Hitachi Integrated Report 2022

Digital Systems & Services

Introduction
Green Energy & Mobility

Value Creation Initiatives

Whatʼs Hitachi
Connective Industries

Value Creation
Hitachi Astemo

Strategies by Sector

Digital Systems & Services
Promote digital transformation (DX) of customers’
business systems and social infrastructure
to help realize a sustainable society

Business Strategies

Sustainability

Corporate Governance

Data

51

Hitachi Integrated Report 2022

Digital Systems & Services

Whatʼs Hitachi

Introduction
Green Energy & Mobility

Connective Industries

Value Creation

30%

Experience design
Digital engineering
Applications
Data analytics, artificial intelligence
Cloud services
Security
IT products (storage/servers)

IT Services

37%

Main products and services

FY2021
Revenues

2,153.6
billion yen

33%

Main products and services

DX solutions and services
Hitachi Systems
System operation, monitoring, and maintenance andone-stop services covering the entire IT lifecycle
Hitachi Solutions
Solutions for productivity improvement and new businesscreation through combination of packages and services

Corporate Governance

52

Data

Results and Forecasts
Front Business

Main products and services

Lumada’s core DX methodology
and digital technology

Sustainability

Hitachi Astemo

Digital Systems & Services Business Structure
Services & Platforms

Business Strategies

IT/digital systems in
mission-critical fields
Financial Institutions BU
Development and operation of
mission-critical systems andfinancial solutions for banks,
insurance companies, andsecurities companies
Social Infrastructure
Systems BU
Construction and operation ofsocial infrastructural systems,
defense systems, and control
systems for public offices,municipalities, electric powercompanies, and transportationcompanies, and provision ofdigital solutions to those entities

Revenues (billion yen) /Overseas Ratio (%)

Lumada revenues(billion yen)
Adj. EBITA (billion yen)

Front Business
IT Services
Services & Platforms

Adj. EBITA ratio (%)
ROIC (%)

10.0

8.8

8.3*1

780

985

948

13.1

860

13.1

842.7
776.4

281.4

FY2021(result)

840

1,200

2,600/
38%

2,290/
33%

2,153.6/
29%

Digital engineering
System integration
Managed services

300

FY2022(forecast)*2

15.0

631

400
FY2024(target)FY2021(result)

FY2022(forecast)*2

FY2024(target)*1 Restated base of the impact of the GlobalLogic acquisition *2 Announced on July 29, 2022

Mid-term Management Plan 2024: Vision

Strengths
The Digital Systems & Services Sector (DSS Sector) has approximately 100,000 employees andis responsible for operations in 50 countries and regions. It consists of three segments: Front
Business (supporting social infrastructure with advanced IT solutions), IT Services (supporting
customers’ business DX with packaged solutions and services), and Services & Platforms (providing
methodologies and the latest technologies necessary for DX).
The DSS Sector’s strengths lie in its highly reliable system construction and operation capabilities
cultivated over many years in mission-critical fields, such as finance, public services, electric power,
and transportation; its know-how and solutions for realizing DX in collaboration with customers; andits numerous digital human resources that support these capabilities.
With GlobalLogic joining our ranks in July 2021, we have added two more powerful capabilities:
design thinking and digital engineering.
We will leverage these strengths to create value in all quadrants, from understanding customer andsocial issues to creating agile solutions, system implementation and collaboration with products in
the OT field, and secure service operation and maintenance in cloud environments. We will continue
maintaining this cycle to foster the creation of new value and deliver DX for customers and society.

Over the period covered by our last two mid-term management plans (2018 and2021), we implemented continuous reforms, including business restructuring,loss cost reductions through meticulous project management, and productivity
improvements. As a result, we transformed ourselves into a business entity that cangenerate stable earnings and established a foundation for future growth. Under the
Mid-term Management Plan 2024, we aim to achieve dramatic growth of Lumada
in the DX market and become a top-class global business entity. We will achievesustainable business
KPI
FY2021
FY2024growth for Lumada by both
1,280
million
2,830
millionGlobalLogic revenues*3
dollars
dollars
expanding revenues andimproving profitability and Lumada Service Business46%
Over 50%
continuously creating value ratio*4
as a partner in solving our Lumada Overseas revenues
35%
50%
5
customers’ issues. To this ratio*end, we will work on the Revenue of Whole Lumada 1.4 trillion yen 2.7 trillion yen
four KPIs listed on the right. Business*3 Includes synergies/M&As *4 Percentage of services business in DSS’s Lumada business *5 Percentage of overseas business in DSS’s Lumada revenues

Hitachi Integrated Report 2022

Whatʼs Hitachi

Introduction
Green Energy & Mobility

Digital Systems & Services

Connective Industries

Value Creation

Business Strategies

Sustainability

Corporate Governance

Data

53

Hitachi Astemo

Market Environment
To address increasingly complex business challenges, customers are stepping up their use of digital solutions and services for business continuity and competitive advantage. At the same time,environmental issues and SDG-related investments are increasing against the backdrop of serious social issues. In this context, the global DX market, a target for social innovation projects that
address business and social issues, is expected to continue growing at double-digit rates in all regions, reaching an average annual growth rate of 17% by 2025.
In Japan, as well, we look forward to increased IT investments targeting customers’ business growth, as well as stepped-up DX initiatives and accelerated deployment and spread of cloudcomputing and digital technologies.

