October 27, 2010 / 6:36 AM / 7 years ago

UPDATE 3-Fujitsu Q2 profit doubles, cuts sales outlook

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* Q2 op profit 37.16 bln yen vs 30.4 bln yen consensus

* Keeps Y185 bln 10/11 profit forecast, in line with estimate

* Cuts annual sales forecast by 2.7 pct on lower IT spending

* British government spending cuts hurt sales -exec

* Fujitsu shares close up 1.9 pct before results

(Adds details)

By Sachi Izumi

TOKYO, Oct 27 (Reuters) - Fujitsu Ltd (6702.T), Japan's largest IT services vendor, beat expectations with a doubling of quarterly operating profit but cut its annual sales outlook as it copes with a firmer yen and corporations rein in IT spending.

Fujitsu's lower sales forecast, while not a surprise to analysts, underscores the increasingly murky outlook for IT services providers as a fragile global economic recovery prompts companies and governments to review their investment plans.

Fujitsu, which ranks third in the global IT services sector behind IBM (IBM.N) and HP (HPQ.N), said it had been hurt by a drop-off and delays in U.S. and European IT investment, as well as the yen's JPY= rise to a 15-year high on the dollar.

"The economic recovery in the United States and Europe was unfortunately slow and we could not get as many contracts in the private sector as we had hoped," Fujitsu Chief Financial Officer Kazuhiko Kato told a news conference in Tokyo, adding that the company has been hard hit hard by spending cuts by the British government.

"But our business negotiations have been going well in regions like central Europe and the Nordics, and we would like to see how these will turn out in the second half."

For the July-September quarter, Fujitsu said its operating profit totalled 37.16 billion yen ($456.4 million), against an 18.9 billion yen profit a year ago. Sales fell 3.7 percent to 1.1 trillion yen.

The firm yen and the euro's drop against the dollar cut into the profits of the company, which has large operations in Europe, but strong sales of its network products such as optical transmission devices helped offset some of the losses.

Fujitsu, which competes with NEC Corp (6701.T) and Hitachi Ltd (6501.T) in Japan, stood by its full-year forecast for a 185 billion yen operating profit, but lowered its sales outlook by nearly 3 percent to 4.67 trillion yen.

It now assumes 85 yen to the dollar for the second half, revised from its previous 90 yen/dollar estimate.

Fujitsu's operating profit forecast is in line with a consensus estimate in a poll of 19 analysts by Thomson Reuters I/B/E/S, and would be the company's biggest in three years.

"They've been saying from around summer that (corporate IT spending) may not be as strong as they'd expected so in that sense that seems to have been reflected in the lowered revenue forecast," said Deutsche Securities analyst Takeo Miyamoto.

Last week, IBM reported a decline in services and outsourcing contracts for July-September, overshadowing a gain in its overall profits and triggering a fall in its shares from a record high. [ID:nN18152165]

Fujitsu's Kato said U.S. elections in November and the British government's budget cuts are clouding its business outlook.

Britain's coalition government has announced plans to cut 80 billion pounds ($126 billion) from government spending to try to drive down its deficit, currently running at around 11 percent of national output. [ID:nLDE6720PZ]

"The (British) government is being so stingy about its spending that large contracts we won in the private sector do not cover (the loss from this)," Kato said.

Fujitsu's overall earnings have also been supported by a strong performance in its mobile phone business, which it merged with the handset operations of Toshiba Corp (6502.T) this month.

Its chips and other electronic devices returned to a profit in July-September, helped by brisk sales in Asia and cost cuts.

Prior the the results, Fujitsu's shares closed up 1.9 percent, outperforming a 0.3 percent rise in the electric machinery sector index .IELEC.T.

Fujitsu's stock is down 9 percent so far this year, against a 6 percent drop in the sector index. ($1=81.41 Yen) (Reporting by Sachi Izumi; Editing by Anshuman Daga and Joseph Radford)

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