Financial Results for 1H FY06/3 (First Half of Fiscal Year Ending March 2006) October 27, 2005 NEC Corporation (http://www.nec.co.jp/ir/en/) CAUTIONARY STATEMENTS: This material contains forward-looking statements pertaining to strategies, financial targets, technology, products and services, and business performance of NEC Corporation and its consolidated subsidiaries (collectively "NEC"). Written forward-looking statements may appear in other documents that NEC files with stock exchanges or regulatory authorities, such as the U.S. Securities and Exchange Commission, and in reports to shareholders and other communications. The U.S. Private Securities Litigation Reform Act of 1995 contains, and other applicable laws may contain, a safe-harbor for forwardlooking statements, on which NEC relies in making these disclosures. 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For example, any public offering of securities to be made in the United States must be registered under the U.S. Securities Act of 1933 and made by means of an English language prospectus that contains detailed information about NEC and management, as well as NEC's financial statements. (Note) (1) "Operating income (loss)" set forth above is a measure commonly used by other Japanese companies that report their financial results in accordance with generally accepted financial reporting practices in Japan. “Operating income (loss)” is calculated by deducting cost of sales and selling, general and administrative expenses from net sales. Management believes this measure is useful to investors in comparing NEC’s results of operations to other Japanese companies. This measure, however, should not be construed as an alternative to "income (loss) before income taxes" or "net income (loss)" as determined in accordance with U.S. GAAP. Please refer to the condensed consolidated statement of operations for the calculation of the operating income (loss). © NEC Corporation 2005 Page 1 Executive Summary Full year OP forecast ¥150 Bn. -> ¥100 Bn. OP in 1H: ¥13 Bn. ¥58 Bn. downward revision in Semicon. while IT/NW aims to achieve the target. Recovery of mobile terminals slow Results almost achieved the target, compensated for shortage in Semicon. IT Solutions: Sales steadily increased despite tough market conditions Management issues ■ Turnaround of semicon. & mobile terminals businesses Network (NW) Solutions: Infrastructure business maintained good condition while sales of mobile terminals struggled ■ Acceleration of market development of IT/NW solutions businesses Electron Devices: Almost achieved forecast as of July (From April ¥ -13.7Bn.) © NEC Corporation 2005 ■ Enforcement of NEC group’s value chain Page 2 Ⅰ. Financial Results for 1H Financial Summary (Overview) (Billion Yen) FY06/3 FY05/3 1st Half Net sales Operating income (% to Net sales) Actual 2,303.2 1st Half Actual Revised by 2,233.0 -17.0 Actual -3.0% 1,232.1 YOY 34.0 -1.2% 13.0 2.6% 0.6% Income before income taxes 71.9 28.5 +0.5 -43.4 57.4 +25.9 Net income (% to Net sales) EPS: Basic (in Yen) 25.2 16.4 +2.4 -8.8 27.4 +23.2 1.1% 0.7% 12.77 8.36 Page 4 -46.3 YOY 59.3 © NEC Corporation 2005 -2.0 2Q -8.8 2.8% 2.2% -4.41 Financial Summary by Segment 1st Half (Billion Yen) FY04/3 Actual FY05/3 Actual FY06/3 Revised by Actual YOY IT Solutions Net sales 949.5 962.7 990.1 20.1 2.8% 34.0 3.6% 852.6 34.3 3.6% 899.9 26.4 2.7% 811.3 -3.6 - 7.9 Network Solutions Profit/Loss (to sales) Net sales Electron Devices Profit/Loss (to sales) Net sales 25.0 2.9% 460.9 18.2 2.0% 461.4 13.7 1.7% 392.7 Others/Eliminations Profit/Loss (to sales) Net sales 21.6 4.7% 20.0 33.8 7.3% -20.8 -9.7 -2.5% 38.9 -6.1 - Profit/Loss (to sales) Net sales -22.6 -27.0 -17.4 -0.4 - 2,283.0 2,303.2 2,233.0 -17.0 -3.0% Profit/Loss (to sales) 58.0 2.5% 59.3 2.6% 13.0 0.6% -2.0 - 46.3 etc. Total © NEC Corporation 2005 - Page 5 - -28.7 -9.8% 3.7 - 4.5 - -2.3 -14.9% -1.7 - 43.5 - - - - Ⅱ. Financial Outlook for Full Year Financial Outlook (Overview) (Billion Yen) Net sales FY05/3 FY06/3 Full Year 1st Half Actual Actual 4,855.1 2,233.0 FY06/3 Full Year Forecast Revised by YOY 4,930 -70 +2% -50 -31.2 Operating income 131.2 13.0 (% to Net sales) 2.7% 0.6% 100 2.0% Income before income taxes 115.7 28.5 90 -40 -25.7 Net income 67.9 16.4 +0 -7.9 (% to Net sales) 1.4% 0.7% 60 1.2% EPS: Basic (in Yen) 34.77 8.36 *Forecasts as of Oct. 27, 2005 © NEC Corporation 2005 Page 7 Financial Outlook by Segment Full Year (Billion Yen) FY04/3 Actual FY05/3 Actual Forecast FY06/3 Revised by YOY IT Solutions Net sales 2,098.9 2,144.4 2,200 +0 2.6% 91.8 4.4% 1,775.7 102.3 4.8% 1,892.0 115 5.2% 1,830 +0 - 60 + 12.7 Network Solutions Profit/Loss (to sales) Net sales 67.9 3.8% 932.2 26.5 1.4% 868.7 50 2.7% 790 +0 - 90 + 23.5 Electron Devices Profit/Loss (to sales) Net sales 54.3 5.8% 100.0 37.2 4.3% -50.0 -28 -3.5% 110 - 58 + 80 - 65.2 Others/Eliminations Profit/Loss (to sales) Net sales Profit/Loss (to sales) Net sales -31.3 -37 4,930 +8 - 70 - 4,906.8 -34.8 4,855.1 Profit/Loss (to sales) 182.7 3.7% 131.2 2.7% 100 2.0% - 50 - etc. Total - -3.3% -9.1% - 1.5% - 31.2 *Forecasts as of Oct. 27, 2005 © NEC Corporation 2005 Page 8 Ⅲ. Segment Information IT Solutions Business 1H : Sales grew steadily Full year : Sales and profit are expected to increase YoY as planned (Billion Yen) 1H 990.1 962.7 949.4 350.5 339.9 347.9 (Billion Yen) Full Year 2,098.9 2,144.4 726.2 722.6 Approx 2,200 Personal solutions Personal solutions Sales Computer Platform 223.5Computer 221.8 233.8 Platform 48.9 41.6 326.1 532.4 34.0 352.1 47.7 Software 34.3 368.4 26.4 101.1 918 739.2 490.7 106.9 Approx 115 102.3 Software 824.2 SI/Services SI/Services 04/3 05/3 06/3 04/3 Segment profit © NEC Corporation 2005 05/3 06/3 Forecast (Forecast as of Oct 27,2005) Page 10 IT Solutions Business ■SI/Services ◇Market : Steady growth continues, but severe pressure to reduce price ◇Measures - Expand sales/reduce costs by further strengthening growth strategy for software and services business. ・Realize positive effects from acquisition of NES/NECST (reduce subcontractor costs) ・Leverage strategic alliance with Abeam Consulting ・Enhance solution proposal capability by sales & SE collaboration - Reinforce project management ■Platform products that underpin SI ◇Servers：favorable growth in 1H - IA Servers +17% , UNIX Servers +7% (YoY, Unit) ◇Measures - Platform-optimizing solutions (i.e. Consolidation of servers) - Blade servers, space saving servers, water cooled servers - Cost reduction © NEC Corporation 2005 Page 11 Network Solutions Business - Upturn of mobile infrastructure covered for the delay in recovery of mobile terminals -Target on YoY profit growth Approx. (Billion Yen) (Billion Yen) Full Year 1H 1,892.0 899.9 852.5 114.4 115.0 811.3 107.1 1,775.7 Social Infrastructure 1,830 256.9 248.9 Sales 67.9 287.9 221.9 158.8 188.1 18.2 Approx. 478.9 286.2 25.0 618.4 Broadband Mobile Infrastructure 318.2 Mobile Terminals 729.7 50 387.6 209.9 13.7 356.8 26.5 629.1 309.5 208.1 04/3 05/3 04/3 06/3 06/3 Forecast (Forecasts as of Oct. 27, 2005) Segment Profit © NEC Corporation 2005 05/3 Page 12 Network Solutions Business ■ Mobile Terminals : sales and profit lagged behind target Focus on creating a solid base to rebuild the business Shipment volume in 1H 4.7 m units -Japan : 3G accounted for 80% of shipment as result of demand shift towards 3G -Overseas : 2.5G struggling against severe price erosion