Progress on “Mid-term Management Plan 2015”

• Main Initiatives and Performance in Fiscal 2015
• Carrying Out NEC's Growth Strategy

Main Initiatives and Performance in Fiscal 2015

(1) Focus on “Solutions for Society”

NEC concentrates its management resources in “Solutions for Society,” and provides advanced social infrastructure using ICT (information and communications technology). We are transforming into a Social Value Innovator and aim to contribute to the realization of an affluent society, a society that ensures safety, security, efficiency and equality.

In the fiscal year under review, we focused on SDN (Software-Defined Networking), a next-generation network technology that provides both efficiency and safety. In Japan, NEC was selected as the partner vendor for NTT DOCOMO, INC.'s development of network virtualization technology. We progressed on preparations for a large-scale trial on a commercial network aimed at launching Virtualized Customer Premises Equipment (vCPE) solutions for Telefónica Brasil, S.A. Already, NEC has delivered more than 250 systems for a variety of customers, including hospitals, transportation systems, municipalities, telecom operators, and data centers.

In the cloud business, we utilized the NEC Kanagawa Data Center to expand sales of the “NEC Cloud IaaS” cloud platform service. The strengths of our service are high cost performance, strong performance, and high reliability. Furthermore, we will newly build the NEC Kobe Data Center to strengthen the domestic data center business.

In Big Data, we delivered a Predictive Monitoring and Diagnostics System for large-scale plants to The Chugoku Electric Power Co., Inc. This system detects abnormalities in equipment at an early stage and provides information on locations of possible abnormalities, allowing time for repairs before a malfunction occurs. In the state of Texas in the U.S., we worked on a project for a Water Leak Detection Service. By combining high-precision sensors and the cloud, this service allows water utilities to manage water resources at low cost.

In safety, in June 2014 we began full-scale operations of the Cyber Security Factory to support the comprehensive information security of approximately 100 companies. This facility was newly constructed as a core base for protecting information assets from cyberattacks. On the other hand, our face recognition technology, which supports a more secure society, was ranked No. 1 for the third consecutive time in benchmark testing performed by the U.S. National Institute of Standards and Technology (NIST). Our fingerprint recognition technology was also ranked highest in the industry.

Finally, in smart energy, NEC delivered smart meter communication units for Tokyo Electric Power Company, Incorporated. We also established NEC Energy Solutions, Inc. in the U.S. as part of our effort to globally expand the energy storage business.

(2) Focus on Asia, Promotion of “Locally-led” Businesses

The NEC Group is expanding international business with an aim to establish a foundation for growth in Asia in particular, where there is robust demand for social infrastructure. We are paying close attention to local needs and work to accelerate the development of “locally-led” businesses.

During the fiscal year under review, in the telecom carrier business, NEC worked on a number of large projects for submarine cable systems in the Asia-Pacific region. In addition, we received an order for the world's first submarine cable system crossing the South Atlantic Ocean as well as an order from Zambia's Zamtel for a large mobile backhaul project. NEC and its subsidiary, NetCracker Technology Corp., provided Swisscom AG, a leading Swiss telecom company for Operational Support System or OSS. We also agreed with Swisscom to discuss further for providing technology for next-generation Telecom Operations and Management Solutions (hereafter, TOMS) and Management and Network Orchestration (hereafter, MANO).

Moreover, in the IT-related business, we began new businesses globally in both the IT and social infrastructure fields. During the fiscal year under review, NEC integrated the public transportation fare system of Dhaka (Bangladesh) and introduced facial recognition technology into the urban surveillance system of Tigre (Argentina). We also participated in a smart waste collection management service in Santander (Spain), and provided managed IT service in Australia. These projects were obtained by offering the NEC Group's technologies and expert solutions in a global market, and going forward, we will develop these as the pillars of our solutions for further growth.

(3) Stabilize Our Financial Foundation

In terms of building a stable financial foundation, the NEC Group aims to secure solid net income and consistently generate 100 billion yen of free cash flows per year by establishing stronger profit structure. Furthermore, NEC hones cost competitiveness to accelerate its growth in a global market.

To this end, NEC acquired 100% stakes of NEC Fielding, Ltd., in enhancing efficiency in system integration and services. Furthermore, we reorganized the domestic hardware and software development and production offices, thereby strengthening “Solutions for Society.” We also established NEC Management Partner, Ltd. and initiated measures to improve business processes.

Carrying Out NEC's Growth Strategy

In the “Mid-term Management Plan 2015,” the NEC Group has established “Solutions for Society,” as a focus business for global reach, and is advancing initiatives to deliver lasting growth. In the two years after our announcement of the midterm plan, we built stronger business portfolio with clearer focus areas. In the third and final year of the plan, we strive to make major contributions to markets.

In looking back at the past two years, the environment has improved in domestic public infrastructure investment, including outdoor communications systems, initiatives related to fire prevention digital technology, and initiatives related to the adoption of the Social Security and Tax Number System in Japan. On the other hand, some markets were slower than we initially expected, namely, the launch of the market for SDN for telecom carriers and the launch of energy markets, which we had expected would expand significantly. Furthermore, the weakening of the yen resulted in higher materials costs, particularly in the system platform business.

Taking these into consideration, in fiscal 2016, we will focus on accelerating growth strategies and improving profitability.

With respect to accelerating the growth strategies, we plan to increase strategic investments in SDN and energy by ¥15 billion year on year in fiscal 2016, and boost both sales and profits of these businesses over the medium term. We will also increase the sales ratio of focus businesses, such as SDN, cloud, Big Data, safety, and smart energy, from 10% to 15% year on year.

In terms of bolstering initiatives aimed at improving our level of profitability, we are taking initiatives to streamline business processes and reduce workload of indirect operations by 30%. We will allocate abundant resources from these initiatives into growth fields, such as businesses related to the Social Security and Tax Number System, thereby achieving more efficient business management.

In fiscal 2016, we will set the course of direction that the NEC Group can follow to achieve future growth, and create the next medium-term management plan.

Going forward, our goal remains to contribute to realizing a better society by developing “Solutions for Society.” NEC is transforming into a “Social Value Innovator” to serve a broader range of stakeholders.

• *This is an executive summary of Annual Report 2015. Please see the PDF below for further details.