NIPNF NEC Corporation (PK)

PART I

should be read in conjunction with, “Item 5. Operating and Financial Review and Prospects” and our audited annual consolidated financial statements and unaudited condensed interim consolidated financial information and related notes included elsewhere in this registration statement.

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The following table sets forth our capitalization and indebtedness at December 31, 2019. This table should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our unaudited condensed interim consolidated financial information and related notes attached as Annex A to this registration statement.

Not applicable.

Investing in our securities involves various risks. Before investing in our securities, you should carefully consider the risks described below as well as all the other information in this registration statement, including our consolidated financial statements and related notes, “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”

Our business, results of operations and financial condition could be materially and adversely affected by any of the factors discussed below. The trading price of our securities could decline due to any of these factors, and you may lose part or all of your investment. This registration statement also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks faced by us as described below and elsewhere in this registration statement. See “Forward-Looking Statements.”

Risks Related to Our Operating Environment

Adverse economic conditions in Japan, our primary market, or internationally may harm our business, results of operations and financial condition.

Our business is significantly dependent on the Japanese economy. Our sales to customers in Japan accounted for 76.3% of our consolidated revenue for the fiscal year ended March 31, 2019. Any future

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deterioration in the Japanese economy or the financial condition or performance of our customer base in Japan may materially and adversely affect our business, results of operations and financial condition. Additionally, the ongoing aging and decline of the population in Japan may adversely affect the Japanese economy. Our business may also be negatively affected by changes in economic conditions in other markets, particularly Asia, the United States and Europe, as well as by trends in the global economy. Geopolitical issues, such as recent military confrontations in the Middle East, and trade conflicts, including uncertainty regarding trade tensions between the United States and China and resulting trade restrictions such as tariffs, have recently contributed to increasing uncertainties in global markets, and increases in protectionist trade policies more generally may also contribute to slower global macroeconomic growth. Epidemics such as virus outbreaks, including the recent outbreak of the novel coronavirus COVID-19, or seasonal influenza may also negatively affect economic conditions in the global economy. Shifts in the policy or budgetary focus of national or local governments in Japan or internationally for economic or other reasons may also adversely affect our business.

Uncertainties in the Japanese and global economy make it difficult to forecast future levels of economic activity. Because the components of our planning and forecasting depend upon estimates of economic activity in the markets that we serve, increasing economic uncertainties make it more difficult than usual to estimate our future revenue and required expenditures. If unexpected changes in economic conditions occur in the future, we may not be able to respond appropriately to the changing market conditions.

Our operating and financing activities expose us to foreign currency exchange and interest rate risks, which may adversely affect our revenues and profitability.

We are exposed to risks of foreign currency exchange rate fluctuations, particularly for the Japanese yen against the U.S. dollar and euro. Our consolidated financial statements, which are presented in Japanese yen, are affected by fluctuations in foreign exchange rates. Changes in exchange rates affect the yen value of our equity investments and monetary assets and liabilities arising from business transactions in foreign currencies. They also affect the costs and sales proceeds of products or services that are denominated in foreign currencies. Despite measures undertaken by us to reduce or mitigate foreign currency exchange risks, foreign exchange rate fluctuations may hurt our business, results of operations and financial condition. Depending on the movements of particular foreign exchange rates, we may be adversely affected at a time when the same currency movements are benefiting some of our competitors.

We are also exposed to risks of interest rate fluctuations, which may affect our overall operational costs and the value of our financial assets and liabilities, in particular, long-term borrowings. As of March 31, 2019, we had ¥67.4 billion of long-term borrowings subject to floating interest rates. Despite measures undertaken by us to mitigate our exposure against interest rate fluctuations, such fluctuations, whether due to ordinary course market movements or actions by central banks, may increase our operational costs, reduce the value of our financial assets or increase the value of our liabilities. For a discussion of foreign currency fluctuations, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Risk.”

Changes in the markets in which we operate may harm our business, results of operations and financial condition.

We are exposed to the risk that broader changes and trends in the ICT industry, both in Japan and overseas, may affect demand for the products and services that we provide. Demand for our products and services can be negatively affected by sluggish economic activity, a general lack of demand for the products and services that we provide during a given season or economic period, potential obsolescence due to market developments and technological trends, an increase in the level of inventories for the types of products we produce in the broader market as well as a decline in our cost competitiveness. Because the markets in which we operate are constantly evolving, a recovery in prices or demand in a certain segment of the market or over a specific period of time does not necessarily mean that prices or demand will not fall or otherwise adversely affect our operations again in the

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future. These types of market changes are unpredictable and may materially and adversely affect our business, results of operations and financial condition.

The recent outbreak of the novel coronavirus could have a significant negative impact on our business, results of operations and financial condition.

In December 2019, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease, or COVID-19, was reported to have surfaced in Wuhan, China. Since that time, coronavirus has spread to other regions and countries including Japan where our primary office is located. On March 11, 2020, the World Health Organization characterized the coronavirus outbreak as a pandemic.

The coronavirus pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The coronavirus and related government countermeasures may result in ongoing social, economic, financial and labor instability in the countries in which we, our suppliers and our customers operate. The extent to which the coronavirus will ultimately impact our operations and those of our suppliers and customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic and related countermeasures, new information that may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. As our corporate customers as well as our Japanese national and local government customers focus on addressing the various difficulties presented by the emergency situation, they may become more constrained in their ability to engage our services and purchase our products at the levels that we anticipated prior to the crisis. If the pandemic results in a decline in IT-related investments by our customers, our business, results of operations and financial condition would be adversely affected. In addition, disruptions in public and private infrastructure, including communications, financial services and supply chains, could materially and adversely disrupt our normal business operations.

To date, we have transitioned a significant subset of our employee population to a remote work environment in an effort to mitigate the spread of the coronavirus, which may exacerbate certain risks to our business, including increased risk of cybersecurity attacks and increased risk of unauthorized dissemination of proprietary or confidential information about us, our customers or other third-parties. Although we have not closed any of our production facilities and have not yet experienced significant disruptions in our supply chain, the ongoing pandemic could result in facility closures by our customers or suppliers, general business shutdowns and financial difficulties. The pandemic could also result in increased prices, delays or difficulty in obtaining such components and raw materials. We cannot presently predict the overall scope or duration of business disruptions as a result of the coronavirus, but our ability to conduct our business as previously planned could be materially and negatively impacted.

With respect to our remote work arrangements to address the spread of coronavirus, we had previously introduced a policy of allowing employees to work from home in 2018 and have been able to take advantage of such existing infrastructure and remote working initiatives to implement the pandemic-related transition. In order to further adapt to these remote working arrangements in response to the coronavirus, we have converted to various electronic means of internal authorizations and execution of agreements and work orders. Although we expect that our financial reporting systems, internal controls over financial reporting and disclosure controls and policies will continue to function effectively, even in the event that remote work arrangements continue for an extended period of time, there is no guarantee that these systems and controls will function with the same level of efficiency as before the pandemic, and these adaptations and modified processes do introduce additional risks of mistakes or failures.

Capital markets have been affected by the pandemic, and general credit spreads for corporate debt issuances, including ours, have begun to widen. If a prolonged pandemic were to result in a significant deterioration in the

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global economy such that the ordinary functioning of financial institutions is suspended, our ability to issue additional bonds or receive bank loans at satisfactory rates or at all could be adversely affected.

Depending on the overall duration and severity of the impact of the coronavirus pandemic, we may be required to recognize material impairments of our assets, including, but not limited to, goodwill, intangible assets and right-of-use assets. Additionally, declines in the value of our equity holdings in various major companies could negatively impact our financial condition. As of March 31, 2019, equity instruments designated as financial assets measured at fair value through other comprehensive income were valued at ¥204.8 billion, but we expect that the general negative impact of the coronavirus pandemic on equity markets may result in a decrease in the value of these holdings.

In light of the developments set forth above and other reasons that may emerge due to the coronavirus pandemic and any associated protective or preventative measures, we are unable to estimate with certainty the overall impact to our business, results of operations and financial condition; however, such impact could be significantly negative. Coronavirus-related developments have adversely affected the global economy and may have a material adverse effect on our business, results of operations and financial condition.

Risks Related to Our Management Strategy

We may not be able to achieve the goals set forth in our medium-term management plan.

