NEC Networks & System Integration Corporation is an IT services company. The company configures, builds, operates, and maintains telecommunication networks and business ICT systems. The company is a subsidiary of NEC Corporation (TSE1: 6701), which effectively holds 51.48% of its voting rights (as of FY03/21). In FY03/21, NESIC generated revenue of JPY339.1bn, operating profit of JPY25.6bn, and had OPM of 7.5% (FY03/21).
The company’s business segments are Digital Solutions, Network Infrastructure, and Engineering & Support Services. One of the NEC group’s largest subsidiaries, in FY03/21, NESIC accounted for 11.3% of NEC’s consolidated revenue (average of 9% over the past decade) and 16.6% of operating profit (16%). One of Japan’s top-ten IT services companies by revenue, the company had more than 10,000 customers in FY03/20, including what the company classifies as “general companies” (essentially meaning private companies in various industrial sectors [e.g. manufacturing, services, financial]), telecom carriers, government and municipal offices, and “social infrastructure providers” (NESIC terminology for companies that provide public services [e.g. broadcasters, transportation services, electric utilities]). In FY03/21, the company captured demand associated with remote work and appears to have added about 10,000 new customers, primarily comprising small and medium-sized companies, through expanded sales of web conferencing systems.

In the Digital Solutions segment (FY03/21 revenue of JPY126.0bn [37.1% of the total], accounting for 38.6% of operating profit), the company provides business information and communication technology (ICT) solutions primarily to general companies. (In FY03/21, about 60% of revenue came from general companies, 20% from government and municipal offices [share boosted by GIGA school projects], and another 10% from telecom carriers.) One-time revenue business, in which the company books lump-sum revenue from system integration (SI) services, accounts for nearly 60% of Digital Solutions revenue. Most projects tend to be under JPY100mn. The core of this segment is EmpoweredOffice business, which the company launched in 2007. The EmpoweredOffice business combines ICT and office space design services. A pioneering initiative for “working-style reform” (a set of initiatives under former Prime Minister Abe), the business has gained traction as working in offices gives way to remote work and other means that offer flexibility in terms of work locations and hours. In 2017 (ahead of competitors), NESIC commenced domestic sales of Zoom service bundles. Amid the COVID-19 pandemic, this cloud-based online conferencing system saw widespread adoption in Japan. In autumn 2019, prior to the pandemic, the company made distributed work an in-house practice, establishing satellite offices and adopting various cloud services. This move helped NESIC seize the remote-work demand that surfaced with the pandemic and capture new customers, particularly for its Zoom service. Before developing the EmpoweredOffice business (FY03/07), general companies accounted for around one-third of companywide revenue. By FY03/21, that proportion had grown to about half. Shared Research understands NESIC’s business development efforts in this category contributed to the company’s growth.

In the Network Infrastructure segment (FY03/21 revenue of JPY89.2bn [26.3% of total], accounting for 30.1% of operating profit), the company builds ICT systems that undergird our society. Areas of business include fixed-line telephone networks (a social infrastructure alongside systems for providing electricity, water, and gas), mobile base stations and core networks for telecom carriers, television broadcasting networks, and wireless systems for firefighting and emergency communications. The main customers in this segment are carriers, government and municipal offices, and providers of other public services (such as broadcasters, railways, electric utilities, and water utilities). Most revenue in this segment is one-time revenue. NESIC says that providing social infrastructure requires substantial technological expertise, an area in which the company distinguishes itself from other IT services companies.

In the Engineering & Support Services segment (FY03/21 revenue of JPY114.1bn [33.6% of the total], accounting for 33.1% of operating profit), the company manages and provides technical support for the systems it builds. In this segment, the company also conducts business overseas, mainly in the construction sector. One-time revenue business (mostly construction) accounts for 60% of revenue. As a part of its (recurring-revenue) maintenance business, the company has a network of 400 24-hour support facilities across Japan. Although the company is categorized as an IT services company, in this segment, it engages in construction work. This characteristic differentiates NESIC from other IT services companies. The company has been expanding its network configuration business with non-NEC vendors thanks to its construction capabilities.

Earnings trends

In FY03/22, orders came to JPY336.8bn (-0.0% YoY), revenue was JPY310.3bn (-8.5% YoY), operating profit was JPY23.2bn (-9.3% YoY), recurring profit was JPY23.6bn (-7.6% YoY), and net income attributable to owners of the parent was JPY15.0bn (-4.6% YoY). Revenue grew 8% YoY, excluding one-time factors such as large projects in FY03/21, including GIGA school and mega-solar power plant projects.

For FY03/23, the company's forecast calls for revenue of JPY330.0bn (+6.3% YoY), operating profit of JPY26.0bn (+12.2% YoY), recurring profit of JPY26.0bn (+10.4% YoY), and net income attributable to owners of the parent of JPY15.3bn (+1.9% YoY). The company expects continued growth in demand among enterprises for new work styles (new normal work styles) that harness DX and brisk capex by telecom carriers as the 5G rollout gains momentum.

Strengths and weaknesses

NESIC’s strengths, according to Shared Research, are:
1) The ability to leverage the NEC group’s business platform (brands, customers, and technologies) in its own business,
2) An IT services company with technological and construction expertise in telecommunications, and
3) Expertise accumulated as the company deploys “working-style innovation” solutions in its own offices and then sells them to customers, creating a positive cycle

We perceive its weaknesses are:
1) Highly reliant on outsourcing for maintenance and other on-site services, which suppresses profitability,
2) A market latecomer with low recognition in platform-based cloud services (launched in 2019),
3) Aiming to expand its overseas business in the future, but has insufficient resources (personnel and expertise), hampering overseas expansion in business ICT solutions, a key to future growth (See the “Strengths and weaknesses” section for details.)

Key financial data

Income statement			FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22	FY03/23
((JPYmn))			Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Est.
Revenue			235,716	270,326	292,164	279,961	257,912	267,939	277,949	303,616	339,109	310,334	330,000
	YoY		15.2%	14.7%	8.1%	-4.2%	-7.9%	3.9%	3.7%	9.2%	11.7%	-8.5%	6.3%
Gross profit			37,182	44,690	48,110	45,162	42,585	44,265	47,681	54,374	63,929	63,473
	YoY		15.9%	20.2%	7.7%	-6.1%	-5.7%	3.9%	7.7%	14.0%	17.6%	-0.7%
	Gross profit margin		15.8%	16.5%	16.5%	16.1%	16.5%	16.5%	17.2%	17.9%	18.9%	20.5%
Operating profit			12,483	14,418	16,158	14,111	9,974	11,057	12,774	16,245	25,563	23,181	26,000
	YoY		28.1%	15.5%	12.1%	-12.7%	-29.3%	10.9%	15.5%	27.2%	57.4%	-9.3%	12.2%
	Operating profit margin		5.3%	5.3%	5.5%	5.0%	3.9%	4.1%	4.6%	5.4%	7.5%	7.5%	7.9%
Recurring profit			12,182	14,534	16,189	14,133	9,975	10,957	13,023	15,938	25,493	23,550	26,000
	YoY		29.9%	19.3%	11.4%	-12.7%	-29.4%	9.8%	18.9%	22.4%	60.0%	-7.6%	10.4%
	Recurring profit margin		5.2%	5.4%	5.5%	5.0%	3.9%	4.1%	4.7%	5.2%	7.5%	7.6%	7.9%
Net income attributable to owners of the parent			7,246	8,257	7,791	5,996	6,549	7,357	8,885	9,422	15,745	15,021	15,300
	YoY		62.0%	14.0%	-5.6%	-23.0%	9.2%	12.3%	20.8%	6.0%	67.1%	-4.6%	1.9%
	Net margin		3.1%	3.1%	2.7%	2.1%	2.5%	2.7%	3.2%	3.1%	4.6%	4.8%	4.6%
Per-share data (split-adjusted; JPY)
No. of outstanding shares at the end of the period ('000 shares )			149,321	149,321	149,321	149,321	149,321	149,321	149,321	149,321	149,321	149,321
		Treasury shares ('000)	144	155	400	404	408	412	416	402	391	379
EPS (JPY)			48.6	55.4	52.2	40.3	44.0	49.4	59.7	63.3	105.7	100.9	102.7
EPS (fully diluted; JPY)			-	-	-	-	-	-	-	-	-	-
Dividend per share (JPY)			15.0	20.0	21.3	23.3	24.0	24.7	26.0	27.3	35.0	43.0	46.0
Book value per share (JPY)			572	587	622	623	635	668	704	741	830	905
Balance sheet (JPYmn)
		Cash and cash equivalents	30,315	44,434	38,951	43,889	59,648	57,281	54,354	58,321	68,426	79,732
Total current assets			141,172	157,351	171,061	167,638	168,999	175,218	181,036	191,847	211,806	214,161
Tangible fixed assets			9,292	10,959	10,830	10,967	10,719	10,093	10,217	8,942	10,845	12,807
Investments and other assets			12,765	14,231	14,199	12,937	13,188	16,947	18,682	23,606	22,777	23,442
Intangible assets			4,241	6,516	5,871	5,025	4,561	5,384	6,234	5,847	4,908	4,290
Total assets			167,472	189,059	201,964	196,569	197,469	207,643	216,171	230,244	250,338	254,701
		Short-term debt	1,099	1,913	4,801	4,317	4,240	7,257	2,515	4,930	9,658	9,454
Total current liabilities			59,612	69,994	79,302	67,113	63,498	72,874	72,328	80,128	91,474	83,636
		Long-term debt	3,000	4,518	1,349	4,185	4,014	842	3,896	3,764	466	3,202
Total fixed liabilities			21,884	29,898	28,488	35,057	37,296	33,037	36,234	36,605	31,745	32,914
Total liabilities			81,497	99,893	107,790	102,171	100,795	105,911	108,562	116,734	123,220	116,551
		Shareholders' equity	85,266	87,514	92,560	92,738	94,612	99,474	104,889	110,367	123,682	134,742
Total net assets			85,974	89,166	94,173	94,397	96,674	101,732	107,608	113,510	127,117	138,149
Total liabilities and net assets			167,472	189,059	201,964	196,569	197,469	207,643	216,171	230,244	250,338	254,701
Total interest-bearing debt			4,099	6,431	6,150	8,502	8,254	8,099	6,411	8,694	10,124	12,656
Cash flow statement((JPYmn))
Cash flows from operating activities			-1,723	23,313	2,460	9,435	22,634	4,779	8,396	12,935	17,383	22,674
Cash flows from investing activities			-3,429	-5,504	-3,929	-2,822	-2,697	-2,802	-5,604	-6,726	-4,289	-7,162
Cash flows from financing activities			-2,066	-3,824	-4,127	-1,402	-4,144	-4,366	-5,615	-2,300	-2,388	-4,267
Financial ratios
ROA (RP-based)			7.7%	8.2%	8.3%	7.1%	5.1%	5.4%	6.1%	7.1%	10.6%	9.3%
ROE			8.8%	9.6%	8.7%	6.5%	7.0%	7.6%	8.7%	8.8%	13.5%	11.6%
		Equity ratio	50.9%	46.3%	45.8%	47.2%	47.9%	47.9%	48.5%	47.9%	49.4%	52.9%
		Total asset turnover	148.9%	151.6%	149.4%	140.5%	130.9%	132.3%	131.2%	136.0%	141.1%	122.9%
		Net margin	3.1%	3.1%	2.7%	2.1%	2.5%	2.7%	3.2%	3.1%	4.6%	4.8%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
The company conducted a three-for-one stock split of common shares on June 1, 2020. In the table above, EPS and book value per share are calculated as if the stock split had occurred at the beginning of FY03/11.

