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Annual Report 2011Year ended March 31, 2011NEC Corporation
The NEC WayAn information societyfriendly to humans and the earthNEC Group Core ValuesBetterProducts,BetterServicesDaily workNEC GroupCore ValuesFiscal year management strategy(What we valueand base ourbehavior on)Passion forInnovationSelf-helpNEC Group Vision 2017Mid-term growth planNEC Group Vision 2017NEC GroupCode ofConduct(Corporateethics andcompliance)CollaborationNEC Group Corporate PhilosophyNEC Group Charter of Corporate BehaviorTo be a leading global companyleveraging the power of innovationto realize an information societyfriendly to humans and the earthNEC Group CorporatePhilosophyNEC strives through “C&C” to helpadvance societies worldwidetoward deepened mutual understandingand the fulfillment of human potential.“C&C”: The integration of Computers and CommunicationsNEC aims to ensure the sustainable development of societyand the NEC Group by implementing The NEC Way.It is crucial that companies recognize that their existence ispremised on society, and at the same time is part and parcel ofthe global environment that is precious to all forms of life on theearth. NEC seeks to realize “an information society friendly tohumans and the earth,” as set forth in the NEC Group Vision2017 based on its Corporate Philosophy. To this end, in thecourse of daily operations, every employee will rigorously adhereto corporate ethics and compliance standards, practice the NECGroup Core Values (what we value and base our behavior on),and help solve issues faced by customers and society.Our important social responsibilities also include ensuring fullaccountability through the active disclosure of information onthe results of our CSR initiatives and related issues, andcommunicating with stakeholders to improve our corporateactivities and build trust.Contents02To Our Shareholders03Financial Highlights25 R&D and Intellectual AssetsStrategy05 Message from the PresidentManagement Perspective onBusiness Strategies28 Activities for contributing tothe environment and society13 At a Glance33 Directors and Corporate Auditors15 Review of Operations3415 IT Services Business17 Platform Business19 Carrier Network Business21 Social Infrastructure Business23 Personal Solutions Business01NEC CorporationAnnual Report 201129 Corporate GovernanceFinancial Section96 Investor Information97 Corporate Overview
To Our ShareholdersIn fiscal 2011, NEC continued to face challenging businessconditions, highlighted by the slow recovery of IT investment inJapan and sluggish investment by overseas telecom carriers.Furthermore, the Japanese economy was significantly impacted bythe Great East Japan Earthquake in March 2011. As a result, NECwas unable to achieve its initial business targets for fiscal 2011.Efforts are underway to recover from the impact of theearthquake. I wish to send my thoughts and prayers to all thoseaffected by the disaster. The NEC Group is fully committed tocontribute to quick recovery of the disaster stricken areas.In fiscal 2011, although consolidated net sales dropped 13.1%year on year to 3,115.4 billion, consolidated operating incomeimproved 6.9 billion from the previous fiscal year to 57.8 billion.However, NEC posted a consolidated net loss of 12.5 billion, 23.9 billion worse than the net income result in the previousfiscal year.In light of these circumstances, NEC has decided not to pay anannual dividend for fiscal 2011. We deeply regret that we mustreport this decision to shareholders.In February 2010, NEC unveiled its Mid-Term Growth Plan“V2012—Beyond boundaries, Toward our Vision.” We arecurrently pursuing the plan’s three key initiatives: focus on “C&CCloud Strategy,” expand global business and create newbusinesses. The NEC Group is determined to help Japanovercome the impact of the disaster earlier this year and recover.At the same time, NEC is striving to implement speediermanagement to realize the NEC Group Vision 2017, with the aimof enhancing shareholder and corporate value over the mediumand long terms.We look forward to your continued support and understanding aswe work to reach our goals.June 2011NOBUHIRO ENDOPresident, NEC CorporationNEC CorporationAnnual Report 201102
