Fujitsu Ltd., Japan's biggest IT services company, reported a smaller-than-expected quarterly loss thanks to cost cuts and better microchip sales, and nudged up its annual outlook for a bigger profit.

Fujitsu is trying to catch up with bigger rivals IBM and Hewlett-Packard, and is hurrying to shift the focus to its servers and services businesses and shed or shrink its struggling hardware operations.

It aims to sell its loss-making hard drive business to Toshiba Corp, outsource microchip production to Taiwan's TSMC and beef up its IT consulting sales overseas as growth prospects dwindle in Japan.

Fujitsu raised its operating profit forecast on Thursday by 13 percent to 90 billion yen ($948 million) for the full year to next March, further above the 66 billion yen consensus estimate of 14 analysts polled by Reuters.

Its chances of meeting that target depend on its ability to win orders in its key technology solutions division, which includes servers and services and which accounted for 66 percent of group sales last financial year.

Prospects also hinge on cost cuts in its devices operations, which continue to drag down earnings.

Orders are picking up for its devices, used in cars and digital cameras, as are orders from Intel Corp, said Fujitsu's Chief Financial Officer Kazuhiko Kato.

"It's not just inventory adjustment," he told a news conference, adding that the company's devices operations were now on a recovery path.

"We raised our outlook because the fiscal first half is looking that much better than expected," he said. "But there is no guarantee that this situation will last."

Price competition in PCs and continuing losses on its hard drives helped drag down sales, he said.

Japan's biggest computer server vendor had an operating loss of 37.2 billion yen in April-June compared with a profit of 5.8 billion yen a year earlier.

That is prompting Fujitsu to reach out to TSMC, the world's biggest contract chip maker. The two have begun working on 40-nanometre chip production and aim to wrap up talks on joint development of 28-nanometre chips, Kato said.

Fujitsu, like its rival NEC Corp, is grappling with a hypercompetitive electronics market in Japan which has siphoned off resources and hindered them from going after a global market dominated by the likes of Nokia, Apple Inc and Qualcomm.

Given dwindling growth in Japan, the two now seek to boost their presence overseas.

Fujitsu America won an outsourcing contract from U.S. data processing firm Alliance Data Systems Inc in June.

It also bought out a computer venture with Siemens in April and it has acquired Telstra Corp's IT services unit Kaz Group and consulting firm Supply Chain Consulting, both in Australia.

That is putting pressure on NEC, which tumbled to a 40 billion yen quarterly operating loss against a 4 billion yen profit last year on declining sales of its IT systems, networks and microchips.

In contrast with its two bigger rivals, factory automation equipment maker Mitsubishi Electric Corp beat market expectations with a surprise 7.4 billion yen operating profit for April-June, although that was down 89 percent from a year ago.

"The situation is extremely severe. The economy has stopped worsening, thanks to fiscal stimulus plans around the world and inventory adjustment, but capital spending and consumer spending are still low," Mitsubishi Electric Managing Executive Officer Hiroki Yoshimatsu said.

Shares in Mitsubishi Electric rose 14.7 percent on the results announcement.

Prior to their announcement of earnings results, shares in Fujitsu rose 3.1 percent and NEC rose 2.8 percent, against a 1.9 percent rise in Tokyo's electrical machinery subindex.

By: DocMemory
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