Hitachi Formulates its Medium-term Business Plan, the "i.e. HITACHI Plan"
Nov 19, 1999 09:26 AM
-Will use knowledge and information technology to become customers' best solutions partner-
Tokyo, Japan, November 19, 1999 --- Hitachi, Ltd.(TSE:6501) today announced that it has prepared the i.e. HITACHI * Plan, a medium-term business plan aimed at using the Company's wealth of knowledge and information technology (IT) as a basis for utilizing the Internet to become a best solutions partner, as reflected in President Etsuhiko Shoyama's message to all Hitachi's stakeholders: shareholders, customers, employees, and local communities. A medium-term plan that has been under study since Mr. Shoyama became president on April 1 this year, i.e. HITACHI addresses the period up to fiscal 2002, ending March 2003.
* The “i.e.” of i.e. HITACHI stands for information electronics, the driving force that will be used to transform Hitachi into a best solutions partner.
1. Main points of the i.e. HITACHI Plan
(1) Transformation from a manufacturing company to a solutions-providing company: Best solutions partner
In accordance with the i.e. HITACHI Plan, Hitachi will undergo a qualitative and structural change to being a trusted solutions enterprise that utilizes its manufacture’s values such as high quality and productivity as it helps customers through the provision of services and systems. The spread of the Internet and the convergence of information systems and telecommunications are bringing about the age of cyberspace in which individuals, companies, and communities are linked by networks. This is dramatically increasing the efficiency and intelligence of a whole range of social infrastructures, including financial systems, electric power systems, and traffic and transportation systems. Amid these changes, Hitachi's aim is to be a partner to a broad spectrum of customers in sectors that include business as well as the home, and to be the company that these customers trust above all others in the world to create value for them. That is what "best solutions partner" signifies. These efforts will be backed up by the broad-based business experience, powerful, comprehensive technological and financial capabilities, and high quality and reliability of the entire Hitachi Group, which includes 36 companies listed on stock exchanges.
With this serving as the driving force, Hitachi is strengthening its services business to expand sales in this sector of operations to 2.6 trillion yen by 2003, thereby exceeding the initial sales target. In particular, Hitachi will promote services vigorously in new sectors, such as the environment, life science, broadcasting and telecommunications, and financial services, with separately established companies and new corporate entities.
(2) Expansion of Internet-based solutions businesses
The Internet-based provision of diversified solutions for corporate and individual customers will form a core business. To that end, by 2003 Hitachi will invest some 50 billion yen, establish a company which provides various network-based services, and use advanced encryption, electronic watermarks and other such technologies to implement highly reliable network services, and endeavor to achieve the rapid dissemination of its Internet business among customers, under the consolidated brand of the Hitachi Group.
(3) Prioritizing management resources to achieve a high-profit structure
Hitachi's objective is to improve its asset and capital efficiency over the medium-to-long term and to form itself into a corporate entity that is able to consistently ensure the securing of high profits. To achieve this, with information systems and electronics as the core of a profit-oriented business structure, management resources will be prioritized. Specifically, investments will be made into research and development as well as plant and equipment in the solutions and leading-edge devices business sectors on a strictly prioritized basis. Furthermore, at an early stage in the plan's implementation, some 300 billion yen will be committed to acquisitions, equity participations and alliances. Of this sum, 80% or more will be concentrated on sectors relating to information systems with the aim of strengthening system integration (SI) operations.
(4) Building a business foundation based on strategic use of knowledge and information technology
Hitachi will move ahead to lay a foundation as a knowledge enterprise able to provide advanced solutions that go beyond industry divisions and formats and, for creating new businesses, able to comprehensively utilize, as its assets, outstanding technology and extensive experience and expertise, both internal and external. In President Shoyama's "Project 21" plan for establishing a high-profit structure and implementing management reforms, building this infrastructure is an important topic. Thus, Hitachi will make efforts to use total supply chain management (TSCM) to initiate radical reforms of processes and systems, strengthen its intellectual property strategy and expand the funding of venture businesses, and some 200 billion yen will be invested in IT by 2002.
