Chairman of the Board
you describe NEC's operating environment in fiscal 1997, ended March 31, 1997?
Against a backdrop of growth in private-sector capital investment and consumer spending, the Japanese economy continued its gradual recovery. Overseas, economic expansion in Asian countries and the United States continued, while the pace of economic growth slowed in Europe.
In the electronics industry in fiscal 1997, soaring numbers of cellular and Personal Handy-Phone System (PHS) subscribers in Japan as well as the increased use of the Internet and intranet and other networks worldwide brought about brisk demand for communications products, personal computers (PCs), and servers. In memory devices, although demand was higher, oversupply led to diving prices and serious consequences for the world market. As a result, the electron devices market dipped, despite solid performances in such non-memory semiconductors as application-specific integrated circuits (ASICs) and microprocessors as well as thin-film transistor (TFT) color liquid crystal displays (LCDs).
this backdrop, how did NEC perform?
In fiscal 1997, net sales grew 13 percent from the previous fiscal year, to Y4,948.4 billion ($39,907 million), supported principally by booming sales of communications systems and
stable growth in computers. The electron device business faltered under extreme price pressure for memories. The ratio of overseas sales to net sales decreased to
22 percent, from 28 percent in the previous year, due principally to weak sales of memory devices.
Net income rose 19 percent, to Y91.6 billion ($739 million), due mainly to brisk sales of communications systems, profits from the sale of marketable securities, and the effects of a corporate tax benefit. Cash dividends per share of common stock were Y11.00 ($0.089), including an interim dividend of Y5.50 ($0.044) per share paid in December 1996.
management initiatives will NEC implement to ensure continued success in the multimedia era?
With the expansion of information networks and the accelerating implementation
of multimedia services, the
electronics industry can expect growth over the medium term. NEC, whose core competence is multimedia, is positioned to take advantage of an array of new business opportunities. By assigning substantial business resources to growth areas and increasing its focus on the customer, NEC will strive to introduce cutting-edge products and services that satisfy its customers and promote its multimedia business.
For this purpose, by leveraging its comprehensive strengths in C&C technologies, NEC will stay ahead of the competition in the development and introduction of such advanced multimedia products and services as asynchronous transfer mode (ATM) switching systems, system on a chip large-scale integrated circuits (LSIs), color plasma display panels (PDPs), and electronic commerce. NEC will also try to employ new technologies that are expected to become de facto standards.
NEC has been on the leading-edge of globalization in R&D, production, and marketing activities. NEC will continue to accelerate its "mesh globalization" strategy--efforts for networking and collaboration that strengthen the mutual prowess of globally distributed operations--and augment its international competitiveness. Furthermore, NEC will implement a management system that will allow it to react to a quick-moving, highly competitive multimedia market.
you explain NEC's "Customer Focus" policy?
NEC is giving top priority to customer satisfaction. NEC emphasizes a focus on the customer in every aspect of its operations, relentlessly seeking improvement in the quality of its manufacturing, service, and management to create products and services that deliver greater value to customers.
NEC endeavored to create customer value by promoting its systems integration business with its wide variety of C&C products and services. During the period under review, NEC made further progress in ensuring the delivery of customer value through other initiatives, such as the strengthening of our PC service and support system.
In fiscal 1997, NEC's semiconductor group was awarded the first Japan Quality Award, modeled after the Malcolm Baldridge National Quality Award, of the United States, for the group's excellence in quality management focusing on customer value. We are especially proud of this recognition of our success in ensuring the quality of management, where we have sought continuous improvement for years.
are you responding to the evolving market?
Customer needs and demands in markets for electronic products are changing rapidly. NEC views these evolving needs as an unmistakable opportunity to create customer value by delivering the right products
at the right time. For example,
in fiscal 1997 NEC received a great number of orders for mobile communications systems from Japanese operators. NEC's quick action in designing and supplying such systems in response to the skyrocketing number of mobile phone subscribers was the key to this success.
