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An Excerpt from Our Analysis of Fujitsu’s FY2001 Business Results

From Piety to Pity

Huge Write-offs Cripple Fujitsu’s Earnings

PHOENIX, Aug. 16 - Anybody still remember quality circles, consensus management, lifetime employment, fifth generation computers…?  They were the hallmarks of the daunting “industrial miracle” that the Land of the Rising Sun once represented. 

The feared Japanese takeover of the American business became such an obsession in the early 1980s, that certain U.S. congressmen unabashedly bashed Japanese products on the Capitol steps with hammers, symbolizing the Japan-bashing climate that pervaded the American psyche at the time.

Today, admiration and fear of the former Japanese industry titans has been replaced in America with pity and indifference.  And for a good reason…  Those who ride the crest of one economic wave are the first to crash when the next one comes along.

The Japanese economy contracted slightly in the first quarter as originally announced, and it shrank by 3.2% in the second.  The epithet “recession” was avoided for now only on a technicality (two consecutive contracting quarters are deemed to constitute a recession).  The first quarter GDP has just been revised upward to slight growth. 

But that did not deter the Japanese economy, trade and industry minister, Takeo Hiranuma, from being uncharacteristically frank about how bad things really are.  “The economy’s footing has become very week,” he said, according to a Sep. 8 New York Times story.  “Whether the economy will attain zero growth this fiscal year is doubtful.”

“Zero growth” is an oxymoron, of course, just like the “negative growth” was in the old IBM Speak (see “Big Blue Now Also Singing the Blues,” Annex Bulletin 85-34, June 18, 1985).  But that’s splitting hairs at a time of a splitting economic headache.

Richard Katz, an author of books on Japanese economic woes, put it even more bluntly.  “Japan is going into a new recession before it ever recovered from the last recession,” Katz told the Times.  “As soon as it lifts its head from the mat, it plops right down again.”

Fujitsu FY2001

A trip from a vaunting and daunting position, to feelings of piety and pity, also applies to the leader of the Japanese IT industry - Fujitsu.  In fact, it would be fair to say that Fujitsu spent much of the last decade or so spinning its wheels.  With several “red ink” bottom lines in some years, and meager profits in the rest, Japan’s No. 1 computer maker eked out only a 0.4% net margin on revenues of $444 million! (see the chart).

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In order to feel good about such results, Fujitsu shareholders would have to look at the bottom lines of some Japanese banks.  They will certainly find no comfort by comparing themselves to IBM, the company that back in the “Golden Era” of the 1980s, Fujitsu both admired and feared, and then promised to defeat in the marketplace.

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It didn’t happen, of course.  Because Fujitsu had lost its compass - the Big Blue.  As IBM stumbled so did Fujitsu, along with several other Japanese companies used to copying IBM successes instead of creating their own.  In the end, both of these once omnipotent industrial giants resemble two tired dinosaurs at the start of the Third Millennium. 

In fact, one might say that Fujitsu has added to its own problems.  Serving as a part of the country’s social net like many other Japanese establishment corporations, Fujitsu more than doubled its payroll (hiring over 102,000 employees since 1985!), despite its business woes.  And while its revenues and profits stagnated in the last decade, and as IBM cut at one point nearly as many employees as Fujitsu employed at its peak, the Japanese vendor nevertheless increased its workforce by 28% (since 1990).

Even last year, as its net earnings plummeted by 82% compared to the FY00 profits, and coming on the heels of a loss in FY99, the Fujitsu employment remained virtually unchanged at about 188,000 in the last three years (it was 187,400 as of March 31, 2001).

Well, everything has its price, and so does a social net.  Looks like the days of full employment are over in Japan.  The latest unemployment statistics show a jump to 5%, the highest level in nearly half a century (i.e., since right after the end of WW II).  And the actual unemployment would be closer to 11%, experts say, if “a more inclusive” sampling method were used, according to the Times.

Japan’s auto industry alone is expected to shed some 143,000 workers by 2005, a Japanese union group study showed.  Overall, between three and four million jobs “at a minimum” may be lost if the country is to “clean up the bad loan problem,” says Katz.

Add to it that the cost of corporate borrowing is going up in Japan, and you can see why the days of “full employment” may be over even at the erstwhile industry leaders, such as Fujitsu.

In short, it’s a mess worse than that we are facing here in the U.S., or Europe is within its own beleaguered markets.


Our report then goes on analyze Fujitsu's latest and historical results on a segment-by-segment basis.

Here are some of the sub-headings from the rest of this Annex Bulletin...

Business Segment Analysis

 Services & Software...  


Telecom & Technology...  I


 Summary - Big Write-offs


Small Consolation

Finally, we compare Fujitsu's woes with that of the largest Australian bank which has just found a $2 billion-computer error.  But to find out why the similarity with a Japanese computer vendor, you'll have to be an Annex Research client and read the full report.

"That's all she wrote," we're afraid, for those of you who are NOT Annex Research clients, and who are now reading the complete Annex Bulletin, along with many  charts and tables which back up our analysis in the print edition of this particular report.

To find our how you can become one of our clients, and read the rest of this and other Annex Bulletins, click on . Thank you.

Happy bargain hunting!

Bob Djurdjevic














































Volume XVII, No. 2001-17e
August 16, 2001

Editor: Bob Djurdjevic
Published by Annex Research
e-mail: annex@djurdjevic.com

P.O. Box 97100, Phoenix, Arizona 85060-7100
TEL/FAX: (602) 824-8111

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