(5) Introduction of results-based evaluation and remuneration system
For achieving the goals of the i.e. HITACHI Plan, a set of guidelines entitled "HITACHI VALUE" will be formulated to clearly define the values and standards of conduct that should be shared by all managers. This will also form the basis for the introduction of a personnel system for managers that is based on ability, not seniority. The introduction of a stock-option system will also be studied to strengthen the emphasis on the shareholders’ perspective.
2. i.e. HITACHI Plan targets (on a consolidated basis)
Sales will be increased by approximately 6% a year from fiscal 1999, ending March 2000, through fiscal 2002, ending March 2003. The share accounted for by the Information Systems & Electronics segment, and Services segment including financial services will be increased.
Amid the ongoing qualitative and structural reforms to reshape Hitachi as a solutions enterprise, profits will be increased by a significant amount, especially in the Information Systems & Electronics segment.
The structural transformation of business operations will be promoted, so that in fiscal 2002 sales by the information-related sectors will account for 70% of total sales and the services business for 25%. Overseas operations are being expanded to achieve a long-term target overseas sales ratio of 50%.
Hitachi views cash flow as an important indicator. Hitachi is endeavoring to implement TSCM and the like to vigorously improve management efficiency throughout the organization and thereby improve the total assets turnover ratio. By speeding up the turnover of inventory assets, accounts receivable and other such items, the free-cash flow will go into the black in fiscal 2001.
3. Specifics of the i.e. HITACHI Plan
3-1: Internet-based strengthening of service business
Hitachi considers its strength to be its ability to provide solutions backed up by its abundant wealth of experience, knowledge and technology. To mobilize the experience and knowledge of its total workforce, 200 billion yen will be spent on IT to build systems that contribute to advanced knowledge management.
Also, amid the rapid expansion of the Internet, the services business will be strengthened by providing a variety of Business to Business (B to B) and Business to Consumer (B to C) solutions in which the emphasis will be on high reliability. On a consolidated basis, it is estimated that service business for fiscal 1999 will amount to around 1.75 trillion yen, exceeding the initial target. The figure for fiscal 2003 will be 2.6 trillion yen, 100 billion yen more than the initial target.
Totaled 2,600 billion yen in FY2003 (+850 billion yen)
Information systems: 1,060 billion yen in FY2003 (+520 billion yen) Of the 300 billion yen to be spent at an early stage in the plan's implementation on acquisitions, equity participations and alliances, upwards of 80% will be channeled into information systems as a core sector. In addition, over the four-year period the systems/services workforce will be expanded by some 7,500 to establish a solid foundation. Major items:
(1) SI solutions services (including industry-specific services): 630 billion yen in FY2003 (+192 billion yen)
Hitachi will steadily expand its business in SI services tailored to the needs of specific industries seeking to leverage the Internet, such as Internet-based electronic financial markets and the so-called "super cyber government" as well as SI services for small and medium-sized enterprises
(2) Internet services (B to B business): 100 billion yen in FY2003 (+56 billion yen) There will be a focus on consolidating network capabilities, including those of affiliated companies, for promoting business under a unified brand. For this, next April a company will be set up to run the shared network infrastructure of the Hitachi Group. In addition, Hitachi will develop applications for B to B businesses that utilize this infrastructure and expand its application service provider (ASP) business targeted at companies. Forty billion yen will be invested by fiscal 2003, when annual sales of 100 billion yen are expected to be achieved.
(3) Internet services (B to C business): 40 billion yen in FY2003 (+40 billion yen) In February 2000, a division will be established within Hitachi, Ltd. for promoting B to C business. 10 billion yen will be invested by fiscal 2003, in which year sales of 40 billion yen will be achieved.
(4) Outsourcing services: 92 billion yen in FY2003 (+56 billion yen) Hitachi will expand its business in such areas as outsourcing for major corporations seeking to introduce 401-K-type plans and the like as well as joint-type outsourcing for public organizations and financial institutions.
Finance / Transportation: 510 billion yen in FY2003 (+110 billion yen) These sectors will be strengthened using risk management operations (securities, fund management, etc.), outsourcing (financial business support services, card network business, customer management agency systems) and other new businesses.
Maintenance / Social infrastructures: 1,030 billion yen in FY2003(+220 billion yen) The intelligent transport systems (ITS), energy service company (ESCO) and environmental solution businesses will be strengthened using IT and the consolidated expertise of affiliated companies.
