Fujitsu Increases Financial Results

Sales rise on strong growth in services business and overseas operations, but intensified price competition and weight of strategic investments crimp profits

Fujitsu Limited, a leader in customer-focused IT and communications solutions for the global marketplace, today reported consolidated net sales of 1,197.6 billion yen (approximately US$10,064 million*) for the third quarter of fiscal 2006 (October 1, 2006 - December 31, 2006), an increase of 6.8% over the third quarter of fiscal 2005. Revenue growth was led by robust overseas sales of IT outsourcing and other services, particularly in the UK and North America, along with higher overseas sales of hard disk drives (HDDs), optical transmission systems, and UNIX servers. In Japan, higher sales of systems integration and other services countered lower sales of PCs and mobile phone base stations.

Consolidated operating income for the third quarter was 7.1 billion yen (US$60 million), a decrease of 5.4 billion yen compared to the third quarter of fiscal 2005. Higher year-on-year third-quarter profits in services, driven by continuing strong performance in IT outsourcing services in the UK as well as expanded North American operations as a result of acquisitions, together with solid systems integration business performance in Japan, were offset by lower profitability in PCs and logic LSI devices, primarily as a result of intensified price competition and adverse demand trends. Profitability was also adversely affected by higher selling, general and administrative expenses associated with operational expansions in the UK and North America as well as continuing upfront investment in areas such as next-generation networking equipment.

In other income (expenses), in addition to a reduction in the amortization of unrecognized obligation for retirement benefits and an increase in net earnings of affiliated companies, Fujitsu posted gains in conjunction with the initial public offering and sales of a portion of the company's shareholdings in NIFTY Corporation and a loss on sales of a portion of the company's shareholdings in Spansion Inc.

Consolidated net income for the third quarter was 1.1 billion yen (US$10 million), a decrease of 2.2 billion yen compared to the third quarter of fiscal 2005.

Business Segment Results

Third-quarter consolidated net sales in the Technology Solutions segment, which includes the System Platforms and Services sub-segments, rose 7.1% over the same period in fiscal 2005, to 716.8 billion yen (US$6,024 million). In Japan, sales were roughly flat, as higher sales of services were offset by lower sales in areas such as mobile phone base stations. Overseas sales, however, increased by 20.8% over the previous year's third quarter, driven by continued sales growth in services as well as higher sales of optical transmission systems and UNIX servers. Operating income for the Technology Solutions segment was 14.5 billion yen (US$122 million), an increase of 8.5 billion yen over the third quarter of fiscal 2005. Despite intensified price competition in optical transmission systems and server-related systems, robust performance in the company's Services sub-segment and continued progress in generating cost efficiencies resulted in sharply higher overall profitability in the segment.

Net sales in the Ubiquitous Product Solutions segment, which includes PCs, mobile phones, hard disk drives, and other products, were 273.4 billion yen (US$2,298 million), an increase of 7.3% over the same period last year. Sales in Japan increased by 1.5%, as relatively strong results in mobile phones were offset by lower PC sales. Overseas sales rose by 16.9%, despite intensified price competition in HDDs and PCs, boosted by record unit shipments of HDDs for notebook PCs and servers. Although the company has made progress in generating cost efficiencies in the segment, the severe pricing environment for both PCs and HDDs led to a 4.8 billion yen year-on-year reduction in operating income, to 1.1 billion yen (US$9 million).

Net sales in the Device Solutions segment were 187.6 billion yen (US$1,577 million), an increase of 2.7% over the previous year's third quarter. Although sales in Japan increased by 13.7%, overseas sales declined by 10.7%, as severe competition in digital consumer electronic products led to lower demand for standard technology logic devices. Operating income for the segment was 0.4 billion yen (US$4 million), a sharp decrease of 8.0 billion yen compared to the third quarter of fiscal 2005, attributable in part to higher amortization and development costs associated with capacity expansions at the company's Mie Plant - Fujitsu.