Fujitsu 2014 Annual Report Download - page 101

BUSINESS AND OTHER RISKS
Listed below are the principal business and other risks affecting
the Fujitsu Group (Fujitsu Limited and its consolidated subsid-
iaries) that we believe may influence investors’ decisions. We
are aware of and have evaluated these risks and are making
efforts to prevent, mitigate, transfer, and control potential risks,
and minimize the impact should these risks actually arise.
Please note that the following is not an exhaustive list of all
the risks that may affect the Group. 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 these materials.
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 services, server and storage prod-
ucts, network products, as well as semiconductors and other
components, to clients in corporate and public institutions, as
well as consumers in Japan and every region of the globe. Hence,
sales and income generated from these operations are greatly
affected by economic conditions in each respective market. The
economic trends in our key markets, namely Japan, North Amer-
ica, Europe, and Asia (including 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
products. The Fujitsu Group gives ample consideration to market
cycles and volatility when deciding to develop new global tech-
nology 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. Accordingly, 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. As a
result, sudden fluctuations in US dollar, euro and British pound
exchange rates and other factors could have a significant impact
on sales and income, resulting in such factors as the lowering of
competitive pricing for the services and products that we deliver
outside Japan. Sudden fluctuations in exchange rates can also
affect the cost of components and materials that we import from
outside Japan, as well as the various products that we export. In
addition, with respect to assets held by the Group outside Japan,
as well as liabilities, there is the possibility that exchange rate
fluctuations could lead to depreciation of assets and/or apprecia-
tion 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 of 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 busi-
ness trends of 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 the public institutions such as the Japanese, local
and foreign governments; telecommunications carriers; financial
services institutions; 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 customers’ businesses, or customers’ reduced
market share, as well as restrains on customer ICT investments
could negatively impact Group sales and earnings.
In our business outside Japan, for example, government-
related projects in the UK are an especially important part of
our business. Accordingly, changes and restraints placed on the
ICT investment plans of the UK government 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
inability to maintain trusted relationships with such customers,
or the failure to renew contracts with them, could therefore affect
sales and profitability.
3. Competitors and the Industry
The ICT sector is characterized by intense competition and fast-
paced technological innovation. Events within the industry or
actions by competitors could therefore have a substantial impact
on our business results. Examples of such potential risks are
listed below.
1) Price Competition
Changes in market environments, intensifying competition,
technological innovation and other factors may cause prices for
products and services to decline.
Anticipating such technology- and competition-driven price
reductions for ICT services, including cloud computing, and the
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FUJITSU LIMITED ANNUAL REPORT 2014
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