Questions & Answers at the Financial Results Briefing
for the Third Quarter of the FY Ending March 31, 2023
January 30, 2023
NEC Networks & System Integration CorporationQuestioner 1
Q: Regarding the revised forecast for the Network Solutions (NWS) segment, the size of therevision to forecast operating income (from 11 billion yen to 8.5 billion yen) seems large.
What are the specifics behind the revision?
A: We had been aware that telecommunications carriers were curbing capital investment
mainly in the area of base stations, but in the second half of the year we also started tosee an impact in the area of core networks, which is a key business area for us. We
understand that core networks are an area where carriers will need to make future
investments as traffic increases, so we see this business as being postponed instead ofdisappearing.
In addition, regarding proposals in the area of high added value supporting thestrengthening and streamlining operations at telecommunications carriers, which is anarea we are focusing on, it appears that customers have a strong interest, but areplaying things a little cautiously due to these being new services, and based on market
conditions. This is area is on an expansionary trend, but it is not currently making
significant contributions to orders or sales. However, since we see operational
streamlining as a theme that corresponds to customer issues, we believe those needs
will expand from the next fiscal period and beyond, and we want to be in a position to
firmly capture that demand.
As for why the profit revision is so large, in addition to the businesses that factor into
these revisions being highly profitable, we have taken into account that the impact on amarginal profit basis is larger due to the size of the revision.
Q: Regarding the Environmental & Social Solutions (ESS) segment, there was a reversal of
allowances for the Myanmar Project and forecast operating income was revised upward,
but on an actual performance basis excluding this reversal of 2 billion yen, do you see
profitability improvements as still only partially implemented?
A: As you pointed out, we recognize that we are still part-way through this process. Thisfiscal year, the sales mix has deteriorated due to the kitting business, which has a highequipment ratio. In the future, we hope to expand orders and sales in more profitableareas, such as those related to the environment and community development.
Questioner 2
Q: Regarding the decline in profit for the third quarter in the DX Solutions (DXS) segment, itseems that the profit margin has peaked. What is the reason for this? Additionally, whatis the demand environment for orders?
A: This period the equipment ratio has been high for DXS SI and construction projects, andthe deteriorating sales mix has negatively impacted margins.
We see demand trends as solid. Business for financial institutions has been expanding,and in the areas of DX and workstyle reforms business was flat compared with theprevious year in the first half, but has expanded in the third quarter. As we have seen afirm increase in the number of potential project we are trying to win orders for, ourperception is that the demand is there.
Questioner 3
Q: Why hasn't the increasing order backlog translated into sales? From the fourth quarterand into the next fiscal year, will this situation be resolved? Please share your thoughtson the next fiscal year as well.
A: A major factor is that there is a prolonged lead time from the receipt of an order to its
recording as a sale due to shortages of semiconductors and various materials. To give
you a rough idea, it is 1-2 months longer than usual. Generally speaking, shortages inthe supply of semiconductors and materials are on track to be eliminated, so we believe
this will be gradually reflected in sales from the fourth quarter and into the next fiscalyear, but since there are still difficulties procuring certain goods such as components thatuse analog semiconductors, rather than these issues disappearing overnight, we expect
them to ease off gradually.
Q: You explained that orders in the DXS segment ran over into the next period. What were
the reasons? You mentioned earlier that demand was solid, but again, is there any
decline in demand?
A: In terms of business running over from the third quarter to the fourth quarter, overall
there is no change to our perception that demand is strong. The factors behind delays
that run into subsequent periods vary depending on the project, but in all cases these
are timing issues and we do not see them as being due to some specific factor.
Q: In as much detail as possible, what is your approach to operating income heading into
the next fiscal year?
A: Details about the next fiscal year are still under consideration so we cannot give a clear
answer at this point, but we recognize the need to consider this carefully in light ofvarious factors and market conditions. We will incorporate the more limited foreignexchange impacts and the elimination of special factors such as overseas factors into
our approach and will aim for increased sales and profits.

