January 6, 2003
Let me take this opportunity to express my best wishes to all of you for a happy and prosperous New Year.
As you will be aware, the year just ended was one of unusual severity for Furukawa Electric.
The bursting of the IT bubble in the United States and its exacerbating influence manifested by the negative growth of Japan's economy have brought about a drop of nearly 14% in the Company's sales for the first quarter of fiscal 2002, and an operating deficit of 5.9 billion yen.
Furthermore, a period during which Japan's GDP has remained stagnant at 500 trillion yen has seen the emergence in neighboring China of a workshop for the world --a nation in which the economy grows at an annual rate of 7%, the population is 1.2 billion, and the cost of labor is one-twentieth that of Japan. This development has also had a significant negative impact on the Company's balance sheet. As the globalization of the world economy proceeds, we are about to see even fiercer competition in which some firms will rise to the top while others sink. It will clearly be a case of "winner takes all".
For Furukawa Electric to be able, in this severe economic environment, to survive in the competition with China and other countries, there are a number of things that have to be done.
Firstly, to increase the number of new products;
to give the fullest priority to "customers needs", deliver a steady stream of innovative products, and to increase orders and sales. We would like to set a target of 60% for new products.
Second, to reduce production costs;
Toyota is not satisfied with a 10% annual decease in costs, but has explicitly called for "costs that will let us beat China". We too, whether in materials, productivity, fixed costs or other areas, must put our every effort into effecting cost reductions beyond anything imagined in the past.
Third, to put the world into your field of vision;
We hope everyone will realize that, facing competitors in all parts of the world, there is no way to survive other than to acquire worldwide market share. We must achieve unprecedented growth in our order books.
Let me turn next to OFS, which we acquired in the United States. Despite successive restructuring measures implemented last year it has had a destabilizing effect on consolidated accounting practices, and the severe situation that has resulted is a source of great regret. This year, however, it will at least be possible to staunch the outflow of cash, so that the worst is certainly behind us and an upturn is ahead.
It will still be some time before OFS makes any contribution to the consolidated balance sheet, but we are confident that in the near future it will be highly promising. We are sure that OFS, working in concert with the people of the former Bell Labs --for so long a world-renowned name-- will be a leader in the world market for fiber optics.
NTT and other major Japanese telecoms are going to realize Fiber-To-The-Home programs, getting this year off to a good start. But the existing severity of our circumstances mean that for Furukawa Electric to truly play the role of a top-echelon multinational company I must close this New Year message with the hope that each and every one of you will put forth your best efforts in full awareness of the dangers and tensions that we face.
Junnosuke Furukawa
President
6 January, 2003