Orders received by segment

By segment			FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
((JPYmn))			Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.
Orders			241,271	280,071	299,097	274,946	279,241	287,831	284,739	304,978	336,877	336,759
		YoY	12.0%	16.1%	6.8%	-8.1%	1.6%	3.1%	-1.1%	7.1%	10.5%	0.0%
	Digital Solutions								106,618	115,180	128,301	121,729
		YoY							-	8.0%	11.4%	-5.1%
		% of total							37.4%	37.8%	38.1%	36.1%
	Network Infrastructure								80,829	87,728	95,338	100,889
		YoY							-	8.5%	8.7%	5.8%
		% of total							28.4%	28.8%	28.3%	30.0%
	Engineering & Support Services								88,300	92,040	103,718	109,927
		YoY							-	4.2%	12.7%	6.0%
		% of total							31.0%	30.2%	30.8%	32.6%
	Other								9,000	10,031	9,518	4,213
		YoY							-	11.5%	-5.1%	-55.7%
		% of total							3.2%	3.3%	2.8%	1.3%
	[Old segments 1]
	Enterprise Networks Business Unit			95,610	108,909	109,944	116,958	125,826	122,456
		YoY		-	13.9%	1.0%	6.4%	7.6%	-2.7%
		% of total		34.1%	36.4%	40.0%	41.9%	43.7%	43.0%
	Carrier Networks Business Unit			82,656	85,618	66,899	68,675	68,543	73,020
		YoY		-	3.6%	-21.9%	2.7%	-0.2%	6.5%
		% of total		29.5%	28.6%	24.3%	24.6%	23.8%	25.6%
	Social Infrastructure Business			94,849	99,757	91,195	86,546	87,046	80,285
		YoY		-	5.2%	-8.6%	-5.1%	0.6%	-7.8%
		% of total		33.9%	33.4%	33.2%	31.0%	30.2%	28.2%
	Other			6,954	4,812	6,907	7,060	6,414	8,976
		YoY		-	-30.8%	43.5%	2.2%	-9.2%	39.9%
		% of total		2.5%	1.6%	2.5%	2.5%	2.2%	3.2%
	[Old segments 2]
	Enterprise Networks Business Unit		82,200	91,849	105,311
		YoY	-	11.7%	14.7%
		% of total	34.1%	32.8%	35.2%
	Carrier Networks Business Unit		65,800	74,724	76,448
		YoY	-	13.6%	2.3%
		% of total	27.3%	26.7%	25.6%
	Social Infrastructure Business		75,700	94,879	99,767
		YoY	-	25.3%	5.2%
		% of total	31.4%	33.9%	33.4%
	Other		17,700	18,617	17,570
		YoY	-	5.2%	-5.6%
		% of total	7.3%	6.6%	5.9%
	[Old segments 3]
	Enterprise Networks Business Unit		89,558	99,277
		YoY	8.8%	10.9%
		% of total	37.1%	35.4%
	Carrier Networks Business Unit		52,875	64,279
		YoY	4.5%	21.6%
		% of total	21.9%	23.0%
	Social Infrastructure Business		84,453	102,157
		YoY	20.5%	21.0%
		% of total	35.0%	36.5%
	Other		14,384	14,357
		YoY	16.3%	-0.2%
		% of total	6.0%	5.1%

Revenue by segment

By segment			FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
((JPYmn))			Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.
Revenue			235,716	270,326	292,164	279,961	257,912	267,939	277,949	303,616	339,109	310,334
		YoY	15.2%	14.7%	8.1%	-4.2%	-7.9%	3.9%	3.7%	9.2%	11.7%	-8.5%
	Digital Solutions								102,073	112,758	125,960	110,344
		YoY							-	10.5%	11.7%	-12.4%
		% of total							36.7%	37.1%	37.1%	35.6%
	Network Infrastructure								79,468	83,110	89,232	96,426
		YoY							-	4.6%	7.4%	8.1%
		% of total							28.6%	27.4%	26.3%	31.1%
	Engineering & Support Services								89,021	97,434	114,089	98,116
		YoY							-	9.5%	17.1%	-14.0%
		% of total							32.0%	32.1%	33.6%	31.6%
	Other								7,383	10,314	9,827	5,446
		YoY							-	39.7%	-4.7%	-44.6%
		% of total							2.7%	3.4%	2.9%	1.8%
	[Old segments 1]
	Enterprise Networks Business Unit			94,776	102,797	109,584	107,366	110,887	122,775
		YoY		-	8.5%	6.6%	-2.0%	3.3%	10.7%
		% of total		35.1%	35.2%	39.1%	41.6%	41.4%	44.2%
	Carrier Networks Business Unit			86,286	86,164	69,306	61,579	64,902	70,529
		YoY		-	-0.1%	-19.6%	-11.1%	5.4%	8.7%
		% of total		31.9%	29.5%	24.8%	23.9%	24.2%	25.4%
	Social Infrastructure Business			82,599	96,767	96,260	82,362	85,192	77,260
		YoY		-	17.2%	-0.5%	-14.4%	3.4%	-9.3%
		% of total		30.6%	33.1%	34.4%	31.9%	31.8%	27.8%
	Other			6,664	6,434	4,810	6,602	6,957	7,383
		YoY		-	-3.5%	-25.2%	37.3%	5.4%	6.1%
		% of total		2.5%	2.2%	1.7%	2.6%	2.6%	2.7%
	[Old segments 2]
	Enterprise Networks Business Unit		78,000	90,804	99,269
		YoY	-	16.4%	9.3%
		% of total	33.1%	33.6%	34.0%
	Carrier Networks Business Unit		64,900	78,335	76,631
		YoY	-	20.7%	-2.2%
		% of total	27.5%	29.0%	26.2%
	Social Infrastructure Business		74,100	82,627	96,782
		YoY	-	11.5%	17.1%
		% of total	31.4%	30.6%	33.1%
	Other		18,800	18,599	19,481
		YoY	-	-1.1%	4.7%
		% of total	8.0%	6.9%	6.7%
	[Old segments 3]
	Enterprise Networks Business Unit		85,338	98,199
		YoY	5.7%	15.1%
		% of total	36.2%	36.3%
	Carrier Networks Business Unit		54,732	65,142
		YoY	17.2%	19.0%
		% of total	23.2%	24.1%
	Social Infrastructure Business		80,935	92,203
		YoY	25.4%	13.9%
		% of total	34.3%	34.1%
	Other		14,709	14,781
		YoY	15.8%	0.5%
		% of total	6.2%	5.5%

Operating profit by segment

By segment			FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
((JPYmn))			Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.
Operating profit			12,483	14,418	16,158	14,111	9,974	11,057	12,774	16,245	25,563	23,181
		YoY	28.1%	15.5%	12.1%	-12.7%	-29.3%	10.9%	15.5%	27.2%	57.4%	-9.3%
		Operating profit margin	5.3%	5.3%	5.5%	5.0%	3.9%	4.1%	4.6%	5.4%	7.5%	7.5%
	Digital Solutions								9,040	11,653	13,763	13,047
		YoY							-	28.9%	18.1%	-5.2%
		Operating profit margin							8.9%	10.3%	10.9%	11.8%
		% of total							41.4%	43.1%	38.6%	39.4%
	Network Infrastructure								5,111	8,129	9,291	10,254
		YoY							-	59.0%	14.3%	10.4%
		Operating profit margin							6.4%	9.8%	10.4%	10.6%
		% of total							23.4%	30.1%	26.1%	31.0%
	Engineering & Support Services								7,388	6,715	11,813	9,117
		YoY							-	-9.1%	75.9%	-22.8%
		Operating profit margin							8.3%	6.9%	10.4%	9.3%
		% of total							33.8%	24.9%	33.1%	27.5%
	Other								311	511	794	702
		YoY							-	64.3%	55.4%	-11.6%
		Operating profit margin							4.2%	5.0%	8.1%	12.9%
		% of total							1.4%	1.9%	2.2%	2.1%
	Adjustments								-9,076	-10,763	-10,098	-9,940
	[Old segments 1]
	Enterprise Networks Business Unit			7,415	7,464	8,900	8,823	10,797	13,408
		YoY		-	0.7%	19.2%	-0.9%	22.4%	24.2%
		Operating profit margin		7.8%	7.3%	8.1%	8.2%	9.7%	10.9%
		% of total		32.7%	31.1%	40.0%	47.3%	55.4%	61.4%
	Carrier Networks Business Unit			6,598	6,920	3,503	3,569	5,021	4,714
		YoY		-	4.9%	-49.4%	1.9%	40.7%	-6.1%
		Operating profit margin		7.6%	8.0%	5.1%	5.8%	7.7%	6.7%
		% of total		29.1%	28.8%	15.7%	19.1%	25.8%	21.6%
	Social Infrastructure Business			8,139	9,548	9,490	6,029	3,399	3,454
		YoY		-	17.3%	-0.6%	-36.5%	-43.6%	1.6%
		Operating profit margin		9.9%	9.9%	9.9%	7.3%	4.0%	4.5%
		% of total		35.9%	39.7%	42.6%	32.3%	17.4%	15.8%
	Other			539	93	376	246	263	276
		YoY		-	-82.7%	304.3%	-34.6%	6.9%	4.9%
		Operating profit margin		8.1%	1.4%	7.8%	3.7%	3.8%	3.7%
		% of total		2.4%	0.4%	1.7%	1.3%	1.4%	1.3%
	Adjustments			-8,274	-7,867	-8,158	-8,693	-8,423	-9,078
	[Old segments 2]
	Enterprise Networks Business Unit		6,500	7,089	7,171
		YoY	-	9.1%	1.2%
		Operating profit margin	8.3%	7.8%	7.2%
		% of total	32.7%	31.2%	29.8%
	Carrier Networks Business Unit		5,900	6,639	7,052
		YoY	-	12.5%	6.2%
		Operating profit margin	9.1%	8.5%	9.2%
		% of total	29.6%	29.3%	29.4%
	Social Infrastructure Business		7,100	8,159	9,606
		YoY	-	14.9%	17.7%
		Operating profit margin	9.6%	9.9%	9.9%
		% of total	35.7%	36.0%	40.0%
	Other		400	804	195
		YoY	-	101.0%	-75.7%
		Operating profit margin	2.1%	4.3%	1.0%
		% of total	2.0%	3.5%	0.8%
	Adjustments		-	-8,273	-7,866
	[Old segments 3]
	Enterprise Networks Business Unit		7,368	8,034
		YoY	-3.0%	9.0%
		Operating profit margin	8.6%	8.2%
		% of total	36.4%	35.1%
	Carrier Networks Business Unit		6,306	6,669
		YoY	27.6%	5.8%
		Operating profit margin	11.5%	10.2%
		% of total	31.2%	29.1%
	Social Infrastructure Business		6,162	7,738
		YoY	72.3%	25.6%
		Operating profit margin	7.6%	8.4%
		% of total	30.5%	33.8%
	Other		396	474
		YoY	26.5%	19.7%
		Operating profit margin	2.7%	3.2%
		% of total	2.0%	2.1%
	Adjustments		-7,749	-8,497

Recent updates

Announcement of "Shift up 2024," medium-term management plan for FY03/23 to FY03/25

2022-05-10

On May 10, 2022, NEC Networks & System Integration Corporation announced its "Shift up 2024," medium-term management plan for the three-year period covering FY03/23 to FY03/25.

Fundamental strategies

The company will implement the following three fundamental strategies under this medium-term management plan.

Strategy 1: Accelerate the creation of original value

The company will boost innovation through co-creation practices with customers and business partners, building a unique model that delivers value while providing a wide range of digital transformation (DX) consulting services and platforms under its Symphonict brand.

Strategy 2: Upgrade problem-solving capabilities

To meet the challenges of various industries, including companies, municipal governments, and telecommunications carriers, the company will provide optimal services that combine DX and next-generation networks, as well as create sustainable social value through the establishment of business that addresses and helps combat climate change.

Strategy 3: Company-wide DX promotion

Seeking to be an example of the change it offers to customers, the company will pursue the digital transformation of its operations, improving quality, speed, productivity, and profitability. At the same time, it will focus on the training of personnel to take on these responsibilities.

Management targets

Target financial indicators

	FY03/22 results	FY03/25 targets
Revenue (JPYmn)	310,334	370,000
Operating profit (JPYmn)	23,181	34,000
Operating profit margin	7.5%	9.2%
ROE	11.6%	13％ or higher

Source: Shared Research based on company data

In addition to the targets above, the company has released non-financial indicators concerning the environment (E), society (S), and governance (G) that, the company believes, will lead to sustainable improvement of its corporate value. New goals to be worked toward over the course of this medium-term management plan include the training of highly skilled personnel and improvement of the company's engagement score*, as well as long-term targets for boosting the percentage of female managers and reducing greenhouse gas emissions.

Target non-financial indicators

	Act.	Targets	Target date
Greenhouse gas emissions (SCOPE 1+2)	8,432t (FY03/20)	55％ reduction (vs. FY03/20)	By FY03/31
Training of highly skilled personnel	1,580 (FY03/22)	3,000	FY03/25
Engagement score*	33％ (FY03/22)	50.0%	FY03/25
Percentage of female managers	5.9％ (As of April 2022)	10.0%	FY03/27

Source: Shared Research based on company data
*Engagement score: A score that quantifies positive feelings and trust between employees and the company

Investment in South Korean telecom equipment maker HFR, Inc.

