hitachi, ltd.hitachi, ltd. isao ono senior corporate officer senior group executive ，information...

Hitachi, Ltd.

Isao OnoSenior Corporate Officer Senior Group Executive ， Information Business GroupPresident & Chief Executive Officer,Information & Telecommunication Systems

Strategies for Hitachi’s Information &

Telecommunications Business－Rebuilding Our profit Structure Based on Software and Services－

Strategies for Hitachi’s Information &

Telecommunications Business－Rebuilding Our profit Structure Based on Software and Services－

１３Ｊｕｎｅ２００２１３Ｊｕｎｅ２００２th

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34

Contents

All Right Reserved, Copyright（C） 2002, Hitachi, Ltd.

5

Measures to Strengthen Consolidated Management and Global Business

Conclusion

Business Plan for a Changing Market

Measures to Achieve Business Goals for Fiscal 2002

Measures to Create a Higher Profitability Based on Software and Services

2

Contents

All Right Reserved, Copyright（C） 2002, Hitachi, Ltd. 3

Contents


1

345


Conclusion




2 Measures to Achieve Business Goals for Fiscal 2002

All Rights Reserved, Copyright（C） 2002, Hitachi, Ltd.

1-１. Change of Customers’ Needs

Reduction of Total Costs

End User Costs (HR costs, Training, etc.)

Operating & Maintenance Cost

Cost of IT System Purchase

Management ReformManagement Reform

Use of ITUse of IT

Cost CuttingCost Cutting

Creation of New BusinessCreation of New Business

PartnershipsPartnerships

Sharing of Risks & ReturnsSharing of Risks & Returns

Recovery of Core BusinessRecovery of Core Business

Selection and ConcentrationSelection and Concentration

　　OutsourcingOutsourcing

4

SI Services

TrainingOperation & Maintenance

Consulting

Outsourcing

From Products to Value

Total Support for System Life Cycle


Trends in the IT Market1-２.

：Average Growth Rate（’02-’05）

200520022001

10.4％

HardwareHardware 7.5％

2005

5.5％

20022001

3.6％

5

Source：IDC,JEITA,et.al.

Japanese Market

7.４％

SoftwareSoftware

11.9％ServicesServices

Expansion of global market with recovery of U.S. economy

8.0％15.7％

Japanese economy will remain sluggish, but IT market will expand, driven by software and services

HardwareHardware

SoftwareSoftware

ServicesServices

ScaleScale

WW Market


Information Systems Services Social Infrastructure Systems

One-Stop Support for Information Lifelines in a Ubiquitous Information Society

1-３. Hitachi’s Strength

6

+

Solutions for Business Sectors

Information/Telecommuni-cations Terminals

Broadband

Joint Solutions for Information Systems and Control Systems

Terminals Which Can Be Used by Anyone, Any Time, Anywhere

24 -Hours, High-Volume, High-Speed Networks

Integration of Information/Telecommunications/Broadcasting

Mobile Terminals in Vehicles

Information Appliances

Platform Solutions

Cross-Business Sector Solutions


System SolutionsMiddleware

Hardware

Business Plan1-４.

Bring Hitachi character through synergy of information systems and control systems

7

Develop solutions based on strong hardware and middleware

Secure stable profit through selection and concentration in the hardware sector

Reform profit structure by focusing on software and services


Management Goals(Short & Medium Terms)

Achieve business goals in the information and telecommunication segment

Short-Term Goal (FY2002)

8

Reach 10% operating income margin in software and services

Medium-Term Goal (FY2005)

1-５.

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Conclusion






Business Plan2-１.

