Q&A at Small Group Meetings on Medium-Term Management Plan Shift up 2024
May 30 & June 9, 2022
NEC Networks & System Integration Corporation<Common to all segments>
Q: With regard to the key businesses in individual segments, what are their current sizes?
What are their respective target sizes you will aim to achieve and what growth rates aretargeted during the period of the medium-term management plan?
A: The DX Solutions (DXS) Business has two key domains. One is data utilization andrecurring, and the other is expansion of markets served. For these domains, we will aim
for net sales of 30 billion yen and 10 billion yen, respectively, or total net sales of 40
billion yen, for the fiscal year ending March 31, 2025. For the previous fiscal year ended
March 31, 2022, these two domains achieved approximate net sales of 15 billion. Thismeans that we are aim to more than double this figure.
For the Network Solutions (NWS) Business, we set a goal of increasing its net sales by
15 billion yen during the period from the previous fiscal year to the fiscal year ending
March 31, 2025. Multi-connectivity centered on local 5G and social infrastructure havenearly 50:50 shares. For the carrier business, we have no plan to attain any major
growth. While we will work to expand operation services, investments in 5G will peakduring the period of the medium-term management plan.
For the Environmental & Social Solutions (ESS) Business, we will increase net sales inthe digital town business to 20 billion yen for the fiscal year ending March 31, 2025. As
for actions towards green society, that consists of the demand market and the supply
market, we will grow this business to another 20 billion yen. We aim to expand these
new businesses from around 2.5 billion yen in the previous fiscal year to 40 billion yen
in total. *Corrected a figure.
Q: What are your targets in separate segments for the ratio between systems integration /construction and services?
A: We do not simply aim to shift to a service model. We are striving for hybrid businessexpansion. This means that we will build recurring relationships with customers throughservices and that in this process we will expand both the systems integration /construction business and the service business. Therefore, we do not have any targetof raising the ratio of services itself. We think that the ratio of services will rise from thetraditional low level as the greater scale of the service business expands systems
integration / construction.
In DXS, the service ratio is already above 50%. We expect that it will slightly expand toaround 60% in the period of the medium-term management plan. Because DX is aservice-centered business, we will bolster it, adding operation and maintenanceservices.
In NWS, the ratio of services is low at 20% to 30% at present. We will increase
problem-solving businesses such as operation services using DX in a bid to raise theratio to more than 30%.
In ESS, service businesses including maintenance account for around 25%, and basic
construction-related businesses make up around 60%. No major change in theirbusiness sizes is envisioned in the medium-term management plan. We will seek to win
a greater number of high-margin projects such as the introduction of smart solutions tolocal communities, public DX and environmental solutions, irrespective of the distinction
between systems integration and construction and services.
Q: What is your view on profit margin improvement in individual segments? I imagine thattwo key actions will be to increase cost efficiency and to increase additional value. How
will each produce an effect?
A: In DXS, we will continue our cost-cutting efforts. But we will improve profitability, mainly
introducing new software-as-a-service (SaaS) and other solutions from overseas aheadof the competition and combining them with our services to create our original DX
services with high margins. In addition, we will replace our conventional labor-intensive
business model of product systems integration with a common platform to move to abusiness that will increase both size and profitability.
In NWS, profit margins surged in the previous fiscal year and earlier. This was due
mainly to internal efforts to strengthen project management. In this manner, it will bedifficult to attain massive additional improvements. In the period of the medium-term
management plan, we will try to increase profitability by shifting to high value-added
projects with a focus of solving customers' problems.
In ESS, we will build more sophisticated foundations for maintenance and construction
with the use of DX, aiming to improve the profitability of basic projects. In addition, we
will aim to earn sales of 40 billion yen through the digital town business and the actions
towards green society. These domains are expected to produce higher profitability. We
will work on them to improve our profit margin.
<DXS Business>
Q: You explain that you will strengthen consulting under the current medium-term
management plan. I understand that you proposed improvements suited to individual
customers and provided solutions. What is the difference between your conventional
actions and the consulting that you will address?

