Fujitsu 2007 Annual Report Download - page 52

Management’s Discussion and Analysis of Operations
The following section, Management’s Discussion and Analysis of
Operations, provides an overview of the consolidated financial state-
ments of Fujitsu Limited (the “Company”) and its consolidated subsid-
iaries (together, the “Group”) for the year ended March 31, 2007 (fiscal
2006). Forward-looking statements in this section are based on
management’s understanding and best judgment as of March 31, 2007.
1. Analysis of Results
Business Environment
During fiscal 2006, while soaring crude oil prices and higher prices for
raw materials starting from the first half of the fiscal year were cause for
concern, the overall business environment in which the Fujitsu Group
operates was positive, supported by a global rise in stock prices and stable
foreign exchange rates. In addition, while there were signs of a slight
deceleration in growth in the second half of the fiscal year, global eco-
nomic growth was mostly solid, boosted by strong growth in Asia, par-
ticularly China and India. Although overall economic growth in Japan
was restrained by weak household spending and other factors, the cor-
porate sector continued to exhibit steady growth.
With respect to investment in information technology, spending in
overseas markets continued to be strong, particularly in the US and
EMEA (Europe, Middle East and Africa). Although IT investment in
Japan was not as strong as in overseas markets, there was upward
momentum as a result of strategic investments spurred by improvement
in corporate earnings and increased demand driven by companies seek-
ing to upgrade IT systems for enhancing internal control, security and
business continuity. Both in Japan and overseas, our IT services busi-
ness was strong, but in our product-related businesses we faced a grow-
ing shift to lower price points resulting from performance improvements
for products like servers and storage systems, as well as price declines in
our electronic devices business due to intensified competition in digital
consumer electronic products.
In order to enhance our competitive position in an expanding IT
market driven by IT services, we will work on a global basis to
strengthen our relationships with customers and expand our services
covering the entire life cycle of IT operations. In addition, in order to
strengthen product businesses that add value to our IT service offer-
ings, we will strive to enhance product competitiveness by stepping up
collaboration between sales and product development units and elimi-
nating excess product variations. As a reliable partner to our custom-
ers and a global corporation that is contributing to the creation of a
prosperous and dynamic networked society, we will seek to continu-
ally improve our operations in order to deepen the trust we enjoy from
customers and society as a whole.
Net Sales
Consolidated net sales for fiscal 2006 were ¥5,100.1 billion (US$43,222
million), an increase of 6.4% over the previous fiscal year. All business
segments posted higher sales. Overseas sales increased by 14.7% over the
previous year. Although second-half sales of standard technology logic
devices in Asia were sluggish, higher sales of IT services in North
America and the UK, boosted by aggressive acquisitions, as well as
HDDs and UNIX servers, led to the double-digit increase in overseas
sales. Sales in Japan increased by 2.3% over the previous year, the first
year-on-year increase in domestic sales since fiscal 2003. Although sales
of mobile phone base stations declined from the previous year, when there
was strong demand, sales in our services business were strong, particu-
larly in the financial services and manufacturing sectors, and sales of elec-
tronic components also increased.
2003
■ Net Sales
4,617.5
(¥ Billions)
2004 4,766.8
2005 4,762.7
2006 4,791.4
2007 5,100.1
(Years ended March 31)
Cost of Sales, Selling, General & Administrative
Expenses, and Operating Income
In fiscal 2006, the cost of sales was ¥3,781.6 billion (US$32,048 mil-
lion), while selling, general and administrative (SG&A) expenses were
¥1,136.4 billion (US$9,631 million). Consolidated operating income
increased ¥0.6 billion year on year to ¥182.0 billion (US$1,543 million).
Due to higher sales in services and other businesses, gross profit grew
¥50.5 billion compared to a year earlier. However, the gross profit
margin deteriorated by 0.6 of a percentage point to 25.9% as intensifying
global price competition impacted HDD, UNIX server, optical trans-
mission system, PC and other product businesses. Meanwhile, SG&A
expenses increased by ¥49.9 billion. This reflected major expansion in
our services business, including acquisitions in North America and the
50 Fujitsu Limited