2022-04-22

On April 21, 2022, NEC Networks & Systems Integration Corporation (NESIC) announced its investment in South Korean telecom equipment manufacturer HFR, Inc. (KRX: 230240).

HFR, Inc. is a manufacturer of telecommunications equipment in South Korea with a certain domestic market share, supplying 5G equipment to South Korean telecommunications companies, 5G equipment for local networks in South Korea, and other telecommunications equipment. As a result, NESIC will acquire 607,006 shares (4.5% stake) in HFR, Inc. It has not disclosed the amount of investment.

This follows a business partnership and distributorship agreement reached between the two companies in February 2022. NESIC will obtain the exclusive distribution rights in Japan for HFR's local 5G-related and private network-related products and plans to take orders from June 2022. With this investment further strengthening its ties with HFR, NESIC is now looking to accelerate its efforts to enhance and expand its local 5G network business in Japan.

Trends and outlook

Quarterly trends and results

Cumulative		FY03/21				FY03/22				FY03/22
((JPYmn))		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Revenue		67,369	151,205	233,469	339,109	67,662	140,961	218,824	310,334	99.1%	313,000
	YoY	11.3%	11.0%	9.1%	11.7%	0.4%	-6.8%	-6.3%	-8.5%		-7.7%
Gross profit		10,343	25,171	41,572	63,929	12,633	27,257	41,996	63,473
	YoY	18.4%	11.8%	15.5%	17.6%	22.1%	8.3%	1.0%	-0.7%
	Gross profit margin	15.4%	16.6%	17.8%	18.9%	18.7%	19.3%	19.2%	20.5%
SG&A expenses		9,334	18,439	27,769	38,366	9,682	19,636	29,828	40,292
	YoY	4.7%	1.6%	-0.1%	0.6%	3.7%	6.5%	7.4%	5.0%
	SG&A ratio	13.9%	12.2%	11.9%	11.3%	14.3%	13.9%	13.6%	13.0%
Operating profit		1,008	6,732	13,803	25,563	2,950	7,621	12,168	23,181	103.0%	22,500
	YoY	-	54.1%	68.2%	57.4%	192.7%	13.2%	-11.8%	-9.3%		-12.0%
	Operating profit margin	1.5%	4.5%	5.9%	7.5%	4.4%	5.4%	5.6%	7.5%		7.2%
Recurring profit		941	6,778	13,856	25,493	3,045	7,889	12,516	23,550	103.3%	22,800
	YoY	-	56.4%	69.1%	60.0%	223.6%	16.4%	-9.7%	-7.6%		-10.6%
	Recurring profit margin	1.4%	4.5%	5.9%	7.5%	4.5%	5.6%	5.7%	7.6%		7.3%
Net income attributable to owners of the parent		326	3,967	8,358	15,745	1,653	4,703	7,685	15,021	103.6%	14,500
	YoY	-	36.7%	94.6%	67.1%	407.1%	18.6%	-8.1%	-4.6%		-7.9%
	Net margin	0.5%	2.6%	3.6%	4.6%	2.4%	3.3%	3.5%	4.8%		4.6%
Quarterly		FY03/21				FY03/22
((JPYmn))		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue		67,369	83,836	82,264	105,640	67,662	73,299	77,863	91,510
	YoY	11.3%	10.7%	5.8%	17.9%	0.4%	-12.6%	-5.3%	-13.4%
Gross profit		10,343	14,828	16,401	22,357	12,633	14,624	14,739	21,477
	YoY	18.4%	7.6%	21.6%	21.7%	22.1%	-1.4%	-10.1%	-3.9%
	Gross profit margin	15.4%	17.7%	19.9%	21.2%	18.7%	20.0%	18.9%	23.5%
SG&A expenses		9,334	9,105	9,330	10,597	9,682	9,954	10,192	10,464
	YoY	4.7%	-1.3%	-3.3%	2.5%	3.7%	9.3%	9.2%	-1.3%
	SG&A ratio	13.9%	10.9%	11.3%	10.0%	14.3%	13.6%	13.1%	11.4%
Operating profit		1,008	5,724	7,071	11,760	2,950	4,671	4,547	11,013
	YoY	-	25.9%	84.2%	46.3%	192.7%	-18.4%	-35.7%	-6.4%
	Operating profit margin	1.5%	6.8%	8.6%	11.1%	4.4%	6.4%	5.8%	12.0%
Recurring profit		941	5,837	7,078	11,637	3,045	4,844	4,627	11,034
	YoY	-	27.3%	83.3%	50.3%	223.6%	-17.0%	-34.6%	-5.2%
	Recurring profit margin	1.4%	7.0%	8.6%	11.0%	4.5%	6.6%	5.9%	12.1%
Net income attributable to owners of the parent		326	3,641	4,391	7,387	1,653	3,050	2,982	7,336
	YoY	1,452.4%	26.4%	215.0%	44.1%	407.1%	-16.2%	-32.1%	-0.7%
	Net margin	0.5%	4.3%	5.3%	7.0%	2.4%	4.2%	3.8%	8.0%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Performance by segment

By segment (cumulative)			FY03/21				FY03/22				FY03/22
((JPYmn))			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Orders			84,359	177,890	253,488	336,877	83,717	165,922	243,522	336,759	100.5%	335,000
		YoY	13.8%	17.2%	17.8%	10.5%	-0.8%	-6.7%	-3.9%	0.0%		-0.6%
	Digital Solutions		34,036	71,260	97,112	128,301	30,428	62,164	89,496	121,729	97.4%	125,000
		YoY	28.4%	28.6%	17.2%	11.4%	-10.6%	-12.8%	-7.8%	-5.1%		-2.6%
	Network Infrastructure		25,398	47,577	71,560	95,338	26,937	49,632	71,301	100,889	100.9%	100,000
		YoY	9.9%	5.0%	14.7%	8.7%	6.1%	4.3%	-0.4%	5.8%		4.9%
	Engineering & Support Services		22,152	54,331	77,356	103,718	24,719	51,872	79,346	109,927	103.7%	106,000
		YoY	-0.8%	16.7%	22.8%	12.7%	11.6%	-4.5%	2.6%	6.0%		2.2%
	Other		2,771	4,721	7,459	9,518	1,631	2,252	3,377	4,213	105.3%	4,000
		YoY	26.6%	6.1%	6.8%	-5.1%	-41.1%	-52.3%	-54.7%	-55.7%		-58.0%
Revenue			67,369	151,205	233,469	339,109	67,662	140,961	218,824	310,334	99.1%	313,000
		YoY	11.3%	11.0%	9.1%	11.7%	0.4%	-6.8%	-6.3%	-8.5%		-7.7%
	Digital Solutions		26,819	56,712	83,776	125,960	25,317	52,394	79,506	110,344	97.6%	113,000
		YoY	11.2%	6.6%	3.8%	11.7%	-5.6%	-7.6%	-5.1%	-12.4%		-10.3%
	Network Infrastructure		16,610	38,083	60,384	89,232	19,851	42,759	67,170	96,426	98.4%	98,000
		YoY	8.1%	7.3%	7.8%	7.4%	19.5%	12.3%	11.2%	8.1%		9.8%
	Engineering & Support Services		20,841	51,551	82,027	114,089	19,860	42,298	67,653	98,116	101.2%	97,000
		YoY	16.9%	23.9%	19.6%	17.1%	-4.7%	-17.9%	-17.5%	-14.0%		-15.0%
	Other		3,098	4,858	7,279	9,827	2,633	3,508	4,492	5,446	108.9%	5,000
		YoY	-4.5%	-18.4%	-16.3%	-4.7%	-15.0%	-27.8%	-38.3%	-44.6%		-49.1%
Operating profit			1,008	6,732	13,803	25,563	2,950	7,621	12,168	23,181	103.0%	22,500
		YoY	-	54.1%	68.2%	57.4%	192.7%	13.2%	-11.8%	-9.3%		-12.0%
		Operating profit margin	1.5%	4.5%	5.9%	7.5%	4.4%	5.4%	5.6%	7.5%		7.2%
	Digital Solutions		2,101	5,271	8,542	13,763	2,864	5,558	8,901	13,047	96.6%	13,500
		YoY	14.7%	10.7%	10.0%	18.1%	36.3%	5.4%	4.2%	-5.2%		-1.9%
		Operating profit margin	7.8%	9.3%	10.2%	10.9%	11.3%	10.6%	11.2%	11.8%		11.9%
	Network Infrastructure		208	2,213	4,659	9,291	787	2,796	5,271	10,254	102.5%	10,000
		YoY	30.0%	20.3%	15.2%	14.3%	278.4%	26.3%	13.1%	10.4%		7.6%
		Operating profit margin	1.3%	5.8%	7.7%	10.4%	4.0%	6.5%	7.8%	10.6%		10.2%
	Engineering & Support Services		726	3,464	7,020	11,813	1,230	3,437	4,431	9,117	101.3%	9,000
		YoY	-	57.7%	101.7%	75.9%	69.4%	-0.8%	-36.9%	-22.8%		-23.8%
		Operating profit margin	3.5%	6.7%	8.6%	10.4%	6.2%	8.1%	6.5%	9.3%		9.3%
	Other		145	363	598	794	207	382	542	702
		YoY	20.8%	45.2%	47.7%	55.4%	42.8%	5.2%	-9.4%	-11.6%
		Operating profit margin	4.7%	7.5%	8.2%	8.1%	7.9%	10.9%	12.1%	12.9%
	Company-wide, eliminations		-2,173	-4,579	-7,016	-10,098	-2,139	-4,554	-6,977	-9,940		-10,000
By segment (quarterly)			FY03/21				FY03/22
((JPYmn))			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Orders			84,359	93,531	75,598	83,389	83,717	82,205	77,600	93,237
		YoY	13.8%	20.5%	19.1%	-7.1%	-0.8%	-12.1%	2.6%	11.8%
	Digital Solutions		34,036	37,224	25,852	31,189	30,428	31,736	27,332	32,233
		YoY	28.4%	28.8%	-5.8%	-3.5%	-10.6%	-14.7%	5.7%	3.3%
	Network Infrastructure		25,398	22,179	23,983	23,778	26,937	22,695	21,669	29,588
		YoY	9.9%	-0.1%	40.6%	-6.3%	6.1%	2.3%	-9.6%	24.4%
	Engineering & Support Services		22,152	32,179	23,025	26,362	24,719	27,153	27,474	30,581
		YoY	-0.8%	32.7%	40.1%	-9.2%	11.6%	-15.6%	19.3%	16.0%
	Other		2,771	1,950	2,738	2,059	1,631	621	1,125	836
		YoY	26.6%	-13.7%	8.1%	-32.5%	-41.1%	-68.2%	-58.9%	-59.4%
Revenue			67,369	83,836	82,264	105,640	67,662	73,299	77,863	91,510
		YoY	11.3%	10.7%	5.8%	17.9%	0.4%	-12.6%	-5.3%	-13.4%
	Digital Solutions		26,819	29,893	27,064	42,184	25,317	27,077	27,112	30,838
		YoY	11.2%	2.7%	-1.6%	31.7%	-5.6%	-9.4%	0.2%	-26.9%
	Network Infrastructure		16,610	21,473	22,301	28,848	19,851	22,908	24,411	29,256
		YoY	8.1%	6.6%	8.8%	6.4%	19.5%	6.7%	9.5%	1.4%
	Engineering & Support Services		20,841	30,710	30,476	32,062	19,860	22,438	25,355	30,463
		YoY	16.9%	29.2%	12.9%	11.2%	-4.7%	-26.9%	-16.8%	-5.0%
	Other		3,098	1,760	2,421	2,548	2,633	875	984	954
		YoY	-4.5%	-35.1%	-11.6%	57.3%	-15.0%	-50.3%	-59.4%	-62.6%
Operating profit			1,008	5,724	7,071	11,760	2,950	4,671	4,547	11,013
		YoY	-	25.9%	84.2%	46.3%	192.7%	-18.4%	-35.7%	-6.4%
		Operating profit margin	1.5%	6.8%	8.6%	11.1%	4.4%	6.4%	5.8%	12.0%
	Digital Solutions		2,101	3,170	3,271	5,221	2,864	2,694	3,343	4,146
		YoY	14.7%	8.3%	8.7%	34.4%	36.3%	-15.0%	2.2%	-20.6%
		Operating profit margin	7.8%	10.6%	12.1%	12.4%	11.3%	9.9%	12.3%	13.4%
	Network Infrastructure		208	2,005	2,446	4,632	787	2,009	2,475	4,983
		YoY	30.0%	19.4%	10.9%	13.4%	278.4%	0.2%	1.2%	7.6%
		Operating profit margin	1.3%	9.3%	11.0%	16.1%	4.0%	8.8%	10.1%	17.0%
	Engineering & Support Services		726	2,738	3,556	4,793	1,230	2,207	994	4,686
		YoY	-	18.0%	176.7%	48.2%	69.4%	-19.4%	-72.0%	-2.2%
		Operating profit margin	3.5%	8.9%	11.7%	14.9%	6.2%	9.8%	3.9%	15.4%
	Other		145	218	235	196	207	175	160	160
		YoY	20.8%	67.7%	51.6%	84.9%	42.8%	-19.7%	-31.9%	-18.4%
		Operating profit margin	4.7%	12.4%	9.7%	7.7%	7.9%	20.0%	16.3%	16.8%
	Company-wide, eliminations		-2,172	-2,407	-2,437	-3,082	-2,138	-2,414	-2,425	-2,962

