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Fujitsu Reports FY 2005 First-Quarter Financial Results

Improved Profitability in IT Services and Continuing Efficiency Gains Help Deliver Major Increase in First-Quarter Operating Income

Fujitsu Limited

Tokyo, July 28, 2005

Fujitsu Limited, a leader in customer-focused IT and communications solutions for the global marketplace, today reported consolidated net sales of 1,026.3 billion yen (approximately US$9,246 million*) for the first quarter of fiscal 2005 (April 1, 2005 - June 30, 2005), an increase of 1.8% over the first quarter of fiscal 2004. Stronger year-on-year sales of 3G mobile phone base stations and mobile phones in Japan, optical transmission systems in North America and hard disk drives helped to offset lower sales of LSI devices for consumer electronics products.

Consolidated operating income rebounded to 14.8 billion yen (US$133 million), an increase of 19.1 billion yen over the first-quarter loss reported in fiscal 2004 and the first time Fujitsu has reported a first-quarter operating profit since the company began reporting quarterly earnings in fiscal 2000. There was major improvement in the profitability of the company's solutions/systems integration business, traditionally a pillar of its earnings but plagued by projects with deteriorating profitability in recent years. With the implementation of strict risk management procedures and continuing benefits from an organizational realignment carried out in fiscal 2004, that business is once again generating strong earnings. Network equipment, hard disk drives, and mobile phones also posted higher profits on stronger sales, and further progress in cost cutting and expense efficiencies as a result of continuing manufacturing innovation initiatives also contributed to the overall improvement in operating income.

The company posted first-quarter consolidated net income of 2.4 billion yen (US$23 million), an improvement of 14.3 billion yen over the net loss recorded in the first quarter of fiscal 2004. In addition to the increase in operating income, a gain on the settlement of HDD-related litigation contributed to this resul

"Posting operating and net profits in the first quarter - traditionally a weak quarter for us - is a significant milestone, and I'm especially pleased to see our solutions/systems integration business back on track," said Fujitsu Limited president Hiroaki Kurokawa. "Almost all of our business units met or exceeded targets for the quarter, and we now need to continue this momentum to deliver strong performance this fiscal year."

Fujitsu's revenue and income were also impacted by a change in accounting policies, including the application of the percentage of completion method for software development contracts and the recording on its balance sheets of liabilities for retirement benefit obligations at subsidiaries in the UK. In addition, as previously announced, the first quarter marked the introduction of a new business segment classification.

Business Segment Results

Net sales in the Technology Solutions segment rose 9.9% over the same period in fiscal 2004 to 613.4 billion yen (US$5,526 million). Excluding the impact of the change in accounting policies, the increase was 2.1%. In the System Platforms sub-segment, higher overseas sales of UNIX servers and optical transmission systems, along with growth in 3G mobile base station sales in Japan led to an 8.9% improvement, while in the Services sub-segment, sales increased by 10.2%. Overall, the segment recorded operating income for the quarter of 7.3 billion yen (US$66 million), a major increase of 24.2 billion yen over the same quarter last year. This included increases of 3.6 billion yen in System Platforms and 20.5 billion yen in Services. Greater cost efficiencies from manufacturing reforms, along with significant contributions to earnings from major outsourcing contracts at Fujitsu Services in the UK and an improved situation with respect to loss-generating projects in Japan contributed to the improvement in operating income.

Net sales in the Ubiquitous Product Solutions segment, which includes PCs, mobile phones, hard disk drives and other products, were 241.3 billion yen (US$2,174 million), an increase of 7.6% over the same period last year. Although sales in Japan were roughly flat, as increases in mobile phone sales were offset by the impact of intensified price competition in PCs, overseas sales increased 27.7%, with sales of hard disk drives rising 30.4%. The segment recorded operating income of 11.4 billion yen (US$103 million), an increase of 11.5 billion yen over the comparable period last year. Improved quality, purchasing and cost efficiencies generated by manufacturing innovation initiatives were significant contributing factors to this increase.

Net sales in the Device Solutions segment declined 27.7% over the first quarter of fiscal 2004, to 159.1 billion yen (US$1,434 million), although on a continuing operations basis excluding the impact of the transfer of its flat panel display businesses, the decline was 14.8%. Customers’ inventory adjustments in the consumer electronics field and slow recovery in Japan and other Asian markets for Flash memory used in mobile phones were the primary factors behind this decline. The segment recorded operating income of 7.2 billion yen (US$65 million), a decrease of 16.6 billion yen compared to the same period last year. In addition to the impact of lower sales and intensifying pricing competition in the LSI Devices business, operating income in the segment was affected by outlays related to depreciation expenses and start-up costs for the new semiconductor fabrication facility at Fujitsu's Mie Plant, which began operation in April.

FY 2005 Earnings Projections

Foreseeing higher demand for certain products and accelerated realization of cost reductions, along with progress in generating a more equal distribution of earnings throughout the fiscal year, Fujitsu has revised its forecast consolidated financial results for the first half of fiscal 2005. However, due to an anticipated delay in the recovery of the semiconductor market, as well as some major uncertainties with respect to the IT market in the second half, it has left its full-year fiscal 2005 forecast unchanged. The current forecasts for both periods are as follows.

FY 2005 Consolidated Earnings Forecast

(Billion Yen)
First Half
(4/1/05 - 9/30/05)
Full Year
(4/1/05 - 3/31/06)
FY 2004 FY 2005 Change (%)
FY 2004 FY 2005 Change (%)
Net Sales 2,220.0 2,220.0 -0.9% 4,762.7 4,850.0 1.8%
Operating Income 33.2 30.0 -9.9% 160.1 175.0 9.2%
Net Income (Loss) (8.1) (15.0) - - 31.9% 50.0 56.7%

Complete information on Fujitsu's first-quarter FY 2005 financial results, including financial tables, explanation of results and supplementary information, may be found at: http://www.fujitsu.com/about/ir/

*Note: Yen figures are converted to U.S. dollars, for convenience only, at a uniform rate of $1 = 111 yen, which was the approximate Tokyo foreign exchange market rate at June 30, 2005.

About Fujitsu

Fujitsu is a leading provider of customer-focused IT and communications solutions for the global marketplace. Pace-setting device technologies, highly reliable computing and communications products, and a worldwide corps of systems and services experts uniquely position Fujitsu to deliver comprehensive solutions that open up infinite possibilities for its customers' success. Headquartered in Tokyo, Fujitsu Limited (TSE: 6702) reported consolidated revenues of 4.7 trillion yen (US$44.5 billion) for the fiscal year ended March 31, 2005. For more information, please see www.fujitsu.com

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These materials may contain forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results may differ materially from those projected or implied in the forward-looking statements due to, without limitation, the following factors: general economic and market conditions in key markets (particularly in Japan, North America and Europe); rapid changes in the high-technology market (particularly semiconductors, PCs, mobile phones, etc.); fluctuations in exchange rates or interest rates; fluctuations in capital markets; intensifying price competition; changes in market positioning due to competition in R&D; changes in the environment for the procurement of parts and components; changes in competitive relationships relating to collaborations, alliances and technical provisions; potential emergence of unprofitable projects; changes in accounting policies.

Date: 28 July, 2005
City: Tokyo
Company: Fujitsu Limited, , , , ,