Moreover, NEC parlayed its increased competency in networking into the creation of the excellent Express5800 series of PC servers, which acquired the top position in the Japanese market. This success rests on our quick introduction of market-oriented products that respond to the spectacular spread of information networks. Also, we worked to further promote our systems integration and Internet-related businesses by establishing venture companies in the United States, the world's most advanced multimedia market.
NEC's ability to respond in a timely fashion to evolving customer needs and market trends will enable it to continue to thrive in a highly competitive environment.
one of several important NEC alliances, what is the aim of the merger of NEC's and Packard Bell's PC operations?
As core products in multimedia, the strategic importance NEC places on PCs has continued to grow. NEC already holds the top share of the domestic PC market and has decided to further enhance its PC business strategies in the global market.
In July 1996, NEC signed an agreement to merge its PC operations outside Japan and China with those of Packard Bell Electronics, Inc., a major U.S. manufacturer of PCs. Under the new name Packard Bell NEC, Inc. (Packard Bell NEC), the U.S. company will apply its dynamic management style to satisfy customer needs in the timely introduction of cutting-edge products in the rapidly evolving PC market. NEC will support Packard Bell NEC with its comprehensive expertise in C&C technology. As a result of this alliance, together with Packard Bell NEC and France's Compagnie des Machines Bull, who is a strategic partner of NEC and holds a stake in Packard Bell NEC, we expect to maintain and advance our leading position in the global PC market with a worldwide share of approximately 10 percent and play a key role in creating the de facto standards of the multimedia era.
are NEC's medium-term management targets?
Although competition is becoming fiercer, the advancement of multimedia will greatly benefit NEC. To meet shareholder expectations, NEC's management has set a medium-term target
of lifting NEC's ROE (return on equity) from 9.7 percent in fiscal 1997 to 15 percent in fiscal 2001 by fortifying its profitability in its C&C business while reforming its financial structure.
To achieve this goal, NEC will be redoubling its efforts in multimedia while delivering greater value to customers. NEC is leveraging its comprehensive strengths in the fields of communications equipment, computers, and electron devices as well as developing new businesses in such areas as Internet-related products and services, thereby achieving double-digit annual growth in net sales.
In addition, NEC will continue to improve its profitability by aggressively reducing its production costs through the promotion of its globalization strategy and the introduction of innovative production lines as well as by cutting fixed costs. Furthermore, we will work to strengthen our financial structure through greater efficiency in our capital expenditures and the deployment of our current assets as well as by increasing shareholders' equity.
is widely recognized as one of Japan's leading companies in terms of environmental activities. Would you please explain how NEC is working to preserve the environment?
NEC has long recognized the importance of environmental issues and has focused considerable efforts on environmental protection activities since the 1970s. We have been actively engaged in energy conservation and waste reduction at our facilities worldwide as well as in our endeavors to prevent pollution. NEC's environmental pursuits have included establishing the NEC Environmental Charter, deploying a director-level manager in the area of environmental protection, and achieving ISO14001 (the International Organization for Standardization's standard relating to environmental management systems) certification at approximately 100 of its facilities by 2000.
is the outlook for the electronics industry in fiscal 1998?
Despite ongoing stagnation in certain areas, overall steady expansion of the world economy is expected to continue, particularly in the United States and Asian countries. The Japanese economy will experience a continued mild recovery.
Demand for electronic products is expected to remain healthy in fiscal 1998, supported by further advancement of networking and multimedia. By product sector, the Japanese market for mobile communications products is expected to increase slowly in comparison with the spectacular growth in fiscal 1997. In contrast, the data communications area is forecast to sustain its buoyancy, reflecting growing demand for computer networking. Higher demand for PCs and servers points to continued brisk sales in Japan. The electron devices market is expected to show improved performance, reflecting stabilizing prices of memories and growing demand for PCs and communications equipment.
In this business environment, NEC will continue to market multimedia products and services that satisfy its customers through the aforementioned strategies. Under these initiatives, NEC intends to maintain the momentum of its corporate development, thereby benefitting shareholders, customers, employees, and the global society.
June 27, 1997