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A Determination to Succeed
FUJITSU LIMITED
Annual Report 2005

Table of contents

  • Page 1
    A Determination to Succeed FUJITSU LIMITED Annual Report 2005

  • Page 2
    ... limitation, the following factors: general economic and market conditions in the major geographic markets for Fujitsu's services and products, which are the United States, EU, Japan and elsewhere in Asia, particularly as such conditions may affect customer spending; rapid technological change...

  • Page 3
    ... strengths as a company-our broad and diversified customer base, depth of applications expertise, and broad scope of technologies, as well as our strong integration capabilities-to generate this growth. As discussed in the following pages, we are determined to deliver on four key commitments to...

  • Page 4
    ..., we realigned our solutions business in Japan by unifying sales and systems engineering groups along customer lines. This step, aimed at creating clearer points of contact for customers, also involved reorganizing regional systems engineering companies. These efforts were supported by progress in...

  • Page 5
    ... viable products and services. This will mean bringing together the collective strengths of Fujitsu Laboratories Ltd. and the rest of the Fujitsu Group, and channeling resources into new growth fields like security/public safety and ubiquitous networking-related businesses. Annual Report 2005 3

  • Page 6
    ... since October 2003. During fiscal 2004, we also pushed forward with our Solution Business Restructuring initiative. Specifically, we integrated sales and systems engineering groups to more effectively control profits, and established a Systems Integration Assurance Unit to reinforce risk management...

  • Page 7
    ... in our markets. â- Rapidly Building a Robust Financial Base We are making good progress in creating the strong financial base we need to take on our increasingly competitive rivals. Determined to ensure we build a sound financial position for Fujitsu, I set the target of reducing the balance of...

  • Page 8
    ... for optical transmission systems and mobile phone base stations by 40% and 38%, respectively, compared to a year earlier. Significant improvements were also achieved in servers, storage systems, PCs and other products. The benefits of these gains have been threefold-lower costs, better quality and...

  • Page 9
    ... in the future, we need to translate the fruits of our research into actual business opportunities more quickly. With this in mind, we plan to realize more efficient and rapid product development by more tightly aligning research with product development and launch roadmaps. Annual Report 2005 7

  • Page 10
    ... IA server; and an alliance with Cisco Systems focusing on routers and switches that includes the joint development of basic software and marketing of co-branded products. These and other strategic alliances will help further accelerate the expansion of our global business. 8 Fujitsu Limited Fujit...

  • Page 11
    ... optical transmission systems in North America and ADSL in the UK. We will continue to reinforce the foundation to support further overseas business growth, accelerating the expansion of global product volumes and advancing our solutions business to secure competitive advantage. Annual Report 2005...

  • Page 12
    ... Sales Net Sales (Billions of Yen) Operating Income (Billions of Yen) â- Software & Services 2005 2,070.4 2,094.2 2,025.7 2005 2004 2003 113.0 138.7 176.5 43.5% 2004 2003 â- Platforms 2005 2004 1,705.1 1,608.1 1,612.0 2005 2004 2003 55.0 29.2 0.9 35.8% 2003 â- Electronic Devices...

  • Page 13
    ...-related Mobile/IP Networks Transmission Systems PCs/Mobile Phones HDD-related • Solutions/SI • Infrastructure Services • Others Ubiquitous Product Solutions • PCs/Mobile Phones • Hard Disk Drives • Others Electronic Devices • Semiconductors • Others Device Solutions • LSI...

  • Page 14
    ..., our solutions and systems integration (SI) business slowed in Japan, and we again experienced increased losses from certain domestic loss-generating projects. Overseas, we made strong efforts to grow our business, especially in Europe and the Americas. Overall, however, net sales in the Software...

  • Page 15
    ... project risk management and reviewing our approach to contracts. As part of our efforts to reform our organization and approach, in June 2004, we realigned our solutions business organization in Japan by unifying our sales and systems engineering groups along customer lines. This has resulted in...

  • Page 16
    ... steam, and the optical network systems business also expanded. In this environment, our Platforms segment posted an increase of 6.0% in net sales, to ¥1,705.1 billion ($15,936 million), supported by strong sales of UNIX servers in Europe, North America and other overseas markets. Operating income...

