Fujitsu 2014 Annual Report Download - page 111

patterns of people and organizations needed to achieve the Group’s
vision of a “Human Centric Intelligent Society” (a society that enjoys
the benefits of the value generated by ICT without requiring anyone
to be conscious of the technological complexities involved).
Net sales in this segment were ¥1,125.4 billion ($10,927 mil-
lion), an increase of 3.2% from fiscal 2012. Sales in Japan were down
by 3.5%. There was a significant increase in enterprise PC sales on
higher demand for replacements as a consequence of the ending of
support for an operating system product. Unit sales of consumer PCs
declined due to the shrinking market, although the value of sales
was essentially unchanged from fiscal 2012. This was due to the
impact of the weaker yen being passed on to higher sales prices, and
higher demand for purchases in the fourth quarter prior to an
increase in consumption tax. In mobile phones, sales in the first half
of the fiscal year fell sharply on the impact of the revised smartphone
sales strategies of telecommunications carriers, but recovered in the
second half as one of Fujitsu’s smartphones was selected by a teleco-
munications carrier as a recommended model, resulting in year-on-
year sales being essentially unchanged from fiscal 2012. Sales of the
Mobilewear sub-segment’s car audio and navigation systems had
been sluggish in the wake of the conclusion of the government’s
subsidy program for eco-friendly vehicles, but rose on a rebound in
the number of new vehicles sold and on the impact of higher
demand prior to the increase in the consumption tax. Sales outside
Japan increased 23.9%. On a constant-currency basis, sales increased
7%. Unit sales of PCs in Europe declined due to a shift in the sales
strategy to emphasize profitability, but Mobilewear sales rose, pri-
marily in North America.
The segment posted an operating loss of ¥22.1 billion ($215
million), a deterioration of ¥31.7 billion from fiscal 2012. In Japan,
operating income for mobile phones was adversely impacted by the
sharp decline in unit sales, as well as by higher costs due to quality
enhancement measures. Operating income in PCs benefited from
higher sales. Although there was an increase in procurement costs as
a result of the weaker yen, progress was made in passing these on in
higher sales prices. Sales in the Mobilewear sub-segment also
increased, although they were adversely impacted by higher develop-
ment expenses. Outside of Japan, euro weakness against the dollar
in the previous year caused dollar-denominated parts procurement
costs to rise for PCs in Europe, but there was a temporary reduction in
the estimated expenses from copyright levies imposed on PCs in
Germany as a result of a settlement with a copyright organization. In
addition, operating income benefited from the rise in sales of the
Mobilewear sub-segment.
In its mobile phone business, in April 2014, Fujitsu integrated
the production facilities of two of its mobile phone manufacturing
subsidiaries, Fujitsu Mobile-phone Products Limited (Tochigi
Prefecture) and Fujitsu Peripherals Limited (Hyogo Prefecture), with
volume production capacity consolidated into Fujitsu Peripherals
Limited. The Group aims to increase productivity and create a highly
flexible production facility agile enough to withstand volume fluc-
tuations. For product development, the Group aims to streamline
operations through a shared development model, enabling staff to
be reallocated to new business areas, such as enterprise solutions
and automotive-related businesses.
Device Solutions
The Device Solutions segment provides cutting-edge technology
products, such as LSI devices used in digital home appliances, auto-
mobiles, mobile phones, and servers, as well as electronic compo-
nents consisting chiefly of semiconductor packages and batteries.
Net sales in this segment totaled ¥600.2 billion ($5,828 mil-
lion), an increase of 11.1% compared to fiscal 2012. Sales in Japan
fell 1.3%. Sales of LSI devices used in smartphones increased, but
those used in digital audio-visual equipment and IT equipment
decreased, among others. In electronic components, while sales of
semiconductor packages and batteries declined, sales of optical
transceiver modules for telecommunications equipment increased,
resulting in overall sales of Electronic Components being essentially
unchanged from fiscal 2012. Sales outside Japan increased 26.1%.
On a constant-currency basis, sales increased by 5%. Sales of LSI
devices, primarily those used in smartphones, increased.
The segment recorded operating income of ¥28.3 billion ($276
million), representing an improvement of ¥42.6 billion from fiscal
2012. In Japan, operating income benefited from lower overhead
expenses owing to an early retirement incentive plan and other
factors in the LSI device business. High capacity utilization rates were
maintained in the Mie Plant’s 300 mm line on higher demand for
use in smartphones, but low capacity utilization rates continued in
the production lines for standard logic devices such as its 200 mm
line. The Group is working to consolidate its standard logic device
production lines in Japan’s Aizu-Wakamatsu region to enhance
capacity utilization. Outside Japan, results were bolstered by higher
demand for LSI devices and Electronic Components as well as by the
impact of higher sales because of the weaker yen.
In accordance with a restructuring plan decided in February
2013, the Group made progress on the structural transformation of
its LSI device business. In August 2013, it sold its microcontroller and
analog device business to the Spansion Group of the US, and in
February 2014 it integrated its gallium-nitride (GaN) power device
business with that of Transphorm, Inc., also of the US. In April 2014,
the Company signed a memorandum of understanding with
Panasonic Corporation and Development Bank of Japan (DBJ), in
which it has agreed to integrate its system LSI (SoC) business with
that of Panasonic in a new fabless company to be established, to
which DBJ will provide equity capital and debt financing. A final
agreement is expected to be reached by the end of the first quarter
of fiscal 2014, and it is expected in the third quarter that the integra-
tion will be completed and the new company will start business. It is
expected that Fujitsu will hold a 40.0% share of voting rights in the
new company, which is to be operated as an independent business
with the aim of making an initial public offering in a few years’ time.
Losses of ¥21.0 billion were recorded in relation to the structural
reforms of the LSI device business (of which extraordinary losses of
¥7.0 billion were recorded on the sale and integration of businesses,
and ¥14.0 billion from the restructuring of the 200 mm line and
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS
109
FUJITSU LIMITED ANNUAL REPORT 2014
MANAGEMENT FACTS & FIGURESRESPONSIBILITYPERFORMANCE