Net One Systems (“Net One”) provides major private corporations, public institutions (municipalities, social infrastructure companies like electric power and gas utilities, universities, hospitals, etc.), telecommunication companies, and other customers with information and communication technology (ICT) network infrastructure, cloud infrastructure for data centers, and cyber security systems. Specifically, it undertakes end-to-end services spanning each infrastructure design through device and software procurement, construction, maintenance, and operation. Net One was established as a multivendor (independent of specific manufacturer groups) company specializing in network construction and is today the largest company of its kind in Japan. Its guarantees network performance, reliability, and safety of facilities such as the quality control center, technical center, expert operation center (XOC), and security operation center (SOC). Founded in 1988, the company posted sales of JPY202.1bn (+8.5% YoY), operating profit of JPY19.7bn (+19.2% YoY), and OPM of 9.7% (+0.8pp YoY) in FY03/21.
The company has cutting-edge network technology. Its strengths are system design and integration using products of major global manufacturers. The company has an outstanding track record of over 30 years in the domestic market as a distributor for Cisco Systems (US company, NASDAQ: CSCO; Japanese subsidiary is Cisco Systems G.K.), the world’s largest telecom equipment manufacturer. It is also a top domestic distributor for global IT companies such as VMware, Inc. (US company, NYSE: VMW; Japanese subsidiary is VMware K.K.), a supplier of cloud infrastructure software, and Palo Alto Networks, Inc. (US company, NYSE: PANW, Japanese subsidiary is Palo Alto Networks K.K.), a supplier of next-generation firewalls and other cybersecurity solutions. Net One’s principal competitors are major equipment manufacturers and other systems integrators.
Starting in FY03/19, the company has redefined itself as an operator of integrated services business. In ICT infrastructure, one of the company’s business areas, technology is becoming increasingly sophisticated and complex with the development of high value-added fields such as multi-cloud, security, and IoT amid advances in digitalization. The COVID-19 pandemic also had the effect of accelerating digitalization.The company proactively supports its customers in all phases of planning, introduction, operation, and optimization of ICT infrastructure.In particular, it plans to focus on customer success and strengthening customer relationships by providing consulting services and proposals aimed at optimizing the client company’s IT system from the standpoint of systems operations.
Net One has the largest verification center in Japan, where it carries out system testing and verification. The netone Briefing Center allows customers to explore solutions to digitalization-related network problems with the company by experiencing them in system demonstrations, while Lab as a Service offers opportunities to test and verify the performance and operability of new ICT infrastructure designed for digitalization efforts in a virtual environment. Harnessing its expertise in utilizing IT acquired and verified over many years, the company can present solutions for digitalization initiatives effectively in an easily understood way. It provides solutions for customers’ operation and future expansion after installing new ICT networks with return on investment in mind.
The company’s four segments reflect the markets its customers belong to: Enterprise, Telecom Carrier, Public, and Partner (operated by consolidated subsidiary Net One Partners). FY03/21 sales (and operating profit) broke down by segment into Enterprise 27.0% (25.9%), Telecom Carrier 18.1% (18.7%), Public 34.5% (42.0%), and Partner 19.7% (17.8%).
Telecom companies who had previously been major customers are scaling back investments from the peak in FY03/12, having completed network infrastructure upgrades. As new growth areas, the company has been shifting to security and cloud infrastructure businesses and corporate business support, which have been seeing accelerating demand. The share of sales to customers other than telecom companies grew from about 46% in FY03/12 to more than 80% in FY03/21.
FY03/21 orders were JPY203.5bn (-0.5% YoY), sales were JPY202.1bn (+8.5% YoY), the order backlog was JPY94.9bn (+1.5% YoY), operating profit was JPY19.7bn (+19.2% YoY), recurring profit was JPY18.2bn (+11.1% YoY), and net income attributable to owners of the parent was JPY12.3bn (+25.5% YoY). FY03/21 orders were JPY203.5bn (-0.5% YoY), sales were JPY202.1bn (+8.5% YoY), the order backlog was JPY94.9bn (+1.5% YoY), operating profit was JPY19.7bn (+19.2% YoY), recurring profit was JPY18.2bn (+11.1% YoY), and net income attributable to owners of the parent was JPY12.3bn (+25.5% YoY).
In the Enterprise segment, orders for businesses related to increased teleworking, security measures, and cloud infrastructure were brisk amid demand for services that respond to the COVID-19 situation, but declined slightly due to weak investment appetite and postponement of some projects caused by the pandemic. Although capital investment appetite was generally weak in the Telecom Carrier segment, business such as support for service infrastructure and corporate businesses along with network enhancements in response to a surge in teleworking was brisk. In the Public segment, orders for school system projects (including GIGA School Concept-related projects) were robust, but healthcare-related orders were subdued. Orders declined in the Partner segment due to the impact from the COVID-19 pandemic on partner companies, which led to postponement of some projects. By product category, equipment orders were flat YoY despite the absence of large-scale projects in FY03/21 compared to a year earlier, because GIGA School Concept-related projects were brisk. The integrated services business performed strongly.
The forecast for FY03/22, the final year of the medium-term business plan, calls for orders of JPY217.0bn (+6.6% YoY), sales of JPY209.0bn (+3.4% YoY), operating profit of JPY22.0bn (+11.8% YoY), recurring profit of JPY22.0bn (+20.8% YoY), net income attributable to owners of the parent of JPY15.0bn (+21.7% YoY), and annual dividend of JPY72 per share (JPY64 per share in FY03/21). Although the FY03/22 sales forecast is lower than the initial medium-term plan target of JPY220.0bn, the company expects to surpass its medium-term plan targets for operating profit and OPM by sustained efforts to accelerate high value-added businesses and improve productivity.
On April 25, 2019, at the same time as it announced its FY03/19 earnings results, Net One announced a new medium-term business plan (FY03/20–FY03/22). The plan sets the following targets for FY03/22: sales of JPY220.0bn (versus JPY174.8bn in FY03/19), operating profit of JPY21.0bn (JPY12.2bn), operating profit margin of 9.5% (7.0%), share of services at 50.0% (42.6%), and ROE of 16.8% (7.4%). In order to realize its goals of growth of customers and partners, growth of the company, and growth of employees, Net One will focus on creating high added value through three basic strategies: expanding market coverage, expanding the proportion of sales accounted for by services, and increasing productivity.
At the Enterprise segment, Net One will continue to work to expand cloud infrastructure, security, and work style reforms, and focus efforts on smart factory markets. At the Telecom Carrier segment, the company will continue to focus on expanding the service infrastructure business and collaboration in the corporate business. At the Public segment, it will look to capture market demand for security and cloud infrastructure, and will also focus on developing new solutions targeting the healthcare and education fields. At the Partner segment, Net One will work to expand the solutions business for various partners. Two new business models the company aims to advance in line with the shift from “ownership of equipment” to “use of functions” are managed service provider (MSP) support (providing solutions) and refurbishment (equipment recycling).
