To Our Shareholders

Toshio Nakajima, President

Financial Results for the Fiscal Year Ended March 31, 2008 and Measures to Improve Performance

After the semiconductor market started the year with slow, yet solid growth, the shipment growth rate declined overall due to poor holiday sales and falling prices for memory that accompanied the decelerating worldwide economy. Although it was expected that demand would grow in the year as is typical before the Olympics, there was no significant increase in demand, leading to a poor business climate.
In this environment, consolidated net sales for the fiscal year ended March 31, 2008 were ¥687.7 billion ($6,877 million), a decline of ¥4.5 billion ($45 million) from the previous fiscal year. We recorded significant year-on-year growth in sales of semiconductors for game consoles, as well as firm sales of semiconductors for automotive applications and growth in sales of All Flash microcontrollers. This growth, however, was outweighed largely by a downturn in sales of semiconductors for mobile phones, printers and digital cameras.
On a more positive note, progress made in cutting back R&D expenses and other fixed costs lifted consolidated EIGYO profit* ¥33.7 billion ($337 million) year on year to ¥5.1 billion ($51 million). With this result, we ended the year with EIGYO profit for the first time in three business terms. This outcome notwithstanding, we recorded a net loss of ¥16.0 billion ($160 million) for the year, primarily due to the enactment of an early retirement program and the posting of a valuation allowance for deferred tax assets at a U.S. subsidiary.
We positioned the year as the second step in implementing the management policy we announced in the previous fiscal year. Accordingly, we took steps to reshape our manufacturing framework that included the transfer of the research and development line at Sagamihara to Yamagata, and consolidated six manufacturing subsidiaries in Japan with three companies at the business unit level in April 2008. At the same time, we sought to reinforce business areas in focus with the decision to add the new building space needed to boost production capacity for power management devices and for semiconductors for automotive applications. With respect to sales, we extended our sales network particularly in Asia, with the goal of stimulating sales growth, by opening a branch in the city of Chengdu in Chinas Sichuan Province, and a liaison office in Bangalore, India. As for the development of cutting-edge technology, we embarked with Toshiba Corporation on the joint development of 32-nanometer generation process technology, which is poised to become the foundation for process technology of the future.
We remain committed to accelerating the push for more efficient operations in order to build a resilient business structure able to generate profits even in an adverse semiconductor market. From this perspective, we are managing our businesses with the goal of restoring net income in the fiscal year ending March 31, 2009.

* EIGYO profit is calculated as net sales less cost of sales, research and development expenses, and selling, general and administrative expenses, and is equivalent to operating profit under financial reporting practices generally accepted in Japan.

Becoming the Leading Semiconductor Company

It is my goal to shape NEC Electronics into a global leading semiconductor company with high profitability, generating an EIGYO profit margin of more than 10%. I believe that to become a company that can look forward to sustainable profit growth, we must answer to our stakeholders confidence. By leveraging our strengths in high reliability and low power consumption technology built on collaborative development and manufacturing, NEC Electronics is committed to providing a stable supply of products of high quality and high performance to our customers. Furthermore, through the provision of reliable products we will contribute to the safety and security of the society we live in. Every one of us at NEC Electronics stands firmly committed to take the bold steps necessary to answer to the trust that our stakeholders have placed in us. I ask for your continued understanding, guidance and support of our efforts going forward.


June 2008

TOSHIO NAKAJIMA
President and CEO, NEC Electronics Corporation

Note: Operating Income(loss) = Net Sales - COGS - R&D - SG&A