  • Page 17
    ... and enterprise customers, as well as offer integrated IT and telecommunications solutions. In the 3G mobile communication systems business, we will continue to focus on the growing domestic market and work with partner Alcatel to win a larger share of global demand. In North America and Europe, we...

  • Page 18
    ... other products built on our leading-edge 90nm semiconductor technology, FRAM*1 devices with world-leading 1Mbit memory, and the world's smallest mobile phone SAW duplexer compatible with the North American PCS protocol. ASIC lineup FRAM devices with world-leading 1Mbit memory 16 Fujitsu Limited

  • Page 19
    ... to offer a broad range of solutions to customers, from products to foundry services. This helped us forge strong customer relationships and create a launch pad for business expansion, illustrated by the fact we have secured business with more than 20 companies. In standard products, we worked to...

  • Page 20
    Customer Solution Profiles Ticket-dispensing Multimedia Terminals Providing a Wide Range of Services Regal Entertainment Group (United States) Entertainment is big business in the United States, and few amusement spots have the ability to attract massive numbers of people the way that movie ...

  • Page 21
    ...-edge IT to help healthcare providers deliver safe medical services that engender patient trust. In response to the challenges facing the air transportation market after 9/11 and other events such as SARS, British Midland Airways Ltd. (bmi), the UK-based airline operating both short-haul and long...

  • Page 22
    ... cutting-edge research and development in fields ranging from IT services to computing and telecommunications systems, as well as in supporting fields such as electronic devices and materials technologies. Major Accomplishments in Fiscal 2004 â- UHF-band electronic tag technology for a broad range...

  • Page 23
    ... high-value-added solutions that leverage and combine our wide array of cutting-edge technologies in IT services, computers, networks, electronic devices and other areas. â- R&D in new and novel fields to support future businesses To support future business development, we will pursue research in...

  • Page 24
    ...Guided by these three core principles, we are working to secure and utilize intellectual property in order to provide products and services that are anchored by powerful technological capabilities and enhance customer satisfaction. â- Maintain Superior Competitiveness Actively secure and utilize...

  • Page 25
    ... to utilize the ATMS/ IR system to research rights held by other companies. 3. Ensuring Strict Information Management "Maintain confidentiality" is a key element of the Code of Conduct in The FUJITSU Way, the core set of principles guiding the corporate and individual actions of the Fujitsu Group...

  • Page 26
    ... and travel at their own expense to target sites to participate in reforestation work. In January 2005, for example, 41 employee volunteers from Japan helped plant more than 2,600 dipterocarp trees in Malaysia. â- Relief for Victims of the Sumatra Earthquake and Indian Ocean Tsunami The earthquake...

  • Page 27
    ... 14001 certification for our environmental management system covering 97 domestic Group companies and some 100,000 employees. New eco-friendly semiconductor fabrication facility at our Mie Plant FMV-BIBLO NB80K Notebook PC with corn-based plastic housing ISO 14001 Certificate Annual Report 2005...

  • Page 28
    ... Kunihiko Sawa President and Representative Director Fuji Electric Holdings Co., Ltd. Hiroshi Oura Director and Senior Executive Advisor Advantest Corporation Ikujiro Nonaka Professor of Hitotsubashi University Graduate School of International Corporate Strategy Akira Takashima Vice Chairman...

  • Page 29
    ...Audit Division has been established within the Corporate Center to serve as an internal This committee works to obtain information regarding specific incidences of risk and to mitigate their impact on customers and the Fujitsu Group. Serious issues are reported to the Management Council or Board of...

  • Page 30
    ... future could affect our efforts to procure necessary funding for our operations. (5) Capital Markets The Fujitsu Group provides IT products and services, telecommunications infrastructure equipment, as well as semiconductors, hard disk drives (HDDs) and other components, to corporate clients and...