Shared Research believes Net One’s strengths to be its cloud infrastructure design and building techniques accumulated as the largest network integration specialist in Japan, its strong relationships with Cisco Systems, VMware, and other major global vendors, owning the largest ICT infrastructure research and verification center in Japan, and its expertise in ICT accumulated by utilizing ICT tools in-house before providing them to customers. Shared Research believes it can utilize similar strengths in the IoT and DX* fields where the company anticipates market growth in the future (*DX is industry shorthand for digital transformation). Weaknesses include difficulty overcoming entry barriers established by competitors with ties to large corporate groups, a smaller scale than rival companies, and damage to its brand caused by fraud incidents (see the Strengths and weaknesses section for details).
|Gross profit margin||23.3%||26.8%||23.4%||22.3%||22.6%||20.7%||22.8%||23.8%||24.7%||26.3%||27.7%||27.7%|
|Operating profit margin||4.4%||9.7%||5.5%||2.2%||2.7%||1.2%||3.5%||4.5%||6.8%||8.9%||9.7%||10.5%|
|Recurring profit margin||4.4%||9.8%||5.6%||2.5%||2.7%||1.3%||3.5%||4.6%||6.9%||8.8%||9.0%||10.5%|
|Net income attributable to owners of the parent||2,891||8,520||4,324||983||1,453||-124||1,075||4,551||7,155||9,817||12,321||15,000|
|Shares issued (year-end; '000)||55,190||55,190||89,000||89,000||86,000||86,000||86,000||86,000||86,000||86,000||86,000|
|EPS (fully diluted)||-||-||48.89||11.39||17.17||-||12.69||53.65||84.30||115.63||145.09|
|Dividend per share||11.00||31.00||34.00||34.00||30.00||30.00||30.00||30.00||37.00||45.00||64.00||72.00|
|Book value per share||623.47||703.25||699.63||676.65||662.62||624.24||612.64||634.47||689.97||767.89||867.48|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||20,255||36,231||29,579||21,183||21,373||22,166||17,235||23,952||25,304||31,473||32,429|
|Total current assets||71,920||90,567||82,067||78,580||91,888||88,173||91,098||92,390||109,406||124,795||142,482|
|Tangible fixed assets||4,887||4,599||5,235||5,775||5,386||5,536||5,505||5,125||5,240||4,709||4,504|
|Investments and other assets||3,851||3,419||4,341||4,407||4,110||3,247||3,291||3,185||5,412||4,757||7,328|
|Total current liabilities||25,583||35,267||30,426||31,537||43,034||41,735||45,066||43,735||54,116||58,694||66,637|
|Total fixed liabilities||748||1,226||1,110||1,823||3,869||4,635||5,027||4,919||8,793||11,732||15,350|
|Total net assets||56,294||63,508||61,387||57,263||56,109||52,896||51,943||53,847||58,584||65,337||73,795|
|Total interest-bearing debt||1,131||1,841||1,880||2,171||4,698||5,830||6,993||7,306||12,442||16,073||21,464|
|Statement of cash flows (JPYmn)|
|Cash flows from operating activities||8,129||19,313||3,932||1,016||5,291||5,877||259||11,569||6,682||12,281||9,800|
|Cash flows from investing activities||-1,887||-1,572||-3,416||-3,823||-1,610||-2,235||-1,127||-1,264||-1,424||-1,194||-3,336|
|Cash flows from financing activities||-1,407||-1,765||-7,167||-5,589||-3,490||-3,329||-3,564||-3,588||-3,905||-5,131||-5,130|
|% of total||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%|
|% of total||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||-|
|% of total||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%|
|% of total||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||100.0%||-|
|Operating profit margin||4.4%||9.7%||5.5%||2.2%||2.9%||1.2%||3.5%||4.5%||6.8%||8.9%||9.7%||10.5%|
Net One Systems Co., Ltd. announced earnings results for 1H FY03/22; see the results section for details.
Net One Systems Co., Ltd. has announced revision to its earnings forecast for 1H FY03/22.
Revised projections for 1H FY03/22
The company reported strong performance in terms of orders, especially in the Telecom Carrier, Public, and Partner segments, and expects its 1H orders to reach a record high. However, the company projects that sales will fall short of its initial forecast because sales associated with several projects that the company expected to record during 1H will be booked in 2H due to late deliveries caused by semiconductor shortages.
At the same time, the company anticipates an increase in its gross profit margin stemming from growth in the
Despite these revisions, Net One has not made any changes to its full-year forecast. The company decided to maintain its existing full-year projections in part because its order backlog is increasing due to strong order acquisition and in part because the company expects impact from delivery delays to gradually diminish in Q3 as it secures inventory and implements other mitigating measures. At present, however, the company is incurring delivery delays and future circumstances remain uncertain.
The company will promptly disclose any changes to its full-year FY03/2022 forecast that may arise from future developments.
Net One Systems Co., Ltd. has begun offering cloud virtual desktop environment infrastructure (VDI) service, which combines the flexibility of cloud services with its practical expertise of work-style innovation.
In recent years, the demand for cloud-based virtual desktops, which can be flexibly deployed without any location or device restrictions, has been on the rise as people look for new and diverse ways to work during and after the COVID-19 pandemic. As a result of the rapid introduction of remote work, new issues have emerged, such as uncertainties about remote access, excessive traffic and overloading of server resources, development of operations and systems, and clarification of return on investment.
Net One is promoting ICT-driven work-style innovation, and has established a virtual desktop environment that enables anyone to work safely and securely anytime, anywhere, on any device. This has made its transition to remote work, which was brought on by the spread of COVID-19, a smooth one. In addition, the company has switched to a telework-centered work style through personnel system reforms that do not require employees to come to the office, as well as by changing the way its offices are being used.
The main feature of Cloud VDI service is that it maintains the benefits of virtual desktops, while leveraging the flexibility of the cloud to optimize costs by quickly deploying, adding, and reducing desktops, as well as providing the company's own practical expertise on work-style innovation.
Providing remote work design based on practical work-style innovation expertise
Before deploying this service, customers can check the functions, speed, and operational procedures in advance through the company’s lab-as-a-service multi-cloud environment. In addition, the company can provide a fully managed service, which helps the customer focus on utilization. Furthermore, through its work-style innovation consulting service, the company can provide practical expertise on systems, as well as on operational aspects such as security rule development, personnel system reform, and office reform.
Details on Cloud VDI service
The Cloud VDI service combines Microsoft's Azure Virtual Desktop service, which runs on Microsoft's Azure cloud platform, and VMware's VMware Horizon Cloud Service, which provides advanced governance and efficient management functions, together with the company's hybrid cloud environment integration technology, which includes both services.
Net One provides comprehensive design and integration of cloud, on-premise, and user environments from the perspective of network connectivity, security enhancement, and work-style innovation support.
Net One Systems Co., Ltd. (Net One) announced decisions regarding several matters related to its acquisition of treasury shares.
