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Fujitsu Reports FY2002 First-Half Financial Results

Global Economic Uncertainty, Restrained IT Investment Impact Sales;
Operating Income Gains Offset by Further Restructuring Charges

Tokyo, October 29, 2002 -- Fujitsu Limited, a global leader in customer-focused IT and communications solutions, today reported consolidated net sales of 2,150.3 billion yen (US$17, 483 million*) for the first half of fiscal year 2002 (April 1 - September 30, 2002), a decline of nearly 10% from the same period last fiscal year.

Despite signs of a bottoming out in certain sectors in Japan and elsewhere at the beginning of the fiscal year, Fujitsu faced a difficult business environment during the first half, as the global economic slowdown accompanying the collapse of the IT boom in the United States last year continued. Further deterioration in global telecommunications markets, together with turmoil unleashed in the wake of accounting scandals in the U.S., contributed to a precipitous slide in stock prices and worsening economic uncertainty.

Against this economic backdrop, Fujitsu saw steady gains in certain domestic business sectors in Japan during the first half, including software and services to advance the use of IT in the public sector, and mobile handsets and personal computers for consumers. However, there were sharp declines in infrastructure investments by telecommunications carriers, and corporate spending on servers languished, resulting in a major decrease in sales of platform products. In semiconductors, on the other hand, the supply-demand situation for logic chips and other products emerged from the period of severe imbalance. Overall, orders and sales during the first half continued to be problematic.

Since last year, Fujitsu has undertaken major restructuring efforts in order to respond to radical changes in the IT market environment. However, following the bursting of the telecommunications bubble in the U.S., global telecommunications carriers have been unable to halt the slide in their business performance, and the industry has come to face an even harsher period of structural reform. This has impacted the entire IT industry, and, along with further globalization, the need for even more thorough restructuring has become pressing.

In the first half of the fiscal year, Fujitsu's comprehensive efforts to improve cost efficiency enabled the company to offset an even greater drop in sales than previously forecast and improve profitability. In addition, to cope with severe structural changes in the IT market and radically improve its cost structure in the platforms and electronic devices areas, thereby helping to ensure further improvement in profitability in the next fiscal year and beyond, the company undertook further restructuring measures during this period, including significant reductions in workforce, primarily in Japan.

During this period, Fujitsu posted an extraordinary charge to cover costs of corrective measures for certain small form factor hard disk drives due to some procured parts that were found to be defective. The company has implemented measures to ensure greater reliability.

Thanks to the effects of cost reductions from last year's restructuring initiatives, Fujitsu was able to narrow its first-half consolidated operating loss to 23.2 billion yen (US$189 million), compared with a 59.1 billion yen operating loss in the same period last year. However, as a result of extraordinary charges for the additional restructuring initiatives and the aforementioned hard disk drive matter, the company posted a net loss of 147.4 billion yen (US$1,199 million) for the first half, compared to a net loss of 174.7 billion yen in the same period last year.

Regarding cash flows, due to outlays to cover restructuring measures and other items, cash flows from operating activities during the first half came to negative 80.9 billion yen (US$658 million), compared to negative 70.1 billion yen during the same period last year. Cash flows used in investing activities for the period were reduced dramatically to 10.5 billion yen (US$86 million) from 227.8 billion yen used in first-half fiscal 2001, primarily as a result of tightly focusing new plant and equipment investment on only the most promising growth sectors and from the sale of investment securities. As a result, free cash flow was negative 91.5 billion yen (US$744 million), compared to negative 298.0 billion yen the previous year, an improvement of 206.5 billion yen. Reflecting the 250.0 billion yen issue of convertible bonds completed in May, net cash flow from financing activities in the first half was 111.5 billion yen (US$907 million), compared to 208.7 billion yen in first-half fiscal 2001.

Results by Business Segment

Services & Software
Although there was healthy growth in sales of CRM, SCM, and ERP solutions, as well as systems integration and outsourcing services in the national and local government sector and the healthcare field in Japan, overall restraint in corporate spending held domestic services and software sales to roughly the same level as in the first half of fiscal 2001. Overseas sales declined as a result of the slump in IT spending by businesses in the U.S. and Europe, particularly telecommunications carriers. Overall consolidated services & software sales for the half were 918.0 billion yen (US$7,464 million), down about 1% from first-half fiscal 2001. Thanks to aggressive costs savings from more efficient software development utilizing EJB-based componentization technology and greater sharing and re-use of know-how from improved knowledge management, operating income in this business segment rose nearly 7%, to 51.5 billion yen (US$419 million).

