PB-NEC losses drag NEC into red

PB-NEC losses drag NEC into red

NEC announced last week that it had posted its largest ever net loss for the fiscal year just ended, blaming large losses on its US PC business -- Packard Bell NEC (PB-NEC) -- falling prices of semiconductors and slack demand for communications equipment.

Tokyo-based NEC posted a consolidated net loss of 157.9 billion yen ($US1.3 billion) on revenues of 4.76 trillion yen for the year ended March 31, 1999, down 2.9 per cent compared to the year before. In the previous fiscal year, the company chalked up a net profit of 41.3 billion yen on revenues of 4.90 trillion yen.

The results were in line with expectations. In February, NEC forecast a loss of 150 billion yen and announced a major restructuring that will see the company shedding 10 per cent of its workforce by the financial year ending March 31, 2002. The Japanese vendor also replaced its president and installed a new chairman.

NEC blamed falling consumer spending and lacklustre corporate investment as the main sources of woe in Japan. Overseas, ongoing losses at its US PC subsidiary PB-NEC, which last year posted a $US500 million loss, further dragged down earnings. This is the first year NEC's results include those of PB-NEC.

Sales of NEC's communications systems and equipment in Japan were down 13 per cent from last year, falling to 1.49 trillion yen, as struggling communications companies slashed investments, according to NEC. For instance, Nippon Telegraph & Telephone (NTT), NEC's largest single customer, over the past year has slashed its equipment investment due to corporate restructuring. Communications products comprised 31.4 per cent of NEC's total sales last year.

A depressed semiconductor market worldwide further hit NEC's earnings, as sales of microcomputers and memory devices tumbled year on year by 11.5 per cent to 874 billion yen.

Though users have recently benefited from bargain-basement memory prices, the fall in prices has badly affected Japan's chip makers. In earnings statements last week, Fujitsu, Hitachi, Mitsubishi Electric, and now NEC, have all reported major losses in their semiconductor product groups.

NEC saw sales of its PCs rebound in the second half of the year, while sales in its computer group as a whole grew 10.8 per cent over the previous year to 2.19 trillion yen. The product group, which includes servers, PCs and mainframes, as well as peripherals, is the company's largest unit, accounting for 46 per cent of total sales.

Worldwide, NEC's total sales of PCs rose 18 per cent to 8.7 billion yen. However, the company's domestic shipments fell to 2.78 million units from 2.95 million units in the previous year. This fall dragged down NEC's revenues from domestic PC sales by 9 per cent year on year, the company said.

The company said it will close PB-NEC's Japan operation. NEC, Japan's largest PC company, will continue selling its full range of products in Japan.

Sacramento-based PB-NEC has been a thorn in NEC's side since 1995 when the Japanese company injected $US170 million into what was then known as Packard Bell Electronics. The following year, NEC combined its US PC operations with that of Packard Bell's, yielding the current company PB-NEC, and continued to keep it afloat with periodic cash injections. The total value of NEC's investment in the US company exceeds $US1.5 billion.

Although Japan's domestic economy remains in the doldrums, NEC expects to see sales grow again in the next fiscal year. The company is forecasting that net sales will hit 5.05 trillion yen, up 6.1 per cent, on a consolidated net profit of 25 billion yen.

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