|(JPYmn)||Q1||Q2||Q3||Q4||Q1||Q2||Q3||Q4||Q1||Q2||(% of Est.)||1H Est.|
|Gross profit margin||26.5%||26.5%||27.6%||25.1%||28.6%||27.5%||27.5%||27.4%||30.0%||26.8%|
|Operating profit margin||4.6%||9.7%||8.8%||10.7%||7.2%||8.8%||10.6%||11.1%||5.6%||6.0%||5.8%|
|Recurring profit margin||4.9%||9.5%||8.8%||10.4%||7.4%||8.2%||8.1%||10.9%||6.1%||6.4%||6.2%|
|Net income attributable to owners of the parent||-196||2,852||2,425||4,736||1,907||2,605||2,749||5,060||1,590||1,800||102.7%||3,300|
|Cumulative||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||FY Est.|
|Gross profit margin||26.5%||26.5%||26.9%||26.3%||28.6%||28.0%||27.8%||27.7%||30.0%||28.3%||27.7%|
|Operating profit margin||4.6%||7.5%||7.9%||8.9%||7.2%||8.1%||9.0%||9.7%||5.6%||5.8%||10.5%|
|Recurring profit margin||4.9%||7.5%||7.9%||8.8%||7.4%||7.9%||8.0%||9.0%||6.1%||6.3%||10.5%|
|Net income attributable to owners of the parent||-196||2,656||5,081||9,817||1,907||4,512||7,261||12,321||1,590||3,390||22.6%||15,000|
|% of total||25.0%||34.0%||26.2%||32.7%||24.0%||29.5%||32.2%||27.4%||19.6%||19.4%|
|% of total||16.9%||14.8%||12.9%||24.2%||13.2%||13.3%||17.7%||31.2%||21.7%||18.8%|
|% of total||41.7%||28.5%||25.4%||27.9%||47.4%||39.2%||29.1%||25.4%||32.0%||42.7%|
|% of total||16.4%||21.8%||34.5%||14.6%||14.5%||17.3%||20.0%||15.3%||25.8%||18.6%|
|% of total||29.0%||29.3%||32.2%||28.8%||31.0%||28.0%||26.8%||24.4%||27.7%||28.8%|
|% of total||19.9%||20.5%||17.3%||18.1%||19.1%||16.2%||22.2%||15.8%||19.7%||22.5%|
|% of total||31.2%||31.5%||25.0%||31.2%||28.5%||29.6%||29.9%||44.0%||29.2%||22.3%|
|% of total||19.8%||17.7%||24.5%||21.2%||20.1%||25.5%||20.3%||15.3%||22.1%||25.5%|
|% of total||26.6%||29.0%||26.2%||28.3%||25.4%||26.3%||28.4%||30.8%||26.4%||22.4%|
|% of total||17.4%||26.8%||12.4%||15.5%||13.2%||29.5%||9.6%||18.4%||20.0%||60.0%|
|% of total||46.0%||44.4%||42.0%||40.9%||48.2%||51.5%||52.4%||41.8%||41.1%||47.7%|
|% of total||10.0%||12.1%||19.2%||15.1%||13.1%||10.1%||9.4%||8.7%||12.4%||11.1%|
|% of total||29.7%||37.6%||18.2%||36.5%||35.2%||30.3%||27.3%||16.7%||22.1%||45.6%|
|Segment profit margin||4.8%||13.6%||10.6%||14.0%||8.8%||10.1%||11.2%||7.7%||4.8%||10.2%|
|% of total||22.7%||20.9%||8.1%||23.9%||24.4%||14.7%||26.2%||12.1%||33.3%||23.0%|
|Segment profit margin||5.3%||10.8%||8.8%||14.6%||9.9%||8.5%||12.9%||8.6%||10.1%||6.6%|
|% of total||9.5%||23.4%||10.8%||31.3%||18.5%||33.1%||28.5%||60.1%||9.1%||-2.7%|
|Segment profit margin||1.4%||7.8%||8.1%||11.1%||5.0%||10.5%||10.4%||15.4%||1.9%||-0.8%|
|% of total||37.5%||18.9%||12.1%||8.7%||22.4%||22.6%||18.5%||11.5%||37.3%||35.1%|
|Segment profit margin||8.8%||11.3%||9.3%||4.5%||8.6%||8.3%||10.0%||8.5%||10.1%||8.9%|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||FY Est.|
|% of total||25.0%||29.4%||28.2%||29.4%||24.0%||26.9%||28.4%||28.1%||19.6%||19.5%||28.6%|
|% of total||16.9%||15.9%||14.8%||17.3%||13.2%||13.2%||14.5%||19.4%||21.7%||20.2%||19.4%|
|% of total||41.7%||35.2%||31.6%||30.6%||47.4%||43.1%||39.0%||35.0%||32.0%||37.7%||33.2%|
|% of total||16.4%||19.0%||24.7%||22.0%||14.5%||16.0%||17.2%||16.6%||25.8%||22.0%||18.0%|
|% of total||29.0%||29.2%||30.2%||29.7%||31.0%||29.3%||28.4%||27.0%||27.7%||28.3%||27.8%|
|% of total||19.9%||20.2%||19.3%||18.9%||19.1%||17.5%||19.2%||18.1%||19.7%||21.2%||18.2%|
|% of total||31.2%||31.4%||29.3%||29.9%||28.5%||29.1%||29.4%||34.5%||29.2%||25.6%||34.0%|
|% of total||19.8%||18.6%||20.6%||20.8%||20.1%||23.1%||22.0%||19.7%||22.1%||23.9%||1.9%|
|% of total||29.7%||35.6%||36.1%||36.3%||35.2%||32.2%||30.1%||24.9%||22.1%||34.9%|
|Segment profit margin||4.8%||9.8%||10.1%||11.4%||8.8%||9.5%||10.1%||9.3%||4.8%||7.7%|
|% of total||22.7%||21.4%||19.6%||21.4%||24.4%||18.5%||21.8%||18.0%||33.3%||27.7%|
|Segment profit margin||5.3%||8.5%||8.6%||10.5%||9.9%||9.2%||10.8%||10.1%||10.1%||8.2%|
|% of total||9.5%||19.9%||20.6%||24.9%||18.5%||27.3%||27.8%||40.4%||9.1%||2.7%|
|Segment profit margin||1.4%||5.1%||5.9%||7.8%||5.0%||8.1%||9.0%||11.8%||1.9%||0.6%|
|% of total||37.5%||23.6%||24.0%||17.8%||22.4%||22.5%||20.8%||17.2%||37.3%||36.1%|
|Segment profit margin||8.8%||10.2%||9.8%||8.0%||8.6%||8.4%||9.0%||8.8%||10.1%||9.4%|
1H FY03/22 orders were JPY113.6bn (+11.7% YoY), sales were JPY77.9bn (-5.5% YoY), the order backlog was JPY131.6bn (+16.7% YoY), operating profit was JPY4.5bn (-32.2% YoY), recurring profit was JPY4.9bn (-24.8% YoY), and net income attributable to owners of the parent was JPY3.4bn (-24.9% YoY).
Progress versus company forecast: Progress was largely in line with the revised 1H FY03/22 company forecast (out October 28, 2021), and was 100.1% for sales, 100.4% for operating profit, 101.6% for recurring profit, and 102.7% for net income attributable to owners of the parent. Progress in 1H versus the full-year company forecast was 37.3% for sales (40.8% of FY03/21 results in 1H FY03/21), 20.5% for operating profit (33.9%), 22.2% for recurring profit (35.6%), and 22.6% for net income attributable to owners of the parent (36.6%).
The company did not change its initial full-year forecast, because the order backlog is increasing amid brisk order trends, and it expects impact from late equipment deliveries to gradually diminish in Q3 as a result of its efforts to secure inventory. However, the company is experiencing longer delivery delays and the outlook remains uncertain.
Orders up 11.7% YoY: Orders were down 18.8% YoY in the Enterprise segment, up 70.4% YoY in the Telecom Carrier segment, down 2.2% YoY in the Public segment, and up 53.6% YoY in Partner segment. In the Enterprise segment, orders from the manufacturing industry declined due to companies holding back on capital investment amid an uncertain outlook associated with the semiconductor shortage. In the Telecom Carrier segment, some clients placed orders ahead of schedule in anticipation of equipment deliveries taking a long time due to the semiconductor shortage, as they work to enhance network in response to a surge in data traffic resulting from increased teleworking. In the Public segment, orders for local government information security cloud and security resilience-related projects were brisk. Orders increased in the Partner segment, because the business of partner companies impacted by the COVID-19 pandemic began to recover overall.
By product category, equipment orders grew 16.2% YoY because of orders of network products placed ahead of schedule in the telecom carrier market as well as orders for 5G-related projects in the Partner segment. Orders for services rose 5.1% YoY, driven by the progress of the integrated services business. The share of services in orders fell from 40.2% in 1H FY03/21 to 37.0%, because equipment orders grew faster than orders for services.
Order backlog up 16.7% YoY: The
order backlog was up 32.9% YoY for equipment and up 7.2% YoY for services, lowering
the share of services in the order backlog from 63.1% at end-1H FY03/21 to 58.0%. Orders placed ahead of schedule in the telecom carrier market and orders for 5G-reated projects in the Partner segment boosted the order backlog for equipment.
Sales down 5.5% YoY: Sales were down 8.8% YoY in the Enterprise segment, up 14.4% YoY in the Telecom Carrier segment, up 17.0% YoY in the Public segment, and down 2.1% YoY in the Partner segment. Sales of services were up 5.7% YoY, because recurring-revenue type services such as maintenance and operation increased as the company stepped up its integrated services business. Equipment sales were down 14.1% YoY due to delays in the sales timing in all markets caused by late equipment deliveries. Services made up 48.7% of sales, up from 43.5% in 1H FY03/21.
