Network Services Business

Atsuo Kawamura, Executive Vice President

Overview of Network Services Business
 Remain in a top position in the telecom carrier business
 Expand network services business to enterprise and public customers
based on our strength in Network and IT

Business Areas New Network Services to Support Social DX**

• Service PF Maintenance Industrial

IT/Services /Operation Network Services
• OSS/BSS*, etc.
Services
• Local network
• Data distribution services,
• Base stations etc.
• Mobile Core
Network • Optical IP 5G
transmission
Construction Transportation Retail
equipment, etc.

Customer Segment A. Telecom Carrier B. Enterprise/Public

*OSS: Operations Support System BSS: Business Support System **Digital Transformation

2 © NEC Corporation 2019

Market Environment [A. Telecom Carriers Domain]
▌ Domestic Telecommunication Market ▌ Domestic 5G Base Station Market
（NEC estimates） （NEC estimates）
CAGR 2%
（¥tn） （¥100mn）
2
2,000
IT/Services

1
1,000
Network
5G
0
FY19 FY20 FY25
FY19 FY20 FY21 FY22 FY23 FY24 FY25

 Total market size will slightly increase

from over ¥2tn  Market will rapidly grow from FY2021
 Maintenance/operation services domain  Market will grow to approx.¥250bn in
is approx.¥600bn FY2025
 Composition of investments will change
due to carriers’ DX
3 © NEC Corporation 2019
NEC’s Positioning [A. Telecom Carriers Domain]
▌Positioning in Network Business ▌NEC’s Strengths and Challenges
(Domestic)
Domestic top position
○‘s size indicates
Fine customer service

Strengths
scales of sales
Market Share

capability
High quality products /
Domestic
peers services
Co-creation of 5G use
case
Overseas peers Expansion of customer

Challenges
portfolio
Enhancing cost
Breadth of Business Area
competitiveness
(By Revenue in FY2018, NEC estimates)
4 © NEC Corporation 2019
Market Environment [B. Enterprise and Public Domain]

▌Domestic IoT Market (NEC estimates) ▌Network Services Market (incl. local 5G)

(¥tn) (¥tn) (NEC estimates)

15 3

SW and SI
10 service 2

Network
5 service 1

Devices

0 FY19 FY20 FY21 FY22 FY23 FY24 FY25

FY19 FY20 FY25

 Network services market will grow

 Total market will be doubled
to ¥2.5tn in FY2025
 Needs for network optimized for  Rapid ramp-up of data distribution
services service domain
 Data utilization needs across the
industries
5 © NEC Corporation 2019
Trends of Revenue and Operating Margin from FY2017 to FY2020
Execution of structural Effect of structural Launches of focus businesses
improvement resulted in improvement will offset declines in existing
temporary deterioration of improves operating businesses and maintain revenue
operating margin margin and operating margin

Revenue Adjusted Operating Margin

5,000
(¥100mn) (%)
10
Focus Businesses
 Maintenance and
operation services
2,500
7% 7%  5G
 Industrial network
services
5%
4%
Existing Businesses
0 0
FY17 FY18 FY19 FY20
(Forecast) (Target)

6 © NEC Corporation 2019

 FY2018 Results

(¥100mn) FY17 Adjusted

Operating Profit One-time
FY18 Adjusted
229 Cost
Structural Existing Operating Profit
Improvement Businesses 207
▲30 Cost
▲ 16 +44
Losses from certain ▲ 20
projects
Focus
Demand increases in network domain
Businesses Higher efficiency in investments in
network domain

Structural improvement cost in FY18 ▲ 20

Effect of structural improvement in FY18 +4
Investment expansion in focus businesses ▲ 20

Investment for Improvements in

Temporary losses
future existing businesses

FY17 FY18
4,603
Revenue 4,425 (+4% y/y)

7 © NEC Corporation 2019

Summary of FY2018

<Securing of Future Earnings>

Key Achievements

 Execution of restructuring initiatives

<Maintenance and Operation Services>
 Rakuten has selected NEC’s OSS/BSS solutions
<5G>
 Contracts with NTT DOCOMO for base station equipment for 5G services
 Collaboration with Samsung for portfolio expansion
 Promotion of 5G trials with carriers and industrial partners
Challenges

 Secure stable earnings by expanding maintenance and operation

services business
 Early expansion of 5G and industrial network services businesses

