The leading Japanese electronics maker said its group net profit for the 1997-98 business year ended on March 31 plunged about 96 per cent to 3.48 billion yen ($25.4 million).

But rationalisation measures in its semiconductor business and drastic spending cuts would help to lift its profit this year, the company said.It predicted group net profit bouncing back in the current business year, forecasting a figure of 40 billion yen.

Hitachi earlier said it had posted a 1997-98 extraordinary loss of 117.5 billion yen due mainly to restructuring of semiconductor production lines, including the dissolution of its US chip joint venture TwinStar Semiconductor Inc.

The loss was offset by a special profit from the sale of some shareholdings and had no impact on its 1997-98 earnings.

The companyalso plans to spin off part of its troubled airconditioner and refrigerator operations in July.

Some analysts say Hitachi's profit this year will likely benefit from higher demand for mainframe computers because of replacements needed due to the millennium problem.

Hitachi is the world's biggest maker of fast-speed bipolar-based mainframe computers and has built a solid customer base among Japanese financial institutions.

However, Hitachi, long the king of Japan's integrated electronics makers, has been slow in developing other new growth products, like PCs, analysts say.

After boosting its Reliance on the volatile computer memory chip business, Hitachi was hit hard by a free fall in memory chip prices last year.

Its consumer product segment has been lack lustre since the early 1990s, while the profitability of the heavy electric machinery sector, which previously generated stable cash flows, has declined in recent years.

Demand for nuclear power plants is not expected to rise until early nextcentury.

Moody's Investors Service said on Tuesday it had put the Aa2 long-term debt rating of Hitachi under review for a possible downgrade.

It said the action reflected its concern that weak earnings and cash flow caused by the unfavourable operating environment for Hitachi's core businesses would continue.