One NEC: It's a start

Last month I wrote about how Fujitsu is getting more serious about being an integrated worldwide business--rather than a Japanese company that sells elsewhere only opportunistically. Since then, I've spent a couple of days in Tokyo at the NEC Global Analyst Summit. Like Fujitsu, NEC is a Japanese electronics manufacturer with a long history (dating back to 1899) and a wide range of product lines. And it, too, has had less success selling IT equipment to North American enterprises than it would have liked.

Like its long-standing competitor, that's a state of affairs that NEC wants to change. There are some conceptual similarities to what the two companies are trying to accomplish. High-level executives at both talk of better aligning corporate initiatives and product plans with the global market taken as a whole. But look a little deeper and there are quite a few differences in both approach and execution that reflect--at least in part--differences in market position and existing assets. Here are some observations about what NEC is doing and why. (My earlier post offers a perspective from the Fujitsu angle for comparison.)

First, let's talk about NEC as a whole. The company brings in about $46 billion annually through a combination of IT, network, and carrier communications products and services; NEC started out making telephones and switches as a joint venture with Western Electric. And the integration of computers and communications, C&C, continues to be a big part of what NEC sees as its differentiation. It's held the No. 1 market share position in x86 servers in Japan for 12 years and currently sells about 24 percent of the total units in that market--in addition to leading or close-to-leading positions in a variety of other IT platform categories such as storage and PCs.  About 25 percent of NEC's sales comes from outside Japan and about 22 percent of those are in North America.

Organizationally, NEC is relatively decentralized with business units that it describes as "basically independent." This is fairly typical of large Japanese firms, which are largely made up of a wide variety of subsidiary companies--234 in the case of NEC. However, most research and development happens at the corporate level. Furthermore, the company is driving an initiative it calls "One NEC" that's intended to encourage greater cooperation and cross-leverage among its subsidiaries and business units. This represents a legitimate change in overall approach even if it doesn't reach the level of a formal organizational alignment around global strategy. My take is that this more measured take on global business--relative to, say, Fujitsu--reflects the relatively higher concentration of NEC's business in Japan and a corresponding need to move carefully in order to not risk disrupting that existing revenue and market share base.

We're also seeing significant changes afoot within NEC Corporation of America (NECAM), starting with the organization itself. NECAM was established in 2006 from the combined operations of NEC America, NEC Solutions America, and NEC USA. Focusing specifically on the NECAM IT Platforms Group (i.e., the enterprise computing side), major objectives include:

• A shift from what has largely been an OEM business to a substantially broader branded product line. In part for this reason, building awareness of the NEC brand in North America is a priority for NECAM.
• Build reseller channel; Sysix is a recent major win. NEC's HYDRAstor and many of its enterprise servers will continue to be sold directly but other products (general purpose servers, fault tolerant servers, and thin client solutions) will become largely channel plays--either system integrators/value added resellers or 2-tier distribution.
• Focus on verticals with integrated solutions that leverage other NEC products and strengths both within and without IT. This includes areas such as physical security and biometrics--including Law Enforcement Automated Fingerprint Systems (AFIS)--as well as the telephony systems that have been a historic NEC focus.

Having been following NEC as an analyst for about eight years, the changes taking place within NEC feel like a systematic up-leveling of NEC's U.S. operations--which have often seemed somewhat ad hoc in the past.  There's certainly lots of work left to do, but a start has been made.