Financial HighlightsNEC Corporation and Consolidated SubsidiariesFor the years ended March 31, 2007, 2008, 2009, 2010 and 2011Millions of yen2007200820092010 4,652,6491,213,68526.169,97616,3479,128 4,617,1531,155,74925.0156,765112,24022,681 4,215,603934,46922.2(6,201)(93,171)(296,646) 3,583,148712,88619.950,90549,42911,428Cash flows from operating activities Cash flows from investing activities Free cash flows (173,167)(145,808)134,816(41,241)93,575R&D expenses Capital expenditures (property, plant and equipment) Depreciation (property, plant and equipment) 03,142133,624275,97083,098111,167Per share data (in yen and U.S. dollars): Net income (loss) Diluted net income Cash dividends .00At year-end:Total assets Owner’s equity Return on equity (%) Owner’s equity ratio (%) Interest-bearing debt Debt-equity ratio (times) 631.442,937,644790,9041.626.9729,5480.92Number of employees Number of consolidated subsidiaries 154,786342152,922334143,327328142,358310For the year:Net sales Overseas sales Percentage of overseas sales to consolidated net sales (%) Operating income (loss) Ordinary income (loss) Net income (loss) Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of 83 U.S. 1.2. Net income (loss) per share is calculated based on the weighted-average number of shares outstanding during each period.3. Owner’s equity is the sum of total shareholders’ equity and total valuation and translation adjustments.4. The debt-equity ratio is calculated by dividing interest-bearing debt by owner’s equity.Net sales, Percentage ofoverseas sales toconsolidated net salesOperating income (loss),Operating income ratioNet income (loss),Net income ratioOwner’s equity,Owner’s equity ratio(Billion )(Billion )(Billion )(Billion )6,000.0200.04,652.6 9%1.9%100.01.4%70.0 11.49.110.01,004.2400.0–12.5–7.0%–296.602007 2008 2009 2010 2011 Net sales Percentage of overseas sales toconsolidated net sales03NEC CorporationAnnual Report 2011–50.02007 2008 2009 2010 2011 Operating income (loss) Operating income ratio–300.02007 2008 2009 2010 2011Net income (loss) Net income ratio02007 2008 2009 2010 2011 Owner’s equity Owner’s equity ratio(At year end)
Overview of Business Results for the Fiscal YearEnded March 2011Millions ofU.S. dollars20112011 00(0.06)–0.00–––Operating income 57.8 billion (improved 6.9 billion year on year)Net loss 12.5 billion ( 23.9 billion worse year on year)On the earnings front, operating income improved to 57.8 billion despiteworsening profitability in the IT Services business and Personal Solutionsbusiness. This was mainly the result of the deconsolidation of NEC ElectronicsCorporation, which recorded an operating loss in the previous fiscal year. Anothercontributing factor was improved profitability in the Platform business.NEC posted a net loss of 12.5 billion, representing a change of 23.9 billionfrom net income in the previous fiscal year. This was mainly due to the recordingof equity in losses of affiliates and a smaller gain on sales of subsidiaries andaffiliates’ stocks.Segment Sales ,142(25%)SocialInfrastructureBusiness318.8 billion yen(10%)115,840283PlatformBusiness375.8Fiscal 2011net sales: 3,115.4 billionbillion yenSegment Operating Income (Loss)IT Services Business804.2 billion yen(26%)Others244.7 billion yen(8%)–10.5–4.331,6749,121 3,115.4 billion (down 13.1% year on year)Net sales were 3,115.4 billion, down 467.7 billion year on year. This decreasemainly reflected the deconsolidation of NEC Electronics Corporation (currentlyRenesas Electronics Corporation), which previously conducted the NEC Group’ssemiconductor business, slow recovery in IT investment in Japan, and the impactof the Great East Japan Earthquake.–13.1%–32.8 54–28.8675,7980.89Net salesPercentchange2011/2010billion yen(12%)Carrier NetworkBusiness605.4 billion yen(19%)Carrier Network Business40.7billion yenIT ServicesBusiness21.4Fiscal 2011operatingincome: 57.8 billionSocialInfrastructureBusiness14.6billion yenPlatformBusiness8.9billion yenOthers7.3billion yenbillion yenPersonal Solutions Business–1.9 billion yenNote: Expenses other than the above includegeneral and administrative expenses of divisionsthat are not affiliated with any segment and basicresearch and fundamental development expenses.Interest-bearing debt,Debt-equity ratioR&D expenses,R&D expenses ratioCapital expenditurescash flows(Billion )(Billion )(Billion )(Billion 44times s100.083.168.6100.050.00–169.72007 2008 2009 2010 2011(At year end)02007 2008 2009 2010 2011 R&D expenses R&D expenses ratio02007 2008 2009 2010 2011–200.0–112.6–41.2–135.8 Interest-bearing debt Debt-equity 173.22007 2008 2009 2010 2011 Cash flows from operating activities Cash flows from investing activities Free cash flowsNEC CorporationAnnual Report 201104
