NEC Background

8/11/2019 NEC Background

1/41

Corporate Strategy and Business Development

The Role of Technology Change in NECs Growth

J. Travis Brooks

New York UniversityFebruary 19, 2003


2/41


3/41

Corporate Strategy and Business Development3

Background on NEC Corporation


4/41


5/41


Major Products and Services (1)

NEC Solutions

Systems Integration (SI)Services

Systems integration/Consulting

Software Operatingsystems/Middleware/Application software

Internet Services and

Support Services

Internet services (BIGLOBE)/Maintenance

of computers and related equipment

Outsourcing services/Education services

Servers/Storage/Workstation

Mainframes/PC & UNIXservers/Supercomputers/Storage systems

Workstations/Industry specificworkstations (ATM, POS, Multimediaterminals )/ Key telephone systems

Personal products Personal computers/Printers/Facsimiles


6/41



NEC Networks

NetworkInfrastructure

Optical Systems Backbone systems (DWDM for Terrestrial,Submarine), SDH/SONET)/ Metro, Access (DSL,Cable modems, FTTH, Ethernet)/ CATVsystems/Installation and maintenance

IP Network

Systems

IP networking (switches, routers, network

servers)/Mobile communications core networksystems/Digital central office switches/DigitalPBXs/Installation and maintenance

Mobile andWireless Systems

Base stations/Terrestrial microwave/Satellitesystems/Fixed wireless access systems/Installation and maintenance

MobileTerminals Cellular phones

Other Systems DigitalBroadcast/Studio/management/systems/

Aerospace/Defense electronics/Microwavetubes/Installation and maintenance


7/41



NEC Electronics

Corporation

Semiconductors MPUs/Memory ICs (Elpida

joint venture)/Semi-customICs/Application Specific ICs/GeneralPurpose Linear ICs/Transistors/Diodes/Thyristors/ Opticalsemiconductors/Microwavesemiconductors

Others TFT color LCD modules/Color PDPmodules/Plasma display monitors

Lithium-ion rechargeablebatteries/Capacitors/Relays/Printed wiringboards

ABS (Antilock Break System) Unit/EPS(Electric Power Steering) Unit

Manufacturing equipment forsemiconductors/LCD projectors

Construction services of information andnetwork systems


8/41


Net Sales

Net Sales

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000(Million yen)

-10%

-5%

0%

5%

10%

15%

20%

(%)

Net Sales Annual Growth

Net Sales 4,397,192 4,948,437 4,901,122 4,759,412 4,991,447 5,409,736 5,101,022

Annual Growth 16.7% 12.5% -1.0% -2.9% 4.9% 8.4% -5.7%

FY1996/

3

FY1997/

3

FY1998/

3

FY1999/

3

FY2000/

3

FY2001/

3

FY2002/

3


9/41


Current Sales Forecast

( ): Y-over-Y Growth


10/41


EBIT

Income (Loss) Before Income Taxes

-500,000

-400,000

-300,000

-200,000

-100,0000

100,000

200,000(Million yen)

-10%

-8%

-6%

-4%

-2%0%

2%

4%(%)

Income (Loss) Before Income Taxes Ratio to Net Sales

Income (Loss) Before Income

Taxes

151,31

8

121,22

2

90,993 (224,72

6)

30,183 92,323 (461,18

3)

Ratio to Net Sales 3.4% 2.4% 1.9% -4.7% 0.6% 1.7% -9.0%

FY1996/3

FY1997/3

FY1998/3

FY1999/3

FY2000/3

FY2001/3

FY2002/3


11/41


Sales/Net Income in Dollar Terms


12/41


Current P/L Forecast


13/41


Overseas Sales


14/41


NEC in the USA

NEC Corporation

Tokyo, Japan

NEC USANew York, NY

Holding Company

NEC Solutions AmericaSacramento, CA

Systems Integration

Software

NEC America*Irving, TX

Telecommunications

NEC Capital

New York, NY

Finance

NEC

Laboratories America

Princeton, NJ

(Nov. 1, 2002)

DCM Solutions

Irving, TX

Systems Integration

Newton, MA

HSNX

Supercomputers

NEC Foundation

* Includes 4 subsidiaries:

NEC Business Network Solutions

NEC Eluminant Technologies

NMI

North Coast Logic

NEC

FiberOptechNEC Financial

Services, Inc.

