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Fujitsu Reports FY 2005 First-Half Financial Results

Overseas Sales Gains, Tighter Project Controls and Steady Progress in Cost Cutting and Efficiency Gains Contribute to Higher Profits

Fujitsu Limited

Tokyo, October 27, 2005

Fujitsu Limited, a leader in customer-focused IT and communications solutions for the global marketplace, today reported consolidated net sales of 2,192.3 billion yen (approximately US$19,231 million*) for the first half of fiscal 2005 (April 1, 2005 - September 30, 2005), a decrease of 1.2% over the first half of fiscal 2004. Excluding the impact of accounting policy changes and restructuring, sales were essentially flat. Although intensified competition led to lower year-on-year sales of LSI devices and PCs, sales of optical transmission systems and hard disk drives (HDDs) rose sharply, and sales of outsourcing services in the UK were robust.The company posted consolidated net income of 7.6 billion yen (US$67 million), an improvement of 15.8 billion yen over the net loss recorded in the first half of fiscal 2004. In addition to the increase in operating income, a gain on the settlement of HDD-related litigation contributed to this result. This marks the first time in five years - since fiscal 2000, before the bursting of the IT bubble - that the company has posted a net profit in its fiscal first half.

Despite lower overall sales, first-half consolidated operating income improved markedly, increasing 14.2 billion yen over the comparable period in fiscal 2004, to 47.5 billion yen (US$417 million). This included a 5.5 billion yen improvement stemming from accounting policy changes. Profitability in the company's solutions/systems integration business rebounded, as systems and procedures implemented to prevent the type of project losses that had plagued the company during the previous year proved effective. Other factors contributing to the increase in operating income included the impact of higher sales of networking equipment, HDDs, and outsourcing services in the UK, as well as quality enhancements in mobile phones, and continued progress in driving down costs and realizing efficiency gains through intensified efforts in manufacturing innovation.

The company posted consolidated net income of 7.6 billion yen (US$67 million), an improvement of 15.8 billion yen over the net loss recorded in the first half of fiscal 2004. In addition to the increase in operating income, a gain on the settlement of HDD-related litigation contributed to this result. This marks the first time in five years - since fiscal 2000, before the bursting of the IT bubble - that the company has posted a net profit in its fiscal first half.

"With continued sluggishness in IT spending in Japan, it is vital that we focus on expanding our overseas business and generating further cost efficiencies," said Fujitsu Limited president Hiroaki Kurokawa. "We made good progress on both of these fronts in the first half and will redouble our efforts in these and other areas to further improve earnings and set the stage for growth going forward."

Fujitsu's revenue and income during the first half 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, revisions to the company's pension system in Japan resulted in a reduction in amortization of unrecognized obligation for retirement benefits of 1.5 billion yen.

Business Segment Results

Consolidated net sales in the Technology Solutions segment, which includes system and network products as well as solutions/systems integration and infrastructure services, rose 2.3% over the same period in fiscal 2004 to 1,344.0 billion yen (US$11,790 million). Sales in Japan declined year on year, due in part to the absence of special demand for financial terminals capable of handling new Japanese banknotes, as there had been a year earlier. However, overseas sales jumped 10.3%, driven by especially strong growth in the company's optical transmission systems business in North America and outsourcing services business in the UK. Operating income for the segment was 42.9 billion yen (US$376 million), a major increase of 24.0 billion yen over the first half of last year. Although sluggish growth in IT investment in Japan held income in the System Platforms sub-segment roughly level with the same period a year ago, higher earnings by Fujitsu Services, cost reductions, streamlining of expenses, and a major decrease in losses relating to loss-generating projects from the first half of fiscal 2004 contributed to a three-fold improvement in operating income in the Services sub-segment.

Net sales in the Ubiquitous Product Solutions segment, which includes PCs, mobile phones, HDDs and other products, were 498.4 billion yen (US$4,372 million), an increase of 3.5% over the same period last year. PC sales in Japan were impacted by intensified price competition, but sales of mobile phones increased, and sales of HDDs expanded at a double-digit rate, with particularly strong growth in overseas markets. Led by higher earnings in mobile phones and HDDs, along with the impact of improved quality, purchasing and cost efficiencies generated by intensified manufacturing innovation initiatives, the segment recorded operating income of 16.6 billion yen (US$146 million), an increase of 13.1 billion yen over the comparable period last year.

Net sales in the Device Solutions segment declined 21.2% over the first half of fiscal 2004, to 336.0 billion yen (US$2,948 million). Excluding the impact of the transfer of the company's flat panel display businesses, sales on a continuing operations basis declined by 8.9%. In the LSI Devices sub-segment, memory sales decreased as a result of price declines for chips used primarily in mobile phones and digital consumer electronic products, however, sales of logic chips were roughly even with the same period a year earlier. Operating income for the segment was 14.4 billion yen (US$127 million), a year-on-year decrease of 20.0 billion yen. In addition to the impact of lower sales and intensifying competition, operating income was affected by expenses related to start-up of the company’s new semiconductor production facility at its Mie Plant, which began operation in April.

FY 2005 Earnings Projections

As announced on October 18, 2005, Fujitsu is maintaining its fiscal 2005 full-year consolidated earnings projections as follows:

Net Sales: 4,800.0 billion yen
Operating Income: 175.0 billion yen
Net Income: 50.0 billion yen

In light of the company's traditional business structure - in which sales and profits tend to be concentrated in the fourth quarter - and with the domestic IT market still on a slow road to recovery, operating income for the full-year period is expected to remain in line with the previous forecast. In spite of an expected increase of 10.0 billion yen in other income (expenses) as a result of reduced amortization of unrecognized obligation for retirement benefits owing to changes in the pension system, because of fluctuations in corporate income tax and other factors, the full-year net income forecast has been left unchanged.

Complete information on Fujitsu's first-half 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 = 114 yen, which was the approximate Tokyo foreign exchange market rate at September 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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Company:Fujitsu Limited

Date: 27 October, 2005
City: Tokyo
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