Operating profit down 32.2% YoY: Profit margins were up YoY in the Partner segment, but down in the Enterprise, Telecom Carrier, and Public segments. Growth in the integrated services business contributed to gross profit margin improving 0.3pp YoY to 28.3%. However, gross profit reached only 91.2% of the company's initial 1H target, because late equipment deliveries stemming from the semiconductor shortage resulted in a delay in booking sales of multiple projects until 2H or later. The SG&A expense ratio was up 2.6pp YoY to 22.5%, and the operating profit margin fell 2.3pp YoY to 5.8%.
|(JPYmn)||Orders||YoY||Order backlog||YoY||Sales||YoY||Operating profit||YoY||Operating profit margin|
In the Enterprise segment, sales were JPY22.0bn (-8.8% YoY) and operating profit was JPY1.7bn (-26.0% YoY).
In this segment, orders from
the manufacturing industry declined due to companies holding back on capital
investment amid an uncertain outlook associated with the semiconductor
shortage. The booking of sales was delayed as well. In the financial services industry, Q2 was a trough in the investment cycle, and the booking of sales was delayed due to extended delivery times for equipment.
The order backlog fell 0.5% YoY to JPY29.5bn. The segment operating profit margin was 7.7%, down 1.8pp from 9.5% in 1H FY03/21.
In the Telecom Carrier segment, sales were JPY16.5bn (+14.4% YoY) and operating profit was JPY1.3bn (+1.9% YoY).
Some clients placed orders ahead of schedule in anticipation of high-end equipment deliveries taking a long time due to the semiconductor shortage, as they work to enhance network in response to a surge in data traffic resulting from increased teleworking. The managed service provider (MSP) and corporate business support services continued to perform strongly. At the same time, the timing of booking sales was delayed due to extended delivery times for equipment.
The order backlog was up 81.8% YoY to JPY24.6bn. The segment operating profit margin was 8.2%, down 1.0pp from 9.2% in 1H FY03/21.
In the Public segment, sales were JPY19.9bn (-17.0% YoY) and operating profit was JPY129mn (-93.4% YoY).
Orders for local government information security cloud and security resilience-related projects were brisk, compensating for the dropout of orders associated with GIGA School Concept projects in FY03/21. However, the timing of booking sales was delayed due primarily to extended delivery times for equipment.
The order backlog grew 8.0% YoY to JPY62.7bn. The segment operating profit margin was 0.6%, down 7.5pp from 8.1% in 1H FY03/21.
In the Partner segment, sales were JPY18.6bn (-2.1% YoY) and operating profit was JPY1.8bn (+9.5% YoY).
The business of partner
companies impacted by the COVID-19 pandemic in FY03/21 began to recover overall. The
company also won a 5G-related project worth approximately JPY3bn in Q1, and the MSP support business was brisk. However, the
timing of booking sales was delayed due to extended delivery times for equipment.
The order backlog was up 28.5% YoY to JPY14.6bn. The segment operating profit margin was 9.4%, up 1.0pp from 8.4% in 1H FY03/21.
|(JPYmn)||FY||FY||FY||FY||1H Act.||2H Act.||FY Act.||1H Act.||2H Est.||FY Est.|
|Cost of sales||118,281||116,831||131,619||137,400||59,355||86,854||146,209||55,815||95,384||151,200|
|Gross profit margin||22.8%||23.8%||24.7%||26.3%||28.0%||27.4%||27.7%||28.3%||27.3%||27.7%|
|Operating profit margin||3.5%||4.5%||6.8%||8.9%||8.1%||10.9%||9.7%||5.8%||13.3%||10.5%|
|Recurring profit margin||3.5%||4.6%||6.9%||8.8%||7.9%||9.8%||9.0%||6.3%||13.1%||10.5%|
The forecast for FY03/22, the final year of the medium-term business plan, calls for orders of JPY217.0bn (+6.6% YoY), sales of JPY209.0bn (+3.4% YoY), operating profit of JPY22.0bn (+11.8% YoY), recurring profit of JPY22.0bn (+20.8% YoY), net income attributable to owners of the parent of JPY15.0bn (+21.7% YoY), and annual dividend of JPY72 per share (JPY64 per share in FY03/21).
The company assumes orders will increase YoY in FY03/22 mainly in the Partner and Enterprise segments, whose orders were weak amid the COVID-19 pandemic in FY03/21. Flat orders are forecast for the Public segment, because the company is focusing on fulfilling growing demand for local government information security cloud and security resilience-related projects to compensate for the drop-out of GIGA School Concept projects.
Although the FY03/22 sales forecast of JPY209.0bn is lower than the initial medium-term plan target of JPY220.0bn, the company expects to surpass its medium-term plan targets for operating profit and OPM by sustained efforts to accelerate high value-added businesses and improve productivity. The company forecasts sales growth in all segments, especially Enterprise (see below). The downward revision of the initial medium-term plan target reflects the impact of COVID-19 and backloading of capital investment in healthcare and other industries.
The company forecasts SG&A expenses of JPY35.8bn (-JPY439mn YoY). It assumes a dropout of one-time expenses incurred in FY03/21, such as teleworking-related expenses and higher bonuses associated with profit growth, and an increase in personnel expenses accompanying increased headcount. The company had focused on improving productivity in the four- to five-year period up to FY03/21 while maintaining more or less the same number of employees, but intends to increase its work force in FY03/22 to address excessive overtime and opportunity loss in some businesses. Its cost budget also assumes an increase in outsourcing expenses for productivity improvement and travel expenses.
At its Enterprise business, the company projects orders of JPY62.0bn (+8.2% YoY) and sales of JPY58.0bn (+6.3% YoY).
The manufacturing and non-manufacturing industries that had been the earnings driver of the Enterprise segment were adversely impacted by the COVID-19 pandemic in FY03/21, but are expected to recover in FY03/22. In addition to Smart Factory, the company anticipates sustained growth in cloud security and teleworking-related security (zero trust networks).
The company plans to expand business related to digitalization (including smart factory), strengthening security, progressing utilization of cloud services, and work style reforms targeting corporate groups rather than individual client companies.
At its Telecom Carrier business, the company forecasts orders of JPY42.0bn (+6.4% YoY) and sales of JPY38.0bn (+4.1% YoY).
The company will focus on business providing support for digitalization and strengthening security with private- and public-sector organizations through the corporate and managed service providers (MSPs) support businesses.
The order forecast for the Public business is JPY72.0bn (+1.0% YoY) and the sales forecast is JPY71.0bn (+1.7% YoY).
The company assumes a dropout of projects related to the Giga School Concept (JPY14.0bn YoY negative factor for orders). Instead, it will focus on fulfilling growing demand for local government information security cloud and security resilience-related projects (projected orders of JPY10–15bn). Although a V-shaped recovery of healthcare orders appears unlikely, the company thinks orders will increase YoY.
The company’s order forecast for its Partner business is JPY39.0bn (+15.2% YoY) and its sales forecast is JPY40.0bn (+0.7% YoY).
In addition to orders backloaded from FY03/21, the company expects recovery from the negative impact of the COVID-19 pandemic to materialize in FY03/22.
The company assumes that the impact of the pandemic on partner companies will fade to some extent and aims to expand its collaboration and MSP businesses.
On May 17, 2021, the company decided on changes in its basic capital policy to improve its shareholder returns further and clarify the purpose of retained earnings. The changes took effect from FY03/22.
Net One seeks to increase shareholder profit through enhancing enterprise value and strengthen shareholder capital, which funds the expansion of its management base and growth potential. The company also seeks to reward shareholders in a way that appropriately reflects earnings through long-term, stable shareholder returns.
Guided by this basic policy, the company will determine dividend amounts based on a consolidated dividend payout ratio of 40%, also taking into consideration earnings trends, financial soundness, and progress with its medium-term business plan. The company will use retained earnings for investment and M&A for longer-tern business expansion, investing in growth (including investment in human resources), and share buybacks as part of a flexible capital policy.
