Fujitsu 2004 Annual Report Download - page 32

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an increase of ¥28.2 billion over the previous year. Profitability bene-
fited from the effects of restructuring carried out over the previous
two years and the impact of cost reduction measures in conjunction
with continuing efforts to improve manufacturing innovation and
efficiency. It was further bolstered by the beginning of full-scale
recovery in IT demand, which had been sluggish.
Profitability increased in HDDs used in notebook PCs, as
well as in financial terminals due to the sudden increase in
demand for models accommodating new banknotes in Japan. In
addition, thanks to the recovery in demand by North American
telecommunications carriers and the impact of previous restruc-
turing, losses in transmission systems were greatly reduced.
Although we were able to minimize the impact of intense price
competition on profitability in PCs, we incurred greater costs in
equipping mobile phones with high-level functionality, and prof-
itability for mobile phones deteriorated.
We have been developing our server and PC businesses in four
key regional markets: Japan, North America, Europe and Asia. In
fiscal 2003, our highly reliable high-performance UNIX servers
received much favorable attention in the market, particularly in
Europe and the US, and sales of these systems by Fujitsu Siemens
Computers (Holding) B.V. in Europe, Fujitsu Computer Systems
in North America and group companies in other areas increased.
In PCs, as well, solidifying our organizational ability to supply
products globally and on very short timeframes, we enjoyed a
large increase in overseas unit sales, particularly in Europe. Going
forward, we intend to further strengthen our structure for develop-
ing and delivering leading-edge products to the global market.
Electronic Devices
Consolidated net sales totaled ¥734.3 billion ($6,928 million), an
increase of 18.7% over the previous year. In semiconductors, dri-
ven by especially strong demand for use in digital AV equipment
and mobile phones, sales of logic chips rose by nearly 30%.
Flash memory sales recorded a 1.7% decline. This decline, how-
ever, was attributable to the shift of our Flash memory operation
to equity method affiliate in conjunction with the establishment
of a new joint venture company with Advanced Micro Devices,
Inc. (AMD) at the end of June 2003. As a result, sales to AMD by
the manufacturing subsidiary in Japan were removed from our
consolidated accounts. Excluding the effect of this removal, on
the basis of continuing operations, Flash memory sales would
actually have risen by 66% over fiscal 2002.
In addition, robust demand for PDPs and LCDs led to year-
on-year sales increases of over 50% in both segments.
Consolidated operating income made a significant turn-
around, reaching ¥27.5 billion ($260 million), an improvement of
¥59.1 billion yen from the loss recorded in the previous year.
Although there was a short-term slowdown in operations caused
by an earthquake in May 2003 that damaged our Iwate Plant,
buoyant demand significantly increased capacity utilization at all
of our production facilities, resulting in improved profitability. In
addition, PDP operations returned to profitability on a full-year
basis, and profits in all key segments within Electronic Devices
improved.
Besides our joint venture with AMD in the Flash memory busi-
ness, we also established a new joint venture with Sumitomo
Electric Industries, Ltd. for compound semiconductors, which com-
menced operations in April 2004. In October 2003, we merged four
back-end semiconductor assembly companies into a single compa-
ny, achieving greater production efficiency and reducing costs.
In addition, we decided to build a new fab at our Mie Plant to
mass-produce chips using our advanced 90nm process technology
on 300mm wafers. By sharing the risk with strategic partners and
undertaking phased investment in accordance with changes in
demand, we expect to greatly increase profits.
In the PDP business, as well, with the goal of increasing pro-
duction capacity to meet rising demand, we decided to invest in
the construction of a new facility at the Miyazaki Plant of Fujitsu
Hitachi Plasma Display Limited. By investing aggressively to
increase production, we expect to reap even greater profits in
PDPs.
Financing and Other
In May 2003, we transferred to a third party all of our shares in
Kanda Tsushin Kogyo Co., Ltd., previously an equity method
affiliate. Also, in September 2003, in a move aimed at strengthen-
ing our leasing business, we transferred a portion of the shares of
Fujitsu Leasing Co., Ltd. to a third party. And in March 2004,
FDK Corporation, which is primarily involved in the manufacture
and sales of hybrid modules and batteries, received equity capital
from a third party, entailing a switch to equity method affiliate as
well.
As a result of making the leasing company an equity method
affiliate, from the third quarter of fiscal 2003 we eliminated the
Financing segment from our financial statements.
Net Sales and Operating Income by Business Segment (¥ Billions)
Increase
(Decrease)
Years ended March 31 2003 2004 rate (%)
Net sales
(including intersegment sales)
Software & Services ............................ ¥2,097 ¥2,146 2.3%
Platforms.............................................. 1,843 1,832 (0.6)
Electronic Devices............................... 687 804 17.1
Financing............................................. 128 54 (57.6)
Other.................................................... 378 418 10.4
Intersegment elimination ..................... (518) (489)
Consolidated net sales............................ ¥4,617 ¥4,766 3.2%
Increase
(Decrease)
Operating Income
Software & Services ............................ ¥176 ¥138 ¥(37)
Platforms.............................................. 0 29 28
Electronic Devices............................... (31) 27 59
Financing............................................. 4 2(2)
Other.................................................... 10 13 3
Unallocated operating costs
and expenses/intersegment
elimination ......................................... (59) (60) (1)
Consolidated operating income .............. ¥100 ¥150 ¥49
Geographic Segment Information
Japan
Net sales were ¥3,605.6 billion ($34,016 million), an
improvement of 1.4% compared to the previous fiscal year.
Sales of electronic devices, particularly those used in digital
equipment, were strong. In Software & Services, there were
increased sales to manufacturers undertaking global expan-
sion, and the spread of the e-Japan initiative also helped
boost sales, particularly to the public and healthcare sectors.
Operating income was ¥203.7 billion ($1,922 million),
up by ¥42.8 billion over the previous year. The increase was
attributable to the improvement in profitability for the
Electronic Devices segment driven by sales growth, as well
as to reductions in operating expenses and other factors.
Europe
Net sales were ¥544.5 billion ($5,138 million), an increase of
3.7% compared to the previous year. Although the selling off
of certain business operations reduced sales in the Software &
FINANCIAL SECTION Management’s Discussion and Analysis of Operations