IT Services Business Growth Strategy
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IT Services Business Growth Strategy October 13, 2010 Takuji Tomiyama IT Services Business Unit Senior Vice President and Member of the Board NEC Corporation To be a leading global company leveraging the power of innovation to realize an information society friendly to humans and the earth NEC Group Vision 2017 Page 2 Content ▐ 1.Business Outline ▐ 2.Basic Direction of Business Development ▐ 3.Core Business Strategy 3-1.Cloud Services Business 3-2.International Business 3-3.Initiative for improving profitability in System Integration ▐ 4.Towards V2012 target Page 3 The Mission and Position of NEC’s IT Services Business ▐ NEC provides integrated IT services covering everything from consulting through to System Integration, Operation, Maintenance and Outsourcing About 37,000 employees (including all group companies) and 29 Japanese subsidiaries and 28 overseas subsidiaries Segment IT services Platforms Carrier Social Personal Others Networks Infrastructure Solutions Sales business unit Overseas sales business unit P S C I P T er o l arr a N c S t s i f on E er a i o er l C r v N a I m En i n N l c E f S e Organization e r C O s o a t B B B B B er w T s t l h u u u u u u t g o r er O s s s s s ti y u r i i i i i ons ks n n n n n c K s D t e e e e e u I e ss ss ss ss ss N r v e i U U U U U c e n n n n n s i i i i i t t t t t NEC Soft, NEC System Technologies System development Key NEC Fielding Maintenance subsidiaries NEC Nexsolutions SME market, outsourcing ABeam Consulting Consulting Page 4 Earning Trends for the IT Services Business ▐ Sales shrank during FY2009 due to a general decline in IT investment. In FY2010, NEC is aiming for increased revenue by working with our customers as they make investments for future growth. ▐ Operating profit increased during 2009 due to systematic reductions in fixed costs. In FY2010 NEC is aiming to increase profit through SI reforms. Sales Operating profit (¥100 million) Contribution to total NEC Contribution to total 9338 Group sales in NEC Group operating 2010: 27% profit in 2010: 56% 560 8900 -7.2% IT services are 532 +5.3% 8663 a key pillar of sales 518 +2.7% and profit for the +2.7% entire company FY2008 FY2009 FY2010 (expected) FY2008 FY2009 FY2010 (expected) * Expected values as of October 13, 2010 Page 5 Sales Composition (1/2) ▐ The business has expanded over a wide range of industries NEC supports the needs of diverse customers as an IT partner Ratio of sales by industry (FY2009) Examples of systems provided by NEC on a consolidated basis Private sector demand Public sector/healthcare (manufacturing/Devices/ Public sector/Medicine Finance/Communications/Media Systems for central government Bank settlement systems Distribution/Service) 35% ministries Billing systems for Resident information systems telecommunications carriers 40% Electric medical record systems Systems for broadcasters Finance/communications/media Manufacturing/Devices Distribution/Services 25% Production management systems Retails systems for stores and Sales management systems head offices Technical information Hotel systems management systems Distribution management systems Page 6 Sales Composition (2/2) ▐ NEC is a leading vendor in the Japanese IT services sector (the second largest service provider in Japan, and the eighth largest in the world) The drivers of future growth will be overseas operations and the services business 2009 rankings for sales of IT services Ratio of sales by region (FY2009) International: Rank Japanese market Global market Less than 10% 1 Fujitsu IBM 2 NEC HP Domestic 3 NTT Data Fujitsu 4 Hitachi Accenture 5 IBM Japan CSC Ratio of sales by business (FY2009) 6 Nomura Research Institute Lockheed Martin 7 IT Holdings Capgemini Services business: About 30% 8 Canon Marketing Japan NEC 9 Nihon Unisys NTT Data 10 ITOCHU Techno-Solutions SAIC SI business Source: Gartner, “2009 IT Services Vendor Revenue”, August 20, 2010 Page 7 NEC’s Strengths in IT Services ▐ Strong capabilities in SI (System Integration) and SI reform, acquired through responding to the high expectations of our Japanese customers ▐ Strong capabilities with large-scale Open Mission Critical Systems (OMCS), cultivated by taking the lead in the shift to open standards ▐ Technology assets in IT and networks, covering everything from contact devices and terminals through to cloud-based services ▐ Strong capabilities in creating solutions that anticipate future developments Finance Communications, Media Manufacturing, Devices Distribution, Services Government, Medical Knowledge and experience of a diverse range of industries Customer assets of 150,000 users Finance industry: open settlement systems, high-speed real-time processing OMCS Communications industry: billing systems, i-mode gateway systems System integration and SI reform IT/network technology Quality, cost, productivity, and RFID tags, mobile phones, computers, POS systems, on-time delivery ATMs, energy efficient servers, programmable flow switches Page 8 ▐ 1. Business Outline ▐ 2. Basic Direction of Business Development ▐ 3. Core Business Strategy 3-1. Cloud Services Business 3-2. International Business 3-3. Initiative for improving profitability in System Integration ▐ 4. Towards V2012 target Page 9 Mid-Term Market Trends and Business Opportunities Market trends Business opportunities An accelerating trend for companies to Customers Increased use of cloud services outsource their IT resources Relentless demands for cost reductions Cloud services in mission critical field Customers using clouds to create new businesses Rapid responses to risks and business opportunities Increased utilization of information Technology Increasing digitization from contact devices Widespread adoption of contact devices, such as Widespread application in social and corporate IC cards, sensors and RFID tags systems Automobiles, homes, shops, medical centers, satellites, etc Service platforms that can quickly process large Evolving networks (NGN, LTE, WiMAX) volumes of information in real time Markets The base of Economic growth has shifted to Buoyant demand for IT in developing nations developing nations Sluggish growth in developed economies Active investment by local companies, in addition (the New Normal) to investment by companies from developed China and the Asia-Pacific are to becoming one nations huge economic zone Increased demand for social infrastructure Page 10 Market Trends ▐ Japanese market for IT services ▐ Forecast for the Japanese Investment trends as the Japanese economy recovers market for cloud services CAGR for 09-15CAGR 2009 to 2015 Year-on-year 10-12 2009 2010 2011 2012 ++3535%% % change CAGR 2009 is year zero for cloud services Project-Oriented 1.6 1.8 3.0 4.1 3.6 (¥100 million) (SI/Consulting) 25,000 Despite the effects of 23,698 Support & Training -8.8 -4.2 1.7 2.1 1.9 the recession in Japan, the cloud market is expanding Maintenance/ training -5.6 -2.9 -0.9 -0.4 -0.6 20,000 Overall market -3.9 -1.3 1.8 2.5 2.1 SaaS 15,000 Source: Japan IT Services 2010-2014 Forecast Update and 2009 Review by Vertical Segments: First-Half 2010 10,109 ▐ Global market for IT services 10,000 7,442 PaaS Developed nations • Growth opportunities in North America, Western Europe 5,000 3,871 developing nations IaaS Market size in 2014: $666B • China and the Asia-Pacific CAGR for 2009 to 2014: 3.9% region in particular are the key to success 0 Developing nations 2009 2010 2011 2015 Asia Pacific, Central & North America, Middle East, Africa, Eastern Europe Source: 2010 WHITE PAPER Information and Market size in 2014: $162B Source: Gartner "IT Services Market Forecast by Segment, June 2010"” Communications in Japan (MIC) CAGR for 2009 to 2014: 8.9% July 23, 2010 Page 11 Examples of Initiatives for New Market Opportunities Cloud (mission critical business area) ▐ Three cities in Fukuoka Prefecture* NEC is using clouds to provide mission critical systems for local governments (such as resident information systems) * Three local governments in the southern part of the Kasuya region of Fukuoka Prefecture (Umimachi, Shimemachi, Suemachi) TCO is expected to be cut by about 40% through work reforms and using cloud- based services Proactive approach to the market where large expansion ▐ Plurinational State of Bolivia Developing nation is expected in the future NEC has created a large-scale fingerprint matching system to prevent voters from enrolling more than once for the presidential elections NEC has installed three thousand fingerprint registration devices around the country, which have been used by four million voters Page 12 Basic Policy for Business Expansion ▐ To expand our business by utilizing our relationships with 150,000 customers in Japan NEC will expand its cloud services while still strengthening its core systems integration (SI) business ▐ To accelerate the expansion of our global business by creating services based on our SI industry solutions. NEC will launch five Cloud Oriented Data Centers (CODC)* Future direction for business expansion Developing five CODCs around the world Expanding Delivering global China DC industry solutions integration services International Europe DC North where we have a by developing five American DC competitive edge CODCs around Japan DC the world Creating new businesses with a view to further APAC DC rapid progress Improving our Mission critical clouds Domestic core SI business Foundation of Creating new our technology business with our * Our Cloud Oriented Data Centers (CODC) are data centers where a Key source of