Fujitsu Gets Wired

It's staking its future on cyberspace's still hazy frontiers

Nothing could be more "California" than a cyberspace wedding. Last Valentine's Day, groom Joseph Perling sat on Venice Beach with a laptop. His bride Victoria Vaughn logged on from Hollywood. The Reverend R. John Perling, Joseph's father, presided from his Beverly Hills church. As friends logged in from around the country, the couple assumed online personas and exchanged lawful vows.

The virtual chapel was part of CompuServe Inc.'s WorldsAway, a hip cyberhangout that has become one of the 20 most popular forums on CompuServe. And guess what? It's owned and operated by Japan's Fujitsu Ltd.

Once a flat-footed follower of more with-it U.S. companies, Japan's No.1 computer maker and the No.2 in the world--behind IBM--is staking its future on the shimmering, still elusive frontiers of cyberspace. By 1998, the $34 billion company aims to get as much as 30% of its revenues from Internet-related services, software, and hardware. Fujitsu's tough 64-year-old President Tadashi Sekizawa is plowing nearly half the company's $3.6 billion research and development budget into the Internet and multimedia. If his plan works, Fujitsu--not Sony Corp.--may be the Japanese electronics giant to take on America's Internet warriors.

Fujitsu will need more than money. This is a company that still gets 70% of its revenue in its home market--and has not done well selling computers outside Japan for years. To change that, management is trying to break out of its gray-suit syndrome. "We need to overhaul the company," says board director Tatsuzumi Furukawa, Fujitsu's point man on cyberspace and a likely successor to Sekizawa.

Already, clusters of researchers and engineers are emulating Silicon Valley entrepreneurs. They choose their hours, dress however they want, and pursue their own projects. The company that once balked at buying components from outsiders now realizes it can't compete by building everything in-house. It imports close to $2 billion a year in Asian components. One result: Fujitsu has staged a dazzling turnaround in the Japanese PC market.

Now, Fujitsu's youthful staff is out to prove that--contrary to the record of the past decade--it can compete in fast-moving computer markets around the world. In the networked era, they argue, Fujitsu's combination of strengths--in semiconductors, computers, and telecom--will pay off. One example: Fujitsu beat out the world's top makers of digital-phone switches and IBM for a contract to provide high-speed switches for a state-sponsored network in North Carolina.

WALL TVs. Fujitsu's labs boast an array of next-generation components. Leapfrogging rivals, it is getting set to roll out 42-inch-wide, flat-screen plasma displays that could become the world's first commercial wall-hanging television sets. The company has invested about $200 million to build a plant in southern Japan to crank out the screens, beginning this October. They cost $5,000 each now, but Fujitsu predicts prices will drop and plasma screens will start to replace cathode-ray tubes in TVs, creating a $2 billion business by 2000.

The company has some cutting-edge software, too, including an object-oriented database program. Recently it struck a deal with Computer Associates International, the No.3 U.S. software maker, to sell Jasmine, a programming system that's based on its database package. Jasmine is aimed at developing applications such as online shopping areas for the World Wide Web. Fujitsu is also readying some dazzling network software--from virtual-reality games to business applications for the Web.

Fujitsu does face crucial challenges. U.S. mainframe maker Amdahl Corp., in which Fujitsu holds a 43.5% stake, is steadily losing share to IBM. British subsidiary ICL is performing poorly, too.

On the other hand, Fujitsu's Japanese business has turned around smartly (chart, page 112). Thanks to a massive nationwide splurge on technology, the company is expected to report $571 million in earnings for the year ending Mar. 31--up 33% from $429 million. Sales are expected to come in 11% ahead of last year's $31 billion. Morgan Stanley & Co. estimates Japan's spending on information and telecommunications gear and services will expand from $294 billion in 1993 to $619 billion in 2000, which should keep Fujitsu humming.

A crucial source of profits at home is Fujitsu's 16,000 system engineers who can cobble together networks for Fujitsu and non-Fujitsu products. Since Fujitsu is a trusted supplier to giants such as Toyota Motor, Mazda Motor, and Nippon Telegraph & Telephone, it has a leg up on rival suppliers when these customers start experimenting with new computing concepts, such as "intranets"--internal Web sites.

Another asset Fujitsu can leverage on the Net is NIFTY-Serve, its 10-year-old online service. Some 1.6 million Japanese now log on regularly, and the number could hit 2.3 million by yearend. That service relies on a high-speed network, FENICS, that Fujitsu developed for mainframe clients. Now it wants to expand FENICS directly to North America and Southeast Asia. Fujitsu already runs CompuServe's online services in Australia, Korea, and Taiwan.

Fujitsu also figures it can use some of its mainframe software on the Net. That's where Jasmine got its start--as part of a project with Mazda Motor Corp. "It's wrong to think that the mainframe world is simply being eaten away by PCs," Furukawa argues. "Rather, the question is how PC users can get the most from assets developed for mainframes."

