Fujitsu Limited ($6702)

Thank you for waiting, everyone. As it is now the scheduled time, we will begin Fujitsu Limited's briefing on its mid- to long-term management Vision 2035.

Good afternoon. I am Tokita of Fujitsu. Thank you very much for taking the time out of your busy schedules to join us here in our briefing. At our financial results announcement on April 28, I shared an overview of our management vision. But today, I would like to outline the specific initiatives underpinning our mid- to long-term management Vision 2035. I am given 40 minutes. It's a rather long time, but I would like to walk you through our initiatives. I would like to start with the strategic positioning of our Management Vision 2035. I will discuss the creation of new technology-powered business domains and the further evolution of service solutions. I will also cover Fujitsu's transformation, and I will also explain the management indicators following this agenda. First, I would like to briefly share our thinking as we look ahead to the world of 2035. As you know, today's world faces a wide range of challenges, including geopolitical fragmentation and climate change. The rapid evolution of technologies, including AI, is driving disruptive changes in industrial structures and has the potential to fundamentally reshape existing industry rules and value creation models. Against this backdrop, Fujitsu has established its management Vision 2035, centered on technology-driven value creation and setting our direction towards 2035. We will unlock new markets through trustworthy technology and drive innovation that transforms industries through Customer Zero AI-driven management in which we implement technologies ourselves before providing them to customers. We will provide our customers with practical insights. And together with our many stakeholders, we will help build a safer, more secure and more prosperous world. This was previously shown during our earnings announcement, and I would like to set out the strategic positioning of our mid- to long-term management vision. Until now, we have worked through 3-year mid-term management plan cycles to achieve our targets. From this fiscal year 2026, however, we have established a 10-year management vision through to fiscal 2035, under which we will set out our strategies and execute them. We believe that AI will spread across all aspects of society and daily life as rules and values evolve through this period, we believe technology will play an even more important role. Against this backdrop, we have positioned the 10 years through fiscal 2035 as a period of technology-driven value creation. We will focus on providing trusted technologies and advancing AI-driven business in order to achieve sustained growth. We have grouped the major impacts that the changes of the next decade will have on our lives into five categories: Society, Environment, Industry, National Security and Technology. Labor shortages driven by a declining birth rate and an aging population will remain pressing issues, while the importance of securing resources such as water and energy will continue to grow. At the same time, while rapid technological change will bring benefits through higher productivity, growing geopolitical fragmentation and multipolarity will also give rise to new digital threats and forms of conflict. Against this backdrop, we believe trusted technologies can help identify and deliver solutions. Against the backdrop of this situation, our society is now set to face a new wave of challenges. First, the rapid increase in AI utilization will drive a significant rise in electricity demand, while greater reliance on AI and cloud providers will heighten risks to technological sovereignty. In addition, as the population ages and the labor force shrinks, productivity and industrial competitiveness will come under pressure. In manufacturing, in particular, the loss of know-how and knowledge in addition to lower productivity among skilled workers is already a major concern. At the same time, more frequent and severe natural disasters are causing greater damage across society, while aging populations and fiscal constraints are making societal operations more complex. Fujitsu is developing and delivering solutions to these challenges across three domains. We are building a sovereign platform to provide safe, secure and highly energy-efficient computing infrastructure. We are also advancing physical AI where robots collaborate with people and evolve autonomously. In addition, we are helping to build an intelligent society in which large-scale data sets are analyzed using digital twin technology to optimize societal operations. All three of these new business creation domains will be driven by AI. We will also embed AI across our existing business expansion domains, including services, applications, platforms and modernization to support further growth. By 2035, we expect these new business creation domains to reach a market size of approximately JPY 30 trillion. With the advancement and broader adoption of AI, we expect the AI services market to expand to approximately JPY 200 trillion. I would now like to explain Fujitsu's strategy and advantages. As the next driver of growth, Fujitsu will pursue technology-driven business creation while further evolving service solutions, which remains our existing core growth pillar. We believe we have three key advantages that will enable us to achieve this. The first is our customer base. Over many years, Fujitsu has supported customers across a wide range of industries, including the public sector through hardware, system integration, maintenance, consulting and other services. We serve everyone from frontline workers to senior executives. Across this broad customer base, our combined end-to-end capabilities from R&D through to service delivery differentiate us and enable us to deliver value where it matters most for our customers. The second is our industry domain expertise. By engaging deeply in our customers' businesses and embedding our accumulated expertise into technology, we support the next stage of our customers' growth. The third is our trusted technology foundation. We continue to advance our world-leading technologies