Q&A at IR Briefing for Financial Results for theFirst Half of Fiscal Year Ending March 31, 2020
October 30, 2019
NEC Networks & System Integration CorporationQuestioner A
Ｑ：You explained that orders related to firefighting network systems grew in social public
infrastructures in the first half, but there was special demand for the digitalization offirefighting and ambulance radio systems in the past. Is the reason for the strong results
this time different from this? What are the factors for the growth in orders, including thebackground and supplement, if any, such as any special demand?
Ａ：The growth in social public infrastructures comes out most prominently in the area offirefighting network systems. There was special demand for the digitalization offirefighting and ambulance radio systems, and along with this, demand for the renewal ofcommanding systems expanded from around 2014 to 2016. Subsequently, however,there was an off-crop season as a backlash to these developments. We regard thegrowth in social public infrastructures this time as the return of the renewal business to aroutine pace. In addition to firefighting systems, other fields are growing in general,
including businesses for cable television operators. Rather than saying that there wassome significant special demand, I would say that each of the businesses we have been
undertaking grew little by little.
As a new initiative, we are improving the quality of our proposals and increasing theirrange, including proposal activities incorporating new technologies, as a result of thereorganization in April by which staff in social infrastructures and those with skills for
carriers got together. In fact, we have been receiving a lot of inquiries, and we would likethis to lead to achievements in the second half and beyond.
Ｑ：I suppose that some of the expenses for growth were carried over to the second half
given the higher-than-expected results for the first half and the upward revision of the
full-year results forecasts, but what is the current progress of the expenses for growth?
Is there any change in your plan to spend 5 billion yen in the current fiscal year? Inaddition, what are your thoughts regarding the expenses for growth after the next fiscalyear?
A：We spent 1.7 billion yen as expenses for growth in the first half, which is an increase of
0.9 billion yen from the same period of the previous fiscal year. About 0.5 billion yen ofwhat we had planned to spend in the first half has been carried over to the second half,
but we plan to spend 5 billion yen in the full year as planned. After the next fiscal year, anoffice realignment cost of 2 billion yen for the current fiscal year will disappear as
temporary expenses, and we will make a decision on the remaining basic expenses for
growth of 3 billion yen when necessary in light of our medium- to long-term strategies
and the circumstances.
Ｑ：You said that you would decrease the floor area of the head office in Iidabashi associatedwith the office realignment, but will this result in the reduction of the rent as well?
Ａ：The rent for the head office floor in Iidabashi will decrease as a result of dispersing it tothe suburbs, but the total office rent will not change much because we will have a newepoch-making office (innovation base) incorporating advanced technologies inNihonbashi and create a technical center including a 5G laboratory in Shin-Kawasaki.
Ｑ：Looking at the final year of the medium-term management plan, I feel that yourmedium-term sales target of 310 billion yen has come close as your full year forecast of
current fiscal year was revised to 300 billion yen, but I feel that you need to raise thelevel further to achieve your operating income target of 20 billion yen. As an approach
for achieving the operating income target, which do you think you will place moreemphasis on in terms of direction: whether you will grow the topline further or whetheryou will improve the operating income margin, although only six months have passed?
Ａ：We want to improve both. While the expansion of the topline is important, we think that it
is also possible to improve profitability by increasing the efficiency of resources throughthe reorganization that is in place. In fact, we have been bearing fruit in this area in thefirst half. In addition, we think that we will be able to improve profitability by increasing
the service business utilizing digital technology. Accordingly, we would like to work toimprove both the topline and profitability by placing emphasis on both.

Questioner B
Ｑ：Do you obtain a benefit from the renewal demand for Windows10?
Ａ：Demand for Windows10 has been generated since around the previous fiscal year.
However, because our business is centered on network fields, the volume of thedemand is not that high compared with other system integrators.
Q：Regarding local 5G, given that you are engaged in both ICT and construction, there
appear to be a lot of business opportunities. Do you have anything to report in thisregard?
A：Because we have a large number of radio engineers who will become increasingly
important for 5G, we have sufficient capabilities to respond to networks in the 5G era.

We have also developed a framework in consideration of 5G, and we think that local 5G
is promising as a core of our future business. We believe that it will take a little more time
for local 5G to begin in earnest, but it is being talked about a lot at the moment. Because
talks at the level of PoC (Proof of Concept) are also increasing, we will work on local 5G
in order to be able to tell you about the concrete outcomes in the years to come.

Questioner C
Ｑ：Your financial statements say that sales for telecom carriers were carried over to thesecond half, but some say that orders from carriers have been delayed, while others saythat 5G orders will be frontloaded. What is the background for the carrying over?
Ａ：As a means of expanding business for telecom carriers, we plan to increase the share of
the construction of base stations through K&N System Integrations Corporation, a joint
venture company with KDDI Corporation, but this plan has been carried over to thesecond half. Looking at the performance for the full year, we think that we will be able toaim for sales for telecom carriers as planned by catching up on the delay in the first half
under the current circumstances. Various plans have also come out for 5G, and we willproceed with them actively while assessing the market movements.

Questioner D
Ｑ：Could you explain the factors for improved profit in Network Infrastructures by dividingthem into the impact of the higher sales and the impact of the reorganization?
Ａ：Of the increased profit of 0.8 billion yen in Network Infrastructures, the impact of highersales is an improvement in gross profit corresponding to an increase in sales of 1.2
billion yen from the previous year. Other than this, approximately 0.2 billion yen is theimpact of eliminating unprofitable projects carried out in the previous year and the impactof improved efficiency through reorganization and others.
Ｑ：Some other companies provide multi-cloud services. How will you differentiate yourservices compared with your competitors?
Ａ：Regarding cloud services, we were among the first to discover Zoom, a globallycompetitive communication service, when it began operating in Japan, and we achieved
a considerable share by entering into an exclusive contract covering the initial period.
We believe that our capability of not only introducing Zoom, but also making proposals tocustomers by linking up and combining with various ICT tools around Zoom, is a factor
that has led to our differentiation.
We also believe that our capability of making a linkage among clouds in terms of how tocombine them and how to use them is the point where we remain a step ahead of ourcompetitors. In addition, we have verified the effect of our cloud services through ourpractice. Our ability to provide customers with cloud services by showing them the value
in a proper manner based on the achievements of our practice like this is also the pointof our differentiation. We will continue to promote the effect of the multi-cloud tocustomers through our own practice.

Questioner E
Ｑ：In October, you released a platform service that will easily realize the multi-cloud as oneof the Symphonict services. Have you not provided such a service in the past? Or haveyou already worked on it as part of your practice?
Ａ：We have already taken actions for internal use since last year and provided it tocustomers at the PoC level starting about half a year ago, but we began providing theservice officially this time in October.
End