Fujitsu 2010 Annual Report Download - page 85

Business and Other Risks
possibility that exchange rate fluctuations could lead to deprecia-
tion of assets and/or appreciation of liabilities.
4) Interest Rates
The Fujitsu Group has interest-bearing loans which include debt
directly impacted by interest rate fluctuations. Consequently, rising
interest rates could increase borrowing costs.
5) Capital Markets
Stock market trends in and outside Japan have a substantial
effect on the value of Group stockholdings in other companies
and the management of pension assets. Weak stock market
performance could thus force us to incur losses on the devalua-
tion of marketable securities held or a reduction in pension
assets, exposing the Group to the risk of higher valuation losses
or additional pension obligations.
2. Customers
Fujitsu Group operations are highly influenced by the business
trends of strategic key customers. Examples of potential risks are
described below.
1) Changes in Customers’ ICT Investment Trends
A growing proportion of our technology solutions and other busi-
nesses is with telecommunications carriers, financial services insti-
tutions, and large manufacturers. The business environment within
these industries, including shifting market trends and structural
reforms, could lead to changes in customers’ IT investment trends,
having a significant impact on Group sales and profitability. In
addition, the trends in sales of our customers’ products and services
have a large impact on the demand for and prices of the Group’s
products and services. Accordingly, soft demand and falling prices
for customers’ products and services, a decline in the size of cus-
tomers’ businesses, or customers’ reduced market share, could
negatively impact Group sales and earnings.
Alongside corporate clients, national and local governments
represent another important customer base for the Fujitsu Group.
In the UK, for example, government-related projects are an espe-
cially important part of our business. Accordingly, changes in the
approach to e-government and other national-level ICT utilization
policies being promoted in Japan and elsewhere could impact
sales and profitability.
2) Ability to Maintain Long-Term Relationships
with Customers
The Fujitsu Group is creating long-lasting ties with its customers,
striving to be a valued and trusted business partner and provide
solutions across the full IT system lifecycle. Accordingly, business
stability hinges on maintaining relations with customers. An inabil-
ity to maintain trusted relationships with such customers, or the
failure to renew contracts with them, could therefore affect sales
and profitability.
Listed below are the principal business and other risks affecting the
Fujitsu Group (Fujitsu Limited and its consolidated subsidiaries) that
we believe may influence investors’ decisions. With a view to proac-
tively disclosing information to investors, we have also included items
that may not necessarily have significant bearing on such decisions.
We are aware of and have evaluated these risks and are making efforts
to prevent, mitigate, transfer, and retain potential risks, and immedi-
ately confront risks should they occur. Among the risks listed below
are some items related to future developments, but the list only
includes items that the Group deems necessary to publicly disclose as
of the date of submission of its securities report (June 21, 2010).
1. Economic and Financial Market Trends
Economic and financial market trends have an impact on the
Group’s business results, financial base and other aspects of its
operations. Examples of such risks are listed below.
1) Economic Trends in Key Markets
The Fujitsu Group provides ICT products and services, telecommu-
nications infrastructure equipment, as well as semiconductors and
other components, to corporate and institutional clients and con-
sumers in every region of the globe. Hence, sales and income gen-
erated from these operations are greatly affected by economic
conditions in each respective market. The economic trends in our
key markets, namely Japan, North America, Europe, and Asia (includ-
ing China), can significantly impact Fujitsu Group operations.
2) High-tech Market Volatility
The ICT sector is periodically subject to dramatic changes in the
balance of supply and demand that exceed the scope of normal
cyclical market variations. This tendency is particularly evident with
regard to semiconductors, PCs, and other general-purpose prod-
ucts. The Fujitsu Group gives ample consideration to market cycles
and volatility when deciding to develop new global technology
solutions and other businesses, launch new products, initiate
volume production, or scale back production, among other actions.
Nonetheless, we may fail to accurately forecast market changes, or
changes in market conditions could exceed our forecasts. Accord-
ingly, there is a risk that we may be unable to recoup investment
costs, as well as the risk of opportunity losses. Further, the Group
continuously implements structural reforms in a bid to respond to
market changes. However, drastic market changes could force us
to enact structural reforms on a far greater scale than initially
expected, resulting in a temporary increase in related expenses.
3) Exchange Rates
The Fujitsu Group is expanding its business outside Japan. In addi-
tion, the Group imports a substantial amount of components and
materials and exports various products. Therefore, sudden fluctua-
tions in exchange rates and other factors could have a significant
impact on sales and income. In addition, with respect to assets
held by the Group outside Japan, as well as liabilities, there is the
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FUJITSU LIMITED Annual Report 2010
Corporate Governance/Business and Other Risks