Digital Systems & Services Growth Strategy
Growth Driven by Lumada’s Evolution
The DSS Sector is the core entity driving the three segments of Lumada’s growth cycle—
Digital Engineering, Systems Integration, and Managed Services—as shown below. With theaddition of GlobalLogic to the DSS Sector in July 2021, we have gained design and digitalengineering capabilities, enabling us to understand the issues facing customers and society inthe global DX market while combining Hitachi’s strengths in OT, IT, and products to come up
with solutions more quickly. We are also confident that Hitachi Vantara will implement solutions
developed by GlobalLogic on the cloud and provide them as services to global customers
in the form of a recurring business. In the context of Lumada’s growth cycle, the twocompanies—GlobalLogic and Hitachi Vantara—will work together to provide ongoing value,with GlobalLogic responsible for the first quadrant (Digital Engineering) and Hitachi Vantara the
fourth quadrant (Managed Services).

Lumada’s growth cycle (4-quadrant model)

MAINTAINManaged Services

Secure Data Management,
Hybrid Cloud Compatibility

Digital Engineering

Understand the customers’
management challenges

Operate, maintain,
and assess for the next step
Digitized Products in
Other Sectors

OPERATE

PLAN

Consulting, Design and DigitalEngineering Capability

GlobalLogic
Develop solutions with
IT/OT/Products

Implement solution

Connected Products

System Integration

Highly Reliable
System Development

BUILD

Under the Mid-term Management Plan 2024, we will invest a total of 500 billion yen in businessexpansion and 200 billion yen in Lumada to complete the cycle of enhancing the strengths ofeach quadrant. Our aim is to accelerate growth by creating such cycles with more and morecustomers.
In addition, we launched Hitachi Digital in April 2022 to accelerate the global expansion of Lumada.
Hitachi Digital will take the management lead in Silicon Valley. Together with Hitachi Vantara andGlobalLogic, it will collaborate with OT-related group companies, such as Hitachi Energy, Hitachi
Rail, and JR Automation, to power the development and execution of our Lumada strategy.

GlobalLogic
GlobalLogic’s strength lies in design-driven digital engineering. It enjoys a high level of trustfrom customers, having posted year-on-year growth in revenues of 38% in fiscal 2021.
GlobalLogic has 38 engineering centers, nine design studios, and more than 25,000 designand software engineering professionals worldwide. For more than 20 years since its founding,it has deployed its capabilities in design, engineering, and data science to support the DX
initiatives of customers around the world. Specifically, it provides “experience design” to create
intuitive digital experiences that increase user engagement, “advanced engineering” to realize
powerful digital experiences through solution development, and “content/data engineering” toderive insights from data and convert them into customer value. By offering these services asa total package, it is able to deliver unique value. It also engages in cross-selling and solution
synergies with Hitachi Vantara, which is beginning to produce results.
For the Japanese market, we established GlobalLogic Japan in April 2022 to accelerate DX
promotion for customers by combining Hitachi’s business foundation in OT, IT, and productswith GlobalLogic’s strength in design-led digital engineering.

Hitachi Integrated Report 2022

Digital Systems & Services

Whatʼs Hitachi

Introduction
Green Energy & Mobility

Connective Industries

Value Creation

Business Strategies

Sustainability

Corporate Governance

Data

54

Hitachi Astemo

Scale the Lumada BusinessDomain DX

The DSS Sector will address the needs of customers and the market through three
approaches. In addition to solving issues through collaborative creation with individual
customers, we will leverage the strengths of each business group—in such areas as
horizontal deployment of high-value-added solutions and creation of new markets in theecosystem—to scale the Lumada business.
Customers

Customers

Customers, collaborative partners

Here, our approach is to attract new customers by horizontally deploying original services
developed through co-creation with customers and solutions already proven in the market.
This is an area where we can utilize the strengths of Hitachi Systems and Hitachi Solutions,which have solid track records in the horizontal deployment of services and solutions.

Case study• Value provision through horizontal deployment of proven solutions
More than 700 local governments have adopted Hitachi Systems’ “ADWORLD”
municipal solution, and the total number of users of Hitachi Solutions’ “PointInfinity”
digital marketing solution in Japan and overseas has surpassed 300 million.

SolutionsContinuously provide value

Horizontally deploy solutions

Take the lead inbuilding ecosystems

Customer DX

Domain DX

Social Infrastructure DX/GX

FrontBusiness

Services &Platforms

Increase engagement withindividual customers to
obtain repeat orders

IT Services

Services &Platforms

Horizontally deploy packaged
solutions to attract customers
and build a new cycle

Front
Business

IT
Services

Services &Platforms

Create new markets throughsocial infrastructure DX/GX
with numerous stakeholders

Customer DX

This is a field in which we can deploy the strengths of the Financial Institutions BU, the Social
Infrastructure Systems BU, and other business units.
Case study

Social Infrastructure DX/GXThis approach involves building a new ecosystem with numerous stakeholders to addresscomplex issues that cannot be solved by customers and Hitachi alone. Such a business isonly possible because Hitachi engages in a wide range of domains, including OT, IT, andproducts, and will actively promote it as one of the core businesses of the DSS Sector.

