The firm expects a net loss of 25 billion yen (208 million dollars), reversing an earlier estimate of a 10 billion yen profit.

"Now we expect a second consecutive net loss following a 312 billion yen loss the previous year," a company spokesman said.

NEC Corp. also downgraded its pre-tax profit forecast to 60 billion yen from 65 billion yen.

The revision to the net profit was mainly due to a fall in the value of NEC's securities investments of around 20 billion yen.

The Nikkei-225 average of the Tokyo Stock Exchange has lost almost 30 percent over the financial year just ended, eroding the value of share portfolios held by companies.

NEC said its earnings downgrade was also triggered by a loss of around 16 billion yen due to an adjustment to deferred income tax assets resulting from changes to local tax regulations.

Shares in the firm earlier fell 10 yen or 2.5 percent to close at 392 yen on expectations the firm would downgrade its earnings forecast. The Nikkei-225 index lost 1.44 percent to 8,131.41 points.

"There was no surprise in the announcement as NEC was largely expected to suffer a loss in the end," said Takashi Ushio, an analyst at Marusan Securities.

"But a real concern is that the company's operating profit is mainly relying on restructuring, not progress in its real businesses," Ushio said.

NEC is forecasting an operating profit of 115 billion yen in the recently ended year, up from a loss of 555 billion yen a year earlier, but projected a decline in sales to 4.68 trillion yen, down from 5.10 trillion yen.

"The stock decline was a severe blow to those who barely managed to generate a profit by speeding up restructuring," said Yasuo Goto, an analyst at Mitsubishi Research Institute.

The slump in stocks will be a major factor in corporate results for the year to March and many companies results will be worse than expected, Goto said.

Analysts warned the impact of the sharemarket downturn is being aggravated by cross-shareholdings between banks and their borrowers, a traditional Japanese business practice used to strengthen business ties.

"The weakness of Japanese stocks, especially banking shares, definitely pressured earnings of Japan Inc, casting a long and dark shadow over this year's corporate results," said Hirokazu Kabeya, market analyst at Daiwa Institute of Research.

On Monday, Japanese consumer electronics giant Matsushita Electric reversed a forecast net profit due to the falling value of its share portfolio and the changed tax rules.

SPACE.WIRE