Increase income from software and servicesImprove profit from hardware

10

Achieve business results’ goals in the information and telecommunication segment

Cut fixed costs

Short-Term Goal (FY2002)

Basic Plan to Achieve the Goal


2002 Business Goals by Product Segment2-２.

11

¥2 trillion ¥1,829.6 b

：Hardware：Software/Services

Composition Ratio

Net Sales (Consolidated)

¥100 billion

Operating income (Consolidated)

¥35.7b

FY2001 Result FY2002 Forecast

００

¥868.8b

４７％

¥852.6b

４６％

¥ -9.3b

¥15.0b

¥960.8b

５３％

¥987.4b

５４％¥45.0b

¥60.0b

８０％

２０％

：Hardware：Software/Services

¥1 trillion

¥1,840 b


¥50 billion

¥70.0b

Composition Ratio


Measures to Achieve FY2002 Business Goals for Software and Services

12

2-３.

　Increase profit through improved project management

　Develop potential customers and expand package business

¥60.0b

■ Net Sales (Consolidated)

■Operating Profit (Consolidated)

¥987.4b¥960.8b

SoftwareSoftware

¥213.4b¥191.5b

　Expand open middle businesses　

¥45.0b

ServicesServices

¥769.3b¥774.0b

¥500billion

ServicesServices

SoftwareSoftware



¥50billion

Measures to Achieve Business Goals


Measures to Achieve FY2002 Business Goals for Hardware2-４.

　Increase profitability of SAN/NAS storage solutions business・Increase net sales

¥250.0 b in FY2001 → ¥280 b in FY2002 ・Introduction of new product, “SANRISE9900V”・Quick business expansion through alliances

　 Increase income of telecommu-nications business・Restructuring of business and improve management efficiency

¥-9.3b

13

ハード

　Effect of fixed cost reductions in FY2001

¥15.0b

10billion

0

■ Net Sales (Consolidated)

■Operating Profit (Consolidated)FY2001 Result FY2002 Forecast


¥500billion

¥868.8b¥852.6b

Measures to Achieve Business Goals

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Conclusion



Measures to Create a Higher Profitability Based on Software and ServicesMeasures to Create a Higher Profitability Based on Software and Services


Market Trends by Service Segment3-１.

15：Average Growth Rate (‘02-’05)

（Trillion ¥/year）

Maintenance, Training,Consignment Accounting, etc.

FY2001Result

FY2002Forecast

FY2005Forecast

0

SI Services

14.6%

11.7%

Fee-Based Services

2.5%

23.823.8

62.067.7

94.9

25.825.835.935.9

25

75

100

SI Service Market Continues to ExpandBusiness opportunities in Fee-Based Services Increase

0

2.02.0

2.12.13.03.0

3

6

9

5.8 6.3

7.8

1.91.9

2.12.12.62.6

2.5%

12.9%

7.3%

2.02.02.12.1

2.22.2

Source: IDC, JEITA, etc.

WW Market Japanese Market

5019.919.9

18.818.8

26.026.0

19.419.4 22.022.0

33.033.0

（Trillion ¥/year）

Maintenance, Training,Consignment Accounting, etc.

Fee-Based Services

SI Services

FY2001Result

FY2002Forecast

FY2005Forecast


Business Plan(1)3-２.

Operating Income Margin in Software and Services

Actual Measures

5% (FY2001 Result)

10% (FY2005 Forecast)

Midterm Goal (FY2005)

528億円

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Services

Stabilization of income from SI services as the base load business

Creation of networked businesses

Software

Stabilization of income from SI services

Expansion of fee-based services and new businesses

Strengthening of middleware businessImproved earnings through integration with strong hardware high earnings through software


ＳＩ

ＳＩ

Software

Fee Based

Software

Business Plan(2)

17Sales Profit Ratio

FY2001 Results

＊Fee Based：Operation & maintenance

　　　　　　　 Outsourcing　　　　　　　 Consulting　　　　　　 Training

Services：From SI services focus to balance between SI and fee-based services　　　　　　　 Increase of profit through new fee-based service businesses　　　　　　　 Stabilization of income through improved efficiency of SI services　

：Target for FY2005 Net Sales

：Actual FY2001 Net Sales

3-３.

