Interim Report on First-Half FY 2008 Financial Results FUJITSU LIMITED
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Interim Report On First-Half FY 2008 Financial Results (Six months ended September 30, 2008) FUJITSU LIMITED FUJITSU Way On April 1, 2008, Fujitsu published a fully revised Fujitsu Way. The Fujitsu Way embodies the philosophy of the Fujitsu Group, articulates the Group's overarching values, and defines concrete principles and a code of conduct that Group employees follow in their daily business activities. The Fujitsu Way will facilitate management innovation and promote a unified direction for the Group as we expand our global business activities, bringing innovative technology and solutions to every corner of the globe. Guided by the Fujitsu Way, our employees will strive to maximize the value of the Fujitsu Group and enhance our contributions to society. 1 To Our Shareholders, It is with great pleasure that we present the interim report for our 109th business period. This report covers financial results for the first half of fiscal 2008, ended September 30, 2008. During the first half of fiscal 2008, the business environment in which the Fujitsu Group operated was adversely affected by the emergence of the credit crisis in the financial and capital markets, mainly in Europe and the United States. Signs of an economic recession became more pronounced, with the impact spreading across many sectors of the economy, as concerns about the prospects for corporate earnings led to a deterioration in employment conditions, and consumer spending also declined. Under these economic conditions, the Fujitsu Group’s net sales in the first half declined compared with the same period a year ago in part to a rapid deterioration in our logic LSI and mobile phones businesses. Our sales and income results, however, exceeded projections at the beginning of the year as a result of improved profitability in the services business in Japan and overall cost-reduction efforts. On a consolidated basis, the Fujitsu Group recorded net sales of 2,453.7 billion yen, operating income of 38.5 billion yen, ordinary income of 29.0 billion yen and net income of 4.6 billion yen for the half-year period. On an unconsolidated basis, we recorded net sales of 1,194.7 billion yen, operating income of 11.6 billion yen, ordinary income of 44.9 billion yen and net income of 39.1 billion yen. Based on these results, a dividend of 5 yen per share will be issued to shareholders on December 1, 2008. In order to reinforce our customer-centric management perspective and realize the next leap forward, we intend to refocus our business in three key areas under our new executive team, which was appointed this June. First, we plan on improving “our customers’ business” rather than simply focusing on their IT operations. Second, we will shift from a Japan-centered approach and adopt a “global perspective.” Third, we will commit to “environmental protection.” By transforming our operations, our goal is to meet the rising expectations of our customers and grow together with them as a valued and trusted partner. Although the unpredictable business climate we face is expected to continue, our Group will make strong efforts to fulfill customer expectations based on the Fujitsu Way and our “constant pursuit of innovation.” We ask you, our valued shareholders, for your continued support and guidance in our business going forward. November 2008 Michiyoshi Mazuka, Chairman Kuniaki Nozoe, President 2 Fiscal 2008 Initiatives Due to financial market instability spreading from the United States, the near-term direction of the global economy is highly uncertain. In the IT market as well, a slowdown in new capital investment and consumer spending appears unavoidable, particularly in the developed economies of North America and Europe. Nevertheless, as IT supports the infrastructure of both society and businesses, we believe that the importance of maintaining and strengthening this infrastructure remains undiminished. We also believe that in today’s uncertain economic environment, IT plays a major role in raising efficiency and promoting management innovation. In order to maintain and further improve our profitability in this challenging environment, we recognize that it is essential to make our overall operations even more efficient and pursue new growth opportunities. As specific efforts to pursue new growth opportunities, in addition to strengthening our global business structure, the Fujitsu Group is promoting Field Innovation as a means of generating internal innovation and delivering greater value to our customers. Moreover, amid global calls for environmental protection, we are offering environmentally friendly solutions across the full spectrum of our business operations. Strengthening our Global Business Structure Based on a foundation of strong products and services, we are working to expand our global business. In October 1, 2008, we began implementing a reorganization to integrate our solutions business in North America. In addition, Fujitsu Siemens