  • Page 31
    ... such collaborative ties or to gain sufficient results from them, the Group's business could be adversely affected. Moreover, many of our products and services employ other companies' patents, technologies, software, and trademarks with the consent of their owners. However, Annual Report 2005 29

  • Page 32
    ... in order to improve the quality of system development and other services, the possibility of defects arising cannot be excluded. In the event that such deficiencies or flaws occur, the Group may have to initiate product recalls or repairs, engage in system recovery work, pay damages to customers or...

  • Page 33
    ... information system support for Group customers, which could interrupt their business activities. We have a well-developed system in place to ensure the integrity and stable operation of critical in-house networks, which are a key element of our business infrastructure. However, the Group cannot...

  • Page 34
    ... R&D expenses Capital expenditure Number of employees Net sales by business segment (excluding intersegment sales): Software & Services Platforms Electronic Devices Financing Other operations Total Net sales by customers' geographic location: Japan Europe The Americas Others Total ¥5,484,426 244...

  • Page 35
    ... as plasma display panels (PDPs) and liquid crystal displays (LCDs), and in Japan, a sluggish recovery in IT spending restrained sales of servers and solutions/system integration services. Overseas, sales of outsourcing services, UNIX servers, optical transmission systems, PCs and compact hard disk...

  • Page 36
    ...increased sales, progress on cost-cutting and expense controls. â- Operating Income and Operating Income Margin 2005 2004 2003 Sales of part of our holdings in Fanuc Ltd. and Advantest Corporation on February 22 and 23, 2005 (Â¥129.2 billion) were recorded as gain on sales of marketable securities...

  • Page 37
    ... in order to augment full IT system lifecycle management (LCM) support for customers, in October 2004 we made Fujitsu Support and Service Inc. a wholly owned subsidiary of Fujitsu Limited through an exchange of shares. In January 2005, we consolidated into a single location nearly 2,500 employees of...

  • Page 38
    ... of drive heads to meet future surges in demand. In light of the Personal Information Protection Act that came into effect in Japan in April 2005 and recent increases in counterfeit credit card-related crimes, there are growing calls for technology solutions to help protect information security. Our...

  • Page 39
    ... to a Japan-based subsidiary of Exel plc of the UK. By capitalizing on ties with Exel, we are bolstering our global logistics framework and achieving more advanced SCM in a drive to deliver products faster and more reliably than ever to Fujitsu customers. Net Sales and Operating Income by Business...

  • Page 40
    ...business and the transfer of our PDP business. Investments and long-term loans were reduced by ¥120.5 billion as a result of sales of marketable securities and the posting of a valuation allowance for deferred tax assets. (Years ended March 31) Japan Europe The Americas Others 38 Fujitsu Limited

  • Page 41
    ...to such factors as the payment of accounts payable in our domestic solutions/systems integration business. Net cash used in investing activities was ¥15.1 billion ($141 million). Outflows for capital expenditures roughly balanced out inflows from sales of marketable securities. Software & Services...

  • Page 42
    ... realignment of our systems engineering subsidiaries in Japan's Chugoku and Shikoku regions. The number of affiliated companies accounted for by the equity method as of the fiscal year-end totaled 34, a net increase of two. This number included Eudyna Devices Inc., Eudyna Devices Europe Ltd. and two...

  • Page 43
    ... availablefor-sale securities for which market prices are available cause fluctuations in the carrying value of marketable securities, resulting in increases or decreases in shareholders' equity. Impairment losses are recognized on available-for-sale securities when the market value or the net worth...

  • Page 44
    Consolidated Balance Sheets Fujitsu Limited and Consolidated Subsidiaries At March 31 Yen (millions) U.S. Dollars (thousands) (Note 3) Assets Current assets: Cash and cash equivalents Short-term investments (Note 4) Receivables, trade (Note 16) Allowance for doubtful accounts Inventories (Note 5)...

  • Page 45
    ... 15) Total long-term liabilities Minority interests in consolidated subsidiaries Shareholders' equity: Common stock (Note 12) Authorized-5,000,000,000 shares Issued 2004-2,001,962,672 shares 2005-2,070,018,213 shares Capital surplus Retained earnings (Deficit) Unrealized gains on securities, net of...

