Fujitsu’s revenue remains in decline despite new strategies

Fujitsu PRIMERGY serverFujitsu’s revenue remains in decline, as the vendor considers bold moves to modernize its portfolio, says Krista Macomber, senior analyst at TBR.

Shifts in customer demand coupled with ongoing challenges to global expansion entice Fujitsu to consider major portfolio adjustments.

Lengthening PC life cycles, which continues to weaken global PC demand, coupled with the unfavorable impact of software-driven data center hardware commoditization dragged down Fujitsu’s corporate revenue 6.6 percent year-to-year to 1.1 trillion yen during 3Q16. Revenue performance was further hampered by currency fluctuations and weakened demand for Fujitsu’s networking products in the Americas.

Additionally, Fujitsu’s more limited data center infrastructure presence in Europe compared to peers resulted in a decline in related services sales in the region. However, Fujitsu experienced increases in services, PC and networking product sales in Japan, the vendor’s domestic market. This growth indicates the vendor’s more local strategies, such as the recent announcement of a series of device launches in only Japan, and the consolidation of some of its Japan-based facilities, are proving effective.

From a data center perspective, Fujitsu has an opportunity to poach customers from competitors as customers evaluate new architectures and IT models to better serve modern business requirements. However, this market is very competitive, and articulating Fujitsu’s unique differentiation as a technology provider and infrastructure advisor on the global scale will remain challenging.

As a result, TBR expects an ongoing substantial dependency from Fujitsu on Japan, for revenue streams, making the company more susceptible to currency fluctuations than its peers. TBR believes Fujitsu has an advantage over some competitors due to its cachet of software and services capabilities, but to capitalize on these capabilities and enable modernization, an expansion of Fujitsu’s global footprint will be necessary.

Fujitsu is working toward long-term successes with its current strategies, and therefore, the vendor is incurring short-term challenges to better position for long-term growth. Steps taken since 2Q16, including the appointment of new executives and the merging of engineering facilities in Japan to streamline developments, point to internal adjustments to better align Fujitsu’s overall business to the modern IT market. This will enable the vendor to more swiftly address demand for solutions including analytics, IoT and cloud while increasing operational efficiencies.

Fujitsu’s growing willingness to make bold moves to get corporate performance back on track and maintain its relevance in the modernizing IT marketplace is becoming increasingly more prevalent in 2016. During the quarter, Fujitsu and Lenovo also began preliminary conversations around a possible joint venture with Fujitsu’s PC business.

While the details of this possible joint venture are not clear, one outcome could be Fujitsu leverages Lenovo’s larger-scale PC manufacturing capabilities to produce its PCs. A joint PC venture between Lenovo and Fujitsu would be beneficial to both parties, as it would free resources in Fujitsu’s business, which it could reallocate to more strategic solutions, such as in the cloud and IoT spaces, while granting Lenovo increased access to Japan for its PC sales.

Fujitsu invests in blockchain as a key development in its broader company transformation to enable digitization

Customers’ need to address demanding, modern business requirements such as heightened agility is facilitating the creation of net-new data center architectures and technologies, such as blockchain. Blockchain is a nascent, next-generation technology that has the potential to dramatically streamline financial transactions for customers. However, as is increasingly common in emerging technology markets, using blockchain requires customers fundamentally shift how they do business. As a result, adoption and production usage of blockchain is limited.

Fujitsu is investing in innovation, partly supported by collaboration with peers that addresses technology-centric adoption inhibitors such as security concerns. TBR believes Fujitsu will further encourage customer adoption by applying its professional services capabilities to support workload migration and internal process evolution. TBR does not expect blockchain to contribute substantially to Fujitsu’s financial performance in the near term, but we believe gaining an early foothold in this market will support long-term differentiation in modern IT environments and growth for Fujitsu.

Through its involvement in the Linux Foundation, a foundation created to encourage rapid development of open technology that addresses emerging customer pain points, Fujitsu is collaborating with vendors such as IBM and Intel to more rapidly bring blockchain products to market. Collaboration between vendors located around the world will rapidly increase the global reach and therefore adoption of blockchain solutions that are brought to market. Fujitsu’s broad manufacturing capabilities are an asset the vendor will contribute to these collaborative efforts.

Separate from its Linux Foundation involvement, Fujitsu announced in October the development of security solutions for blockchain. Specifically, Fujitsu developed transaction restriction technology, which uses pre-established policies to enforce user restriction, and document encryption capabilities that require unique codes from individual users to unlock access to particular information.

TBR believes these new blockchain-centric solutions target a key barrier to entry for many prospective customers’ concerns about shifting highly secure data to a cloud-based ledger. For example, customers in the financial and healthcare industries have the potential to substantially improve efficiencies by adopting blockchain, but they also have a large degree of sensitive information that needs to be transferred securely, which is hindering adoption. TBR believes Fujitsu’s investments in these blockchain-related security solutions will support Fujitsu’s involvement in the Linux Foundation and encourage blockchain adoption.

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