Fujitsu 2005 Annual Report Download - page 31

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Annual Report 2005
repeat business with such customers could therefore affect
sales and profitability.
(3) Changes in Customer IT Investment Trends
A major portion of Group sales and earnings is dependent on
the provision of IT systems and services to enterprises, public
institutions and other customers. Changes in customer IT
investment behavior, including reductions in corporate IT
spending, can have a profound effect on Group sales and prof-
itability. Alongside corporate clients, national and local gov-
ernments represent another important customer base for the
Fujitsu Group. In the UK, for example, government-related
projects are an especially important part of our business.
Accordingly, changes in the approach to e-Government and
other national-level IT utilization policies being promoted in
Japan and elsewhere could impact sales and profitability.
3. Competitors/Industry
The IT sector is characterized by intense competition and fast-
paced technological innovation. Events within the industry or
actions by competitors could therefore have a substantial im-
pact on our business results. Examples of such potential risks
are listed below.
(1) Price Competition
Intensifying competition is directly linked to declining prices
for products and services. Anticipating such technology- and
competition-driven price erosion, we are pursuing a variety of
measures to reduce costs, including the introduction of Toyota
Production System reforms, standardization of system devel-
opment methodologies, and software modularization, as well
as efforts to expand sales of new products and services. Despite
these steps, the Group still faces the risk of larger-than-expected
declines in prices, as well as the risk of being unable to achieve
sufficient cost reductions and sales growth due to fluctuations
in the price of semiconductors and other components, either
of which could negatively impact Group sales and profitability.
(2) Competition From New Market Entrants and Others
In addition to challenges posed by existing industry peers, com-
petition from new market entrants continues to intensify in
the IT sector. Today, new entrants continue to emerge in
market areas where the Fujitsu Group wields a competitive
advantage, thus entailing the risk that we may lose our com-
petitive edge, or fail to secure a clear competitive advantage in
future business operations.
(3) Competition in Technology Development
Technological advancement in the IT sector occurs at an
extremely fast pace, leading to rapid turnover in new products
and technologies. In this context, remaining competitive
requires the continuous development of state-of-the-art tech-
nology. While the Fujitsu Group does its utmost to maintain
highly competitive technologies, a loss in competitiveness ver-
sus other companies in the race to develop innovative tech-
nologies could lead to a decline in the Group’s market share
and profitability, which would negatively impact sales and
earnings. Further, sales and profitability could be affected by
the development of groundbreaking technologies and other
actions by competitors that would severely compromise the
value of the Group’s products and services.
4. Partners, Alliances, etc.
In the course of its operations, the Fujitsu Group conducts busi-
ness and forges alliances with a range of different companies.
Accordingly, any significant changes in relationships with these
and other business partners could affect Group operations.
(1) Procurement
The Fujitsu Group utilizes sophisticated technologies to pro-
duce a range of products. There is therefore a risk that we may
encounter difficulties in procuring a stable supply of certain
key components, or, in cases where regular supply channels
are unavailable, that we may be unable to secure alternative
procurement sources. There is also the risk that the Group
may be unable to sufficiently procure certain parts in the large
volumes required. Moreover, natural disasters, accidents and
other events, as well as any deterioration in business condi-
tions at suppliers, could hinder the ability of business partners
to provide the Group with a stable supply of required compo-
nents. These and other events could cause delays in product
shipments, resulting in postponement in the delivery of prod-
ucts to customers and opportunity losses, among other prob-
lems. In respect to component procurement, foreign exchange
rate fluctuations, tight supply and demand conditions, and
other pressures could drive procurement costs higher than
initial estimates, leading to diminished returns on products,
as well as lower sales due to the need to raise product prices.
Additionally, while we make every effort to ensure the quality
of procured components, we cannot guarantee that all compo-
nents purchased will be free of defects. The discovery of such
issues could result in processing delays, as well as defective
products, opportunity losses, repair costs, and disposal costs
for defective goods, plus the potential obligation to pay dam-
ages to customers.
(2) Collaborations, Alliances and Technology Licensing
To enhance competitiveness, the Fujitsu Group works with a
large number of companies through technology collaborations,
joint ventures and other means, a practice that we intend to
continue for the foreseeable future. If, however, as a result of
managerial, financial, or other causes, it becomes difficult to
establish or maintain such collaborative ties or to gain suffi-
cient results from them, the Group’s business could be
adversely affected. Moreover, many of our products and ser-
vices employ other companies’ patents, technologies, software,
and trademarks with the consent of their owners. However,