SCIENCE

TOKYO, JAPAN -- NEC has announced its mid-term management strategies. In a long and detailed release, the company explains its plans to survive the “IT downturn.” The plans include cutting of 4,000 jobs and a withdrawal from the chip market over the next three years. NEC is steadily implementing and will continue to strive to further its "Global No.1" business strategy, focusing on broadband and mobile applications, which was established last year. The IT downturn, which began in the U.S., has had an effect on the global markets. NEC, in response to this IT downturn, has set its mid-term management strategies to continue to develop business strategies for global growth while strengthening a business base for profit and reorganizing its electron devices business. NEC aims to maximize its corporate value through the steady implementation of these measures. Restructuring of the Electron Devices Business Converting to a Business Structure Centered on to System LSI With regard to the DRAM business, for the time being NEC will continue to supply DRAM produced mainly at NEC Hiroshima, Ltd. for Elpida Memory, Inc. (Elpida). However, NEC will transfer this business to Elpida and will withdraw from this business except as a shareholder of Elpida around 2004. NEC will establish NEC Compound Semiconductor Devices, Ltd. in October 2001, to concentrate on its optical and microwave semiconductor business, which are key devices for the broadband and mobile businesses. The new company is planning to list its securities in the future after its operations are strengthened. NEC has been working with Thomson Multimedia S.A. on establishing a joint venture in the area of color plasma displays. NEC is also looking for other possible partners to form alliances with in order to aggressively reorganize the electronic components and color liquid crystal displays businesses with the aim to take a top market share in the future in the world market. Through these activities, NEC Electron Devices will reinforce its business focus on system LSIs and establish a business structure organization and corporate culture which promotes the system LSI business. NEC will implement the restructuring measures described below in order to transform its operational structure. Restructuring to Transform Operational Structure NEC is seeking to improve its production capabilities through concentrated restructuring, such as the consolidation of overseas DRAM production, closing down older domestic fabrication lines, and reorganizing and consolidating domestic assemble sites. The specific plan calls for the following: At NEC Semiconductors (UK) Limited, Livingston, Scotland, there will be a reduction of monthly production capacity for the 8-inch fabrication line from 28,000 to 15,000 wafers within the second half of this fiscal year. There will also be a reduction of employees from a current 1,600 to less than 1,000 employees. At NEC's Sagamihara Plant, the 6-inch trial fabrication line will be closed and R&D/testing fabrication will be conducted at its 8-inch fabrication line of the UC facility. In addition, other domestic 6-inch fabrication lines, mainly in the plants that have both 8-inch and 6-inch lines, will be closed gradually. Three semiconductor assembling companies - NEC Fukuoka, Ltd., NEC Oita, Ltd. and NEC Kumamoto, Ltd. - will be reorganized and consolidated into NEC Semiconductors Kyushu, Ltd., which will be established in October 2001. NEC Yamagata, Ltd.'s two assembly plants, Yamagata Plant and Takahata Plant, will be merged into one location within the second half of this fiscal year. NEC will freeze its planned investment of 20 billion yen to increase production capacity of 8-inch wafer from a monthly production of 20,000 to 25,000 at Shanghai Hua Hong NEC Electronics Company, Limited. In addition, there will be other reductions of investment at both domestic and overseas production facilities. NEC Electron Devices aims to cut its investments by an approximately 50% for this fiscal year in comparison with last year to 120 billion yen, 50 billion yen less than originally planned. Through the above structural reforms, a total of approximately 4,000 employees will be reduced worldwide, including a reduction of approximately 2,200 contracted employees. By fiscal year ending March 31, 2003, NEC Electron Devices will seek to reduce its total fixed costs by 7%, in comparison with fiscal year ended March 31, 2001. NEC Electron Devices also aims to reduce its break-even amount by approximately 100 billion yen. Enhancement of System LSI Business In order to enhance its system LSI business, NEC Electron Devices will establish a new management structure which takes into account the different management styles necessary for the growth driving businesses, centering on high-end system LSIs and stable income businesses such as microcomputers and gate arrays. In the growth driving businesses, resources will be concentrated on seven areas: broadband, workstation/server, video game, mobile phone, digital AV, automobile electronics, and optical storage products. NEC Electron Devices will establish long-term relationships with top venders in each field to improve its profitability. In particular, as an IDM (Integrated Device Manufacturer) armed with a technological base ranging from circuit design to process and device design and packaging, NEC aims to provide devices which through vertically integrated technology will have unique capabilities and attributes. Strengthening of Business Base for Profit and Accelerating Global Growth NEC Solutions Domestic IT investment is continuing its expansion due to the restructuring of corporate and government/public sectors. NEC Solutions aims to expand and grow its business in broadband and mobile applications by securing stable profit from domestic systems integration (SI) business and also through synergy between each business. Enhancement of SI Business as Core Based on stable customer base in Japan and advanced technologies such as open mission critical solutions, NEC Solutions will focus on the areas of e-government/local government solutions and e-business solutions and enhance its business with the goal of significantly improving profitability. Expansion in Stock Service Business Through various solutions based on the BIGLOBE business model, BIGLOBE will shift to value added service business. Enhancement of Platform Business Aiming to be a world technology