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Full-year FY03/22 results (out April 28, 2022)

Overview

Full-year FY03/22 results

Orders: JPY336.8bn (-0.0% YoY)
Revenue: JPY310.3bn (-8.5% YoY)
Operating profit: JPY23.2bn (-9.3% YoY)
Recurring profit: JPY23.6bn (-7.6% YoY)
Net income*: JPY15.0bn (-4.6% YoY)
* Net income attributable to owners of the parent

Key takeaways from earnings results

In full-year FY03/22, orders declined 0.0% YoY. Orders dipped mainly on the absence of large-scale orders received in cumulative Q3 FY03/21 (GIGA school project orders of about JPY29.0bn), the impact of semiconductor and material shortages (approximately JPY5.0bn), and a reduction in orders of about JPY1.5bn from Q2 FY03/21 on the removal a subsidiary from the scope of consolidation. On the other hand, heightened demand mainly in DX and working-style reform-related fields and infrastructure for telecommunications carriers contributed to order growth (approximately JPY35.5bn). Excluding one-time factors such as large projects in FY03/21, orders were up 12% YoY.

Full-year revenue declined 8.5% YoY. The DX business and telecom carrier infrastructure business mainly contributed to increased revenue (approximately JPY24.0bn). On the other hand, the decline in revenue was attributable to the absence of GIGA school project orders (approximately JPY28.0bn), a decrease in revenue from mega-solar projects (approximately JPY11.0bn), shortages of semiconductors and various materials (approximately JPY12.5bn), and the removal of a subsidiary from the scope of consolidation (approximately JPY1.5bn). Revenue was up 8% YoY, excluding one-time factors such as large projects in FY03/21.

Full-year operating profit was down 9.3% YoY. OPM was flat YoY at 7.5%. The key negative factors were the absence of orders for the GIGA school project (approximately JPY3.0bn), shortages of semiconductors and various materials (approximately JPY2.5bn), the impact of political uncertainty in Myanmar (approximately JPY1.8bn), and an increase in SG&A expenses (approximately JPY1.9 billion) due to organizational fortification through new business development. The main positive impacts were higher revenue in the DX and telecom carrier infrastructure businesses (approximately JPY4.9bn), and improved profitability through high added value and efficiency (approximately JPY2.0bn).

Achievement rates versus the company’s revised full-year forecast (out January 2022) were as follows: Orders: 100.5%; revenue: 99.1%; operating profit: 103.0%; recurring profit: 103.3%; net income attributable to owners of the parent: 103.6%.

Performance by segment

Digital Solutions

Orders: JPY121.7bn (-5.1% YoY)
Revenue: JPY110.3bn (-12.4% YoY)
Operating profit: JPY13.0bn (-5.2% YoY)
OPM: 11.8% (10.9% in FY03/21)

Revenue was JPY110.3bn (-12.4% YoY). In connection with the mainstay working-style innovation field using DX technologies, there was expansion in ICT services. On the other hand, there were impacts from the absence of GIGA school projects (approx. -JPY14.5bn), removal of a subsidiary from the scope of consolidation (-JPY1.5bn), and prolonged lead times stemming from the shift to a service provision model.

Operating profit was JPY13.0bn (-5.2% YoY), with OPM improving to 11.8% (+0.9pp YoY). Profitability in the business improved as a result of progress in shifting the business model.

Orders, revenue, and operating profit achieved 97.4%, 97.6%, and 96.6%, respectively, of the revised full-year forecast.

Network Infrastructure

Orders: JPY100.9bn (+5.8% YoY)
Revenue: JPY96.4bn (+8.1% YoY)
Operating profit: JPY10.3bn (+10.4% YoY)
OPM: 10.6% (10.4% in FY03/21)

Revenue was JPY96.4bn (+8.1% YoY). Although there was a impact form shortages of semiconductors and various materials, revenue in businesses for telecom carriers and for social and public infrastructure projects expanded.

Operating profit was JPY10.3bn (+10.4% YoY), and OPM was 10.6% (+0.2pp YoY). The positive impact from revenue growth served to bolster operating profit, compensating for the shortages of semiconductors and other materials.

Orders, revenue, and operating profit achieved 100.9%, 98.4%, and 102.5%, respectively, of the revised full-year forecast.

Engineering & Support Services

Orders: JPY109.9bn (+6.0% YoY)
Revenue: JPY98.1bn (-14.0% YoY)
Operating profit: JPY9.1bn (-22.8% YoY)
OPM: 9.3% (10.4% in FY03/21)

Revenue came to JPY98.1bn (-14.0% YoY). Revenue increased in the shipping and transport businesses. However, the overall decline in revenue was mainly due to lower revenue from mega-solar projects (approximately JPY11.0bn) and GIGA school-related projects (approximately JPY13.5bn), as well as the impact of semiconductor shortages.

Operating profit came to JPY9.1bn (-22.8% YoY), and OPM was 9.3% (-1.1pp YoY). The main reasons for the decrease in operating profit were the impact of the shortage of semiconductors and increased telecom infrastructure installation project costs resulting from political uncertainty in Myanmar.

Orders, revenue, and operating profit achieved 103.7%, 101.2%, and 101.3%, respectively, of the revised full-year forecast.

For details on previous quarterly and annual results, please refer to the “Historical financial statements” section.

FY03/23 full-year company forecast (released April 28, 2022)

		FY03/22			FY03/23			YoY
((JPYmn))		1H Act.	2H Act.	FY Act.	1H Est.	2H Est.	FY Est.	1H Est.	2H Est.	FY Est.
Revenue		140,961	169,373	310,334	147,000	183,000	330,000	4.3%	8.0%	6.3%
Cost of revenue		113,703	133,158	246,861
Gross profit		27,257	36,216	63,473
	Gross profit margin	19.3%	21.4%	20.5%
SG&A expenses		19,636	20,656	40,292
	SG&A ratio	13.9%	12.2%	13.0%
Operating profit		7,621	15,560	23,181	7,700	18,300	26,000	1.0%	17.6%	12.2%
	Operating profit margin	5.4%	9.2%	7.5%	5.2%	10.0%	7.9%
Recurring profit		7,889	15,661	23,550	7,900	18,100	26,000	0.1%	15.6%	10.4%
	Recurring profit margin	5.6%	9.2%	7.6%	5.4%	9.9%	7.9%
Net income		4,703	10,318	15,021	4,800	10,500	15,300	2.1%	1.8%	1.9%
	Net margin	3.3%	6.1%	4.8%	3.3%	5.7%	4.6%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods. Shared Research has calculated 2H forecasts by subtracting 1H forecasts from corresponding full-year forecasts.

Overview of the company’s full-year FY03/23 forecast

Revenue: JPY330.0bn (+6.3% YoY)
Operating profit: JPY26.0bn (+12.2% YoY)
Recurring profit: JPY26.0bn (+10.4% YoY)
Net income attributable to owners of the parent: JPY15.3bn (+1.9% YoY)
DPS: JPY46.00 (versus JPY43.00 in FY03/22)

The company expects continued brisk ICT demand, but also uncertainty due to the impact of COVID-19, shortages of semiconductors and other materials, and worsening global geopolitical situation.

In the enterprise business, the company expects continued expansion in demand for new work styles (new normal work styles) harnessing DX, especially in the public sector. For business with telecom carriers, the company anticipates robust capex associated with the full-fledged 5G rollout. For business with central and local government, the company expects DX initiatives for community development and urban planning to start up in stages amid solid investment in upgrading urban infrastructure for disaster mitigation.

The company plans to increase the annual dividend for the 16th consecutive year to JPY46.00 per share (versus JPY43.00 per share in FY03/22). The company decides the dividend amount in consideration of DOE (dividend on equity ratio), and it aims to provide stable shareholder returns that are unaffected by short-term weakness in earnings. Until FY03/20, the company had based its decisions regarding dividend levels on a target DOE of 3.8%, but it raised this target to 4.5% in FY03/21, and to 5.0% in FY03/22.

Beyond Borders 2021 (medium-term management plan for FY03/20 to FY03/22)

As of end-FY03/21, roughly two years had passed since May 8, 2019, when the company announced “Beyond Borders 2021,” a three-year medium-term management plan ending in FY03/22. The company offered the following explanations regarding current progress associated with this medium-term management plan at a financial results briefing held on May 7, 2021.

Progress under the medium-term management plan

Early achievement of numerical targets

The company achieved the revenue and operating profit targets it set for FY03/22 (the final year of the plan) ahead of schedule in FY03/21. Accordingly, the company has replaced prior targets for the final year of its plan with its earnings forecast for FY03/22 (the previous targets can be found below).

Unexpected factors

When the company formulated its medium-term management plan, it did not account for the COVID-19-induced postponements to ICT investment, the resulting emergence of DX-related investment, or the earnings contributions from GIGA school projects. The company attributes its early achievement of numerical targets to upward impact from its successful acquisition of DX-related projects and GIGA school projects. It indicates that this upward impact offset hindrances associated with the COVID-19 pandemic.

NESIC also recognizes that its customer and business bases expanded further than initially expected. Through GIGA school projects, the company was able to add the education field to its service offerings targeting government and municipal offices, which have historically been a major customer base for the company.

With regard to the DX business (ICT services associated with working-style innovation), the company acquired orders for Zoom and other remote work products from small and medium-sized enterprises that were previously not included in the company’s customer base. The total number of customer companies in the DX category increased by 14,500 companies from about 1,200 companies at end-FY03/20, eventually reaching approximately 15,700 companies by end-FY03/21. The majority of the increase in DX customers comes from newly acquired customers, predominantly small and medium-sized companies that mainly purchase Zoom licenses, which are relatively small in value. However, the company intends to raise the customer spend moving forward through up-selling and cross-selling.

Progress toward qualitative goals

DX and 5G

The company has indicated that, under this medium-term management plan, it will focus on expanding the DX business and establish communication networks grounded in the fifth-generation mobile communication system (5G).

As mentioned above, the customer base targeted by the company’s DX business expanded more than initially expected. Meanwhile, in terms of value provided (services), the company is striving to expand services for new customers while maintaining focus on working-style innovation and urban development. The provision of web conferencing system Zoom has added many new customers (small and medium-sized enterprises) to the company’s client pool. Moving forward, the company plans to provide other cloud services (Wrike, Docusign, etc.) as well as multicloud services that integrate various cloud-based products for improved usability.

Enhancing business strength (initiatives to improve profitability)

In FY03/21, two years into the Beyond Borders 2021 medium-term management plan, overall gross profit margin improved from 17.2% in FY03/19 (a year before the start of the plan) to 18.9%. Operating profit margin rose from 4.6% to 7.5% over the same period, with the FY03/21 result surpassing the company’s target of 6.5% for the final year of its medium-term management plan.

The company attributed these profitability improvements to enhanced operational efficiency and cost control as well as efforts to add more value to its services.

To rein in costs and make operations more efficient, the company said it improved resource efficiency by taking full advantage of the benefits of organizational restructuring. It also pushed forward its working-style innovation initiatives (took measures to improve in-house productivity through the use of DX). According to the company, these efforts have led to better resource efficiency and improvements in project quality.

