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Corporate Strategy and Business Development The Role of Technology Change in NEC’s Growth J. Travis Brooks New York University February 19, 2003.

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Presentation on theme: "Corporate Strategy and Business Development The Role of Technology Change in NEC’s Growth J. Travis Brooks New York University February 19, 2003."— Presentation transcript:

1 Corporate Strategy and Business Development The Role of Technology Change in NEC’s Growth J. Travis Brooks New York University February 19, 2003

2 Corporate Strategy and Business Development 2 Discussion Topics  Background to NEC Corporation  Historical IT Perspective: Technology Innovation  The Era of Consolidation: Back to Basics  Strategic Challenges to NEC  March 18 th Visit to Japan

3 Corporate Strategy and Business Development 3  Background on NEC Corporation

4 Corporate Strategy and Business Development 4 Structure: “In-House Companies” Koji Nishigaki President Staff Groups NEC Electronic Devices Kaoru Tosaka President Hajime Sasaki Board of Directors Chairman Computers & Software Communications System LSIs Employees: 141,000 (March 31, 2002) NEC Solutions Akinobu Kanasugi President NEC Networks Kaoru Yano President Separation 11/02 IPO Following Resulting in approx.70% ownership

5 Corporate Strategy and Business Development 5 Major Products and Services (1) NEC Solutions Systems Integration (SI) Services Systems integration/Consulting SoftwareOperating systems/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 & UNIX servers/Supercomputers/Storage systems Workstations/Industry specific workstations (ATM, POS, Multimedia terminals )/ Key telephone systems Personal productsPersonal computers/Printers/Facsimiles

6 Corporate Strategy and Business Development 6 Major Products and Services (2) NEC Networks Network Infrastructure Optical SystemsBackbone systems (DWDM for Terrestrial, Submarine), SDH/SONET)/ Metro, Access (DSL, Cable modems, FTTH, Ethernet)/ CATV systems/Installation and maintenance IP Network Systems IP networking (switches, routers, network servers)/Mobile communications core network systems/Digital central office switches/Digital PBXs/Installation and maintenance Mobile and Wireless Systems Base stations/Terrestrial microwave/Satellite systems/Fixed wireless access systems/ Installation and maintenance Mobile Terminals Cellular phones Other Systems Digital Broadcast/Studio/management/systems/ Aerospace/Defense electronics/Microwave tubes/Installation and maintenance

7 Corporate Strategy and Business Development 7 Major Products and Services (3) NEC Electronics Corporation Semiconductors MPUs/Memory ICs (Elpida joint venture)/Semi-custom ICs/Application Specific ICs/General Purpose Linear ICs/Transistors/Diodes/ Thyristors/ Optical semiconductors/Microwave semiconductors OthersTFT color LCD modules/Color PDP modules/Plasma display monitors Lithium-ion rechargeable batteries/Capacitors/Relays/Printed wiring boards ABS (Antilock Break System) Unit/EPS (Electric Power Steering) Unit Manufacturing equipment for semiconductors/LCD projectors Construction services of information and network systems

8 Corporate Strategy and Business Development 8 Net Sales

9 Corporate Strategy and Business Development 9 Current Sales Forecast ( ): Y-over-Y Growth

10 Corporate Strategy and Business Development 10 EBIT

11 Corporate Strategy and Business Development 11 Sales/Net Income in Dollar Terms

12 Corporate Strategy and Business Development 12 Current P/L Forecast

13 Corporate Strategy and Business Development 13 Overseas Sales

14 Corporate Strategy and Business Development 14 NEC in the USA NEC Corporation Tokyo, Japan NEC USA New York, NY Holding Company NEC Solutions America Sacramento, 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 Niteo Newton, MA HSNX Supercomputers NEC Foundation * Includes 4 subsidiaries: NEC Business Network Solutions NEC Eluminant Technologies NMI North Coast Logic NEC FiberOptech NEC Financial Services, Inc. Teaneck, NJ Finance & Leasing NEC Electronics Santa Clara, CA Semiconductors

15 Corporate Strategy and Business Development 15  Historical IT Perspective: Technology Innovation

16 Corporate Strategy and Business Development 16 Development History First Japanese joint venture with foreign capital, Western Electric 1924: Radio ops established 1932: Ally with Sumitomo zaibatsu 1939: R&D lab established 1950: R&D of transistors initiated after Bell Labs’ 1947 introduction 1954: R&D of computers begins 1958: Jack Kilby of TI, “Solid Circuit”; Robert Noyce in : R&D of electronic switching systems (ESSs) 1966: Satcom earth stations to India 1965: NEAC-Series 2200 mainframes; 1974 ACOS 1975: Central Research Lab established; 1978 Dallas Plant 1963: NEC America opens 1983: SX-1/2 supercomputers 1988: NEC Research Institute 1990: 4Mbit DRAM, Mbit SDRAM 1998: SX-5 fastest; 20-millionth PC sold in Japan 2000: In-house company structure adopted

17 Corporate Strategy and Business Development 17 Explaining Moore’s Law 1947 Innovation of transistor, birth of the semiconductor (Circuits per chip) = 2(year-1975)/1.5 Has held true for DRAMs and microprocessors Semiconductor Industry 1950s-present User communities, distinct (software developers) and indirect (consumers) Expectations feedback loop Physics and chemistry Market forces e.g., Wintel 1959 Invention of the Planar integrated circuit and manufacturing process Semiconductor circuit densities double at regular, exponential rates: 1965: Moore’s Plot (annual) 1975: Moore’s Law (18 months) NEC patents from: Communications =ISE (1950); ITT (1951); Western Electric (1951) TV:RCA, EMI, Philips ( ) ICs: GE (1958); RCA (1958); Fairchild (1961)

