Fujitsu 2006 Annual Report Download - page 42

40 Fujitsu Limited
Listed below are the principal business and other risks affecting
the Fujitsu Group (Fujitsu Limited and its consolidated subsid-
iaries) that we believe may influence investors’ decisions. With a
view to proactively disclosing information to investors, we have
also included items that may not necessarily have significant bear-
ing on such decisions. We are aware of these risks and are mak-
ing efforts to prevent them from arising, avoid potential risks
altogether and immediately confront risks should they occur.
Among the risks listed below are some items related to future
developments, but the list only includes items that the Group
deems necessary to publicly disclose as of June 28, 2006.
1. Economic and Financial Market Trends
Economic and financial market trends have an impact on the
Group’s business results, financial base and other aspects of its
operations. Examples of such risks are listed below.
1) Economic Trends in Key Markets
The Fujitsu Group provides IT products and services, telecom-
munications infrastructure equipment, as well as semiconductors,
hard disk drives (HDDs) and other components, to corporate
and institutional clients and consumers in every region of the
globe. Hence, sales and income generated from these operations
are greatly affected by economic conditions in each respective
market. This is particularly true of Japan, North America, and
Europe, key markets where economic trends can significantly
impact Fujitsu Group operations.
2) Hi-tech Market Volatility
The IT sector is periodically subject to dramatic changes in
the balance of supply and demand that exceed the scope of
normal cyclical market variations. This tendency is particu-
larly evident with regard to semiconductors, PCs and other
general-purpose products.
The Fujitsu Group gives ample consideration to market
cycles and volatility when deciding to launch new products, ini-
tiate volume production, or scale back production, among other
actions. Nonetheless, we may fail to accurately forecast market
changes, or changes in market conditions could exceed our fore-
casts. Accordingly, there is a risk that we may be unable to recoup
investment costs, as well as the risk of opportunity losses.
Further, the Group continuously implements structural
reforms in a bid to respond to market changes. However, drastic
market changes could force us to enact structural reforms on a
far greater scale than initially expected, resulting in a temporary
increase in related expenses.
3) Exchange Rates
The Fujitsu Group imports a substantial amount of components
and materials and exports various products. While import and
export costs tend to roughly balance out over the course of a given
year, sudden fluctuations in exchange rates and other factors
could force the Group to incur losses on foreign currency trans-
lation. In addition, with respect to overseas assets held by the
Group, as well as liabilities, there is the possibility that exchange
rate fluctuations could lead to depreciation of assets and/or
appreciation of liabilities.
4) Interest Rates
The Fujitsu Group has interest-bearing loans with a balance in
excess of 900 billion yen, including items that are directly
impacted by interest rate fluctuations. Consequently, rising
interest rates could increase capital procurement costs.
5) Capital Markets
Stock market trends in Japan and overseas have a substantial
effect on the value of Group stockholdings in other companies
and the management of pension assets. Weak stock market per-
formance could thus force us to incur losses on the devaluation
of marketable securities held or a reduction in pension assets,
exposing the Group to the risk of higher losses.
2. Customers
Fujitsu Group operations are highly influenced by the business
trends of strategic key customers. Examples of potential risks are
described below.
1) Changes in Customers’ IT Investment Trends
A large proportion of our IT systems and services business, as
well as communications infrastructure and other business, is
with telecommunications carriers, financial institutions, and large
manufacturers. The business environment within these indus-
tries, including shifting market trends and structural reforms,
could lead to changes in customers’ IT investment trends having
a significant impact on Group sales and profitability. In semi-
conductors, HDDs and other operations where the Group pro-
vides components and other products, both demand and prices
are impacted to a large extent by customers’ sales of PCs, digital
home electronics, mobile phones, automobiles and other prod-
ucts in which these parts are used. Accordingly, soft demand and
falling prices for customers’ products, or a decline in customers’
market share, could negatively impact Group sales and earnings.
Alongside corporate clients, national and local governments
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.
앮 Business and Other Risks