In January 2018, we launched our current medium-term business plan for the three fiscal years ending March 31, 2021, with the goal of improving our profitability and growing our business. However, we may be unable to achieve this goal within our anticipated timeline or at all due to various factors, including those discussed in more details elsewhere herein, particularly:

For a more detailed discussion on our current medium-term management plan, see “Item 4.B. Information on the Company—Business Overview—Overview—Medium-Term Management Plan.”

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Our revenues and profitability can fluctuate from period to period, and are often difficult to predict for particular periods due to factors beyond our control.

Our results of operations for any quarter or year are not necessarily indicative of results to be expected in future periods. Our results of operations have historically been, and will continue to be, subject to quarterly and yearly fluctuations as a result of a number of factors, including:

There are other trends and factors beyond our control that may affect our operations and make it difficult to predict results of operations for a particular period. These include:

These trends and factors could have a material adverse effect on our business, results of operations and financial condition.

We may have difficulty achieving the benefits expected from recently completed and future acquisitions and other business combinations and reorganizations.

As part of our business structure improvement strategy, we recently completed, and will continue to seek appropriate opportunities for, acquisitions and other business combinations. For example, as part of our growth strategy to expand our “Safer Cities” initiative, we acquired Northgate Public Services Limited in the United Kingdom in January 2018 (with the remaining shares acquired in March 2018) and KMD Holding ApS in Denmark in February 2019. However, we may be unable to find appropriate target companies with strengths that

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match the objectives of our inorganic growth strategy, whether due to a lack of such target companies, insufficient interest on the part of such target companies to be acquired or our inability to accurately discern which potential target companies would be appropriate. Even if we are able to find such appropriate target companies, the success of these acquisitions and other transactions are subject to various risks, such as the following:

Any of the foregoing and other risks may adversely affect our business, results of operations, financial condition and stock price.

We rely on our strategic partners and co-participants in various projects, and our business could suffer if our relationships with them change adversely or if we encounter problems relating to their products or services.

We have entered into a number of long-term strategic alliances with leading industry participants, both to develop new technologies and products and to manufacture existing and new products. For example, in October 2018 we announced a mobile 5G development partnership with Samsung Electronics Co., Ltd. If our strategic partners encounter financial or other business difficulties, if their strategic objectives change or if they no longer perceive us to be an attractive alliance partner, they may no longer be able or desire to participate in our alliances. Our business could be hurt if we are unable to maintain our alliances. In addition, as a result of such strategic alliances, we may become dependent on our alliance partners for product lines using co-developed technologies, leaving us with less flexibility in expanding or diversifying our product offerings. Our competitors may form similar strategic alliances to strengthen their competitive positions in the same product lines.

We participate in various projects where we and various other companies provide services and products that are integrated into systems to meet customer requirements. If a partner company is unable to continue its role due to bankruptcy or other reasons or if any of the services or products that a partner company provides have any defects or other characteristics that cause the integrated systems to malfunction or otherwise fail, we may be unable to meet customer requirements, and our reputation and business could be significantly harmed.

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We may not succeed in executing our growth strategies outside Japan.

Our strategies include various measures to expand our business in markets outside Japan such as the planned expansion of our “Safer Cities” initiative. As we expand our business geographically, we will be exposed to risks that are unique to particular jurisdictions or markets with which we may be less familiar. Our efforts to penetrate new markets or offer new products and services may not succeed if product or market opportunities develop more slowly than expected, if our new products and services are not well accepted among customers, if the profitability of opportunities is undermined by competitive pressures or regulatory limitations, or if our planned acquisitions, investments or capital alliances are not approved by regulators. We may also lack sufficient knowledge or understanding of local business practices or legal and regulatory requirements. Depending on the market, we may encounter difficulties in finding suitable business, joint venture and alliance partners. In various overseas markets, we face barriers in the form of long-standing relationships between our potential customers and their local suppliers as well as protective regulations. In addition, pursuing international growth opportunities may require us to make significant investments long before we realize any returns on the investments. Increased investments may result in expenses growing at a faster rate than revenues. Our overseas projects and investments could also be adversely affected by:

In addition, problems in foreign financial markets and economies could adversely affect demand from customers in the affected markets. Because of these factors, we may not succeed in expanding our business in international markets, and our business growth prospects, results of operations and financial condition could be materially and adversely affected.

Risks Related to Our Business Operations

If we fail to keep pace with rapid technological advancements in our industry, or if we pursue technologies that do not become commercially accepted, customers may not buy our products and services, and our revenue and profitability may decline.

The markets for the products and services that we offer are characterized by rapidly changing technology, evolving technical standards, changes in customer preferences and frequent introduction of new products and services. The development and commercialization of new technologies and the introduction of new products and services will often make existing products and services obsolete or unmarketable. Our competitiveness in the future will depend at least in part on our ability to:

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We may not be successful in identifying and marketing product and service enhancements, or offering and supporting new products and services, in response to technological changes as well as changes in customer preferences that require increasingly diverse sources of value. Additionally, future technological changes may not advance in accordance with historical trends or predicted courses or timetables. For example, as the hardware in certain fields in which we operate has approached maturity, we have in recent years observed a general trend towards a focus on software innovation rather than continued hardware innovation. If we fail to adequately monitor and address these technological changes and changes in customer preferences or accurately anticipate the direction of such changes, our business, results of operations and financial condition may be significantly harmed. Furthermore, we may encounter difficulties in incorporating our technologies into our products and services in accordance with our customers’ expectations, which may adversely affect our relationships with our customers, our reputation and our revenues.

We seek to form and enhance alliances and partnerships with other companies to develop and commercialize technologies that will become industry standards for the products and services that we currently sell and plan to sell in the future. We spend significant financial, human and other resources on developing and commercializing such technologies. We may not, however, succeed in developing or commercializing such standard-setting technologies if our competitors’ technologies are accepted as industry standards. In such case, our competitive position, reputation, results of operations and financial condition could be adversely affected.

We are subject to intense competition in many of the markets in which we operate, and this may adversely affect our ability to maintain or grow our sales and profits.

Intense competition creates a challenging environment for us in many of the markets in which we operate. Such competition places significant pressure on our ability to maintain or improve our profitability and is particularly acute during market slowdowns. The entry of additional competitors into the markets in which we operate increases the risk that our products and services will become subject to intense price competition. Some of our competitors, mainly in Asian countries, may have an advantage of having lower operating costs than us and may be able to compete for customers more effectively than we can based on price. There is also the risk that our competitors may engage in strategic pricing, especially in the case of multinational corporations with which we may compete in the future that possess extensive financial resources that far exceed our own in terms of the ability to absorb sustained losses. Additionally, we may face new competition over time from such multinational corporations as technologies evolve and new technological solutions become available in the markets in which we compete. Such multinational corporations may also be able to invest significantly higher amounts of resources in research and development as well as employ far larger numbers of personnel. In recent years, the time between the introduction of a new product developed by us and the production of the same or a comparable product by our competitors has become shorter. This has increased the risk that the products we offer will become subject to intense price competition sooner than in the past.

We have many competitors in Japan and other countries, ranging from large multinational corporations to a number of relatively small, rapidly growing and highly specialized companies. Unlike many of our competitors, however, we operate in many businesses and compete with companies that specialize in one or more of our product or service lines. As a result, even if we have more combined resources than our specialized competitors, we may not be able to fund or invest in specific subsets of our businesses as much as our specialized competitors

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can, and we may not be able to change or take advantage of market opportunities as quickly or as effectively as they can due to their smaller size and narrower focus.

Our participation in competitive bidding or proposal processes for government and other large projects with demanding price and other requirements can place further downward pressure on our profitability. In order to maintain or improve our profitability while meeting such demanding requirements, we continuously strive to increase our revenue by, among other means, offering and delivering innovative and unique value to customers and to reduce our costs and expenses through optimization of our development and manufacturing operations, business process improvements and other measures. However, these measures may be insufficient to enable us to maintain or improve our operating profit margin on such projects.

We sell products and services to some of our current and potential competitors. For example, we receive orders from, and provide solutions to, competitors that further integrate or otherwise use our solutions for large projects for which such competitors are engaged as the primary solutions provider. If these competitors cease to use us as their secondary solutions provider for such large projects for competitive or other reasons, our business could be harmed.

We conduct a substantial amount of business with a concentrated customer base, and our business could suffer if they encounter business problems or decide to reduce their business with us.

