Fujitsu 2008 Annual Report Download - page 77

software and hardware, in cooperation with our customers. 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. To deal with this situation and prevent incidences of loss-generating projects, the Systems
Integration Assurance Unit, which reports directly to the president, has taken the lead in revising our approach to making contracts
with customers, advancing the standardization of sales and system engineering business processes, and working to manage risk from
the business negotiation stage through actual project implementation. The Group continues to maintain reserves for losses as neces-
sary. In addition, we are striving to industrialize the system development process in order to strengthen our cost competitiveness.
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 expenditure, and business acquisitions are necessary to maintain competitiveness.
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, customer needs, the
superiority of Group technologies, the financial performance of acquisition candidates and our business portfolio. There is, however,
the risk that markets and technologies, as well as acquisition candidates deemed attractive by the Group, may fail to grow as antici-
pated, or that supply and demand imbalances or price erosion may be more severe than expected. Investment in semiconductor facili-
ties 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 compa-
nies. The Group takes a number of steps to mitigate this risk, including responding to these inherent fluctuations by dividing invest-
ment 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.
4) Intellectual Property Rights
The Fujitsu Group has accumulated technologies and expertise that help distinguish its products from those of other companies.
Legal restrictions in certain regions, however, may impair our ability to fully protect some of the Group’s proprietary technologies,
with the result that we could be unable to effectively prevent the manufacture and sale of similar products developed by third parties
using the Group’s own intellectual property. Moreover, the creation of comparable or superior technologies by other companies
could erode the value of the Group’s intellectual property. The Group has instituted internal policies, including stringent clearance
procedures prior to launching new products and services, to ensure that no infringement of other companies’ intellectual property
occurs. However, there is the possibility that the Group’s products or technologies may be found to infringe on other companies’
intellectual property, and that earnings may be impacted by such consequences as the need to pay for usage rights or cover costs
associated with having to modify designs. In addition, the Group has previously instituted a program to compensate employees for
innovations that they make in the course of their work, and will continue to implement this program in the future in accordance with
the revision of Japan’s patent laws. Nevertheless, the Group faces potential risk from lawsuits initiated by employees in regard to
compensation for innovation created in the workplace.
5) Human Resources
The growth and profitability of the Fujitsu Group depends heavily on human resources. As such, a major issue for the Group is the
ability to recruit and foster talented technical experts, system engineers, managers and other key personnel; the inability to do so could
negatively impact the Group’s growth and profitability.
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ANNUAL REPORT 2008FUJITSU LIMITED
BUSINESS AND OTHER RISKS