Fujitsu 2012 Annual Report Download - page 98

Sales in Japan were essentially unchanged from fiscal 2010. The
decline in sales due to customers’ production adjustments precipi-
tated by the flooding in Thailand mainly impacted products such as
car audio and navigation systems, and LSI devices. In addition to the
slowdown in demand for LSI devices and electronic components,
server-related revenues also declined due to reductions in project
proposals for large-scale systems. However, sales increased for
mobile phones and for network products such as mobile phone base
stations with the widespread adoption of smartphones. Sales outside
Japan decreased 5.1% year on year, but on a constant currency basis
were essentially unchanged from the previous fiscal year. Revenue
declined for electronic components and UNIX servers, but PC sales
rose in emerging economies such as Turkey, Middle Eastern countries
and Russia.
The ratio of sales outside Japan was 33.7%, a decrease of 1.4
percentage points compared to the previous fiscal year. This was due
to the impact from currency exchange rates, as well as a decline in
sales of UNIX servers in the Americas region.
In fiscal 2011, the average yen exchange rates against the U.S.
Dollar, the Euro, and the British pound were ¥79, ¥109, and ¥126,
respectively, representing a year-on-year appreciation of ¥7 against
the U.S. Dollar, ¥4 against the Euro, and ¥7 against the British
pound. Exchange rate fluctuations versus the U.S. Dollar, Euro, and
British pound caused a reduction in net sales of approximately ¥40.0
billion, ¥20.0 billion, and ¥20.0 billion respectively. As a result,
currency exchange rate fluctuations had a negative impact of approx-
imately ¥80.0 billion on net sales for fiscal 2011.
Cost of Sales, Selling, General & Administrative Expenses,
and Operating Income
The cost of sales totaled ¥3,232.1 billion ($39,416 million), with
gross profit of ¥1,235.4 billion ($15,066 million), for a gross profit
margin of 27.7%. Gross profit decreased ¥22.0 billion compared to
the previous fiscal year, due mainly to revenue declines in LSI devices
and electronic components. The gross profit margin was on a par
with that of the previous year.
Selling, general and administrative, (SG&A) expenses were
¥1,130.1 billion ($13,782 million), an increase of ¥5.2 billion from
the previous year. Among SG&A expenses, research and development
spending amounted to ¥238.3 billion ($2,907 million), an increase of
¥2.1 billion. The Group continued to make upfront investments in
such areas as networks and cloud services. The ratio of R&D
expenses to sales was essentially unchanged from the previous
fiscal year at 5.3%.
As a result, operating income amounted to ¥105.3 billion
($1,284 million), a decrease of ¥27.2 billion compared to fiscal 2010.
The operating income margin was 2.4%, a decline of 0.5 percentage
points. Along with impacts from natural disasters and sluggish eco-
nomic conditions, this performance reflected the continuing effect of
upfront investment.
The Group is striving to quickly achieve a consolidated operating
income margin of over 5% as a measure of performance. For fiscal
2012, which will serve as an intermediate step in this direction, we
are targeting net sales of ¥4,550.0 billion ($55,488 million), operat-
ing income of ¥135.0 billion ($1,646 million), and an operating
income margin of 3.0%. As structural reforms to realize an assertive
posture for new growth, we are bolstering customer contact capabili-
ties, bolstering system engineering (SE) capabilities, and bolstering
technical capabilities. To build the base to carry these reforms for-
ward, on April 1, 2012 our companywide formation was reconfigured
into a matrix organization composed of customer and business axes.
In addition to further clarifying the account sales structure, thereby
heightening sales specialization, we intend to enhance customer
contact capabilities in terms of both quality and volume through
tying up field innovators and sector consultants—visualization profes-
sionals who make on-site operations more transparent. In SE, efforts
since fiscal 2004 to integrate sales divisions and curb unprofitable
projects have yielded some success. Nevertheless, to transform
ourselves into an organization offering globally competitive technol-
ogy, quality, and cost, we opted to move from a sector-vertical sales
and SE framework and once again spin off SE to establish a new
System Integration unit. In parallel, a new Software Integration unit
was established to spur a shift to a software-centric business struc-
ture offering products along an integrated vertical model from a
services/solutions perspective. Through these changes, the Group is
offering up high-value-added solutions that bring together software,
infrastructure services and systems integration, while taking advan-
tage of its strengths in the value chain with products to put a struc-
ture in place for offering one-stop solutions on a global basis.
Operating income fluctuated considerably by quarter during
fiscal 2011 amid the lag in a full-fledged recovery in ICT investment,
and the impact from natural disasters. During the first quarter, the
Group posted an operating loss of ¥17.1 billion ($209 million) due to
the extensive impact from the Great East Japan Earthquake, centered
mainly on car audio and navigation systems, mobile phones, and LSI
devices. In the second quarter, the effects of the earthquake disaster
had for the most part abated, and the Group recorded operating
income of ¥24.1 billion ($295 million). However, compared to the
same period of the previous fiscal year this represented a decline of
¥12.9 billion, due mainly to deteriorating market conditions for LSI
devices and electronic components. In the third quarter, the market
downturn for LSI devices and electronic components and the flooding
in Thailand adversely impacted, and the Group managed operating
income of just ¥3.1 billion ($39 million), a decrease of ¥18.1 billion
compared to the same period of the previous fiscal year. In the
fourth quarter, however, the Company posted operating income of
¥95.0 billion ($1,159 million), up ¥30.9 billion from the same
period of the previous fiscal year, due mainly to successful efforts to
enhance profitability management in services businesses outside
Japan, greater sales of network products and mobile phones, and a
return to profitability for LSI devices and electronic components.
The Group strives to minimize the impact of currency exchange
rate fluctuations on earnings. During fiscal 2011, performance was
negatively impacted by the appreciation of the yen against the U.S.
096 FUJITSU LIMITED ANNUAL REPORT 2012