Among multiple cost-cutting measures, Fujitsu will exit the market for hard-disk drives for PCs, reduce printer production and ax 4,200 employees in the Philippines, Thailand and Vietnam, said president Naoyuki Akikusa. The company will continue to produce hard drives for servers and notebook computers, Akikusa said.

Resolving at least one rumor circulating about the company, Akikusa said Fujitsu will not sell or mothball its flash fabrication facility in Gresham, Ore. Instead, it will form a joint venture with Advanced Micro Devices Inc., its flash memory partner, to govern the fab. Fujitsu will also reduce to nine its front-end semiconductor manufacturing lines in Japan, closing lines in Mie, in Iwate and in Aizu-Wakamatsu.

Fujitsu will also cut two back-end and test lines in Japan, leaving five operational. The line closures will cost about $1.04 billion. Fujitsu will also spend about $166 million to streamline production of other electronic components.

Business charges

The company will also spend $375 million to streamline and downsize its legacy telecommunications equipment businesses, and will henceforth focus on photonics, Internet Protocol and 3G mobile equipment. Fujitsu will also take a $250 million charge to consolidate its server and storage businesses, and another $250 million charge to restructure other units to focus on higher value-added businesses.

Overall, Fujitsu expects these measures to halve inventory, achieve a return on equity of 10 percent, reduce fixed costs by $1.67 billion over two years and generate an operating profit of $3.33 billion for the fiscal year ending March 2004, Akikusa said.

"We are facing an extremely elongated U-shaped recovery, but the IT market will grow in the long term, we believe," Akikusa told reporters.

With no economic remedies around the corner, Fujitsu's only option was to reduce fixed costs, Akikusa said. The company is making one of the largest job cuts in Japanese corporate history, touching nearly 10 percent of its work force. In total, about 5,000 jobs will be lost in Japan, and 11,400 jobs will be lost overseas. About half of the domestic cuts will come through early retirement and the rest will affect contract workers, Akikusa said.

The moves follow Fujitsu's announcement of terrible first-quarter results. For the three months ended in June, the company lost $352.5 million at the operating level and had a net loss of $458.3 million.

"Fujitsu's first-quarter results and outlook were appalling. Every major product division was in the red," said Scott Foster, senior vice president of technology at Lehman Brothers Japan. Foster called Fujitsu's revised operating target "sensible, providing costs can be reduced as planned.

"The problem is that the competition that forced the current restructuring will not go away," he said. "Rather, it is likely to grow."

Sketchy answers

Monday's announcement sketched answers to questions about Fujitsu's fab in Gresham, which characterizes the company's heavy investment in the flash business. Kazunari Shirai, executive vice president for Fujitsu and group president of the company's electronic devices group, elaborated little on plans for the fab.

"This year the flash and system LSI business has been extremely poor," he said. "After several months of discussion with AMD, we have decided to form a 50-50 joint venture with AMD and we will sign a memorandum of understanding with them either next month or the month after."

Shirai denied there would be any immediate job cuts at the plant. An AMD spokeswoman in Japan said the company was unable to comment about the joint venture.

Faced with shrinking demand for flash memory following last year's boom, executives within Fujitsu's semiconductor group have been torn between selling the Gresham facility or closing it down, according to a source familiar with decision makers at the company.

"There is an indecisive situation in Fujitsu management," the source said. "It is also clear that AMD just doesn't have the money to buy the fab, even if they wanted to."

The decision to form a new joint venture to control the fab represents an amenable half-way solution for Fujitsu and AMD to split costs and share risks, said Michito Kimura, a flash analyst with International Data Corp. in Japan. "They seem to be looking at a risk-hedging strategy," he said.

The decision finds ground between investors' suggestions and Fujitsu's strategic need to maintain capacity to protect its investments and market share when the flash market recovers, Kimura said.