Earnings reports

Fujitsu Reports Q3

TOKYO -- Fujitsu Limited, a leader in customer-focused IT and communications solutions for the global marketplace, today reported consolidated net sales of 2,362.3 billion yen (approximately US$20,020 million*) for the first half of fiscal 2006 (April 1, 2006 - September 30, 2006), an increase of 7.8% over the first half of fiscal 2005. The solid sales results were driven by double-digit year-on-year overseas sales growth in each of the company's three major business segments, with modest growth in Japan. Overseas sales of IT services were exceptionally strong, rising 25.8% over the first half of fiscal 2005 on continued growth in outsourcing services in the UK and the impact of acquisitions in North America.

Fujitsu posted consolidated operating income of 50.6 billion yen (US$429 million), an improvement of 3.0 billion yen over the first half of fiscal 2005. Despite increased expenses relating to strategic investments for future growth, higher sales combined with continued progress in driving down costs and realizing efficiency gains through intensified efforts in manufacturing innovation led to the higher operating profit. The company posted sharply higher net income of 14.8 billion yen (US$126 million) in the first half, an increase of 7.1 billion yen over the first half of fiscal 2005. In addition to the contribution from higher operating income, an improvement in non-operating items, such as a significant reduction in the amortization of unrecognized obligation for retirement benefits, resulted in the near doubling of net income compared to the previous year.

Business Segment Results

Consolidated first-half net sales in the Technology Solutions segment, which includes the System Platforms and Services sub-segments, rose 6.3% over the same period in fiscal 2005 to 1,428.6 billion yen (US$12,107 million). Sales in Japan were roughly flat, as higher sales of solutions/systems integration services were offset by lower sales of mobile phone base stations, which had been especially strong in the first half of fiscal 2005. Overseas sales, however, increased by 23.3%, driven by continuing strong performance in outsourcing and other services businesses, as well as higher sales of optical transmission systems and UNIX servers. Operating income for the segment was 36.4 billion yen (US$309 million), roughly the same level as in the first half of fiscal 2005, as higher profits in overseas businesses were offset by the effect of lower year-on-year sales of mobile phone base stations.

Net sales in the Ubiquitous Product Solutions segment, which includes PCs, mobile phones, hard disk drives (HDDs) and other products, were 528.6 billion yen (US$4,480 million), an increase of 6.1% over the same period last year. Despite higher sales of mobile phones, sales in this segment in Japan increased by only 1.9%, primarily as a result of sluggish PC sales in the consumer sector. Overseas sales increased by 14.2%, led by strong sales of notebook PCs and HDDs. Overall, the segment posted operating income of 19.9 billion yen (US$169 million), an increase of 3.3 billion yen over the comparable period last year. Progress in generating cost efficiencies and quality improvements helped to offset intensified price competition in PCs and HDDs, both in Japan and overseas markets.

Net sales in the Device Solutions segment increased 12.2% over the first half of fiscal 2005, to 376.9 billion yen (US$3,195 million), driven by strong demand for the company's logic LSI devices for automotive and digital appliance applications. Operating income for the segment was 16.0 billion yen (US$136 million), an increase of 3.5 billion yen over the previous year. Despite an increase in development costs, the company was able to achieve higher profitability in this segment because of higher logic LSI device sales and continuing strong performance in electronic components.

In order to further strengthen its business outside Japan, in June Fujitsu appointed senior executives as heads of regional operations in the following four areas: the Americas, EMEA (Europe, Middle East and Africa), China, and Asia-Pacific. Reflecting this change, beginning with the current first-half fiscal 2006 financial results, the company has revised its geographic segment categorization, renaming the former Europe segment as EMEA (Europe, Middle East and Africa) and the former Asia, Australasia & Others segment as APAC (Asia-Pacific) & China. In the first half of fiscal 2006, all three overseas geographic segments (The Americas, EMEA, and APAC & China) recorded double-digit year-on-year sales increases, and together achieved combined operating income of 21.6 billion yen (US$184 million), 3.4 billion yen higher than in the first half of fiscal 2005.

Fiscal 2006 Full-Year Earnings Projections

Fujitsu is maintaining its fiscal 2006 full-year consolidated earnings forecast unchanged, as follows:

Net Sales 5,200.0 billion yen
Operating Income 190.0 billion yen
Net Income 80.0 billion yen

Although first-half results exceeded previous projections, and in spite of Fujitsu's expectation that market demand in Japan and overseas will be favorable in the third quarter, various uncertainties remain regarding the fourth quarter, in which both sales and operating income tend to be concentrated for the company's system products and solutions/systems integration businesses. Therefore, at the present time, the company's outlook for the full year has not changed.

Fujitsu Ltd. (Tokyo: 6702; London: FUJ; OTC: FJTSY)

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