  • Page 46
    Consolidated Statements of Operations Fujitsu Limited and Consolidated Subsidiaries Years ended March 31 Yen (millions) U.S. Dollars (thousands) (Note 3) 2003 2004 2005 2005 Net sales Operating costs and expenses: Cost of sales Selling, general and administrative expenses (Note 18) Operating ...

  • Page 47
    ...' Equity Fujitsu Limited and Consolidated Subsidiaries Years ended March 31 Yen (millions) U.S. Dollars (thousands) (Note 3) 2003 2004 2005 2005 Common stock: Balance at beginning of year Conversion of bonds Balance at end of year Capital surplus: Balance at beginning of year Increase as...

  • Page 48
    ... portion of employees' pension funds Gain on sales of marketable securities (Increase) decrease in receivables, trade (Increase) decrease in inventories (Increase) decrease in other current assets Increase (decrease) in payables, trade Increase (decrease) in other current liabilities Other, net Cash...

  • Page 49
    ... Revenue from sales of IT systems and products including software development contracts is recognized upon acceptance by the customers, whereas revenue from sales of personal computers, other equipment and electronic devices is recognized when the products are shipped. Annual Report 2005 47

  • Page 50
    ...-sale securities are carried at fair market value, with the unrealized gains or losses, net of taxes, reported in a separate component of shareholders' equity. (g) Allowance for doubtful accounts The allowance for doubtful accounts is provided at an amount deemed sufficient to cover estimated...

  • Page 51
    ...contract revenue. The Group immediately recognized the expected loss on the software development contracts which were proved to be unprofitable from the year ended March 31, 2004. The Group classified the expected loss as "restructuring charges" for the year ended March 31, 2004. Annual Report 2005...

  • Page 52
    ... with IAS 36. The Group amortizes goodwill by the straight-line method over periods not exceeding 20 years as indicated in section (j) of "Significant Accounting Policies" and does not apply the impairment rule. Retirement benefits (Note 10) Under IAS 19, the unrecognized net obligation upon the...

  • Page 53
    ... and long-term loans" were as follows: Yen (millions) U.S. Dollars (thousands) At March 31 2004 2005 2005 Held-to-maturity investments Carrying value (Amortized cost) Market value Net unrealized gain Available-for-sale securities Acquisition costs Carrying value (Market value) Net unrealized...

  • Page 54
    ...of the financial information stated above, the net assets of Advantest Corporation at March 31, 2004 were ¥221,768 million. The carrying and market values of the shares of the publicly listed equity method affiliates at March 31, 2004 and 2005 were as follows: Yen (millions) U.S. Dollars (thousands...

  • Page 55
    ... the securitization of Fujitsu Solution Square (located in Kamata, Tokyo), and the sales of other properties that had been used for employees' welfare. Other, net for the year ended March 31, 2005 mainly consisted of decrease due to the transfer of our plasma display panel business, and the shifting...

  • Page 56
    ... to the shifting of Flash memory operations and FDK Corporation from consolidated subsidiaries to equity method affiliates. Other, net for the year ended March 31, 2005 mainly consisted of decrease due to the transfer of our plasma display panel business, and the shifting of compound semiconductor...

  • Page 57
    ...31, 2005: Secured Unsecured ¥ 833 177,549 ¥178,382 ¥ 600 $ $ 5,607 948,402 954,009 101,479 ¥102,079 Long-term debt at March 31, 2004 and 2005 consisted of the following: Yen (millions) U.S. Dollars (thousands) At March 31 2004 2005 2005 Loans, principally from banks and insurance companies...

  • Page 58
    ...million shares of common stock. Certain outstanding convertible bonds and notes can be repurchased at any time and may be redeemed at the option of the Company, in whole or in part, at 100% of their principal amounts. The aggregate annual maturities of long-term debt subsequent to March 31, 2005 are...

  • Page 59
    ... based on their length of service, basic salary as of the retirement date and the number of years of participation in the Plan. The contributions of the Company and the subsidiaries covered by the Plan and their employees are made to the Fujitsu Welfare Pension Fund which is an external organization...