18 Corporate Strategy and Business Development 18 Products/Technology/Customer Matrix: Communications GROUPIGR PIIGROUPS III-IV OSI Layer Key Technology IXCs RBOCs, ILECs CLECs Enterprise Layer 3IP Layer 2ATM Layer 1SONET Optical Sub- layer DWDM ATM Switch (IP/ATM MPLS) Integrated AD (IP /ATM/F-R/xDSL/PBX) Multi-service AD (IP /ATM/F-R/xDSL) Gigabit/Terabit Switch/Router SONET TDM DXC Optical Switch (OXC, OADM) NG (Optical)-DLC (FTTx, xDSL) Long-haulDWDM IP/ATM-PBX VoIP Gateway (IP/PSTN) Metro DWDM

19 Corporate Strategy and Business Development 19 CPE Service Node (Router) IP Backbone Access Network Circuit Multiplexing Portion Packet/Cell Multiplexing Cable Modem ATU-R (ADSL) Modem/ ISDN DSLAM Authentication Supply IP address Accounting Routing Packet/Cell Multiplexing is also included in Access Network Definition of Edge Node Service Node (Class5 SW) CPE Circuit Multiplexing PSTN Backbone HE Example PON OLT Conventional IP Access Circuit Multiplexing Packet/Cell Multiplexing Portion Source: Photonic IP, 4.2 High-speed IP Access Packet/Cell MUXing in Broadband (IP) Access Network

20 Corporate Strategy and Business Development 20 Optical Advances OC Mbps OC Mbps OC Mbps OC Mbps OC Mbps OC Gbps OC Gbps Home

21 Corporate Strategy and Business Development 21 WDM Photonic Router T-bit Router OXC PHY Layer2 Layer3 Layer4 PHY Layer2 Layer3 L2 L3 L2 L3 L2 L3 L4 T-bit Router Super Router Photonic Router Super Router OADM WDM Photonic Router T-bit Router OADM H323 GW PBX MLSW Super Router The Internet PHY Layer2 Layer3 Layer4 APL PHY Layer2 Layer3 VPN Service Video Service Authentication Service WWW Service IXP ProvidingConsuming Network Service Application Service BackboneEdge Node Access Edge Node Access PHY L2 L3 L4 APL Information Consumer Service Provider OADM Corporate Home Video over IP Voice over IP WWW QoS Service Best Effort Service QoS Service Best Effort Service Photonic Router OXC MMNode NEC J ’ s Network Architecture

22 Corporate Strategy and Business Development 22 3rd Layer 2nd Layer 1st Layer Photonic Layer IP Router ATM NE Fast Frame Relay SW SDH/SONET LTE Photonic NE : WDM, OADM, OXC SDH frame Photonic Router IP Router ATM NE Future Now Vision of the Evolution of the Physical Layer

23 Corporate Strategy and Business Development 23 NEC and Emerging Wireless Value Chain

24 Corporate Strategy and Business Development 24 Metcalf’s Law  Robert Metcalf's law states that the "value" or "power" of a network increases in proportion to the square of the number 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 would increase to 25 (5^2). –Holds for LANs and WANs (metro, the Internet)  One consequence of the network effect is that once a product is established in the market, demand for similar but 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 best interests to be where everyone else is, then that's where they'll be.

25 Corporate Strategy and Business Development 25 Evolution of the Internet

26 Corporate Strategy and Business Development 26 C&C Perspective-1977

27 Corporate Strategy and Business Development 27 The Era of Consolidation: Back to Basics

28 Corporate Strategy and Business Development 28 Worldwide Semiconductor Demand HISTORICAL SEMICONDUCTOR SALES AND Y/Y GROWTH (3-month Average)

29 Corporate Strategy and Business Development 29 U.S. Computer Hardware (1) NOMINAL PDE INVESTMENT-COMPUTERS & PERIPHERALS (Y/Y)

30 Corporate Strategy and Business Development 30 U.S. Computer Hardware (2) IMPLICIT PDE DEFLATOR – COMPUTER (Y/Y)

31 Corporate Strategy and Business Development 31 Networking Equipment NOMINAL COMMUNICATIONS EQUIPMENT INVESTMENT (Y/Y)

32 Corporate Strategy and Business Development 32 Networking Equipment Driver ENTERPRISE EQUIPMENT SALES vs. UNEMPLOYMENT RATE 1Q98-3Q02

33 Corporate Strategy and Business Development 33 Networking Equipment Pricing PPI COMMUNICATIONS EQUIPMENT (Y/Y)

34 Corporate Strategy and Business Development 34 Telecommunications Equipment NEW ORDERS TELECOMMUNICATIONS EQUIPMENT (Y/Y)

35 Corporate Strategy and Business Development 35 RBOC Capex and Capex to Sales

36 Corporate Strategy and Business Development 36 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 Corporate Strategy and Business Development 37 IT Consulting and Services EMPLOYMENT Y/Y – COMPUTER & DATA PROCESSING SERVICES

38 Corporate Strategy and Business Development 38 Best Technology vs. Basic Business  From , high R&D-to-sales ratios played best for companies with the fastest and latest equipment and strong revenue growth.  Now, operational factors more competitive: –Good cash management –Strong customer relationships –Control over both the supply and distribution sides of their businesses –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 for improved gross margins and profitability

39 Corporate Strategy and Business Development 39 Strategic Challenges to NEC

40 Corporate Strategy and Business Development 40 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, and communications 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 likely future market conditions; cash management  Identify/define core competencies needed in today’s high- tech markets  Institutionalizing strong corporate governance

41 Corporate Strategy and Business Development 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


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