Annex Newsflash 2005-24                                July 27, 2005



Analysis of Fujitsu's First Quarter Business Results 

Loss Reversed, Forecast Upgraded

First Half Loss to Narrow Due to Overseas Business Growth; First Quarter Profit Reverses Loss from Year Ago

NEW YORK, July 27 - Japan's largest computer company issued today an upgrade to its earnings forecast for the first half of its current 2005 fiscal year, saying it expected the loss to narrow from 30 billion Yen to 15 billion Yen.  The stock market welcomed the news by pushing Fujitsu shares up 7 yen to 605 Yen.

One day later (July 28 in Tokyo, July 27 in North America), Fujitsu released its first quarter FY05 results, buoying the market into an even great jump (up 25 yen).  Both revenues and profits increased in the first quarter, the latter reversing the loss from the same period a year ago.  

The two back-to-back Fujitsu announcements helped reverse a declining stock market trend for the stock that peaked in mid-April, following the release of Fujitsu's year-end results (see "Revenues Flat, Lower Net," Apr 2005).  Investors are beginning to realize the company seems to be back on track and may be poised for another growth year.

"Posting operating and net profits in the first quarter - traditionally a weak quarter for us - is a significant milestone, and I'm especially pleased to see our solutions/systems integration business back on track," said Fujitsu Limited president Hiroaki Kurokawa in a statement. 

There profitability of the company's solutions/systems integration business, traditionally a pillar of its earnings but plagued by projects with deteriorating profitability in recent years, was especially heartening.  But other Fujitsu units also performed well in the quarter.

"Almost all of our business units met or exceeded targets for the quarter, and we now need to continue this momentum to deliver strong performance this fiscal year," Kurokawa added.

Fujitsu's consolidated revenues of 1,026.3 billion yen (approximately $9.2 billion) for the first quarter of fiscal 2006 (Apr 1, 2005 - June 30, 2005) represented an increase of 1.8% over the first quarter a year ago.  The company said strong sales of 3G mobile phone base stations and mobile phones in Japan, optical transmission systems and hard disk drives in North America helped to offset lower sales of LSI devices for consumer electronics products.

Consolidated operating income rebounded to 14.8 billion yen ($133
million), an increase of 19.1 billion yen over the first-quarter loss last year.  It was the first time Fujitsu has reported a first quarter operating profit since the company began reporting quarterly earnings in fiscal 2000. 

The company posted first quarter net income of 2.4 billion yen ($23 million), an improvement of 14.3 billion yen over the net loss recorded in the first quarter a year ago.  A gain on the settlement of HDD-related litigation contributed to this result.

Business Segment Results

Net sales in the Technology Solutions segment rose 9.9% over the
same period in fiscal 2004 to 613.4 billion yen ($5,5 billion). Excluding the impact of the change in accounting policies, the increase was 2.1%. 

In the System Platforms segment, higher overseas sales of UNIX servers and optical transmission systems, along with growth in 3G mobile base station sales in Japan, led to an 8.9% improvement.  Meanwhile, the Services revenues increased by 10.2%.  

Overall, the segment recorded operating income for the quarter of 7.3 billion yen (US$66 million), a major increase of 24.2 billion yen over the money-losing quarter last year. This included increases of 3.6 billion yen in System Platforms and 20.5 billion yen in Services. 

Business Outlook

As a result, Fujitsu revised upward its forecast for the first half of fiscal 2005 (the period from Apr 1 to Sep 30, 2005).  The company now forecasts a narrowing of its projected first-half net loss by 15.0 billion yen ($134 million).  A projected improvement in operating income, favorable foreign currency transaction gains from the weaker yen, a projected increase in dividends from subsidiaries, and the gain on settlement of litigation relating to hard disk drives, were cited as reasons.

But the recovery in IT spending in Japan has been patchy at best, the company also said, and such investment has yet to regain its former strength.  As a result, Fujitsu is leaving its initial full-year earnings forecast unchanged.  This means a revenue increase of 1.8% to 4,850 billion yen ($43 billion at current rates), and a corresponding net profit surge of 57% (in yen) to 50 billion yen ($446 million at current rates).

Annex Clients: Click here for detailed Fujitsu FY06 forecast

Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2005 IT: Fujitsu: Losses Reversed; Forecast Upgraded (July 2005); IBM: Polaris Eclipses T-Rex (July 2005);   IBM Bounces Back (July 2005); Accenture: Smashing Records (July 2005); Merrill's New Bull (EDS) (May 2005);  IBM Trumps Trump (May 2005);  Tweaking Big Blue (May 2005); Hurd's First RBI (May 2005); Dell Rings the Bell (May 2005); Stock Buybacks: The Phantom Is Back (May 2005); EDS Misfiring on All Cylinders (May 2005);  HP Surges, Dell Slumps; Lenovo Completes IBM Deal (May 2005);  Fujitsu Revenues Flat, Lower Net (Apr 2005); Capgemini Jettisons Healthcare in N.A. (Apr 2005); HP: From India to Poland (Apr 2005); IBM: Slammed and Dunked (Apr 2005); Hurd Advice: Up Mount Market Cap (Apr 2005); Accenture: Roaring Ahead (Apr 2005);  Fujitsu Unveils New Servers (Mar 2005);  EDS Executive Suite; HP's New CEO (Mar 2005);  An iSeries Revival (Mar 2005); EDS Booster Club Fees Rise (Mar 2005);  An Upside-Down View (Mar 2005);   The Worst of Both Worlds (Mar 2005);  Octathlon 2005: Accenture Wins (Mar 2005);  IBM Global Services: Smaller, Shorter - Better? (Mar 2005);  IBM 5-yr Forecast: Quality over Quantity (Mar 2005); Rumor Lifts EDS', Fujitsu's Shares (Mar 2005); Capgemini: Turning the Corner (Feb 2005);  IBM Servers to Grow Again (Feb 2005);  Carly's Fickle Fans (Feb 2005);  CSC: Gearing Down on Purpose (Feb 2005);  EDS: Grossly Overpriced Stock (Feb 2005);  IBM Historical Update: 2004 Shot in the Arm (Feb 2005); New HeadTurners Series #1 (Feb 2005); IBM: A Crescendo Finale! (Jan 2005); Accenture: Strong Finish, Better Start (Jan 2005); Annex Coverage 2004: IT Services Dominate (Jan 2005)

2004 IT: EDS: The Titanium Stock (and other Wall Street tales) (Dec 2004); IBM PC: Good Riddance (Dec 2004); Fujitsu: Recovery Continues (Nov 2004);  IBM Server Renaissance (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)

Or just click on and use "financial engineering" or similar  keywords.

Volume XXI, Annex Newsflash 2005-24
July 27, 2005

Bob Djurdjevic, Editor
(c) Copyright 2005 by Annex Research, Inc. All rights reserved.

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