October 26, 1999
Management DirectionFujitsu FY1999 Half-Year Financial Results
Supplementary InformationThe revolutionary changes taking place as we move toward a networked society based on the Internet are creating new social systems and patterns on a global basis, and networks utilizing Internet Protocol (IP) are thus becoming an essential part of the new social infrastructure. In order to make clear the strategic direction of the entire Fujitsu Group in this new era of "Everything on the Internet," we are consolidating our management resources to make the Internet the core of our business.
Fujitsu is committed to contribute to the creation of an affluent network-based society focusing its wide range of technologies more intensively on the network -- transcending in the process conventional categories of telecommunications, information processing and electronic devices -- so as to quickly respond to market needs with cutting-edge products. Moreover, making the greatest possible use of the Internet, we are striving to respond to the diverse needs of customers and societies around the world by offering high-quality products and services as a total solution provider on a global basis.
In the network age, Fujitsu firmly believes that the principle of "customer focus" is more than ever the key to healthy business growth and profits. Fujitsu Limited and all companies in the Fujitsu Group are firmly adopting this mindset and actively striving to sharpen their customer focus and become more sensitive to customer needs. Through these efforts, we are endeavoring to meet the expectations of customers and shareholders who share our belief in the essential role IT can play in driving new corporate growth.
In June of this year, Fujitsu carried out a strategic reorganization to shift operational authority to newly established Business Units reporting directly to the president, thus doing away with the former operating division management layer. At the same time, we set up a Management Strategy Council, which has responsibility for development of group management strategies and coordination among the various Business Units. By separating and clearly delineating managerial and operational authority, the reorganization is intended to speed up operational execution while at the same time strengthening management's strategic planning capability.
Although we expect the business environment in which we operate to become still more challenging and fast-changing, Fujitsu nevertheless remains committed to pursuing rapid growth, improved profitability, greater management efficiency and better financial health, with the aim of achieving 10% ROE on a consolidated basis during FY2000. Moreover, utilizing such internationally recognized indicators as free cash flow and EVA (Economic Value Added), we intend to strengthen our global management, and at the same time to rigorously pursue a cohesive branding strategy to promote the growth of our business on a global basis. In addition, we will continue to improve the environmental friendliness of our products and strengthen recycling programs, while actively disclosing information on our environmental initiatives and addressing global environment issues.
Through the kind of efforts we have described, Fujitsu will seek to reinvent itself continuously so as to be a leader in the 21st century, a global company respected by customers and society alike.
Fujitsu and Y2K Readiness
Fujitsu recognizes that so-called Year 2000 (Y2K) problems are an important management concern, and together with each group company is actively addressing the issue.
- Y2K Risks
(1) In-house systems
If our core information processing systems, manufacturing systems, and other systems are not completely Y2K compliant, our business activities could be seriously impeded, thereby jeopardizing our ability to fulfill our contracts with customers and causing them great inconvenience. Likewise, failure of our suppliers to effectively deal with the Y2K problem could have a negative impact on our business.
(2) Fujitsu products
If customers are tardy in dealing with non-Y2K-compliant products that they use, or in dealing with their own non-compliant programs, we fear that their business will be hindered. We are also concerned that, in fact, claims may arise from some of these customers.
- Y2K Compliance - Current Status
(1) In-House Systems
Fujitsu is aware that the range of in-house systems for which the Y2K problem is a concern extends beyond computers to our networks, manufacturing plant and equipment, and research facilities. Everyone from the board of directors on down recognizes the importance of the Y2K problem and is making it a major priority in our corporate activities. Each division is taking responsibility for dealing with the problem and information is being exchanged across the entire organization. Specific activities include confirming where Y2K problems may exist; implementing the necessary remediation measures and testing where problems exist; and, if needed, planning and carrying out comprehensive examination of business processes and crisis management measures.
As of the end of September 1999, compliance and testing of all administrative core information systems has been completed. Systems for which remediation had been completed went through a series of "rehearsals," all of which have already been completed.
In addition, compliance verification and testing of all Fujitsu manufacturing systems (production management systems, line control, equipment, etc.) were completed by the end of September 1999, with the exception of systems using recently introduced third party software for Y2K compliance. (By the end of November, we plan to complete compliance procedures for systems employing such Y2K compliance software introduced up to the end of September.)
Fujitsu also considers the Y2K readiness of companies that provide us with parts and services to be an important element for conducting our business smoothly. We have already asked our major suppliers for information about their own Y2K readiness status, and we completed our first survey of their status in March 1999 as part of the confirmation process. Also, by the end of September 1999, we completed connection tests with the suppliers linked to us by EDI (electronic data interchange).
We are also continually checking the compliance status of each company (information systems, equipment, and other important items for vendors). Based on the results of these investigations, we have asked some major suppliers to speed up their compliance efforts, and the information we have obtained is reflected in crisis management planning to ensure availability of parts and components for operating divisions.
(2) Products
While customers must judge the Y2K readiness of their computer systems for themselves, Fujitsu is providing Y2K compliance information and proposals for helping them confirm Y2K compliance of Fujitsu products as well as third-party products sold by Fujitsu. For our consumer products, we have been endeavoring to make information widely available to our customers via Internet Web sites, newspaper advertisements, and pamphlets. We are also urging our customers to conduct comprehensive inspections to put their Y2K compliance efforts on a firmer basis.
By the end of March 1999, we had provided Y2K compliance information or remediation proposals to all known customers of Fujitsu's mainframe servers in Japan, covering 170,000 systems in all. As of the end of September, Y2K preparations by these customers were about 95% complete.
In order to provide customers with added peace-of-mind, Fujitsu will place about 10,000 employees on standby in Japan over the New Year transitional period to respond to customers' Y2K inquiries and provide troubleshooting advice. This support system will link up systems engineers at 52 locations, customer engineers at about 1,000 locations, and sales departments in every region of Japan, allowing us to quickly respond to any problems that our customers may encounter. From December 31 to January 5, our systems engineers and customer engineers will be available to help corporate customers on a 24-hour basis.
Information about the Y2K compliance status of Fujitsu products can be found at: (in Japanese) http://www.fujitsu.co.jp/hypertext/2000/ (in English) http://www.fujitsu.co.jp/hypertext/2000/English/index.html
- Y2K Costs
Y2K compliance measures for our in-house systems are being handled mostly by our own technicians. It is therefore difficult to clearly distinguish Y2K costs from other internal costs, particularly personnel costs. We estimate that outside Y2K-related expenses on an unconsolidated basis will total about 5.7 billion yen, of which approximately 5.2 billion yen has been spent as of the end of September 1999. We expect that the final expenses incurred will not be of a scale to have an impact on the company's financial position.
- Crisis Management
We have created scenarios covering abnormal situations that may arise due to the Y2K problem, and in June 1999, we completed plans for "crisis management" measures to minimize the effects of any problems that may arise, including alternative measures. We are continually upgrading these plans.
The information in this section is intended solely to provide a general description of the status of Fujitsu's Y2K efforts and should not be construed as an assurance, statement of obligation or abrogation of rights.
