Moody's Lowers Credit Outlook on NEC to Negative

Moody's Lowers Credit Outlook on NEC to Negative

Rating's agency says action reflects 'slower-than-anticipated pace of recovery' in tech firm’s profitability and financial strength.

Ratings agency Moody's on Friday lowered its credit outlook on NEC Corp. (IW 1000/89) to negative from stable, reflecting concerns about the Japanese technology giant's balance sheet.

Moody's said it kept its Baa2 rating on NEC's long-term debt unchanged, the agency's ninth best rating on a scale of 19, but warned that Japan's quake-tsunami disaster last year and flooding in Thailand had taken a toll.

For the fiscal year through March, NEC booked a 110.3 billion yen (US$1.40 billion) loss as asset write-downs and tax payments hit its bottom line, even as operating profit rose.

"The change in outlook reflects the slower-than-anticipated pace of recovery in NEC's profitability and financial strength," Moody's said.

"Partly because of the negative impact in 2011 of natural disasters in Japan and Thailand, the company's remaining core businesses have made insufficient contributions to NEC's overall profitability," it added.

Japan's technology companies have struggled under pressure from the stubbornly strong yen, global competition, increasing material costs and falling prices.

In January, NEC said it plans to axe 10,000 jobs globally.

Despite improvements, NEC's operating profit margins were at a "low level for the rating," the agency added.

"The operational environment for NEC remains unfavorable because of the company's high dependence on the Japanese domestic market," it said.

Plans by NEC and other major shareholders in Renesas Electronics to offer financial support to the struggling firm also posed risks, Moody's said.

"While the potential amount of financial support provided to Renesas would likely be small in relation to NEC's total size, Moody's views such support as being credit negative for NEC," it said.

Copyright Agence France-Presse, 2012

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