Q: Regarding sales and improved gross profit (GP) margin, has your perspective for thenext fiscal year been lowered compared to when the medium-term management plan
was announced?
A: When we announced the medium-term management plan, we said we would aim toimprove the GP margin by a little less than 1% per year, but based on the progress wehave made this fiscal year, we may not be on pace to achieve that GP margin in the next
fiscal year. However, the fact that the order backlog has still not translated into sales is
one of the causes of this, so we intend to make every effort to make hockey stick curve
improvements as we head towards the final year of the medium-term management plan.
In the areas we will be focused on through the measures set in the plan, we believe wecan speed up once our new services are accepted from customers, so we also want to
aim to achieve the targets laid out in the medium-term management plan.
Questioner 4
Q: In the areas of DX and work style innovation, I get the impression that you haven'tachieve as much growth as expected, including at other companies. What are thefactors getting in the way of significant expansion in these areas? How do you see thesituation, such as looking at investment in light of profitability or the economicenvironment?
A: There are many factors at play, but many of our customers take a hard look at theeconomic environment. And there are many customers considering what the benefits areto them and how added value will increase by implementing DX. We believe thatunderstanding will advance quickly once this point can be clearly seen, so we hope toaccelerate the development of proposals that make the potential benefits easy to see,including specific projects and examples of DX introduction.
Q: Regarding NWS, looking at market trends I get the impression that the local 5G market
will not be particularly active in the next year as well. What are your thoughts on this?
Also, there are concepts out there for non-ground based networks utilizing manmadesatellites, unmanned aerial vehicles and so on. It seems there may be business
opportunities for you in these areas. What are your thoughts on this?
A: Regarding local 5G, we get the impression that process is lagging about two years
behind what we initially expected, but we don't think that the demand will dry up. We
believe local 5G will expand mainly among customers looking to steadily implement
security, and we see it as an area where demand will gradually increase.
Regarding networks that utilize satellites, non-ground-based equipment, both thewireless and space businesses are operating areas for us, and we are fully capable oftargeting this field. We are now at the stage of exploring which fields to enter.

Questioner 5
Q: I get the impression that IT investment by local governments is heating up. Do you feelthe same? Also, heading into the next fiscal year, what areas do you think hold the mostpromise?
A: Regarding the areas of work style innovation and DX on the part of local governments,
we have displays of various solutions aimed at local governments at our Nihonbashi
office and we deal with a great many inquiries and tours there, so we recognize there isa high level of demand. Customers that are government entities need to develop
budgets, so it may take some time before we see a significant expansion, but we believe
there is strong demand there, and that NESIC will be able to fully reap the benefits ofthat demand.

Questioner 6
Q: Regarding active cost increases, in what areas are you spending on?
A: We are mainly increasing costs to develop DX-related solutions and to hire more
personnel and sales staff in connection with that. In addition, we are also spending torelocate to a new head office that will be a place to demonstrate our solutions, andincurring costs on things like the development of our new mission-critical systems.
Q: I think the active increase in costs corresponds to your plan to make growth investments
each fiscal year as outlined in the medium-term management plan. In the current fiscal
year, I believe you had to curb growth spending due to downside factors such as
exchange rates, but looking to the next fiscal year, do you believe these costs willincrease, or will you take a somewhat restrained approach?
A: For the next fiscal year, costs associated with the relocation of head office are no longer
incurred, but costs for the development of our new mission-critical systems will still
increase, so we don’t expect that expenses will fall significantly overall.
Questioner 7
Q: What was the background to the reversal of allowances for the Myanmar Project?
A: In the network development project in Myanmar, last year we recorded losses due to areview of the construction schedule and other matters due to the political changes thatoccurred, and we were making arrangements with related parties about whether wecould make changes to the details of the project, considering those factors. In the courseof those negotiations, in the third quarter we reached an agreement on revising thecontract, and since this lowered our loss risks, we implemented a reversal of theallowances corresponding to that lower risk.
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