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Notice Regarding Recording of Loss on Devaluation of Subsidiaries' and Affiliates' Stock

Fujitsu Limited

Tokyo, March 20, 2007

Following a decision made at a meeting of its board of directors today, Fujitsu Limited announced that it will record a loss on devaluation of subsidiaries' and affiliates' stock, primarily related to overseas subsidiaries.

1. Regarding Loss on Devaluation of Subsidiaries' and Affiliates' Stock

Fujitsu Limited's UK-based subsidiary Fujitsu Services has been delivering sustained favorable business performance for some time. However, in conjunction with a change in basic stance regarding its shareholding in the subsidiary, and in accordance with Japanese accounting standards, Fujitsu now expects to record a loss on devaluation of its stock in the subsidiary.

In addition, anticipating that earnings in its telecommunications systems business will fall short of plan, Fujitsu expects to record losses on devaluation of North American and UK manufacturing and sales subsidiaries' stock. Separately, it also expects to record a provision for losses related to capital deficits at sales subsidiaries in the Americas due to lower than forecast profits in its server business and a downturn in the performance of its retail systems business in the region.

Fujitsu expects to record a total loss of approximately 350.0 billion yen on devaluation of subsidiaries' and affiliates' stock for the second half of fiscal 2006.

2. Circumstances Regarding Principal Subsidiaries

1) Fujitsu Services

Since Fujitsu acquired a majority stake in ICL (Fujitsu Services predecessor) in 1990, the subsidiary has faced an extremely challenging business environment characterized by the downsizing of the hardware business and shift to open standard systems, and it has transformed itself by withdrawing from businesses outside of Europe and adopting a highly profitable services-oriented business model. Initially, Fujitsu planned to pursue an IPO for the subsidiary early on. However, with the bursting of the IT bubble, in 2002 Fujitsu renamed ICL as Fujitsu Services and subsequently focused on the longer term goal of thoroughly reforming the subsidiary's business structure and increasing corporate value to make possible its ultimate public listing.

As a result of reforms to its business structure, Fujitsu Services has achieved stable profitability, backed by particular strength in winning outsourcing services business in several industry sectors, including government. It has steadily increased profits every year since returning to profitability in fiscal 2002, and its market valuation has come to exceed the book value of Fujitsu’s past investments in the subsidiary. However, as a result of factors including its previous financial results and one-time amortization of goodwill relating to acquisitions of businesses in Scandinavia and elsewhere at the time of the acquisitions, the value of the company's net assets has become materially lower than the book value of Fujitsu's investment. In addition, in fiscal 2005 Fujitsu Services converted to the International Financial Reporting Standards (IFRS) being adopted by publicly listed European companies. Due to the resulting impact on unrecognized obligation for retirement benefits, the value of its net assets was further reduced.

Fujitsu is currently focusing on the global expansion of its services and products businesses. In June 2006 it introduced a Regional Operations Office structure, dividing its overseas business into four principal regions - the Americas, Europe, Middle East and Africa (EMEA), Asia Pacific, and China - and assigning a senior executive with the title of corporate senior vice president or above as head of regional operations in each of these regions.

Amid trends toward increasing globalization of the IT services business, developing global services offerings across the Fujitsu Group and building the necessary customer support structure are key issues. In light of its accumulated experience and expertise providing leading-edge IT services in the UK and elsewhere in Europe, Fujitsu Services has been positioned as the pillar of the Fujitsu Group's IT services business in the vitally important EMEA region. Accordingly, believing that retaining 100% ownership in the subsidiary rather than considering an IPO is the best approach to enhancing the overall value of the Fujitsu Group, Fujitsu has changed its basic stance with respect to its shareholding in Fujitsu Services. In January 2007 Fujitsu Services acquired Germany's TDS and launched concerted efforts to develop business on the European continent, and earlier this month Richard Christou, Fujitsu Services executive chairman and a key contributor to the company's growth, was named as head of EMEA operations for the Fujitsu Group.

Previously, with respect to a material decrease in the net asset value of Fujitsu Services, Fujitsu has not been required to record a valuation loss on its investment in the subsidiary, as it was assumed that the estimated market value arising from a prospective IPO would exceed the book value of its investment. Now, however, in line with the above-mentioned change in basic stance regarding its shareholding in the subsidiary and in accordance with Japanese accounting standards, because the estimated value from the recovery of net assets within roughly a 5-year period is less than the book value of its investment, Fujitsu will record a loss on devaluation of the subsidiary's stock. This is not in any way a reflection of Fujitsu Services' market value or its value to Fujitsu.

Fujitsu estimates that the difference between the book value of its investment in Fujitsu Services (approximately 350.0 billion yen) and the value of the subsidiary's net assets is about 290.0 billion yen. Fujitsu Services continues to have an independently assessed fair market value in excess of its original acquisition cost, and further growth is anticipated.

2) Telecommunications Systems Manufacturing and Sales Subsidiaries
(Fujitsu Network Communications, Fujitsu Telecommunications Europe)

In regard to Fujitsu's North American optical transmission systems business, although profits have been continuously reported since recovering from the collapse of the IT bubble in fiscal 2003, there has been fierce competition among equipment vendors following consolidation of fixed-line telecommunications carriers, and development costs have increased in order to respond to the faster pace of customers' technological innovation. In its UK telecommunications systems business, in addition to higher development costs for next-generation systems, customer investments have been stretched out. As a result of these factors, Fujitsu now expects that its manufacturing and sales subsidiaries in these areas will not be able to meet their original profit targets.

3) American Sales Subsidiaries
(Fujitsu Computer Systems, Fujitsu Transaction Solutions)

Although sales volumes in Fujitsu's North American server business have steadily increased, pricing pressures have intensified, certain new product launches have been delayed, and sales promotion expenses have increased. As a result of these and other factors, growth in profitability of the company's sales subsidiaries is expected to fall short of its original plan. In addition, with respect to its retail systems business in the region, as a result of delays in launching an acquired self-checkout systems business and a slump in the maintenance business, recovery in the performance of Fujitsu’s sales subsidiary in this area is expected to be delayed.

Fujitsu has issued a separate announcement today regarding revision of its fiscal 2006 unconsolidated financial results forecast.

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 about 4.8 trillion yen (US$40.6 billion) for the fiscal year ended March 31, 2006. See for further information.

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Company:Fujitsu Limited

Date: 20 March, 2007
City: Tokyo
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