News Releases

10/03/2002

Hitachi and Mitsubishi Electric to Establish Renesas Technology Corp., a New Company for Semiconductor Operations

Oct 3, 2002 09:00 AM

TOKYO, October 3, 2002 - Hitachi, Ltd. (NYSE: HIT / TSE:6501) and Mitsubishi Electric Corporation (TSE:6503) have reached a basic agreement to establish a new semiconductor company, Renesas Technology Corp., that will focus on system LSI operations. The new company will be established on April 1, 2003 and will aim to be a reliable semiconductor manufacturer, working as an intelligent chip solution provider supporting system partners on a global basis as part of their drive to create a prosperous society in this "ubiquitous" era. This agreement is a result of discussions to integrate system LSI businesses, which was agreed to on March 18, 2002.

Hitachi and Mitsubishi Electric will take advantage of the special provisions for corporate reorganization under the Japanese Commercial Code to jointly establish a new company and will move both companies' semiconductor operations to the new company, including microcomputer, logic, analog and discrete devices and memory (flash memory, SRAM etc.) with the exception of DRAMs. The new company will be established following Hitachi's and Mitsubishi Electric's completion of the legal procedures for corporate split. The plans are to appoint Dr. Koichi Nagasawa (currently Executive Vice President, Member of the Board Group President, Semiconductor, Mitsubishi Electric) as Chairman & CEO, and Satoru Ito (currently Senior Corporate Officer, President & Chief Executive Officer of Semiconductor & Integrated Circuits, Hitachi) as President & COO.

Upon establishment of the new company, the sales/service divisions and companies in Japan will be integrated. This will create a single, end to end operation of development, design and manufacturing to sales and service, allowing system solutions to be provided based on the customer's point of view.

Regarding those employees who will be transferred to the new company, the terms and conditions of their existing employment contracts will be honored in accordance with the applicable legal requirements.

Over the past few years, the semiconductor business environment has been characterized by new-product release cycles that are increasingly shorter, as can be clearly seen in the personal computer and mobile telephone markets. There is a strong need to reduce the time required to move the semiconductors used in those products from development to production. Under these circumstances Hitachi and Mitsubishi Electric decided that their semiconductor operations should operate autonomously as a new company to further accelerate decision-making on such issues as funding, capital investment and so forth. Because the system LSI market expansion is forecasted to continue, by fusing the world-leading technical prowess that both Hitachi and Mitsubishi Electric have, the business can be strongly promoted to make the new company the world's top System LSI supplier.

In practical terms, what this will mean is:

1. For microcontrollers, which are the core of system LSIs, securing a steady business base with microcomputers as the new company's flagship business.

2. Enhancing operations in analog, flash memory and discrete devices, where the companies have technological advantages and building this up into a pillar of the new company's profits.

3. In System on Chip (SoC) operations, where both Hitachi and Mitsubishi Electric are strong in the leverage applied technologies, hybrid products using combinations of microcomputer, logic and analog technologies will be designated as a growth area and the company will aim for growth in this field as a new business. In particular, it will aim for the leading position in the mobile, network, automotive, and digital home electronics application fields. Overall, Renesas Technology Corp. plans to achieve sales of over 900 billion yen in FY 2003, its first year.

A stable and firm financial position will be achieved through integration by expanding sales, reducing costs by combining development facilities, sharing manufacturing equipment and purchasing materials in bulk.

The brand name to be used for marketing the new company's products is RENESAS*. Unified branding will be applied progressively to products.

*The new unified brand, RENESAS is derived from Renaissance Semiconductor for Advanced Solutions.

Business integration outline

1. Key points of the corporate split

(1) Schedule for the corporate split

General Shareholders Meeting to approve the intended plan of corporate split: early February, 2003 (tentative) Date of corporate split: April 1, 2003 (tentative)

(2) Method used for corporate split

1) Legal method used for corporate split: A new company will be formed by a corporate split procedure, with Hitachi and Mitsubishi Electric being the companies to be split, and Renesas Technology Corp. to be the new company. Hitachi and Mitsubishi Electric will be allocated new shares of Renesas Technology Corp.

2) Reason for selecting this corporate split method: The corporate split method was selected because it will allow Hitachi's and Mitsubishi Electric's semiconductor operations to be split off, handling in an all-encompassing manner the succession of rights and obligations associated with the integration of operations, allowing the running of the operations to be transferred in a smooth manner.

(3) Stock allocation

1) Proportions of allocations: At the point of the corporate split the new company, Renesas Technology Corp. will issue 5 million ordinary shares, out of which Hitachi will be scheduled to receive 2.75 million (55%) and Mitsubishi Electric 2.25 million (45%) shares.

2) Basis for calculation allocation rates: In the interest of fairness and appropriateness of stock allocation, Hitachi retained the services of Goldman Sachs (Japan) Ltd. and Mitsubishi Electric employed the services of J.P. Morgan Securities Asia Pte. Limited to calculate the value of the businesses to be split. The result of these calculations were used as a basis for discussions between Hitachi and Mitsubishi Electric, which resulted in the parties' agreement to use an allocation rate of 55:45, respectively.

