Questions & Answers for 2023 IR Day
June 12, 2023
NEC Networks & System Integration Corporation<DX Solutions (DXS) Business>
Q: You mentioned expanding strategic areas to 50 billion yen in FY2025.3. What in the fiveareas will be expanded? Is there a breakdown?
A: Data utilization and digital twins are still areas for the future so that are currently not big,
and the expansion will mainly be in the area of workstyle DX. At companies, there is a
growing need to revise how offices work in the post-COVID world. We have seen astrong trend of business inquiries related to networking, security and associated multicloud services and audio services triggered by office relocations and other factors, andwe will focus on those opportunities. In other areas, we also expect to see demand forthings like factory operational technologies (OT) for manufacturers.
Q: How should we think about each project in the strategic areas in terms of the scale ofmonetary amounts and profitability?
A: Compared with PBX SI and installations, the project sizes will be smaller, but we expect
projects that have been on the rise recently such as multi-cloud services and cloud PBX
to generate recurring business. There is also competition on a standalone project basis,
but we believe that we can enhance profitability by providing compound services that
integrate data utilization, digital twins and other technologies as Symphonict.
Q: Is having data utilization and digital twins contribute to profits still a long way off?
Additionally, how is the competitive landscape in these areas and what are NESIC'sstrengths?
A: We've only just begun so the contribution to profit is minimal, but we feel there is a lot ofpotential, including the start of POCs for the manufacturing sector.
In the area of data utilization, there are many companies that merely perform data
analysis, but there are few companies in Japan doing things such as combining Zoom
and Salesforce to conduct analysis and propose solutions, and we believe that is where
our strengths lie.
Additionally in the area of digital twins, the main players at present are equipment
manufacturers, but their services tend to become massive and heavy, and we believe
our points of differentiation are our ability to provide services with a sense of agility andat reasonable price points. Another of our strengths is in the area of communication. We
don't stop at simply virtualizing operations and running analysis; we combine this withmechanisms for communication that are linked with action when something happens.
Our ability to provide services of that nature is a characteristic that sets us apart.
Q: How are Symphonict sales currently performing, and what differentiates it from othercompanies?
A: As it supports a wide range of services offered by NESIC, at this point we do not havespecific data on Symphonict alone.
A characteristic of Symphonict is how it can freely tie together a wide range of services
and easily handle complex and diverse issues. It will drive growth by supporting ourdifferentiation in each field as the backbone underpinning the core businesses ofNESIC as well as other NESIC’s business segments such as NWS and ESS.

Q: I understand there are differences in profitability in each project due to hardware,
licenses and so on, but what is your roadmap for improving profit margin as a segment
in light of those factors?
A: When it comes to pursing improved profitability, we believe that partnerships withvendors, in other words co-creation, is also an important factor. We are working todifferentiate ourselves by adopting the latest and best services early on through closer
co-creation. We are also trying to improve profitability and expand our business tocreate a win-win relationship for us and vendors by developing services that cater tounique Japanese needs that are difficult for overseas vendors to accommodate as partof the added value we offer.
Q: You mentioned your new head office and the new initiatives you are implementing at
Nihonbashi. Could you provide some specific examples?
A: We are considering a range of initiatives. For example at the new head office, we areworking on a demonstration of a digital BCP headquarters. The aim of this is to workout how we can maintain head office functions and continue to execute businessincluding sales functions within a digital space in the event of an emergency, while atthe same time supporting the businesses of our customers and ensuring the safety andsecurity of employees.
Q: At the meeting for the previous fiscal year, you declared the FY2025.3 goals ofgenerating 30 billion yen in sales in the data utilization and recurring businesses, and10 billion yen in sales from the public and industry businesses through DX utilization.
How is the progress on those fronts?

A: Our efforts have proceeded according to plan, but we have regrouped our priority
themes and reestablished an overall target of 50 billion yen in sales for FY2025.3. We
are currently working within this target. For data utilization, interest is picking up among
companies, particularly in the manufacturing sector.

