| C&C Operations | Communications Systems and Equipment |
| In a communications systems and equipment field that promises to offer healthy growth into the future, NEC is aiming to increase its international competitiveness and achieve a surge in growth through a variety of activities. These include our marketing of an array of such advanced communications systems as ATM switches, synchronous digital hierarchy (SDH) systems, and broadband access systems, our efforts to expand local development and production to respond quickly to the market needs of each region, and the leveraging of our total expertise in communications systems and terminal business to strengthen our capabilities in proposing end-to-end solutions to customers. |
In fiscal 1997, sales of communications systems and equipment increased 37 percent, to Y1,686.6 billion ($13,602 million), and accounted for 34 percent of net sales. Domestic sales soared, led mainly by strong sales of digital cellular systems and handsets, fiber-optic transmission systems (FOTS's), and microwave communications systems. Overseas sales also increased, propelled by the strength of mobile communications systems and handsets, FOTS's, microwave communications systems, and private branch exchanges (PBXs).
During the period under review, the Japanese mobile communications market expanded dramatically. With the number of cellular phone subscribers doubling, cellular operators drastically increased their investment in switching systems and base stations. NEC benefitted from this market buoyancy, enjoying significantly higher sales of infrastructure equipment and cellular handsets. Also, with surging numbers of Internet and intranet users driving up demand for data communications equipment, orders from Nippon Telegraph and Telephone Corporation (NTT) and new common carriers (NCCs) for integrated services digital network (ISDN)-related equipment and transmission systems for subscriber lines have soared.
Prompted by the rapid expansion of the Japanese mobile communications market, domestic sales
of digital switching systems rose significantly. In addition, NEC began shipments of new switching systems to NTT that will become the core of its multimedia communications network.
PHS's hold great business potential for NEC. PHS services began in Japan in July 1995 and boasted more than six million domestic subscribers at the end of fiscal 1997. NEC also expects growth of PHS services overseas. NEC was selected as a contractor for a project in Thailand in which the first public PHS service outside Japan is being implemented. In this project, NEC will provide switching systems and cell stations to enhance the current network.
The acceleration of Internet and intranet usage as well as robust demand for corporate local area networks (LANs) led to large gains in the domestic sales of our transmission systems, including ISDN-related equipment. Also, NTT began its economical data communications service, the Open Computer Network (OCN), in December 1996, for which NEC supplied such internetworking products as routers.
Overseas, sales of FOTS's experienced steady growth. During the period under review, NEC delivered a large number of repeaters and terminal transmission equipment to KDD Submarine Cable Systems Inc., a main contractor for the FLAG submarine cable project, linking Japan, other Asian countries, and European nations.
In wireless communications, sales of microwave communications systems for subscriber lines rose both domestically and overseas. NEC received an order from ICO Global Communications (Operations) Ltd. to build a global ground infrastructure system for its mobile satellite communications service. For this project, NEC is responsible for supplying satellite access nodes and network management systems. When this service is started, subscribers will be able to communicate from anywhere on earth.
During fiscal 1997, NEC delivered a large-scale optical network broadcast system to a major Japanese broadcaster. This system uses wavelength division multiplex (WDM) technology, which is capable of transmitting massive volumes of video and audio signals. It is the world's first practical deployment of this advanced technology.
With its years of experience and a high degree of technical expertise, NEC is a
leader in space systems development.
In fiscal 1997, we secured a contract from the National Space Development Agency of Japan (NASDA) to provide avionic systems that include measurement communications and guidance control systems for the 
rocket, which will carry Japan's first commercial satellite into orbit. Furthermore, NEC oversaw the systems integration of the MUSES-B scientific satellite HALCA, successfully launched by the Institute of Space and Astronautical Science (ISAS) of Japan.
In February 1997, HALCA "the world's first radio astronomical satellite" was launched. NEC has succeeded in the systems integration of each of Japan's 23 scientific satellite projects.
During the period under review, the Japanese cellular phone market showed explosive growth, with a total of 20 million subscribers as of March 1997. Concurrently, the capital investments of cellular operators reached an all-time high in fiscal 1997. NEC was able to take advantage of this opportunity, enjoying large gains in sales of its base stations and handsets.
In overseas markets, sales of cellular systems and handsets also grew. NEC introduced its new GSM (Global System for Mobile Communications) digital cellular handset, which is smaller and consumes less power than the previous model. Moreover, our U.S. subsidiary NEC America, Inc., concentrated on the development of CDMA (code division multiple access) and TDMA (time division multiple access) digital cellular phones.
Embracing the digital revolution in cellular phone technology, in January 1997 NEC launched its G9 GSM handset newly developed by NEC Technologies (UK) Ltd.
