NEC Corporation (TYO:6701)
Japan flag Japan · Delayed Price · Currency is JPY
4,035.00
-66.00 (-1.61%)
May 1, 2026, 3:30 PM JST
← View all transcripts

Earnings Call: Q3 2026

Jan 29, 2026

Speaker 1

Thank you very much for your participation today. Allow me to explain the today announced financial results for Q3 fiscal year ending March 31, 2026. Allow me to follow the agenda as you see here. First, the highlights. For the nine-month period, Domestic IT and ANS, Aerospace and National Security trended strongly. For Telecom Services, costs for future profit improvements were recorded in Q3. Therefore, for the nine-month accumulative for the year ending March 2026, revenue was +4.3% year-on-year at JPY 2,422.3 billion. Non-GAAP operating profit increased by JPY 47.5 billion from the last fiscal year to JPY 209.9 billion. Considering the progression of performance for the nine-month period, we have amended the full year outlook upwards.

Non-GAAP operating profit has been updated by an increase of JPY 20 billion to JPY 360 billion. Allow me to explain the results for Q3. First, the key indices. For the nine months adjusted operating profit, there was an increase of JPY 55.8 billion year-on-year to JPY 206 billion, an OP ratio of 8.5%. Compared to our internal projections, adjusted operating profit outperformed by approximately JPY 10 billion. Q3 three months adjusted OP declined by JPY 14.8 billion compared to last fiscal year. But as explained earlier, this was due to the recording of JPY 18 billion in expenses for Telecom Services' future profit structure improvements. Next, this year-on-year change in adjusted and non-GAAP operating profit. Adjusted operating profit for the year ending March 2025 was JPY 150.2 billion.

Non-GAAP OP was JPY 162.3 billion. This resulted in a surge in IT service profit. For Social Infrastructure, there was no impact from IP-related profit of JPY 21 billion compared to last year, and AI usage investments increased internally, but there was a total profitability improvement of JPY 47.5 billion. Therefore, FY March 2026, 9 months non-GAAP OP was JPY 209.9 billion. JPY 3.9 billion was recorded for non-GAAP adjusted items, and adjusted OP was JPY 206 billion. For GAAP profit to non-GAAP profit adjusted items, please refer to page 21 of the appendix. Next, allow me to explain the performance by segment. I will explain the details by segment later on. However, IT Services enjoyed an increase in both revenue and profit.

Social Infrastructure saw an increase in revenue and decline in profit. First, IT service segment. For domestic, Public Business drove, and versus last fiscal year, there was a 2.9% increase in revenue. For transfer of sales function for business PCs, as well as a partial termination of subsidiary business, if we exclude these elements, it was an 8% increase in revenue. For adjusted OP, specifically focusing on BluStellar, there was an improvement in profitability. We also saw a positive impact of structuralization amongst our subsidiaries, and in conjunction with the increase of our revenue, we saw an increase in profit, resulting in JPY 63 billion increase vis-a-vis last year. For international, we saw an increase in Avaloq in terms of profit, and we also saw a one-off expense that was recorded last year, and this was not existing this year, hence an increase in profit.

Moving on to domestic IT Services, BluStellar, as is noted here, we show the base businesses. Now, BluStellar focuses on end-to-end scenario businesses, focusing on the challenges of our clients, and they're focusing on data-driven and modernization, and especially amongst manufacturing and financial industries, we are seeing a surge. As a result, BluStellar saw an increase versus last year of 25.7%, which resulted in JPY 20.6 billion increase. For the base businesses, due to the non-continuing businesses, we saw a decline in profit.

However, on top of the positive impact of structuralization, as well as the business divestiture profit impact that was recorded in the first half, we saw i n comparison to previous fiscal year, an increase of JPY 42.3 billion. Moving on to Domestic IT service booking status. For domestic IT Services, all in all, for Q3, we saw a decline of 1%. The one-off factors, such as transfer of sales functions for business PCs, and we, we exclude this decrease. All in all, it was an increase of 4%, and demand is still strong, especially focusing on DX. By sub-segment, Public Businesses focusing on municipal standardization and fire disaster prevention project, these bookings have peaked out and resulted in -8%. However, it is still at a high level, continuing on from the previous fiscal year. For Enterprise, retail and services were a focal point, and we were able to solidly acquire orders, resulting in a 12% increase. As for subsidiaries, et cetera, ABeam saw an increase of 11% vis-a-vis last fiscal year and trending very strongly.