such as the next-generation CPU Fujitsu-MONAKA, enabling us to provide a sophisticated platform that ensures secure technological sovereignty. Amid rising geopolitical tensions and the increasing need for data sovereignty, Fujitsu continues to advance proprietary technologies from Fujitsu-MONAKA to the Fujitsu Kozuchi AI platform and quantum computing across our entire stack. We aim to deliver trusted technologies to our customers while securing technological sovereignty. On this foundation, we will provide end-to-end solutions to customers through applications powered by industry-specific AI agents as well as through consulting and other professional services. In addition to these strengths, we work with global technology companies to deliver optimal value quickly and to clearly differentiate ourselves from our competitors. Yesterday, we made two announcements regarding partnerships within our AI platform. One of these is regarding the strategic collaboration with Anthropic. The second announcement is about our collaboration with OpenAI. By combining globally leading technologies with Fujitsu's strengths, our deep industry expertise as well as our system integration and operational capabilities, we will continue to deliver differentiated and unique value to our customers. Next, I will explain our creation of technology for the business. As I mentioned earlier, Fujitsu will generate new business across the three domains of sovereign platform, Physical AI and intelligent society. By 2035, we expect these new business domains to reach a market size of approximately JPY 30 trillion, and we aim to capture a 10% share of that market. First, I will discuss sovereign platform. The core of this domain will be the Fujitsu-MONAKA CPU, which has high performance and high energy efficiency together with our quantum computers. We are leveraging technologies we have cultivated through the development of world-class computers such as the supercomputer Fugaku to develop Fujitsu-MONAKA. We plan to begin offering Fujitsu-MONAKA in 2027. At launch, we expect it to deliver twice the application execution performance and energy efficiency of computing CPUs. We already foresee business opportunities with approximately 30 companies across a range of industries in Japan. Of these prospective customers, we plan to begin verification trials using prototypes with 15 companies, including companies in the financial, communications, maturing and services sectors. We will handle all technology layers of quantum computing from hardware and software through to applications. In 2026, we will develop a 1,024 qubit quantum computer, which will be installed in a quantum computing facility here at Fujitsu Technology Park. We plan to work with various customers and research institutions to advance the development of applications for this quantum computer. We are also planning to develop a 10,000 cubic quantum computer and 250 logical bit in 2030 as well as 1,000 logical qubit quantum computer in 2035. We believe the following two points will give us a competitive edge in quantum computing. The first point is our ability to use proprietary technology to build hybrid computing infrastructure that combines quantum computing, high-performance computing, and AI. The second point is Fujitsu proprietary STAR architecture, which enables quantum calculations to be performed with fewer qubits and at incredible speed. By reducing the number of qubits required, this architecture makes it possible to perform quantum computing calculations that will theoretically have required millions of qubits using only 100,000 to 300,000 qubits. In addition, this technology enables specialized computational processing to perform calculations at 100x conventional speed. Our STAR architecture has increased the potential for quantum scientific computing on smaller-scale quantum computers. Fujitsu will bring together the technologies it possesses to create optimal computing solutions, spanning everything from devices to applications. As industrial robots become more widely adopted, we expect demand to grow for advanced platforms that not only maintain high performance, but also deliver greater energy efficiency. In addition to the role as social and industrial infrastructure, we also anticipate expanding demand in the field of national security. Against this backdrop, we estimate that by 2035, the market in Japan and Europe, our primary target regions will reach approximately JPY 8 trillion. In line with this growth, we aim to achieve revenue of JPY 150 billion through our sovereign platform. Next, I will discuss our approach to Physical AI. Fujitsu is building a collaborative control platform that seamlessly connects the digital and physical worlds from infrastructure to applications based on our proprietary technologies. Through this, we aim to enable autonomous collaboration between humans and robots. Today, industrial robots operate with different control systems and data specifications depending on the manufacturer. The ability to efficiently orchestrate multiple robots in a coordinated environment will be crucial or critical to widespread adoption going forward. To address this, we are developing Physical OS as part of our AI platform, Fujitsu Kozitsu (sic) [ Kozuchi ]. This platform enables integrated analysis and utilization of both environmental data across a given space and the operational data of individual robots. As a result, robots can interpret their surroundings holistically and act autonomously based on all available data within that environment. In this domain, partnerships with organizations that bring diverse strengths are essential. We are advancing strategic collaboration with NVIDIA as well as joint research with Carnegie Mellon University. Looking ahead, we will further expand partnerships with robot manufacturers and others to accelerate commercialization. At the same time, we are positioning ourselves as a user of this technology to build practical expertise. At Kasajima facility in Ishikawa, where we manufacture mission-critical systems such as the Fugaku, supercomputer and quantum computing equipment, we have begun deploying robots powered by Physical OS. Now let me share a video that illustrates our vision for physical AI. [Presentation]

