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  A Top Japanese Computer Vendor Waking Up to Global Realities

Amdahl Boosts Fujitsu

Sluggishness of Japanese Market Drags Down FY98 Results

PHOENIX - Fujitsu's FY98 profits weren't quite as bad as Hitachi's. But they weren't much better, either. Hitachi cleared a $25 million net on revenues of $60 billion. Fujitsu earned a net profit of $39 million on revenues of $35 billion.

Whoopee do! So Fujitsu wins the Japanese computer "war of the decimals." Its FY98 net margin was 0.11% versus Hitachi's 0.04%.

Either way, it was much ado about nothing - from a Wall Street perspective. Not so, however, from the Japanese economy's viewpoint. Throughout the troubling 1990s decade, Hitachi has maintained its employment at about 331,000 workers.

Fujitsu even went one better. In its latest fiscal year, despite its lackluster profit margins, this Japanese computer company added some 14,000 people to its payroll, reaching its record employment level of 180,000. Of course, some 11,000 of those additional employees came from Amdahl, a subsidiary in which this Fujitsu had held a minority 42% share prior to its takeover last summer (see "Fujitsu to Snag Amdahl," Annex Bulletin 97-32, 7/31/97).

Nevertheless, this trend is indicative of the socio-economic differences between Japan and the U.S. While American executives tend to burn, slash and downsize their work forces with every swing of the marketplace, to the applause of Wall Street, the Japanese business leaders prefer to hold on to the rudder longer - through the thick and thin - shielding their employees from the vagaries of world markets.

Amdahl Boosts Fujitsu

Fujitsu's 1997 acquisition of Amdahl, engineered by Amdahl's former chairman, Jack Lewis, an American, seems to be one of the smartest investments this Japanese company has ever made. For, were it not for the $2.2 billion-revenue contribution from its biggest non-Japanese subsidiary, Fujitsu's FY98 revenues would have been only $32.6 billion, down 12% from $37.1 billion in FY97. As it were, they were up 11% in yen, while down 6% in U.S. dollars, even with Amdahl's boost.

Of course, the weakness of the Japanese yen helped accentuate Amdahl's importance to Fujitsu, as it did help depress the Japanese vendor's domestic business results in its latest fiscal year.

This trend is very evident in Fujitsu's FY98 geographic segment revenues. Japanese domestic revenues, while nominally up a meager 2% in yen, slumped almost 14% in U.S. dollars.

Conversely, the "Americas" business revenues, including Amdahl's U.S. estimated $1.1 billion share, soared by 23% in FY98 - making it Fujitsu's fastest growing global business segment.

Weak Japanese Market

PCs. But the weakness of the Japanese market stretched beyond the yen. The sales of PCs in Japan, for example, slumped 5% in 1997. Which means that Fujitsu actually gained market share in the domestic market by merely holding its own. Its Japanese PC shipments remained unchanged at two million units.

But Fujitsu's total PC shipments surged by 14% to 3.2 million units. Which means that the overseas shipments soared by 50% in 1997.

The company estimates that about 60% of its PCs are being sold to enterprises, with the remainder being bought by consumers.

A $7.7 billion business in FY98, Fujitsu's PCs and peripherals account for about a third of the company's $23 billion computer systems segment, which represents about two-thirds of Fujitsu's worldwide revenues.

Mainframes. The mainframes, or "large scale servers," as Fujitsu now calls them, still account for about a quarter of the company's IT business. Large servers are also a market in which Fujitsu still ranks as No. 1 in Japan with a 40% market share. On the global basis, Fujitsu's FY98 server revenues were about $5.8 billion, a quarter of its total computer systems business.

Amdahl's Millennium 700 Series servers, which this Fujitsu subsidiary is starting to ship in overseas markets, use the same basic CMOS technology as Fujitsu's GS8800 Global Servers which started shipping in 1997. Fujitsu is also supplying the same CMOS technology to ICL, its British subsidiary, as well as to Siemens Nixdorf, a German computer vendor.

Services and Software. Perhaps the greatest strategic transformation in Fujitsu's business has been in its services and software segment. And once again it was Amdahl that was the "linchpin acquisition for Fujitsu's own remaking into a services and software company in the 21st century," as we put it in the Annex Bulletin 97-46, 12/16/97 (also see Annex Bulletins 93-39, 7/20/93 and 90-13, 3/30/90). In December 1997, Amdahl's president, Dave Wright, predicted that this Fujitsu subsidiary would double its revenues over the next three years (to $3.4 billion see Annex Bulletin 97-46, 12/16/97).

"Amdahl purchase is the springboard for expanding Fujitsu's global solutions business," echoed the company's 1998 Annual Report. "As a comprehensive solutions provider... we are determined to consolidate our leadership position in the global IT industry," said Naoyuki Akikusa, Fujitsu's recently appointed president.

In FY98, for example, Fujitsu's services and software revenues grew by 18% to almost $10 billion ($9.8 billion), a 42% of the company's total IT revenues. This business segment now employs some 52,000 people, or 29% of the total Fujitsu employment. Which means that the services and software units' sales productivity is greater than that of the company's other (hardware) businesses.

Telecommunications. Fujitsu's telecommunications business was another area which reflected the weakness of the Japanese market. This $6.1 billion segment suffered an 8% drop in domestic sales in Japan. And although the FY98 worldwide sales increased by 2% in yen, the dollar-denominated volume declined by 14%.

On the positive side, Fujitsu continues to be the world's No. 1 provider of SONET transmission technology to RBOCs (Regional Bell Operating Companies). In 1996, it held a 34% share of the U.S. RBOC market, ahead of Lucent (29%), Nortel (17%) and Alcatel (13%).

Semiconductors. Despite a 17% increase in (yen) sales, this $4.2 billion Fujitsu unit lost money in FY98, as it did in FY97. Its results attest as to how difficult it is to make money in a hotly contested, commoditized market with one dominant competitor (Intel), which is what the semiconductor industry has become.

Income Taxes

Finally, Fujitsu's income taxes underscore another important difference between American and Japanese multinationals. Despite this company's profit woes in FY98, its income tax rate rose from (an atrocious, by American standards!) 67% rate in FY97, to (a worse) 104% in FY98.

In other words, the Japanese government claimed $758 million in taxes last year even though Fujitsu only made $733 million in pretax profits. And you think we have it bad with Clinton and the IRS?

Happy bargain hunting!

Other Top Fujitsu Leaders


Tadashi Sekizawa  Michio Naruto

Chairman          Vice Chairman


Also, check out our reports on Hitachi and Fujitsu FY97.

For more information, please call us at: 602/824-8111

Volume XIV, No. 98-32
August 21, 1998

Editor: Bob Djurdjevic
Published by Annex Research;

5110 North 40th Street,      Phoenix, Arizona 85018
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