The company’s previous basic capital policy was to increase shareholder profit through enhancing enterprise value and strengthen shareholder capital, which funds the expansion of its management base and growth potential. The company also seeks to reward shareholders in a way that appropriately reflects earnings through long-term, stable shareholder returns. Guided by this basic policy, the company aimed for a consolidated payout ratio of 30% plus.
On April 25, 2019, at the same time as it announced its FY03/19 earnings results, Net One announced a new medium-term business plan covering the years FY03/20 through FY03/22.
The company revised its forecast for FY03/22 at the beginning of the fiscal year. The sales forecast was lowered by JPY11.0bn from the initial forecast of JPY220.0bn, but operating profit and OPM are expected to surpass medium-term plan targets as a result of sustained efforts to accelerate high value-added businesses and improve productivity.
The forecast for FY03/22, the final year of the medium-term business plan, calls for orders of JPY217.0bn (+6.6% YoY), sales of JPY209.0bn (+3.4% YoY), operating profit of JPY22.0bn (+11.8% YoY), recurring profit of JPY22.0bn (+20.8% YoY), net income attributable to owners of the parent of JPY15.0bn (+21.7% YoY), and annual dividend of JPY72 per share (JPY64 per share in FY03/21).
The initial plan set the following targets for FY03/22: Sales of JPY220.0bn (versus JPY174.8bn in FY03/19), operating profit of JPY21.0bn (JPY11.8bn), OPM of 9.5% (6.8%), share of services at 50.0% (42.6%), and ROE of 16.8% (7.4%).
|Item||FY03/19 results||FY03/22 initial targets||FY03/22 (Initial Est)|
|(% change versus FY03/19)||(% change versus FY03/19)|
|Gross profit margin||24.70%||26.40%||27.70%|
|SG&A expense ratio||18.00%||16.90%||17.10%|
|Operating profit margin||6.80%||9.50%||10.50%|
|Return on Equity||12.80%||16.80%||19.20%|
In order to realize its goals of growth of customers and partners, growth of the company, and growth of employees, Net One will focus on creating high added value through three basic strategies: expanding market coverage, expanding the proportion of sales accounted for by services, and increasing productivity.
The Net One group has redefined itself as an operator of integrated services business, and under this banner offers solutions to customers that will increase the value-added of their information and communications infrastructures, including multi-cloud, security, and IIoT-related applications. To cope with the changes in the ICT market, the company is looking to create high value-added through the three growth strategies outlined below.
Growth of customers and partners (value co-creation): Net One will work to jointly create new value through its integrated services business, which will help customers and partners increase productivity
Growth of the company (uniqueness): To secure this growth, Net One will continue working to create unique value by making fundamental reforms aimed at raising productivity and making extensive use of the experience gained from these reforms to create proposals for customers in existing markets and strategic markets, and also offer new business models.
Growth of employees (initiative): Net One will work to encourage innovation on the part of all employees through the accumulation of new knowledge regarding the utilization of ICT through its Work-Style Innovation 2.0/DX project. The company will also formulate and develop training programs designed to increase employee creativity and adaptability.
To achieve the three types of growth detailed in the medium-term business plan, as discussed above, Net One will pursue the following three basic strategies with the aim of bringing its consolidated OPM up to 10.5% (initial medium-term plan target: 9.5%) by FY03/22.
By FY03/22, increase sales 19.5% (25.8%) over FY03/19 by increasing its presence in existing markets and expanding its coverage in strategic markets
Increase gross profit margin from 24.7% in FY03/19 to 27.7% (26.4%) in FY03/22, mainly by increasing the proportion of total sales derived from services
Bring down SG&A expense ratio from 18.0% in FY03/19 to 17.1% (16.9%) in FY03/22, mainly through productivity gains
Under its new medium-term business plan, the company is targeting an OPM of 10.5% (initial target: 9.5%) in FY03/22. This is part of its medium/long-term vision (which also includes the next medium-term plan) of becoming a highly profitable company by focusing not just on sales growth but also stressing profitability.
In April 2019, the Japanese government allocated 5G bandwidth to four mobile phone service operators. Subsequently, it also allocated additional 5G bandwidth for independent wireless networks, known as “local 5G,” that use 5G. With the approach of the IoT era, when things will be able to establish their own connections to networks, Net One is looking to offer even higher value-added solutions to client companies by leveraging its core competence in network technology and its expertise in security and cloud systems. By offering customers high value-added services that address their specific needs, the company is looking to move forward by using a revenue model that will lead to higher earnings.
Having redefined itself as an operator of integrated services business, the Net One group provides support for client companies at all stages of the ICT lifecycle, from planning and installation to operations and system optimization. To continue growing in this field, Net One plans to use its integrated services business to focus on clients and markets where it can make its appeal based on value-added, and use this approach in existing markets and strategic markets, as well as when pitching its new service models.
More specifically, in existing markets it is looking to expand business by continued development of solutions that allow use of multiple cloud platforms and assure data security. Strategic markets targeted by the company include the healthcare market, education market, and smart factory market, all of which are likely to see increasing digitization. New service models it plans to roll out include managed service provider (MSP) support services that allow businesses to efficiently develop into small/medium-sized companies, as well as refurbishment (equipment recycling) service to help client companies both increase price competitiveness and profitability.
With this, the company aims to generate JPY25.0bn in new sales from strategic markets and new service models (combined) by FY03/22, and sees this together with further growth in existing markets driving growth in overall sales (as detailed below).
By introducing a customer success perspective (to ensure success of customer businesses), provide new value-added with its integrated services business.
By making sure its products and services are interconnectable with the products from ICT manufacturers and the cloud services from other providers, Net One plans to not only develop secure solutions for users of multiple cloud services but also provide capital services to facilitate customer moves from being owners of equipment to being users (as detailed below).
With these measures, the company aims to accelerate the growth of its integrated services business and increase the proportion of total sales derived from services.
Since 2010, the Net One group has achieved working environments that allow employees to work anywhere and anytime through its Work-Style Innovation 1.0 project. This entailed utilization of internal ICT tools, revision to its human resources system, and improvement of office environment. The group plans to accelerate this initiative and promote Work-Style Innovation 2.0/DX, a new project aimed at raising productivity, by integrating all operations and systems.
With the new initiative, the group is also aiming to increase customer satisfaction and shorten customers’ trial-and-error period by offering practical solutions through NetOne on NetOne, a guide to customer experiences from the successes and failures involved in implementing these changes (as detailed below).
To continue growing, the company plans to use its integrated services business to focus on clients and markets where it can make its appeal based on value-added, and use this approach in existing markets and strategic markets, as well as when pitching its new service models. With this, the company aims to generate annual orders of JPY25bn (JPY15bn in total from strategic markets and JPY10bn from new business models) by FY03/22.
Strategic markets: As detailed later in this report, the company has designated the healthcare, school systems (education), and smart factory markets as strategic markets in which it is looking to build a presence and generate at least JPY5.0bn in additional sales from each of these markets by FY03/22. In FY03/19, sales were JPY4.0bn in the healthcare market, JPY5.1bn in the education market, and JPY4.0bn in the smart factory market.
New business models: New business models include a managed service provider (MSP) support service and refurbishment (equipment recycling) service. The company aims to generate at least JPY5.0bn in additional sales by FY03/22. In FY03/19, sales were JPY3.7bn in the MSP support services business and no sales in the refurbishment business (first year of operation).
In existing markets, the company sees the growing use of multi-cloud*1 systems as an opportunity to increase its value-added. More specifically, Net One is looking at increasing its multi-cloud proposals that would allow connections to the cloud services offered by major cloud service operators in the US (outlined below).
*1 Multi-cloud: A network architecture constructed so as to allow access to cloud services from multiple providers (be they public*2 or private*3). This approach allows cloud service users to cherry-pick the strong points of cloud services offered by different vendors while avoiding the risk of being locked-in*4 to a single vendor. A multi-cloud approach also offers the benefit of business continuity as it limits the damage that might be incurred as a result of disaster or system malfunction.
