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To: phbolton who wrote (49540)	10/25/1999 9:23:00 AM
From: DJBEINO	Respond to of 53903

NEC Loses Money in First Half as Memory Chip and Telephone Sales Decline By Peter Poole-Wilson with reporting by Yuzo Yamaguchi and Chiharu Kamimura Tokyo, Oct. 25 (Bloomberg) -- NEC Corp., Japan's largest maker of personal computers and microchips, said first-half losses widened as sales of computer memory chips slumped and it sold less telecommunications equipment overseas. Tokyo-based NEC had a first-half loss of 48.847 billion yen ($462 million), or 30.02 yen a share, from a loss of 19.732 billion yen, or 12.35 yen a share in the same period last year. The loss, in line with NEC's revision to its estimates last month, was heavier than the average 37 billion yen forecast by three analysts surveyed by Bloomberg News. Sales rose a better- than-expected 7.3 percent to 2.267 trillion yen. NEC, looking to rebound from a record loss in the year ended March 31, struggled as prices for the most commonly used computer memory chips fell more than projected in the April-June quarter and overseas customers bought fewer switches and other phone equipment. That leaves NEC needing to deliver on its forecast for a significant rebound in the fiscal second half if it's to meet its full-year targets, analysts said. ''They were hit by chips in the early part of the first half,'' said Katsuhiko Sugiyama, a senior analyst at Paribas Capital Markets Ltd. ''Worse still, the telecommunications business has been in even worse shape.'' NEC had an operating loss of 7.993 billion yen, meaning selling and administrative expenses exceeded sales by that amount. Last year the company had operating profit of 15.294 billion yen for the period. That loss reflects ''the damage of sluggish sales of communication equipment and chips,'' said NEC Senior Vice President Shigeo Matsumoto. Phone equipment sales fell 1.7 percent, and operating profit on the phone business crashed 79 percent, as the company sold fewer of its higher-margin digital switches overseas and in Japan. NEC generates a third of sales from communications equipment. NEC has to rely on substantial recovery in the second half because memory chip prices fell more than expected in the April- June period, Matsumoto said. Still, NEC's chip business, from where it derives 20 percent of sales, returned to profit on a monthly basis in September thanks to a recovery in memory chip prices the past three months, Matsumoto said. ''We expect recovery in our chip business to continue,'' said Matsumoto. The company now targets full-year operating profit of 20 billion yen on chips, the first time in three years NEC would make money on the business, he said. Chip Recovery NEC is basing its estimates on expectations average prices for the benchmark 64-megabit dynamic random-access memory chips most commonly used as the main memory in PCs will be stronger in the second half than in the first. Sixty-four-megabit DRAM prices plunged about two thirds in 1998 and continued their fall in the first six months of this year, dropping as low as $4.55 on July 1, according to the American Integrated Circuit Exchange. That was below the $5 it costs most DRAM makers to produce a chip, and about a tenth of the $40 level reached in early 1997. Prices have rebounded since, as demand has recovered and some companies have trimmed production. NEC expects prices to stabilize at $9 for the October-December quarter, and to fall to $6 for the January-March period, Matsumoto said. Still, some analysts say NEC has more to do to cut costs and improve performance in its chip business. ''The biggest concern is NEC's memory business, including DRAMs,'' said Satoru Ohyama, an analyst at ABN Amro Securities (Japan) Ltd., before the report. ''NEC won't make profit on DRAMs in the second half either if it keeps the current strategy.'' NEC left unchanged its sales and earnings forecasts for the year ending March 31, which it revised last month. The 100-year-old company targets net income of 10 billion yen from sales of 5.0 trillion yen, a gain of 5 percent from the previous year. The company lost a record 157.9 billion yen in the year ended March 31 because of red ink on computer memory chips and at its U.S. PC subsidiary Packard Bell NEC Inc. NEC shares were unchanged today at 2,050 yen. The results were released after Japanese exchanges closed for the day. NEC shares have almost doubled this year, close to a nine- year high, on expectations the company will benefit from plans to cut 15,000 employees, or 10 percent of its workforce, in three years. That exceeds a 60 percent gain in the Topix index of electrical machinery companies in the same period.