Q&A at IR Briefing for Financial Results
for the First 9 Months of Fiscal Year Ending March 31, 2021
February 1, 2021
NEC Networks & System Integration CorporationQuestionerＡ
Q: You revised full-year forecasts upward. Were there changes in GIGA school projects in thedigital solutions (DSL) business such as an increase in the ratio of network establishment
whose profitability is not low, contrary to the prediction that the sales mix would worsen
due to the low profitability of the GIGA school projects mainly dealing with products?
A: Orders received for the GIGA school projects totaled 29 billion yen on a consolidated basis.
It includes not only those at a subsidiary whose results are consolidated into DSL, butalso orders for our ESS (engineering and support services) business which were received
at our regional bases. Orders for each were 14 billion yen to 15 billion yen respectively.
Sales of GIGA school projects in the first nine months were about 1 billion yen for DSL
and about 10 billion yen for ESS.
Under these conditions, the GIGA school projects mainly for equipment showed low
profitability as you pointed out. However, profitability did not differ significantly between
network establishment for the GIGA school projects and regular system integration
projects. Furthermore, improvements made through learning effects, volume effects andthe like have produced results in the course of advancing the GIGA school projects. The
profitability of the GIGA school projects as a whole, including equipment projects, are low
compared with that for the Group. However, we have improved its profitability from ouroriginal estimate.
Q: How did DX-related orders progress in the first nine months? Have there been any changes
to the Zoom-centered content?
A: DX-related orders received amounted to about 9 billion yen on a consolidated basis,including about 6 billion yen for DSL and about 1.5 billion yen for each of the other twosegments. Zoom continued to account for about one-third of the orders received. Orders
for other cloud services and the like, including file server services, started growing as well.
Q: I’d like to know the medium- and long-term direction of DSL. What is the component ratio
for DX and workstyle innovation that you aim to achieve in this segment? I’d like to alsoask you about your approach to small and medium enterprise customers, which haveincreased recently?
A: We have no established long-term numerical targets at this stage. However, we are hopingto increase the ratio of DX and other service operations which already account for about
half of DSL at the moment. We are hoping to strengthen the system integration businessby combining it with the service business, rather than transforming the system integration
business into the service business. We are thinking in that way.
Businesses for small and medium enterprises is a field we have not been able to address
very much in the past. We are advancing those businesses by focusing on inside sales.
They have started to expand steadily.

Questioner B
Q: Increasingly, you are acquiring new customers with Zoom as the initial entry point. How
much is cross-selling and up-selling to them contributing to your results at this stage?
A: Our DX customers, centered on those who came to us through Zoom have increased tentimes from the about 1,200 companies at the end of March 2020 to about 12,000
companies at the end of December 2020. We are continuing to gain new customers at agood pace at the moment. The Zoom Global Partner Award for fiscal 2020 that wereceived from Zoom is proof of the great results we have been achieving with Zoom.
Cross-selling and up-selling to customers employing Zoom as a gateway has not produced
big figures yet. We are working on moving those operations into full swing now. Insidesales is our way of increasing sales to small and medium enterprise customers. We arealso aiming to expand businesses for large enterprise customers, starting with identifying
about 50 companies as our targets and growing our business with our consulting services
as a starting point.
Q: How is the distributed satellite office business progressing?
A: There are a dozen or so projects now in progress, including those that led to orders andothers in the proposal stage. This is a business worth billions of yen, including the related
services necessary for distributing work, such as solutions for automating operations. We
believe we can expect the business to grow further.
Q: Orders received by K&N System Integrations Corporation or KNSI and net sales posted by
the company increased substantially in the first six months. Did this momentum continue
in the third quarter? Were there any changes to this momentum?
A: Results for KNSI continued to rise in the first nine months in the same way as in the firstsix months.