VIRTUAL SCHOOL. Fujitsu, which already has a $1 billion telecom equipment business in the U.S., is counting heavily on the North Carolina contract to prove its leadership in new technology--just as U.S. phone companies are planning massive upgrades. For a decade, Fujitsu, NEC, and Hitachi have been funneling billions of dollars in R&D funds into a high-speed switching technology called "asynchronous transfer mode," which handles images, sound, and text with equal ease. But getting ATM beyond the lab has been tricky. In North Carolina, engineers from BellSouth, Sprint, and GTE picked Fujitsu over AT&T, Northern Telecom, and others for the contract to wire schools, government offices, hospitals, and prisons with ATM gear. Fujitsu's price was "extremely competitive," according to one source.

Today, the highway is a highly visible showcase of Fujitsu technology, linking 74 schools and hundreds of other sites. Students can attend class remotely at the state's top universities by using video terminals. "We're at the forefront of fiber-optic technology," says John Friedrick, executive director of the North Carolina School of Science & Mathematics in Durham. "We've had visitors from South America, Israel, Australia, and South Korea."

To keep on the cutting edge, Sekizawa continues to push a cultural revolution. "We have to discover a whole new path," he says. At the Tokyo development center of Shuzo Morita, director of Fujitsu's thrust into new computer interfaces, long-haired hackers and animators work with staid engineers to create games and 3-D software domains beyond the cartoonish spaces of WorldsAway. Some contain exotic creatures that evolve and interact with humans onscreen.

SLASHER. Despite his 42-year tenure at the company, Sekizawa may be just the man to force Fujitsu into the future. A telecommunications engineer who graduated from prestigious Tokyo University, Sekizawa wasted no time after becoming president in 1990 to shake things up. He hacked away at an organization that had grown fat during Japan's 1980s boom. A dour taskmaster who seldom expresses satisfaction to the troops, he has cut nearly 10% of the parent company's workforce since 1993. He also created a flatter management structure and links pay to performance.

One of his most crucial decisions was promoting "open systems," which let customers mix hardware and software from different vendors. He also stepped up overseas sourcing and assembly. The result: a less arrogant, more flexible, market-oriented company. "The company has gotten leaner, and now they're addressing the areas of growth," says Barclays de Zoete Wedd analyst David Benda in Tokyo."They've got a very good chance of making it."

Under Sekizawa, Fujitsu has also made some astute buys and recruited new talent. WorldsAway, for instance, was developed in 1986 by Lucasfilm Ltd. of the U.S. Fujitsu acquired the idea and hired Lucasfilm developers. The operation is now run by Fujitsu's subsidiary in San Jose, Calif. More than 15,000 subscribers now log on in 147 countries. "I have a lot of respect for what Fujitsu has been doing in this area," says Linda Stone, director of Microsoft Corp.'s Virtual Worlds Group, which is promoting a similar product.

Nerdy even by Japanese standards, Fujitsu "doesn't even have employees who can talk about movies," concedes Furukawa. Still, Fujitsu wants "content." It invested $50 million in a major Japanese film studio, Shochiku Co. And Kazuto Kojima, director in charge of the digital media group, has been visiting the world's great content factories in Europe, Asia, and Hollywood, including 20th Century-Fox Film Corp. and Paramount Communications Inc. "I'm not interested in investing big money. I'm just seeing whether there's any way that telecommunications, computer, and film companies can work together," Kojima says. He hopes to raise Fujitsu's content business to $100 million by 1998.

Fujitsu's biggest gamble is its bid for PC market share--something most Fujitsu managers call critical to its success in cyberspace. Its first stab at a multimedia PC, FM Towns, was brilliant technically, but never took off. So in 1993, Fujitsu joined other Japanese PC makers selling machines compatible with DOS V, a Japanese-language version of Microsoft MS-DOS that runs Microsoft Windows.

Fujitsu's real assault came a year later. It dumped many longtime Japanese suppliers for American and Southeast Asian rivals that sold components for 20% to 30% less and began building peripherals such as disk drives in Thailand and assembling finished PCs in Taiwan. In many of its PCs, more than 90% of the parts are now non-Japanese.

The overhaul lowered costs. Then, Fujitsu plowed hundreds of millions of dollars into advertising and distribution. Today, analysts reckon Fujitsu is losing $300 on each $2,000 machine it sells--adding up to more than $1 million each day. The payoff: Last year Fujitsu doubled its Japanese market share to 18.2%, becoming the No.2 vendor after NEC Corp., according to Dataquest Inc. Fujitsu aims to sell 2.5 million PCs in Japan this year and 5 million units, for a 30% share, by 1998.

Competitors who doubt the company will keep this up should study what Fujitsu has done before. It used lowball bids for government contracts, for instance, to push past IBM in Japanese mainframes. It once raised a stir by submitting a bid of just one yen to win a large computer software contract. It's ready to be that tough in PCs, too. PCs are the key to "network services, the Internet, and software sales," explains Furukawa.

Will it also jump into the U.S. PC brawl? Fujitsu recently created a new U.S. personal computer operation and opened an assembly plant in Hillsboro, Ore. But a spokesman says the company will take it slowly in the crowded U.S. market.

Ultimately, of course, not all of Fujitsu's gambles will pay off. It has yet to lay out its plan to revive its overseas mainframe operations, or take on systems integration giants such as IBM outside Japan. Still, no other Japanese giant has marshaled the resources--or embraced the vision--to fight so boldly in the battle for cyberspace.

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