NEC Electronics Unveils New Management Policies

NEC Electronics Corporation (TSE:6723) today announced new management policies to serve as the springboard for the company's growth. Through the execution of these measures, the company will significantly improve its management efficiency, aiming to achieve profitability in the fiscal year ending March 31, 2007, and double-digit profits in the very near term. An outline of the policies is below.

1. Expand sales in Japan and increase overseas sales
In Japan, NEC Electronics works with sales companies in its sales efforts. However, with the challenge of expanding sales in Japan, it has become important to increase the number of business opportunities in order to elevate the company's market share.
Therefore, NEC Electronics will fortify its sales engineer corps, which handles sales and technical sales support. Until now, NEC Electronics had promoted the standardization and improved efficiency of its LSI design, but as these changes have resulted in significant improvements, the company will now shift its technical resources to the front lines to garner more sales.
In addition, to target the overseas markets which have large potential for growth, especially China, NEC Electronics will aim to increase its ratio of overseas sales to above 50% by proactively utilizing sales channels outside of Japan. In particular, the company will concentrate its efforts on expanding sales in China, where it recently acquired a license to import semiconductor products, and aggressively pursue growth in this region with the aim of achieving net sales on the order of 100 billion yen within five years.

2. Improve competitiveness with product platforms
To develop stronger, more competitive products, NEC Electronics will organize its products by platform, including system-on-chip (SoC) products centered around platformOViA^TM-related products, microcontrollers, and LCD driver ICs, maturing these products to improve their market penetration.
For the SoC platform, NEC Electronics will enhance design infrastructure such as design environments and IP cores, and promote the platformOViA Partner Program to strengthen products in the areas of digital AV and mobile handsets.
For the microcontroller (MCU) platform, the company will bolster its 32-bit product line, aiming for the #1 market share for 32-bit MCUs by 2006 and automotive MCUs by 2010. It will also introduce a new 16-bit product line to further expand sales of general purpose MCUs.
For the LCD driver IC platform, the company will aim for strategic products that will bring new sales and profits, with the addition of human resources.

3. Proactively pursue strategic alliances
To develop its business in areas where it lacks resources, such as leading edge technology development and analog technologies, NEC Electronics will actively utilize strategic alliances.

4. Reduce cost of goods sold to curb high costs
To increase production capabilities while simultaneously controlling fixed costs, NEC Electronics will increase capacity at its 300mm wafer production line at NEC Yamagata, and improve manufacturing efficiency of its 8- and sub-8-inch lines. The company will also reduce variable costs by reducing outsourcing costs, including the outsourcing of manufacturing.

Since NEC Electronics was established in November 2002, the company has actively pursued both domestic and overseas markets, but also encountered many challenges, such as slow sales in the Japanese market, not enough overseas sales activities, a lack of robust product development, and high manufacturing costs which diluted profits. In the wake of a downturn in the semiconductor market, these issues resulted in a steady decline in the company's financial performance.
The management strategy introduced today is designed to resolve these issues. By operating in line with this new strategy, NEC Electronics aims to boost sales during the next fiscal year to growth levels above industry averages, while lowering variable costs to 2% of net sales and reducing fixed costs by 10 billion yen to improve profits.
NEC Electronics is committed to improving its financial situation as quickly as possible with these new measures, and through the concerted, consolidated efforts of the company's employees, once again establish itself as a leading semiconductor company.

About NEC Electronics

NEC Electronics Corporation (TSE: 6723) specializes in system LSI semiconductor products for a wide range of applications in the computing, networking, mobile, automotive and digital consumer markets. The company was spun off from NEC Corporation in 2002 and listed on the Tokyo Stock Exchange in 2003. NEC Electronics provides design, development and manufacturing support through its staff of approximately 24,000, from its headquarters in Kawasaki, Japan and 26 worldwide subsidiaries. For more information, please visit www.necel.com.