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(Nikkei BP Group)

(No.1 High-Tech News Site in Japanese)

  • NEC’s President Resigns; Business Outlook Revised Downward
  • February 24, 1999 (TOKYO) — NEC Corp. president Hisashi Kaneko will resign as of March 26 and will be replaced by executive vice president Koji Nishigaki, following a drastic downward revision of the company’s business prospects for the current fiscal year.
    As of October 1998, NEC had expected a consolidated net loss of 35 billion yen (US$287 million) for fiscal 1998, through March 1999. The figure has been revised to a consolidated net loss of 150 billion yen. And the earlier figure of a non-consolidated profit of 30 billion yen (US$246 million) was revised downward to a non-consolidated loss of 150 billion yen.

    The post of chairman has been vacant since Tadahiro Sekimoto resigned in October 1998. The new chairman will be Hajime Sasaki, currently senior executive vice president.

    The company had earlier estimated that consolidated sales would reach 4.9 trillion yen (US$40.18 billion) in fiscal 1998, or the same as in the previous business year. However, the figure was revised downward to 4.7 trillion yen. Its projected pretax loss has been drastically revised from 35 billion yen to 220 billion yen, the company said.

    On a non-consolidated basis, projected sales were revised from 3.75 trillion yen (down 8 percent) to 3.65 trillion yen (down 10 percent), and recurring profit from 50 billion yen (down 38 percent) to 3 billion yen (down 96 percent).

    An NEC official said the downward revisions are due to: (1) a delay in the recovery of domestic business and stagnant demand in Asia and the Central/South American region; (2) a deterioration of the business climate caused by the sharp appreciation of the yen; and (3) a deterioration of the business performance of Packard Bell NEC Inc. (PB-NEC) and its extraordinary losses incurred through restructuring.

    Also, NEC announced plans to organize a “management innovation committee” with the representative director acting as the core member. It hopes to implement “management innovation measures.”

    Specifically, the company will reassign about 10,000 of its employees in Japan in the next three years. In three years it expects to have 9,000 fewer employees in Japan and 6,000 fewer employees at associated companies overseas.

    As part of its personnel streamlining plan, the company will limit the hiring of college graduates at the main office to 550 in the spring of 2000, and it will refrain from hiring general clerical or technical workers.

    Moreover, hiring at associated companies will be frozen with the exception of some of its software subsidiaries.

    Investment in plants and equipment in fiscal 1999 will be reduced by 20 percent compared with the current year, while investment in research and development (R&D;) and other expenditures will each be cut by 10 percent, the company said.

    NEC cited the reorganization of PB-NEC as part of its business recovery measures. NEC will buy out PB-NEC Europe, PB-NEC’s subsidiary operating in Europe, for US$450 million. The transaction will be handled as a capital investment in PB-NEC. Of the amount, US$20 million will be used for repayment of loans to bring the loan balance to zero.

    Additionally, the company has already started to slash PB-NEC’s fixed costs and has cut the number of employees from 6,000 at the start of 1998 to just 3,000. The parent company also has proceeded with liquidation of bad assets. NEC said that PB-NEC’s recurring losses, which had reached US$500 million in 1998, will be cut to US$80 million in 1999.

    With these measures, the company aims to attain consolidated sales of 6 trillion yen (US$49.2 billion) and pretax profit of 300 billion yen (US$2.46 billion) by fiscal 2001.

    By implementing a series of profit improvement measures, the company plans to reduce its consolidated interest-bearing liabilities by 600 billion yen to bring the debt-capital ratio to a level below 1.5.

    Nishigaki, who will be the next president, has worked in IT system-related fields. He will be the first executive from the IT-related area to become president of NEC. Nishigaki has worked extensively in the system integration business. Because of his achievements, a great deal is expected of him in upgrading NEC’s business structure. However, the electronics company has a long and difficult road ahead.

    In addition to the weakened structure of corporate profits, the company is faced with problems of stagnant domestic business conditions and diminished demand for semiconductors, among other adverse external factors.

    NEC has been unable to cope successfully with PB-NEC’s business stagnation.

    NEC did not make any specific comments on the reorganization and consolidation of unprofitable businesses except for those related to PB-NEC.

    Kaneko will become a counselor and a member of the board, joining Sekimoto.

    However, some doubts are lingering about the new management’s ability to implement innovation with the “old management” serving as advisers.

    “I will make my own judgments on the company’s business management,” Nishigaki said.

    More information is available in English at: http://www.nec.co.jp/english/today/newsrel/9902/1901.html & http://www.nec.co.jp/english/today/newsrel/9902/1902.html

    Related stories:
    NEC Posts April-Sept. Consolidated Net Loss of 19.7B Yen
    NEC Seeks to Boost Sales by 8 Pct. in 1999: Exec. Vice Pres.

    (BizTech News Dept.)

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