(Bloomberg) -- NEC Corp. is riding a wave of growing Japanese defense-related spending in the face of heightened geopolitical risk.

Buoyed by a shift in the government’s stance toward military expenditures, NEC targets more than 60% revenue growth in its aviation, space and defense unit to ¥400 billion ($2.6 billion) in the three years to March 2026. That growth may include acquisitions, Chief Executive Officer Takayuki Morita said, adding that the company has the capability to finance around ¥400 billion to ¥500 billion worth of deals. 

More policymakers recognize that military spending helps the development of cutting-edge sciences and that command of technology bolsters a nation’s defenses, he said.

“There’s acute awareness about how things like subsea cables, satellites and AI are technologies that are absolutely essential for national security,” Morita said. That policy consensus will hold as long as the Liberal Democratic Party and coalition partner Komeito retain power after Sunday’s national election, he said.

Former Prime Minister Fumio Kishida pledged to boost the country’s military spending to ¥43 trillion over the five years through March 2028. The government’s also lifted the estimated profit margin for defense-related government orders to 15%, up from 8% to help companies continue to invest in an arena that had previously been considered taboo in a country whose constitution forswears war. 

That’s proven a tailwind for NEC, which has roots dating back to 1899 and has supplied radar systems and satellite connectivity to Japan’s Self-Defense Forces for years. 

Investors previously questioned NEC’s commitment to its defense operations, still a tiny part of its overall business. “Now, they see it as one of our growth areas,” Morita said. The company’s aerospace and national security unit’s hired 750 people in the year ended March, with plans to expand headcount by another 450 people by March 2026.

Once the world’s biggest maker of semiconductors, NEC has reinvented itself by focusing on its IT services and infrastructure operations, which includes a supercomputer for artificial intelligence-related research. While the Tokyo-based company no longer manufactures chips — its semiconductor operations were spun out and later absorbed by Micron Technology Inc. and Renesas Electronics Corp., it is an investor in Japanese foundry startup Rapidus Corp.

The world’s reliance on Taiwan Semiconductor Manufacturing Co. for contract chipmaking is “unhealthy,” Morita said, while declining to comment on whether NEC will provide additional funding to Rapidus. 

“As a company that sees the current state of the chip supply chain as less than ideal, our position is one of support for Rapidus,” he said.

--With assistance from Shery Ahn and Natsuko Katsuki.

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