NEC Corporation

To Our Shareholders

Sales and Earnings

In the first half of fiscal 1998, ended September 30, 1997, NEC Corporation recorded consolidated net sales of Y2,371.6 billion ($19,600 million), an increase of 6% from the same period of the previous year. This increase was primarily due to buoyant sales of electron devices and communications systems and equipment.

Domestic sales increased 5%, to Y1,785.9 billion ($14,760 million), accounting for 75% of net sales, and overseas sales rose 9%, to Y585.7 billion ($4,840 million).

NEC posted net income of Y35.8 billion ($296 million), up 15%. This gain was attributable primarily to higher sales and improved efficiency in overall costs and expenses. Net income per share of common stock climbed 14%, to Y20.30 ($0.168). On October 24, 1997, the Board of Directors declared an interim cash dividend of Y5.50 ($0.045) per share.

Performance by Product Category

Sales of communications systems and equipment rose 8%, to Y825.4 billion ($6,822 million). Despite a decline in domestic sales of mobile communications systems, buoyant worldwide sales of central office switching systems for backbone networks and higher sales of transmission systems and cellular phones in Japan caused overall sales to increase.

Sales of computers and industrial electronic systems edged up 1%, to Y915.2 billion ($7,563 million). While sales of home-use personal computers (PCs) slowed, systems integration services, mail processing systems, and PC servers showed solid performances.

Electron device sales expanded 15%, to Y528.1 billion ($4,365 million), primarily owing to the strong performance of semiconductors, particularly of microcomputers and application-specific integrated circuits (ASICs). Sales of color liquid crystal displays (LCDs) also increased.

Other operations registered an 11% decline in sales, to Y102.9 billion ($850 million).

The Operating Environment and NEC's Response

During the first half of fiscal 1998, while the depreciation of the yen contributed to a favorable environment for exports, the combination of slackening consumer spending due to the April 1997 national consumption tax rate increase and slow growth in private-sector capital investment led to a relatively stagnant Japanese economy.

Overseas, U.S. economic growth remained vigorous and European economies experienced gradual growth. While the economies of Asia continued to expand, from the onset of summer plummeting currency values--particularly in ASEAN nations--curbed development.

In the Japanese electronics industry, such factors as a downturn in the trend of mobile communications systems investment and sluggish demand for home-use PCs slowed the pace of overall expansion. In contrast, the continued strong performances of microcomputers and ASICs supported growth in the electron devices market.

Against this backdrop, NEC enhanced its sales and service structures and strengthened its manufacturing facilities, primarily for semiconductors and color LCDs.

To advance its global position in the PC market, in June 1997 NEC invested an additional $285 million in Packard Bell NEC, Inc., an affiliated company accounted for by the equity method.

In April 1997, NEC issued a total of Y100 billion ($826 million) in unsecured bonds to raise funds for capital investment programs and the repayment of long-term debt.


In the second half of fiscal 1998, Japan's economic growth is expected to remain subdued due to the prospects of slack private-sector capital investment and lackluster personal consumption. The U.S. economy is forecast to experience a mild slowdown, and, in Asia, the impact of currency depreciation is expected to slow the expansion of many of the region's economies.

In spite of the weak domestic economy, the Japanese electronics industry is expected to maintain its current healthy state, supported by continued corporate investment for information systems infrastructure. In addition, although there remains uncertainty as to memory prices, overall demand for semiconductors is forecast to be brisk.

Amid this operating environment, we will endeavor to expand sales by relentlessly seeking to deliver greater value to customers. Furthermore, by working to restrain costs and expenses while increasing productivity, NEC is striving to improve its operating results as well as its financial structure.

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

October 24, 1997

Tadahiro Sekimoto Chairman of the Board
Tadahiro Sekimoto
Chairman of the Board

Hisashi Kaneko President
Hisashi Kaneko

Copyright NEC Corporation. All rights reserved.