3-2: Concentrating Company resources to strengthen the solutions business
Utilizing the company's financial capabilities, a total of 300 billion yen is to be concentrated on acquisitions, equity participations and alliances, with the emphasis on the information sector
For its transformation into a solutions provider, in deploying Company resources, Hitachi will prioritize R&D and plant and equipment investment in the solutions and leading-edge devices business segments, and effectively utilize outside resources. For this, at an early stage in the plan's implementation, the investment of some 300 billion yen is being planned for acquisitions, equity participations and alliances: currently some 60 such items are being studied. 80% or more of the total will go to information related business sectors.
At the same time, top management will select products to be pruned, and the Company will stop manufacturing such products within one year. This will accelerate Hitachi's move out of unprofitable sectors.
Information Systems & Electronics:
Priority allocation of management resources
Partnerships with, and/or acquisitions of, overseas SI firms and overseas sales firms that provide higher added value will be used to effect a shift away from hardware sales and towards solutions businesses such as consulting and SI.
The alliance with Computer Sciences Corporation, a U.S. company, will be used to strengthen Hitachi's solutions capabilities in the area of major projects with domestic financial institutions
To make the storage area network (SAN) solutions business a core part of operations, ties with Hewlett-Packard Company will be strengthened and efforts made to effectively utilize Hitachi Data Systems.
To strengthen information service operations, the number of personnel in the information business sectors will be increased by around 7,500. This will be done using M&A, year-round recruitment, and staff transfers from the Power & Industrial Systems Group.
The Information & Telecommunications Systems Group will be reorganized into a number of groups in January 2000. This will strengthen sector-based solutions and help to speed up management. A services division will be established and it will coordinate information service operations such as the application service provider (ASP) service and the TWX-21 inter-company electronic commerce service will be consolidated in an endeavor to run them strategically.
To increase efficiency, unlisted systems and software affiliates will be reorganized along segment-specific solution lines.
In Japan, Hitachi will specialize in value-added products such as system LSIs and system memories. Also Hitachi will enhance its value-added products such as chip-sets and middleware. On the production side, to strengthen the Company's ability to meet to customer demand, there will be a resumption of investment in the N-3 300mm-wafer production facility in Hitachinaka-shi, Ibaraki prefecture.
In DRAMs, Hitachi's joint venture with NEC Corporation is being used to increase efficiency and speed up design and development, and production is being centered on Hitachi Nippon Steel Semiconductor Singapore (HNS). During the current fiscal year, 40 billion yen is being invested in HNS to expand wafer processing capacity to 30,000 units a month during the next fiscal year.
Hitachi developed a new generation of wide-viewing-angle Super TFT LCDs as it uses this superior technology as the core in its positioning of large TFT LCDs as a strategic product. For this, Hitachi is investing over 50 billion yen to build a new production line (V-3). This will be done to enable the plant to process 40,000 of the industry's largest glass substrates per month. Hitachi is also strengthening its business in low-temperature polysilicon TFT LCDs for multimedia products to cope with the expected rapid expansion of demand.
Hitachi is using its joint venture with Fujitsu Limited to rapidly expand production of plasma display panel (PDP) products and maintain its leading share of the world market.
With PCs and TVs converging and the move toward DVD as a bridge medium picking up speed, the Hitachi Group's leading-edge device development capabilities and advanced DVD technology are being used to strengthen the company's media PC and DVD products. Along with this, application capabilities for mobile devices are also being strengthened to reinforce the company's participation in the digital consumer market.
The wealth of video system technology accumulated through the company's participation in various areas such as video content distribution management services, is being used as a foundation for enhancing the business of providing solutions tailored to customers' needs.
Power & Industrial Systems: Shifting to IT solutions and reorganization that encompasses alliances and affiliated companies
Hitachi will continue to provide highly-reliable social infrastructure systems supported by advanced technology. Looking to the future, IT will be used to increase the efficiency and intelligence of systems and the shift to the business of solutions in the areas of ITS, the environment and ESCO will be accelerated. Alliances are being emphasized in product sectors where Hitachi has a high market share. The Company is shifting personnel to the information business sector and discontinuing unprofitable product lines. And manufacturing divisions are being set up as separate companies as part of a reorganization that includes affiliated companies, all aimed at recovering profitability and reviving competitiveness.
