NEC — Company History

Laying the foundations of a telecoms maker born as a foreign joint venture

Before NEC came into being, Japan's telecommunications system was built up in stages. Telegraph service began in 1869, telephones came into use from 1877, in 1890 a full public telecommunications service began under state operation, and in 1896 a seven-year telephone expansion plan was adopted (企業の歴史：明治百年, Corporate Histories: A Century of Meiji, 1968). Western Electric of the United States, already the largest telecommunications equipment company in the world, wanted a way into the Japanese market as part of its global activity. With the revision of the commercial treaties in 1899, the Nippon Electric limited partnership — established the previous year, in 1898, with capital of ¥50,000 — was taken as the base, and with an injection of capital from Western Electric it was reorganised as a joint-stock company with capital of ¥200,000. That it started from a predecessor partnership and launched as a joint venture with foreign capital set the direction of the international character that followed.

NEC was founded in July 1899 as Nippon Electric Company (日本電気株式会社), a joint venture with Western Electric of the United States — W.E., as it was known in Japan. It was the country's first manufacturer formed as a joint venture with foreign capital, and at the outset its main businesses were telephone exchanges and telecommunications equipment. Telecommunications equipment was a capital-goods industry in which mass-production know-how and a web of patents decided the base of the business, and at a time when Japan had little accumulated volume-manufacturing technology of its own, tying up with Western capital to bring the technology in was the rational choice. In 1918 Western Electric separated its overseas investment arm and the resulting company, I.W.E., took over the NEC shareholding; in 1925 I.W.E. was acquired by ITT and renamed International Standard Electric (ISE). From its first day NEC grew its telecommunications business as one part of a Western capital group.

In June 1932 ISE entrusted the management of NEC to Sumitomo Honsha — the starting point of the later relationship with the Sumitomo group. In December 1941 the NEC shares held by ISE were disposed of as enemy property and the capital tie was dissolved, and in 1943 the company changed its name to Sumitomo Communication Industries. After the defeat it returned to the name Nippon Electric Company in November 1945, listed on the Tokyo Stock Exchange in May 1949, and revived its capital tie-up with ISE in November 1951. Looking back years later, president Kobayashi Koji (小林宏治) described the state of the industry: In the field of electrical communications, the technology and the real condition of the industry were such that, in terms of patents, as much as ninety per cent were foreign patents. The related materials and components industries were extremely poor — near enough to non-existent. (経済同友, June 1966), and spoke of the effort spent catching up with technology of Japan's own. As a company with the unusual history of having its foreign ties severed in wartime and reconnected immediately afterwards, NEC placed the foundations of its international network business on a continuing relationship with Western capital.

Diversification accelerated by the C&C idea: semiconductors and PCs

In April 1961 NEC introduced a divisional structure, switching to six divisions — telecommunications equipment, radio equipment, electronic devices, electronic components, consumer products and overseas. In October of the same year it moved up to the First Section of the Tokyo Stock Exchange, and in January 1963 it established Nippon Electric New York (today NEC Corporation of America) in the United States, putting overseas expansion on a proper footing. The Central Research Laboratories were completed in September 1975, and from the 1970s the company steadily expanded investment in semiconductors and computers. This was the run-up in which a single-product telecommunications equipment maker widened its field into a comprehensive electronics maker spanning information processing and communications. Already in 1966 president Kobayashi saw where software was heading: About ten years ago, with electronic computers, you supplied the machine to the customer and the customer worked out how to use it. Lately the computer comes with software attached, and that too is supplied to the customer for their satisfaction — the software business has become integrated with the hardware. (経済同友, June 1966)

In 1978 chairman Kobayashi Koji proposed at Intelcom '78 the concept of C&C — the fusion of Computers and Communications. He later set out the circumstances behind it: I proposed C&C, arguing that we should make use of the synergy between our business domains. (構想と決断, Vision and Decision, 1989). NEC did not have the resources to fight the world in any single domain, and could only stand against Western rivals through synergies across domains. The PC-9800 series, launched in October 1982, held more than half the domestic PC market into the first half of the 1990s, and in the 1980s NEC took the world's top share in DRAM. A trade magazine in 1983 rated the rise of the brand: Nippon Electric is not merely a high-technology company; as its proposal of C&C symbolises, it throws up dreams with a deft feel for the times; and from 1981 it knocked the perennial number one, Hitachi, off the top and took first place three years running (強さの研究・日本電気, A Study in Strength: Nippon Electric, 26 December 1983).