A: In the past, our business evolved and expanded from construction and replacement ofcommunications infrastructure to workstyle innovation. However, our past businessfocused on responding to customers' apparent needs. Going forward, we will use big
data to identify customers' issues before they surface, along with offer proposals. We
will step up the business, always partnering with customers. We will increase consulting
on how to serve customers by means of DX. We will be proactive in approachingcustomers.
Know-how in using digital technologies was accumulated in line with the expansion of
the DX business. We aspire to change from past proposing activities with a focus ontechnologies into proposals from three problem-solving perspectives, namely CX(corporate transformation), BX (business transformation) and GX (green
transformation). The medium-term management plan reflects this notion.
Q: You will also be focusing on smart factory in the current medium-term management plan.
I imagine that NESIC's strength will be obscure in this and that it will thus differ fromworkstyle innovation, in which you can differentiate yourselves through selfimplementation. In what areas do you have strength and where can you achievedifferentiation? Are there any sectors within the manufacturing sector in which you haveparticular strength?
A: We have business relationships with a large number of manufacturers. We hear theirneeds for changing workstyles on the shop floor. In the past, we actually won orders
from other companies engaging mainly in consulting, since we had an understanding
about customers' business processes and knowledge on practical operations. It issometimes said that the advent of cloud computing and the need to connect to external
networks has democratized information and communication technologies (ICTs). For
the purpose of differentiation, we will make good use of this cloud computing andcombine our capacity to provide secure ICTs with our expertise in process innovation.
Apart from workstyle innovation on the shop floor, there is demand for supply chain
management (SCM) systems for receiving and placing orders and other functions in the
manufacturing industry. Factories have large site areas. Taking advantage of this, wewill respond to demand for carbon neutrality.
Within the manufacturing industry, we currently serve a relatively large number ofcustomers in the processing sector. We will work to increase the number of customers
in other sectors through partnerships and other measures.
Q: I think that the DXS business includes not only priority areas but also existing
businesses related to LAN, WAN, voice and others and subsidiaries' businesses. Whatis your view on these for the period of the medium-term management plan?

A: We expect sales of existing businesses, including LAN, WAN and voice, to shrink fromapproximately 60 billion yen in the previous fiscal year to around 50 billion yen for the
fiscal year ending March 31, 2025. That reflects consideration of the impact of the shift
to service businesses and falling unit prices.
On the other hand, we project that sales of subsidiaries' businesses will grow fromaround 30 billion yen in the previous fiscal year to approximately 35 billion yen. Synergy
with the Q&A Group is advancing. We contract with it to perform helpdesk and otherfunctions at the time of conducting a spiral-type business. That way, we will be able togrow together. Nichiwa plays a function as a sales company. We will expand its
operation from Hyogo Prefecture, where it is strong, to neighboring regions and fromcomputer-centered business to voice-related domains.
Q: Amid growing concern about inflation, what is your forecast of its impact on ICT
investments in the corporate sector?
A: At the moment, we are receiving increasing inquiries on DX. There are strong needs,
particularly for security-related foundations essential to SaaS. In fact, we are unable torespond swiftly because of the shortage of semiconductors and materials.
However, it is quite possible that customers may take a prudent attitude towards
investment. We will pay attention, rather than being optimistic.
Q: The security business is of growing significance. What is the current size of NESIC's
security business? And what is your target size?
A: We have set a target of around 10 billion yen in net sales for the security business in the
DXS segment for the fiscal year ending March 31, 2025. This means that we are toincrease the figure to around three times the level marked in the previous fiscal year.
Q: In DXS, is the introduction of Symphonict a prerequisite to the industry business and the
public business? If it is, will the initial cost be affordable?
A: It is not that we will sell Symphonict itself. We will link the voice service, the security
service and others on Symphonict with customers' equipment. In the past, we offered
numerous services related to offices and workstyles. We will take a market perspective
and expand our business to workstyles in factories and local governments.
<NWS Business>
Q: I understand from the financial forecasts for the fiscal year ending March 31, 2023 thatgrowth will be faster in the second half of the medium-term management plan period.
What will drive the acceleration?
A: We do not forecast growth in carrier infrastructure given a peaking of 5G. It is local 5G