Computers, our joint venture with Siemens AG that sells servers and other IT products in Europe, is scheduled to become a wholly owned subsidiary of Fujitsu beginning in fiscal 2009. As a subsidiary, Fujitsu Siemens Computers will support the strengthening of our global products business as well as develop stronger collaborative ties with Fujitsu Services, the UK-based leader of our services business in Europe. Pursuing Field Innovation The value that customers seek is shifting from “improving systems and functionality” to “improving operations and management.” In order to respond to this changing need, we are broadening our offerings from “IT solutions” to “business solutions.” We are implementing Field Innovation to clarify the problems that customers face and solve those problems, by leveraging the power of IT. As a part of this initiative, we are putting innovations into practice within Fujitsu and applying the resulting know-how toward business innovations for our customers. In order to enhance the progress of Field Innovation, we are developing and deploying personnel who can collaborate with customers to identify and solve their key business issues. Global Environmental Protection Solutions In July 2008, we formulated our “Green Policy 2020” medium-term environmental vision, which defines the direction we are pursuing and the role the Fujitsu Group seeks to play, in addressing global environmental issues. The three keywords of this vision are "Creation," "Collaboration," and "Change," and the goal is to spark environmental innovation in the Fujitsu Group and in society as a whole to help build a prosperous, low-carbon society. The Fujitsu Group expects that its initiatives will result in reducing CO2 emissions in Japan by 30 million tons per year by 2020. 3 Operating Conditions of the Fujitsu Group Overall Conditions Consolidated net sales for the first half were 2,453.7 billion yen, a decline of 2.4% compared to the first half of fiscal 2007. Sales increased in our Technology Solutions segment due to strong Japan sales of systems integration services, mobile phone base stations, as well as router equipment to telecom carriers. However, due to intensified competition, sales of mobile phones, PCs and logic LSI devices declined, resulting in a decline in the Group’s overall sales. Operating income for the first half was 38.5 billion yen, a decline of 5.3 billion yen compared to the first half of fiscal 2007. Thanks to increased sales of system integration services and mobile phone base stations, and cost reductions in the HDD business, gross profit increased. Due mainly to an increase in upfront strategic investments, particularly research and development expenses within our Technology Solutions segment, and amortization costs for unrecognized retirement benefit obligations, however, the Group’s overall income decreased. Ordinary income came to 29.0 billion yen, on a par with the same period last year. Equity in earnings of affiliates deteriorated as the business results of Fujitsu Siemens Computers were negatively impacted by intensified competition in PCs and servers. This was offset, however, by an improvement in foreign exchange gains as a result of the depreciation of the yen in the first half compared to the end of the previous fiscal year as well as a decrease in disposal costs of fixed assets. There was a 2.9 billion yen gain on sales of investment securities, and a 2.1 billion yen impairment loss in our electronic components business. As a result of the above factors, the consolidated net income was 4.6 billion yen, an increase of 13.9 billion yen compared to the first half of fiscal 2007, when inventory revaluation losses were posted, arising from a change in accounting policies for the measurement of inventories. 4 Review by Business Segment Consolidated Net Sales Operating Income and Operating Income Margin 5 Technology Solutions The Technology Solutions segment consists of System Platforms and Services, which includes systems integration and outsourcing services and platforms which support these services. Technology Solutions is a core business area of the Fujitsu Group from which we expect high earnings and growth. We have continued to provide our customers with total solutions throughout the entire system lifecycle based on a long-term partnership with the customer and have worked to expand our business outside Japan in this area. Consolidated net sales in this segment for the first half were 1,524.9 billion yen, an increase of 1.2% compared to the same period last year. In Japan, we saw strong performance in the Services business, as well as higher sales of servers and related business, mobile phone base stations and router equipment to telecom carriers. Outside Japan, private sector-related Services business expanded. Operating income was 57.3 billion yen, an increase of 18.6 billion yen compared to the same period last year. The impact of higher Japan sales of services, servers and related business, and mobile phone base stations, as well as cost efficiencies, accounted for the improvement.