  • Page 60
    ...cover the unrecognized net obligation at transition, the Company placed its holding of marketable securities in trust which was solely established for the retirement benefit plan. The major defined benefit pension plan provided outside Japan is the plan that Fujitsu Services group provides in the UK...

  • Page 61
    ... 31 2004 2005 2005 Projected benefit obligation Plan assets Projected benefit obligation in excess of plan assets Discount rate ¥(348,759) 257,427 ¥ (91,332) 5.90% ¥(400,643) 300,254 ¥(100,389) 5.80% $(3,744,327) 2,806,112 $ (938,215) 11. Income Taxes The Group is subject to a number of...

  • Page 62
    ... inventory and property, plant and equipment Other Gross deferred tax assets Less: Valuation allowance Total deferred tax assets Deferred tax liabilities: Gains from establishment of stock holding trust for retirement benefit plan Unrealized gains on securities Retained earnings appropriated for tax...

  • Page 63
    ...672 2,001,962,672 1,141 68,054,400 2,070,018,213 An increase as a result of stock exchange for the year ended March 31, 2005 reflected the issuance of shares in October 2004 by which the Company turned Fujitsu Support and Service Inc. into a wholly owned subsidiary. 13. Commitments and Contingent...

  • Page 64
    ... complex contracts, are recognized in income when the relating hedged items are reflected in income. Fair Value of Derivative Financial Instruments: At March 31, 2004 and 2005, all derivative financial instruments were stated at fair market value and recorded on the balance sheets. 15. Leases The...

  • Page 65
    ... Statements of Operations Research and development expenses charged to "selling, general and administrative expenses" for the years ended March 31, 2003, 2004 and 2005 were ¥285,735 million and ¥250,910 million, ¥240,222 million ($2,245,065 thousand), respectively. Annual Report 2005 63

  • Page 66
    ... marketable securities for the year ended March 31, 2005 related mainly to the sales of shares in Fanuc Ltd. and Advantest Corporation. Gain on business transfer Gain on business transfer for the year ended March 31, 2003 related to the transfer of a portion of the printer systems business to Fuji...

  • Page 67
    ... Prefecture, Japan, on May 26, 2003. Cost of corrective measures for products Cost of corrective measures for products for the year ended March 31, 2003 related to certain small-form-factor magnetic hard disk drives due to some procured parts that were found to be defective. Annual Report 2005 65

  • Page 68
    ...Software & Services Platforms Electronic Devices Financing Other Operations Elimination & Corporate Consolidated 2003 Sales Unaffiliated customers Intersegment Total sales Operating costs and expenses Operating income (loss) Total...617,580 4,517,153 100,427 4,225,361 324,297 (518,473) (518,473) (458...

  • Page 69
    ... (magnetic and magneto-optical disk drives), terminals (financial terminals, POS systems), mobile phone handsets, IP systems, fiber-optic transmission systems, mobile communication systems (3G base station systems) (3) Electronic Devices ...Logic LSI (System LSI, ASICs, microcontrollers, FRAM...

  • Page 70
    ... previously filed a lawsuit in California State District Court against Cirrus Logic Inc., Amkor Technology, Inc., Sumitomo Bakelite Company Limited and Sumitomo Plastics America, Inc. in regard to incidences of problems with small form-factor magnetic hard disk drives in 2001. However, in June 2005...

  • Page 71
    Independent Auditors' Report Annual Report 2005 69

  • Page 72
    ... â- JAPAN Listed Fujitsu General Ltd. FDK Corporation Unlisted Fujitsu Leasing Co., Ltd. Eudyna Devices Inc. â- THE AMERICAS UFJ Trust Bank Limited 4-3, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, Japan â- Stock Exchange Listings Japan: Tokyo, Osaka, Nagoya Overseas: Frankfurt, London...

  • Page 73
    FUJITSU LIMITED Shiodome City Center, 1-5-2 Higashi-Shimbashi, Minato-ku, Tokyo 105-7123, JAPAN Tel. +81-3-6252-2220 ©2005 FUJITSU LIMITED Printed in Japan BA0025-1AP This report is printed on 100% recycled paper with ink containing less than 15% oil-based solvent. www.fujitsu.com