3) Results of third-party calculation and methodologies: Using data on the businesses to be split supplied by Hitachi and Mitsubishi Electric, Goldman Sachs (Japan) Ltd. and J.P. Morgan Securities Asia Pte. Limited applied the discounted cash flow method (DCF), the comparative companies method, the comparative contribution analysis and other methods to calculate the shareholder value, on a consolidated basis, of the businesses to be separated, and after taking overall account of other factors, submitted an allocation rate range to Hitachi and Mitsubishi Electric, respectively.

(4) Rights and obligations to be transferred to the new company Hitachi and Mitsubishi Electric will transfer their assets and liabilities related to the operations and their contractual positions in major contracts relating to the operations to the new company.

2. Profile of interested parties (unconsolidated company basis)

3. Business results from the three most recent settlements (unconsolidated company basis) (Units

4. Brief description of operating divisions being split Operations handled by Hitachi's Semiconductor & Integrated Circuits Group and operations handled by the System LSI Division and the Memory IC Division at Mitsubishi Electric's Semiconductor Group, with exception of DRAM related operations.

5. Status of companies after split There will be no change in name, categories of operations, head office or representative directors at neither Hitachi nor Mitsubishi Electric. There will be no reduction in capital stock as a result of this deal.

6. Profile of Renesas Technology Corp. (after split)

(1) Name: Renesas Technology Corp.

(2) Head office: Chiyoda-ku, Tokyo

(3) Major plants: Hitachinaka in Ibaraki Prefecture, Nakakoma in Yamanashi Prefecture, Takasaki in Gunma Prefecture, Itami in Hyogo Prefecture, Saijo in Ehime Prefecture, Kami in Kochi Prefecture.

(4) Capital: 50 billion yen

(5) Equity ratio: Hitachi: 55%, Mitsubishi Electric: 45% Regarding both Hitachi and Mitsubishi Electric, Renesas Technology Corp. will be an equity method affiliate. While the new company will be independently run, major management decisions will be determined by consensus agreement between Hitachi and Mitsubishi Electric.

(7) Operations: Development, design, manufacture, sales and servicing of system LSI products such as microcomputers, logic, analog and discrete devices, flash memory and SRAM.

(8) Top executives:
Chairman & CEO (representative director):
Dr. Koichi Nagasawa (currently Executive Vice President, Member of the Board Group President, Semiconductor, Mitsubishi Electric) President & COO (representative director): Satoru Ito (currently Senior Corporate Officer, President & Chief Executive Officer of Semiconductor & Integrated Circuits, Hitachi)
Vice President (representative director): Yasuhiko Fukuda (currently Group Vice President, Semiconductor, Director, Mitsubishi Electric)
Vice President (representative director): Masayoshi Ito (currently Managing Officer, Chief Marketing Officer & Chief Information Officer, Semiconductor & Integrated Circuits, Hitachi)

(9) Sales (consolidated): Over 900 billion yen (forecasted for FY 2003)

(10) Number of employees: 27,200 (on consolidated basis)

(11) Sales organization of new company: As for the Japanese domestic sales organization, the present sales divisions of both companies as well as semiconductor sales & distribution subsidiaries, Hitachi Semiconductor and Devices Sales Co., Ltd. and Mitsubishi Electric Semiconductor Systems Corporation, will be combined by April 1, 2003 and will establish a new sales company in order to start sales activities.

Overseas, Hitachi and Mitsubishi Electric operations at their regional locations throughout Europe, the USA and Asia will be integrated during the FY 2003.

(12) Development and manufacturing locations: The 0.1-µm-class leading-edge process development units will be integrated at Mitsubishi Electric's existing Kita-Itami facility. Manufacturing will take place at Hitachi's and Mitsubishi Electric's current manufacturing facilities. A business plan will be formulated to eliminate duplicated R&D expenses, share manufacturing equipment, and eliminate duplicated investments through joint review. These factors will all contribute to making the business more efficient, and will have a synergistic effect, further accelerating the speed of development.

Media contacts:

Hitachi, Ltd.:
Masanao Sato
Corporate Communications Division
Hitachi, Ltd.
Tel: +81-3-3258-2055 (direct line)
masanao_sato@hdq.hitachi.co.jp

Mitsubishi Electric:
Robert Barz
Public Relations Dept.
Mitsubishi Electric Corporation (Tokyo)
Tel: +81-3-3218-2346 Media inquiries only
Robert.Barz@hq.melco.co.jp

Hitachi America, Ltd.
Matt Takahashi, 650/244-7902 (U.S.)
masahiro.takahashi@hal.hitachi.com

Hitachi Asia Ltd.
Yuji Hoshino, +65-6231-2522 (Singapore)
yhoshino@has.hitachi.com.sg

Hitachi Europe Ltd.
Kantaro Tanii, +44-(0)1628-585379 (U.K.)
kantaro.tanii@hitachi-eu.com

For Media/Investor Inquiries, please contact:

Gerard F. Corbett
Hitachi America, Ltd.
Vice President
Corp. Communications Group
Tel:(650) 244-7900
Fax: (650) 244-7920
gerard.corbett@hal.hitachi.com

For all other inquiries please call:
1-800-HITACHI

If you have any questions specifically about Investor Relations in the United States, please contact our Investor Relations Department at investor.info@hal.hitachi.com