Teaneck, NJ

Finance & Leasing

NEC Electronics

Santa Clara, CA

Semiconductors


15/41


Historical IT Perspective: TechnologyInnovation


16/41


Development History

First Japanese joint venture withforeign capital, Western Electric 1924: Radio ops established

1932: Ally with Sumitomozaibatsu1939: R&D lab established

1950: R&D of transistors initiatedafter Bell Labs 1947 introduction 1954: R&D of computers begins

1958: Jack Kilby of TI, SolidCircuit; Robert Noyce in 1961

1956: R&D of electronicswitching systems (ESSs)

1966: Satcom earth stationsto India

1965: NEAC-Series 2200mainframes; 1974 ACOS

1975: Central Research Labestablished; 1978 DallasPlant

1963: NEC America opens

1983: SX-1/2 supercomputers

1988: NEC ResearchInstitute1990: 4Mbit DRAM, 1996

256Mbit SDRAM

1998: SX-5 fastest;20-millionth PCsold in Japan

2000: In-house companystructure adopted


17/41


Explaining Moores Law

1947 Innovation of transistor,birth of the semiconductor

(Circuits per chip) =2(year-1975)/1.5

Has held true forDRAMs andmicroprocessors

SemiconductorIndustry

1950s-present

User communities, distinct(software developers) andindirect (consumers)

Expectations

feedback loop

Physics and chemistryMarket forces

e.g., Wintel

1959 Invention of the Planarintegrated circuit andmanufacturing process

Semiconductor circuit densities

double at regular, exponentialrates:

1965: Moores Plot (annual)

1975: Moores Law (18months)

NEC patents from:

Communications =ISE (1950);ITT (1951); Western Electric(1951)

TV:RCA, EMI, Philips (1953-1957)

ICs: GE (1958); RCA (1958);Fairchild (1961)


18/41


Products/Technology/CustomerMatrix: Communications

GROUP I GROUP II GROUPSIII-IVOSILayer Key

Technology IXCs RBOCs,ILECsCLECs

Enterprise

Layer3 IP

Layer2 ATM

Layer1 SONET

OpticalSub-layer

DWDM

ATMSwitch(IP/ATMMPLS)

IntegratedAD(IP /ATM/F -R/xDSL/PBX)

Multi-serviceAD

(IP /ATM/F -R/xDSL)

Gigabit/TerabitSwitch/Router

SONETTDMDXC

Optical Switch(OXC,OADM)

NG(Optical)-DLC(FTTx,xDSL)

Long-haul DWDM

IP/ATM-PBX

VoIPGateway(IP/PSTN)

MetroDWDM


19/41


CPE

CPE

CPE

CPE

Service

Node

(Router)

IP

Backbone

Access Network

Circuit Multiplexing Portion

Packet/Cell Multiplexing

Cable

Modem

ATU-R

(ADSL)

Modem/

ISDN

DSLAM

AuthenticationSupply IP address

Accounting

Routing

Packet/Cell Multiplexing is also included in Access Network

Definition of Edge Node

Service

Node

(Class5

SW)