Message from the PresidentManagement Perspective on Business StrategiesProgress on Mid-Term Growth Plan “V2012” and Measures Ahead1. Mid-Term Growth Plan “V2012” and Fiscal 2011 Results2. Fiscal 2011 Main Initiatives and Performance(1) Focus on “C&C Cloud Strategy”(2) Expand global business(3) Create new businesses3. Fiscal 2012 Outlook1.Mid-Term Growth Plan “V2012” and Fiscal 2011 ResultsGuided by the NEC Group Vision 2017, NEC aimscustomer-driven solutions leveraging its competitive“to be a leading global company leveraging thestrengths in the integration of IT and network.power of innovation to realize an information societyAccordingly, the NEC Group formulated its Mid-friendly to humans and the earth.” In FebruaryTerm Growth Plan “V2012—Beyond boundaries,2010, the NEC Group set its medium-term policy ofToward our Vision.”realizing the NEC Group Vision 2017 through“V2012” Management Targets andFiscal 2011 Business Performance“V2012” is a milestone for achievingthe NEC Group Vision 20172017(Billion )2012NEC Group Vision 2017To be a leading global companyleveraging the power of innovationto realize an information societyfriendly to humans and the earthNet salesOverseas sales Overseas sales ratioOperating incomeOperating income ratioNet income (loss)Return on equity 10%* 15.6% excluding the semiconductor business05NEC CorporationAnnual Report 2011
In fiscal 2011, the “V2012” plan’s first year, thethree key initiatives of the “V2012”: Focus on theglobal economy on the whole moved closer to a“C&C Cloud Strategy,” expand global business, andself-sustaining recovery, mainly due to continuingcreate new businesses. As a result, NEC started toeconomic growth in China, India and otherproduce results, including winning projects or joiningemerging countries, along with stimulus measuresfield trials in each of these key initiatives. Additionally,in developed countries that supported theirNEC integrated its mobile handset business witheconomies. This was despite persistently highCasio Hitachi Mobile Communications Co., Ltd., in aunemployment rates in the U.S., European nationsmove designed to enhance the competitiveness ofand other developed countries, and the financialthis business. NEC also reached a strategiccrisis affecting certain European countries.partnership agreement concerning integration of theThe Japanese economy saw consumer incomePC business with Lenovo Group Limited. Lookingand employment conditions remain difficult, and didback at the past year, however, NEC has yet to fullynot see a full-fledged recovery in capital investment.address outstanding issues such as developing aHowever, manufacturing output gradually improvedglobal business network. We must also speed up theon the back of recovering exports, while consumerexecution of business expansion measures, includingspending also increased steadily influenced bydevelopment of new products and services.economic stimulus measures. Nevertheless,In fiscal 2011, our business performance fell fareconomic activity was hit hard by the devastatingshort of our initial forecast, and we were thusGreat East Japan Earthquake in March 2011, not tounable to achieve the targets as set in the plan.mention the accompanying disruptions to productionAs the president of NEC, I deeply regret that theand distribution, power shortages and other impacts.Company posted a net loss and has decided toIn this business environment, NEC worked on thepay no dividend for fiscal 2011.Nobuhiro EndoPresident, NEC CorporationNEC CorporationAnnual Report 201106
2.Fiscal 2011 Main Initiatives and PerformanceAlthough NEC finished fiscal 2011 on a disappointinggovernments to provide or use cloud services. Thenote in terms of business results, we are starting tothird area is the Platform business for developingsee real progress toward the “V2012” objectives.foundations supporting the first two areas. NECExamples include battery and smart grid initiatives inaims to expand sales of “C&C Cloud Strategy”new businesses, a stronger global business network,related businesses, including outsourcing andand winning and implementing advanced cloudwireless broadband access.computing projects. I would like to highlight some of ourmain initiatives and progress in the pages that follow.In fiscal 2011, NEC reported net sales ofapproximately 450.0 billion from “C&C CloudStrategy” related businesses, mainly reflecting(1) Focus on “C&C Cloud Strategy”increased wireless broadband access sales, inNEC will pursue the “C&C Cloud Strategy” in threeaddition to sales growth in the Cloud Servicemain areas. The first area is the Cloud Servicebusiness, the Cloud System Implementationbusiness for providing secure and reliable services tobusiness and other areas.enterprises and governments. The second area isSpecifically, NEC provided cloud services in manythe Cloud System Implementation business fordifferent fields, such as core systems for