A substantial portion of our business portfolio consists of projects for government entities and certain large network and other infrastructure companies, such as the NTT group. Fluctuations in demand for such projects, particularly large-scale projects, or our potential inability to secure such projects through the applicable bidding processes, may have a significant impact on our revenue. Furthermore, we engage in a significant amount of projects with a large number of government entities, and contracts with government entities can be reduced or terminated for funding, policy or other reasons. Similarly, corporate customers may reduce their level of capital expenditures or current procurement, shift their investment focus or otherwise reduce their business with us for business, financial or other reasons.

We are also subject to the risk that regulatory restrictions may prevent us from participating in the bidding or proposal processes that are required for obtaining contracts with the various government entities that are our customers and potential customers. For example, in February 2017, we received cease and desist orders from the Japanese Fair Trade Commission and were ordered to pay administrative monetary penalties totaling ¥1.4 billion for violating the prohibition on unreasonable restraint of trade under the Japanese Act on Prohibition of Private Monopolization and Maintenance of Fair Trade due to collusion with other bidders in connection with projects involving equipment for a public utility company and fire and emergency response operations. As a result of these cease and desist orders, we became temporarily ineligible to participate in the bidding process for projects with a significant number of Japanese government agencies and local governments for various periods ranging from one month to 27 months. We complied with all of the requirements under the orders and have implemented various remedial measures to reduce the risk of similar future violations, and all of the restrictions on our ability to bid on public projects had been lifted by May 23, 2019. To the extent that we become unable to participate in projects with our various government entity customers in the future, whether due to fluctuations in demand, changes in government policy or regulatory reasons, our business, results of operations and financial condition could be adversely affected.

We may face difficulties with respect to new businesses.

The process of developing new products and services entails many risks. The development and manufacturing processes can be lengthy and costly and require us to commit significant resources well in advance of sales. For example, in July 2019, we acquired OncoImmunity AS as part of our initiative to establish an AI-driven drug discovery business. Because we have limited experience with drug development, we anticipate that this initiative may not become profitable for an extended period and is still subject to the risk of failure

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despite continued effort and investment. Additionally, technology and standards may change while we are in the development stage, rendering any new products or services we develop obsolete or uncompetitive before their introduction. Any of our newly developed products or services may also contain undetected errors that may be discovered after their introduction and distribution, resulting in liability for losses caused by such errors and reputational harm, which may adversely affect our business, results of operations and financial condition.

Failures in the products and services that we provide, including potential claims relating to defects or delays, could result in significant direct or indirect costs to us.

Many of our products and services are used in critical situations where the adverse consequences of defects, failure to meet customers’ demands for reliability, safety and performance or delay of project completion may be severe, exposing us to even greater risk. Moreover, any defects in our products and services, including those used in the public services sector, may have a far-reaching impact, negatively affecting a large population of end-users. Product and service defects or delays could subject us to liability for significant damages, including consequential damages, as well as potential penalties, sanctions or costs in connection with product recalls. Although our products and services are generally related to ICT solutions, exposing us to customary risks of technology failure or computer viruses, many of our products and services are used in infrastructure that is directly related to the protection of human life, such as communication systems for fire rescue services. To the extent our products and services are involved in incidents that result in personal injuries or the loss of life, we may be exposed to liability far in excess of the risks faced by a typical company in the ICT industry. The innovative technologies in our products and services may also expose us to liability of a type that is difficult to foresee. Any reputational harm and regulatory sanctions that arise from these problems could harm our ability to sell our products and services. Furthermore, defects, delays, penalties, sanctions, recalls or other difficulties may result in projects that continue to be unprofitable for extended periods. These circumstances could adversely affect our business, results of operations and financial condition.

Our failure to procure components, equipment or other supplies as planned could adversely affect our results of operations.

Our operations depend on procuring components, equipment and other supplies in a timely manner. In some cases, we purchase on a just-in-time basis, which reduces the margin for error of our procurement activities. Because the products that we purchase are often complex or specialized, it may be difficult for us to substitute one supplier for another or one product for another within a reasonable time frame or at all. Some products are available only from a limited number of suppliers or a single supplier, which may decrease our bargaining power and negatively affect our procurement costs. Although we believe that supplies of the components, equipment and other supplies that we use are currently adequate, shortages in critical materials could occur due for example to an interruption in supply, a shift in regulatory trends, an increase in industry demand or geopolitical tensions that may result in tariffs or other trade restrictions. Any shortages may result in increased costs in order to adjust our supply chain to procure necessary replacements and could adversely affect our production capacity and efficiency. In addition, a financial market disruption could pose liquidity or solvency risks for our suppliers, which could reduce our sources of supply or disrupt our supply chains. Furthermore, in the event that we procure components, equipment or other supplies that are defective, the reliability and reputation of our products and services could be adversely affected. Our business, results of operations and financial condition would be adversely affected if we are unable to obtain adequate delivery of these supplies in a timely manner and at an acceptable price.

If we are unable to protect our intellectual property rights, our business and prospects may be harmed.

We depend on our proprietary technology and our ability to obtain patents and other intellectual property rights covering our products, services, business models, and design and manufacturing processes. As of March 31, 2019, we held approximately 49,000 patents issued in Japan and other jurisdictions and have a significant number of Japanese and foreign patent applications pending. The process of seeking and maintaining

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patent protection can be long and expensive. Our patents could be challenged, invalidated or circumvented. The fact that we hold many patents or other intellectual property rights does not ensure that the rights granted under them will provide competitive advantages to us. For example, the protection afforded by our intellectual property rights may be undercut by rapid changes in technologies in the industries in which we operate. Similarly, there can be no assurance that claims allowed on any future patents will be sufficiently broad to protect our technology. Effective patent, copyright and trade secret protection may be unavailable or limited in some countries, and our trade secrets may be vulnerable to disclosure or misappropriation by employees, contractors and other persons. Further, pirated products of inferior quality infringing our intellectual property rights may damage our reputation and adversely affect sales of our products. Litigation, which could consume significant financial and management resources, may be necessary to enforce our patents or other intellectual property rights.

If we are unable to obtain certain intellectual property licenses owned by third parties, our business could be adversely affected.

Many of our products are designed to utilize software or other intellectual property licensed from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, we believe that, based upon experience and standard industry practice, these licenses generally can be obtained on commercially reasonable terms. However, there can be no assurance that we will be able to obtain the licenses that we will need from third parties on commercially reasonable terms or at all. If we are unable to obtain necessary licenses for the operation of our business, we may be required to limit or cease our operations that make use of such license and may be unable to compete effectively. Any of these results would adversely affect our business, results of operations and financial condition.

We are exposed to the risk that our customers, including those with whom we have made deferred payment or other financing arrangements, may encounter financial difficulties.

Many of our customers purchase products and services from us on payment terms that provide for deferred payment. If our customers for whom we have extended payment terms or provided other financing terms or from whom we have substantial accounts receivable encounter financial difficulties or fail to access credit from others and are unable to make payments on time, our business, results of operations and financial condition could be adversely affected.

We sometimes provide vendor financing to our customers or offer customers extended payment terms or other forms of financing to assist their purchase of our products and services. If we are unable to provide or facilitate such payment arrangements or other forms of financing to our customers on terms acceptable to them or at all, due to financial difficulties or otherwise, our results of operations and financial condition could be adversely affected.

If we fail to attract, hire and retain skilled personnel, we may not be able to achieve our business objectives.

As an ICT company, we must compete for talented employees to develop our products, services and solutions, and our competition for these potential employees includes multinational technology companies with considerable resources. As a result, our human resources organization focuses significant efforts on attracting and retaining individuals in key technology positions, and our recruitment and personnel costs may increase in the future. Changing technology and industry preferences may increase the need for hiring differently skilled and diversified talent. For example, recent trends in digitization and automation have resulted in increased demand for talent with differentiated skills in AI, machine learning, data science and statistical analysis, and we foresee fiercer competition for such talent. Moreover, the talent pools with such skills could be different from our traditional sources of recruitment. If we experience a substantial loss of, or an inability to attract, talented personnel, we may be unable to meet our business objectives.

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We may not be able to obtain additional financing necessary to meet our funding needs due to a decline in our credit profile, difficult financial market conditions and other factors, and this may have a material adverse effect on our business.

