Fujitsu 2010 Annual Report Download - page 87

competition is leading to increasingly intense pricing pressures. To
deal with this situation and prevent incidences of delayed delivery
and loss-generating projects, we have been revising our approach
to making contracts with customers, advancing the standardiza-
tion 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 necessary. In addition, we are striv-
ing 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 incidences of delayed delivery and the occur-
rence of loss-generating projects.
3) Investment Decisions and Business Restructuring
In the ICT industry, large investments in R&D, capital expenditure,
business acquisitions, and business restructuring are necessary to
maintain competitiveness. Accordingly, the success or failure of
these initiatives has a profound effect on the business results of the
Fujitsu Group. When making such investment and restructuring
decisions, we give ample consideration to a range of factors such
as market trends, customer needs, the superiority of the Group’s
own technologies, the financial performance of acquisition candi-
dates 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 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 capital requirements, this field is character-
ized 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.
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 manu-
facture 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 proce-
dures 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, services
pertaining to antimonopoly policies, intellectual property rights,
consumers, the environment and recycling, labor conditions, sub-
contracting, and taxation. Earnings might be affected by increased
compliance costs associated with measures to make stricter or
otherwise revise such policies, laws and regulations. We also pro-
vide solutions in certain fields and business domains such as
healthcare, communications, and construction that are subject to
other public regulations, meaning that regulatory trends in these
sectors 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
The Fujitsu Group builds and supports the infrastructure behind the
modern network society, which has become increasingly global and
sophisticated. In accordance with our corporate philosophy the
Fujitsu Way, quality is one of our most important values, and it
underpins the trust that customers and society place in us.
We are committed to improving quality at the design and
development stages as well as in manufacturing. We are also pro-
moting strict quality control when purchasing components from
external suppliers. These efforts notwithstanding, it is impossible to
totally eliminate the possibility of deficiencies or flaws occurring in
products, including 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 in the technology solu-
tions business, the possibility of defects arising cannot be excluded.
With respect to systems that play a critical role in supporting social
infrastructure, following the incidents involving system problems at
the Tokyo Stock Exchange in November 2005, we have been check-
ing for any potential problems in these systems, including the
operating environment, software and hardware, in cooperation
with our customers. In addition, we have continuously made
improvements to the quality, contracts, and related rules in order
to ensure the stable operation of social infrastructure systems. We
cannot, however, entirely eliminate the possibility of deficiencies or
flaws. In the event that such deficiencies or flaws occur in the
products or services, the Group may have to initiate product recalls
or repairs, engage in system recovery work, pay damages to cus-
tomers 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 and sophistication 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
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FUJITSU LIMITED Annual Report 2010
Business and Other Risks