NEC USA, Inc.

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NEC USA, Inc.

founded: 1899

Contact Information:

headquarters: 8 corporate center dr.
melville, ny 11747-3112 phone: (516)753-7000 fax: (516)753-7041 toll free: (800)338-9549 url: http://www.nec.com

OVERVIEW

NEC USA manufactures and markets computers, electronic devices and systems, communications equipment and systems, and home electronics products. Although it started out as a telecommunications firm, the Tokyo-based company's main source of success has been its development of personal computers and computer chips. Since the 1970s, it has bet its entrepreneurial chips on the nascent convergence of computer and telecommunications technologies. In the mid-1990s the $35-billion company formed NEC Packard Bell, making it the fourth largest maker of personal computers on the planet.

COMPANY FINANCES

NEC Corp.'s pretax profits doubled due to greater demand for semiconductors and digital network equipment. The sharp rise in semiconductor sales was largely responsible for a consolidated sales increase of 17 percent. A greater demand for computers prompted a 6 percent rise in personal computer sales. Also strong were sales of telecommunications equipment, up 20 percent over 1994. Digital transmission equipment for infrastructure network also showed strength, with increased government and corporate use and incorporation of leased lines. Sales of electronics devices, mainly semiconductors, rose 33 percent thanks to price stability and a strong demand for DRAM (dynamic random access memory) chips. Nonetheless, 16 MB DRAM sales soon began to sag, and the company opted to switch its emphasis to flash memory chips.

Net sales grew 13 percent from 1996 to 1997 to $39.9 billion. The increase was due to booming sales of communications systems and stable growth in computers. Net income also rose 19 percent to $739 million. The rise in net income was mainly due "to brisk sales of communications systems, profits from the sale of marketable securities, and the effects of a corporate tax break," according to the company's annual report.

ANALYSTS' OPINIONS

Some analysts say NEC's dominance in the Japanese market hindered its competitiveness in the rest of the world. The proprietary system still worked well in Japan. Yet by 1998, it was obvious that if it wanted to succeed internationally, the company needed to adopt the DOS V standard. If NEC wanted to profit from proprietary architectures, some said it would have to do so with specially designed computer peripherals.

HISTORY

In an 1899 joint venture with the Western Electric Company, Japanese investors formed Nippon Electric Company (NEC), a firm engaged mainly in the distribution of imported telephone equipment. With orders secured from Japan's Ministry of Communications, the company soon began producing magneto-type telephone sets for the government's aggressive telephone network expansion program. Despite worries voiced by early company leaders, sales of domestically produced equipment were largely dependent on Japanese government buyers. In 1924 the company began producing radios and transmitters. In 1925 Western Electric sold its stake in NEC. ITT bought up shares. It owned up to 59 percent of the company before selling in the 1960s.

The 1930s saw a rise of Japanese military influence on the company. NEC did brisk business with the military. Under pressure from right-wing militarists, ITT saw its stake in the company fall. The remaining share was confiscated as enemy property when Japan declared war on the Allied powers in 1941. During the war, the company worked for the Army and Navy, producing radar and sonar systems and microwave communications. After the war, the Allied occupation authority purged the company of all wartime collaborators and the company sought commercial uses for its military technology. While submarine sonar equipment spawned fish detectors, two-way radios were turned into commercial radio receivers.

The postwar years saw the need for rebuilding Japan's telecommunications infrastructure. When Nippon Telegraph and Telephone (NTT) arose in 1952, NEC became one of its principal suppliers. NTT accounted for more than half of NEC's sales. Over the next few years, NEC expanded its product line to include home appliances and computers. The company formed a computer alliance with Honeywell in 1968. That same year, NEC, Fujitsu, and Hitachi started work with NTT to design computers for telecommunications.

Nineteen seventy-seven saw the birth of NEC's modern strategy: the marriage of telecommunications and semiconductor technology. CEO Kobayashi Koji set forth his vision of "C & C"—computer and communications convergence—NEC's defining strategy to date. The company invested heavily in research and development, and with government help, worked to develop very large-scale integration (VLSI) chips. By 1985, NEC became the world's largest semiconductor manufacturer. The very next year, it produced the first 4 MB DRAM chip ever. By 1992, NEC had sold more than 5 million personal computers in Japan.

STRATEGY

What was once NEC's radical departure from the norm is now the standard industry vision. For two decades, NEC based its primary strategy on two pillars: computers and communications. The two industries, it was argued, were not to remain isolated and unrelated, but would ultimately be integrated. The boom in digital telecommunications in the 1990s would appear to vindicate that once revolutionary assertion.

After rapid growth in the personal computer industry, NEC cemented its hold on customers by manufacturing computers with a proprietary DOS. With a robust service network and its own distribution subsidiary, the company managed to further secure its hold on the Japanese computer market. This strategy, however, has since come back to haunt it, as rival companies tend toward an industry standard.

As the company loses customers both at home and abroad, NEC has boosted its investment in new technologies, particularly computer peripherals. The company has also reorganized its personal computer operations into separate, product-oriented divisions.