Our primary sources of funds have historically been cash flows from operations, borrowings from banks and other institutional lenders and funding from the capital markets, such as offerings of commercial paper and other debt securities. A decline in our credit profile could result in a downgrade in our ratings or otherwise lead to increases in our interest expenses and could have an adverse impact on our ability to access the commercial paper market or the public and private debt markets, which could have an adverse effect on our liquidity, results of operations and financial condition. Because we maintain a relatively high level of leverage, our operations may be particularly affected in the event that we encounter difficulties in accessing public or private debt markets. As of December 31, 2019, the balances of our borrowings and bonds were ¥328.2 billion and ¥199.6 billion, respectively. See “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Sources of Funding and Liquidity.”

A failure of one or more of our major lenders, a decision by one or more of them to stop lending to us or instability in the capital markets could have an adverse impact on our access to funding. If we fail to obtain external financing on terms acceptable to us, or at all, or to generate sufficient cash flows from our operations or sales of our assets, when necessary, we will be unable to fulfill our obligations, and our business, results of operations and financial condition may be materially adversely affected. To the extent we finance our operations with additional debt, we may become subject to financial and other covenants that may restrict our ability to pursue our business strategy.

defend against them. If an infringement claim against us is successful and we are unable to obtain the license for the infringed technology or substitute it with similar non-infringing technology, our business could be adversely affected.

We may also become subject to judicial or administrative proceedings involving issues under commercial, anti-competition, anti-bribery, product liability, environmental and other laws and regulations. The outcome of such proceedings, including the extent of the potential impact of any unfavorable outcome on our financial results, however, is inherently uncertain and difficult to predict. The extent of financial, management, human and other resources required to deal with such proceedings or to take any action given such outcome is similarly uncertain and could be significant. Such resources may also be difficult for us to secure in a timely manner, and our operations could be disrupted if our resources are extensively deployed to deal with such proceedings and outcome. In addition, if we violate legal or regulatory requirements, we could be required to pay fines or penalties, and government agencies, local governments and intergovernmental organizations could suspend or debar us as a contractor or prevent us from participating in bidding or proposal processes, which could have a material adverse impact on our business, results of operation, financial condition and reputation.

We face regulatory change and uncertainty, as well as potential legal liability, in many jurisdictions in which we operate.

In many of the jurisdictions in which we operate, our business is subject to various risks associated with unexpected legal or regulatory changes, uncertainty in the application of laws and governmental policies, and uncertainty relating to legal liabilities. Substantial changes in the legal or regulatory environment, including the economic, trade, tax, defense, labor, spending, privacy and other policies of the governments of Japan and other jurisdictions in which we operate could require us to change our businesses or otherwise adversely affect our business, results of operations and financial condition. For example, sanctions and import and export controls imposed by governments of various jurisdictions restricting or prohibiting transactions with certain persons or entities in or affiliated with certain countries or involving certain products or conduct expose us to potential administrative, civil and criminal liabilities and penalties, including fines, debarment from government contracts and loss of import and export privileges. Sanctions laws and import and export restrictions are changing rapidly for certain geographies. Our existing compliance program may not be effective at preventing violations of sanctions laws and import and export restrictions, and violations of such laws and restrictions could have an adverse effect on our reputation, business, results of operations and financial condition. In addition, we may be unable to gain or retain our customers or investors, government or non-government entities, including institutional investors, with policies to refrain from transacting with, or investing in, companies doing business with persons or entities in or affiliated with sanctioned countries. Moreover, if any products that we sold to customers are resold or reused in contravention with sanctions laws or import and export restrictions, our reputation may be damaged. For additional information, see “Item 8.A. “Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings.”

We are subject to various environmental laws and regulations, and there may be costs associated with compliance or remediation.

Our operations are subject to many environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal, chemical substances in products, product recycling, soil and ground water contamination, and global warming. We face risks of environmental liability arising from our current, historical and future manufacturing activities. Our failure to comply with current and future environmental laws and regulations, or the identification of contamination for which we are liable, could subject us to substantial costs, including fines, clean-up costs, third-party property damage or personal injury claims, and make significant investments to upgrade our facilities or curtail our operations. Identification of presently unidentified environmental conditions, more vigorous enforcement by a governmental authority, enactment of more stringent legal requirements or other unanticipated events could give rise to adverse publicity, restrict our operations, affect the design or marketability of our

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products or otherwise cause us to incur material environmental costs, adversely affecting our results of operations and financial condition. We endeavor to comply with laws and government policies through various measures, including our environmental management standards and long-term climate change policy guidelines as well as inspections and environmental auditing in accordance with our internal environmental policies, but these measures may not be effective at avoiding potential liabilities arising from our current, historical and future manufacturing activities. However, costs associated with additional or stricter environmental compliance or remediation obligations could adversely affect our business, results of operations and financial condition.

Information security and data protection concerns and restrictions could harm our business.

We collect, store, use, transfer or otherwise process a voluminous amount of personal information and confidential information in the regular course of our business. For example, we are required to handle personal information in compliance with the Personal Information Protection Act of Japan and similar laws in other jurisdictions in which we operate, including the European Union’s General Data Protection Regulation which became effective in May 2018. If personal or confidential information in our possession about our customers or employees is leaked or improperly accessed and subsequently misused, we may be subject to liability and regulatory action, and our reputation and brand value may be damaged. In addition, the cost and operational consequences of implementing further data protection measures could be significant.

In the current business environment, we face increasing and evolving risks regarding cybersecurity and privacy, including hacking, employee malfeasance, human or technological error, and fraudulent inducement of disclosure of information, which expose us to potentially significant financial loss, liability and damage to our brand and reputation. Such risks include attempted breaches not only of our own products, services and systems, but also those of our customers, contractors, suppliers, business partners and other third parties. Our products, services and systems, including cloud-based systems as well as systems and technologies that we maintain on behalf of our customers, may be used in their critical operations, or involve the storage, processing and transmission of personal, confidential and other sensitive data. These products, services and systems are also used by customers in highly regulated industries, such as financial and healthcare services, as well as government agencies. Cybersecurity breaches, if successful, could result in, for example, unauthorized access to or loss or destruction of personal, confidential and other sensitive data as well as systems, delays in and disruptions to business activities and denials of services, and disruptions to critical infrastructure, including utility, information technology and communications. In addition, the increasingly sophisticated and pervasive nature of certain cybersecurity threats and vulnerabilities, as well as the increasing scale and complexity of the business and infrastructure that can be targeted, make it possible that certain threats and vulnerabilities will not be detected or mitigated in a timely manner. For example, in July 2018, we discovered that certain files relating to a major customer had been accessed by third parties without authorization, although we do not believe that any confidential information was accessed in the intrusion. Cybersecurity risk to us and our customers also depends on factors such as the actions, practices and investments of customers, contractors, suppliers, business partners and other third parties. As our business and the cybersecurity landscape evolve, we may find it necessary to make significant further investments to protect data and infrastructure.

There are numerous laws and regulations in various jurisdictions regarding privacy, data protection, information security, and the storing, sharing, use, processing, transfer, disclosure and protection of personal data. In light of the increasing pace of new technology development, including with respect to biometric data, AI and related human rights issues that are particularly relevant to our “Safer Cities” initiative, the scope of these data protection and privacy-related laws and regulations are expanding, subject to differing interpretations, and may be inconsistent among jurisdictions, or conflict with other rules. These laws and regulations are evolving and may result in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. We are also subject to the terms of our privacy policies and contractual obligations to third parties related to privacy, data protection and information security. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or other third parties, or applicable laws or regulations relating to privacy, data protection, or information security may result in governmental investigations

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or enforcement actions, litigation, claims or public statements against us by consumer advocacy groups or others, and could result in significant liability or cause our customers to lose trust in us, which could cause them to cease or reduce use of our products and services and otherwise have an adverse effect on our reputation and business. Any similar failure or perceived failure by users of our products or services may also have an adverse effect on our reputation and business. In addition, legal, regulatory, contractual and other obligations as well as public concerns relating to privacy, data protection or information security could restrict our ability to store and process data as part of our solutions or otherwise impact our ability to provide our solutions in certain jurisdictions, and may result in the loss of business opportunities from customers operating in, or seeking to expand into, those jurisdictions.

Changes in effective tax rates or deferred tax assets, or adverse outcomes resulting from an examination of our income tax returns, may harm our results of operations.

Our effective tax rate is subject to volatility and could be adversely affected by, among other factors:

Any significant increase in our future effective tax rates could reduce our net profit for future periods. We currently carry deferred tax assets resulting from tax loss carryforwards and deductible temporary differences, both of which may reduce our taxable income in the future. Deferred tax assets may only be realized against taxable income. The amount of our deferred tax assets considered realizable could be reduced from time to time if estimates of future taxable income from our operations and tax planning strategies during the carryforward period are lower than previously estimated due to deterioration in market conditions or other circumstances. The amount of our deferred tax assets could also be reduced as a result of changes in applicable tax laws and regulations, including decreases in statutory tax rates, as well as applicable accounting standards. Any such reduction in our deferred tax assets will adversely affect our income for the period of such adjustment.

