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April 21, 2006 10:49 am

NEC slashes forecast by 80% on weak chip unit

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NEC said on Friday group net profits for last year would be nearly 80 per cent below an earlier forecast due to huge losses at NEC Electronics, its semiconductor subsidiary.

The electronics group said net profits for the year to March 2006 would be Y13bn, rather than Y60bn as previously estimated, after losses at NEC Electronics, in which it owns a 70 per cent stake, widened substantially.

NEC Electronics expects to post a Y98bn net loss, rather than a Y20bn loss, after setting aside reserves against potential appraisal losses and possible payouts in lawsuits.

The semiconductor company, which makes microchips for products ranging from video games consoles to automobiles, is facing an anti-trust lawsuit in the US. It also set aside reserves against potential losses related to deferred tax assets and an technology asset appraisal.

NEC Electronics, which was listed with much fanfare in 2003, has suffered from severe price declines and a general downturn in its markets.

Turning around the semiconductor business is a priority for NEC’s new president, Kaoru Yano, who was appointed in March. NEC has also been battered in the mobile phone business, which is another priority for Mr Yano.

In addition to the woes at its semiconductor company, NEC said sales would be 2.6 per cent lower than previously forecast due to a weaker performance by its broadband and IT solutions businesses.

NEC now forecasts sales of Y4,800bn, rather than Y4,930bn. Pre-tax profits are forecast to be 11 per cent lower than its previous estimate, at Y80bn.

Earlier this year it emerged that NEC would have to re-state its earnings for the past five years due to years of undetected fraud and embezzlement by an employee at a wholly owned subsidiary totalling Y36.3bn.

The employee had recorded false transactions between March 2002 and December 2005 at NEC Engineering, a subsidiary involved in the development, design and inspection of electronic and telecommunications equipment.

In the year to March 2005 alone, the fraud is thought to have affected Y16.7bn in sales and 4bn in operating profits at NECE.

NEC has already taken into account the estimated impact of the fraud on its third-quarter results last year and said the impact on its annual results will be minimal.

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