[Company analysis] NEC Corporation (日本電気)

「NEC Corporation (日本電気)」is an electronic device manufacturer of the 「Sumitomo Group」and headquartered in Tokyo. its main business is wired and wireless communication devices, personal computers and IT services. Their Japanese name is "Japan Electric", but rather than being called "Japan Electric", they prefer to use "NEC", which is an abbreviation for the English name, is more often used. Along with「Sumitomo Electric Industries, Ltd.(住友電気工業)」and「Sumitomo Corporation(住友商事)」,「NEC」is one of the three major company from Sumitomo Group. The number of consolidated employees is approximately 110,595.

 

1. Company Profile

2. Summary and Features

3. Major Business

4. Financial Information

 

 

 

1. Company Profile

 

※Unit is JPY million, as of 2019

Company name	NEC Corporation
Company name (Japanese)	日本電気
Date of establishment	July 17, 1899
Headquarters location	〒108-8001 東京都港区芝五丁目7番1号
Capital	397,200
Consolidated sales	2,913,446
Consolidated operating profit	58,465
Consolidated total assets	2,950,639
Consolidated capital	1,060,325
Capital adequacy ratio	35.9%
Consolidated number of employees	110,595

 

 

 

2. Summary and Features

 
「NEC」is the first US-Japan joint-stock company in Japan and was established on July 17, 1899. At the time of establishment, they imported and sold telephones and exchanges from「Western Electric」. Soon, they successed in introducing of the「Western Electric」production control system and implemented factory modernization. So in the end of the Meiji period, this company became the No.1 phone manufacturer in Japan. Since 1927, they have also started in-house production of automatic exchanges, vacuum tubes, transfer equipment, etc.

During World War II, due to the deterioration of US-Japan relations, this company was incorporated into the 「Sumitomo Group」. Especially between 1943 and 1945, when the war intensified, the company name was called 「Sumitomo Communication Industry(住友通信工業)」. They manufactured and developed non-electrical equipment and alarms for the Japanese army. After the war, they manufacture not only electronic components such as telecommunications, vacuum tubes and semiconductors, but also expand their business into the home appliances and wireless communication equipment markets. In particular, since 1958, they have been working on computer development in earnest.

 

In 1982, the "PC-9800 series" was released, and for 15 years after that, it dominated the Japanese personal computer market. In 1985, the world's highest performance supercomputer "SX-2" was developed. In the latter half of the 1980s, 「NEC」gained the world's top share in semiconductor production and has grown to become Japan's leading electric manufacturer.

During this period, Japanese semiconductor companies like「NEC」 was called "Hinomaru Semiconductor", and it caused the US-Japan semiconductor trade friction. However, after the "Plaza Accord(プラザ合意)" in 1985, the appreciation of the yen and the US-Japan semiconductor agreement, which continued until 1996, had reduced the price competitiveness of NEC's semiconductor business. In 2010, they withdraw from semiconductor business and it was transferred to「Renesas Electronics Corporation」.

After 2000, they started focussing on social・corporate infrastructure products rather than individual consumer products. As a result,「NEC」is now the second largest in Japan in the server field after「Fujitsu(富士通)」. It is also one of the six largest mainframe manufacturing companies in the world and produces the only vector type supercomputer in the world.

Even in the field of artificial intelligence, they have strengths in image recognition and natural language recognition technology, and among them, the face recognition system "NeoFace" is evaluated to utilize the world's highest level of technical capabilities. The market scale related to this face recognition technology is about 30 billion yen, which is not so large now, but it is a market that can be expected to grow in the future.

As for IT services, it has the second largest sales volume in Japan after「Fujitsu」and tends to be particularly strong in government-related IT businesses. In the IA server market, we have secured the top market share in Japan for 20 consecutive years, and also has 3rd largest order volume from Japan Self-Defense Forces after「Mitsubishi Heavy Industries(三菱重工業)」and「Kawasaki Heavy Industries(川崎重工業)」. However, overseas sales account for 26%, which is relatively low, and they have been restructuring repeatedly since the 2000s due to the deterioration of business performance.

 

 

 

3. Major Business

 

■ Public works

They provide outsourcing services for system integration and support for government and public institutions. It is the most profitable business among NEC's businesses. In January 2017, they purchased「Japan Aviation Electronics Industry, Limited(日本航空電子工業)」, so sales increased considerably.

■ Enterprise business
They provide outsourcing services for system integration and support for companies and individuals. Sales itself is stable, but operating income is declining due to an increase in capital investment.

■ Network service business
They provide network infrastructure related facilities and system integration management services. Sales are declining due to stagnant 4G demand, but it is expected that sales will increase as 5G demand is activated.

■ System platform business
They handle core systems such as hardware (servers and super personal computers) and software (integrated operation management and security).

■ Global business
The overseas sales ratio of「NEC」is about 26%, which is lower than other electric manufacturers. 

 

 

 

4. Financial information

 

※Unit is JPY million

		2016	2017	2018
Consolidated sales		2,665,035	2,844,447	2,913,446
Consolidated operating profit		41,838	63,850	58,465
Consolidated total assets		2,683,996	2,821,351	2,950,639
Consolidated net assets		1,016,066	1,054,285	1,060,325
Breakdown of sales	Public works	766,216	933,106	949,617
	Enterprise business	408,620	408,673	434,965
	Telecom carrier business	600,370
	System platform business	719,807	531,733	546,704
	Network service business	377,574	394,834
	Global business	453,651	440,700
	Others	170,022	139,710	146,626