leader in this field, NEC Solutions will seek to enhance its server and storage product business through alliances with other companies such as Hewlett-Packard, Intel and Veritas. Reformation of Personal Products Business In furtherance of the reorganization announced this April, NEC Solutions will aim for new growth in product and service in broadband and mobile applications areas. NEC Networks While seeking to overcome the current difficult business environment, NEC Networks will concentrate its resources into the following four core broadband and mobile applications areas in order to achieve global leading position: Optical Network System Business Under the circumstances of the slow down in investment, particularly in optical fiber backbone network systems in North America, NEC Networks will provide its most advanced technologies established in the North American market to other areas such as Asia and Central/South America. NEC Networks will also provide global seamless terrestrial/submarine network solutions by leveraging its global presence in both worldwide terrestrial and submarine WDM systems market. Also NEC Networks will seek to accelerate the business development based on its optical technologies from backbone to metro edge access systems. IP Network System Business By fully utilizing its technologies and R&D capabilities grown in the business for communications carriers, NEC Networks aims to achieve a leading position in the markets for IPv6 routers and highly-reliable carrier-class routers. Mobile Network System Business By leveraging its premier presence in the Japanese market, NEC Networks will accelerate its efforts to promote the business in the third-generation (3G) mobile and mobile Internet areas. Mobile Terminal Business Through its strong presence in providing i-mode terminals, NEC Networks will seek to maintain and enhance domestic market share as well as regain its presence in the overseas markets in 2.5G area and 3G areas in which NEC takes leads. Measures by Corporate Headquarters for Supporting New Growth Corporate Headquarters will strongly support each in-house company in order to accelerate the future growth of the Company in the broadband and mobile Internet area. Carrying Out of Structural Reform of Electron Devices' Business Restraint of volatility and structural reform in the electron devices business are pressing management issues for the Company. NEC will together with each in-house company promote the shifting of resources to growth areas and structural reform. Concentrating Company Resources to Growth Areas through the Creation of Synergies among In-house Companies Shift and Gain of Resources for Enhancement of Software Development. As the weight of software in the Company's strategic products increases, NEC will reinforce its software development structure. The NEC Soft Group has worked to transfer software development methods cultivated for computers to communications equipment. NEC will further strengthen its broadband and mobile product development system through NEC Systems Technology Co., Ltd. to be established this October. NEC will also enhance its development powers by accelerating and supporting the expansion of overseas software development facilities. Strengthening of Mobile Related Business Strategy through Corporate- wide Synergies (terminals, network systems, servers, systems integration, BIGLOBE and electron devices) NEC has established a mobile strategy committee (chaired by the President) in order to enhance corporate-wide synergies in this growing sector. NEC will strengthen its ability to provide total solutions in the mobile Internet business by integrating its strengths, which are its strong trusting relationship with its customers and the strengths in the following key sectors; that is, total solution and network infrastructure technologies offered by NEC Networks as well as its premier position in the domestic mobile phone market, NEC Solutions' experience in servers, systems integration services and BIGLOBE, and electron device technology of NEC Electron Devices. Through these collaborations, NEC will aggressively strive to capture new business opportunities in the mobile Internet area, as seen in the server business through such projects as NTT DoCoMo's gateway system or the convergence of PCs and PDAs. Acceleration of Growth by Reforming NEC's Business Model Reform of Company-wide Marketing Based on Customer Relations Currently, 121ware.com is focused on promoting and strengthening NEC's one-to-one relationship with customers primarily in the personal computer sector. NEC will further develop this business model by integrating its company-wide customer database and using web technology to create a customer relations management (CRM) site. NEC will realize a new style of marketing implementing information technology tools. Using BIGLOBE Infrastructure to Create New "Place" Based on its BIGLOBE infrastructure, NEC will create a new "place" where both companies and organizations can meet and join in different ways. NEC has already cultivated this area by providing an ASP service for corporate members called, "Your ISP". By gaining the support of a collaboration of top-class companies, we aim to further strengthen our position. As the Internet becomes more advanced, NEC will support different kinds of connections between organizations and individuals to promote new businesses. Steps for High Growth through Strategic Investments Breakthroughs by NEC Corporate Laboratories NEC corporate laboratories will concentrate its resources on development of next-generation and the post-next-generation technology, and will focus on potential future breakthroughs for social and technological problems. NEC will also construct a new intellectual property strategy. Strategic Investments Focusing on the North American Market NEC has pushed ahead in investments in the venture capital business as well as in other business sectors, but in order to perform strategic investments without missing the timing of the IT market recovery, NEC will further promote strategic investments, including mergers and acquisitions of companies and divisions, mainly focusing on North America. Management's Targets NEC will strive to attain the following mid-term management targets, through the implementation of the measures described above: Net sales growth rate: 6% per annum Operating income to net sales: 6.4% ROE: 15% D/E ratio: 1.0