*2 Public cloud services: A cloud computing environment made available to companies, organizations, and other groups with an unspecified number of users via the internet by public cloud service providers (such as Amazon Web Services, Microsoft Azure, Google Cloud Platform, IBM Cloud, and Alibaba Cloud). Public cloud service providers have a large number of large-scale data centers, at which they have large banks of servers using their own in-house technology (for data virtualization, distribution, etc.) that allows them to create a cloud computing environment. Users can avoid ownership of hardware, telecommunication lines, etc. and entered with package deals with cloud service vendors that allow them to share the cloud environment.
*3 Private cloud service: Cloud computing environment whose use is restricted to specific companies or organizations.
*4 Situations in which the user is heavily dependent on the equipment, services, and systems based on the in-house technology of a specific vendor and cannot easily move to a comparable offering of equipment, services, and systems provided by a different vendor. Net One has no affiliation with any ICT equipment manufacturer and makes a point of having relationships with all major ICT equipment manufacturers.
Target clients: Large hospitals (including public sector hospitals, national university hospitals, and hospital groups)
Order trends: JPY4.0bn in FY03/19, JPY6.0bn in FY03/20, JPY3.8bn in FY03/21, FY03/22 target: JPY9.0bn (progress behind company forecast)
Net One is looking to step up its efforts to expand its business in the healthcare market in order to increase its integration work on medical ICT platforms (each of which has its own unique features) so as to facilitate efficient use of information and communication technology. It is also planning to provide support services for large hospitals that are looking to bring operation of their own ICT platform in house. Following changes in official guidelines, hospitals are now able to use cloud services that use individual medical IDs and/or individual national ID numbers (“My Number”) as security checks, and Net One sees this as an opportunity to generate new business as hospitals move away from merely optimizing their own internal hospital system and toward optimizing the systems that connect them with other hospitals.
In FY03/21, hospitals’ ICT investment declined because of the COVID-19 crisis, resulting in slower order growth versus the company forecast. In FY03/22, Net One assumes a gradual recovery in investment in the healthcare market. The company plans to propose digital transformation in the form of work style reforms, remote medical care, utilization of the cloud, and internal security systems for hospitals.
Target clients: Boards of education (in metropolitan areas, prefectures, and cities with populations of 200,000-plus)
Order trends: JPY5.1bn in FY03/19, JPY7.6bn in FY03/20, JPY23.9bn in FY03/21, FY03/22 target: JPY10.0bn (progress in line with company forecast)
Making work-style reforms for teaching staff is said to be difficult, but amid all the debate about the wisdom of taking child and student information outside of school settings, Net One has been grappling with the issue of how school teachers can safely do work at home for several years. These efforts are starting to pay off, as Net One has already been able to give potential clients (Boards of education) a feel for the improvement that can be made to the ICT platforms of school districts of a certain size. The company sees a business opportunity in integrating the ICT platforms associated with different educations systems, cloud services for education institutions (Edtech), and operating support services that help make up for the shortage of ICT personnel in the education field and support a system that allows remote teaching and online interaction between students and between teaching staff.
In FY03/21, the Japanese government progressed the GIGA School Concept*, which calls for one computer per pupil for schoolwork and the creation of a high-speed, high-volume network to bring the whole system together. Net One’s school system-related orders totaled JPY23.9bn in FY03/21 (3.1x the FY03/20 figure).
*GIGA School Concept: The Japanese government (or, more specifically, the Ministry of Education, Culture, Sports, Science and Technology) moved forward with the Global and Innovation Gateway for All (GIGA) School Concept, which calls for one computer per pupil for schoolwork and the creation of a high-speed, high-volume network to bring the whole system together (it established a project headquarters in December 2019). The government’s FY2019 and FY2020 supplementary budgets included over JPY480bn for the project (JPY129.6bn for work related to the network and JPY102.2bn for devices in FY2019 for a total of JPY231.8bn, and JPY250.1bn in total in FY2020). This is an emergency measure implemented under the authority of the prime minister to help Japan escape its position as an underdeveloped country in terms of ICT education, since budgetary measures that rely on tax revenue allocated to local governments have had no discernible effect in the effort to get one computer into each pupil’s hands by 2020.
More specially, this latest move will (1) allow the provision of enough devices for one class out of every three at elementary and junior high schools nationwide by FY2022 (providing maximum assistance of JPY45,000 per computer), and (2) will also fund the construction of a high-speed, high-capacity network.
According to a survey by the Ministry of Education, Culture, Sports, Science and Technology, as of March 2019 there were just 1.6mn PCs for education use by 9.3mn elementary and junior high school students (17% penetration). This would mean additional demand of 7.7mn PCs to ultimately get one device to every student.
In FY03/22, the company assumes a slump to the boost from the GIGA School Project it benefited from in FY03/21. However, it plans to accelerate services such as supporting student homework and teacher and school employee work style reforms, and system operation services.
Target clients: Major manufacturing companies (in the automotive, industrial robots, machine tools industries)
Order trends: JPY4.0bn in FY03/19, JPY6.7bn in FY03/20, JPY7.1bn in FY03/21, FY03/22 target: JPY9.0bn (progress slightly behind company forecast)
Net One has already run various trials to demonstrate its smart factory concept with automobile manufacturers, industrial robot manufacturers, machine tool manufacturers, and other manufacturers. It is steadily generating proposals for building network systems at factories for digital transformation that address issues such as traceability and overall system security. With its own strengths laying in networks, security, and cloud systems, and smart factories now shifting to these areas, Net One plans to step up its efforts to develop business in this field in the years ahead.
Net One also sees business opportunities in other parts of the industrial market, including systems work aimed at increasing productivity, preventative maintenance, product traceability, production automation, and integrating production IoT platforms. The company also sees business opportunities in other corners of the smart factory market, as creating an integrated production IoT platform also requires production data collection, formatting, and analysis, as well as links to cloud services, and security and operating services for manufacturing systems.
Factories’ digitalization projects accelerated in FY03/21 despite the negative impact of the COVID-19 pandemic. In FY03/22, the company assumes a solid increase in planned projects and will continue to promote edge cloud systems (which avoid potential overloads of networks channels or data centers by processing data close to the edges of the cloud), security, more sophisticated system operation, and local 5G.
In conjunction with the shift in user needs from ownership of equipment to use, under the medium-term business plan the company will roll out two new service models, a managed service provider (MSP) support service and refurbishment (equipment recycling) service.
Content: In this area, Net One will provide support to MSPs, which are contracted to operate ICT equipment for small and medium-sized companies. More specifically, Net One will provide products and solutions required for the service.
Order trends: JPY3.7bn in FY03/19, JPY4.7bn in FY03/20, JPY8.6bn in FY03/21, FY03/22 target: JPY9.0bn (slightly ahead of company forecast)
Net One has mainly sought clients among large companies in the past, but with its MSP support service will be extending its reach to small and medium-sized companies (a new client base) and opening the door for an indirect and efficient approach.
In FY03/21, co-creation with MSP accelerated in new services for living with and after the COVID-19 pandemic. For example, co-creation with telecom companies progressed in Web conferencing, software-defined wide area networks (SD-WAN), and security services. The company also worked with other private-sector companies to build a zero trust network (network model that does not even trust internal networks) for entire company groups. In FY03/22, Net One will accelerate service co-creation with telecom companies and partners mainly in digital transformation for client companies and security services for entire company groups, working with MSPs in making proposals to private-sector companies and public organizations.