In Japan, despite growth in sales of mobile phones and some improvement in Unix enterprise servers, cyclical shifts in demand for large-scale systems resulted in a sharp decline in sales of large-scale servers and storage systems. This, together with lower sales of IMT2000 (3G) mobile communications systems to telecommunications carriers, contributed to a 15% decline in overall domestic sales of platform products. Overseas, lower demand from North American telecommunications carriers resulted in a severe decline in sales of optical transmission systems. These factors, coupled with the effects of the company's withdrawal from the desktop PC hard drive market last fiscal year, resulted in a 22% decline in overall consolidated first-half platforms sales to 769.7 billion yen (US$6,258 million). Cost savings generated from restructuring efforts helped narrow the first-half operating loss in this business segment to 30.8 billion yen (US$250 million), compared with the 39.9 billion yen loss recorded in the first half of fiscal 2001.

Electronic Devices
In semiconductors, recovery in the digital home electronics sector helped spark a rebound in sales of logic chips, however, the recovery of flash memory prices was delayed, and overall sales for the period declined. On the other hand, demand increased for high-end plasma display panels (PDPs) and other displays. Overall, consolidated first-half sales in the electronic devices sector were down about 2% to 289.0 billion yen (US$2,350 million). Cost-cutting measures from restructuring helped reduce operating losses to 23.1 billion yen ($188 million), versus a loss of 35.5 billion yen in the same period the year before.

Revised Earnings Projections for FY2002

Since the last earnings projections announced in July, it has become apparent that recovery will be delayed for the IT industry, particularly in the U.S. telecommunications sector. Concerns regarding future trends in stock prices and IT-related demand, as well as international political issues, have heightened overall uncertainty. In Japan as well, despite favorable prospects for demand in certain areas, such as the public sector, there is also future uncertainty stemming from concerns over the prolonged non-performing loan issue, deflation and the decline in stock prices. Accordingly, Fujitsu has at this time revised its fiscal 2002 earnings forecasts as described below.

Despite lower first-half sales than were projected in July, Fujitsu was able to improve on those projections with respect to consolidated operating income in the first half. Looking toward the second half of fiscal 2002, there are uncertain prospects for the company's platform products, particularly telecommunications infrastructure equipment, personal computers and servers, as well as for the domestic software and services business, and the current status of orders indicates that sales will be sluggish. Nevertheless, Fujitsu expects to be able to maintain its earlier projection for consolidated operating income by compensating for the decline in sales with further cost reductions. However, due to extraordinary charges relating to additional restructuring measures in the platforms and electronic devices sectors carried out in the first half, the company has revised downward its projection for net income by a large margin.

(Billion Yen)

FY2002 Consolidated Earnings Forecast
Original Forecast
(July 2002)
Actual Revised
1st Half Full Year 1st Half Full Year 1st Half Full Year
Net Sales 2,250.0 5,000.0 2,150.3 4,800.0 -99.6 -200.0
Operating Income -30.0 100.0 -23.2 100.0 +6.7 0.0
Net Income -40.0 0.0 -147.4 -110.0 -107.4 -110.0

FY2001 (Actual)

1st Half Full Year
2,387.7 5,006.9
-59.1 -74.4
-174.7 -382.5

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.

Regarding Dividends for FY2002

With respect to the disposition of profits, Fujitsu believes that a portion should be paid to shareholders to offer a stable return, and that a portion should be retained by the company to strengthen its financial base and support new business development opportunities that will result in improved long-term performance.

In the current period, however, to cope with rapid structural changes in the IT market and position the company for a rebound in profitability in the next fiscal year and beyond, Fujitsu initiated additional restructuring measures that resulted in an extraordinary charge to earnings and projected loss for the full year. As a result, Fujitsu has reluctantly decided to forgo dividend payments for the first half of fiscal 2002. The disposition of the dividend for the next payout period, following the end of this fiscal year, has not been decided at this point.

*All yen figures have been converted to U.S. dollars for convenience only at a uniform rate of US$1 = 123 yen, the closing exchange rate on September 30, 2002.

About Fujitsu
Fujitsu is a leading provider of customer-focused IT and communications solutions for the global marketplace. Pace-setting technologies, high-reliability/performance computing and telecommunications platforms, and a worldwide corps of systems and services experts make Fujitsu uniquely positioned to unleash the infinite possibilities of the broadband Internet to help its customers succeed. Headquartered in Tokyo, Fujitsu Limited (TSE:6702) reported consolidated revenues of 5 trillion yen (about US$38 billion) for the fiscal year ended March 31, 2002. For more information, please see:

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