Fujitsu 2007 Annual Report Download - page 48

5. Public Regulations, Public Policy, and Tax Matters
The business operations of the Fujitsu Group are impacted by a
variety of public regulations and trends in public policy, as well
as laws pertaining to taxation. Specifically, wherever it operates,
the Group must comply with a variety of regulations, such as
authorizations for business or investment, import/export regu-
lations and restrictions, as well as laws pertaining to antimonopoly
policies, intellectual property rights, consumers, the environment
and recycling, labor conditions, and taxation. Earnings might be
affected by increased compliance costs associated with measures
to make stricter or otherwise revise such laws and regulations.
We also provide solutions in certain fields and business domains
such as healthcare and communications that are subject to other
public regulations, meaning that regulatory trends in these sec-
tors may potentially impact the Group’s business.
6. Other Operational Risks
The Fujitsu Group makes every effort to eliminate known risks
but can offer no guarantee of its ability to always achieve every
desired outcome in the course of executing business operations.
Some of the specific risks faced in this respect are detailed below.
1) Deficiencies or Flaws in Products and Services
Quality is a core value of the Fujitsu Group. We are committed
to improving quality at the design and development stages as well
as in manufacturing. We are also promoting stricter quality con-
trol when purchasing components from external suppliers. These
efforts notwithstanding, it is impossible to totally eliminate the
possibility of deficiencies or flaws occurring in products, includ-
ing software. While the Group is also promoting software
modularization, standardization of development work, and
enhanced security measures in order to improve the quality of
system development and other services, the possibility of defects
arising cannot be excluded. With respect to systems that play a
critical role in supporting societal infrastructure, following the
incidents involving system troubles at the Tokyo Stock Exchange,
we initiated urgent and comprehensive inspections of customer
systems in November 2005. In cooperation with our customers,
we have been checking for any potential problems in these sys-
tems, including the operating environment, software and hard-
ware. We cannot, however, entirely eliminate the possibility of
deficiencies or flaws. In the event that such deficiencies or flaws
occur, the Group may have to initiate product recalls or repairs,
engage in system recovery work, pay damages to customers or
suffer opportunity losses, all of which would negatively impact
Group sales and profitability.
2) Project Management
Due to such factors as the increasing scale of systems and more
rigorous demands from customers, as well as the advance of open
system environments, system development work is becoming
increasingly complex. At the same time, greater competition is
leading to increasingly intense pricing pressures. In the fiscal year
ended March 2004, the emergence of certain loss-generating
projects prompted the Group to implement extensive risk man-
agement measures, including standardized guidelines for projects
of a set scale and above, the introduction of the percentage-of-
completion method, and other measures to help prevent the
occurrence and enhance the early identification of such projects.
In the fiscal year ended March 2005, we strengthened these efforts
by establishing a new organization to screen projects at the con-
tract negotiation phase and curtail the occurrence of projects with
deteriorating profitability. Additionally, in April 2005 we estab-
lished the Systems Integration Assurance Unit, a body with
enhanced powers that reports directly to the president. In this
way, along with revising our approach to making contracts with
customers, and advancing the standardization of sales and system
engineering business processes, we are working to manage risk
from the business negotiation stage through actual project imple-
mentation and thereby prevent new incidences of loss-generating
projects. Along with these measures, the Group continues to
maintain reserves for losses as necessary. Nevertheless, in spite
of these measures, there is a possibility that we may be unable to
completely prevent the occurrence of loss-generating projects.
3) Investment Decisions
In the IT industry, large investments in R&D, capital expendi-
ture, and business acquisitions are necessary to maintain com-
petitiveness. Accordingly, the success or failure of investment
choices has a profound effect on the business results of the Fujitsu
Group. When making such investment decisions, we give ample
consideration to a range of factors such as market trends, cus-
tomer needs, the superiority of Group technologies, the finan-
cial performance of acquisition candidates, and our business
portfolio. There is, however, the risk that promising markets and
technologies, as well as acquisition candidates deemed attractive
by the Group, may fail to grow as anticipated, or that supply and
demand imbalances or price erosion may be more severe than
expected. Investment in semiconductor facilities and equipment
represents one such area with a high degree of risk. In addition
to substantial funding requirements, this field is characterized in
particular by short product cycles, major changes in the market
landscape and stiff competition from other companies. The
Group takes a number of steps to mitigate this risk, including
responding to these inherent fluctuations by dividing investment
into multiple phases and forging agreements with customers prior
to investment. Nonetheless, there is no guarantee that the Group
can generate sufficient returns on such investments.
46 Fujitsu Limited