FY2001 Results & FY2005 Goal

Software：High earnings through improved middleware integrated with strong hardware

Rate of Net Sales Growth

Fee Based

All Rights Reserved, Copyright（C） 2002, Hitachi, Ltd. 18

3-４.

Stabilization of Profit from and Expansion ofSI Service Businesses

Stabilization of Profit from SI Services（1）

Enhance profitability from growth of package

solutions

Change of focus from software productivity to total

solutions productivity

Knowledge gained from DevelopmentReliability of overall systems

Hitachi’s Strengths in SI


Improve Productivity

Promotion of Cost Reduction

Accurate Reflectionof User’s Needs

　Increase efficiency of software development through leveragingof overseas resources

　Improvement of overall SE quality （Expert Certification System）

　Increase efficiency of development and planning through improved top-level consulting

Make full use of development assistance tools

3-５.

Improve Project Management

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Change of focus from software productivity to total solutions productivity

　Certification and licensing of project managers appropriate to the scale of the project


Share all the knowledge among affiliated companies

Concentration of knowledge in the Project Management Division(established November 2001) .Project Management Division provides assistance from an engineering perspective


Establishment ofCross Market Systems

Solutions Division

3-６.

20

Acquiring New Customers

Improvement of Development & Marketing

Systems for Package Solutions and SCBANK

Development of package solutions for small and medium-sized companies （total:85 products）

　Acquiring of new 5,000 small and medium-sized companies（by the end of FY2002)（FY2001 results:2,860 companies,360 more than planned）Winning new demand by strengthening database marketing

　（Construction of customer database of 90,000 companies）

Expansion of package lineup through development of peripheral solutions, such as ERP

Increased profit from Growth of Package Solutions


Collection of Hitachi Group package solutions information and expansion of the strength of marketing activities

Promotion of SE-less systems by expanding optional solutions

Packaging of internal knowledge (consolidated accounting, procurement, general affairs, etc.)

Expand customer base through collaboration with marketing partners


Expansion of New Business （Fee-Based Services）（1）

Net Sales for Services

528億円

Concrete Measures

FY2002 forecast

¥500billion

FY2005 Image

Fee-Based ServicesFee-Based Services

4 Main Businesses4 Main Businesses

¥774.0b

＊Fee-Based Services：Operation and maintenance, outsourcing, consulting, training

Expansion of New Businesses(Fee-based Services)　　Strategic Outsourcing

　　MSP(Management Service Provider）

　　Cyber Security

Reduction of customerＴＣＯ(Total Cost of Ownership)

3-７.

21

SI ServicesSI Services

　　 Platform Support & Service

Average YearlyGrowth：１０％


3-８.

　Acquisition of stable profit through aggressiveexpansion of strategic outsourcing business,including acquisitions and capital investment and long-term, comprehensive outsourcing

　Planned investment of ¥50 billion by FY2005:Strategic alliance and expansion of outsourcing center facilities

22

Business Scheme

事業目標

（２）Partnership

（１）Consignment（Present Outsourcing)

（３）Purchase of Assets or Departments

HitachiHitachi

HitachiHitachi

Use of IT Assets

HitachiHitachi Business Consignment

Customer（ＩＴ Department,

Subsidiary）

Customer（ＩＴ Department,

Subsidiary）

CustomerCustomer

Investment Investment

Customer（ＩＴ Department,Subsidiary）

Customer（ＩＴ Department,Subsidiary）

Joint Venture

Company

Joint Venture

Company

Business Methods

Hitachi’s Strengths

FY2005 TargetSales：¥120 billion

-Strategic Outsourcing Business-

Business Target


　Trust from clients

Nationwide SE network with industry & business knowledge

Combined strength of the Hitachi Group,including affiliated companies, such as Hitachi Information Systems, Ltd.


3-９.

