NEC smartphone termination, discussions with Lenovo failed

NEC smartphone – admits losing against competition from Apple and Samsung

NEC smartphone – NEC used to be No. 1 in Japan’s “Galapagos keitai” market

Just a few years ago, NEC was No. 1 in market share of Japanese pre-smart phone “Galake” (Galapagos-keitai, for a review of Japan’s Galapagos effect click here) super-feature phones.

Recently NEC attempted negotiations with Lenovo, to jointly manage a new NEC-Lenovo smart phone joint-venture company, into which the NEC smartphone division would be merged.

NEC reported that these negotiations with Lenovo had failed, and NEC now reports that it will terminate NEC smartphone production, but will continue to manufacture “Galake” feature phones. Our expectation is that NEC Galake feature phone production will also be terminated at some point in the not too distant future.

NEC smartphone failure: What has caused NEC’s fall from No. 1 to an impending exit from the mobile phone sector? Several factors in our view:

  • NEC focused mobile phone production on Japan’s domestic market, especially NTT-docomo, since NEC is one of the NTT-Groups traditional suppliers, NEC thought that NEC will also remain among NTT-docomo’s preferred suppliers.
  • NEC failed to build viable global mobile phone business outside Japan. NEC hoped to ride NTT-docomo’s global introduction of i-Mode, supplying NEC-i-Mode phones via NTT-docomo to the world. However, since i-Mode’s global introduction failed, this strategy fell flat.
  • NTT-docomo recently decided to focus on two core handset suppliers: Samsung and SONY. Since NEC is not included in NTT-docomo’s two core handset suppliers, NEC essentially lost docomo’s sales support.
  • Unlike Google/Motorola and Apple, NEC does not control the OS-software, and therefore always depended on others to supply the OS software, which is of course an achilles’ heel type vulnerability. Still, Samsung is successful without using its own OS, although Samsung is working hard along various paths hoping to create a viable OS and ecosystem, such as Tizen.
  • Patents: NEC does not have a strong mobile phone patent position to stand up to Apple, Google or Samsung in the mobile phone patent wars.
  • Lack of scale: while NEC was a temporary No. 1 in Japan, NEC never had sufficient scale on a global level in mobile phones or smartphones.
  • Lack of focus: NEC is active in a large number of business areas, and smartphones is a small part of total activities of NEC. Thus NEC does not have the focus on smartphones which would be necessary to create global success. Probably NEC considers smartphones and feature phones a secondary business.
  • Neither has NEC sufficient financial strength to build a global smartphone business at this stage.

Here is an overview of NEC’s financial performance over the last 15 years, the period FY1998 – FY2012

NEC smartphone: During the 15 years FY1998-FY2012, NEC revenues declined from YEN 5000 Billion to YEN 3000 Billion, while reporting on average annual net losses of YEN 39 Billion/year.
During the 15 years FY1998-FY2012, NEC revenues declined from YEN 5000 Billion to YEN 3000 Billion, while reporting on average annual net losses of YEN 39 Billion/year.

Copyright (C) 2013 Eurotechnology Japan KK All Rights Reserved