Fujitsu pinpoints 20 M&A targets in $5.8bn spending drive

Fujitsu has drawn up a shortlist of 20 acquisition targets as part of a $5.8bn investment drive to capitalise on a pandemic-induced increase in demand for its digital services.

Takahito Tokita, chief executive, told the Financial Times that the mergers and acquisitions push would accompany an acceleration in the disposal of non-core assets to sharpen the Japanese group’s focus on technology services.

Under Mr Tokita the company is attempting to regain its international footing. It is seeking to pivot from traditional IT vendor to broader tech and consulting services to compete against the likes of IBM and Accenture. 

Fujitsu has struggled to shake off its hardware-only image, even after selling its mobile phone and laptop businesses to focus on services using its cloud computing and artificial intelligence technology. 

“Instead of simply bolstering our hardware, we are considering various M&A options with a global impact that will strengthen our software and services,” Mr Tokita said. 

The acquisitions will be financed by a five-year budget of as much as ¥600bn ($5.7bn) for investments in alliances, technology development and hiring of talent to reinforce its digital consulting services.

Mr Tokita declined to identify or provide details on the 20 M&A targets, and said no decisions had been made.

Fujitsu’s M&A strategy is spearheaded by Nicholas Fraser, an acquisition expert poached from McKinsey in March. He joined as part of Mr Tokita’s diversity push involving hires from rivals such as PwC Consulting, Microsoft and SAP, Europe’s largest software company. 

While Covid-19 has forced many companies to cut IT spending, Fujitsu expects pressure to adopt 5G, cloud services and AI will boost its digital services revenue to ¥1.3tn in three years, which would account for 37 per cent of overall sales.

Like domestic peer NEC, Fujitsu sees the US-China trade dispute and sanctions against Chinese telecoms group Huawei as a chance to get back into the global race to supply 5G equipment.

“There is no question that opportunities will arise from the exclusion of Chinese companies, and we are in fact receiving offers,” Mr Tokita said.

In June, US satellite company Dish agreed to use Fujitsu radio units, a deal Mr Tokita hopes will provide an avenue for expansion in North America.

A shift from hardware to software, however, is a challenge that has long bedevilled Japan’s once powerful consumer electronics giants.

While Japanese companies excel at making customised products for clients, they have lagged behind in creating technologies and services capable of being applied globally, said Mr Tokita. 

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In October, Fujitsu’s reputation took a hit when a hardware glitch in the trading system it developed triggered a full-day outage on the Tokyo Stock Exchange.

Still, Mr Tokita’s promises of change and greater profitability have buoyed investor confidence, with shares in Fujitsu up 89 per cent since he took the helm in June 2019. For the fiscal year ending in March, the company projects an operating profit of ¥212bn, its highest in two decades. 

As part of a revamp alongside Tokyo’s push for a “digital transformation” of Japan Inc, Fujitsu has said it plans to halve office space and permanently shift its 80,000 staff in the county to telework.

“The year ahead is going to be a very big challenge for us in terms of whether we can really change our traditional image,” Mr Tokita said.

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