Fujitsu 2014 Annual Report Download - page 103

promoting strict quality control when purchasing components
from external suppliers. These efforts notwithstanding, it is
impossible to totally eliminate the possibility of deficiencies or
flaws occurring in products, including software. While the Group
is also setting rules on quality control throughout the company,
promoting software modularization, standardization of develop-
ment work, and enhanced security measures in order to improve
the quality of system development work, the possibility of
defects arising after delivery cannot be excluded. With respect to
systems that play a critical role in supporting social infrastruc-
ture, we have been checking for any potential problems in these
systems, including the operating environment, software and
hardware, in cooperation with our customers. In addition, we
have continuously made improvements to the quality, contracts,
and related rules in order to ensure the stable operation of social
infrastructure systems. We cannot, however, entirely eliminate
the possibility of deficiencies or flaws. In addition, in our cloud
services, the Fujitsu Group positions “high reliability” as the most
important value, and maintains earthquake-resistant and highly
secure facilities in order to achieve a high-standard of informa-
tion security. However, we cannot totally exclude the possibility
of service interruption. In the event of deficiencies or flaws, or
interruption of services, the Group may have to initiate product
recalls or repairs, engage in system recovery work, pay damages
to customers or suffer opportunity losses, all of which would
negatively impact Group sales and profitability.
2) Project Management
Due to such factors as the increasing scale and sophistication of
systems and more rigorous demands from customers, system
development work is becoming increasingly more complex and
challenging. At the same time, greater competition is leading to
increasingly intense pricing pressures. To deal with this situation
and prevent incidences of delayed delivery and loss-generating
projects, we have been revising our approach to making con-
tracts with customers, advancing the standardization of sales
and system engineering business processes, and working to
manage risk from the business negotiation stage through actual
project implementation. The Group continues to maintain
reserves for losses as necessary. In addition, we are striving to
industrialize the system development process in order to
strengthen our cost competitiveness. Nevertheless, in spite of
these measures, there is a possibility that we may be unable to
completely prevent incidences of delayed delivery and occurrence
of loss-generating projects.
3) Investment Decisions and Business Restructuring
In the ICT industry, large investments in R&D, capital expendi-
ture, business acquisitions, and business restructuring are neces-
sary to maintain competitiveness. The Fujitsu Group is carrying
out essential structural reforms, including those currently being
undertaken for the LSI device business. Accordingly, the success
or failure of these initiatives has a profound effect on the busi-
ness results of the Fujitsu Group. When making such investment
and restructuring decisions, we give ample consideration to a
range of factors such as market trends, customer needs, the
superiority of the Group’s own technologies, the financial perfor-
mance of acquisition candidates and our business portfolio.
There is, however, the risk that markets and technologies, as well
as acquisition candidates deemed attractive by the Group, may
fail to grow as anticipated, or that supply and demand
imbalances or price erosion may be more severe than expected.
The Group takes a number of steps to mitigate this risk, including
the consideration of investment efficiency and responding to
inherent fluctuations by dividing investment into multiple
phases and forging agreements with customers prior to invest-
ment. Nonetheless, there is no guarantee that the Group can
generate sufficient returns on such investments.
4) Intellectual Property Rights
The Fujitsu Group has accumulated technologies and expertise
that help distinguish its products from those of other companies.
Legal restrictions in certain regions, however, may impair our
ability to fully protect some of the Group’s proprietary technolo-
gies, with the result that we could be unable to effectively pre-
vent the manufacture and sale of similar products developed by
third parties using the Group’s own intellectual property. More-
over, the creation of comparable or superior technologies by
other companies could erode the value of the Group’s intellectual
property. The Group has instituted internal policies, including
stringent clearance procedures prior to launching new products
and services, to ensure that no infringement of other companies’
intellectual property occurs. However, there is the possibility that
the Group’s products, services or technologies may be found to
infringe on other companies’ intellectual property, and that
earnings may be impacted by such consequences as the need to
pay for usage rights or cover costs associated with modifying
designs. In addition, the Group has previously instituted a pro-
gram to compensate employees for innovations that they make
in the course of their work, and will continue to implement this
program in the future in accordance with related laws and regu-
lations. Nevertheless, the Group faces potential risk from lawsuits
initiated by employees in regard to compensation for innovation
created in the workplace.
5) Human Resources
The growth and profitability of the Fujitsu Group depends heavily
on human resources. As such, a major issue for the Group is the
ability to recruit, foster, and prevent the attrition of talented
technical experts, system engineers, managers and other key
personnel. The inability to do so could negatively impact the
Group’s growth and profitability. Implementation of personnel
rationalization following the structural reforms currently in prog-
ress may accelerate the above trends.
6) Environment
Making contributions to society and protecting the environment
are part of the corporate values of the Fujitsu Group, as set forth
in the Fujitsu Way. The Group regards environmental protection
as one of its most important management items and is commit-
ted to minimizing environmental burden and preventing envi-
ronmental pollution. However, the Group cannot guarantee that
environmental pollution will not occur as a result of its opera-
tions. Moreover, although we monitor soil and wastewater as
well as engage in clean-up activities at former factory sites, this
does not mean that pollution will not be found at such sites in
the future. In the event that environmental pollution were to
occur or be identified, social trust in the Group may weaken and
clean up and other costs could be incurred, which would
adversely affect the Group’s earnings.
7) Information Management
In order to safeguard the personal and confidential information
of customers, business partners, and the Fujitsu Group itself, the
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FUJITSU LIMITED ANNUAL REPORT 2014
MANAGEMENT FACTS & FIGURESRESPONSIBILITYPERFORMANCE
BUSINESS AND OTHER RISKS