Provide a unique maintenance service independent of manufacturers’ maintenance cycles (third-party maintenance) and a recycled equipment sales and rental service
Order trends: none in FY03/19, JPY1.6bn in FY03/20, JPY2.0bn in FY03/21, FY03/22 target: JPY5.0bn (delays in new proposals, but profit progressing in line with company plan)
In January 2019, the company established Net One Next Co., Ltd. as a wholly owned subsidiary for the purpose of providing third-party maintenance services for ICT equipment and sales and rentals of refurbished (recycled) ICT equipment. Net One Next began operating on April 1, 2019. Since 2017, Net One has operated a capital service (see details below) that seeks to increase value-added by offering ICT infrastructure as a subscription service. Because Net One Next will take back the equipment from the client after the subscription period ends and prepare to be used again, Share Research sees room for the company to further increase its margins in this area.
In this relation, the company noted that there is often a gap between the lifecycle of capital equipment and the capital spending cycle of companies, and as a result there are an extremely large number of companies that would like to continue using ICT equipment even after the manufacturer has ended product support. Net One itself was previously unable to respond to the needs of such customers, however, because it only handled new equipment. Thus, it decided to establish a subsidiary, Net One Next, to handle demand from this market. Net One Next will handle the same brands of hardware as Net One, which means its ICT infrastructure products will also come from multiple vendors.
There has always been a market for recycled ICT equipment, but even now the recycled equipment market is largely confined to small companies. Because Net One is a listed company and has a long history of high-quality product maintenance services, it expects client companies to feel safe in their dealings with its wholly owned subsidiary as a provider of recycled ICT products and third-party maintenance services.
Orders increased marginally in FY03/21, because the COVID-19 crisis delayed new projects, but profit is progressing in line with the company plan. In FY03/22, the company seeks to expand third-party maintenance services for telecom companies, for which there is strong demand, expand network equipment, and increase the range of products for sale, including servers.
Defining itself as an operator of integrated services business, Net One is looking to create new value-added in this area by introducing a customer success perspective (to ensure success of customer businesses).
Service content: Creating high value-added by introducing a customer success perspective, support throughout life cycle, financial services
Order trends: JPY79.6bn in FY03/19, JPY88.8bn in FY03/20, JPY89.4bn in FY03/21, FY03/22 target: JPY98.0bn
Service sales trends: JPY74.4bn in FY03/19, JPY79.7bn in FY03/20, JPY85.2bn in FY03/21, FY03/22 target: JPY94.0bn
In order to pursue customer success, Net One will also emphasize system operations services. As this will allow it to discover the problems clients face in the course of operation, the company consult with the client about the problems and offer solutions. With this approach, Net One expects to not only maintain relationships with customers but also gain a deeper understanding of their needs and create an opening to provide high value-added solutions.
To support the transition among client companies from ownership of equipment to use, in 2017 the company started up a capital service (Net One All In Platform) offering ICT infrastructure as a subscription service. This service eliminated the need for companies to buy and own ICT infrastructure equipment, and also the need for initial investments in equipment, replacing it with a subscription that would allow use of the equipment for a set period of time. Because the new service also allowed users to get maintenance, operating and various other services in a single contract, the number of Net One customers choosing this option grew to the extent that, as of FY03/19, revenues from its capital services business accounted for nearly 10% of total sales.
The company’s managed service provider (MSP) support service, discussed previously, is also aimed at meeting the needs of companies that are moving away from equipment ownership to equipment use.
Initiatives to provide high value-added services made progress in FY03/21, specifically, expanding operation and optimization services that are key to value-added. Net One supported clients’ network infrastructure-building from the grand design stage and provided a facility for dialogue with clients on value-added. As noted above, the company recorded a solid increase in service sales by identifying clients’ problems and presenting proposals for optimizing operation. By participating in clients’ network infrastructure-building from the grand design stage, the company could avoid price wars and improved profitability.
In FY03/22, Net One aims to solidify its position as a partner in digital transformation by offering comprehensive support relating to maximizing the effects of ICT infrastructure utilization in addition to helping clients build quality ICT infrastructure through the range of solutions provided by the integrated services business. In addition to helping clients build a teleworking environment and prepare security measures to contribute to their business continuity, the company seeks to make systems easier to use and familiarize client companies’ employees with their systems by providing its own work style reform know-how and through dialogue with clients. As well, the company aims to improve quality and productivity of projects with common specifications such as local government information security cloud by providing standardized (packaged) solutions.
Net One is looking to increase productivity across the entire group by reviewing and reforming all business processes so as to create a uniform system. And in the process, it plans to create a log (NetOne on NetOne) that reflects on its successes and failure in making changes at its own business for client companies to view and, in doing so, hopefully shorten their own trial-and-error period and increase their satisfaction. With “NetOne on NetOne” as a keyword, the company seeks to streamline internal business processes and accelerate the crafting of business processes to fit the system (see above for definitions of Work-Style Innovation 1.0 and Work-Style Innovation 2.0/DX).
The Net One group has been addressing the issue of work-style reforms since 2010, with its aim being to change work-styles in a way that would allow employees to work anywhere and anytime. With the increasing digitization of business, the group will be able to take yet another step forward with work-style reforms by integrating all operations and systems. At the sales department, for example, the new system would automatically follow a project from start to finish, from the quote made by the sales department to the order receipt, order placement by the procurement department, track the related shipments from the warehouse, to invoice and payment receipt issued by the accounting department. In doing so, it would visualize the whole process and eliminate tasks that previously ended up having to be done by hand and also the “black boxes” that were previously created by individual keeping track of numbers and other things on their personal spreadsheets.
The data from this whole process could be stored either on-premise or using cloud storage. Through business digitization, Net One is looking to create and show customers how to use systems that give users to access and work with the data they need at any time and at any place using any type of interface, thereby increasing both the accuracy and the quality of the work. As for questions such as cloud versus on-premise storage, data input and data output, the company says there will be probably some trial-and-error involved before it determines the best course, but that by passing along the expertise its gains to clients, clients will be able to eliminate their own trial periods and mistakes. In short, Net One is looking to increase its own productivity and then pass along that knowledge to its clients.
Net One currently has its operations split between four locations, all in the Tokyo Metropolitan Area. Its head office, in Tokyo’s Marunouchi district, mainly houses its sales department. Its office in Tennouzu contains mainly its technology and administrative departments. Its technical center and testing facility are located near Oi Keibajo Mae station. And its quality control center, which handles receiving, shipping, and quality inspection, is located in Tokyo’s Heiwajima district. By FY03/22, the company is planning to combine the three facilities other than the head office as part of its plan to implement additional work-style reforms and further increase productivity.
The company requires expertise in three areas: networking, cloud computing, and security, but it is exceptionally rare to find personnel with expertise in all three areas. Net One is focusing on new graduates, especially those with backgrounds in more than one technical discipline, as their retention rate is higher. The company plans to focus more on recruiting new graduates hereafter and aims to hire 75–100 new graduates each year from FY03/21 (previously it was about 50). Over a training period of about three years, the company provides these employees with the skills they need to perform adequately.
FY03/19 was the final year under the previous medium-term business plan, announced back in May 2016. As detailed below, the company finished ahead of the plan targets set for FY03/19 in terms of sales, operating profit, and the OPM, exceeding the plan targets not only for FY03/19 but also for every year along the way. The solid performance was driven in large part by the growth in cloud and security-related work in the ICT market, which became the new core of the company’s business and freed Net One from its previous dependence on telecommunication companies and created a solid foundation for sustainable growth going forward.
Under the previous three-year plan, the company broke down expected sources of sales growth as follows: JPY14.0bn in additional sales from new markets (with JPY6.0bn of this coming from the corporate market, JPY4.0bn from overseas, and JPY4.0bn from the IIoT market) and JPY10.0bn coming from its new Cloud with Security solutions service (see figure below). Cloud with Security was the bigger driver, with sales in this area increasing by more than the JPY10.0bn targeted under the medium-term plan. It also contributed greatly to earnings growth, as the company was able to win more and more orders for cloud systems with security measures. The company’s ability to provide multiple solutions was also a major factor behind the steady growth at its service business, which is well on its way to becoming the company’s core business.