In addition, we are subject to continuous audits and examination of our income tax returns by tax authorities of various jurisdictions. We regularly assess the likelihood of adverse outcomes resulting from these audits and examinations to determine the adequacy of our provisions for income taxes. There can be no assurance that the outcomes of these audits and examinations will not have an adverse effect on our business, results of operations and financial condition.

Our business could be harmed if we fail to meet corporate governance and social responsibility requirements.

We are subject to corporate governance and social responsibility requirements, including those relating to fair dealing and competition, human rights, workplace safety and sanitation, sustainability and other issues. These requirements and legal frameworks continue to evolve, and in some of the jurisdictions in which we operate, we are under increasing scrutiny concerning such issues by not only regulatory authorities but also other stakeholders such as investors, non-government organizations and transaction counterparties. Despite our efforts to meet applicable regulatory requirements and stakeholder expectations regarding corporate governance and social responsibility issues through implementation and improvements of our internal policies, procedures and initiatives, and other measures, we may not be able to fully meet such requirements and expectations. Our inability to do so could expose us to regulatory, financial and reputational risks.

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Risks Related to Other Aspects of Our Business

Natural disasters, public health issues, armed hostilities, terrorism and other causes over which we have little or no control could harm our business.

Natural disasters, fires, storms, floods, droughts and other severe weather conditions caused by climate change, public health issues, armed hostilities, terrorism and other events, whether in Japan or any other country in which we operate, could cause damage or disruption to us, our customers or suppliers, or could lead to economic stagnation, fluctuations in foreign currency exchange rates and interest rates, political or economic instability, or deterioration in public safety and other conditions, any of which could harm our business. In Japan, we are exposed to heightened risks of large-scale natural disasters, particularly earthquakes and typhoons. A large-scale earthquake may lead to, among other things, tsunamis, soil liquefaction and fires, as well as electricity power supply shortages, and may result in significant damage to, or losses of, tangible or human assets, market disruptions or a longer-term economic slowdown. With increasing intensity and frequency in recent years, typhoons may also result in, among other things, floods, landslides and gusts causing similar damage, losses and other consequences. For example, the Great East Japan Earthquake of 2011 caused the temporary suspension of manufacturing activity at our facility in the Tohoku region, and in October 2019 a typhoon caused some flooding-related damage at a portion of our Tamagawa plant.

Our disaster mitigation measures, emergency and business continuity plans, training and education programs may not address all eventualities resulting from natural disasters, including disruption or destruction of power, gas, water, communications, transportation and other infrastructures, property and human casualties, reduction or suspension of manufacturing capacities, logistics and supply chain interruptions, deterioration in product and service quality, and safety, health and environmental issues. In addition, in the event of a viral epidemic, including a further escalation of the recent outbreak of the novel coronavirus COVID-19, we may encounter difficulty maintaining an adequate level of human resources or workplace safety, declines in demand for our products and services from customers in the affected areas and disruptions to the operations of our suppliers. These events could have a material adverse effect on our business.

Declines in our pension assets and changes in discount rates and other actuarial assumptions we use to determine our defined benefit obligation may adversely affect our financial condition and results of operations.

We may face adverse effects on our financial conditions and results of operations relating to our employees’ retirement benefit plans from changes in the market value of equity securities and other pension assets and a decline in returns on our pension assets. Furthermore, in accordance with applicable accounting rules, we make certain assumptions in determining the present value of our defined benefit obligation. Changes in the discount rates and other actuarial assumptions we use in determining the present value of our defined benefit obligation may have an adverse effect on our financial condition and results of operations. For example, any future reduction in discount rates or recognition of past service cost as a result of plan amendments may have the effect of increasing our defined benefit obligation and defined benefit cost.

We may be required to recognize impairment losses with regard to goodwill.

As a result of our acquisitions of Northgate Public Services Limited in the United Kingdom (in January 2018, with the remaining shares acquired in March 2018) and KMD Holding ApS in Denmark (in February 2019), we have recorded significant goodwill. As of March 31, 2018 and 2019, we had goodwill of ¥104.0 billion and ¥188.2 billion, respectively. We may also record additional goodwill as a result of further acquisitions in the future. Our consolidated financial statements are prepared in accordance with IFRS as issued by the IASB, which requires testing cash generating units, or CGUs, to which goodwill has been allocated for impairment at least once annually, regardless of any indication of impairment. In addition, whenever events or changes in circumstances indicate that a CGU to which goodwill has been allocated may be impaired, we perform an additional impairment test to determine whether the carrying amount of such CGU exceeds the recoverable

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amount. The recoverable amount of a CGU is the higher of its fair value less costs of disposal and its value in use. In determining the value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate (or rates) that reflects current market assessments of the time value of money and the risks specific to the asset. If the carrying amount of a CGU with goodwill on our statement of financial position exceeds its recoverable amount, we would be required to recognize an impairment loss. Any impairment loss shall first reduce the carrying amount of goodwill allocated to the CGU. Any impairment losses for tested goodwill will adversely affect our results of operations and financial condition.

Risks Related to Owning Our Shares

Rights of shareholders under Japanese law may be different from rights of shareholders of companies organized in other jurisdictions.

Our articles of incorporation and the Companies Act of Japan (Act No. 86 of 2005), or the Companies Act, govern our corporate affairs. Legal principles relating to matters such as the validity of certain corporate procedures, directors’ and corporate officers’ fiduciary duties and liabilities, and shareholders’ rights under Japanese law may be different from, or less clearly defined than, those that would apply to a company incorporated in another jurisdiction. For example, under the Companies Act, only holders of 3% or more of our total voting rights or our outstanding shares are entitled to examine our accounting books and records. In addition, shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other jurisdictions. Furthermore, there is a degree of uncertainty as to what duties the directors of a Japanese joint stock corporation (kabushiki kaisha) may have in response to an unsolicited takeover bid, and such uncertainty may be more pronounced than that in other jurisdictions. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in another jurisdiction. In addition, Japanese courts may not be willing to enforce judgments of non-Japanese courts against us which are based on non-Japanese securities laws, including U.S. federal and state securities laws.

Investors holding less than a full “unit” of shares of our common stock will have limited rights as shareholders.

Pursuant to the Companies Act and certain related legislation, our articles of incorporation provide that 100 shares of our common stock each constitute one unit of shares. Under the Companies Act, holders of shares of our common stock constituting less than a full unit do not enjoy the right to vote. In addition, shares constituting less than a full unit do not comprise a trading unit, except in limited circumstances, and accordingly may not be sold on the Tokyo Stock Exchange on which our common stock is listed. Under the unit share system, any holder of shares constituting less than a full unit has the right to request that we purchase such shares constituting less than a full unit. In addition, any holder of shares constituting less than a full unit has the right to request that, pursuant to our articles of incorporation and share handling regulations, we sell such number of shares that, when combined with the number of shares already held by such holder, constitute a whole unit of shares.

Because of daily price range limitations under Japanese stock exchange rules, you may not be able to sell our shares at a particular price on any particular trading day, or at all.

Stock prices on the Tokyo Stock Exchange are determined on a real-time basis by the balance between bids and offers. The Tokyo Stock Exchange is an order-driven market without specialists or market makers to guide price formation. To prevent excessive volatility, the Tokyo Stock Exchange sets daily upward and downward price range limitations for each listed stock, including our common stock, based on the previous day’s closing price or special quote. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell shares of our common stock at a price above or below the relevant daily limit on the Tokyo Stock Exchange may not be able to sell at such price on a particular trading day, or at all.

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Our shareholders of record on a record date may not receive the dividend they anticipate.

The customary dividend payout practice and relevant regulatory regime of publicly listed companies in Japan may significantly differ from that widely followed or otherwise deemed necessary or fair in foreign markets. While we may announce forecasts of year-end and interim dividends prior to the record date, these forecasts are not legally binding. We are not able to ultimately determine any dividend payment amount to our shareholders of record as of a record date, including whether we will make any dividend payment to such shareholders at all, until after such record date. For that reason, our shareholders of record on a record date may not receive the dividends they anticipate.