23

Customer

Divisions/R&D LabsSpecialized consulting Top U.S. MSP vendors

・Automation of service offering・SLA Packaging

High-level analysisthrough professional

IT management services enhancement

Offering of Stable System Operation

-MSP Business-Expansion of New Business （Fee-Based Services）（3）

Business Target


Business Scheme

　　Securing of stable profit and improvement profitability through client IT asset management and operation consignment services

Offering of one-stop services


Advanced experience of Multivendor system SI

　 Nationwide SE network with industry and business knowledge

Maintenance experience at 330 locations nationwide of Hitachi Electronics Services Co., Ltd.

Integration of network and security services,etc.(Compassport, Secureplaza) 　

Business Methods


3-10.

24

DARMA:Dependable Autonomous Hard Real time ManagementSSL:Secure Sockets Layer

Customer

R&D labs, divisions, internal IT systems department, affiliated companies

Provision of total risk management service using total power of

the Hitachi Group

Security Solution Promoting Division

SystemsConstruction

SystemsConstruction

Recoveryfrom

emergency

Recoveryfrom

emergency

SystemsOperations

SystemsOperations

Hitachi-Proofed　・network　・firewall

Consulting InspectionConsulting Inspection

-Cyber Security Business-

＊Including sales of related systems

Business Target

FY2005TargetSales：¥150 billion

Business Scheme

　　Establishment of Security Solution Promoting Division(April 1)


Team of consulting experts meeting all security standards

Realization of safety and relief through total security

Integration of proprietary technology (code, watermarking, DARMA, etc.) and de facto technology (SSL, PKI)

Strengthening and expansion of Secureplaza


Business Methods

Establishment of Policies

Establishment of Policies


3-11.

25

Customer

Open product vendor

-Platform Support & Service Business-

Provision of one-stop service for open products

Support service

Systems construction Consulting & planning

Estimate, procurement

Business Target


Business Scheme

Establishment of Platform System Solution Division (May 1)


High-quality support & service with a record of top-level customer satisfaction

Provision of services over entire system life cycle from estimate and procurement to support services

Large staff of engineers to serve well-known products and main servers


Improve platform solutions through bringing together open product engineers

Business Methods


Improvement of Middleware(1)3-12.

528億円

26

Plan to Increase Profit

Increase scale of business through global sales ofstorage management software

Creation of next-generation openmiddleware business connected tonew information devices for the ubiquitous information age

Expand product-based solutions with open middlewareas core competency

Net Sales

¥200billion

FY2005Image

FY2002Forecast

Open MiddlewareOpen Open MiddlewareMiddleware

OthersOthersOthers

¥100billion

StorageStorageStorage

Average YearlyGrowth Rate：１０％

Systems SoftwareSystems SoftwareSystems Software

¥213.4b


¥200billion

¥300　billion

¥100　billion

FY2005Image

FY2002Forecast

3-13.

：Software／Services：Hardware

Strengthen development throughconcentration of management resources　－Promote development of Storage

Management Software as one of the most important products of the Software Business Division

　－Development based on JP1, one of thetop Japanese systems operation management software products

　　　（JP1／HiCommand）　　　　

27

Fast development and expansion of solutions menu through M&A and alliancesthat increase capital efficiency　　　　　　　

Investment in Development:Approximately ¥80billion over 3 years(2001-2003)Staff: Approximately 600 engineers (by ‘02)→ Approximately 1,000 engineers

-Storage Management Software Business-

２３％

２７％

＜＜Projected Sales of SAN/NAS Storage SolutionsProjected Sales of SAN/NAS Storage Solutions＞＞

¥280.0b

Average YearlyGrowth Rate：１7％

Improvement of Middleware(2)

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Conclusion






Reorganization of telecommunications business(scheduled for October 2002) 　　

ハードソフト／サービス

Development of new business through establishment of joint ventures

4-１.Strengthening Consolidated Management

29

Structural reform of parent company and reorganization of affiliated companiesConcentration of management resources and elimination of redundancieson a consolidated basisIncreasing consolidated corporate valueBecoming a global top-class company through selection and concentration of management resources and integration of businesses

Basic Plan

Software／ServicesHardware

Acquisition of IBM’s HDD business and establishment ofjoint venture company (scheduled for January 2003) 　　

Reorganization of affiliated companiesbased on target industry and geographic area


Global Strategy to contribute to increased profit

4-2. Development of Global Business

30

Steady expansion of SI service business focused on cross-industry solutions(cf. Experio Solutions Co.)