and social infrastructure that we expect to grow in the second half. With regard to social
infrastructure, we anticipate a full-scale introduction of offshore wind power generation.
Q: Some speculate that 5G facilities for carriers may hit a peak without capital expendituresat the expected level. How will you address that situation?
A: With respect to carriers' investment in 5G facilities, we have the same view that you
mentioned. Our plan is therefore based on the assumption that capital investment will
peak. Meanwhile, communication traffic is increasing constantly. We expect thatcarriers will continue investing in strengthening and optimizing optical networks. We will
focus on sales efforts in these areas. In addition, after lowering communication charges,
carriers are more eager to cut costs. We regard this as a business opportunity. We will
work to boost sales in domains including DX for streamlining operations. In addition, theshift to open networks that leads to cost cutting will gather momentum. We will play aleading role in it to maintain the size of our carrier infrastructure business.
Q: What is your assumption for carriers' 5G investments concerning base stations, core
networks and other areas at the time of preparing the medium-term management plan?
A: Our base station business is very limited. It accounts for a very small share of total
revenue. Most of its business fall under the category of core networks including access.
We do not expect that carriers' investment will fall considerably in this category, since
we understand that carriers still have a great interest in boosting their capacity.
Q: For example, KDDI said that it would cut its investment from the current fiscal year.
Softbank also announced that it would reduce investments by 20% for the next fiscal
year. Shouldn't you be thinking about the risk of a massive decline in carriers'
investments?
A: We do not deny that our results are partly linked with carriers' investments. However, ourbusiness is not confined to actions for capital investments. We also deal with operations
and other areas close to carriers' own business. We will work to increase revenue inthese areas. We will do so to ensure that the business will not be severely impacted bya slide in capital investment.
Q: What is your service orientation for individual carriers in NWS?
A: For KDDI, we are aware that a joint venture with it, K&N System Integrations
Corporation, has an increasing presence in the KDDI Group. At the beginning, basestations were at the heart of our services. We will deal not only with them but also with
network operation and maintenance that have traditionally been done internally bycustomers and with reforms in customers' business processes with the use of our DXexpertise. We will thus expand the range of services.
Our services for Rakuten and Softbank compete with communication constructors inlimited areas. We will work on those domains where we have an edge.
Q: Will changes in virtualization and other technologies be helpful or a risk to NESIC?
A: We think that they have both aspects. If we do nothing, they will act as risks. Meanwhile
they are opportunities to see new products and service vendors involved. For us, they
will also be opportunities of moving to a stronger position through co-creation with thesevendors. In the past, there were vendors under the umbrella of carriers. Our position
was to implement systems integration for their devices. The shift to open networks
means that many different products and services may be involved, and we expect that it
could change the business model. For example, systems integrators with businessknow-how must propose optimal solutions through consulting. We are working hard todevelop engineers with expertise in virtualization.
Q: It seems that you think that demand for local 5G is still weak, even though it is a growth
driver. What do you think about its growth potential?
A: Local 5G is a network solution with attractive features including a high security level anda high communication speed. However, its high price is an obstacle to demand growth.
There are mixed market forecasts. Some show optimism while others pessimism. It is
actually difficult to predict. We hope to create markets as a leader in this field.
Since it is based on technologies for carriers, its services tend to be bulky. Our
engineers in NWS and other segments are working on standardizing them to make iteasier to propose them to customers. We believe that the business will expand if theprice falls. We will combine the portion we offer with the portion procured from outsiders
to stimulate the market as a price leader. We will develop it into a multi-connectivity
business in the NWS segment that will earn tens of billions of yen.
Q: You explained that you will move into offshore wind power generation. What is your pointof differentiation? I hear that pricing is challenging in the area of construction. Does it
have any impact on you?
A: We have strength in cable landing and prior seafloor surveys cultivated in the domain ofsubmarine communication. It is unique in the sense that competition is limited. That is
why we are not involved in the price war. Rather, we receive a large number ofinquiries. We will combine it with DX and IT to expand the business.
<ESS Business>
Q: The slide on promotion of the digital town business in the ESS Business mentioned

