ACADEMIA

TOKYO, JAPAN -- Consolidated net sales of NEC for the three months ended June 30, 2002 decreased by 103.4 billion yen, or 9%, to 1,021.2 billion over the previous first quarter ended June 30, 2001. NEC recorded income before income taxes of 19.8 billion yen, an increase of 16.5 billion yen compared to the corresponding period of the previous year. Sales Sales of NEC Solutions slightly increased from the corresponding period of the previous year, due mainly to business expansion in the area of software, services, servers, storage products and workstations, although sales of personal products dropped. Sales of NEC Electron Devices also showed a small increase compared to the corresponding period of the previous year, due primarily to a sales increase in displays including color PDPs (Plasma Display Panels) and the new consolidation of NEC Tokin Corporation. Sales of NEC Networks decreased significantly, compared to the first quarter of the previous year when the sales were favorable. This was due to stagnant conditions in the global communications market, which caused the sales decrease in network infrastructure, and the market deceleration for mobile terminals. Operating income (loss) NEC Solutions recorded a segment profit due to a sales increase in its software and services businesses, which are a stable source of income for NEC. NEC Electron Devices substantially reduced its segment loss compared to the corresponding period of the previous year because semiconductors market bottomed out and restructuring measures to reduce fixed costs, which were implemented in the previous fiscal year, showed great effectiveness. Despite a dramatic decrease in its segment profit due to a decline in sales, NEC Networks secured a segment profit primarily resulting from improved efficiency brought on by structural reforms to its network infrastructure business executed in the previous fiscal year. As a result, NEC recorded operating loss of 7.0 billion yen in this quarter. Income before income tax Income before income tax increased by 16.5 billion yen over the corresponding period of the previous year mainly due to gain on sale of marketable securities. Although equity in earnings of affiliated companies decreased, net income for this quarter was 7.2 billion yen, an increase of 6.3 billion yen from the corresponding period of the previous year when NEC posted the cumulative effect of accounting change from the application of new accounting standards (* footnote) regarding derivatives and hedge activity. (* footnote) On April 1, 2001, NEC adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB statement No. 133." These statements require an entity to recognize all derivatives as either assets or liabilities in the balance sheet and to measure those instruments at fair value. The cumulative effect from the adoption of these statements is disclosed as "cumulative effect of accounting change, net of tax" in the condensed statements of operations. 2. Sales and Segment Profit or Loss Sales and segment profit or loss of NEC's main segments (including inter-segment transactions) were as follows (figures in brackets denote increase or decrease from the first quarter of the previous year): NEC Solutions Sales: 444.8 billion yen (+3%) Segment profit: 3.3 billion yen (-3.1 billion yen) NEC Solutions' sales for this quarter were 444.8 billion yen, an increase of 3% over the corresponding period of the previous year. Sales for each product area were as follows: In the area of systems integration (SI) services and software, sales increased by 10% to 76.3 billion yen over the corresponding period of the previous year, due to steady growth in SI services for the communications, media and medical markets. In the area of Internet services and support services, sales also rose by 24% to 82.1 billion yen over the corresponding period of the previous year, due to growth in BIGLOBE's value-added services and support services. In the area of servers, storage products and workstations, there was a 25% increase to 82.0 billion yen over the corresponding period of the previous year, which was due to winning big orders for open system servers including UNIX servers. Conversely, in the area of personal products, sales decreased by 9% to 174.2 billion yen compared to the corresponding period of the previous year, which was impacted by continuous stagnant conditions in domestic and European markets. NEC Solutions recorded a segment profit of 3.3 billion yen, because of stable profits generated by SI services and software businesses and the fact that some achievements in restructuring were made in spite of significant decrease in shipments for personal products. NEC Networks Sales: 330.1 billion yen (-29%) Segment profit: 5.3 billion yen (-25.9 billion yen) NEC Network's sales for this quarter decreased by 29% from the corresponding period of the previous year to 330.1 billion yen. By product area, sales of network infrastructure decreased by 26% to 199.7 billion yen; sales of mobile terminals decreased by 45% to 88.8 billion yen, over the corresponding period of the previous year; and sales of other products were 41.6 billion yen. These results were due to a drop in shipments of network infrastructure caused by sluggish conditions in overseas markets, submarine cable systems market and domestic communication infrastructure market, and significant decrease in shipments for domestic mobile terminal business over the corresponding period of the previous year. Additionally, there was a substantial decrease in mobile terminal shipments, compared to favorable conditions at the corresponding period of the previous year. Despite a sharp decline in sales, NEC Networks maintained a segment profit of 5.3 billion yen due to cost reduction achievements in restructuring executed during the previous fiscal year. NEC Electron Devices Sales: 229.3 billion yen (+4%) Segment loss: -3.2 billion yen (+14.1 billion yen) NEC Electron Devices' net sales for this quarter were 229.3 billion yen, a 4% increase compared to the corresponding period of the previous year. By main product area; sales of semiconductors decreased by 3% to 166.6 billion yen; sales of displays increased by 33% to 29.1 billion yen; and sales of electronic components and others increased by 21% to 33.6 billion yen, compared to the corresponding period of the previous year. These results were brought on by a modest recovery in the semiconductor market due to the upturn in consumer products manufacturing in Asia and Japan. Additional factors were the rapid growth in the color PDP market and the new consolidation of NEC Tokin Corporation as a result of the integration to NEC Tokin of NEC's electronic components business. NEC Electron Devices recorded a segment loss of 3.2 billion yen for this quarter. However, the execution of extensive company-wide restructuring efforts to effectively reduce fixed costs, combined with the recovery of electronics market contributed to a large improvement of 14.1 billion yen over the corresponding period of the previous year. 3. Cash Flows Net cash used in operating activities for this quarter was 71.1 billion yen, primarily due to a decrease in notes and accounts payable. The amount of cash used decreased by 32.3 billion yen compared to the corresponding period of the previous year mainly as a result of improved efficiency in inventories. Net cash provided by investing activities was 41.5 billion yen, an increase of 125.5 billion yen from the corresponding period of the previous year. This principally reflects a decrease in payments for addition to property, plant and equipment, down by 63.4 billion yen and the increase in proceeds from the sale of marketable securities, up 44.1 billion yen. Consequently, net cash used in operating and investing activities totaled 29.5 billion yen. Net cash used in financing activities was 94.6 billion yen as a result of repayments of bonds and borrowings. Cash and cash equivalents amounted to 250.2 billion yen, a decrease of 127.4 billion yen compared to the end of previous fiscal year.