In this way, we aim to create an environment where humans and robots from multiple manufacturers can collaborate autonomously without interfering with one another. At our Kasajima facility featured in the video, we have already begun manufacturing sovereign AI servers critical to mission-critical systems as made-in-Japan product with production commencing in March 2026. Next, I will discuss our vision for an intelligent society as computing platforms and AI continue to evolve, and as industrial robots become increasingly embedded across both industry and everyday life, the volume of data can be collected and analyzed will expand dramatically. This will enable the development and use of a global-scale digital twin, leveraging diverse data on activities across the planet to deliver faster and more accurate predictions. For example, by using real-time data within this type of digital twin, AI can continuously simulate and evaluate the impacts of climate and ocean changes as well as the geopolitical events such as political instability and conflicts on society and industry. By applying these insights in the real world, we can achieve more efficient and resilient societal operations. In addition, by integrating personal data with data held by enterprises and public institutions, we can deliver highly personalized services that are more closely aligned with the individual needs and lifestyles while ensuring data security and trust. As one example of our intelligent society initiatives, let me highlight our efforts in health care, where we are advancing collaboration with IBM Japan. Together, we have announced initiatives to build a sovereign cloud platform for health care and promote the mutual use of medical AI solutions. Furthermore, in collaboration with Sumitomo Financial Group and SoftBank, we are building a Japan-made health care platform to realize a more sustainable and resilient health care ecosystem. We aim to enable the use of medical data such as clinical records alongside personal lifestyle data such as diet and exercise across a wide range of health care-related stakeholders based on individual consent. By doing so, we will support the advancement of drug discovery and clinical trials while enabling more personalized patient-centric health care services tailored to individual needs. I will now explain how we will further evolve service solutions in the future. Fujitsu will continue to expand its service solutions business centered on Uvance. From fiscal 2026, we have begun integrating AI to power all our services, accelerating the shift from a labor-intensive system integration business model to one based on value and outcomes. Uvance will evolve by combining our industry domain expertise with industry-specific AI agents. We will expand the scale of our modernization business, including the replacement of third-party assets. In addition to technological capabilities, our deep understanding of industries and business operations will give us a key competitive advantage in delivering AI services. The customer industries and business domains Fujitsu has cultivated over many years will provide a significant advantage, sustain and strengthen this competitive edge. We are shifting from a region-based management structure to a global management structure that enables us to drive industry-centric business optimally across all regions. In 2025, we shifted to an industry-centered organizational management structure in Japan. From fiscal 2026, we will expand this structure globally. As a result, we will manage the business in each industry segment across all regions. We will also establish a management structure that enables us to manage each business consistently from revenue through to profit, increasing the speed of execution across each business. Through Uvance, we will continue to evolve our proprietary AI capabilities, including LLM, Takane and Fujitsu Kozuchi into industry and function-specific AI platforms and models. In parallel, we will advance our strategic partnerships with global leaders such as Anthropic and OpenAI, which provide cutting-edge foundation models. At the same time, we will further strengthen our forward-deployed engineer or FTE model, leveraging our core strengths in deep industry domain expertise, advanced on-site engineering capabilities and dynamic problem solving to address continuously evolving challenges. Through these efforts, we will support our customers in solving complex structural issues and driving sustainable transformation. As part of our initiatives to embed generative AI into business operations, we are strengthening our strategic global partnership with Palantir. Through this collaboration, we will incorporate Palantir AIP, a platform designed to operationalize generative AI into our Uvance offerings, accelerating the deployment of AI-driven solutions in real-world business environments. Next, I will discuss our defense business. Fujitsu has a long history of engagement in defense-related technology development and operations. And this is the first time we are sharing details of this area with you. Against the backdrop of an increasingly complex global security environment, the importance of the defense domain continues to grow. As a technology company, we believe it is our responsibility to contribute to this field by providing trusted advanced technologies, and we will further expand our initiatives in this area. Geographically, our defense business is primarily focused on Japan, the United Kingdom and Australia. In Japan, we provide a range of solutions. We provide a wide range of solutions, including defense information infrastructure such as communications and cloud systems, command and control systems for the self-defense forces, onboard computing for aircraft and space situational awareness systems. In addition, under a commissioned research program by Japan's Acquisition, Technology and Logistics Agency, we have launched the Fujitsu Accelerator program for Defense Tech, Japan's first open innovation program in the defense technology field. Through the use of multi-AI agents, we aim to improve both the speed and sophistication of information delivery for decision-making, ultimately