In the corporate market, where the company was looking to increase sales by JPY6.0bn, it found that its traditional focus on large companies had left it with a business model that did not translate well to medium-sized companies. To get around this problem, the company went the route of providing a part of its solutions package via a managed service provider (MSP) and achieving its sales target in this manner.
With activity in the IIoT market picking up quickly, the company was able to meet its JPY4.0bn sales target even though it started from zero. This is not to say there were no problems, for along the way there were times when the company struggled to find the best way to capture and analyze data, but by 2H FY03/19 it had a commercial-scale line up and running, and was convinced that the IIoT market had tremendous growth potential.
Overseas sales came in at only about half of the company’s target.
|Item||FY03/19 results||Rev. target* (out Sep. 28, 2018)||Initial target|
|(% change versus FY03/16)||(% change versus FY03/16)|
|Operating profit margin||7.00%||6.90%||6.50%|
Under its management strategy, Net One aimed for continued growth and improved customer satisfaction, and to achieve this, worked to optimize group-wide management resources.
The previous medium-term business plan primarily aimed for continued growth. The company aimed to boost customer satisfaction by providing cloud systems that leverage ICT in a robust security environment, which it had been improving and testing in-house.
The previous medium-term business plan targeted higher orders, sales, and profits. To grow orders and sales, the company worked to increase productivity of existing businesses, optimize resource allocation to new businesses, increase collaboration between segments, and provide solutions appropriate for each customer. Net One aimed to grow operating profit through tighter budget controls and continued personnel training. In order to meet medium-term targets, the company cited four core strategies involving markets, organization, products and services, and personnel.
|Markets||- Invest in and maintain existing customer base|
|- Expand customer base|
|- Enter new markets|
|- Accelerate growth of the services business|
|Organization||- Maintain and strengthen front office and eliminate duplicate operations|
|- Revamp sales activities|
|Products/services||- Develop products for cloud systems|
|- Maximize value by offering speedy, end-to-end services|
|Personnel||- Strengthen sales and technological capabilities|
|- Develop individual and organizational capabilities around managers|
|- Hire and promote new personnel with relevant skills|
Net One aimed to maintain and expand orders and sales by strengthening relationships with existing customers. It also aimed to capture new customers to ensure continued, stable growth by tapping into the corporate, overseas, and the industrial internet of things (IIoT; linking various objects to the internet, not just IT devices such as PCs, servers, and printers) markets, where the company can efficiently provide its cloud service solutions.
The company broke down expected sources of sales growth in three-year business plan as follows: An increase of JPY14bn in new markets (corporate, JPY6.0bn; overseas, JPY4.0bn; and IIoT, JPY4.0bn) and an increase of JPY10.0bn from new solutions in cloud systems with security.
|1. Corporate market||Set up dedicated unit to cultivate new customers. Improve productivity of these target customers by offering cloud service solutions and conducting inside sales.|
|2. Overseas markets||Accelerate global alliances to expand domestic and overseas business and enter local overseas markets. Aim to develop the ASEAN business focused on Singapore in FY03/16, consolidate it in FY03/17, and expand it in FY03/18.|
|3. IIoT market||Develop industrial control systems for factories and other facilities using its experience in design, construction, and operation of network and cloud infrastructure. Specifically focus on network connections between production lines as well as building infrastructure that enables utilization of collected data to provide customers on-site visualization, improved product traceability, and the ability to detect signs of equipment failure.|
Net One worked to promote use of ICT to grow work related to infrastructure building, maintenance, and operation, planning to stay on top of cutting-edge technology to develop advanced solutions supporting next-generation infrastructure.
Net One worked to streamline its organizational hierarchy to enable swifter decision-making and action. By clarifying the role of each department, the company promote higher productivity company-wide, prioritizing the use of in-house personnel
|Manager training||- Inculcation of duties and authority|
|- Work style management|
|- Comprehensive one-on-one training|
|Strengthening sales and technological skills||- Improved sales and technology capabilities in line with strategy|
|- Promotion of talent management system|
|- Strengthened negotiation skills|
|Diversity/work-life balance||- Rebuilding and implementation of systems that embrace diversity|
|- Productivity-based evaluations|
|- Organizational activity analysis and revision|
|Long-term personnel training||- Re-creation of employee training by level|
|- Strategic employee rotation|
|- Discovery and nurturing of fresh talent|
Net One supplies private corporations, government agencies and municipalities, telecommunication companies, and other customers with information and communication technology (ICT) network infrastructure, cloud*1 infrastructure services for data centers, and cyber security systems. Specifically, it undertakes end-to-end services from infrastructure design through device and software procurement, construction, maintenance, and operation. It builds information infrastructure incorporating some of the most advanced technology worldwide and provides infrastructure-related services. In addition, the company accumulates expertise and knowledge in-house as a user in its own right in relation to the strategic use of ICT, and provides this expertise to external customers. Net One was established as a joint venture between Mitsubishi Corporation (TSE1:8058) and Ungermann-Bass, Inc.*2 (now Alcatel-Lucent Enterprise in US) in February 1988 to distribute products related to Local Area Networks (LANs). Currently it has no capital ties with these two companies.
Net One is Japan’s largest independent company specializing in ICT infrastructure building, including construction of cloud and security infrastructure, in addition to network infrastructure. Its strengths are in system design and construction using telecom equipment of major global manufacturers such as Cisco Systems*3. Net One has a proven track record in the domestic market handling equipment from Cisco. It is also a top domestic distributor for VMware, Inc. (US company, NYSE: VMW; Japanese subsidiary is VMware K.K.), a major global supplier of cloud infrastructure software. Net One’s principal competitors are systems integrators and the major equipment manufacturers.
*1 Cloud (cloud computing): Use of computing resources (such as software, hardware, processing power, memory, files, and data) via a network. In the ICT field, the space beyond the network is often represented as a cloud in systems configuration diagrams, hence the term “cloud.”
*2 Japanese subsidiary of US computer networking company Ungermann-Bass, Inc. At the time, network equipment used to connect computers was supplied by the computer manufacturer, but Ungermann-Bass was an independent company making and selling products such as line concentrators and LAN cards, helping build the foundations of the internet. Ungermann-Bass was also the first company to build a Virtual Private Network (VPN).
*3 World’s largest developer, manufacturer, and marketer of computer network equipment.
Net One supplies major private corporations, government agencies and municipalities, telecommunication companies, and other customers with information and communication technology (ICT) network infrastructure, cloud infrastructure services for data centers, and cyber security systems. Specifically, it undertakes end-to-end services from infrastructure design through devices and software procurement, construction, maintenance, and operation. Based on its technical capabilities developed through many years as a network specialist, the company offers multi-vendor solutions* and a multi-cloud environment that include networks, security, platforms (virtualization software and servers, storage and other hardware on which a system operates), and unified collaboration (communication systems that link a variety of networks and are provided as a shared platform), all indispensable for cutting-edge ICT systems.
Net One acts as an intermediary for Japanese companies, which have been slower to adapt to change than their US and European counterparts. The company also cooperates with major US and European IT equipment and software manufacturers, customizing their products to suit the needs of Japanese corporations.
*Multi-vendor: Combining products from several vendors to build a telecommunication network. Vendor may refer to the product manufacturer or the distributor.
Net One group companies verify and test new products from vendors in Japan and overseas, combining worldwide leading-edge products and technologies to build and operate next-generation ICT systems. As a value-added reseller (VAR), based on its accumulated knowledge it combines the optimal equipment and services for its corporate customers.
Since its establishment in 1988, the company has flexibly adapted and evolved its business portfolio to include cloud infrastructure and security infrastructure in addition to its network activities, as ICT networks have changed. The professional principle of its business is the provision of technology to safely and securely “link” and “connect” through leveraging its ICT expertise.
The company’s four segments reflect the markets its customers belong to: Enterprise, Telecom Carrier, Public, and Partner (operated by consolidated subsidiary Net One Partners). Net One has responded flexibly to market changes since its establishment and grown by changing its focus areas.