Fujitsu 2007 Annual Report Download - page 46

Business and Other Risks
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 making
efforts to prevent them from arising, avoid potential risks alto-
gether 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 22, 2007.
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,
Europe, and Asia (including China), key markets where economic
trends can significantly impact Fujitsu Group operations.
2) High-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 particularly 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. Fur-
ther, 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 of
around ¥750 billion, 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 products and services, as well as
communications infrastructure and other business, is with tele-
communications carriers, financial institutions, and large manu-
facturers. The business environment within these industries,
including shifting market trends and structural reforms, could
lead to changes in customers’ IT investment trends having a sig-
nificant impact on Group sales and profitability. In semiconduc-
tors, HDDs and other operations where the Group provides
components and other products, both demand and prices are
impacted to a large extent by customers’ sales and inventory
adjustments of PCs, digital home electronics, mobile phones,
automobiles and other products in which these parts are used.
Accordingly, soft demand and falling prices for customers’ prod-
ucts, 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.
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 life cycle. For semiconductors, HDDs
44 Fujitsu Limited