localdeveloping systems for enterprises andgovernments and inter-hospital information sharingProgress with key initiativesKey initiatives“ C&CCloudStrategy”Fiscal 2011 Main Initiatives and Performance[Japan] D eveloped the key area of core systems, created new businesses withcustomers, created diverse service menu for small and medium-sizedenterprises and organizations Provided comprehensive solutions for LTE services[Overseas] Developed network for global business expansionExpandglobalbusiness Established a regional headquarters in Latin America, therebyestablishing “One NEC” formation in 5 regions Established competence centers in key areas[Batteries] Commenced mass production of automotive lithium-ion rechargeablebatteries (electrodes)Create newbusinesses Participated in various smart grid trials[Devices] Launched smartphones and tablet devices07NEC CorporationAnnual Report 2011
“C&C Cloud strategy”Activities/Achievements Ticketless service for ShikiTheatre Company Integrated hotel cloud service forNippon View Hotel Co., Ltd. CRM cloud system for SugiHoldings Co., Ltd.Government,Public andHealthcareRetail andServices Financial accounting cloud service for 10 cities, towns, andvillages in Yamanashi Prefecture Core cloud service system for 7 cities and towns in NaraPrefecture Core cloud service system for local governments in threetowns in Kasuya, Fukuoka Prefecture Educational cloud system for Sennan City Collaboration with SANYO Electric Co., Ltd. on a regionalmedical care solution SaaS-based electric medical records system for TamashimaDaiichi Hospital in Kurashiki City, Okayama PrefectureFinanceBManufacturing Cloud oriented accounting service forEXEDY Corporation Collaboration on core cloud systemwith four construction companies Collaboration with Sumitomo ForestryCo., Ltd.; SaaS for the housing industryTelecomand Media Collaboration with Sumitomo LifeInsurance Company on cloud service Private cloud for Sumitomo MitsuiBanking Corporation Collaboration with Telefonica on cloud business inLatin America Collaboration with South Korea’s Shinsegae Groupin digital signage Contributions to NTT DOCOMO, INC.’s LTE-basedmobile phone service, “Xi ” Participation in KDDI Corporation’s field trial of LTE Collaboration with KDDI Corporation on mobilecloud serviceservices, leveraging its track record, technology and(2) Expand Global Businessexpertise in both IT and network fields. Furthermore,NEC is targeting overseas sales of 1.0 trillion,NEC rigorously overhauled business processesand raising the overseas sales ratio to 25% of ourthroughout the group, and integrated its core ITconsolidated net sales in fiscal 2013.systems for accounting, sales, and purchasing intoIn fiscal 2011, NEC reported overseas sales ofa cloud computing environment in order to raise 479.3 billion, representing 15.4% of consolidatedoperational efficiency and reduce operating costs.net sales. This was mainly the result of lower salesThe new systems were brought fully online in fiscalfrom the Carrier Network business, as well as the2011. Looking ahead, NEC intends to set updeconsolidation of NEC Electronics Corporationsuch systems for its customers by applying the(currently Renesas Electronics Corporation), whichtechnologies and expertise it has gained in theconducts the semiconductor business.course of implementing and operating its own newIn fiscal 2011, NEC promoted businesscore systems. We also worked hard to create newdevelopment driven by local leadership in line withbusiness models through collaboration withthe characteristics of its key regions, namely APACcustomers. For example, we broadly provided(Asia Pacific), Greater China, EMEA (Europe, Middlecloud computing services for enterprise systemsEast, Africa), and North America. These effortscombining NEC’s cloud computing-relatedwere led by regional management companiestechnology and customers’ business expertise.(regional headquarters) in each region. With theEfforts were also directed at fortifying our businessestablishment of a regional headquarters in Latininfrastructure for providing cloud computing andAmerica in April 2011, NEC now has “One NEC”many other services. We upgraded and expandedformation in 5 regions.data centers while developing and optimizingcommon IT platforms.To accelerate global business expansion,competence centers were also established toNEC CorporationAnnual Report 201108