onshore fish farming as an example of industrial development and business creation.
How is it positioned in the strategy centering on digital solutions?
A: We aim to develop industries through innovation based on the use of digital technologies
in operations and industries where human labor has traditionally played a central role.
We ourselves have no know-how in onshore fish farming that we are currently working
on. In collaboration with a partner who is strong in this area, we will use digitaltechnologies in which we excel to massively increase productivity and to generateinnovation in this industry.
Q: Would you give us any specific examples of the actions towards a Green Society?
A: An example of power conservation measures in the demand market is that we areconducting a demonstration trial of liquid immersion-cooled small data centers, an area
in which future demand is expected. It is showing some positive effect on power
consumption efficiency. On the basis of the idea that it may be applied to large data
centers, we are thinking of conducting a trial on them. We will also meet the needs forenergy conservation for stadiums, for instance with lighting from Musco Sports Lighting,
LLC. For buildings, our smart building solutions using our original building management
system are promising.
For the supply market, we have mainly provided systems integration and construction
for equipment. Going forward, we will step up managed services for microgrids andother areas in collaboration with local governments and regional electric powercompanies.
Q: What is behind the target of a greater increase in the profit margin for the ESS segment
than for the other two segments? What factors are responsible for this other than theremediation of unprofitability in Myanmar in the previous fiscal year?
A: We will boost profitability by increasing the productivity of construction in the existing
business with the use of DX and by expanding services in urban development,
environmental and other high value-added areas.
Q: In connection with ESS, you said that you had signed a comprehensive collaborationagreement with a local government seeking zero carbon. What will your future actions
be after this move?
A: It is a comprehensive agreement with the municipal government of Sukumo City in Kochi
Prefecture. We will produce positive results from it as a leading model of energy
management and local production for local consumption and later introduce it tocustomers across the country.

<Companywide>

Q: You explained that DX orders you received increased from 6 billion yen in the fiscal year
ended March 31, 2020 to 27.5 billion yen in the fiscal year ended March 31, 2022. Whatis the target on DX orders under the current medium-term management plan?
A: Under the plan, we will strive to about double companywide DX orders in the fiscal year
ending March 31, 2025.
Q: Will Symphonict sales be recorded in the DXS segment?
A: Symphonict is our DX brand. We will push ahead with the use of DX across the groupand it is concerned with all segments.
Q: How will the Symphonict platform be perceived to customers? Is it something they will
mean to introduce? Or is it something that will come to them together with Zoom orother services? Will you advertise the Symphonict platform emphatically in the processof strengthening consulting services?
A: The common platform is one of the differentiating factors of Symphonic as a brand for
DX services. At the time of consulting, we will stress in our consulting that the services
will be offered on this platform. However, we gain some customers through services
and some customers have little knowledge about the Symphonict platform. We hope to
expand the business in both aspects.
Q: What is your stance on investment during the period of the medium-term management
plan? Investments in business model innovations seem to be costly in the short term.
Have they already been completed under the past medium-term management plan?
A: Under the previous medium-term management plan, we invested 5 to 6 billion yen peryear in growth. Given that there are new areas to be addressed, we will continue toinvest actively. We have earmarked 30 billion yen for growth under the current mediumterm management plan. We will focus particularly on investing in DX, consulting andother personnel. We will also invest in strengthening demonstration trials, including
replacing internal ICT platforms and relocating to a new head office building.
Q: You explained that the global business will expand in earnest under the next mediumterm management plan. What is your thinking behind this?
A: We had an aspiration to re-expand the global business for accelerating our growth, andwe regarded the previous medium-term management plan as a period for preparation.
However, the pandemic prevented us from making sufficient preparations, and we willagain make preparations under the current medium-term management plan.

We will take two approaches for the preparations regarding the global business. One isabout the existing project-type business mainly run by local subsidiaries. We will
specialize in wireless technologies and other areas where our strengths can be utilized.
The other is about the domains for growth, such as DX and cloud computing. In these
domains, we are currently developing resources in North America. However, services
themselves are borderless. We will prepare for business expansion beyond nationalboundaries in the future.
Q: The orientation of the new medium-term management plan is somewhat close to that ofNEC. What do you think is your desirable distance from NEC?
A: The medium-term management plan is a result of our independent discussion andpreparation. We believe that the closeness reflects the fact that the plan has been
prepared in view of market needs. The difference between NEC and us lies in themarkets in which we specialize. NEC is strong in large mission-critical customers,
whereas we excel in small customers for whom a faster response is needed. We see
the two companies as thus coexisting.
We believe that our relationship gives us easy access to NEC's outstanding
technologies in the case of our introduction of cutting-edge technologies for doing
business. We will make active use of it to offer appropriate services to customers.

*This material is a summary of questions and answers exchanged between the
Company and sell-side analysts at two meetings held separately on May 30 andJune 9. To help readers gain a better understanding, the content has beenedited by omitting overlapping questions and rearranging the order of thequestions