NEC Innovates its Corporate Structure for the Internet Age - Company Operations

Cambridge Telcom Report, Oct 4, 1999

Following its pledge on February 19th that it will innovate its corporate structure to turn-around the company's financial results, NEC Corporation: Tuesday announced that it will accelerate these plans. In an all-out effort to set its businesses on the path to growth, NEC will implement a fundamental innovation of its corporate structure aimed at becoming the leader in value added solutions for the Internet age.

Through these innovations, business operations make the Internet their focus while aiming to be the leading player in their respective fields by optimizing their business structures to these objectives. To create these business structures, the use of external resources, tie-ups and business-strengthening alliances will be promoted, and the further advancement of management disclosure and an open management structure are also planned to increase corporate value.

1. Concentration of Businesses -Becoming an Internet Solutions Provider

(1) Focus on the Internet

NEC will concentrate its mobile communications, digital broadcasting and home networking operations as the basis for the next-generation Internet. From this base, NEC intends to come together with the businesses and communities on the Internet in an effort of mutual creation to support the development of an open network society through NEC's concept of an "Invitation to the Internet". Through this concept, NEC will focus the management resources of the company on becoming a wide-ranging solutions provider to meet the variety of needs the company's customers will have in their interaction with the Internet.

As the Internet business field expands, and as customers become more specialized and pursue their business directions, value creation will lie in providing solutions that meet the specialized needs of customers. In order to effectively utilize the strengths of NEC, three approaches are necessary to develop its business and strengthen its core competencies. As a result, NEC expects to see over 20% or 1.1 trillion Yen of the approximately 5 trillion Yen it anticipates in consolidated sales for the current year (through to March 31, 2000), to come from Internet-related businesses. Furthermore, NEC expects that figure to jump to 3 trillion Yen for the fiscal year ended March 31, 2002.

i) Development and Strengthening of BIGLOBE to Leverage Core Competencies of In-house Companies.

To strengthen NEC's Internet Service business, BIGLOBE, the company will develop open forums for individuals and companies aimed at building communities and markets of at least 10 million people by 2002. In order to build those value-creating forums, NEC will provide a variety of services to support participation in the Internet and not limit itself to a "one business field, one company" policy, allowing its in-house companies to enter into global business relationships with a range of partners.

ii) Restructuring of Businesses to Focus on the Internet To restructure its existing businesses to focus on the Internet, NEC will promote expansion of Internet business in three directions:

- Internet solutions business oriented to corporations, individuals and government/public sectors

- Internet solutions business oriented to network operators - Electron device solutions business oriented to the Internet industry This will expand NEC's Internet business while ensuring the company meets the specialized needs of its customers, and strengthen its core competencies to create a structure that raises the profitability of all business operations.

iii) Equipping NEC's Internal Structure to Focus the Company on the Internet a) Company-wide Promotion and Construction of Internet Business Strategies For a concerted effort in the Internet domain, an "Internet Business Development Office" will be established on October 1, 1999 under the direct authority of the President. It will be responsible for proposing Internet strategies, identifying synergies between BIGLOBE and NEC's other businesses, and promoting possible tie-ups between businesses.

b) Focus of R&D on the Internet

The Research and Development Group will be reorganized to focus on the creation of key devices and services for the next-generation Internet. Through the identification and selection of research themes, NEC plans to develop corporate-wide core competencies on the Internet. In particular, the "Internet Information Service Laboratory" will be established in the corporate R&D Group to strengthen R&D efforts in next-generation information distribution services.

c) Construction of US Venture Capital-style, Speedy Business Structure Utilizing the intellectual property of NEC's R&D efforts, as well as to effect early market entry and commercialization, NEC will create a "Venture Development Center" in San Jose, California. The Venture Development Center will take NEC's R&D successes to venture capitalists, construct business models for them and examine them locally in California, including the use of external resources, to develop businesses as rapidly as possible.