NEC Electronics Reports Stock-based Compensation Plans for the Six Months Ended September 30, 2006

NEC Electronics Corporation (TSE:6723) today announced the company's stock-based compensation plans for the six months ended September 30, 2006, as an addition to the company's financial results for the six months ended September 30, 2006, which were announced on October 25, 2006.

NEC Electronics has several stock-based compensation plans approved by its shareholders, under which options have been granted to directors, corporate officers and certain senior employees to purchase shares of common stock. In principle, these options will be vested after two years from the date of grant, under the condition that option holders are still employed by the company on the date of exercising the option.

The terms of the options are subject to adjustment if there is a share split or consolidation of shares. The plans provide that options generally lapse automatically at termination of service before the exercise date, and generally remain exercisable for one year after termination of service during the exercise period.

Until March 31, 2006, NEC Electronics accounted for its stock-based compensation plans under the fair value recognition provisions of the Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation. From April 1, 2006, the company adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123(R)") under the modified prospective method. However, the adoption of SFAS No. 123(R) does not have a significant effect on the company's financial position or results of operations because it continues to account for its stock-based compensation plans under the fair value recognition provisions.

The options granted during the six months ended September 30, 2006 are exercisable over a period of four years, commencing two years after the date of grant.

The stock option activity for stocks granted during the six months ended September 30, 2006 was as follows:

The weighted-average grant-date fair value per option granted during the six months ended September 30, 2006 was ¥937 ($7.94). The compensation expense is based on the grant-date fair value estimated. The fair value of options granted is estimated using the Black-Scholes option pricing model with the following weighted-average assumptions. The fair value of options granted on or before March 31, 2006 is calculated in the same way.

The expected life is calculated by the simplified method using vesting term and contractual term of the options. The computation of expected volatility is based on the historical volatility of the company's stock. The computation of risk-free interest rate is based on the long-term rate of return on Japanese government bonds.

The options granted on or before March 31, 2006 were vested under the condition that the company achieves certain targets and are exercisable over a period of two years commencing two years after the date of grant. All of the stock options which were granted during the year ended March 31, 2006, expired on March 31, 2006 because the performance target was not achieved. The weighted-average grant-date fair value per option granted during the six months ended September 30, 2005 was ¥875.

The stock option activity for the six months ended September 30, 2006, for stocks granted on or before March 31, 2006, was as follows:

The company recognized ¥8 million ($68 thousand), ¥203 million and ¥203 million of compensation expense for the six months ended September 30, 2006, the six months ended September 30, 2005, and the year ended March 31, 2006, respectively. As of September 30, 2006, approximately ¥60 million ($508 thousand) of total unrecognized compensation expenses related to stock options is expected to be recognized on the straight-line method over 1.8 years.

About NEC Electronics

NEC Electronics Corporation (TSE: 6723) specializes in semiconductor products encompassing advanced technology solutions for the high-end computing and broadband networking markets, system solutions for the mobile handset, PC peripherals, automotive and digital consumer markets, and platform solutions for a wide range of customer applications. NEC Electronics Corporation has 25 subsidiaries worldwide including NEC Electronics America, Inc. (www.am.necel.com) and NEC Electronics (Europe) GmbH (www.eu.necel.com). For additional information about NEC Electronics worldwide, visit www.necel.com.