Fujitsu to Expand Services Sales Amid Lower Hardware Demand

Fujitsu Ltd., Japan’s biggest provider of computer services, plans to increase sales at the business to make up for declining hardware demand.

The company is expanding the business in Europe and North America and plans to boost sales of services including cloud computing to corporate customers, Chief Financial Officer Kazuhiko Kato said in an interview. Fujitsu may acquire a company to accelerate growth, he said, declining to name potential targets.

“We should spend time building our revenue base,” the 61-year-old executive said at Fujitsu’s headquarters in Tokyo on Nov. 16. “It will take time to boost revenue in the services field, but that will become a buffer for times when hardware sales are falling.”

Fujitsu is forecasting a third straight year of declining profit as a worsening European economy dents demand for its computers and services including system integration and cloud computing. A shortfall of about 100 billion yen ($1.2 billion) at the company’s U.K. pension fund will reduce free cash flow this fiscal year, he said.

“Targeting companies rather than consumers is a good bet to spur sales,” Mitsuo Shimizu, a Tokyo-based analyst at Iwai Cosmo Holdings Inc., said of Fujitsu’s strategy. Corporate demand for computing services is growing, he said.

Fujitsu may release a new medium-term business plan before April, Kato said.

Profit Forecast

The company cut its profit forecast 58 percent to 25 billion yen for the year ending March 31 as it struggles to spur overseas sales because of a worsening economy in Europe, it said Oct. 31. Sales may total 4.42 trillion yen, or 2.4 percent less than the previous estimate, the company said.

Fujitsu rose 2.4 percent to 301 yen as of 10:22 a.m. in Tokyo trading. Japan’s benchmark Nikkei 225 Stock Average gained 1.4 percent.

Panasonic Corp., Renesas Electronics Corp. and Fujitsu are suffering from plunging demand for system LSI chips used in televisions. LSI chips pack memory, microprocessing and other functions, such as processing graphics, into a single component.

Global TV demand fell 8 percent from a year earlier in the second quarter of this year, according to DisplaySearch, led by a 77 percent plunge in shipments in Japan.

Panasonic’s President Kazuhiro Tsuga said in July the company may consider merging its LSI business with Fujitsu’s and Renesas’s. Kato declined to comment on the plan.

Chip Factories

Fujitsu will shut a plant assembling system chips and sell two factories to J-Devices Corp., the two companies said Aug. 31. Denso Corp., a Toyota Motor Corp.-affiliated parts maker, will buy a factory to make the chips from Fujitsu, the companies said in April.

Fujitsu’s free cash flow for the year ending March 31 will be 140 billion yen short of the company’s previous estimate because of costs to reorganize chip production and the U.K. pension-reserve shortfall, Kato told investors and analysts on Oct. 31. Falling interest rates in the U.K. contributed to the shortfall, the company said in April.

Free cash flow may recover to about 150 billion yen in about three years from an expected negative 40 billion yen this fiscal year, Kato said Nov. 16.

Fujitsu is among Japanese companies that expect an impact on their balance sheets from a change in financial reporting standards that will affect how they account for pension-reserve shortfalls from April. Fujitsu will be short by about 300 billion yen at its Japanese pension fund, Kato said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE