Weak products dent NEC chip unit’s profits

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NEC Electronics, the Japanese semiconductor company hit by seven consecutive quarterly losses, admitted on Thursday that its full-year loss for 2006 would be far deeper than forecast because of “weak products”.

The country’s third-biggest chipmaker said thinner margins on chips used for flat-panel televisions, a scattered product line-up and a sluggish approach to cost-cutting would lead to an operating loss of Y30bn ($247m), Y23bn worse than management had expected when it last updated the market in October.

The woes at NEC Electronics forced a dramatic downgrade in profit forecasts by its parent, NEC Corp, which holds a 70 per cent stake in the ailing affiliate.

The group said that recurring income for 2006 was likely to be Y15bn lower than the Y40bn forecast on February 6.

The NEC Electronics profits warning was issued along with an array of restructuring measures described by one Tokyo-based fund manager as “overdue and anaemic”. NEC Electronics said it hoped to return to the black in fiscal 2007 but that the effort depended on sales remaining at or above current levels.

The company’s plans for survival amid intensifying competition in semiconductors involve consolidating its production lines from the current nine to only four.

The company will also focus on semiconductors that derive better margins, such as the EMMA chip it produces for use in television set-top boxes.

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