building AI-enabled staff capabilities to support commanders. In the United Kingdom, we provide ICT solutions for Ministry of Defense personnel as well as AI and data-driven decision support solutions. In Australia, we support the Australian Defense Force with ICT and digital infrastructure as well as systems for managing inventories of munitions and explosives and pharmaceutical management. We have also been selected as a supplier under one of NATO's procurement frameworks and signed a contract in January 2025. Looking ahead, we possess advanced and sovereign technologies that will be indispensable for national security. By leveraging these strengths, we will further expand our defense business while also driving innovation in dual-use technologies. Let me highlight a few examples of our progress in the defense domain. First, we are advancing our collaboration with Lockheed Martin to drive technological innovation in dual use areas, strengthening our capabilities at the intersection of civilian and defense applications. In addition, leveraging the hands-on expertise gained through our own ERP transformation, we have developed and are delivering a system based on SAP's ERP solution that enables the real-time management of all material information for the Japan Maritime Self-Defense Force. Next, I will discuss our modernization business. The next stage of Fujitsu's growth will be built on the expertise we have gained through modernizing our own assets, our human resources, including Fujitsu-certified modernization Meister engineers and our AI-powered development tools such as Fujitsu application Transform powered by Kozuchi. On this foundation, we will continue to expand the business, including by replacing third-party assets with Fujitsu assets. In addition, we will continue to advance modernization with the understanding that AI will autonomously perform tasks in the future. We recently announced our AI-driven software development platform, which uses AI to automate the entire software development process from requirements definition to design, implementation and integration testing. Until now, the mainstream approach has been to use AI to improve human efficiency. Going forward, we will shift to a development model in which multiple AI agents collaborate to autonomously drive the process, aiming for significant productivity improvements. Through our own internal testing of this platform, we validated productivity improvements of up to 100-fold for some tasks in productivity. By incorporating our recently announced self-evolving multi-AI agent, we aim to further increase productivity and achieve continuous gross margin improvement of more than two percentage points each year. As AI continues to evolve, it has become essential to advance both its utilization and security measures in parallel. In addition, with the emergence of Anthropic AI model MTO, it is becoming increasingly difficult for existing security measures to counter AI-assisted cyberattacks such as the discovery and exploitation of unknown vulnerabilities and the generation of malware. Security measures are no longer simply an investment or an optional measure. They have become a prerequisite for doing business. At Fujitsu, we have built deep expertise through supporting the security needs of more than 2,500 clients, leveraging this experience, we are accelerating R&D to protect our customers' operations in an AI-driven world from emerging and evolving threats. Specifically, we are advancing initiatives such as automation of security operations through multi-AI agent frameworks, mitigation of vulnerabilities inherent in generative AI and realization of sovereign secure AI collaboration across organizational boundaries. Looking ahead, we will continue to further strengthen our technological capabilities while actively participating in international consortia. Through these efforts, we aim to promote co-creation driven by advanced technologies and contribute to a globally coordinated approach to cybersecurity risks. Next, I will talk about Fujitsu's transformation. Until now, we have worked on strengthening our management foundation through efforts such as HR reforms, including the adoption of a job-based personnel system and job posting system as well as introducing the One Fujitsu Program for practicing data-driven management. From fiscal 2026 onwards, as Fujitsu intends to utilize AI in every aspect of our activities going forward, we will advance initiatives under the key themes of Human capital, Data and AI-driven management; and Trust. For Human capital, we will advance the transformation of our talent portfolio, which is linked to the business portfolio transformation that we have carried out until now. We will also continue to optimize our talent portfolio based on the premise of AI utilization. We will redefine the roles and skills required of our personnel and allocate talent to areas that contribute to Fujitsu's growth and the creation of high added value such as consulting, data and AI and advanced technology research. In addition, as we believe that employees should take ownership of their own careers, we will continue to establish systems and mechanisms to support their autonomy in career development. The second key theme is Data and AI-driven management. Up until now, we have built a globally standardized data platform through our One Fujitsu Program. From fiscal 2026 onwards, based on this data platform, we will move towards fully AI-driven management that leverages our proprietary AI. In doing so, we will improve the speed and quality of decision-making and management judgments. The third key theme is Trust. As I explained earlier, in this era of AI, security is not simply an expense, but rather a prerequisite for corporate activities. Within Fujitsu, we will enhance predictive risk management and establish a security platform and governance that are suited to the AI era with the aim of achieving sustainable management. In addition, we will use these initiatives as reference models and integrate them into the value we provide to our customers. Finally, I will explain the management indicators we aim to achieve based on what we have covered so far. At the core is the evolution