To add greater value to its services, the company developed and launched services through collaboration with customers, business partners, and other companies (startups). Through such services, NESIC was able to capture DX-related demand, which in turn expanded orders and improved profitability for the company. Additionally, NESIC is working to strengthen its consulting business, utilizing employees with hands-on (in-house) experience and expertise in working-style innovation that leads to operational improvement. It maintains that this business also contributes to higher-margin orders.

Reference: Previous numeric targets of the company’s medium-term management plan (as announced on May 8, 2019)

For the final year of the plan (FY03/22), the company targets revenue of JPY310.0bn (actual revenue of JPY303.6bn in FY03/20), operating profit of JPY20.0bn (JPY16.2bn), OPM of 6.5% (6.5%), and ROE of 10% or higher (8.7%). These targets represent all-time highs for revenue and profits.

The company plans to introduce several measures to raise profitability. In addition to reorganizing to benefit from greater resource consolidation, in Digital Solutions the company intends to promote the DX business with a concentration on cloud-based services (discussed later in this section). In addition, the company aims to shift from its current one-time revenue earnings model (under which results are linked to the number of engineers and working hours) to a recurring-revenue model (under which compensation for services is booked as revenue). The company thinks this move will increase one-time revenue still further.

In the Digital Solutions segment, recurring-revenue business accounted for 40% (approximately JPY40.0bn) of revenue in FY03/19, before the plan was introduced. By FY03/22, the company plans to raise this figure to 60% (JPY66.0bn), improving OPM.

Numeric targets (consolidated)

	(JPYmn)	FY03/19 Act.	FY03/22 Targets	Change	Rate of change	CAGR
Revenue		277,949	310,000	32,051	11.5%	3.7%
Operating profit		12,774	20,000	7,226	56.6%	16.1%
	Operating profit margin	4.6%	6.5%	1.9pp	-	-
ROE		8.7%	10%+	2.3pp	-	-

Digital Solutions
Revenue		102,100	110,000	7,900	7.7%	2.5%
Operating profit		9,000	11,000	2,000	22.2%	6.9%
	Operating profit margin	8.8%	10.0%	1.5pp	-	-
Network Infrastructure
Revenue		79,500	105,000	25,500	32.1%	9.7%
Operating profit		5,100	8,500	3,400	66.7%	18.6%
	Operating profit margin	6.4%	8.1%	0.7pp	-	-
Engineering & Support Services
Revenue		89,000	95,000	6,000	6.7%	2.2%
Operating profit		7,400	10,500	3,100	41.9%	12.4%
	Operating profit margin	8.3%	11.1%	3.1pp
Other
Revenue		7,383	-	-	-	-
Operating profit		311	-	-	-	-
	Operating profit margin	4.2%	-	-	-	-
Adjustments (calculated from operating profits above)
	Eliminations	-9,037	-10,000	-963	-	-

Source: Shared Research based on company data

Fundamental strategies under the medium-term management plan (qualitative goals)

In its medium-term management plan, the company sets down three fundamental strategies.

Strengthen competitiveness and growth potential in the “digital × 5G” era
Strengthen the foundation, framework, and systems for creating cutting-edge technology and new businesses
Accelerate innovation throughout the NESIC group

Strengthen competitiveness and growth potential in the “digital × 5G” era

With the term “digital × 5G,” NESIC refers to the rollout of digital transformation (DX) services using advanced digital technologies as platforms and employing communication networks based on fifth-generation (5G) mobile communications systems.

Key initiatives

Boost revenue from the companywide DX business, which was established in April 2018.

Build a framework for establishing technologies associated with 5G mobile communication systems.

Boost revenue from the DX business

The DX business generally corresponds to all solutions the company provides utilizing an infrastructure of CAMBRIC technologies (defined below), regardless of the segment through which these solutions are furnished.

CAMBRIC: An acronym meaning “cloud, artificial intelligence, mobility, big data, robotics, the Internet of Things, and cyber security”

In the plan’s first year (FY03/20), the DX business accounted for around JPY6.0bn in orders. Of this amount, Digital Solutions made up around 80%, with Network Infrastructure and Engineering & Support Services accounting for around 10% each. Companywide, NESIC aims for total orders in this category of JPY9.0bn in FY03/21 and JPY15.0bn in FY03/22, the plan’s final year.

By expanding the DX business, in the Digital Solutions segment the company expects recurring revenue to account for 60% of revenue in FY03/22, up from 40% in FY03/19.

The company launched Symphonict as its new brand for the DX business in October 2019. Since that time, the company has been expanding its lineup of DX services under that name.

NESIC set up Symphonict to help customers (e.g., companies, municipal governments, and providers of social infrastructure) “create value and resolve problems through digital transformation.” NESIC’s aim is to share its in-house practices and digital services created in collaboration with customers to transform working styles and urban development.

With Symphonict, NESIC selects digital technologies and services from a broad range of offerings, combining them and providing them as best practices.

By connecting numerous clouds (SaaS and PaaS) and communication tools, the company aims to automate processes, reduce labor requirements, and make use of integrated data.

By achieving secure connections involving various devices/sensors and clouds, NESIC aims to support a broad-ranging digital transformation, from working styles to urban development. In this way, the company wants to support sustainable corporate and social development.

Symphonict for business ICT solutions

Cloud services: Digitalization tools aimed at improving efficiency	Cloud services: Communication tools
AI-OCR/RPA: Digitalization of printed documents	Zoom: Face-to-face communication
DocuSign: Electronic signatures
Wrike: Visualization of business progress
KloudSpot: Making employee locations visible	Slack: Business chat
Workato: Automatic linking of different clouds
NESIC’s platform bundling together various types of solutions
Symphonict

Note: See segment explanations for details of individual types of cloud services
Source: Shared Research based on company data

Build the framework for establishing technologies for the 5G mobile communication system

The company is looking at the period covered by the plan as a period for preparing for the full-fledged launch of 5G services from FY03/23. During this time, the company aims to focus on improving the quality of 4G LTE, as well as enhancing its technological skills and construction expertise in preparation for increased network migration (to 5G).

In core networks, the company anticipates a growing need for network virtualization due to the shift to 5G. In response, the company plans to expand its system integration from products to software.

5G base station construction is performed by K&N System Integrations Corporation* (KNSI), an unlisted joint venture with KDDI Corporation (TSE1: 9433). Through KNSI, the company plans to use digital technologies to make configuration more efficient, increasing KDDI’s base station share.

With local 5G, the company explains that it hopes to create businesses that will alleviate the problems society faces. Specifically, the company aims to use its infrastructure configuration capabilities to build base stations and core networks for telecom carriers, and to create and provide DX foundations and digital services.

The company offers end-to-end services related to the installation of local 5G infrastructure, from applying for local 5G permits for licensing bands to carrying out design, configuration and construction, and maintenance and operations.

In the category of “creating services to resolve social issues,” the company is conducting field trials. Through these, the company aims to enhance its offerings in the public market (municipal governments and public-interest corporations) and the enterprise market (office buildings). The company plans to begin by clarifying offerings in its areas of strength, such as among municipal governments and in the CATV market, and in the field of working-style innovation. To accumulate effective case studies, the company is building a local 5G network aimed at putting a telecommunication environment in place at facilities in Tokushima Prefecture. The company is also working actively with Mitsui Fudosan on a field trial at Nihonbashi Muromachi Mitsui Tower. The company intends to use these case studies to build a business model that combines DX services and 5G. By rolling out these services into different markets, NESIC aims to turn this into a core area of business within three years.

*Established in August 2018, K&N System Integrations Corporation (KNSI) is a joint venture between NESIC (51%) and KDDI (49%). KNSI sets up base stations for mobile communications, designs base station areas, and engages in fixed-line communication business.

Strengthen the foundation, framework, and systems for creating cutting-edge technology and new businesses

Key initiatives

Establish a Business Design Operations Unit at the top of the value chain

Introduce leading-edge technology through open innovation* and co-creation**

*Open innovation is the pursuit of innovation through the use of resources outside a company or organization, as well as internal resources. In addition to external R&D functions and capital, companies may collaborate with clients on open innovation.
**The concept of co-creation was outlined in the book The Future of Competition: Co-Creating Unique Value With Customers, published in 2004 and authored by C.K. Prahalad and Venkat Ramaswamy (professors at the University of Michigan’s Ross School of Business). Through co-creation, companies create value by collaborating with various stakeholders. This business model is gaining traction in an era when individual companies are finding it difficult to constantly maintain competitive advantage all by themselves.

Established the Business Design Operations Unit at the top of the value chain

In April 2019, the company established a Business Design Operations Unit by consolidating the R&D and business development functions and personnel that had previously been divided across head office administrative departments and individual business segments. The new business unit took charge of planning companywide technology strategies and new businesses, as well as forming partnerships and alliances. This business unit now has more personnel than it did initially.

In November 2020, operations commenced at the Shin-Kawasaki Technical Base, an R&D center located in Saiwai-ku, Kawasaki, Kanagawa Prefecture. The center’s functions include evaluating technologies and cultivating personnel in preparation for a full-fledged 5G business launch.

In addition to R&D, this unit is in charge of the company’s corporate venture capital (CVC) fund, the NESIC Innovation Venture Limited Liability Partnership.

The company invests in venture companies via this fund.

The company says capital gains are not the target of these investments.

Introduce leading-edge technology through open innovation and co-creation

The company’s foray into CVC began with an investment of JPY500mn. As of November 2020, the company had provided financing to four startup companies.

Boomtown (US): Invested in April 2018. This startup company operates a next-generation support service business that combines an omnichannel contact center and an online support network.

savioke (US): Invested in July 2018. This company has automated delivery robot technology that can be used at hotels and healthcare facilities.

InterMedia Laboratory (Japan): Invested in September 2018. This company develops products using capacitive cord technologies. InterMedia Laboratory’s electronic stamping devices are used in verification platforms that offer better confidentiality than other companies’ products.

ALE (Japan): Invested in October 2018. This space startup company aims to develop satellite to produce the world’s first artificial shooting star.

In 2019, the company invested or signed partnership agreements with venture capital firms based in Silicon Valley.

The company invested in Sozo Ventures in April 2019 and signed a partnership agreement with Plug and Play Tech Center in May 2019. CVCs focus on early-stage companies. NESIC’s main aim in forming alliances with VC firms is to cultivate later-stage venture companies.

As their business partner, NESIC can provide domestic supply chains to venture companies that lack them: nationwide sales networks, as well as construction, maintenance, and logistics networks.

Accelerate innovation throughout the NESIC group

Key initiatives

Restructure business segments

Introduce distributed work and reorganize offices in the Tokyo metro area

Restructure business segments

In the past, the company’s business segments had been aligned according to market or customer: corporations, carriers, and government and municipal offices or public-interest entities (social infrastructure). The company reshuffled its segments according to technological focus.

Digital Solutions Business Unit: Combines technologies used in the business ICT solutions business

Network Infrastructure Business Unit: Brought together technologies for carrier infrastructure and social infrastructure solutions businesses

Engineering & Support Services Business Unit: Consolidated both construction capabilities and engineer staff from individual business units

Before the reorganization, business units were as follows. These business units each had their own construction and R&D functions.

Enterprise Networks Business Unit: Mainly provided ICT solutions for corporate and other offices while performing construction and R&D

Carrier Networks Business Unit: Mainly configured ICT platforms for carriers while performing construction and R&D

Social Infrastructure Business Unit: Configured ICT infrastructure for local and other government entities and public-service corporations (broadcasters, electric utilities) while performing construction and R&D

Change in business units across the value chain

Value chain	New organization (launched under current medium-term management plan, from FY03/20)	Previous organization
Research and development/Business Development	Business Design Operations Unit	Enterprise Networks Business Unit
		Carrier Networks Business Unit
		Social Infrastructure Business
		Head office departments
Sales	Marketing & Sales Operations Unit	Marketing & Sales Operations Unit
Solution proposals, network configuration	Digital Solutions Business Unit	Enterprise Networks Business Unit
	Network Infrastructure Business Unit	Carrier Networks Business Unit
		Social Infrastructure Business
Construction, operation, maintenance	Engineering & Support Services Business Unit	Enterprise Networks Business Unit
		Carrier Networks Business Unit
		Social Infrastructure Business

Source: Shared Research based on company data

Introduce distributed work and reorganize offices in the Tokyo metro area (For details, see the “Business details by segment” section.)

The company commenced distributed work (telework / remote work) in October 2019. In line with this move, the company established seven satellite offices as “activity bases” in the Tokyo metro area and reduced head office floor space by 60%.