You will be investing in securities that are not listed on any national securities exchange in the United States.

While our common stock is listed on the Tokyo Stock Exchange, we do not intend to seek any listing for our common stock on a national securities exchange in the United States. As a result, there may be little or no liquidity for shares of our common stock in the United States, and investors may be limited to trading through the Tokyo Stock Exchange or through some alternative trading markets.

In addition, because we do not intend to seek a listing on a national securities exchange in the United States, we are not subject to some of the corporate governance requirements typically applicable to public companies in the United States, particularly those imposed on listed companies by U.S. national securities exchanges, such as rules related to director independence and requirements related to audit and other board committees.

Prior notification under the Foreign Exchange and Foreign Trade Act of Japan may be required in the case of acquisition by foreign investors of a certain portion of our shares.

Because we are engaged in certain businesses designated by the Foreign Exchange and Foreign Trade Act of Japan (Act No. 228 of 1949, as amended, the “FEFTA”) and its related cabinet orders and ministerial ordinances (collectively, the “Foreign Exchange Regulations”), such as businesses of manufacturing equipment related to national defense, if a foreign investor intends to consummate an acquisition of shares of our common stock that constitutes an “inward direct investment” under the Foreign Exchange Regulations, the foreign investor, in general, must file prior notification of such inward direct investment with the Minister of Finance and any other competent Ministers. “Inward direct investment” includes an acquisition by a foreign investor of shares of our common stock as a result of which acquisition such foreign investor, in combination with any existing shareholding, directly or indirectly holds 10% or more of the total number of issued shares or the total number of voting rights. If such prior notification is filed, the proposed acquisition may not be consummated until the prescribed screening period expires. In some cases, the Ministers may extend the screening period, and may recommend or order any modification or abandonment of such acquisition. In addition, if certain conditions including those prescribed in light of national security of Japan under the Foreign Exchange Regulations are met, the Ministers may order the disposal of the shares acquired or take other measures. Consequently, any foreign investor seeking to acquire shares of our common stock that constitutes an “inward direct investment” may not consummate such acquisition in an expected time frame, in accordance with an intended plan, or at all.

In addition, with the main aim of amending the requirements and procedures regarding the prior notifications of inward direct investment, an amendment to the Foreign Exchange Regulations came into effect on May 8, 2020 (the “Amendment”). The Amendment will be fully implemented on June 7, 2020 and, upon such full implementation, the thresholds for the prior notification requirement described above will be lowered from 10% to 1%, and certain exemptions from the prior notification requirements will also be introduced. Due to the Amendment, the scope of investments in the shares of our common stock that constitute inward direct investments requiring prior notification may be expanded, and certain foreign investors seeking to make such investments may not be eligible for the newly introduced exemptions. As a result, such foreign investors may have difficulties consummating such acquisitions in an expected time frame, in accordance with an intended plan, or at all.

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For a more detailed discussion on the requirements and procedures regarding the prior notifications under the Foreign Exchange Regulations, see “Item 10. Additional Information—D. Exchange Control.”

March 2015. In the United States, we acquired Netcracker Technology Corporation in October 2008. In addition, we exited the dynamic random access memory manufacturing business by reducing our voting rights in Elpida Memory, Inc., a joint venture with Hitachi, Ltd., from 50.0% to 25.0% as a result of Elpida Memory’s issuance of new shares to third party investors and the conversion of non-voting class shares held by other shareholders to common shares in December 2004 and to 13.9% and further to 11.1% through private sale of shares in August 2005 and February 2006.

In the 2010s, we continued to reorganize our business portfolio through various transactions, including the following:

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The SEC maintains a web site (http://www.sec.gov) that contains reports, information statements, and other information regarding issuers, including us, that file electronically with the SEC. Our internet address is https://www.nec.com/. No information on our web site is deemed a part of this registration statement.

OVERVIEW

Our Mission

We seek to provide value as a “social value innovator” with the objective of “orchestrating a brighter world.” By operating in accordance with our core social values of safety, security, efficiency and equality, our objective is to provide a wide variety of technological solutions that help advance societies worldwide toward deepened mutual understanding and the fulfillment of human potential.

Introduction

We are a leading provider of advanced ICT solutions for government entities, communications service providers and other business enterprises in Japan and overseas markets. Across our business segments, we seek to leverage our core competency in system integration to create comprehensive solutions that are applicable in a wide variety of customer operating environments, ranging from large-scale government infrastructure (such as social security systems, air traffic control and emergency response systems) to company-specific information technology systems and network infrastructure (including hardware and software solutions and consulting on matters such as server infrastructure, operation management software and wireless access networks). We are also investing in the development of new technologies and solutions, including AI and big data analytics as well as biometric technology infrastructure. By focusing on high-growth market opportunities and building on our expertise and research and development capabilities, we seek to strengthen our position as an innovative provider of ICT solutions.

Business Segments

Our business operations consist of six principal segments—Public Solutions, Public Infrastructure, Enterprise, Network Services, System Platform, Global—in addition to certain other business activities.

Our various operations are generally organized into these segments based on the characteristics of the customers served. For example, our Public Solutions business segment and Public Infrastructure business segment both service primarily government and other public-sector entities, with our Public Solutions business segment focusing on providing solutions to local and regional government entities and our Public Infrastructure business segment engaging in projects for national-level government entities. Our Enterprise business segment focuses on the provision of IT services to large-scale corporate customers, our Network Services business segment provides products and services to customers in the telecommunications industry, and our System Platform business segment provides hardware and software products as well as maintenance services to customers. In contrast with our other businesses which generally target a specific category of customers based on their characteristics, our Global business segment provides a wide range of products and services to various types of customers, but concentrates its efforts on international operations, allowing us to bring our group’s accumulated experience to bear on solutions for customers around the world. Our management has specifically grouped most of our international operations within the Global business segment in order to maintain a focus on expanding our business outside of Japan.

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The table below shows our revenue by segment for the periods indicated:

Public Solutions

Our Public Solutions business segment provides the following products and services mainly to local and regional government entities and medical institutions primarily in Japan:

Because we have long-standing relationships with many of the customers for our Public Solutions business segment, we are able to provide specific targeted solutions that can address our customers’ core concerns. In providing these solutions, we seek to create sustainable social value through, for example, application of our AI and biometrics technologies, combined with our accumulated expertise in system development and integration.

Public Infrastructure

Our Public Infrastructure business segment services Japanese national-level government organizations and enterprises that support national and social infrastructures primarily in Japan. The operations of JAE, which is a

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consolidated subsidiary, are also included in our Public Infrastructure business segment. We primarily service the categories of customers listed below:

We provide products and services designed to support the stable and secure operation of key national and social infrastructures, while investing in advanced technologies, including biometric technologies such as facial recognition, and space-related technologies. As with our Public Solutions business segment, we have long-standing relationships with many of our customers, which enables us to develop custom-tailored solutions based on our accumulated experience.

Enterprise

Our Enterprise business segment provides system integration and development services, including consulting, design and implementation, system maintenance and support services, and system outsourcing and cloud services, as well as related equipment, to business enterprises especially in the manufacturing, retail and services, and financial sectors primarily in Japan. Specifically, we provide the following products and services:

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Network Services

Our Network Services business segment provides the following products and services to customers in the telecommunications market primarily in Japan:

In July 2019, we started shipping commercial 5G radio units to NTT DOCOMO, Inc., and we are working to expand our 5G-related product portfolio and make proposals to global telecom carriers. We have also been selected as a 5G equipment provider for Rakuten Mobile, Inc., which is currently developing a cloud-based mobile network in Japan.

System Platform

Our System Platform business segment provides hardware and software products as well as maintenance services to customers primarily in Japan:

Global

Our Global business segment conducts the following five lines of business in overseas markets outside of Japan:

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We expect that the global markets for our “Safer Cities” solutions and software services for service providers will continue to grow, and we will seek to expand our operations in these business-lines. For example, to expand our “Safer Cities” initiative, we acquired Northgate Public Services Limited, a U.K. software and IT service provider for the public sector, in January 2018 (with the remaining shares acquired in March 2018), and we acquired KMD Holding ApS, a software and IT service provider in Denmark, in February 2019.

Others

In addition to the foregoing, we also provide data center infrastructure solutions, security solutions and other services and products to customers mainly in Japan.

