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*****For immediate use September 28, 2001

NEC Announces Additional Structural Reforms of Semiconductor Business




NEC announced today its additional structural reform of its semiconductor business to accelerate its mid-term management strategies announced in July and implement and execute following additional measures immediately in response to drastically revised financial results forecast due to further deterioration in the semiconductor market. Through these measures NEC is aiming for a quick recovery in the next fiscal year.


. Reformation of Cost Structure by Further Fixed Cost Reduction

NEC originally planned to lower the break-even point of NEC Electron Devices, one of the three in-house companies of NEC, to 100 billion yen in July and will now lower an additional 100 billion yen to 200 billion yen. Through this additional cost reduction, fixed cost will be reduced by 14% in comparison from last fiscal year.
Elaborate measures to reduce fixed is as follows:-
  1. Adjusting Production Lines

    1. Reduction of Wafer Processing Capacity
      In addition to a 50% reduction in production capacity at NEC Semiconductors (UK) Limited and the closure of old test fabrication lines at NEC's Sagamihara Plant, NEC will shutdown the seventh fabrication line at NEC Kyushu, Ltd. (production capacity: 30,000/month, 6-inch wafer) within this fiscal year ending March 2002. Also NEC will reduce fabrication capability at NEC Electronics, Inc. Roseville plant from a monthly production of 25,000 (6-inch level) to14, 000 with in this fiscal year.
      This will result in reducing 15% of wafer processing capacity by the end of this fiscal year in comparison from last fiscal year and ultimately improve NEC's wafer processing capacity utilization.

    2. Reorganization of Semiconductor Assembly Plants
      In order to strengthen cost competitiveness in production, NEC will enhance semiconductor assembly in Asia particularly positioning production plants in Singapore, Malaysia and Indonesia as main assembly and testing plants, and withdrawing from testing and assembly in United Kingdom and the United States. Concurrently, NEC will consolidate semiconductor production plants in Japan into three groups, namely Kyushu, Yamagata, and Kansai where NEC positions Kyushu and Yamagata as key production plants for system LSIs and Kansai as key production plant for general purpose ICs and discrete devices.

  2. Improve Efficiency and Flow of Personnel

    Reduction of 4,000 personnel due to restructuring of production plants announced in July is underway. At the same time, NEC Electron Devices will implement various measures to promote flow of personnel such as transfer of personnel to other in-house companies to enhance further reduction of fixed costs.

  3. Further Reduction of Equipment Investment

    NEC will reduce equipment investment by 60% in comparison to last fiscal year, which will eventually reduce future depreciation expenses.

    (Billion yen)
    Forecast of   Actual results for Fiscal
    September July April 2001 (ended March 31, 2001)
    NEC Electron Device 97 120 170 250
    (Semiconductor) 80 98 144 217

    In order to accomplish these measures, NEC will appropriate 100 billion yen for extraordinary loss as a restructuring cost.

. Strengthen Business Centered on System LSI
  1. Strengthen Software/SI Capability to Respond Customer Needs

    1. NEC Micro Systems, Ltd, responsible for hardware design of LSI, and NEC Microcomputer Technologies, Ltd., responsible for fundamental and applied software design, will be consolidated in January 2002. NEC Electron Devices will strengthen its software development structure to a more customer oriented structure through cooperation between hardware design/development and software development for system LSIs.

    2. In order to enhance of customer correspondence, increase the number of sales engineers from current 150 to 400 through integration of product oriented engineering divisions into sales engineering divisions as of October 1.

  2. Enforcement of Device Solution Capabilities in the US and Europe

    1. NEC established Technology Incubation Group, within NEC Electronics, Inc in August 2001 with responsibility to excavate/develop new technology through strategic investment and alliances, and to acquire of advanced IP core in Silicon Valley. This group has already invested in Jubilant Communications, Inc., a fables semiconductor company that designs/develops and delivers chipsets for next generation high-speed access and home networks and will continue to search for further partnership opportunities with competitive venture companies.

    2. NEC will construct a new structure where device solutions will be provided to advanced customers through consolidation of five sales companies in Europe on April 2002, in order to transform to application-oriented structure for the pan-European market.


  3. Enhancement of Cutting-edge Technology Capability corresponding to Customer Needs

    Many technology challenges arises as the design rule becomes smaller in feature, while at the same time various requirements for diversified devices solutions arise such as requirement for larger capacity, higher integration, higher reliability, and lower power. In order to meet these demands, NEC will accumulate analog technology and build a design infrastructure, to realize maximum device performance. Also NEC will shorten TAT by concentrating pilot production lines and mass production lines to one production facility as well as concentrate on differentiating process technology such as process for logic LSI embedded with DRAM.

. Restructuring of DRAM Business

In response to the deterioration in DRAM market today, Elpida Memory, Ltd., a joint venture between NEC and Hitachi, has decided to postpone equipment installation for 300 mm production line at NEC Hiroshima's premises in addition to the withdrawal from DRAM production in North America and United Kingdom announced in July. (See separate announcement)


. Reorganization of NEC Electron Device

NEC Electron Devices will conduct an extensive reorganization to concentrate its business into system LSI on October 1. Main measures for the reorganization are as follows:-

- Establishment of Structural Reforms Promotion Division
(General Manager: Tomio Nakano)
- Cut down Staff-function personnel (Reduce to approx. 2/3 of present total)
- Increase engineering resources of System LSI Operations Unit
- Establishment of NEC Compound Semiconductor Devices, Ltd. as well as discontinuation of IC & Discrete Operations Unit and establishment of General-purpose Devices Operations Unit
- Discontinuation of LSI Memory Operations Unit

Through above stated additional measures and steady business expansion at other in-house companies, NEC aims to record prominent results for the next fiscal year.

***


CAUTIONARY STATEMENTS:

The statements in this material with respect to NEC's plans, strategies, and beliefs, as well as other statements that are not historical facts are forward-looking statements involving risks and uncertainties. The important factors that could cause actual results to differ materially from such statements include, but are not limited to, general economic conditions in NEC's markets, which are primarily Japan, North America, Asia and Europe; demand for, and competitive pricing pressure on, NEC's products services in the marketplace; NEC's ability to continue to win acceptance of its products services in these highly competitive markets; and movements of currency exchange rates, particularly the rate between the yen and the U.S. dollar in which NEC makes significant sales. Among other factors, a continuing worsening of financial conditions in the U.S., Japanese and/or European markets, and/or a worsening of the ongoing downturn in the semiconductor and IT markets, would cause actual results to differ from the forward-looking statements above.

In case where the information contained in this supplement falls within the definition of "Material Information" under the Securities and Exchange Law, Article 166, Paragraph 2, if you read this supplement before the time of "Publication" (which is defined under the Securities and Exchange Law and its Enforcement Ordinance as twelve hours after its release; i.e., approximately 4:00 am on September 29, 2001 (JST)), you and the persons listed below* may be prohibited from purchasing, selling, or making other transactions of shares of stock or other securities of NEC Corporation before the time of Publication.

* Other directors or employees of your company if the content of this press release comes to their knowledge in connection with their duty


Contact:-

Daniel Mathieson
NEC Corporation
TEL:81-3-3798-6511
FAX:81-3-3457-7249
E-mail:*@p10-22150.star.nec.co.jp
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