Fujitsu 2007 Annual Report Download - page 47

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 and retain con-
tract relationships with such customers 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
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 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, 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 competitive 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 technology. While
the Fujitsu Group does its utmost to maintain highly competi-
tive technologies, a loss in competitiveness versus other compa-
nies in the race to develop innovative technologies 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 prod-
ucts and services. Additionally, there is the risk of an adverse
effect on sales and profitability as a result of the time it takes to
implement mass-production chip technologies for semiconduc-
tors, such as in solving technological issues concerning cutting-
edge process development technology.
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 rela-
tionships 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 the provision of products and services,
resulting in postponement in the delivery of products to custom-
ers and opportunity losses, among other problems. 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 dimin-
ished returns on products and services, as well as lower sales due
to the need to raise 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 defective 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.
Annual Report 2007 45