NEC Corp’s Earnings Call: Optimistic Outlook Despite Challenges

NEC Corp ((JP:6701)) has held its Q3 earnings call. Read on for the main highlights of the call.

NEC Corp’s recent earnings call was marked by an optimistic outlook, driven largely by significant growth in the IT services and social infrastructure sectors. Despite facing hurdles in the submarine systems and telecom services segments, the company has revised its full-year forecasts upwards, bolstered by strong domestic IT services bookings and a surge in Blue Stellar sales. This positive sentiment was a key highlight of the call, indicating a promising trajectory for the company.

Revenue and Operating Profit Increase

NEC Corp reported a revenue of ¥2312.8 billion for Q3 of the fiscal year ending March 2025, with a non-GAAP operating profit of ¥162.3 billion. This marks a 4.5% year-on-year increase and a substantial ¥75.9 billion improvement in marginal profit, showcasing the company’s robust financial health and operational efficiency.

IT Services and Social Infrastructure Growth

The earnings call emphasized significant growth in domestic IT services and international DGDF business. Domestic IT services revenue rose by 7%, while international business increased by 8%. The adjusted operating profit in IT services saw a marked improvement, attributed to higher revenue projects and increased profitability.

Upward Revision of Full Year Forecasts

Reflecting its strong performance, NEC Corp has revised its full-year forecasts upward. The non-GAAP operating profit forecast has been increased by ¥25 billion to ¥280 billion, and the revenue forecast has been updated by ¥40 billion to ¥3,410 billion, underscoring the company’s confidence in its continued growth trajectory.

Strong Domestic IT Services Bookings

The company reported a 9% year-on-year increase in overall domestic IT services, with public services orders rising by 36%. This growth is primarily driven by municipal government platform standardization projects, highlighting NEC’s pivotal role in supporting public sector digital transformation.

Blue Stellar Sales Surge

NEC’s Blue Stellar sales have surged by 26% year-on-year, surpassing the annual plan. This growth is fueled by strong demand from local governments and government cloud operation support services, reflecting the product’s increasing relevance and success in the market.

Submarine Systems Cost Increase

The submarine systems segment faced challenges due to increased costs from schedule delays in multiple existing projects. These issues have impacted profit margins, highlighting a significant area of concern for NEC Corp.

Telecom Services Risk

NEC’s telecom services segment reflects potential risks in meeting targets for 5G and submarine systems. These risks could affect revenue and adjusted operating profit, indicating areas that require strategic attention and management.

Forward-Looking Guidance

Looking ahead, NEC Corp has provided detailed guidance for the fiscal year ending March 2025. The company expects continued strong performance, with revenue forecasted at ¥3,410 billion and non-GAAP operating profit at ¥280 billion. The domestic IT services sector is projected to maintain its growth, driven by digital transformation initiatives. Despite challenges in the social infrastructure segment, NEC plans to update adjusted operating profit to ¥95 billion, accounting for ongoing issues in 5G and submarine systems. The company also announced a share split to improve investment accessibility, reinforcing its commitment to shareholder value.

In summary, NEC Corp’s earnings call presented a positive outlook, largely driven by growth in IT services and social infrastructure, along with a notable increase in Blue Stellar sales. Despite challenges in certain segments, the upward revision of forecasts and detailed guidance reflect the company’s confidence in its growth prospects and strategic initiatives.