Systems were put in place to enable most corporate staff to telework or work at satellite offices within a 30-minute commute from their homes.

The company is reflecting the success of these internal practices, including their efficacy as infection prevention measures, in its own services and proposing them to customers.

The company established the Business Design Operations Unit at its “innovation base” in Nihonbashi Muromachi Mitsui Tower (Nihonbashi, Chuo-ku, Tokyo). This unit aggregates the functions and personnel to promote co-creation with venture companies.

Company targets for 2030

The company’s stated aspiration is to help create “an enriched society with more user-friendly and convenient communications.” The company states its vision for 2030 as being a “communication service orchestrator that produces a new value chain leveraging its strengths through collaboration with partners.”

The term “orchestrator” refers to the company’s aim of engaging in co-creation with various partners to offer various technologies as platforms and provide them to customers as services after arranging them into optimal formats. The word expresses the idea that the value the company creates is generated through the innovative combination of diverse technologies.

Defining communication

The online version of the Merriam-Webster dictionary defines “communication” as “The act or process of using words, sounds, signs, or behaviors to express or exchange information or to express your ideas, thoughts, feelings, etc., to someone else.”

NESIC takes the meaning of “communication” beyond its traditional boundaries to mean interaction between people, people and things, things and other things, and from the ocean depths into space and assumes its realm of business encompasses this range of communication. Between people, the company aims for communication that is independent of place and time and that enables open and natural discussion leading to innovation. In addition to advanced hardware and software, the company focuses on enhancing communication through transformation on the system front, using expertise gained through in-house practices.

NESIC considers communication as essential to being human. By developing communication, the company aims to address the problems society faces.

Business

Business description

Company overview

NESIC is an IT services company that began its operations in the business of telecommunications construction. The company is a subsidiary of NEC Corporation (TSE1: 6701), which effectively holds 51.48% of its voting rights. The company serves a range of customers including general companies, telecom carriers, government and municipal offices, and social infrastructure providers. The company configures, builds, operates, and maintains telecommunication networks and business ICT systems.

The company has technological expertise that enables it to configure core networks* and build base stations for mobile communications, as well as to execute service-level agreements (SLAs) with telecom carriers. In 2007, the company launched the EmpoweredOffice business, which offers solutions for working-style innovation through the combination of information and communication technology (ICT) and office space design services.

As of end-FY03/20, the company had over 10,000 customers (general companies [including companies in the manufacturing, services, and financial industries], telecom carriers, government and municipal offices, and social infrastructure providers). In FY03/21, the company captured demand associated with remote work and appears to have acquired about 10,000 new customers (mainly small and medium-sized enterprises) through expanded sales of web conferencing systems.

*Within large telecommunication networks, core networks (also called “backbone” networks) are high-capacity communication networks that link line concentrators, bases, companies, and countries. A core network can refer to a local area network (LAN) that connects a building’s floors or multiple floors of a building within a company site, a wide-area network that links corporate bases, a ground communication network that links base stations in a mobile phone network, a communication network that connects internet service providers (ISPs), or a network of submarine cables between continents. Core networks usually do not connect directly with computers, telephones, or other devices. Rather, they connect via line concentrators (gateways, routers, switches, switching systems, and exchanges) and mobile devices.
To simplify, a mobile telecommunication network is configured as handheld devices (phone)→base station→control unit→switching system→another switching system→control unit→base station→handheld devices. In this example, the core network is the portion between the control unit on the sending side and the control unit on the receiving end.
The lines and equipment that are used need to have greater transmission capacity than terminal networks as high-throughput communications tend to concentrate at the lines and equipment from each terminal. If data transfer capacity is low, overall network performance declines. Failure of a core network can strike a blow to corporate activity or widespread social life.

History

NESIC was established in 1953 when a telecommunication construction business section split off from NEC Corporation (TSE1: 6701). At the time of its establishment, the company built communications facilities for NEC’s customers. While retaining its relationship with NEC, the spread of the Internet led NESIC to expand into areas other than collaborative fields with NEC. In the process, the company developed business ICT solutions into a major source of earnings.

Currently, NEC effectively holds 51.42% of voting rights, making NESIC a subsidiary. In FY03/21, the company accounted for 11.3% of NEC’s consolidated revenue and 16.6% of its operating profit.

Since the corporate split in 1953, NESIC has performed construction on NEC telephone switching systems in telecom carriers’ facilities and at corporate and government buildings on behalf of NEC’s network infrastructure business.

In FY03/21, around 30% of the company’s revenue was generated by operations performed for the NEC group or by operations contracted through NEC.

While maintaining its relationship with NEC, NESIC has also expanded the extent to which it offers other companies’ products and cultivated markets other than those in which it collaborates with NEC. Over the past decade, NEC-related revenue has fallen from around 50% to around 30%.

Company name changes: In 1953, to Nippon Electric Installation Company; in 1980, to NEC System Integration & Construction, Ltd.; and in 2005, to NEC Networks & System Integration Corporation (NESIC)

Origin of the company name: The official company name is NEC Networks & System Integration Corporation, abbreviated NESIC. The company name emphasizes the importance of networks (among people and companies, as well as referring to network systems). “System integration” carries the meaning of integrating various types of systems: developing network systems (the company’s original area of strength) and adding information technology to meet customers’ needs.

Business segments

The company’s business segments are Digital Solutions (FY03/21 revenue accounted for 37.1% of the total, and operating profit 38.6%), Network Infrastructure (26.3% and 26.1%), Engineering & Support Services (33.6% and 33.1%), and Others (selling purchased equipment; 2.9% and 2.2%).

In the Digital Solutions segment, the company primarily handles system integration related to business ICT platforms. Customers are widely varied, including companies and government and municipal offices. In FY03/21, this segment generated more revenue and operating profit than any other. One major category in this segment is the EmpoweredOffice business (discussed below). In this business, the company provides working-style innovation solutions that facilitate a shift away from printed documents and toward teleworking. This is a business the company has cultivated on its own.

In the Network Infrastructure segment, the company builds ICT systems and wired and wireless telecommunication networks, mainly for telecom carriers, government and municipal offices, and companies that provide other social infrastructure. Major areas of business in the segment are system integration of core networks and base station installation for telecom carriers; construction of firefighting systems, wireless disaster mitigation systems, and video and monitoring systems for disaster prevention for local governments; and installation of broadcasting equipment and CATV infrastructure for television stations.

In the Engineering & Support Services segment, the company operates, maintains, manages, and provides technical support for the systems it builds, including for the ICT systems it provides. The company also conducts business overseas, mainly involving construction. This segment is responsible for ICT system construction, mainly for regional bases in East and West Japan. Noteworthy projects include construction of wireless disaster prevention and firefighting systems, expressway telecommunication networks, and ICT systems used at support service platforms across Japan, as well as maintenance and operational services.

Business model

Revenue

The company accepts orders to configure, construct, maintain, and operate customers’ information and communication systems, booking revenue for these services. Companywide, around 70% of revenue (orders) is from one-time revenue business (system integration and configuration), where revenue is mostly calculated by multiplying the number of engineers involved in hardware or a project by the number of hours worked. The remaining 30% of revenue is from recurring-revenue business (maintenance, operation, and outsourcing), which is billed on a monthly basis.

Most projects produce revenue of less than JPY100mn. The timeframe from initial order to booking revenue is typically around three months. Construction projects generating revenue of hundreds of millions to multiple billions of JPY may stretch across multiple years.

In the Digital Solutions segment, recurring-revenue business accounts for nearly half of revenue (FY03/21), above the companywide average. The company expects the percentage of revenue from on-premise* system configuration (booked as lump-sum revenue) to decline. Conversely, the company is shifting toward more profitable recurring-revenue businesses, such as cloud services**.

Shared Research understands that the average value of orders is falling as cloud services grow more prevalent, and that revenue growth may be sluggish in the short term. For instance, license fees for Zoom, an online videoconferencing system, are priced at tens of thousands of JPY (10 licenses for one business license). The company is looking for opportunities to raise revenue per customer by cross-selling and up-selling to new customers it acquired through means such as Zoom.

*On-premise servers are located at a company’s own site. On-premise computing has security advantages from the standpoint of maintaining confidentiality, as the entire information system can be maintained internally. On-premise computing also has disadvantages: the company has to source, operate, and oversee all information systems itself, leading to higher costs.
**Cloud services offer server functionality over the Internet; actual hardware is located at other companies (mainly cloud service companies).

One-time revenue business accounts for around 80% of revenue in the Network Infrastructure segment. In this segment, the company mainly delivers core networks, base stations and other mobile communication networks, social infrastructure networks, and other infrastructure configurations. The segment handles advanced system maintenance, but other regular maintenance is provided by the Engineering & Support Services segment, using the common companywide maintenance platforms.

Pricing on orders from government agencies and local government offices is typically determined through competitive bidding. Large project orders may reach to more than JPY1.0bn.

Construction conducted in the Engineering & Support Services segment is a one-time revenue business in which fees are calculated based on man-hours. However, operations, monitoring, and maintenance services provide recurring revenue. One-time revenue as a percentage of revenue in this segment is approximately the same as for the company as a whole.

Cost structure

The company says its major expenses are equipment and materials, outsourcing, and other expenses. Each category accounts for around one-third of the total.

Shared Research understands that expenses for outsourcing outside the group are incurred both upstream and downstream in its value chain and include expenses related to system integration, construction, and maintenance.

Providing 24-hour maintenance services accounts for more than 90% of outsourcing costs for some competitors. Shared Research understands that the company also relies on outsourcing for some of on-site maintenance services.

The company is working to reinforce its costs structure by cultivating project management personnel so it can bring construction work in-house. NESIC is also taking measures to bring maintenance work in-house by concentrating work at a group company, NEC Networks & System Integration Services, Ltd. (unlisted).

In FY03/20, the “other” component of SG&A expenses rose JPY3.3bn YoY. Temporary office realignment expenses made up JPY2.0bn of this amount, going toward the establishment of satellite offices as the company adopted the teleworking practice of distributed work.

Cost structure

	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/21
(JPYmn)											(% of total)
Consolidated: Cost of revenue	215,326	223,674	230,268	249,242	275,179	83.5	83.5	82.8	82.1	81.1	100.0
Equipment purchase from NEC	45,140	44,171	46,191	47,961	44,404	17.5	16.5	16.6	15.8	13.1	16.1

Consolidated: SG&A expenses	32,611	33,208	34,906	38,128	38,366	12.6	12.4	12.6	12.6	11.3	100.0
Salaries and allowances	15,485	16,035	16,584	16,553	18,053	6.0	6.0	6.0	5.5	5.3	47.1
Provision for directors' bonuses	39	38	56	144	146	0.0	0.0	0.0	0.0	0.0	0.4
Retirement benefit expenses	1,194	1,232	1,181	1,180	1,004	0.5	0.5	0.4	0.4	0.3	2.6
Provision for doubtful accounts	37	13	-	-	4	0.0	0.0	0.0	0.0	0.0	0.0
R&D expenses	387	425	784	720	962	0.2	0.2	0.3	0.2	0.3	2.5
Other	15,469	15,465	16,301	19,531	18,197	6.0	5.8	5.9	6.4	5.4	47.4

Source: Shared Research based on the company’s annual securities report

Relationship with NEC

Overview

The company was established in 1953 when a telecommunication construction business section split off from NEC. As of end-FY03/21, NEC held 51.42% of the company’s voting rights. NESIC handles configuration and maintenance services on behalf of NEC for some ICT system orders NEC receives from its customers. Currently, NEC is the main supplier of the communication equipment used in the ICT systems NESIC provides.

Fields of collaboration between NESIC and NEC

From establishment until the 1980s, telecommunications construction handled in collaboration with NEC (subcontracted from NEC) accounted for nearly all of NESIC’s business. At one point, around half of the company’s business in communications infrastructure configuration and construction work came from overseas.

Domestically, NESIC mainly installs NEC switching systems and wireless and transmission equipment, provides maintenance for telecom carriers, and handles infrastructure configuration, construction, and maintenance for broadcasters using NEC communication equipment.

At the time of establishment, subcontract work from NEC accounted for nearly all of NESIC’s business. Since then, this percentage has fallen as the company has cultivated markets independently. In FY03/21, NEC-related sales (subcontract work plus services provided to NEC) were down to around 30% of revenue.

The two companies continue to collaborate, mostly in configuration work of communications infrastructure for government and municipal offices, and telecom carriers. NESIC says, though, they have been increasingly focusing on different areas.