In 1995 NEC Corp. paid $170 million for a 20 percent share in U.S. computer maker Packard Bell. By linking its technology to Packard Bell's, NEC has assured itself a home for its products. Packard Bell's computer and multimedia products will include NEC's memory chips, CD-ROM drives, and display screens. This move has also provided Packard Bell with the cash necessary to protect its precarious hold—and thus NEC's—on the American personal computer market.

INFLUENCES

NEC's future in personal computers is all but secure. For years, the company was riding high, selling its own proprietary system just as its competitors did. By 1998, however, the company's main rival Fujitsu, as well as most of Japan's personal computer sellers, had switched to the DOS V operating system and the AT bus controller. NEC's failure to follow suit left them out in the cold, leading to a shrinking market share. The company was also forced into the inefficient move of developing one line of products for export and a second line for domestic use.

CURRENT TRENDS

NEC can no longer rest on its success in the computer chip business. Korea's Samsung has already surpassed NEC and other Japanese companies, and the Taiwanese are not far behind them. An over built industry could mean a substantial dent in NEC profits. Meanwhile, U.S. firms are rising stars in the fast expanding DSP and microprocessor markets. The real challenge could come with flash-memory storage. With this new technology, chips will store data even after the computer has been turned off. By the year 2000, flash-memory storage could take the place of disk drives in notebook computers. U.S. manufacturers are already rushing ahead in the flash-memory business. NEC has been slow to enter the game.

PRODUCTS

The company's product line includes communications systems and equipment, CATV systems, cellular phones, defense electronic systems, digital switching systems, fiber-optic submarine cable systems, mobile communications systems, network management systems, pagers, satellite communication systems, and television and radio broadcast equipment. Among NEC's computers and industrial electronics systems are mainframe computers, medical electronic equipment, personal computers, computer peripherals, server software, systems integration services, and workstations. It also provides Internet services. The company's electronic devices include color display tubes, electrical connectors, electron tubes, gate arrays, linear ICs, memories, and transistors. NEC also manufactures auto electronics, home appliances, lighting, televisions, and VCRs.

FAST FACTS: About NEC USA, Inc.

Ownership: NEC USA is a subsidiary of NEC Corp., a publicly owned multinational company traded on the Tokyo Stock Exchange.

Ticker symbol: NEC

Officers: Kimio Inagaki, CFO; Mineo Sugiyama, Pres. & CEO

Employees: 151,966 (1997)

Principal Subsidiary Companies: NEC USA is a subsidiary of NEC Corp.

Chief Competitors: A leader in telecommunications and the manufacture of computers, NEC competitors include: Apple Computer; Compaq; GE; Fujitsu; Hewlett-Packard; IBM; Intel; Motorola; Nokia; Philips; Samsung; Sony; SunMicrosystems; Texas Instruments; and Unisys.

Since the early 1980s, NEC's main product has been, without a doubt, the personal computer. Despite the diverse array of products, the personal computer accounts for about 17 percent of the company's overall sales. In order to further boost sales, the company decided to boost consumer computer skills. NEC recently formed a "Personal Computer College" in Tokyo's Akihabara electronics shopping district to teach consumers basic computer literacy.

NEC's personal computer sales are a national affair, with Japanese making up 90 percent of its consumers. While the company has 50 percent of Japan's personal computer market, its share of the world market sits at 4.3 percent. NEC ranks tenth in the United States personal computer market and is fifth in laptop sales. Its semiconductor division leads the world in unit sales of ASICs and ranks third in microprocessors controllers and memories.

CORPORATE CITIZENSHIP

In the United States, the NEC Foundation of America has supported numerous programs that promote the understanding of science and technology, and it has been a leader in providing assistive technology to the disabled. During 1997, NEC USA donated $6.5 million in support of non-profit organizations, grants, community events, scholarships, and volunteer efforts in the United States, according to a company spokesperson.

GLOBAL PRESENCE

Overseas sales decreased 9 percent during fiscal year 1997 to $8.9 billion or 22 percent of net sales due to falling memory prices. In addition, sales of computers were down due to the merger of the company's overseas personal computer operations with those of Packard Bell NEC, Inc. However, in the areas of communications systems and equipment, sales rose.

CHRONOLOGY: Key Dates for NEC USA, Inc.

1899:: A joint venture with Western Electric and Japanese investors formed the Nippon Electric Company (NEC)
1924:: NEC begins producing radios and transmitters
1925:: Western Electric sells its stake in NEC to ITT
1941:: The company is forced to work for the Army and Navy during World War II
1952:: NEC becomes Nippon Telegraph and Telephone's (NTT) principle supplier
1968:: NEC forms an alliance with Honeywell
1977:: CEO Koji Kobayashi sets forth his vision of a computer and communications convergence
1985:: NEC is the world's largest semiconductor manufacturer
1995:: NEC pays $170 million for a 20 percent share in Packard Bell

EMPLOYMENT

NEC has more than 150,000 employees worldwide, which works out to about $250,000 in generated revenue per employee. In Japan, the tendency is for workers to start with a company and stick with it through the course of their professional lives. Instead of laying off its Japanese employees, NEC has decided to retrain them for other tasks. COBOL mainframe engineers, for example, will learn Unix.