Shipment volume in FY (plan) 10m+ units -Japan : strengthen 3G products lineup in 2H -Overseas : concentrate on markets/models, with priority on profitability ■ Mobile infrastructure : continuing robust performance -Japan : stable growth of investments towards additional service improvements -Overseas: rapid growth in sales of 3G base stations and PASOLINK, profitability also improved ■ Broadband business : continuing steady performance -Business with communication service providers : optical access networking systems etc. are doing well. investments for new service platforms are ahead of schedule -Business with enterprises : sales of UNIVERGE solutions increased favorably, corresponding to strong demand for security solutions etc. © NEC Corporation 2005 Page 13 Electron Devices Business 1H: Sales/profit decreased YOY due to delay in recovery of semiconductors business Sales (Billion Yen) 600 75 460.9 Electronic Components /DRAMs*/Others * DRAMs production transferred to Elpida Memory in 1H of Mar. 04 471.2 461.4 407.3 69.9 400 43.0 Displays * PDP transferred to Pioneer Corp. in 1H of Mar. 05 50.5 46.0 56.9 38.6 32.6 33.8 363.9 376.8 392.7 (YOY-15%) 45.8 30.3 Approx. 50 397 46.8 33.0 25 21.6 Semiconductors 200 348.0 331.2 (NEC Electronics) 312.9 0 3.4 -9.7 0 1H 2H 1H 04/3 (in billion yen) Profit in the semiconductors area 1H 25.3 2H 05/3 2H 31.2 1H 30.7 1H Appro. -18 -25 Segment Profit/Loss (Billion Yen) 2H (forecast) 06/3 2H 2.5 1H 2H(forecast) -12.1 Approx -21 *Forecasts as of Oct. 27, 2005 © NEC Corporation 2005 Page 14 Electron Devices Business ■Semiconductors Solutions Business: ◇1H results: Sales decreased 17% YOY Sales decreased in semiconductors for mobile handsets, servers, workstations, as well as discrete, optical and microwave devices. ◇Full year forecast revised down by: Sales ¥ -85bn., Profit ¥ -58bn. (from Aril) －Sluggish sales led to considerable downward revision －Deteriorated profit ratio due to changes in product mix ◇Measures to improve business performance: －Achieve revenue growth by reallocating engineers and strengthening relationship with our distributors in Japan, etc. －Improve marginal profit ratio －Cut fixed costs ■Color LCDs, electronic components: Sales/profit continued to be stable. © NEC Corporation 2005 Page 15 © NEC Corporation 2005 Page 16 Key Points from BS/CF Appendix (Billion Yen) 03/9 04/9 05/9 05/3 Total Assets 4,140.5 3,906.1 3,807.3 3,940.7 (Turnover) (1.11) (1.22) (1.26) (1.23) Inv entories 631.3 629.4 559.3 528.9 (Turnover Days) (47days) (47days) (43days) (40days) Interest-Bearing Debt 1,382.8 (3.5) 1,175.5 (1.6) 1,053.3 (1.2) 1,156.2 (1.4) (Net D/E Ratio)<Times> 934.5 （ 2.4) 706.6 （ 1.0) 639.5 （ 0.7) 661.9 （ 0.8) Shareholders' Equity 391.1 725.2 883.0 794.3 (Share holde rs' Equity Ratio) (9%) (19%) (23%) (20%) (D/E Ratio) <Times> Net Interest-Bearing Debt 03/1H FCF 04/1H 98.3 -39.4 05/1H 8.1 * “Total Assets Turnover” and “Inventories Turnover Days” are calculated by end-of–the–term and previous 12 months basis. **Net D/E Ratio = D/E Ratio – “Cash and cash equivalents” © NEC Corporation 2005 Page 17 Sales of Mobile Terminals Shipment volumes of mobile terminals 1H Full Year 15.5 Overseas 2.5G 15.0 30%- Overseas 3G 13.1 50%+ of Overseas 40%+ Domestic 3G 7.7 2/3 of Overseas 3.8 20% Domestic 40%- 90%++ of Domestic 90%+ Result 03/3 © NEC Corporation 2005 Result 04/3 80% Result 05/3 90%+ 90% of Overseas30%+ 60%+ 60%- of Domestic 1/3 70%+ 80% of 4.7 50%+ of Overseas 60%+ of Overseas PDC Domestic 6.0 10+ 40% 9.4 Overseas Appendix 60% 60%2/3 50%- of Domestic 70%- 20% of Domestic Result Result Result Result 06/3 03/3 04/3 05/3 Forecast Forecast as of Apr. 06/3 as of Oct. 06/3 (Forecasts as of Oct. 27, 2005) Page 18