centralize technologies and expertise in eachGreen business—a new growth area. In fiscal 2011,business, and develop regional-driven solutions.NEC commenced full-scale mass production ofBusinesses include the Carrier Cloud business,electrodes, a core component of these batteries. Inwhich supports the provision of cloud-basedaddition, NEC developed networked chargingservices to subscribers by telecom carriers; thefacilities linked to a cloud-based system. Thesepublic safety business, including fingerprint andcharging facilities will assist the deployment ofother biometric identification for facility accesscharging infrastructure over a wide area in supportcontrol and immigration control solutions; and theof the uptake of electric vehicles. During the fiscalfemtocell business. Femtocells are ultra-compactyear, NEC conducted trials aimed at enhancing thewireless base stations that are installed indoors.practicality of the system and promotingstandardization of communications protocols withcloud-based systems.(3) Create New BusinessesNEC is promoting the development of an automotiveFurthermore, NEC began taking steps to enterlithium-ion rechargeable battery business togetherthe smart grid market. One initiative was thewith Nissan Motor Co., Ltd. in the Smart Energy anddevelopment of a large-scale energy storageFortifying NEC’s Global Network(Five Regional Headquarters And competence centers)Speedy businessoperationsAggregate customer needs in each regionand provide solutions from Japan Competence center forFemtocells (England)Clarification ofresponsibility and authorityEMEANorthAmericaGreaterChina Competence center forCarrier Cloud (Spain)APAC NEC Biometrics ExcellenceCenter in Bangalore (India)Expand businessknow-how from thecompetence center toeach region Competence center forpublic safety solutions(Singapore) N EC LatinAmerica S.A.establishedLatinAmerica C ompetence center for publicsafety solutions (Argentina)Global Business Activities/Achievements Automated postal servicessystems for Norway Post Culling, Facing, Cancellingand Revenue-protection(CFCR) systems inthe Netherlands Digital terrestrial TV broadcasttransmitters in Bulgaria SaaS services for Telefonica Automated FingerprintIdentification System for theNational Visa InformationSystem for the Greek Ministryof Foreign Affairs09NEC CorporationAnnual Report 2011 Collaboration with Neusoft Corporation on cloud services Medical information system solutions for hospital in Chongqing RFID temperature traceability system for JointownPharmaceutical Group Co., Ltd. P OS systems for new terminal building at the GuangzhouBaiyun International Airport I P telephony system for InterContinental Hotels & Resorts Shanghai Expo I P-based telephone and television system solutions for Mandarin Oriental, Macau C ollaboration on LTE infrastructure business with Wuhan Research Institute ofPost and Telecommunications (WRI) of China Global IT system for Shiseido Co., Ltd. Collaboration with SAP AG on cloud service Collaboration with SomaLogic,Inc. in aptamer-related business Major submarine cable system project: Collaboration with Intel CorporationAsia Submarine-cable Express (ASE)and Microsoft Corporation on digital signage Major submarine cable system project: Cloud computing-based education system for SanSouth-East Asia Japan Cable (SJC) systemJuan Province Ministry of Education, Argentina LTE field trial with Singapore Medical equipment location management systemTelecommunications Ltd. (SingTel)for Albert Einstein Hospital
New Business Activities (Battery, Smart Grid)Thermal,hydroelectric,and nuclear powerPower distribution,substationsCommercialbuildings, factoriesand data centersHousingcomplexesHouses,stores, etc.EV (Electric Vehicle) Activities EV Infrastructure Commercial facilities(convenience stores, gas stations, etc.)Renewable energyRenewableenergy Started field trial of transfer blocking system for distributed power withChugoku Electric Power Co., Inc.(Information and Formed a business partnership with SEKISUI CHEMICAL CO., LTD. in theCommunication“smart house” fieldTechnology) Promoted membership-based charging service for electric vehicles (EVs)Activities Started EV car sharing field trial with EV driving information.ICTEnergyStorageActivities Worked with Electric Power Research Institute (EPRI) of the U.S. to test alarge-scale electricity storage system using NEC’s large-capacity lithium-ionrechargeable battery storage system Agreed to cooperate with Enel Distribuzione on next-generation smart gridand smart cities Joint development of building energy management systems using lithiumion rechargeable batteries with Meidensha Corporation.Charging facilities Charging facility trials in Oregon(U.S.) Charging facility trials withENEOS and othersElectricvehicles Commenced mass production ofelectrodes for automotive lithiumion rechargeable batteriessystem that will