Fujitsu 2004 Annual Report Download - page 29

27
The following section, Management’s Discussion and
Analysis of Operations, provides an overview of the consoli-
dated financial statements of Fujitsu Limited (the
“Company”) and its consolidated subsidiaries (together, the
“Group”) for the year ended March 31, 2004 (fiscal 2003).
Forward-looking statements in this section are based on
management’s understanding and best judgment as of June
28, 2004.
1. Analysis of Results
Business Environment
Although the Iraq War and SARS epidemic temporarily
slowed the global economy at the beginning of the fiscal year,
from the second half there was continuing growth in demand
for third-generation (3G) and other mobile telephones and sig-
nificant expansion of broadband communication networks, as
well as solidifying demand for new digital AV equipment,
signaling the dawn of an era of ubiquitous networking. US
and other stock markets around the world began to recover,
and by the fourth quarter overall economic conditions were
showing steady signs of improvement.
Led by a strong recovery in the US economy, other
regions also began to show gradual improvement. In Japan,
which has benefited the most from the rapid growth in
demand for digital AV equipment, corporate results
improved, supported by strong exports by the manufacturing
sector. Along with considerable recovery in the Japanese
stock markets, the value of the yen continued to rise against
other currencies. Similarly, China and other countries in
Asia have benefited from a rise in new demand, and
economies throughout the world are generally on a path
towards recovery.
At the same time, corporate capital investment began to
rebound on a global basis, and since the end of 2003
Japanese corporate investment in IT has begun to recover
strength. As a result, we are seeing considerable activity in
business orders.
Net Sales
Fiscal 2003 consolidated net sales were ¥4,766.8 billion
($44,971 million), with the growth rate compared to the
prior year improving progressively in each quarter and a
full-year increase of 3.2%. Overall, it was the first year-on-
year increase in net sales since fiscal 2000. Sales rose by
only a small margin in Software & Services, but Platforms
sales finally rebounded to a level of parity with the previous
year, and Electronic Devices sales jumped by nearly 20%
both in Japan and overseas.
In addition to major gains in sales of logic chips, the fun-
damental technology driving advances in popular digital AV
equipment, sales of other electronic devices supporting the
digital revolution – including plasma display panels (PDPs),
liquid crystal displays (LCDs) and hard disk drives (HDDs)
– enjoyed strong growth. In mobile communications, the
shift toward 3G solidified. In Japan, although firm corporate
demand for IT-enabled services contributed to growth in
services income, there was a decline in large-scale systems
projects, which, together with intensifying price competition
and other factors, led to sluggish domestic sales of servers,
PCs and other hardware products. There was clear recovery
during the second half of the fiscal year in the sales of trans-
mission systems for North American carriers, but
investment by Japanese telecommunications carriers contin-
ued to be restrained.
Cost of Sales, Selling,
General & Administrative Expenses
and Operating Income
The cost of sales increased by 4.0% compared to the previ-
ous year, to ¥3,460.9 billion ($32,650 million), but because
of increasingly intense price competition, costs increased at
a faster rate than sales, resulting in the cost of sales ratio
climbing 0.5% from the previous year, to 72.6%. Gross
profit on sales (net sales minus the cost of sales) was
¥1,305.9 billion ($12,320 million), an increase of 1.3% com-
pared to the previous year. Despite higher net sales, selling,
general and administrative expenses declined 2.8% from the
prior year, to ¥1,155.6 billion ($10.902 million), as a result
of efforts to streamline expenses.
Operating income increased by ¥49.9 billion over the
previous year, or approximately 50%, to ¥150.3 billion
($1,418 million).
By business segment, Electronic Devices, which had suf-
fered a major loss in the previous year, returned to
profitability with a ¥59.1 billion improvement in operating
income. In the Platforms segment, although intensified com-
petition reduced profits in PCs and mobile phones, in
transmission systems and HDDs, two areas that had suffered
large losses the previous year, there were major improve-
ments in operating income. Moreover, in the fourth quarter,
there was unique demand in Japan for financial terminals
able to accommodate new banknotes. These and other fac-
tors resulted in an improvement in the operating income of
the Platforms segment of ¥28.2 billion. These improvements
offset the ¥37.7 billion decline in operating income in
Software & Services, which suffered from deterioration in
the profitability of some projects. Thus, overall, we were
able to achieve the 150 billion yen operating income level
we had targeted at the beginning of the fiscal year.
Other Income (Expenses) and Net Income
Other income (expenses) totaled ¥6.6 billion ($63 million).
We posted a loss of ¥0.8 billion ($8 million) in net equity in
earnings of affiliates, compared to income of about ¥0.5 bil-
lion in the previous year. This was because our investment
in Fanuc Ltd. became no longer subject to equity method
accounting as a result of our sales of Fanuc shares during the
fiscal year. Interest charges were ¥23.3 billion ($220 mil-
Software & Services Electronic Devices Platforms
Financing
Net Sales by Business Segment (excluding intersegment sales)
(¥ Billions)
(Years ended March 31)
Other Operations
FINANCIAL SECTION Management’s Discussion and Analysis of Operations
Operating Income (¥ Billions)
Ratio of Operating Income to Net Sales (%)
(Years ended March 31)