NEC sales, income up but DRAM, LCDs disappoint

NEC reported full-year results Thursday that were broadly in line with analysts' expectations, and at the same time moved to stem growing losses in the semiconductor sector by effectively withdrawing from memory chip, notebook display panel and laser printer production.

The company, one of the world's largest electronics and semiconductor manufacturers, said group net sales for fiscal 2001, the 12 month period to the end of March 2001, were up 8.4 percent to 5.4 trillion yen (US$42.9 billion). Operating income was 67.7 percent higher at 185.2 billion yen and net income increased more than five-fold to 56.6 billion yen. Analysts had been expecting sales of around 5.4 trillion yen with net income around 60 billion yen, according to a survey of 12 analysts by Multex Global Estimates.

While net sales rose 13.3 percent in Japan to 3.9 trillion yen, North American sales fell 15.3 percent to 481.9 billion yen, said NEC. Sales in other markets advanced 4.2 percent to 973.2 billion yen.

The defining events of the year for NEC came in the shape of sharp falls in the personal computer, DRAM (dynamic random access memory) and liquid crystal display (LCD) markets, said Koji Nishigaki, president of NEC. The company saw "drastic downturn" in the markets in the second half of the year and this had a negative effect on the company's results, he said.

To stem its losses, NEC will effectively end DRAM production, continuing only at its state-of-the-art NEC Hiroshima Ltd. facility in western Japan, the entire output of which goes to Elpida Memory Inc., its computer memory joint venture with Hitachi Ltd. Elpida focuses on production of leading-edge memory chips where competition is less fierce and margins are higher.

As a result of the move, production at NEC Semiconductors (UK) Ltd. will be shifted to that of more profitable system LSI (large scale integrated circuit) chips. A similar move was announced earlier this month for NEC Electronics Inc. in Roseville, California, which will switch to system LSI production with the closure of DRAM lines and the loss of 700 jobs.

The switch of production in the U.K. will not be immediate, said Nishigaki. "We have a factory in Scotland and we will start reducing production there but as we still have customers we are obliged to supply them. By the end of this year, we plan to reduce production to 10 percent (of current levels) and in 2002 to zero."

System LSI chips, which are custom-designed for a single job that was done by several individual chips previously, are more in demand. NEC reported sales in fiscal 2001 of memory chips rose just 1 percent to 252.1 billion yen while those of System LSI chips jumped 11 percent to 458.0 billion yen.

In the LCD sector, where revenues slumped 19 percent on the year, NEC's action was just as quick and clean. The company is ending production of LCD panels for notebook computers and will switch production to that of smaller panels for cell phones and larger panels for high-resolution monitors. To replace the lost notebook panel production, NEC announced Thursday a deal with Taiwan's Chi Mei Optoelectronics Corp. to supply 14.1 inch TFT (thin film transistor) LCD panels.

The company also moved to increase its PC operations by merging four domestic units currently involved in development and manufacturing of PCs. Increased spending by companies and individuals pushed PC sales up 14 percent in unit terms to 3.5 million units. NEC did not provide an equivalent figure for the value of PCs sold although it said domestic sales of PCs and peripherals were 5 percent higher at 701 billion yen.

NEC also said Thursday it has signed a letter of intent to sell its entire laser printer business to Fuji Xerox Co. Ltd. The companies are still discussing specific details although hope to have a definitive deal in place by the end of July and the businesses transferred by the end of August. The deal includes both design and production sides of the business, it said.

"For the DRAM and display sectors, we want to quickly respond to the circumstances as they change, but for the PC hardware sector, we would like to take more time for decision making," said Nishigaki at a news conference.

For the current year, fiscal 2002, which ends in March 2002, NEC said it expects to report group net sales of 5.85 trillion yen and net income of 65 billion yen. The sales forecast is ahead of analysts estimates, which have been predicting sales of 5.63 trillion yen, while net income is below the 73 billion yen currently forecast by analysts, according to Multex.

Kuriko Miyake, Tokyo correspondent for IDG News Service, contributed to this story.

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