Medium-Term Management Plan

In January 2018, we announced our medium-term management plan for the three fiscal years ending March 31, 2021. Under the plan, with an aim to transform into a “social value innovator,” we have implemented various measures, and plan to implement additional measures, designed to reform our profit structure, pursue growth initiatives and restructure our business execution capabilities. We seek to improve our profitability to position us to pursue investment opportunities that contribute to our growth strategy.

Profit Structure Reform

To improve our profitability, we are focusing on three profit structure reforms—(1) reduction of costs and expenses, (2) optimization of our business structure, and (3) optimization of our manufacturing operations.

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Growth Initiatives

To achieve growth, we are seeking to expand our “Safer Cities” initiative particularly in markets outside Japan using our AI, biometrics, security and network services technologies. As part of our growth strategy in this area, we acquired Northgate Public Services Limited in the United Kingdom (in January 2018, with the remaining shares acquired in March 2018) and KMD Holding ApS in Denmark (in February 2019).

Restructuring of Business Execution Capabilities

To improve our business operations, we are endeavoring to offer new value for customers by creating and commercializing competitive technologies and to incentivize management and employees to be more innovative and committed to achieve results. We intend to pursue opportunities to collaborate with third parties such as academic institutions and start-up companies in research and development projects, to invest in technology incubation, and to expand distribution channels for our products and services through collaboration with global vendors. We also seek to improve the productivity of our workforce through, for example, changes in our compensation structure and measures to increase diversity.

Impact of the Coronavirus Pandemic

The ongoing coronavirus pandemic has affected our business operations and may prevent us from being able to achieve all of the objectives of our medium-term management plan by its scheduled end on March 31, 2021. We believe that the primary impact of the pandemic on our ability to implement our medium-term management plan is the potential decline in IT-related investments by our customers. Although we have not yet observed significant declines, the severity of impact of any such declines on our financial performance for the fiscal year ending March 31, 2021 and our ability to achieve all of the objectives of our medium-term management plan on the previously planned timeline would depend among other things on the length of time until the pandemic is eventually resolved and the severity of the impact of the pandemic on the Japanese and global economy. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Operating Environment—The recent outbreak of the novel coronavirus could have a significant negative impact on our business, results of operations and financial condition.”

SUPPLIERS

We purchase raw materials and components from a large number of Japanese and overseas suppliers. Such raw materials and components include semiconductors, central processing units, memory devices, routers, switches, operating systems, applications, database software and management software, liquid crystal display panels, storage hardware devices and servers. In terms of cost, for the fiscal year ended March 31, 2019, approximately 72% of our raw materials and components were purchased from suppliers in Japan, with approximately 13% from suppliers in Asia other than Japan and the remainder from suppliers in other regions. Our procurement activities are managed by NEC Corporation’s procurement division on a group-wide basis to optimize our procurement costs and expenses through centralization and standardization as well as the resulting economy of scale. We also co-develop some of these components with our business partners that are leading developers and manufacturers in their respective areas of expertise.

There are only a limited number of suppliers in the market for some of our raw materials and components. Thus, any market-wide shortage or unexpected deterioration in the ability of our suppliers of such raw materials or components may result in lower availability of, and higher prices for, them.

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We primarily sell our products and services directly to customers. In some cases, we also sell our system platform products and services indirectly to customers through third-party contractors.

For large-scale public and commercial contracts, we perform our services based on customary negotiated contracts and contracts obtained through competitive bidding processes.

Our marketing efforts are managed and coordinated globally by NEC Corporation’s marketing strategy division and integrated marketing communication division. We seek to promote our products and services as well as our brand by various means, including (1) distribution of promotional contents through our own and paid media outlets such as the Internet, television, newspapers and industry magazines, (2) displays and demonstrations at trade shows, industry conventions and events that we sponsor, and (3) through sponsorship for sporting and other events.

COMPETITION

We have many competitors in Japan and other countries, ranging from large multinational corporations to a number of relatively small, rapidly growing and highly specialized companies. Many of our competitors have leading positions in their respective markets and possess highly sophisticated technologies.

We seek to maintain and enhance our competitive position through, among other means, effective utilization of our accumulated experience in system development and integration, our industry knowledge and capabilities as a leading provider of ICT systems, components, services and solutions, as well as our technological achievements and market position as reinforced by our continuing research and development programs and marketing efforts.

Public Solutions. In the Public Solutions business segment, we compete with several large Japanese multinational ICT solutions companies capable of performing large-scale and highly complex government and public service contracts for system integrations, development and solutions projects for local governments, public service providers and healthcare service providers. These competitors include Fujitsu Limited, Hitachi, Ltd. and NTT DATA Corporation.

Public Infrastructure. In the Public Infrastructure business segment, we compete with mostly the same competitors as those in the Public Solutions business segment as well as Toshiba Corporation and Mitsubishi Electric Corporation for public infrastructure, defense and other projects.

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Enterprise. In the Enterprise business segment, we compete mostly with the same competitors as those in the Public Solutions business segment, particularly for large-scale and highly complex commercial projects, as well as with large multinational ICT service providers such as IBM Corporation and Accenture plc. For smaller projects, we also compete with other companies, some of which are highly specialized in certain industries.

Network Services. In the Network Services business segment, our main competitors are large multinational information and data communications technology providers, including wireless communications technology companies, such as Fujitsu Limited, Telefonaktiebolaget LM Ericsson, Nokia Corporation and Huawei Technologies Co., Ltd. In some product-lines where we have entered into strategic alliances with leading industry participants, our competitors have also formed similar strategic alliances.

System Platform. In the System Platform business segment, we compete with a small number of large multinational ICT hardware and software providers, such as Fujitsu Limited, Hitachi, Ltd., IBM Corporation, Dell Technologies, Inc., Hewlett Packard Enterprise Company and Toshiba Corporation.

Global. In our “Safer Cities” initiative, we compete with highly specialized solutions providers, some of which are large multinational companies, while others are smaller new entrants into the market. In our service provider software services business-line, we compete with a few large multinational companies as well as many other smaller software solutions providers some of which are highly specialized in specific industries. In each of our energy storage, network infrastructure and system devices business-lines, we compete with large multinational equipment manufacturers.

INTELLECTUAL PROPERTY

As of March 31, 2019, we held approximately 49,000 patents issued under Japanese law and laws of other jurisdictions and have a large number of Japanese and foreign patent applications pending. We also own a large number of software and other copyrighted materials.

We have granted licenses to, and entered into technical assistance agreements with, various Japanese and foreign companies. In some instances, we have entered into cross licenses of patent portfolios with other parties.

We actively continue to seek IP protection for our innovations, while increasing emphasis on other initiatives designed to leverage our IP leadership. Some of our technological innovations are used exclusively in our products, while others are licensed and may be used in our products or the products of the licensee. From time to time, we license certain of our intellectual property assets as part of our collaborative innovation strategy, for example, on open innovation platforms. The licensees are expected to contribute to the future development of the IP and ultimately expand the customer base for related innovations.

Although we consider our various patents, copyrights, licenses, and technical assistance agreements to be important to us, we do not believe our business, as a whole, is materially dependent on any particular patent, group of related patents, copyright, license, or technical assistance agreement.

For a discussion on our research and development activities, see “Item 5.C. Operating and Financial Review and Prospects—Research and Development, Patents and Licenses, Etc.”

REGULATIONS

Our business activities are subject to various governmental regulations in the countries in which we operate, such as import and export regulations, including those related to national security considerations, and regulations relating to business and investment approvals, tariffs, data protection, including personal information protection, anti-competition, anti-bribery, intellectual property, product liability, consumer and business taxation, exchange controls, and environmental and recycling requirements. As some of our business activities involve construction

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work for, among other things, ICT-related projects, we maintain licenses required for such construction work issued by the Minister of Land, Infrastructure, Transport and Tourism of Japan pursuant to the Construction Business Act of Japan (Act No. 100 of 1949, as amended).

For additional information, see “Item 3.D. Key Information—Risk Factors—Risks Related to Regulatory Environment and Legal Proceedings” and “Item 8.A. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings.”

NEC Corporation is the ultimate parent company with 327 consolidated subsidiaries as of March 31, 2019. The following chart summarizes our primary subsidiaries as of March 31, 2020:

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The following table sets forth information on our significant consolidated subsidiaries as of March 31, 2019:

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Our major properties, as of April 1, 2019, are listed below:

NEC Corporation:

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We own most of the land and facilities for NEC Corporation’s manufacturing and research and development activities. We lease the land and building of our corporate headquarters in Tokyo and a substantial portion of the land and facilities used by our subsidiaries.