CPE

CPE

CPE

CPE

Circuit Multiplexing

PSTN

Backbone

HE

Example

PON OLT

Conventional

IP Access



Packet/Cell Multiplexing

Portion

Source: Photonic IP, 4.2 High-speed IP Access

Packet/Cell MUXing in Broadband (IP)Access Network


20/41


Optical Advances

OC -1 51.84 MbpsOC-3 155.52 Mbps

OC-12 622.08 Mbps

OC-24 1.244 Mbps

OC-48 2.488 Mbps

OC-192 10 Gbps

OC-256 13.271 Gbps

Home


21/41


WDM

Photonic

Router T-bit

Router

OXC

PHYPHY

PHY

PHY

PHY

PHY

Layer2

Layer3

Layer4

PHY

Layer2

Layer3

L2

L3

L2

L3

L2

L3

L4

T-bit

Router

T-bit

Router

Super

Router

Photonic

Router

Super

Router

OADM

WDMPhotonic

Router

T-bit

Router

T-bit

Router

T-bit

Router

OADM

H323

GW

PBX

MLSW

MLSW MLSW

Super

Router

The

Internet

PHY

Layer2

Layer3

Layer4

APL

PHY

Layer2

Layer3

VPN

Service

Video

Service

Authentication

Service

WWW

Service

IXP

Providing Consuming

BackboneEdge

Node

Access

Edge

Node Access

PHY

L2

L3

L4

APL

Information

Consumer

Service

Provider

OADMOADM

OADM

OADM

OADM

OADM

OADM

OADMOADM

OADM

OADM

Corporate

Home

Video over IP

Voice over IP

WWW

QoS Service

Best Effort

Service QoS Service

Best Effort

Service

Photonic

Router

Photonic

RouterPhotonic

Router

OXC

MMNode

NEC Js Network Architecture


22/41


3rd Layer

2nd Layer

1st Layer

Photonic Layer

IP Router

ATMNE

Fast Frame

Relay SW

SDH/SONET LTE

Photonic NE : WDM, OADM, OXC

SDH frame

Photonic

Router

IP Router

ATMNE

FutureNow

Vision of the Evolution of the PhysicalLayer


23/41


NEC and Emerging Wireless Value Chain


24/41


Metcalfs Law

Robert Metcalf's law states that the "value" or "power" of a

network increases in proportion to the square of thenumber of nodes on the network. In other words, if you have four nodes, or computers, on a

network, say, an office intranet, its "value" would be four squared(4^2), or 16.

If you added on addition node, or PC, then the value wouldincrease to 25 (5^2).

Holds for LANs and WANs (metro, the Internet)

One consequence of the network effect is that once aproduct is established in the market, demand for similarbut incompatible products collapses.

Advantage of earlier drivers who come to dominate: Microsoft;Dell; Intel; Amazon; eBay.

A feedback phenomenon that says whenever it is in people's bestinterests to be where everyone else is, then that's where they'll be.


25/41


Evolution of the Internet


26/41


C&C Perspective-1977


27/41


The Era of Consolidation: Back to Basics


28/41


Worldwide Semiconductor Demand

HISTORICAL SEMICONDUCTOR SALES AND Y/Y GROWTH (3-month Average)


29/41


U.S. Computer Hardware (1)

NOMINAL PDE INVESTMENT-COMPUTERS & PERIPHERALS (Y/Y)


30/41


U.S. Computer Hardware (2)

IMPLICIT PDE DEFLATOR COMPUTER (Y/Y)


31/41


Networking Equipment

NOMINAL COMMUNICATIONS EQUIPMENT INVESTMENT (Y/Y)


32/41


Networking Equipment Driver

ENTERPRISE EQUIPMENT SALES vs. UNEMPLOYMENT RATE

1Q98-3Q02


33/41


Networking Equipment Pricing

PPI COMMUNICATIONS EQUIPMENT (Y/Y)


34/41


Telecommunications Equipment

NEW ORDERS TELECOMMUNICATIONS EQUIPMENT (Y/Y)


35/41


RBOC Capex and Capex to Sales


36/41


Factors Leading to the Tech Bubble

The Telecom Act of 1996

The Buildout of the Internet

The Buildout of Digital Wireless Networks

Rebuilding of U.S. Cable Networks


37/41


IT Consulting and Services

EMPLOYMENT Y/Y COMPUTER & DATA PROCESSING SERVICES


38/41


Best Technology vs. Basic Business

From 1993-2000, high R&D-to-sales ratios played best for

companies with the fastest and latest equipment andstrong revenue growth.

Now, operational factors more competitive:

Good cash management

Strong customer relationships

Control over both the supply and distribution sides of theirbusinesses

Evolutionary, not revolutionary technology

Consolidation seemingly inevitable Slower but more sustainable rate of technological development,

more rational use of capital

Fewer players means more benign pricing pressures, allowing forimproved gross margins and profitability


39/41


Strategic Challenges to NEC


40/41


Issues Areas Being Addressed by NEC

Creating a globally competitive corporate culture with new

management skill sets Ensuring strategy formulation and execution; marketing; financial

Should NEC remain in semiconductor, computers, andcommunications businesses

How best to survive and grow in consolidating IT sectors,particularly by integrating IT and network businesses

Aligning capital and costs structures to current and likelyfuture market conditions; cash management

Identify/define core competencies needed in todays high-tech markets

Institutionalizing strong corporate governance


41/41

Upcoming Visit to NEC

March 18 (Mon)

at NEC Head Office

9:00-9:05 Opening Remark (Dr. H. Kaneko)

9:05-10:15 Presentation (S. Suzuki SVP)

10:15-10:30 Q&A

at NEC Saitama

14:00-14:30 Outline of NEC Saitama

14:30-15:30 Plant Tour, Q&A

Documents

NEC Background