NEC issues profit warning after poor sales hit hard

29 Oct 2004

Japan’s NEC says that declines in the domestic mobile market combined with rising costs have forced it to issue a full-year profits warning. The vendor says that its mobile unit is likely to record a loss of JPY20 billion (USD188 million) in the year to 31 March 2005, down from early forecasts of a profit of JPY40 billion. As a result the company has pared back its forecast for group net profits by 10% to JPY60 billion on revenues of JPY4.9 trillion. It announced half-year net income of JPY25 billion.

NEC, which is the biggest supplier of mobile handsets in Japan, issued the gloomy statement in the wake of nine months of consecutive falls in sales, from which it predicts ‘no substantial recovery’. With Japanese cellular penetration running at 69.6% at the end of last month, there is seemingly little room for new growth and the company is increasingly reliant upon existing users upgrading their handsets. In addition, the company has been adversely affected by delays in the development of 3G products for the international market, with higher than expected costs for adapting the next-generation platform to other countries expected to eat into its profits in 2H. NEC has also cut profit forecasts for its networking and IT businesses.