NEC Corporation Annual Report 2010 Year ended March 31, 2010 Annual Report 2010 NEC Corporation V2012—Beyond boundaries, Toward “V2012” is a milestone for achieving the NEC Group Vision 2017 2012 2010 NEC Corporation 01 Annual Report 2010 V2012—Beyond boundaries, Toward our Vision— NEC Group Vision 2017 To be a leading global company 2017 leveraging the power of innovation to realize an information society friendly to humans and the earth “V2012—Beyond boundaries, Toward our Vision” (Fiscal 2011–Fiscal 2013) Mid-term Growth Plan Objective Aim to achieve the NEC Group Vision 2017 through customer-driven solutions leveraging our competitive strength in the integration of IT and networks Focus on Expand Create “C&C Cloud Strategy” Global Business New Businesses NEC Corporation Annual Report 2010 02 CONTENTS 04 FINANCIAL HIGHLIGHTS 05 TO OUR SHAREHOLDERS 07 MESSAGE FROM THE PRESIDENT MANAGEMENT PERSPECTIVE ON BUSINESS STRATEGIES 15 AT A GLANCE 17 PERFORMANCE BY SEGMENT 17 IT SERVICES BUSINESS 18 PLATFORM BUSINESS 19 CARRIER NETWORK BUSINESS 20 SOCIAL INFRASTRUCTURE BUSINESS 21 PERSONAL SOLUTIONS BUSINESS 22 R&D AND INTELLECTUAL ASSETS STRATEGY 26 CORPORATE GOVERNANCE 30 DIRECTORS AND CORPORATE AUDITORS 31 CORPORATE SOCIAL RESPONSIBILITY 33 FINANCIAL SECTION 128 INVESTOR INFORMATION 129 CORPORATE OVERVIEW CAUTIONARY STATEMENTS: This annual report contains forward-looking statements pertaining to strategies, financial targets, technology, products and services, and business performance of NEC ­Corporation and its consolidated subsidiaries (collectively “NEC”). Written forward-looking statements may appear in other documents that NEC files with financial instruments exchanges or regulatory authorities, such as the Director of the Kanto Finance Bureau, and in reports to shareholders and other communications. NEC is relying on certain safe-harbors for forward-looking statements in making these disclosures. Some of the forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” “targets,” “aims,” or “anticipates,” or the negative of those words, or other comparable words or phrases. You can also identify forward-looking statements by discussions of strategy, beliefs, plans, targets, or intentions. Forward-looking statements necessarily depend on currently available assumptions, data, or methods that may be incorrect or imprecise and NEC may not be able to realize the results expected by them. You should not place undue reliance on forward-looking statements, which reflect NEC’s analysis and expectations only. Forward-looking statements are not guarantees of future performance and involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Among the factors that could cause actual results to differ materially from such statements include (i) global economic conditions and general economic conditions in NEC’s markets, (ii) fluctuating demand for, and competitive pricing pressure on, NEC’s products and services, (iii) NEC’s ability to continue to win acceptance of NEC’s products and services in highly competitive markets, (iv) NEC’s ability to expand into foreign markets, such as China, (v) regulatory change and uncertainty and potential legal liability relating to NEC’s business and operations, (vi) NEC’s ability to restructure, or otherwise adjust, its operations to reflect changing market conditions, (vii) movement of currency exchange rates, particularly the rate between the yen and the U.S. dollar, (viii) the impact of unfavorable conditions or developments, including share price declines, in the equity markets which may result in losses from devaluation of listed securities held by NEC, and (ix) impact of any regulatory action or legal proceeding against NEC. Any forward-looking statements speak only as of the date on which they are made. New risks and uncertainties come up from time to time, and it is impossible for NEC to predict these events or how they may affect NEC. NEC does not undertake any obligation to update or revise any of the forward-looking statements, whether as a result of new information, future events, or otherwise. The management targets included in this annual report are not projections, and do not represent management’s current estimates of future performance. Rather, they represent targets that management will strive to achieve through the successful implementation of NEC’s business strategies. Finally, NEC cautions you that the statements made in this annual report are not an offer of marketable securities for sale. Marketable securities may not be offered or sold in any jurisdiction in which required registration is absent or an exemption from registration under the applicable securities laws is not granted. NEC Corporation 03 Annual Report 2010 FINANCIAL HIGHLIGHTS NEC Corporation and Consolidated Subsidiaries For the years ended March 31, 2008, 2009 and 2010 In millions of Percent In millions of yen U.S. dollars change 2008 2009 2010 2010 2010/2009 For the year: Net sales . ¥4,617,153 ¥4,215,603 ¥3,583,148 $38,528 –15.0% Operating income (loss) . 