The following table sets forth our investments in property, plant and equipment by segment during the fiscal years ended March 31, 2017, 2018 and 2019, and our planned investments in property, plant and equipment by segment for the fiscal year ended March 31, 2020. The information in this table reflects the segment organizational changes that took effect on April 1, 2018 and 2019. See “Item 5. Operating and Financial Review and Prospects—Introduction—Segment Reorganizations” and Notes 6 and 39 to our consolidated financial statements included elsewhere in this registration statement.

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The following table shows our contractual commitments for property, plant and equipment, and intangible assets outstanding as of March 31, 2018 and 2019:

For the fiscal year ended March 31, 2020, we had budgeted a total of ¥70.0 billion for investments in property, plant and equipment. We planned to use cash on hand to fund such investments, which are summarized below for each of our segments:

For a more detailed discussion on our business segments, see “Item 4.B. Information on the Company—Business Overview.”

Summary

Over the three fiscal years ended March 31, 2019, our total revenue increased steadily due to overall stronger demand for IT services, particularly in the public and financial sectors in Japan, as well as the contribution of JAE, a Japanese manufacturer of electronic device connectors, user interface related devices and aviation electronic devices, which became a consolidated subsidiary in January 2017. For details regarding JAE, see “—Recent Developments—Acquisition of Additional Equity Interest in Japan Aviation Electronics Industry, Limited” below. For details regarding the changes between periods in our total revenue as well as our revenue by business segment, see “—A. Operating Results—Results of Operations” and “—Operating Results—Segment Analysis” below.

Going forward, we believe that the ICT industry is entering a period of significant change and reinvestment due to the ongoing transition to 5G mobile networks as well as the digitization of government processes around the world. For further discussion of these trends, see “—D. Trend Information” below.

In order to respond to these trends and improve our profitability, we are currently in the process of implementing our medium-term management plan for the three fiscal years ending March 31, 2021 with

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measures that include, among other things, streamlining our business portfolio, reducing costs and optimizing our manufacturing operations. For a more detailed discussion of our medium-term management plan, see “Item 4.B Information on the Company—Business Overview—Overview—Medium-Term Management Plan.”

Segment Reorganizations

From time to time in the past, in connection with changes in how we manage our various businesses due to significant changes in our business strategies, we have made changes in how we categorize our various businesses into business segments so that such categorization better aligns with the new business strategies. We also make adjustments to our business segments when the operations within each business segment become increasingly related and complementary with the operations in our various other business segments, which can occur due to the broad scope and the dynamically evolving technological nature of many of our businesses. Accordingly, our management regularly evaluates the delineation of operations between our business segments and from time to time makes adjustments to the business segment categorizations to the extent it determines necessary to improve management efficiency and operational productivity.

Effective as of April 1, 2018, we implemented a segment reorganization, which we refer to as the 2018 Segment Reorganization, that created our Global business segment. The 2018 Segment Reorganization was implemented in order to consolidate our business divisions that are primarily tasked with expanding in global markets into a single business segment in order to enhance our ability to manage these businesses as a whole in line with our new key business initiative of expanding our overseas businesses. The businesses that were incorporated into our Global business segment included our global software and service business for service providers, our wireless solutions business and our submarine systems business from the Telecom Carrier business segment as well as our global unified communications business and display solutions business from our System Platform business segment. Accompanying these transfers, we renamed our former Telecom Carrier business segment as the Network Services business segment.

Effective as of April 1, 2019, we implemented a segment reorganization, which we refer to as the 2019 Segment Reorganization. In contrast with the 2018 Segment Reorganization, which was focused on concentrating global-focused operations in a new centralized business segment, the 2019 Segment Reorganization was implemented in order to move certain businesses to other business segments where operations had become more related and mutually complementary over time due to the evolving nature of the technology industry. As part of the 2019 Segment Reorganization, (i) our enterprise network solutions business was moved from our System Platform business segment to our Network Services business segment, (ii) our global unified communications business was moved from our Global business segment to our System Platform business segment and (iii) our security business was moved from our System Platform business segment to our other business activities.

In addition to the 2018 Segment Reorganization and the 2019 Segment Reorganization, from the beginning of the fiscal year ended March 31, 2020, we have added a new segment profit (loss) line item in our segment information, which is measured by deducting amortization expenses on intangible assets recognized as a result of mergers and acquisitions (“M&A”) and M&A-related expenses (financial advisory fees, etc.) from selling, general and administrative expenses and other operating expenses for the respective segment, as an indicator for measuring underlying profitability in order to clarify the contribution of acquired companies to our overall earnings.

For more information on these changes and their financial impact, see Notes 6 and 39 to our consolidated financial statements included elsewhere in this registration statement. For consistency and comparability, the segment information presented throughout this registration statement reflects these changes.

For the nine months ended December 31, 2019, our revenue was ¥2,175.6 billion, an increase of ¥141.0 billion, or 6.9%, compared to the nine months ended December 31, 2018. This increase was due to a general increase in revenue across our business segments, including an increase in revenue of ¥42.4 billion in our System Platform business segment primarily as a result of increased sales of non-customized personal computers to corporate customers, an increase in revenue of ¥27.8 billion in our Public Solutions business segment primarily due to higher demand for IT services by local governments and an increase in revenue of ¥69.4 billion in our Global business segment due to an increase in revenue from the “Safer Cities” initiative as a result of the consolidation of KMD Holding ApS as well as increased sales of submarine cable systems. For further details regarding the factors affecting each business segment, see “—A. Operating Results—Segment Analysis—Nine Months Ended December 31, 2019 Compared to Nine Months Ended December 31, 2018” below.

For the fiscal year ended March 31, 2019, our revenue was ¥2,913.4 billion, an increase of ¥69.0 billion, or 2.4%, compared to the fiscal year ended March 31, 2018. The increase was primarily due to stronger demand for IT services particularly in the public and financial sectors in Japan, resulting in increases in revenue of ¥17.9 billion, ¥26.6 billion and ¥11.6 billion for the Public Solutions, Enterprise and System Platform business segments, respectively. We also benefited from investments by telecommunications carriers in Japan to enhance their network infrastructure, resulting in an increase in revenue of ¥17.8 billion for the Network Services business segment. For details regarding the factors affecting each business segment, see “—A. Operating Results—Segment Analysis—Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018” below.

For the fiscal year ended March 31, 2018, our revenue was ¥2,844.4 billion, an increase of ¥179.4 billion, or 6.7%, compared to the fiscal year ended March 31, 2017. The increase was primarily attributable to the contribution of JAE, which became a consolidated subsidiary as a result of a successful tender offer to increase our voting rights in the company from 40.1% to 51.2% in January 2017. For details regarding the factors affecting each business segment, see “—A. Operating Results—Segment Analysis—Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017” below.

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Across our business segments, our services and products are generally provided on a contract basis with national, regional and local-level government entities, primarily in Japan, as well as private business enterprises. Although we have a diversified customer base and none of our business segments is substantially dependent on a contractual arrangement with any specific customer, our Public Infrastructure business segment derives roughly one quarter of its revenue from contracts with the Japanese Ministry of Defense and the Japanese Ministry of Land, Infrastructure, Transport and Tourism, and our Network Services business segment derives roughly one third its revenue from contracts with various entities in the NTT group.

We categorize our revenue into three categories based on the source of the revenue, and the table below shows our revenue by category for each business segment for the fiscal year ended March 31, 2019:

Revenue from contracts for hardware and packaged software deployments

Each of our segments derives revenue from contracts for hardware and packaged software deployments, although our Public Infrastructure business segment and our System Platform business segment account for the largest share, representing 22.7% and 30.8%, respectively, of our consolidated total revenue from contracts for hardware and packaged software deployments for the fiscal year ended March 31, 2019. The major goods included in this category of revenue are hardware (such as servers, mainframes, supercomputers, storage, business personal computers, point-of-service terminals, automated teller machines, control equipment and wireless LAN routers), software (such as software designed for integrated operation management, application servers, security and databases), enterprise network solutions (such as internet protocol telephone systems and wireless access equipment), network infrastructure (such as core network equipment, mobile phone base stations and optical transmission systems), system devices (such as displays and projectors) and lighting equipment.

Revenue from contracts for services to customers (including maintenance and outsourcing)

Each of our segments derives revenue from contracts for services to customers (including maintenance and outsourcing), although our Enterprise business segment and our Network Services business segment account for

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