enhance power usage efficiency byactively conducted trials of energy managementtemporarily storing surplus electricity in the powersystems that optimize energy usage at commercialdistribution grid—the infrastructure that links powerfacilities and homes.supply facilities such as power stations with endMeanwhile, in the field of multifunctional devices,users including commercial facilities, plants andNEC launched an Android smartphone, whilehomes. Together with partner companies, NEC alsoupgrading and extending its lineup of tablet devices.3.Fiscal 2012 OutlookNEC has started to see some positive developmentsinformation and diversification in the type ofin the business environment, despite an unclear ITinformation obtained from sensors, devices andinvestment outlook in Japan and other uncertainties.various other sources will touch off explosiveOne example is burgeoning data traffic in step withgrowth in data traffic. Data processing platformsthe rapid penetration of smartphones. This influx ofbased on the integration of IT and network fordata traffic is helping to drive growth mainly in NEC’sprocessing even larger amounts of data at an evenCarrier Network business.faster rate will come to play an increasinglyWith strengths in both IT and network, NEC seesimportant role. Until now, data usage (data collection,steady progress with the adoption of cloud computingprocessing and visualization) was limited to specificas an opportunity for business expansion. Lookingcompanies and business sectors. However, if vastahead, advances in the digitization of all kinds ofamounts of data can be collected and processed inNEC CorporationAnnual Report 201110
real time due to advances in the “cloud,” it shouldPartnerships with overseas companies will also bespur the creation of new services through alliancesstrengthened to expand sales on a global scale.crossing industry and business sector lines. TheseTurning to global business, NEC will promotenew services that employ dynamically generatedlocal business leadership from its five regionaldata will be used via various terminals connected toheadquarters around the world. At the same time,the “cloud.”we will accelerate the transfer of authority to localIn this context, in the “C&C Cloud Strategy” relatedoverseas subsidiaries while implementing personnelbusiness, NEC will enhance the range of its cloudmanagement that result in greater appointment ofservices tailored to each type of operation inlocal staff to management positions. The goal is togovernment, manufacturing, retail distribution anddrive business expansion through speedy decision-other sectors, with the aim of expanding business.making. Our efforts will be focused on high-growthFurthermore, NEC intends to fully apply theareas, including education, the Smart Energy andtechnology and expertise gained by shifting its ownGreen business, healthcare, and public safety,core IT systems to a cloud environment. NEC seeksespecially in Asia and other emerging markets.to win orders for cloud-based service projectsIn new businesses, NEC will first sharpen itsunderpinning customers’ core operations. NEC willcompetitiveness in the automotive lithium-ionalso promote the “C&C Cloud Strategy” by providingrechargeable battery business it is developing withcloud services in a mobile environment based onNissan Motor Co., Ltd., with the view to boostingwireless technologies, one of NEC’s key strengths.sales further. We will strive to apply the findings ofProviding “All-in-one” Cloud-based Services, Platforms and DevicesServices fortelecom carriersDataServices forenterprisesServices forconsumersDigitization of informationof every kindDataDataServices forgovernmentsDataDataIT platforms and networkSensors and devicesMobile cloud servicesSensors and devicesvia a variety of devicesRealize “an information society friendly to humans and the earth”11NEC CorporationAnnual Report 2011
trials of large-scale power storage systems forThe NEC Group will also help to implementpower distribution facilities and energy managementmeasures that lead to more efficient use of energy.systems for homes and commercial facilities to theMeasures include the energy storage systemdevelopment of solid businesses.utilizing the technology of the NEC Group’s lithium-The NEC Group is committed to contribute toion rec
In fiscal 2011, NeC continued to face challenging business conditions, highlighted by the slow recovery of IT investment in Japan and sluggish investment by overseas telecom carriers. Furthermore, the Japanese economy was significantly impacted by the Great east Japan earthquake in March 2011. as a result, NeC
