Fujitsu 2006 Annual Report Download - page 43

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Annual Report 2006
2) Ability to Maintain Lasting Ties with Customers
The Fujitsu Group is committed to bolstering ties with custom-
ers, striving to serve as a business partner and provide solutions
across the full IT system lifecycle. For semiconductors, HDDs
and other operations where the Group provides components and
other products, business stability hinges on maintaining lasting
ties with customers that represent key sources of demand for our
products. An inability to secure repeat business with such cus-
tomers could therefore affect 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 impact
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 com-
petition-driven price erosion, we are pursuing a variety of mea-
sures to reduce costs, including the introduction of Toyota
Production System reforms, standardization of system develop-
ment 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,
competition 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 obsolescence of 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 technolo-
gies 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 develop-
ment of groundbreaking technologies and other actions by com-
petitors that would severely compromise the value of the Group’s
products and services.
4. Suppliers, Alliances, etc.
In the course of its operations, the Fujitsu Group conducts busi-
ness with a range of different companies, including suppliers
and alliance partners. 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 produce
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 procure-
ment 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 conditions at suppliers, could
hinder the ability of business partners to provide the Group with
a stable supply of required components. These and other events
could cause delays in product shipments, resulting in postpone-
ment in the delivery of products to customers and opportunity
losses, among other problems. In respect to component procure-
ment, 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 prod-
uct prices. Additionally, while we make every effort to ensure
the quality of procured components, we cannot guarantee that
all components purchased will be free of defects. The discovery
of such issues could result in processing delays, as well as defec-
tive products, opportunity losses, repair costs, and disposal costs
for defective goods, plus the potential obligation to pay damages
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 con-
tinue. If, however, as a result of managerial, financial, or other
causes, it becomes difficult to establish or maintain such collabo-
rative ties or to gain sufficient results from them, the Group’s
business could be adversely affected. Moreover, many of our prod-
ucts and services employ other companies’ patents, technologies,
software, and trademarks with the consent of their owners. How-
ever, there is no guarantee that other companies will continue to
grant or license the right to use their property under terms
acceptable to the Fujitsu Group.