Speaker 2

Next, let me go on to the Social Infrastructure segment. For Telecom Services, profit decreased due to the elimination of the prior year's one-off gains and the recording of expenses for future profit structure improvement. This will be discussed more in detail on the next page. For ANS, a profit increased due to strong performance in aerospace defense, and in addition to that, the elimination of the prior year's one-off expenses in submarine cable systems led to an increase in both revenue and profit. Next, on the reorganization and dissolution of Telecom Services business unit. In November, at the IR Day, we explained this, but we decided to terminate conventional businesses for base stations and recorded JPY 18.0 billion in structural reform expenses in Q3.

For the future, for base stations, we will focus on vRAN-related business to improve profitability. We also aim to maximize synergies through organizational restructuring. For network infrastructure business, this business is positioned as an economic security domain, and by operating jointly with ANS, we will make full use of resources and assets. For IT Services, it will be transferred to the IT Services segment, and we will drive global growth, leveraging the M&A we announced the other day. Now, let me explain the financial forecast for fiscal year March 2026. Now, this shows the financial forecast for the entire company. As I mentioned at the outset, the forecast is revised upward. For revenues, it is up from the previous forecast by JPY 140 billion to reach JPY 3,560 billion. Adjusted OP increases by JPY 10 billion to reach JPY 340 billion.

Non-GAAP operating profit increased by JPY 20 billion to reach JPY 360 billion. This revision reflects our progress up to Q3. Next, to the financial forecast by segment. The details will be explained on the following page, but for both IT Services and Social Infrastructure, we revised the forecast upward. First, for IT Services, all of the revisions are for Domestic IT. Increase in revenue and profits led by the Public Business is incorporated. IT Services, revenue increases by JPY 70 billion to reach JPY 2.47 trillion. Adjusted OP profit will be upward revised to JPY 331 billion, an increase of JPY 10 billion. Next is Social Infrastructure. In Telecom Services, by reviewing the risk of sales decrease, revenue goes up to JPY 390 billion, which is an increase of JPY 30 billion.

For adjusted OP, reflecting the structural reform expenses recognized in Q3, it is reduced by JPY 15 billion-JPY 20 billion. In ANS, revenue is solid for aerospace and defense, and profit increases due to revenue growth. And reflecting that, revenue is increased by JPY 40 billion to reach JPY 565 billion. Adjusted operating profit increases by JPY 15 billion to reach JPY 49 billion. In total, for the Social Infrastructure segment as a whole, revenue is increased by JPY 70 billion to reach JPY 955 billion. Adjusted operating profit remains the same at JPY 69 billion. Lastly, two topics. In BluStellar, in particular, security and AI are being enhanced. Latest initiatives to solve customers' management issues will be introduced now. First, security. Recently, cyberattacks, cyberattack modus operandi is more advanced and sophisticated.

Ransomware and others are now serious threats to companies and Social Infrastructure. At NEC, we have been providing our cybersecurity service, CSOC , since November, and with this service at the core, in response to our customers' needs in economic security and business continuity, we expand services to comprehensively support security-related planning to operations, and we have started to provide our services to critical infrastructure operators and regional financial institutions. Next, to AI agents. By implementing AI agents that perform tasks autonomously, we will realize sophistication of customers' operations. Individuals' and organizations' tacit knowledge is converted into data, and to automatically execute web operations through cotomi ACT , using NEC itself as the number zero client. Under the concept of Client Zero that puts into practice the latest technology, we incorporate into BluStellar scenario, self-developed values and know-how.

BluStellar will defend against heightened security threats through strong security, and through evolving AI agents, we enhance operations, and thereby constantly support our customers with latest knowledge and technology, so that they can solve management issues and realize sustained growth.

Powered by