Questions & Answers at the Financial Results Briefing for 1H of the FY Ending March 2023
October 28, 2022

NEC Networks & System Integration CorporationQuestioner A
Q: The second-half forecast for operating profit margin in the DX Solutions (DXS) segment
is below the previous fiscal year and is on par with the first half of the year (whichshould be lower than the second half due to seasonal factors), despite an improving
trend up to now. Why is this?
A: For DXS, sales of conventional business have declined in the period between seasons
as we re-tool it into businesses that utilize DX, and that decline in profitability has been
incorporated in the forecast. Additionally, in the first half of the year we received manyorders for financial institutions with a high ratio of products, and we expected a
temporary decline in profitability in the second half. However, since profitability is highand steadily growing in the DX areas on which we are focused, once we escape this off
season of re-tooling our conventional business, we believe the situation will graduallyturn around.
Q: In the first half of the year, an overseas subsidiary recorded a loss (communications
infrastructure project in Thailand), and I believe you recorded losses in Myanmar in theprevious fiscal year. What other major construction projects do you have under way
overseas? Also, how much risk is there of incurring losses going in the future?
A: In terms of major overseas projects apart from Thailand and Myanmar, we are continuingwith projects in Saudi Arabia worth 4-5 billion yen. As we have instituted a strict projectreview structure and the project involves ongoing business with a single customer inSaudi Arabia, there is no major risk.
Regarding the project in Thailand in which we incurred losses, in part in the interests ofour customers we cannot go into details, and as it became highly likely that orders
placed with us would shrink due to a project revision conducted by the customer, werecorded a loss reflecting the deterioration in profitability in connection with thatdevelopment, and we will not incur further losses from this.

Questioner B
Q: Regarding the impact of foreign exchange rates in the second half of the year, the yen
has depreciated more than initially forecast. What assumptions have you incorporated

into your revised forecast?
A: In the second half of the year, we expect the exchange rate to hover around 145 - 150
yen. In some cases the passing on of prices has not kept up with the rapid depreciationof the yen, but we believe the effects will be seen as we continue to steadily renew
contracts. In the case of NESIC, equipment and SI development is offered as a set, andwith many projects there is a long time between order receipt and the recording of asale. There are aspects which make it difficult to negotiate over the passing through ofprices after an order contract has been entered into, but we are steadily passing onprices.
Q: Regarding the Network Solutions (NWS) segment, orders in the first half of the year
were strong, but how is the outlook in the second half for local 5G and marine-related
projects, which were a factor in the first-half performance?
A: Looking at conditions in the marine business, projects are in full swing and weunderstand these favorable conditions will continue in the future. With regard to local5G, we have made progress in reducing costs on the equipment side, but cost
reductions on the terminal side will be needed for a full-scale expansion, and webelieve that will be one or two years later when carrier 5G achieves widespread
adoption. As for the size of business, orders received in the first half of the year for
multi-connectivity overall, which includes local 5G, amounted to around 5 billion yen,
and we feel that performance in the second half of the year will be around the samelevel.
Note that with the NWS business for carriers, we do not expect major growth as 4G
investment has ended with the shift to 5G, and the initial large-scale investments by a
new carrier having already run their course.

Questioner C
Q: Sales in the first half of the year did not reach forecast levels in any of the threesegments, but there are plans to get back on track in the DXS and NWS segments inthe second half. While the order backlog has accumulated, how will you materialize
those orders as recorded sales going forward?
A: Recently the service businesses in the DXS segment are on an upswing, but since it isnecessary to revise construction schedules and processes due to semiconductor andmaterial shortages in the SI and construction areas of each segment, the lead time fromorder receipt to the recording of a sale has lengthened. Although the semiconductor
and material shortages have yet to improve, we have gained insight into response
measures including the handling of substitute goods, and we are looking to speed atwhich the order backlog turns into sales.

Q: How should we look at the direction operating income will take in the next period?
A: We believe extraordinary factors such as the exchange rates impact and overseas
losses can be improved. Additionally, we believe that declines in conventional businessin DXS segment peaked this period, and we think the situation will improve as thesebusinesses are replaced with new spiral-type growth models in the future.
Q: Regarding the DXS and Environmental & Social Solutions (ESS) segments, you havementioned that recent business inquiries have been brisk. What kind of projects do you
expect will increase for the next fiscal year?
A: In the enterprises market, there are more and more cases for doing business with major
customers in the DX and working style fields, and offering service models are steadily
becoming established. Based on past and current activities, we feel that we haveestablished some brand power. DX-related inquiries from local governments are also on
the rise, and we have been actively responding, such as by installing dedicatedshowcases for customers to view.

Questioner D
Q: In the NWS businesses, it appears that the business for carriers has declined. How
much of a decline is this?
A: Orders in the first half of the year declined by slightly more than ten percent, and sales
declined by around eight percent. This was a reactionary fall from a large order andsignificant product business achieved by subsidiaries in the previous year. Excluding
those factors, the decline in orders was minor. As we only operate the base station
business through a joint venture with KDDI, our understanding is that we are less likely
to be affected by control on investment in that area.
Q: Regarding the impact of semiconductor and material shortages, in the second quarter oflast year you suffered a negative impact on sales amounting to around 5 billion yen.
How was the second quarter this year? Are the shortages on track for improvement?
A: In the second quarter of this year, sales that had been delayed from earlier periods due
to semiconductor and material shortages had a positive impact of around 2 billion yen
compared with the previous year, while newly emerging delays had a negative impactof about 2 billion yen. We also believe that material shortages have an impact on
smaller projects that we have not entirely ascertained, and we think there is also an
impact from orders. In light of these factors, the impact from semiconductor andmaterial shortage is similar to the previous year, and has not improved.

Q: You mentioned that product business-related orders for financial institutions had
increased. In general the shift to cloud computing has advanced in the finance industry,
and this seems to run counter to that trend. What products have increased?
A: The products that have increased for the finance industry are not mission-criticalsystems but instead network-related products. The increase in the product business istemporary, as these products are updated periodically and SI is implemented following
such updates.

Questioner E
Q: Regarding the losses in Thailand, what is your reason for determining that additional
losses will not occur? Additionally, there was also unprofitability in Myanmar and seems
to have been a string of losses from overseas operations. How will you respond?
A: For the project in Thailand, all of the losses that were the result of the customer making
changes to their investment plans have been accounted for, so no further losses will beincurred.
Regarding project management, we have developed and strengthened ourmanagement framework for both overseas and domestic operations, and we are also
responding to these latest issues.
Q: What level of tolerance do customers have for passing down prices due to exchange
rate effects? What is the status of passing on the rise in prices?
A: It is difficult to raise prices after entering into a contract, so increases in procurement
prices after a contract is signed can affect profits. Since things like license fees are oneyear contracts, the affects can be eliminated at the time of contract renewal. In the firsthalf of the year there was limited progress on renewals and the yen weakened further
after contracts were signed, so we have seen almost no effects from passing on prices,
but we believe we will make more progress passing on prices in the second half of theyear as contracts steadily come up for renewal. Additionally, for project-type orders, weare considering innovations such as making contracts that incorporate exchange rate
fluctuations. Currently there are also rising prices of goods apart from exchange rate
factors, and we will continue to take action that includes responding to those issues.

End