USA・EuropeStorage

Expand global business ofHDD, RAID, SAN/NASSolutions

Router

Development of IPv6 network solutions focused on China and Southeast Asia

China・India

Aggressive expansion of SI business in China [cf. HISS]and increased price competitiveness through international procurement of software[cf. BHH]

HISS:Hitachi Information Systems (Shanghai) Co., Ltd.BHH:Beijing Hitachi Huasun Systems Co., Ltd.

Increase presence basedon strong hardware

Accelerate the globalization of software and services businesses

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Conclusion




Conclusion


Conclusion

電気電気

通信通信ガスガス社会インフラシステム社会インフラシステム

交通交通水道水道交通交通水道水道電気電気

通信通信ガスガス

情報ライフラインサポート情報ライフラインサポート

情報情報

5.

32

Experience of the construction of infrastructure, such as electrExperience of the construction of infrastructure, such as electric power and waterworksic power and waterworks

Actualization of a ubiquitous information society and the provisActualization of a ubiquitous information society and the provision of information lifelinesion of information lifelines

Enhancement of corporate value through business development leveEnhancement of corporate value through business development leveraging Hitachiraging Hitachi’’s strengthss strengths

Ubiquitous Information SocietyUbiquitous Information Society

A Society where anyone, anywhere can easily access and use information any time with security and reliability

A Society where anyone, anywhere can easily access and use information any time with security and reliability

33

This document contains forward-looking statements which reflect management’s current views with respect to certain future events and financial performance. Words such as “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,”“project” and similar expressions which indicate future events and trends identify forward-looking statements. Actual results may differ materially from those projected or implied in the forward-looking statements and from historical trends. Further, certain forward-looking statements are based upon assumptions of future events which may not prove to be accurate.Factors that could cause actual results to differ materially from those projected or implied in any forward-looking statements include, but are not limited to, rapid technological change, particularly in the Information & Telecommunication Systems segment and Electronic Devices segment; uncertainty as to Hitachi’s ability to continue to develop products and to market products that incorporate new technology on a timely and cost-effective basis and achieve market acceptance; fluctuations in product demand and industry capacity, particularly in the Information & Telecommunication Systems segment, Electronic Devices segment and Digital Media & Consumer Products segment; increasing commoditization of information technology products, and intensifying price competition in the market for such products; fluctuations in rates of exchange for the yen and other currencies in which Hitachi makes significant sales or in which Hitachi’s assets and liabilities are denominated, particularly between the yen and the U.S. dollar; uncertainty as to Hitachi’s access to liquidity or long-term financing, particularly in the context of restrictions on availability of credit prevailing in Japan; uncertainty as to Hitachi’s ability to implement measures to reduce the potential negative impact of fluctuations in product demand and/or exchange rates; general economic conditions and the regulatory and trade environment of Hitachi’s major markets, particularly, the United States, Japan and elsewhere in Asia, including, without limitation, continued stagnation or deterioration of the Japanese or other East Asian economies, or direct or indirect restriction by other nations of imports; uncertainty as to Hitachi’s access to, or protection for, certain intellectual property rights, particularly those related to electronics and data processing technologies; Hitachi’s dependence on alliances with other corporations in designing or developing certain products; and the market prices of equity securities in Japan, declines in which may result in write-downs of equity securities Hitachi holds.These factors listed above are not exclusive and are in addition to other factors that are stated or indicated elsewhere in this report, or in other materials published by the Company.

hitachi, ltd.hitachi, ltd. isao ono senior corporate officer senior group executive ，information...

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