NEC says weak mobile phone sales hit its profits

NEC becomes the latest big name in the IT sector to warn of tough competition, slow demand and a price war.

TV and games console maker Sony cut its full-year forecast last week, while semiconductor firms have also flagged up weak markets.

Both NEC and Sony reported poor first quarter profits on Thursday.

Both firms posted gains in quarterly net profit, bolstered by one-off factors, but falls in underlying operating profits.

Struggling giants

Gains from the stock market listing of NEC's affiliate, Elpida Memory Inc, boosted net profits for the three months to end-2004 to 39.4bn yen ($383m; �203m), more than three times the 11.7bn yen it made a year earlier.

But operating profits dived 38% lower to 20.65bn yen, against 33.58bn yen in the same period of 2003.

"A sharp deterioration in the mobile phone business and in semiconductor operations sent our third-quarter earnings lower," said NEC senior vice president Yasuo Matoi.

And a recovery in semiconductor sales is further away than originally thought.

"A chip business recovery is now likely to come at around the middle of 2005, rather than at the start of the year, which had been our initial estimate," he said.

NEC now believes full-year operating profits will be 10% less than previously forecast, or roughly 135bn in the 12 months to March 2005.

Sony, which has already cut its full-year operating profits target by nearly one third, posted net profits up 55% at 143.8bn yen, bolstered by lower US tax payments.

But operating profits fell 13% to 138.1bn yen in the three months to end December, from 158.8bn yen a year earlier, and sales dropped 7.5% to 2.3 trillion yen.

Competitor Fujitsu is due to report its financial results on Friday.