NEC focuses on mission-critical fields (social infrastructure) and customers that provide this infrastructure (central government agencies, public-service corporations, and financial institutions). NESIC, meanwhile, has expanded its scope of business outside of areas where it collaborates with NEC.

Business relationship with NEC

NEC is the main supplier of the communication equipment used in the ICT systems provided by NESIC. Also, NEC subcontracts some customer orders for ICT system configuration and support services to NESIC.

In FY03/21, NESIC (parent only) purchased JPY44.4bn in equipment from NEC, including network devices (particularly telephone switching systems) and maintenance parts for NEC equipment.

NESIC subcontracts for NEC in various businesses, such as system integration, construction, and maintenance. In FY03/21, revenue from the NEC group accounted for around 10% of NESIC’s total; revenue from transactions through NEC accounted for 20%.

Value provided and customers

Value provided

The fundamental value NESIC provides to customers is twofold: first, carrier-grade telecommunication networks that enable communications, and second, business ICT solutions that allow telecommunication networks to be configured as platforms.

“Carrier-grade telecommunication networks” refer to networks with levels of functionality and reliability that make them suitable for use by carriers. In addition to standalone equipment performance and durability, companies like NESIC that perform network configuration need to have the ability to design and build systems so that communication services can be maintained to a degree, even in the event of a partial shutdown. They also need to be able to resolve breakdowns quickly.

The company has been configuring core networks for telecom carriers and building base stations for mobile communications since the time of its establishment. Accordingly, it has achieved service-level agreements (SLAs) with telecom carriers.

The company handles troubleshooting via a service network of engineers based at more than 400 locations across Japan.

The company’s business ICT solutions involve combining ICT and the design of office spaces to increase operating efficiency, lower costs, and facilitate smooth communications, leading to more productive working styles. One example is making use of digital information that mostly came from printed media in the past; going paperless reduces the amount of office space needed to store documents, allowing bookcases and walls to be removed.

The company has offered integrated solutions that include office layouts, lighting and air conditioning equipment, office furniture, and consulting on internal systems and management processes. These solutions led to the full-fledged launch of the EmpoweredOffice business in FY03/08. As of March 2021, the company had developed this business, shifting its focus to teleworking and other forms of work that allow more freedom of work hours and locations. For instance, the company has adopted the practice of distributed work. This term refers to working in satellite offices located within 30 minutes of employees’ homes.

One of the company’s core competencies is its multi-vendor approach, which does not rely exclusively on products developed in-house and NEC products. NESIC can combine equipment and software from different companies and deliver value to customers by providing solutions it has implemented internally.

Customers

According to the company, it had a total customer base of over 10,000 organizations in FY03/20, comprising companies (including the NEC group) as well as government and municipal offices. In FY03/21, NESIC captured demand associated with remote work and appears to have acquired about 10,000 new customers (primarily small and medium-sized enterprises) through expanded sales of web conferencing systems.

Revenue makeup

In FY03/21, 45% of NESIC’s final customers (by revenue) were general companies, 25% were government and municipal offices, 18% were in the communications sector, 9% were from the NEC group, and 3% were overseas. The revenue share of government and municipal offices increased due to the GIGA school projects. Among general companies, customers were generally in the logistics and services, finance, manufacturing, and broadcasting industries.

Revenue from general companies rose by JPY70.7bn (Shared Research estimate), to approximately 1.8× between FY03/07 (before the start of the EmpoweredOffice business) and FY03/20.

Over that same period, revenue from government agencies also rose 39% (JPY14.5bn), rising 2pp as a percentage of revenue.

Meanwhile, over that period revenue from customers in the communications industry fell 16%, revenue from the NEC group declined 41%, and revenue from overseas customers decreased 30%.

Revenue by final customer type

	FY03/07		FY03/21		Change	Rate of change	Rate of change
	(JPYmn)	% of total	(JPYmn)	% of total	(JPYmn)	(Total)	(CAGR)
Government agencies, municipalities	37,500	15%	85,300	25%	47,800	127.5%	6.0%
Telecommunication operators	60,200	24%	60,800	18%	600	1.0%	0.1%
NEC group	52,700	21%	30,100	9%	-22,600	-42.9%	-3.9%
General companies (incl. broadcasting)	88,600	35%	153,100	45%	64,500	72.8%	4.0%
Overseas	15,600	6%	9,700	3%	-5,900	-37.8%	-3.3%
Total revenue	254,641	100%	339,109	100%	84,468	33.2%	2.1%

Source: Shared Research, based on company data and interviews

FY03/21: Revenue breakdown by segment

In FY03/21, the share of revenue in the Digital Solutions segment that was obtained from government agencies rose to 20%, up from 7% in FY03/20. GIGA school projects, which spurred special demand during FY03/21, generated 11% of revenue in the same segment. Meanwhile, revenue from general companies (including companies in the manufacturing, commerce/service, and financial industries) accounted for 59% of segment revenue, down from 69% in FY03/20. The downward shift reflected NESIC’s deconsolidation of a second-tier subsidiary amid significant growth in segment revenue associated with the GIGA school projects (explained above).

Value chain

The value the company generates and provides to customers covers both the upstream to downstream portions of the value chain, including [R&D and business development]→[Sales]→[Planning and consulting, design, and configuration]→[Construction, operations and monitoring, and maintenance services].

[R&D and business development] Business Design Operations Unit

Promotion of business development and commercialization utilizing medium- to long-term technology strategies, as well as DX and other leading-edge technologies; management of various solutions in-house; R&D; technology verification; business investment through CVC; and training

[Sales] Marketing & Sales Operations Unit

Sales activities targeting Japanese companies, telecom carriers, central and local governments, public-sector and public-interest entities (broadcasters, electric utilities, railway operators), and overseas customers

[Planning and consulting, design, and configuration] Digital Solutions Business Unit and Network Infrastructure Business Unit

System integration related to business ICT platforms and system integration related to carrier-grade (high-quality), large-scale, and wide-area ICT infrastructure (system integration for customers outside the Tokyo metro area is supervised by the Engineering & Support Services Business Unit)

[Construction, operations, and maintenance] Engineering & Support Services Business Unit

Provision of construction and engineering services for information and communication systems, provision of maintenance, operation and monitoring, and other support services related to the systems furnished by other business units

Business details by segment

Digital Solutions segment (FY03/21: 37.1% of revenue, 38.6% of operating profit)

In the Digital Solutions segment, the company mainly provides system integration related to business ICT platforms for companies and government and municipal offices. In FY03/21, this segment had higher revenue and operating profit than any other segment.

In the EmpoweredOffice business, a mainstay for this segment, the company combines office environments and ICT to offer solutions aimed at working-style innovation. Taking advantage of the communication technology it has accumulated alongside NEC and its own customer base, the company has utilized in-house practices to cultivate its own markets. Shared Research thinks the company has shown foresight in this segment by launching the solutions business in 2007 that has led to its current success in working-style innovation, and in becoming the first Japanese distributor (in 2017) for Zoom Video Communications, Inc. (NASDAQ: ZM), provider of a cloud-based online conferencing system.

Shared Research understands that in FY03/21, the EmpoweredOffice business (working-style innovation solutions) accounted for around half of segment revenue.

In this segment, for many years the company has installed and maintained the private branch exchanges (PBXs) that underpinned companies’ internal extension telephone systems. The company says NEC-made PBXs have a domestic market share of more than 50%. The PBX business contributed to the company’s development of working-style innovation solutions.

Significance of the EmpoweredOffice business

In 2007, the company developed this business as a platform for the successes of its own in-house practices. EmpoweredOffice is a solution that combines business ICT and the design of office spaces.

Rather than focusing on specific businesses or industries, with its business ICT solutions, NESIC aims to propose and configure systems that make communications smoother for all businesses (by sharing and communicating information). EmpoweredOffice is independent of customer attributes; it serves as a platform for providing value through the company’s communication technology.

This solution extends beyond the ICT field. EmpoweredOffice also involves aspects that are unrelated to ICT, such as floor space expansion achieved through transitions away from paper, installation of air conditioning and lighting, arrangement of security measures, design of floor layouts (wiring design), and handling of arrangements related to furniture and fixture suppliers and moving companies. These efforts are aimed at enhancing labor productivity at customer companies.

Rather than providing model rooms, the company shows customers its own offices, allowing them to directly assess the advantages and disadvantages of the EmpoweredOffice business. In FY03/20, the 13th year since the launch of EmpoweredOffice, the company has brought in some 60,000 visitors.

In FY03/16, the EmpoweredOffice business generated revenue of JPY44.0bn, or 16% of total revenue. Based on growth rates the company has disclosed, Shared Research estimates that this business delivered revenue of JPY56.0bn in FY03/19, equal to 55% of segment revenue and 20% of companywide revenue. Shared Research understands that these percentages were approximately the same in FY03/20 and FY03/21.

From in-office to outside-the-office solutions

The company has developed the EmpoweredOffice business, expanding it from its prior focus on conventional in-office solutions to include outside-the-office teleworking solutions that allow more freedom of work hours and locations.

The company began considering teleworking in 2015, adopting it companywide in July 2017.

In October 2019, the company introduced distributed work by establishing seven satellite offices in the Tokyo metro area. Employees employed at the company’s head office could use these “activity centers” to keep commuting times within 30 minutes. The COVID-19 pandemic accelerated this move, and the company had shifted to teleworking for half of headquarters staff as of the end of February 2020.

The company notes that distributed work has attracted attention because its timing has coincided with the pandemic. However, the original aim was to revise a working style rooted in commuting to the office. The company explains that this solution is designed to resolve social issues by avoiding concentration in urban areas and eliminating the stress caused by commuter rushes. By contributing to health management, the company believes the solution can make employees happier and help foster innovation.

Solutions related to working-style innovation

Services in this category cover teleworking, office relocation and renovation, co-creation work, and conversion to paperless operations/document management. The medium-term management plan that commenced in FY03/20 emphasizes further business expansion in the DX category, particularly in relation to the configuration of cloud ecosystems.

In teleworking, NESIC shares with customers its own experience related to distributed work, along with technologies and expertise. The company explains how using multiple cloud services such as those outlined below can help companies overcome the bottlenecks to teleworking.

Facilitating progress management and communication: Zoom, Wrike, and Slack help organizations manage communication and business processes and make progress, issues, and successes more visible.

Flexibly managing employees’ physical conditions and work locations: Slack, Workato, and Kloudspot allow organizations to check team members’ work locations and physical conditions. Employees can simply click the button on an application (Slack) to indicate their work location and physical condition.

Improving routine business processes by digitalizing contracts and other printed documents (making teleworking easier): DocuSign and Box are being used to create electronic versions of contract documents. Moving the processes of printing, mailing, approving, and signing printed documents into the cloud means that employees no longer need to go to the office to affix their hanko seals (stamps used to endorse documents in Japan) or approve documents. Automating document storage and filing can also reduce the number of required working hours. For instance, the company’s purchasing department can use these processes to convert to paperless contracts (around 8,000 contracts per year). As a result, the company says it can reduce contract processing time from two–three weeks to one–two days and eliminate around JPY1.3mn per year in stamp costs.

Cloud services NESIC provides

Zoom	Zoom is an online conferencing system. Whereas conventional videoconferencing systems required their own lines, Zoom enables videoconferencing over the Internet via LTE and Wi-Fi routers.
Zoom	[Launch: September 7, 2017] NESIC was Zoom’s first Japanese distributor. Initially, the distribution agreement was exclusive. The company has implemented Zoom at more than 12,000 companies (as of December 2020).
Wrike	Wrike is a project management tool that allows for easy cloud-based visualization of work statuses for individuals or entire projects. This tool eliminates the hassle associated with previous practices, such as the need to manage spreadsheets on an individual basis, access shared folders, and notify colleagues of updates via telephone or email.
Wrike	[Began selling as a distributor on May 23, 2019]
Workato	Workato is an integration platform as a service (iPaaS) that uses application programming interfaces (APIs) to automatically link various cloud services, shortening workflows and enhancing productivity.
Workato	[Began selling as a distributor on January 21, 2019]
Kloudspot	Kloudspot is a service that uses Wi-Fi to make user locations visible. It determines locations based on data passing to Wi-Fi access points via PCs, smartphones, tablets, and other handheld devices.
Kloudspot	[Began selling as a distributor on March 1, 2019] NESIC has exclusive sales rights in Japan
DocuSign Agreement Cloud	This platform allows a range of document-related processes (preparation, signing or affixing hanko seals, approval, and management) to be performed in the cloud.
DocuSign Agreement Cloud	[Began selling as a distributor on May 11, 2020] NESIC is DocuSign’s distributor.
Box	Box is a cloud content management platform (cloud storage) for companies. NEC began selling Box in 2017. NESIC is also a distributor.
Slack	Slack is a business chat tool that links with other applications. Slack is provided by Slack Japan.
SmoothSpace2	SmoothSpace2 enables spatial connections, using Zoom for video communication and internet connections to facilitate working-style innovation, supporting collaborative work. SmoothSpace2 is the successor to SmoothSpace, a videoconferencing tool launched in 2014 that required the use of its own separate connection line.
SmoothSpace2	[Began selling as a distributor on February 14, 2019] The solution has open pricing. Sales commenced in April 2019.

