Q&A at IR Briefing for Financial Results
for the First Half of Fiscal Year Ending March 31, 2021
October 30, 2020
NEC Networks & System Integration CorporationQuestioner A
Q: Regarding the impact of the COVID-19 Coronavirus (“COVID-19,” hereafter),there must be both positive and negative effects. What was the situation in thefirst half of the year, and what is your outlook for the full year in this respect? In
the first half of the year did COVID-19 primarily impact domestic operations?
A: The impact due to COVID-19 has manifest in various ways, both large and small,but particularly in the service industry and in relation to airports, customers havebeen postponing their investments. There has been some impact overseas butfor us the effects have mainly been seen in Japan. In terms of the impact on theprofit front from postponed investment or project delays resulting fromCOVID-19, there was a decline of roughly one billion yen in the first half of theyear. On the other hand, investment in the areas of GIGA schools and digitaltransformation (DX) has been strong in response to COVID-19, and particularlywith regard to DX, while the monetary effects will be realized down the road, weare seeing results in terms of new customer development.
As for how we see the second half of the year, even compared with last year theimmediate situation is on par in terms of the large number of prospective
projects. However, our corporate customers have been hit hard by COVID-19,
and although there is a possibility this will end up having little impact, right now
we are taking a hard look at the likelihood of this. In terms of profit, our forecast
for the second half of the year is a fall of about one billion yen, reflecting the riskof the COVID-19 situation worsening again due to a re-declaration of a state ofemergency or other developments.
Q: GIGA School performed strongly in the first half of the year, and in the future wewill see advancement such as the digitization of government. How will this kind ofdigitization in the public sector impact NESIC?
A: It is hard to envision NESIC going in as the main supplier of large governmental
systems, but providing services to companies and residents relative to thedigitization of government is conceivable. Although the details are still
forthcoming, we believe there is a lot of potential in providing services without

the need for signature stamps, and services to residents by utilizing cable TV
connections. As for GIGA School, we received significant orders for the service
itself primarily in the first half of this year, but this is a market that NESIC had notpreviously been working on, and we expect there is room for expansion throughcross-selling and up-selling beyond these projects, such as in relation toworkstyle innovation for teaching staff.

Questioner B
Q: What is the status of business inquiries regarding distributed work? And aroundwhen do you think distributed work will manifest as business in a big way?
A: We have received a lot of attention from customers related to distributed work inconnection with the spread of COVID-19. At this stage we deal with more
projects that support for remote work with a focus on enabling work from home,
but we have already received orders for and delivered on some distributed work
projects. Prospective projects are on the rise and we expect them to expand
moving forward. At NESIC, our initiatives have been based around the concept ofemployee well-being, but many customers are also focused on distributed workfrom the perspective of business continuity planning (BCP), and there has been
talk of things like decentralized data centers, for example.
On the timing of actual implementation, the effects of COVID-19 are still very
apparent, making it difficult to actually select office space, and we believe
projects will emerge when the effects of COVID-19 have subsided somewhat. Forthe meantime we are mainly dealing with customers with urgent concerns suchas BCP.
Q: What kinds of solutions are you thinking of rolling out for cross-selling andup-selling targeting the recently expanded educational market?
A: One of the things we have already started working on is the development of an
online streaming studio utilizing Zoom and the operational services that go alongwith it. We also expect there are a lot of new things we can do in the educational
sphere through co-creation initiatives with customers, such as initiatives toutilize the education-related information gained through this kind of support asbig data.
Questioner C
Q: GIGA School projects drove orders in the first half of the year, but how did theseprojects perform in terms of profitability? In the revised full-year forecast thatwas announced this time, forecast operating income margins in both the DigitalSolutions (DSL) and Engineering & Support Services (ESS) segments are downfrom previous forecasts. Is this due to GIGA school projects, and what are yourthoughts on future solutions to be implemented following GIGA school?
A: The area of GIGA School comprises projects focused on client equipment anddevices such as PCs, and projects that involve the development of networks. The
client equipment and device-focused projects mainly involve arranging physicalgoods, which lowers profitability. Projects that involve network development are
more profitable than those, but they are won through a competitive bidding
process, and these tend to be slightly lower than the company-wide average.
Those projects are what is putting downward pressure on profitability in bothsegments.
For the customers we have developed relationships with through GIGA School,
future prospects include projects that involve studio equipment such as theprojectors as mentioned earlier, and moving forward we hope to offer support forthings like online lessons.
Q: Regarding the DX business, you have rolled out solutions such as a multi-cloudservice that utilizes Symphonict, but what kinds of cloud services do you think
are growing? Is there any change compared with the situation in the first quarter
where Zoom was on the rise?
A: In terms of customer development, Zoom has contributed a great deal, primarily
with new customers. On a monetary basis, Zoom has accounted for 30 to 40percent of DX-related orders. That ratio has fallen slightly, and other services like
IoT-related solutions and Nets-Voice (voice cloud service) are also on the rise.
Q: On expanding a service provision-type model, how do you plan to work on this in
the medium and long term?
A: Utilizing cloud services is essential in achieving distributed work and workcations,and we believe that multi-cloud services that integrate multiple cloud services
will increase. We are looking at expansion through Symphonict, which achieves
that in a fast and easy way. By increasing the number of high value-added
services we offer, we also aim to grow the system integration (SI) business by
integrating those services and building the mechanisms and environments to get
the most out of them. We believe we will be able to achieve differentiation fromother companies through these types of initiatives.

Questioner D
Q: You received some major orders for GIGA School during this year, but there areconcerns over a recoil from this in the next year. How do you see the prospects
for order in the next year? Do you think you can cover any downturn throughthings like cross-selling to the new customers developed during this year?
A: Although we think there will be a decline in GIGA School orders, as the impact of
COVID-19 is mitigated we also think corporate investment will return and we
expect continued growth in the area of DX. On top of that we will begin earnest
efforts to cross-sell and up-sell to those new customers, and we also expect 5G
investment to start getting into full swing. We therefore believe there are ample
possibilities to take advantage of the impact of GIGA School from the first half ofthe year
Q: When do you think the effects of cross-selling and up-selling to these newcustomers will become apparent?
A: We are already moving forward with inside sales, and we expect some of theeffects to become apparent from the second half of the year. Projects for DX arealso on the rise through our sales channels, and we will continue to takeadvantage of those opportunities as well.
Q: Regarding KNSI (joint venture with KDDI Corporation), will it be possible tocontinue expanding the business through increased market share? Additionally,
do you think falling mobile phone rates will have any impact?
A: KNSI has gotten on track and 5G investment will be appearing in the future. Also,
the areas handled by KNSI have expanded beyond just base stations to core
networks, and we believe there are prospects of continued growth. We don’t see
any immediate impact from lower mobile phone rates, but there is a possibility ofchanges to the revenue structures of telecom carriers and this is an area we willwatch closely.

Questioner E
Q: What is the status of your mega-solar projects?
A: The problematic project has proceeded to the final stage and has already begun
selling electricity. We don’t foresee any major issues cropping up in the future.
We have encountered an issue with another project, but the size of the project issmaller than the aforementioned one, and we don’t think it will have a majorimpact.
Questioner F
Q: Regarding the impact of COVID-19 on construction work, has the pace of indoor
and outdoor work returned to previous levels?
A: For construction work, there are some customers that impose entry restrictions
or other requirements, but we are taking all the measures available to us andproceeding properly.