Fujitsu Limited
May 25, 2005

Comments Regarding Our Management Direction

Overview of FY 2004

At the beginning of fiscal 2004 I announced consolidated earnings targets of 4,950 billion yen in net sales, 200 billion yen in operating income, and 70 billion yen in net income, and we strove to achieve those targets. Unfortunately, however, we fell short in each of these objectives, and for that I must express my sincere regret.

The primary factors behind our inability to reach these targets were an increase in risk associated with certain previously obtained projects in the Solutions/Systems Integration sector and a demand shortfall in the display business within our Electronic Devices segment, both of which significantly exceeded our forecasts at the beginning of the fiscal year. With respect to these developments, we took the following measures.

• In our Solutions/Systems Integration business, the great majority of loss-generating projects were completed, and we were able to bring problems with remaining projects under control.
• In Electronic Devices, through restructuring of our PDP, LCD and other operations, we have established a structure that will enable us to concentrate our resources on the LSI business.

As a result of these and other measures, we have now dealt with almost all of the issues that we previously failed to properly identify and that caused us to fall short of our fiscal 2004 earnings targets.

Mid- to Long-Range Growth Areas – IT to Drive Innovation in the Field

Thinking about IT utilization in the future, I would like to focus on an approach that views IT as a driver of innovation in the field. Businesses, for example, have a variety of front-line operations, including development, manufacturing, distribution and sales. In a ubiquitous networking environment, I believe that IT can be applied beyond conventional back-office management systems to a wide range of front-line operations where the actual movement of people and goods takes place. Fully utilizing IT to increase efficiency in these front-line operations will become a new source of competitiveness for companies. For individuals as well, whether it is travel or entertainment, medical and nursing care or education, there are numerous front-line areas where IT can bring greater dynamism, security, enjoyment and convenience to our daily lives.

I believe that the combination of Fujitsu’s broad and diversified customer base, depth of applications expertise, and broad scope of technologies, as well as our strong integration capabilities, are key success factors that will enable us to provide IT utilization solutions for these front-line scenarios. In other words, we are uniquely positioned to harness the power of IT to drive innovation in the field.

With this in mind, I intend to step up efforts to quickly turn our R&D results into business opportunities and to bring together the collective strengths of Fujitsu Laboratories and the entire Fujitsu Group to generate innovation in the field.

Strategic Direction in FY 2005

In fiscal 2005 we will intensify and accelerate our pursuit of the four key challenges I articulated at the beginning of last year, namely:

1. Strengthen our existing businesses,
2. Create and cultivate new businesses,
3. Reform our organization and approach, and
4. Reform our management systems.

Specifically, continuing and building on our manufacturing innovation efforts, we will strive to improve QCD (quality, cost, delivery) and achieve significant cost reductions not only in manufacturing but in design and development, procurement and in all our work processes. This will help us to generate higher profits that will lead to more competitive products, which will in turn lead to increased sales, generating cash flow that we can then reinvest in our business. I am determined to build this sort of virtuous cycle in our business.

In our product businesses, along with pursuing these fundamental measures, we will further accelerate our global business expansion efforts. We have already established verification centers in several locations around the world (Japan, Singapore, the United States, England and Germany), which we are using to carry out testing and verification of various system configurations based on customer requirements. Through the activities of these centers, we will expand our efforts near customer locations and provide our TRIOLE IT optimization infrastructure on a global basis.

In Solutions/Systems Integration, capitalizing on the benefits of unifying our sales and system engineering groups in fiscal 2004, we will seek to improve our cost ratio by further strengthening our project risk management. Toward this end, we will work to standardize sales/system engineering business processes and strengthen our systems integration assurance function for managing risk, from the beginning of business discussions through actual project work and completion.

In addition, to implement real-time management in the systems integration business, with the understanding and cooperation of our customers, we will apply percentage-of-completion methods to recognize income based on the monthly progress of project work.

At the same time, we will strengthen our efforts in healthcare, intelligent transport systems, security/public safety and other areas in which we see strong potential for innovation in the field.

In regard to our infrastructure services business, we will strive to increase business with recurring revenue streams by strengthening our capability to support the entire IT system lifecycles of our customers.

In Electronic Devices, where we have decided to focus on the LSI business, we will strive for well-balanced business expansion by continuing efforts to secure steady earnings from standard products, such as analog devices and microcontrollers, while also sowing the seeds for future growth opportunities through our pursuits in advanced technology fields.

Earnings Targets for FY 2005

Our consolidated earnings targets for fiscal 2005 are: net sales of 4,850 billion yen, operating income of 175 billion yen, and net income of 50 billion yen. We are committed to these baseline numbers, but our hope is to exceed them, even marginally, by continuing to think and act from the customer’s perspective, maintain delivery and quality commitments, and increase speed in our business management.

Hiroaki Kurokawa
President, Fujitsu Limited

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