156,765 (6,201) 50,905 547 – Ordinary income (loss) . 112,240 (93,171) 49,429 531 – Net income (loss) . 22,681 (296,646) 11,428 123 – Per share data (in yen and U.S. dollars): Net income (loss) . 11.06 (146.64) 5.04 0.05 – Diluted net income . 10.64 – 4.91 0.05 – Cash dividends ������������������������������������� 8.00 0.00 4.00 0.04 – At year-end: Total assets . 3,526,795 3,075,378 2,937,644 31,588 –4.5 Owner’s equity ����������������������������������������� 1,004,221 641,654 790,904 8,504 23.3 Interest-bearing debt . 800,843 925,163 729,548 7,845 –21.1 Number of employees . 152,922 143,327 142,358 Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥93 = U.S.$1. 2. Net income (loss) per share is calculated based on the weighted-average number of shares outstanding during each period. 3. Owner’s equity is the sum of total shareholders’ equity and total valuation and translation adjustments. NET SALES OPeratinG INCOME (LOSS), NET INCOME (LOSS) OWNER’S EQUITY OPeratinG INCOME Ratio (Billion ¥) (Billion ¥) (%) (Billion ¥) (Billion ¥) 5,000 200 4.0 30 1,500 4,000 150 3.0 20 1,000 3,000 100 2.0 10 2,000 50 1.0 500 0 1,000 0 0.0 0 08 09 10 –50 08 09 10 –1.0 –300 08 09 10 0 08 09 10 Operating Income (Loss) Operating Income Ratio NEC Corporation Annual Report 2010 04 TO OUR SHAREHOLDERS NEC Corporation 05 Annual Report 2010 In fiscal 2010, the fiscal year ended March 31, 2010, NEC continued to face difficult conditions, mainly in the first half of the fiscal year, due to the impact of the financial crisis in the previous fiscal year. However, the NEC Group sees this difficult business environment as a major opportunity for enhancing its business operations. NEC has made every effort to change its business structure, centered on business portfolio realignment, and implement rigorous profit structure reforms. As a result, in fiscal 2010, although consolidated net sales were ¥3,583.1 billion, a year- on-year decline of 15.0%, consolidated operating profitability improved ¥57.1 billion from the previous fiscal year to operating income of ¥50.9 billion. Moreover, NEC posted consolidated net income of ¥11.4 billion, an improvement of ¥308.1 billion from the net loss in the previous fiscal year. NEC has decided to pay an annual dividend of ¥4 per share for fiscal 2010. In February 2010, NEC unveiled its Mid-Term Growth Plan “V2012—Beyond boundaries, Toward our Vision,” which sets forth NEC’s medium-term management strategy for the next 3 years. The NEC Group sees “V2012” as a milestone for achieving the NEC Group Vision 2017. We will steadily press ahead with three key initiatives—focus on “C&C Cloud Strategy,” expand global business and create new businesses—to sow the seeds of future growth. Economic conditions remain challenging worldwide. Nevertheless, through the measures outlined above, we are determined to achieve our business targets for fiscal 2011, the first year of the “V2012” Mid-Term Growth Plan. At the same time, we remain committed to pursuing the NEC Group Vision 2017, with the aim of enhancing shareholder and corporate value over the medium and long terms. We look forward to your continued support and understanding as we work to reach our goals. June 2010 NOBUHIRO ENDO President, NEC Corporation NEC Corporation Annual Report 2010 06 MESSAGE FROM THE PRESIDENT Management Perspective on Business Strategies DRIVING THE “V2012” MID-TERM GROWTH PLAN FORWARD 1. Fiscal 2010 Main Initiatives and Performance 2. Mid-Term Growth Plan “v2012—Beyond boundaries, toward our Vision” (1) Focus on “c&c cloud strategy” (2) Expand Global Business (3) Create New Businesses 3. Towards achieving “v2012” Nobuhiro Endo November 1953 Born in Kanagawa Prefecture, Japan President, NEC Corporation March 1981 Awarded doctoral degree by the Graduate School of Science and Engineering, Tokyo Institute of Technology April 1981 Joined NEC Corporation April 2003 General Manager, Mobile and Wireless Division July 2005 Senior General Manager, Mobile Network Operations Unit April 2006 Associate Senior Vice President, Executive General Manager, Mobile Network Operations Unit April 2009 Senior Vice President June 2009 Senior Vice President and Member of the Board April 2010 President (Representative Director) (to present) 1. Fiscal 2010 Main Initiatives and Performance To make NEC a stronger enterprise we changed our business structure mainly through business portfolio realignment, and implemented rigorous profit structure reforms. In fiscal 2010, the year ended March 31, 2010, the In Japan, industrial production staged a recovery global economy continued to face difficult conditions during the second half as inventory adjustments throughout the first half, due to the impact of the quieted down and exports picked up, mainly to financial crisis in the previous fiscal year.