<Network Solutions (NWS) Business>
Q: Your plan is to expand the social infrastructure business. In what areas are you looking
to grow? For example, it seems that offshore wind, which is a promising part of themarine business, is not yet in full swing. How is this going?
A: Mainly the aerospace and defense business and the marine business will be driving
growth for the social infrastructure business. In fiscal 2025.3, we hope to roughly
double the size of those two businesses compared with fiscal 2023.5. In the marinebusiness, in addition to an expansion of the submarine cable network, full-scale power
generation from offshore wind is still some way off, but since we have started working
on cable landing stations for power lines and other aspects, we are putting effort into
this area. In aerospace-related fields, private sector utilization is expected to pick up
speed, and with a rush to set up infrastructure in anticipation of this, we believe
operations will gradual expand in this field and hope to latch on to that growth.
Q: Regarding the expansion of the social infrastructure business, are we right to assume
that there is a high degree of certainty, such as being able to see orders that lie ahead?
A: For things like submarine cable networks, to some degree we can see what lies ahead
as these are long-term projects, including the project planning stages. For aerospace, itdepends on the individual projects, but as the market is booming, we will try hard sothat we can meet our goals.
Q: I understand that the situation is difficult with telecommunication carriers in terms ofinvestment, and I understand that NESIC is moving forward with unique proposals.
What is your read on the status of the business, taking those initiatives into account?
A: As a company operating a wide range of businesses, our strength with
telecommunication carriers is our ability to propose cost reductions that consider the bigpicture, rather than handling each individual customer department. Particularly withK&N System Integration (KNSI), a joint venture with KDDI, we have made strides in theprovision of services that contribute to cost reductions by utilizing AI and other DX
technologies. On the infrastructure front, telecommunications carriers putting the brakes
on investments has made things quite difficult, and we will try to maintain a flat level of
performance as telecommunications carrier business by working in areas thatcontribute to those cost reductions and covering businesses aimed at regional NCCs.
Q: You explained that with delays in the implementation of local 5G, it will gradually start tobe launched in mission-critical areas, but to what extent do you think this willmaterialize during the period of the medium-term management plan?
A: In mission-critical areas such as power plants and railways, there are quite active
initiatives to combine demonstration and commercial-level implementations, such as
the surveillance and utilization of robots in large-scale facilities, and we believe theimplementation of local 5G will materialize to some degree even during the current
fiscal year. Regarding the full-scale social implementation of local 5G, since device
prices will need to come down, we believe the market will get into full swing in around
two or three years, which will correspond to our next medium-term management plan.
We will continue to build a track record in these early-adoption areas in anticipation ofthese future prospects.
Q: Are we correct in understanding that investment from telecommunications carriers will
not recover for the foreseeable future?
A: That's correct. Our plan incorporates the assumption that the curbing of investments bytelecommunications carriers will continue for the duration of this medium-term
management plan up to fiscal 2025.3.
Q: At the meeting for the previous fiscal year, your plan was to aim for 25 billion yen in sales
from the social infrastructure business in fiscal 2025.3. How far do you currently plan toexpand sales?
A: By expanding in the areas of marine, aerospace and defense as we mentioned earlier,
we are targeting growth to around 35 billion yen.
<Environmental & Social Solutions (ESS) Business>
Q: You plan to achieve significant gains in community development and actions to a green
society, which key areas for growth. Can you expand on this approach?
A: We are fielding a large number of inquiries in businesses related to the environment andhave started to see positive effects on the sales front. At present, this mainly relates tothe conventional building of facilities. To enhance profitability in the future, ourchallenges will be how to expand our performance in high value-added fields, including
streamlining for power consumption (*refer to the slide on strategy to step up actions
towards a green society), as well as tackling the processes elements before and after
that, along with storage batteries.
In the area of community development, the reality is that local governments haveextensive needs but lack the budget, but we expect that subsidies and other measures
will help to eliminate those issues. We will also cultivate businesses with greater
profitability by developing proposals that combine digital technologies to coincide withthe replacement of fire fighting systems and similar implementations. Although it varies
depending on the budget for individual years, the business environment is moving in apositive direction.
Q: Regarding the gross profit margin in the ESS business, going by results from theprevious fiscal year the segment has fallen short of other segments that exceeded 20%.
What are the factors behind that and what are you doing to make improvements?
A: With the conventional system building business, it is difficult to differentiate as part of thecompetitive bidding process. Therefore, to improve profitability, it is important to add
new value, such as through post-introduction services and the utilization of digitaltechnologies. In addition, there is still room for streamlining through DX utilization inconventional business, we will try to combine these in an effort to make some degree ofimprovements on top of the previous year's results.
Q: In the past some unprofitable projects have emerged. What steps are you taking toprevent that from happening?
A: Regarding reviews when receiving orders for projects, I involve myself in checking thosewith potential risks, even for small projects. In addition, for our overseas subsidiaries,
we conduct detailed checks of financial data on a monthly basis in an effort to identify
any received orders showing signs of issues and prevent any major losses from being
incurred.
Q: In what areas will you cooperate with other segments?
A: I mentioned that we will enhance the added value of our existing businesses with digitaltechnologies, but the key to achieving this is how we can combine our offerings withDXS products. With the NWS segment we are proposing and delivering solutions thatcombine new networks such as local 5G and regional BWA. I believe we are leveraging
companywide synergies on multiple fronts.
Q: Am I correct in understanding that the businesses you have been working on previously
such as the building of fire-fighting and disaster prevention systems are separate fromyour new businesses such as community development?
A: Building fire-fighting and disaster prevention systems is in itself an existing business, but
I also consider it an added value business, for example in areas where we can analyze
past data using AI to offer benefits in the advanced prediction of disasters.