drops in pricing, particularly for memory chips and liquid crystal displays (LCDs). Fujitsu said reductions in capital spending on information technology by corporations and on infrastructure by telecommunication carriers were also to blame for its falling profits.

There were some bright spots.

Investment by Japanese cell phone network operators, particularly that of NTT DoCoMo Inc. in its 3G (third-generation) network, pushed up sales in the telecommunication infrastructure businesses of both companies. NEC said its infrastructure business sales rose 40 percent to 268.2 billion yen while Fujitsu, which did not release detailed figures, said sales of 3G equipment helped offset the effects of cutbacks in investment by carriers in the U.S.

NEC said sales of cell phone handsets were also very strong in Japan, rising 66 percent from the same period a year ago to 161.6 billion yen. The company's N502 and N503 handsets are among the most popular sold by NTT DoCoMo.

Both companies reported strong sales in their domestic systems integration businesses. NEC said sales increased 49 percent to 69.5 billion yen while Fujitsu said systems integration and outsourcing services for corporations in Japan helped to reduce the effects of weak spending on IT in Europe and North America.

Looking ahead to the end of the fiscal first half, NEC said it now expects sales to be 2.6 trillion yen, less than the 2.7 trillion yen it predicted in April but still more than the 2.5 trillion yen it reported last year. Operating income is expected to be 30 billion yen and net income to be 3 billion yen, down from its most recent prediction of 60 billion yen and 15 billion yen respectively and well below its actual results in the first half of last year of 74.6 billion yen and 20.5 billion yen respectively.

Fujitsu revised down its outlook for the full year. Saying it expects corporate IT spending cutbacks at North American carriers to continue and demand to be stagnant for cellular telephones and personal computers, the company predicted full year consolidated net sales of 5.4 trillion yen. In April, when it reported full year sales of 5.5 trillion yen for the year just ended, it predicted full year sales for this year of 5.8 trillion yen.

It also said operating profits will likely slide from the 244 billion yen reported last year to 80 billion yen this year, while last year's net profit of 8.5 billion yen is expected to turn into a net loss of 220 billion yen.

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