7/30/2002 - Fujitsu Limited today reported consolidated net sales of 982.9 billion yen for the first quarter of fiscal year 2002 (April 1 - June 30, 2002), a 10% decrease from the first quarter of fiscal 2001. Converted into US dollars(1), this represents approximately $8.1 billion.
Fujitsu faced a difficult business environment during the quarter. Although the impact of the bursting of the IT bubble in the United States spread throughout the globe, continuing to depress markets, there were signs of recovery in the U.S., Asia and Japan, and there was an overall sense of bottoming out. However, with the worsening deterioration of the U.S. telecommunications sector, together with disruptions from the sharp fall in stock prices and the weakening value of the dollar precipitated by accounting scandals and other issues in the U.S., future prospects have become extremely difficult to predict.
Amidst this economic environment, during the quarter there was firm demand in Japan for software and services, and the supply/demand balance for logic ICs and other semiconductor devices improved, especially overseas. However, telecommunications carriers - especially in North America - further tightened restraints on investment, and recovery in corporate and individual demand for personal computers and other IT-related products was uneven. These and other factors adversely impacted Fujitsu's business.
Fujitsu reported a first quarter consolidated operating loss of 29.0 billion yen (US$242 million), an improvement of 13.3 billion yen over the operating loss recorded during the corresponding quarter of the previous fiscal year. Due in part to costs associated with continuing restructuring efforts, the company posted a net loss for the period of 56.4 billion yen (US$470 million), compared with a net loss of 55.4 billion during the corresponding period last year.
In order to cope with dramatic changes in the IT sector and create a structure better able to meet market and customer needs, Fujitsu has since last year aggressively pursued a large-scale corporate restructuring program. Now, the recent turmoil in the U.S. economy and other factors presage even more drastic changes to the business environment in which the Fujitsu Group operates. Recognizing the need to further increase operational efficiency, Fujitsu will not waver in its commitment to structural reform.
Results in Principal Business Segments
Services & Software
Spurred by increased utilization of IT by public sector organizations and corporations in Japan, Fujitsu enjoyed increased domestic sales of various types of solutions centering on supply chain management, ERP and middleware, as well as higher sales of outsourcing services. Overseas, on the other hand, reductions in IT investment by U.S. and European telecommunications carriers and other corporations negatively impacted results. Overall, first quarter consolidated sales for the segment amounted to 380.9 billion yen (US$3,175 million), up 2% from the corresponding period last year. Increased operational efficiency and other measures contributed to an operating profit of 866 million yen (US$7 million), compared with a loss of 1.2 billion yen in the comparable period last year.
In the Japanese market, sales of UNIX servers and mobile phones increased, but there were fewer orders for large-scale systems and sales of large-scale enterprise servers and storage systems declined. In addition, sales of IMT-2000 (3G) mobile communications systems decreased, stemming from lower capital investment by telecommunications carriers. As a result, domestic platforms business sales for the quarter fell considerably below the level of the corresponding period last year. Overseas, the continuation of severe limits on investment by U.S. and other telecommunications carriers led to a large decline in sales of optical transmission systems. The company's withdrawal from the small form factor hard disk drive market for desktop personal computers also affected overseas sales. Total consolidated sales in the platforms segment for the quarter were 379.0 billion yen (US$3,159 million), down 20% from the equivalent period last year. Thanks to major restructuring efforts undertaken last year, which included revamping its manufacturing structure and exiting certain businesses, Fujitsu was able to limit losses in this segment to 12.9 billion yen (US$108 million), significantly less than the loss of 23.8 billion yen in the equivalent period last year.
There was significant improvement in sales on a volume basis, owing to inventory adjustments of semiconductor components used primarily in mobile telephones, as well as major gains in sales of logic ICs compared to the preceding quarter. However, delayed recovery in the supply/demand balance for flash memory also slowed a revival in prices, and sales suffered. Moreover, continued restraints on investment in optical transmission systems delayed a rebound in demand for compound semiconductors and other products, leading to a deep drop in sales of these components. On the other hand, Fujitsu began to see considerable demand for its high-quality plasma display panels (PDPs). Overall, consolidated sales in the Electronic Devices segment totaled 141.9 billion yen (US$1,183 million), down 11% from the corresponding period last year. Notwithstanding efforts to cut costs through restructuring, declines in flash memory and compound semiconductor sales contributed to an operating loss of 7.4 billion yen (US$62 million) in this area, compared with a loss of 1.9 billion yen in the same period last year.
Despite progress in collecting receivables, outlays for corporate restructuring costs and other payables resulted in negative cash flows from operating activities of 94.3 billion yen (US$786 million) during the first quarter, an improvement over the 140.7 billion yen negative cash flow recorded in the corresponding period last year. By more tightly focusing capital investment on growth areas and other measures, cash flows for investing activities were reduced by 43% to 53.3 billion yen (US$445 million). As a result, free cash flow during the quarter was minus 147.7 billion yen (US$1,231 million), an improvement of 86.1 billion yen over the minus 233.8 billion yen during the equivalent period of the previous year. In regard to cash flows from financing activities, the issuance in May of 250 billion yen in convertible bonds with stock acquisition rights and other measures yielded net cash of 192.1 billion yen (US$1,601 million), an increase of 24% over the equivalent period last year.
Revised Projections for Fiscal Year 2002(3)
Since the projections made in April - and amidst indications that the semiconductor inventory correction cycle has run its course - signs have begun to appear that the market has reached bottom. However, along with the outbreak of corporate accounting scandals in the U.S. and the heightened impact of the collapse of the IT bubble being felt by telecommunications and other industries, there has been a precipitous decline in stock prices and the value of the dollar, as well as a deterioration in American companies' willingness to invest. As a result, uncertainties regarding the future course of the global economy have increased. Moreover, with global telecommunications carriers unable to avoid further structural changes, it is expected that there will be even greater pressure to restrain IT-related investment.
Accordingly, although Fujitsu anticipates growth in sales of electronic devices, particularly logic ICs, it now foresees lower than expected sales for platform products, particularly optical transmission and mobile systems, as well as for services and software, especially overseas. In regard to profits, despite the projected decline in total consolidated sales, thanks to improvements in operational efficiency, cost reductions and other measures, Fujitsu expects that operating and net income will be consistent with the projections it made in April.
1: All yen figures have been converted to U.S. dollars for convenience only at a uniform rate of US$1 = 120 yen, the closing exchange rate on June 30, 2002.
2: Platforms business segment includes operations formerly categorized under Information Processing and Telecommunications. Comparison figures for first quarter FY2001 have been restated accordingly.
3: Due to uncertainties relating to changes in demand for products and components in key markets (Japan, U.S., Europe, etc.), currency exchange rate fluctuations, Japan and U.S. stock market conditions, and other factors, actual results may vary substantially from projections above. See also Cautionary Statement on earnings statements posted on Fujitsu web site http://pr.fujitsu.com/en/ir/
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