8 © NEC Corporation 2019

FY2019 Outlook
Revenue
Increases in FY19 Adjusted
(¥100mn) Focus Operating Profit
Higher
Efficiency in Businesses 300
Revenue Investments in +17
One-time
FY18 Adjusted Declines in Existing
Existing Cost +36
Operating Profit Businesses
207 Businesses +30 Structural
expenses and
▲ 30 +40 benefits in FY18
Structural improvement
cost in FY18 +20
Effect of structural
improvement in FY19 +16

Losses from certain

projects
Effect of structural
FY18
Existing Businesses: improvement,
Temporary
Lower revenue, efficient investment expansion of focus
expense
businesses

FY18 FY19E
4,550
Revenue 4,603
(▲1% y/y)

9 © NEC Corporation 2019

Business Strategy in FY2019
Business Strategy

<Expansion of maintenance and operation services to secure stable earnings>

 Expansion of maintenance coverage of hardware
<Expansion of 5G and industrial network services for future growth>
 Maximization of entry opportunity to 5G businesses
 Acceleration of ramp-up in industrial network services businesses
Focus Initiatives

 Maintenance and Operation Services

Development of multi-vendor maintenance
 5G
Solid shipment for pre-commercial services
 Industrial Network Services
Building track record of local network business

10 © NEC Corporation 2019

To Achieve Mid-term Management Plan

▌ Numerical Targets (FY2020) ▌ Strategies to Achieve Numerical Targets

Strategy-1: Telecom Carrier Market

Revenue ¥450bn to ¥470bn Remain in a top position by expanding
maintenance and operation services
business

Strategy-2: Telecom Carrier Market

Adjusted
Operating 7% Establish business foundation for
Margin expansion of 5G business

Strategy-3: Enterprise and Public Market

Revenue
from Focus ¥50bn to ¥70bn Grow industrial network services business
Businesses* by “NEC Smart Connectivity”

*Focus businesses include maintenance and operation services, 5G and industrial network services

11 © NEC Corporation 2019

Strategy 1: Expansion of Maintenance and Operation Services
▌ Issues for Carriers in Maintenance and
Operation Increase in ▌ NEC’s Strategy
management man-day Reality

・Increase in Network/IT Expansion of maintenance support domain

Maintenance and Operation at Carriers

equipment
・More complex Network/IT  Reduction in maintenance and operation
operation management man-day at customers
• BPO development

Automation and sophistication of operating

GAP system
 Operation administration which speeds up
management
• Sophistication by leveraging Netcracker
• Automation by leveraging AI technologies
・Decline in skilled maintenance
and operation staffs
E2E Network Solution
・Lower costs
Target
 Secure delivery of products/services from
Promoting Efficiency HW to services
• Use of ecosystem
Now Future

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Strategy 2: Expansion of 5G Business
▌ NEC’s Strategy ▌ Measures

Remaining in Share expansion in domestic Timey supply of products which match network
market by leveraging
a Top Position strengths in wireless expansion plans by customers

Market Supporting various needs Joint proposal to customers in Europe and APAC by
Expansion (partnership with Samsung) leveraging mutual complement of product portfolio

Market Promotion of cloud native Approach to open-oriented carriers triggered by

Expansion (Open vRAN) base station orders from Rakuten

Expansion of co-creation with telecom carriers and

Value Materialization of use case
industrial partners (Remote control of construction
Enhancement in 5G businesses machines with KDDI and Obayashi)

13 © NEC Corporation 2019

Strategy 3: Expansion of Industrial NW Services Business by “NEC Smart Connectivity”

Environment
Change with Increase and diversification of Exponential increase in amount of
Development of DX connected devices connected data

Dedicated safe and comfort network Capitalization (monetization) of

Needs of
enabling to connect significant number of information by externally offering
Industrial Players
devices internal data

Local Network Data Distribution Services

 Focusing on industries handling
important infrastructure
NEC’s Strategies (Railway, construction, retail, public)
 “Connectivity” with value of flexibility,
comfort, simplicity and agility
 Realization of mutual usage of data
across industries
 Secure data distribution
(Authentication and security
technologies)

NEC’s Strengths Provide mission critical network in one stop

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Summary

Remain in a top position by expanding

maintenance and operation services
Establish business foundation
preparing for 5G business expansion

Business growth by “NEC Smart Connectivity” across industries

15 © NEC Corporation 2019