NEC, back in profit, to spin off semiconductor ops

Heavy cost cutting helped NEC Corp. return to profitability in the first half of the current financial year, the period from April to September, despite a drop in sales, the company said Friday.

For the six-month period, the Tokyo company made a net profit of 1.0 billion yen (CDN$12.58 million as at Sept. 30, the last day of the period being reported), compared to a net loss of 29.8 billion yen in the same period a year earlier. Operating income also climbed, up from 5.3 billion yen to 26.7 billion yen, but sales fell around 12 per cent to 2.17 trillion yen, the company said in a statement.

The company’s semiconductor business saw significant improvement over the same period a year earlier, with sales rising 11 per cent on the back of stronger demand for plasma display panels (PDPs) and for semiconductors used in consumer electronic devices. The division still ended the half in the red, recording an operating loss of 5.0 billion yen, although this was around one tenth the size of the loss reported a year earlier.

NEC also said it plans to spin off its semiconductor operations to a new company, NEC Electronics Corp., on Nov. 1 to help it better compete with intense price competition from Chinese companies and electronic manufacturing service companies. NEC said it will look to the capital markets to help finance operations of the new company.

At present, NEC is structured as three virtual companies: NEC Networks, NEC Solutions and NEC Electron Devices. With the semiconductor operations spun off, the parent company will concentrate on the first two areas.

In these areas during the first half, performance was mixed.

NEC Solutions saw sales fall 1 per cent, in part due to lower sales of personal computers. The Internet services, system integration and software parts of the business all saw sales increase, said NEC. Operating profit in the sector was 29.9 yen billion, up 59 per cent.

The results at NEC Networks were worse, with sales and operating profits dropping 33 per cent and 78 per cent respectively. This was largely caused by a one-third drop in sales in the company’s network infrastructure business caused by continuing economic problems in the telecommunication sector. NEC, which is Japan’s number one cell phone maker, also said handset sales dropped 45 per cent in value.

For the full year, NEC said it expects to see sales fall 5 per cent to 4.48 trillion yen and a return to profitability at both operating and net levels, of 65 billion yen and 10 billion yen respectively.