The weight of diversification surfaces as scattered strength at the end of the 1990s

Diversification was an engine of growth and, at the same time, a device for scattering competitive strength. In the second half of the 1990s the rise of Korean and Taiwanese makers eroded the profitability of the DRAM business, and in PCs the spread of IBM-compatible machines (DOS/V) stripped the proprietary PC-9800 standard of its advantage. The telecommunications equipment business was strong in the home market but relatively weak abroad against Siemens, Alcatel and Nortel in North America and Europe, and the structural weakness of a company that could not fight on economies of scale gradually came to the surface. In 1990 president Sekimoto Tadahiro (関本忠弘) set out a line of differentiating through software and philosophy — The finest software is philosophy. I am now putting it this way: corporate philosophy and corporate culture are the fifth management resource. (日経ビジネス, 18 June 1990) — but it was not enough to overturn the pressure of falling hardware prices in DRAM and PCs. One by one, the business fields NEC had widened under the C&C idea were being pushed into positions where profit was hard to make as the world market re-sorted itself.

In February 1999 the Nihon Keizai Shimbun reported that consolidated net income for the year to March 1999 would fall to a record loss of $1.3B (¥150bn), that some 15,000 employees, about 10 per cent of the workforce worldwide, will be cut over the next three years, and that 9,000 of them in Japan alone would be affected (日本経済新聞, 20 February 1999). The internal company system introduced in April 2000 was an attempt to run the three main pillars on independent accounts and make responsibility clear. At the same time, the collapse of prices in the semiconductor memory market made a review of the business portfolio unavoidable, and in November 2002 NEC hived off its semiconductor business to establish NEC Electronics — the first major surgery to cut one wing of its founding trade away from the parent. That the company kept swapping its organisation over in short order — a business-line system in April 2003, a business-unit system in April 2004 — tells of the drift of those years, when it could not find the right shape; the design of an organisation to work off the legacy of diversification was still unsettled when the external shock of the DRAM price collapse arrived.

The ¥296.6bn loss lays bare the cost of clearing up around the founding trades

In the first half of the 2000s NEC had hived off its semiconductor business yet still carried PCs, mobile phones, telecommunications infrastructure and systems integration side by side. In June 2005 it made NEC Soft and NEC System Technologies wholly owned subsidiaries — later NEC Solution Innovators — and in May 2006 it did the same with NEC Infrontia (now NEC Platforms), consolidating the SI side. But falling prices in semiconductors and PCs and the poor performance of the overseas telecommunications equipment business did not stop, and the earnings structure stayed fragile. The portfolio was being swapped over, but delay in deciding when to exit let the cost of keeping loss-making businesses alive accumulate, leaving the accounts vulnerable to any change in the external environment.

The Lehman shock of autumn 2008 was the decisive blow. For the year to March 2009 NEC posted revenue of $45.1B (¥4.22tn) and an operating loss of $66.3M (¥6bn), and the consolidated net loss reached $3.2B (¥297bn). The largest loss since listing, it was the result of restructuring charges in semiconductors, handsets and the overseas telecommunications business piling up at once — not simply a worsening of market conditions. Morita Takayuki (森田隆之) later recalled in an interview that the single biggest reason for booking the loss was that NEC at the time faced a management crisis grave enough that it might have gone under. In April 2010 the presidency passed from Yano Kaoru (矢野薫) to Endo Nobuhiro (遠藤信博), switching to a line-up that would lead structural reform under crisis conditions. The loss made the cost of winding up around the founding trades visible, and it was the watershed from which the following ten years began.