of our Service Solutions business. Uvance and modernization will continue to serve as our key growth drivers. Uvance will evolve by combining industry domain expertise with specialized AI agents. We aim for Uvance to account for 50% of service revenue by FY 2030 and over 70% by FY 2035. Powered by the growth of these two businesses, we plan for Service Solutions revenue to grow at a CAGR of 6% to 8%, exceeding market growth. Next is our productivity improvement plan. Through AI-driven delivery, we will achieve sustained improvements in our gross margin. This chart shows the trajectory of our gross margin. Since 2020, we have steadily improved margin through standardization and efficiency in development. Looking ahead, we will further enhance performance by advancing autonomous system development using multi-AI agents. Under this management Vision 2035, we plan to deliver sustained annual improvements of over 2 percentage points. By expanding the use of AI-driven development across projects and development phases, we are aiming to double overall productivity compared with FY 2025. At the same time, we will transform our pricing model. We will shift from the traditional time and materials model toward a value-based model. We will use the cash flow generated from the evolution of our Service Solutions business as the foundation to create new business domains. Over the 10 years through FY 2035, we will secure an investment capacity of approximately JPY 3 trillion. By expanding into newly created markets, we aim to establish new business areas that are distinct from Service Solutions, capturing approximately JPY 3 trillion in revenue by 2035. This represents our overall growth trajectory toward FY 2035. We aim to achieve strong growth in revenue, adjusted operating profit and cash flow. Revenue is expected to expand steadily at a CAGR of 6% to 9%, driven by sustainable growth in Service Solutions, combined with contributions from new businesses. Through high-quality business expansion and sustained productivity improvement, we aim to achieve an adjusted operating profit margin of 25% to 30%, delivering significant growth in both profit and profitability. In addition to profitability improvements, by further enhancing business and capital efficiency, we will strengthen our cash generation capabilities and expect core free cash flow to increase to 4 to 5x FY 2025 levels. Next, I will explain our capital allocation policy, which supports this growth trajectory. Let me first outline the underlying dynamics driven by the growth of our Service Solutions business. On the left, base cash flow, our primary source for allocation will grow ahead of profit expansion, supported not only by business growth, but also by improvements in operational and capital efficiency. On the right, we will allocate this capital to growth investments, focusing on Uvance modernization and the expansion of AI-driven delivery, which are key drivers of our business growth. At the same time, with respect to shareholder returns, we will steadily increase dividends in line with profit growth. Building on this foundation, we will drive further growth by creating new businesses. To support business creation, we are planning an investment capacity of approximately JPY 3 trillion over the next 10 years. Funding for these investments will come not only from internally generated cash flow, but also from external financing. To accelerate our growth, we will also make appropriate use of financial leverage. At the same time, by generating returns and additional cash flows from these investments, we will enhance capital efficiency and total shareholder returns, including the flexible execution of share buybacks. This represents the overall framework of our capital allocation policy. By combining strong cash flow generation from sustainable business growth with the appropriate use of leverage, we will actively pursue growth investments while expanding shareholder returns. Let me explain our approach to shareholder returns. We have consistently implemented an expanded shareholder returns, and there is no change in this policy. We view a total payout ratio of 60% as a key benchmark. Regarding dividends, we implemented a setup increase last year in line with the earnings growth, and we will continue to deliver stable and progressive dividend increases. As for share buybacks, we increased the pace to an annual average of approximately JPY 150 billion during the previous mid-term management plan. We will continue to execute buybacks flexibly with a focus on enhancing capital efficiency. Guided by our capital allocation policy, we will actively pursue growth investments that support business expansion while enhancing shareholder returns. Through this, we will continue to drive a virtuous cycle that enables sustainable growth of corporate value. Based on growth of these businesses and our capital allocation strategy, Fujitsu has established the following financial targets: an adjusted EPS CAGR of over 15% and an adjusted ROE of over 20%. By expanding our business scale, improving productivity, strengthening cash generation and enhancing capital efficiency, we aim to achieve these targets and drive further increases in corporate value. Finally, I would share the purpose of the Fujitsu Group. Today, we have shared our management vision toward FY 2035. This vision outlines the path by which we will realize our purpose. The rapid advancement of generative AI is driving profound transformation across society and industry and its impact will only continue to grow. Looking ahead, I believe that competitive advantage will no longer be defined by the scale of our company's resources, but by how effectively it can integrate the latest AI technologies into its management and operations. As a company that has long supported customers across a wide range of industries, we are convinced that trusted technology is essential to achieving both sustainable business growth and a sustainable society. Fujitsu will leverage all the capabilities we have built today to contribute to this vision and in doing so, deliver on our purpose. This concludes my presentation. Thank you very much for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]