Fujitsu 2009 Annual Report Download - page 74

takes to implement mass-production chip technologies for semi-
conductors, 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 business
with a range of different companies, including suppliers and alliance
partners. Accordingly, any significant changes in relationships with
these and other business partners could affect the Group’s business.
1) Procurement
The Fujitsu Group utilizes sophisticated technologies to provide a
range of products and services. There is therefore a risk that we may
encounter difficulties in procuring a stable supply of certain key
components or raw materials, or in cases where regular supply
channels are unavailable, that we may be unable to secure alterna-
tive procurement sources. There is also the risk that the Group may
be unable to sufficiently procure certain parts or raw materials 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 or raw
materials. These and other events could cause delays in the provi-
sion of products and services, resulting in postponement of deliver-
ies to customers and opportunity losses, among other problems. In
respect to component procurement, foreign exchange rate fluctua-
tions, tight supply and demand conditions, and other pressures
could drive procurement costs higher than initial estimates, leading
to diminished 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 continue for
the foreseeable future. If, however, as a result of managerial, finan-
cial, or other causes, it becomes difficult to establish or maintain
such collaborative ties or to gain sufficient results from them, the
Group’s business could be adversely affected. Moreover, many of our
products and services employ other companies’ patents, technolo-
gies, software, and trademarks with the consent of their owners.
However, 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.
2) Ability to Maintain Lasting Ties with Customers
The Fujitsu Group is committed to bolstering ties with customers,
striving to serve as a business partner and provide solutions across
the full IT system lifecycle. For semiconductors and other operations
where the Group provides components and other products, busi-
ness 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 contract 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 busi-
ness results. Examples of such potential risks are listed below.
1) Price Competition
Intensifying competition is directly linked to declining prices for prod-
ucts 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 development 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, competi-
tion 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 com-
petitive 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 turnover in new products and technolo-
gies. 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 competitive technologies, a loss
in competitiveness versus other companies 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 products and services. Additionally, there is also the risk of
an adverse effect on sales and profitability as a result of the time it
Business and Other Risks
072 ANNUAL REPORT 2009
FUJITSU LIMITED