Semiconductors, handsets and BIGLOBE let go, and ¥250bn of revenue given up

In the five years after the crisis NEC cut business after business away. In April 2010 NEC Electronics merged with Renesas Technology to form Renesas Electronics, and NEC withdrew from the semiconductor business that had been one of its founding trades. The year to March 2011 brought a net loss of $156.7M (¥13bn), and the year to March 2012 a net loss of $1.4B (¥110bn), driven in part by goodwill impairment at the US subsidiary NEC Corporation of America — two loss-making years in a row. A large goodwill balance that had priced in growth expectations for the overseas business had to be written down within a short span, and the weakness inherent in leaning too heavily on overseas M&A surfaced here as well. Forced into a two-front campaign — cutting away one wing of the founding business while continuing to book impairments at overseas subsidiaries — the parent kept spending its strength clearing up after the diversification of the past.

In July 2013 NEC Casio Mobile Communications withdrew from developing new smartphone models and folded the smartphone business, an episode that became the symbol of Japanese electronics makers leaving smartphones. In April 2014 NEC sold BIGLOBE, its internet service business, to a KKR-affiliated fund for about $661.4M (¥70bn), taking the tidying-up of non-core businesses further. In April 2016 the presidency passed from Endo Nobuhiro to Niino Takashi (新野隆). Stopping the losses took priority over shrinking revenue: sales were $31.5B (¥3.07tn) in FY12, the year to March 2013, and $25.9B (¥2.82tn) in FY15, the year to March 2016 — a restructuring that accepted a fall of some ¥250 billion in revenue. It was steering in the opposite direction from the diversification line, taking the shrinking of scale as the starting point for rebuilding the earnings structure.

Concentrating on domestic IT, and the return of earning power

While it let go of one business after another around its founding trades, the domestic IT business gained relative weight. The new segments introduced in FY13, the year to March 2014, set out four pillars — Public, Enterprise, Telecom Carrier and System Platform — and Public, serving central and local government, produced stable profits. Consolidated operating profit for FY14, the year to March 2015, was $1.1B (¥128bn), a turn back to normal from the FY08 loss. Letting go of areas with large swings in profitability, such as semiconductors and overseas telecommunications equipment, and moving the centre of the portfolio to domestic IT, showed up here in profit. Of the two faces of the C&C that chairman Kobayashi had drawn in the 1980s, one — overseas telecommunications equipment — had been let go, and what remained was a lean balance sheet centred on domestic IT. Revenue, though, stayed shrunken, and a new axis of growth was not yet in view.

A growth driver was still not visible. The domestic IT market was mature and price competition in SI was fierce. Overseas, the company was at a disadvantage to Nokia and Ericsson in telecommunications equipment, and the structure in which it could not fight on economies of scale persisted. To stop revenue shrinking, NEC would have to redefine the business model itself along an axis other than its conventional business categories. In April 2016 Niino Takashi became president and CEO, and in January 2018 the company announced 2,170 job cuts in Japan, deciding to take structural reform a stage deeper. The simple cutting away of loss-making businesses had largely run its course; what was needed next was action to raise the earning power of the businesses that remained — a more far-reaching reform, a move to a lean structure that included the head-office functions.

A 2025 mid-term management plan the market doubted

In April 2021 the presidency passed from Niino Takashi to Morita Takayuki. Morita had long handled NEC's overseas business and corporate strategy, and the appointment was made in the expectation that he would finish off the structural reform that remained while searching for a new axis of growth. In the same month, April 2021, the Morita administration announced the 2025 Mid-term Management Plan. Its content was the continuation of conventional structural reform alongside advance investment in DX, AI and security — a design that ran defence and attack at once. It was a two-tier plan, winding up the founding trades and investing in new businesses in parallel; at the point of announcement the margin in domestic IT was still low, and the plan's feasibility had not yet been proven in the numbers. A company that had spent more than twenty years drawing up mid-term plans and then revising them down had put out another new one.

