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Analysis of Fujitsu’s First Half Fiscal 2005 Business Results

Recovery Continues

Solid Hardware Growth Led by Electronics; Japan Drags Down Services

PHOENIX, Nov 29 – Fujitsu’s first half fiscal 2005 results signaled a continuation of the recovery that had led to the company’s return to black last year after two years of bleeding red ink (see Fujitsu: Back in the Black, But..., Aug 2004).  The top Japanese computer vendor reversed an operating loss of $170 million from the first half of last year, turning it into an operating profit of $323 million on revenues of $21.6 billion, up 6.7% (in U.S. dollars; up 3.6% in yen).

The reversal was due to a 90% surge in its second quarter operating profit relative to the same period a year ago.  All three major Fujitsu operating units posted surpluses for both the second quarter and for the first half of the current fiscal year (ending March 31).


Business Segment Analysis

Services & Software.  This unit’s profitability suffered a 1.5-point margin decline, ending the first half of fiscal 2005 with a 1.7% operating margin on an anemic 1.2% increase in revenues (up only 0.8% in yen).  Nevertheless, at $20 billion on an annualized basis, Services and Software continues to be Fujitsu’s largest business unit, accounting for 42% of total business.  And that now makes it Fujitsu’s biggest challenge, especially in the domestic (Japanese) market. 


Platforms.  Both Fujitsu major hardware units – Platforms and Electronic Devices - exceeded the company’s initial targets for fiscal 2005.  But “due to anticipated deterioration in the market conditions for semiconductors, displays and mobile phones in the second half,” Fujitsu expects the full-year 2005 results “to be roughly in line” with its earlier projections. 

In other words, the company expects to do worse than expected in the second half.  Such pessimism seems strange especially coming at a time when Fujitsu’s biggest rival and an unwitting role model – IBM – is burning the track again with its servers’ performance (see “Server Renaissance,” Nov 2004).  Is Fujitsu trying to lower the bar so it could clear it more easily come March 31? (the end of its current fiscal year).


Electronic Devices.  The Electronic Devices unit was the “hero” of Fujitsu’s first half.  Its revenues surged by 34% in Japan, and by 19% overseas, for a combined growth rate of 27%.  Within that, the semiconductor sales jumped by 21%, while other component business revenues increased by 14%.



Speaking of overseas growth, that’s what Fujitsu needs more than anything in order to become a truly global leader.  That’s especially true in the IT services sector, where its sheer size and the No. 2 ranking already imply leadership.  And there is a way of even doing it in one fell swoop.  But it would take boldness and courage.  


Do Fujitsu’s current leaders have it?  We don’t know.  Time will tell, as we said.  But we are pretty sure that Taiyu Kobayashi would not hesitate to make a bold move.

Who is Taiyu Kobayashi?  He is the legendary Fujitsu leader from the early 1980s who wrote a book on courage.  Literally.  The book’s title was, “Fortune Favors the Brave.”  Maybe Messrs. Akikusa and Kurokawa will take a page out of his book?  Also, literally. 


"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 (8 pages in print edition), along with all charts which back up our story.

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For additional Annex Research reports, check out... 

2004 IT: IBM Server Renaissance (Nov 2004); HP Hits Home Run (Nov 2004);  HP Hits Home Run (Nov 2004);  Capgemini: Revenue, Stock Soars (Nov 2004); EDS: Jordan's Swan Song? (Nov 2004);  To Russia with Love and $ (Oct 2004); IBM: Slow Quarter No Longer (Oct 2004); Accenture: Revenues, Profits Up, Stock Down (Oct 2004); Capgemini: A Takeover Target? (Oct 2004); Sellout of America (Oct 2004); Spy Wars (Sep 2004); Outsourcing Boomerang (Sep 2004); EDS to Cut Up to 20,000 More Jobs (Sep 2004); Capgemini Stock Plummets on Unexpected Loss (Sep 2004); HP Savaged by Wall Street (Aug 2004); Moody's Lowers the Boon on EDS (July 2004); HP: Delivering Value Horizontally (June 2004); Accenture: Revving Up a Notch (June 2004); Beware Your CFO! (May 2004)IBM: Changing of the Guard (May 2004); Capgemini: Texas-size Home Run (May 2004); Following the Money (May 2004);  EDS: On a Wink and a Prayer (Apr 2004); HPS Wins by a Nose! (Octathlon 2004); Accenture: Burning the Track (Mar 2004);  IGS: "Crown Jewel" Restored? (Mar 2004); HP: Still No Cigar (Feb 2004); Cap Gemini: Another, Smaller Loss (Feb 2004); CSC: Good Quarter Gets Boos (Feb 2004); EDS: "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT Industry: Whither Goeth It? (Jan 2004); Cronyism Is Alive and Well at EDS" (Jan 2004)

2004 HP:  HP Hits Home Run (Nov 2004);; HP Savaged by Wall Street (Aug 2004); "HPS Wins by a Nose!" (Octathlon 2004); "A Passage FROM India" (Feb 2004);  "Still No Cigar" (Feb 2004); "Nokia Dials HP!" (Feb 2004)

2003 HP: "IBM vs. HP: And the Winner Is..." (Nov 2003); "Strong Finish Not Enough" (Nov 2003) "An HP Hat Trick (March 2003);   EXCERPTS - Analysis of Hewlett Packard Services FY02 results (May 2003);  2003 Global IT Services Heptathlon (May 23, 2003)Analysis of “Top 10” IT Leaders’ Market and Business (June 2003)

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Volume XX, Annex Bulletin 2004-26
November 29, 2004

Bob Djurdjevic, Editor
(c) Copyright 2004 by Annex Research, Inc. All rights reserved.
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