As I wrote about Fujifilm (OTCPK:FUJIY)
last week, that company is a relatively rare example of a Japanese
conglomerate that has moved reasonably quickly to transform itself in
response to changing market realities. If Fujifilm is the "after"
picture, Fujitsu (OTCPK:FJTSY)
is more like the "before" picture, as weak profitability in its
manufactured products continues to weigh down the margin and cash
generation potential of its more competitive services operations.
Fortunately, management is not blind to these realities and has already
initiated a process to transform the business away from its legacy
hardware operations.
As of now, the Street isn't
buying the notion that Fujitsu will move itself away from low-to-no
profit businesses like PCs, phones, servers, and chips and re-base
itself around IT services. Even though I believe the business
restructuring efforts will likely lead to no net long-term revenue
growth (as growth in the IT services business is canceled out by sales
and divestments), I think lifting the burden of these lower-margin
businesses will allow for FCF margins to improve into the low-to-mid
single digits, supporting a fair value more than 25% higher than today's
price.
Readers should note that Fujitsu's ADRs are
not particularly liquid. With that said, I would suggest investors
consider buying the Japanese shares (6702.T); most of the better brokers
now support international trading and the hassle/costs are not too
onerous.
Read more here:
Restructuring The Business Could Unlock Meaningful Value For Fujitsu