Questioner C
Q: You raised your full-year operating income forecast substantially by 2 billion yen, even

when excluding the 1 billion yen in reserve for unexpected COVID-19-related risks that you
did away with. Is improvement in the profitability of GIGA school projects that is greaterthan your original estimate a main reason for this forecast revision? Are there otherprimary factors?
A: As you pointed out, the improving profitability of the GIGA school projects is a main cause
for the revision. There are other key factors, too, such as the growth of net sales and cost
reductions advancing faster than our forecast.
Q: There has been special demand for GIGA school projects this fiscal year. Do you think you
can keep the volume of orders received at the same level, making up for this surge in thenext fiscal year?
A: We are studying our budget for the next fiscal year now. We are not ready to discuss
anything specific yet. However, we are sure that the reactionary fall from the GIGA school
projects that we will experience will be huge. We are currently studying the feasibility ofan approach to make up for the surge by cross-selling and up-selling to Zoom andeducational customers, whose numbers we were able to increase in the current fiscal year,and promoting the growth of our businesses for telecommunications carriers, because wecan expect those businesses to stay strong and to contribute to not only KNSI’s businessgrowth but also our businesses overall. There were customer restraints on our businesses,
such as PBX replacement, in the current fiscal year. We think we can expect thosebusinesses to start moving again when conditions related to COVID-19 improve. We are
studying our budget, hoping to turn the operating income of 22 billion yen that is forecast
for the current fiscal year into a start for achieving greater growth.
Q: I think you are likely to achieve the numerical targets for the Medium-Term Management
Plan this fiscal year ahead of schedule. Will you revise the Medium-Term Management Plan
if that happens? Or will you revise just the numerical targets for the next fiscal year?
A: We will review our targets for the next fiscal year, the final fiscal year of the Medium-Term
Management Plan, as the forecasts for the next fiscal year.
The next fiscal year is the final fiscal year under the current Plan. At the same time, theyear is the run-up to our next Medium-Term Management Plan. We consider it to be an
important year during which we will examine and discuss our further growth toward thefuture.

Questioner D
Q: For the revised full-year forecast, why does the contribution of the revised operating
income look small compared with the increase in net sales in your revised full-year forecast
for the network infrastructure or NWI business? I understand you are expanding growthinvestment related to 5G. Is this effect due to 5G investment and other similar
investment?
A: We kept the revision of the operating income forecast for NWI small, considering a growthinvestment increase in the fourth quarter and our sales mix. We are investing in the 5G
field in various ways now. We plan to accelerate investment without limiting it to thecurrent fiscal year if doing so is necessary.

Questioner E
Q: You delayed the posting of growth expenses to the second half at the end of the first half.
Will you incur these expenses according to the plan under the present conditions? Tell us
also what you plan to do with growth investments in the next fiscal year.
A: Our growth investments amounted to a little more than 4 billion yen in the first ninemonths. We estimate our growth investments in the fourth quarter will be a little less than
3 billion yen. We are planning to spend a total of 7 billion yen according to plan. Wecannot tell you anything specific about the next fiscal year yet as we are discussing thebudget for the fiscal year now. However, the next fiscal year is not only the final year of
our Medium-Term Management Plan, but also the run-up to our next Medium-Term
Management Plan. We think that increasing growth investment is a possibility if investment
is necessary to achieve growth in the future.
Q: Your operating income rose sharply in the current fiscal year, partly due to a decrease in
the provision for loss for unprofitable projects. Regarding profit in the next fiscal year, if
there is no improvement in growth expenses, do you expect to see an increase in netsales, which will be a growth driver?
A: The about 28 billion yen posted for GIGA school projects in the current fiscal year will havean impact on our net sales in the next fiscal year. At the same time, we expect a positiveeffect from cross-selling and up-selling, centering on DX, to new customers acquired
through GIGA school projects and Zoom operations, the launch of local 5G services, andincreased sales including 5G to telecommunication carriers. Predicting a sharp growth ofprofit as we expected to achieve in the current fiscal year is difficult, but we are thinking
about raising our profit forecast, beyond the baseline 22 billion yen forecasted for thecurrent fiscal year, expanding net sales for the more profitable projects I just mentioned,
improving the sales mix by lowering the sales ratio of the relatively low-profit GIGA school
projects, which are included in net sales for the current fiscal year, and continuing costreduction.
Q: What is the current state of your business with KDDI?
A: KNSI, our joint venture with KDDI, is continuing to perform strongly. We understand its

market share rose steadily from the previous fiscal year. We believe we can continue toexpand our KDDI business with KNSI at its center.

Questioner F
Q: There have been various criticisms of Zoom, including regarding the suspending of accountactivities in specific meetings. Are these criticisms negatively affecting your business? Also,tell us about the effects of influential video conferencing services operated by other leading
companies.
A: We are aware of various criticisms of Zoom. They have had no significant impact on ourbusiness, though. We are dealing in other services that compete with Zoom, too. We
believe we can sufficiently address changes in the competitive environment because weare advancing proposals based on the needs of customers.

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