Source: Shared Research, based on company website and interviews

The company’s office relocation and renovation solutions go beyond just handling moving and renovation and related network migration. The solutions also extend into consulting on office layout, interior design, ICT network configuration, security systems, and work on equipment/facilities.

Consulting: The company helps customers with the planning of working styles (based on the type of work involved and where it can be performed) and configuration of ICT environments. The company has had a dedicated in-house team for office relocation and renovation. This team went into operation when the Empowered Office business launched.

Interior design: The company designs office spaces, taking into consideration working styles, energy and space savings, and ICT utilization. The company’s own design features an open collaboration area and work areas equipped with roaming IP addresses.

ICT network configuration: The company creates office ICT networks that combine IP telephones and smartphones, tablets, and videoconferencing systems. NESIC is also a distributor for Polycom videoconferencing systems and V-CUBE online conferencing systems.

Security: The company introduces physical security services, such as information security, access management, and video monitoring. Customer company data is stored and managed on data centers (S-iDC).

Work on equipment/office facilities: As well as handling electrical, air conditioning, telephone, and LAN systems, the company sets and installs office furniture and fixtures.

The company defines “co-creation work” as a flexible, new, collaborative working style. Unfettered by time, location, and formal meeting styles, group members can connect whenever they wish to make decisions, deliberate, or collaborate swiftly and flexibly.

The company has a communication platform for co-creation work using video communication tools such as Zoom (an online videoconferencing system).

The company provides SmoothSpace2, a solution that uses Zoom. The solution uses life-size, real-time video displays to connect remote locations. Even when physically far apart, the system allows people to communicate as if they were at the same location.

The company has the following five solutions for going paperless/document management. NESIC offers a comprehensive range of services, extending to system design and configuration.

AI-OCR/RPA connection service: The service uses DX Suite (an AI-based OCR* solution provided by AI inside) to digitalize handwriting into text and RPA** to extract or input text automatically.

NEC Information Assessment System (NIAS): A system that trims down overlarge file servers

ALog ConVerter: This software gathers and analyzes event logs (access logs) in server access histories and converts them into a format that makes user operating histories visible.

Document management consulting service: NESIC specialists provide consulting services to help customers review document regulations, convert to paperless operations, deploy document management systems, assist with office relocation and refurbishment, review processes with the goal of achieving working-style innovation, and create internal rules.

SmoothMeeting: This is a conferencing solution that uses tablets. Meeting materials can be converted to PDFs via management servers equipped with this server software and sent to meeting attendees’ tablets through Wi-Fi (wireless LAN) connection.

*Optical character recognition/reader (OCR) is the process of using software to read handwritten or printed text.
**Robotic process automation (RPA) involves using software to automate work processes.

Reference: About private branch exchanges (PBXs)

A PBX is used to create telephone networks that link multiple telephone lines (or telephones). PBXs allow people within an organization to call each other on internal lines or transfer calls from outside lines.

In an organization without a PBX, individual telephone lines would individually connect to public lines, even for internal calls. Internal calls would incur phone charges, and calls could not be transferred.

PBXs may be of the on-premise (legacy), IP, or cloud variety.

On-premise (legacy) PBXs:

Legacy PBXs use public phone lines rather than the Internet. Companies with multiple locations need to have PBXs configured to allow internal communications between locations. Users of Legacy PBXs incur costs when making adjustments to office layouts and seating because these changes require the PBXs themselves to be relocated, necessitating reconfigurations for each connected telephone number.

One advantage of legacy PBXs is security. Phone lines pose no security risk, as they connect inside and outside lines without using the Internet. Electricity is supplied by PBXs’ internal batteries and phone lines, so systems can remain online for some time even during electrical outages.

IP PBXs (use IP telephones*):

These exchanges use internet routing and have no need to pass through telephone circuits. An internet-equipped company can simply connect an IP PBX to its in-house LAN to create an internal telephone extension network. No telephone wiring work is required. IP PBXs may be based on hardware (using an internal router rather than a telephone switching system) or software (server-based software that provides PBX functionality).

IP PBXs use internet connections, so for each location an organization incurs monthly internet connectivity charges, provider fees, and costs for connecting to outside lines. IP PBXs also go offline during power outages.

With cloud-based PBXs, users obtain service by accessing the service provider’s cloud server over the Internet.

Different from legacy PBXs, no physical equipment needs to be installed. Also, no software needs to be loaded onto internal servers because cloud-based PBXs are a type of cloud service.

Cloud-based services provide post-installation flexibility in adjusting elements such as functions and the number of circuits in use. Employees’ smartphones and other handheld devices can be set to operate like internal lines.

Users of these PBXs incur monthly charges and option fees. These PBXs also go offline during power outages.

NESIC has accumulated expertise in connecting legacy PBXs to the most current systems, a skill that sets it apart from the IT services companies that emerged in the 1990s.

*IP telephone communication uses the Internet rather than telephone lines, reducing installation and usage costs compared with fixed-line telephone communication.

Network Infrastructure segment (FY03/21: 26.3% of revenue, 30.1% of operating profit)

In the network Infrastructure segment, the company mainly constructs ICT systems wired and wireless telecommunication networks for telecom carriers (core networks and mobile base stations), government and municipal offices, and other companies that provide social infrastructure (electric utilities, railway operators, broadcasters).
In the 70 years since its establishment, the company has collaborated extensively with NEC in this segment.

Among customer sectors, revenue is relatively high from telecom carriers, government agencies, and local governments. In FY03/20, revenue from government and municipal offices accounted for 24% of revenue in this segment, outpacing its 17% share of overall company revenue. The company builds disaster-prevention radio and monitoring systems for local governments, broadcasting infrastructure for CATV stations, and IoT systems for private-sector companies’ factories and stores.

In the Network Infrastructure segment, the company applies the network configuration expertise it has accumulated since its establishment and its access to the NEC customer base.

The company’s technologies in this segment also provide a platform for its business ICT solutions. One example is Nets Wireless, which uses mobile circuitry to provide closed networks without using the Internet. Nets Wireless is incorporated into IoT/M2M solutions for factories, stores, and offices (described below).

Telecommunication network business

NESIC started out in the telecommunication business. When established in 1953, the company’s main business was installing NEC-made telephone switching systems, installing wireless and transmission equipment, and building broadcasting infrastructure. In 1954, the company took on its first overseas project: telephone switching system installation in the Philippines.

In the 1960s, the company began using its wireless technologies in the business of disaster prevention. The powerful Typhoon Vera (also known as the Isewan Typhoon) struck Japan in 1959 and prompted the formulation in 1961 of the Basic Act on Disaster Management. This legislation led to the installation of wireless disaster-prevention systems by local governments across Japan. The company worked with NEC to put these systems in place.

In general, these networks must be robust enough to remain operational and communicate information in times of disaster. In disaster situations, wireless networks have the advantage of not being susceptible to interruption.

Disaster-prevention systems need to be installed in physically robust structures. Being sited in disaster-prone areas, these structures need to be built from scratch. Drawing on its experience as a construction contractor, the company has experience in handling everything from local environmental and ground quality surveys to relay station design, material procurement, and construction.

Shared Research understands the NEC group has a market share of around 50% in the field of fire prevention.

As telecom carriers expanded their mobile phone services in the late 1990s, NESIC received projects related to the construction of mobile phone base stations.

The company has continued to build base stations for KDDI through KNSI, a joint venture with KDDI established in 2018, in line with 4G LTE service expansion and in anticipation of the full-fledged launch of 5G services.

Example of communication technology: Nets Wireless

The company launched Nets Wireless in October 2015. A corporate MVNO* service, Nets Wireless operates as a closed network (does not use the Internet). This carrier service is bundled with the company’s IoT**/M2M*** solutions. NESIC has installed Nets Wireless at more than 300 companies and organizations, across the manufacturing, distribution, and logistics industries, at public offices and government agencies, and at organizations in the fields of real estate, medicine, and finance.

In addition to building communication networks, the company provides support services, including equipment assessment and verification, kitting, delivery, operation, and maintenance.

IoT/M2M systems require devices and sensors, application development, network design, system installation and construction, and mobile (wireless) circuits to enable data communication. Nets Wireless provides the last of these.

IoT systems are generally designed to connect via the Internet. In contrast, Nets Wireless creates closed networks (not internet-connected) that are suited for high-security applications. Nets Wireless uses NTT DoCoMo’s communication circuits to offer customers private bandwidth (communications are not affected by other users).

*A mobile virtual network operator (MVNO) provides mobile communication services by utilizing other services provided by a mobile network operator (an MNO, which furnishes mobile communication services via its own wireless stations) or by connecting with an MNO. An MVNO does not set up or operate its own wireless base stations. Japan has more than 100 MVNOs (including NESIC) and four MNOs: NTT DoCoMo, KDDI (au), SoftBank, and Rakuten Mobile.
**The Internet of Things (IoT) describes a framework for gathering information on remote operations and data (big data) by connecting communication-enabled physical items over the Internet via external (cloud) servers. These physical items may include home appliances, furniture, vehicles, factory equipment, and structures.
***Machine-to-machine (M2M) refers to a framework that allows machines to exchange information directly. The machines need not be directly connected to the Internet, and this technology predates IoT. Examples are the remote monitoring of elevators, remotely managing vending machine stocks, automatically reading electricity and gas meters, using vehicle information and communication systems (VICSs) to warn of expressway congestion, and automatically operating building air conditioners or vehicles. IoT and M2M both require the attachment of sensors to physical items. System performance depends on the communication technology that connects them.

Nets Wireless evolved from a high-speed VPN service the company launched in July 2018. This service directly connects customers to cloud platforms: public clouds such as Amazon Web Service and Microsoft Azure or the company’s own voice cloud service platform (Nets Voice). Being a closed network, Nets Wireless is fast, low-delay, and highly secure.

The service provides direct access to Amazon Web Services, Microsoft Azure, IBM Cloud, Google Cloud Platform, and Oracle Cloud Platform.

In FY03/20, the company added integrated management functionality. As a result, network equipment can be managed centrally in the cloud as a platform service under Symphonict, the company’s DX brand.

Access is provided by Nippon Telegraph & Telephone East Corporation (“NTT East,” a subsidiary of Nippon Telegraph and Telephone Corporation [TSE1: 9432]) and Nippon Telegraph and Telephone West Corporation (“NTT West,” also an NTT subsidiary). Access service names are Flet’s Hikari Next (an optical data service), Flet’s Hikari Next Business Type (best-effort service*) or as a guaranteed bandwidth** plan.

As with other services, for Nets Wireless the company is a one-stop provider of construction, operation, and maintenance.

*With a best-effort service, an indefinite number of users share a connection, and communication speeds fall as access volume and traffic rise.
**A guaranteed-bandwidth service provides users with private connections that ensure stable communication speeds.

Systems that combine closed network communication services and cloud services

The company also offers other closed-network communication services (that, like Nets Wireless, do not connect to the Internet). The company offers the ELTRES™ IoT network, which uses a new LPWA protocol, and an IoT network configuration service based on ZETA. (See the section on the medium-term management plan for details.)

One application example of the ELTRES™ IoT network is in solutions related to reservoir observation. This service is used to minimize damage from reservoir flooding and landslides by quickly detecting irregularities and notifying nearby residents.

Similar services are available for monitoring rivers and landslides.

These services involve communication via closed networks and are configured as cloud services in the DX (Symphonict) business. Sensors (LPWA communication protocol) send reservoir positioning data to a cloud platform for analysis and passing on information to customers.

The company builds on-premise systems for customers. Rather than one-time revenues, these systems generate recurring revenue, comprising initial fees and cloud service fees (annual charges).