Japan's NEC Corp has cut its full-year profit forecasts because of a slump in chip prices triggered by the crisis in South Korea, causing some concern in the Irish computer industry.

But industry sources offered reassurance to the company's 500 Irish workers, saying that the crisis is likely to prompt NEC to accelerate the move toward higher value added products rather than cut production.

NEC is the world's second largest producer of semiconductors after Intel. It has been in Ireland for 22 years, operating from its plant at Ballivor in Co Meath.

The company has already said that it has expensive equipment in Japan and Scotland and it is more rational to use it to produce higher value added products.

"We are NEC's main assembly plant for semiconductor products in Europe. As higher value added chips are being produced in Scotland we plan on assembling those for the European market," a spokesman at NEC's Irish plant said.

But he said increased internal and external competition from assembly plants in Asia, which are benefiting from the recent sharp drop in local currencies, made the need for productivity improvement more acute.

"We are actively working to improve plant productivity," the spokesman said.

NEC warned that sales and profits are likely to be lower than expected in the year to March 1998. The company said net profits would be about 45 billion yen (£256 million) compared with a previous forecast of 80 billion yen, while sales were expected to fall to 5,050 billion yen from earlier estimates of 5,350 billion.

"Poor conditions in Japan's economy have affected NEC's personal computers, communications network equipment and other information technology related businesses," the Japanese computer giant said.

NEC's managing director Shigeo Matsumoto said his company was especially hit by "microchip and electronic devices sector deterioration". Matsumoto blamed deteriorated sales and profits in the information and telecom division on domestic telecommunication carriers which had reduced capital spending.

Industry sources say the difficulties in the sector were already well flagged and NEC's profit warning simply confirms the problems facing semiconductor producers following the Korean slump.

There has been a sharp downturn in the memory market which has resulted in the price of current generation 16-megabyte dynamic random access memory chips plunging about 60 per cent since the beginning of last year.

Industry experts say there are three responses to the current crisis in the industry - cut prices and try to trade through it, cut production to stem losses as Hitachi plans to do or accelerate the move to new technology.

Sources say NEC is most likely to opt for the third option, working through the crisis using further investment rather than reducing capital investment or cutting back on production.