NEC Corporation

To Our Shareholders

Sales and Earnings

In the first half of fiscal 1997,ended September 30, 1996, NEC Corporation recorded consolidated net sales of \2,242.5 billion ($20,023 million), an increase of 17% from the same period of the previous fiscal year. This growth was attributable primarily to higher domestic sales of communications systems and equipment.

Domestic sales rose 22%, to \1,703.7 billion ($15,212 million), accounting for 76% of net sales, and overseas sales increased 3%, to \538.8 billion ($4,811 million).

NEC posted net income of \31.2 billion ($279 million), up 54%. This was due mainly to the expansion in sales of communications systems and equipment more than offsetting the decline in sales of electron devices, which resulted from sharp falls in prices of memory devices, as well as an improvement of efficiency in overall costs and expenses. Net income per share of common stock climbed 46%, to \17.82 ($0.159). On October 25, 1996, the Board of Directors declared an interim cash dividend of \5.50 ($0.049) per share.

Performance by Product Category

Sales of communications systems and equipment jumped 47%, to \764.6 billion ($6,827 million), thanks mainly to the strong performance of mobile communications systems and higher sales of transmission systems in the Japanese market. Sales of computers and industrial electronic systems increased 9%, to \902.1 billion ($8,055 million), due primarily to higher domestic sales of personal computers (PCs). In electron devices, sales of such products as system LSIs (large-scale integrated circuits) and color liquid crystal displays (LCDs) rose while sales of memory devices decreased. Consequently, sales of electron devices slipped 2%, to \459.5 billion ($4,103 million). Sales from other operations increased 6%, to \116.2 billion ($1,038 million).

The Operating Environment and NEC's Response

During the first half of fiscal 1997, while the recovery in the Japanese economy continued, the pace of that recovery was slow. Overseas, the U.S. and Asian economies recorded favorable growth. Economic conditions in Europe, however, remained generally stagnant.

In the Japanese electronics industry, domestic markets for mobile and other communications systems enjoyed further expansion. The domestic PC market was healthy, and computer markets showed steady growth overall. In electron devices, sharply lower prices for memory devices resulted in a harsh operating environment.

Against this background, NEC strove to enhance its manufacturing, marketing, and service structures and to raise efficiency through such measures as reducing production costs by redesigning manufacturing processes.

To advance its strategy regarding PC markets around the world, NEC merged its PC operations outside Japan and China with those of Packard Bell Electronics, Inc. (Packard Bell), of the United States. Together, the two companies will work to ensure a leading role in the world market for PCs, which are the core products in the development of multimedia.

To provide funds for capital investment programs and the repayment of long-term debt, in April 1996 NEC issued unsecured convertible bonds of \100 billion in Japan.


In the second half of fiscal 1997, growth of Japan's economy as a whole is expected to remain slow, although private-sector demand is expected to rise. Economic growth in the United States is projected to be somewhat slower, while Asian economies are expected to enjoy further steady growth.

Despite growth of the domestic economy remaining slow, the Japanese electronics industry is expected to remain healthy, with continued strong demand for communications equipment and PCs. However, there remains some uncertainty regarding prices of memory devices.

Amid these conditions, NEC will work to expand sales by focusing on introducing innovative products and services that meet customer needs while concentrating its resources on strategic areas as well as entering into strategic alliances with other companies. Furthermore, in response to the further intensification of competition in world markets, NEC will strengthen its profitability by continuing to hold down costs and expenses and raising productivity.

We would like to thank our shareholders, customers, and employees for their continued support.

October 25, 1996

Tadahiro Sekimoto
Chairman of the Board

Hisashi Kaneko

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