Fujitsu 2004 Annual Report Download - page 31

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lion ($273 million) for charges related to personnel reduc-
tions and disposal of assets, and ¥46.8 billion ($442 million)
for the one-time amortization of goodwill (including curren-
cy translation adjustments on investments). Going forward,
under a new global business model, we will develop our
business worldwide, with closer coordination among opera-
tions in each region, including those in Japan.
· Fundamental Reform of Software & Services
Business in Japan.................¥68.3 billion ($644 million)
In fiscal 2003, we recognized losses to cover potentially
uncollectible accounts related to projects expected to be
completed or delivered in fiscal 2004 and 2005. This repre-
sented our estimates of the future expected losses from
projects whose deterioration in profitability had already
become apparent, as well as estimates based on a compre-
hensive review of potential future collections with respect to
projects under development, including work not yet com-
pleted. Losses related to projects completed in fiscal 2003
were recognized as operating losses for the period.
These problematic projects were those in which, during
the development stage, the scope of the work and the
amount of manpower required escalated far above what had
been initially foreseen, a situation not uncommon when
dealing with long-term contracts for large-scale, cutting-
edge systems. While this was in part a result of the
difficulties encountered in the rapid switchover of systems
to open standards, we also believe that it reflected the effects
of a sudden expansion of business orders in the past.
In order to ensure that such losses do not occur again, we
put in place a system for thoroughly managing project risk
for all major contracts above a certain size. We are also
strongly promoting the utilization of our innovative tech-
nologies, such as those relating to TRIOLE* and SDAS**,
for handling the growing shift toward open standards. In
order to improve the future profitability of our software and
services business, we are also working to stringently imple-
ment rules for the immediate recognition of losses based on
the percentage-of-completion method and bring enhanced
clarity to project management, including work performed by
outside contractors.
*TRIOLE: A highly reliable IT infrastructure model that brings together pre-verified
combinations of servers, storage systems, networking and other equipment.
**SDAS (Systems Development Architecture & Support): A comprehensive applica-
tion development framework covering all aspects of information system operations.
· Other Restructuring Charges
.........................................¥20.1 billion ($190 million)
We also recognized losses resulting from the restructur-
ing measures carried out by publicly listed and other
domestic subsidiaries. This included ¥5.6 billion ($53 mil-
lion) for FDK Corporation, ¥4.1 billion ($39 million) for
Fujitsu Support and Service, and ¥2.0 billion ($19 million)
for Shinko Electric Industries.
2. Segment Information
“Net sales” below refer to sales to unaffiliated customers.
Business Segment Information
Looking at fiscal 2003 operating income by business segment,
although Software & Services showed a decline in income com-
pared to the previous year, Electronic Devices – which last year
had an operating loss – returned to profitability and, for the first
time in three years, all three principal business segments recorded
profits.
Software & Services
Consolidated net sales increased 3.4% from the prior fiscal year to
¥2,094.2 billion ($19,757 million). In Japan the increase was 4.9%,
primarily as a result of demand from Japanese manufacturers pursu-
ing global business expansion and from the public and healthcare
sectors in conjunction with the e-Japan initiative.
Overseas, net sales decreased 1.1% due to the impact from the
sale of some European operations. Excluding that impact, however,
revenues actually saw a healthy increase of 2.5%. In the UK in par-
ticular, we won a series of major outsourcing orders from
government agencies, including the Inland Revenue and the National
Health Service. We also formed an IT services partnership with
Siemens Business Services GmbH & Co. OHG of Germany to pro-
vide reciprocal support in the IT services field in Europe and Asia.
Through restructuring and realigning of overseas operations, in par-
ticular our North American services subsidiaries, we worked to
strengthen our ability to support customers’ global business growth.
Consolidated operating income in this segment declined by
¥37.7 billion from the previous year, to ¥138.7 billion ($1,309
million). The decline stemmed from a deterioration of profitabili-
ty in certain projects in the solutions/systems integration business
and increased forward-looking investment in Linux and other
technologies key to opening up new markets.
Going forward, we will strive to reduce development times
through the deployment of our renewed SDAS comprehensive
systems development framework. We will also work to simplify
the introduction and operation of new systems, reduce the occur-
rence of system errors, and bring about significant cost reductions
by using pre-verified combinations of hardware and middleware
under our TRIOLE model.
Last November we completed construction of Fujitsu
Solution Square in Kamata, Tokyo, bringing together in one loca-
tion 4,000 solutions experts from the greater Tokyo-Yokohama
metropolitan area. We are leveraging real-time knowledge shared
across the worldwide Fujitsu Group to provide higher value-
added solutions to meet customers’ needs in a timely manner.
Going forward, as the only Japanese vendor that is truly a global
player, we will strive to strengthen and expand our global busi-
ness and work to increase the profitability of our software and
services business.
Platforms
Consolidated net sales were roughly flat compared with the previ-
ous year, amounting to ¥1,608.1 billion ($15,171 million). First-
quarter sales were markedly lower than in the comparable period
in fiscal 2002, but with the improvement in economic conditions
toward the end of the fiscal year, sales of 3G mobile phones and
base stations, PCs and HDDs picked up, and full-year sales
recovered to about the same level of the prior year.
In Japan, sales of transmission systems and servers declined.
In PCs, the impact of price erosion was offset by gains in unit
shipments, and sales were held to roughly the same level as in the
previous year. Sales of mobile phones and systems increased with
the progressive switchover to 3G technology, and sales were also
higher for financial terminals accommodating new banknotes. As
a result, overall sales in Japan for the Platforms segment finished
at about the same level as the previous year.
Overseas, sales of UNIX servers, PCs and HDDs increased,
particularly in Europe and North America, resulting in sales
growth of 1.2% over the previous year. Sales of transmission sys-
tems for the full fiscal year decreased, but significant recovery
could be seen in the second half.
Consolidated operating income was ¥29.2 billion ($276 million),