The day after the announcement, NEC's share price fell 14 per cent. The market judged, once again, that advance investment would depress near-term profit. Morita himself referred to that fall at a later results briefing: The day after we announced the 2025 mid-term plan in 2021 the share price fell 14 per cent, but we did not lose heart — we carried out the structural reform and the advance investment properly, and that is what is paying off now. (FY24 results briefing). The market's scepticism at the time had reasonable grounds behind it. Since 2009 NEC had raised a next growth strategy many times, only to be hit each time by a loss or a downward revision, and investor confidence was thin. More than twenty years after the Nihon Keizai Shimbun reported the record ¥150 billion loss and 15,000 job cuts of February 1999, the market saw it as the same thing being said again.

The BluStellar turn to scenario offerings, and a margin gap

In April 2023 NEC put the BluStellar strategy into full operation. The core idea was a shift from selling individual products outright to a business of scenario offerings. The roughly ten thousand products the company had carried were pulled together into 500 offerings, then reorganised into thirty scenarios common across industries. Customers would be proposed problem-solving packages by the scenario. The design was built to maximise TCV (Total Contract Value), raising unit price and margin at the same time. It was an attempt to move from the accumulation of order-by-order local optimisation that SI companies tend to carry, to a business model premised on reuse across industries.

NEC states that there is a gap of two to three percentage points in margin between the BluStellar business and the rest — Non-BluStellar — and of three to five points between scenario-type offerings and other products (IR Day 2025). It has set out a policy of reaching BluStellar revenue of $6.7B (¥1tn) and a margin of 20 per cent within three to four years, over the next mid-term plan period, and has begun to show clear signs of it from within the current period. In April 2022 it made NEC Fielding a wholly owned subsidiary through a tender offer, and in June 2023 it moved to a company with a nominating committee, refreshing its governance structure to match. By running the change of business model and the redesign of capital and governance in parallel, NEC sought to raise the feasibility of the mid-term plan through both wheels — business structure and decision-making structure — in a single integrated redesign.

Completing the 2025 plan, record profits, and the turn to attack with CSG

As it turned out, NEC's results improved through the second half of the 2025 mid-term plan period. FY23, the year to March 2024, brought consolidated revenue of $23.0B (¥3.48tn) and operating profit of $1.2B (¥188bn); FY24, the year to March 2025, revenue of $22.9B (¥3.42tn) and operating profit of $1.7B (¥257bn) — a record level of operating profit. BluStellar's margin improved by 2.1 points year on year and the order backlog in domestic IT services rose 16 per cent. The numbers themselves justified the plan as it had stood in 2021, and served as an after-the-fact answer to the market scepticism that had priced in the 14 per cent fall on the day of the announcement. The two-tier design combining structural reform with advance investment showed up in profit four years on. Sixteen years after the 2009 loss, NEC had finally reached an operating margin of 7.5 per cent, a level commensurate with a portfolio centred on domestic IT.

In March 2025 NEC made NEC Networks & System Integration a wholly owned subsidiary, carrying the group reorganisation further. On 29 October 2025 it announced the acquisition of CSG Systems International of the United States, founded in 1994, for a total of about US$2.9 billion, or $3.0B (¥442bn). The premium over the previous day's close was 17.38 per cent and the assumed EV/EBITDA multiple 10.3 times; CSG's FY24 results showed revenue of about US$1,197 million and an adjusted EBITDA margin of 23 per cent — a company with a stable earnings base. The aim was to strengthen the base of the telecom and broadband software business through complementarity with the US subsidiary Netcracker. It was a move shifting NEC's centre of gravity to North American M&A, out of the phase of continuous divestment it had run for more than a decade and into a phase of buying in North America — a decision to restart, in a different category, the overseas M&A on which it had been burnt by the goodwill impairment at NEC Corporation of America in 2012.