In Elevators & Escalators, building management firms will be acquired to expand the business of providing general building management systems. Management efficiency will be further promoted by reorganizing companies affiliated with Elevators & Escalators.
With respect to Industrial Components & Equipment, profitability will be improved by establishing manufacturing divisions as separate companies next April. Reorganizing the business Group as a separate company is also being considered.
Consumer Products: Sales channels are to be utilized to strengthen service business. Hitachi will use strategic alliances to improve the profitability of its home appliances. In the growth sector of home infrastructures, Hitachi will strengthen its digital media business, make its applications network-ready, and develop business in combination with B to C services. Also, retail chains are being targeted as bases for services with strong local ties to strengthen leasing of welfare and nursing equipment, and the home improvement business.
Materials: The development of materials systems solutions and emphasis on electronics
The focus is on the development of materials with new functions and on tackling the provision of materials systems solutions as a new service business model in accordance with which material combinations and production processes are evaluated and the optimum selection made on behalf of the customer. In broad terms, electronics sectors will be given priority. Also, emphasis will be placed on Hitachi Metals' high-grade metal products and optical materials produced by Hitachi Cable and Hitachi Chemical, thereby providing strong support for the solutions business of the Hitachi Group as a provider of leading-edge materials.
Finance & Services: Providing diverse financial services and IT-based solutions In addition to financial services such as financial products development, securities business, overseas finance, securities transfer agency services and insurance agency services conducted by Hitachi Credit and Hitachi Leasing, etc., Hitachi Investment Management, set up this year, and a fund management outsourcing company and financial systems development company that are going to be set up will be used to provide a diverse range of financial services. To manage these financial services as a pillar of the solutions business, the focus will be on providing the services integrated with, for example, TWX-21, a business media service for enabling electronic commerce (EC) transactions between enterprises. The economies of scale enjoyed by the Hitachi Group will be utilized to achieve greater efficiency of Group fund operations.
3-3: New businesses Hitachi will use the comprehensive capabilities, leading-edge technologies and expertise of the Hitachi Group to create new businesses that will be able to provide social systems that offer higher safety and more comfort.
Internet services Hitachi is consolidating the various networks of the Hitachi Group under a united brand and using the high reliability of its advanced encryption, electronic watermark and other such technologies to vigorously expand its Internet services. B to B operations include providing network services, network infrastructures, business platforms and business applications. At the same time, with the B to C business expected to exhibit very strong future growth, in February 2000 a B to C business group will be established within Hitachi, Ltd. To provide the requisite business infrastructures, a company which will provide the above-mentioned network-based services will be established next April, and 50 billion yen will be invested by fiscal 2003, when annual sales of 140 billion yen are expected to be achieved.
ITS (intelligent transport systems) business In the growing ITS market sector, Hitachi and its affiliated companies are vigorously working on the vehicle road information communication system (VICS), electronic toll collection (ETC) system and the automated highway system (AHS). In April this year, an ITS business promotion committee was inaugurated and set a sales target of 75 billion yen in fiscal 2002.
ESCO (energy service company: energy solutions business) Solutions are being provided using the full capabilities of the Hitachi Group, encompassing a wide range of energy-related products, extensive experience and expertise in building systems, and the cooperation of affiliates on the financial side. With external expertise provided by an alliance with Siebe Intelligent Building Systems, a U.S. firm with extensive experience in the ESCO field, a sales target of 50 billion yen has been set for fiscal 2004.
Environmental solutions The collective service, distribution and IT capabilities of 30 member companies of the Hitachi Group are being used to respond to the needs of environmental services, which are growing in scale and complexity. In addition to Hitachi's environmental equipment business, the focus is on expanding processing and recycling operations, environmental consulting services, purification operations, and facilities operation and maintenance. On a group basis the target for the next fiscal year is to win orders worth 300 billion yen.
Financial services In this future growth sector, the extensive achievements of affiliated companies are being augmented by the addition of the new Hitachi Investment Management set up this year and the upcoming establishment of a fund management outsourcing company, thus enhancing the overall growth potential of the Hitachi Group.
Gerard F. Corbett
Hitachi America, Ltd.
Corp. Communications Group
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