Case study• Corporate ESG management and capital market transparency
We launched our “Sustainable Finance Platform,” which facilitates the collection anduse of ESG data using digital technologies, such as IoT, blockchain, and AI, to create
an ecosystem that connects financial institutions and operating companies throughtransparent monitoring and data analysis, and thus identify new market opportunities.

•Sustainable management support for Sompo Japan Insurance
To support the insurance underwriting operations of Sompo Japan Insurance, we
mobilized our “CMOS annealing” quasi-quantum computer to increase the number ofpolicies analyzed and evaluated for risk 10 times, thus reducing overall business risk.
We also expanded collaboration on multiple fronts to develop services that addresssocial issues, such as AI-based infectious disease forecasting and corporate SX*
support through HR tech.
*SX: Sustainability transformation

Strengthening and Expanding Digital Talent
We will continue to advance GlobalLogic’s exceptional HR recruiting and development
mechanism and expand it to Japan while upgrading overall development programs. By also
expanding the mutual exchange of human resources with GlobalLogic, we will accelerate
the development of IT engineers in Japan. Our DSS Sector will increase its digital talent byaround 30,000 people in Japan and abroad over the three years through fiscal 2024.

Hitachi Integrated Report 2022

Digital Systems & Services

Introduction
Green Energy & Mobility

Whatʼs Hitachi
Connective Industries

Value Creation

Business Strategies

Sustainability

Corporate Governance

Data

55

Hitachi Astemo

Growth Strategies of Business Units and Group Companies
Front Business
Financial Institutions Business Unit

Social Infrastructure Systems Business Unit

The Financial Institutions BU builds and operates mission-critical systems with high levels ofrobustness and safety for the financial, insurance, and securities industries. It also develops andprovides innovative financial solutions that help resolve customers’ business challenges. Under
the Mid-term Management Plan 2024, we aim to increase revenues and operating income from“financial DX” services in Japan and overseas, where the market is continuously growing, whilestrengthening efforts in “GX,” earmarked as a new growth engine.
The Financial Institutions BU has expanded its Lumada business by developing solutions andproviding services through co-creation with customers in the financial services industry. Goingforward, we will leverage the strong relationships we have cultivated with financial institutions
and combine them with the Hitachi Group’s capabilities in the OT field to build an ecosystemthat involves stakeholders from different industries. Our aim is to utilize various data to create
and expand new service businesses and thus achieve further growth of the Lumada business.
In “financial DX,” we are working on digitalization services that utilize Hitachi’s DX and cloudtechnologies for the systems of financial institutions, as well as microservices that contributeto the DX of financial institutions. We are also striving to create a tourism MaaS that combines
data from different industries with Hitachi’s digital ticketing and settlement capabilities. We will
collaborate with GlobalLogic and Hitachi Vantara to globally expand the knowledge and results
we have obtained in Japan and overseas from creating these new financial services. In “GX,”
meanwhile, we are currently developing a solution to support the collection of ESG information oflisted companies, with a full-scale launch planned for the second half of fiscal 2022. In addition,
we will work with regional financial institutions, local companies, and local governments todevelop regional revitalization services and help realize a sustainable society.

The Social Infrastructure Systems BU is responsible for developing a wide range of missioncritical social infrastructure systems and IT services for public offices, municipalities, electric powercompanies, transportation companies, telecommunication providers, and defense contractors. It
aims to be a business entity that innovates social infrastructure with data and digital technology
by co-creating with customers and stakeholders to resolve various social issues. Leveraging
its strength in system integration–driven value provision, it engages in “Customer DX” aimed atproviding individual customers with new value digitally to monitor their business challenges, as wellas “Domain DX” to horizontally deploy the know-how obtained through individual customer DX efforts
across businesses in the same sector and other industries. The next strategy of this business unit
is to become a provider of “Social Infrastructure DX/GX” solutions that collaborates with various
stakeholders to deliver advanced services and solutions to issues facing society as a whole. Under
the Mid-term Management Plan 2024, we will create a new growth-oriented service model by
positioning “social Infrastructure DX/GX” as a pillar of business growth in markets where the HitachiGroup can demonstrate its strengths from the perspective of social value, market growth, and value
creation through co-creation. Using OT and domain knowledge in synergy with IT, we aim to generate
stable revenues and high profitability through a recurring business model that implements solutions
to customers’ issues and also converts value into assets.
To realize “Social Infrastructure DX/GX,” we will participate in national and local government initiatives
for the social implementation of Society 5.0 while collaborating extensively on a global basis inorder to expand our business. In light of new government policies, we will utilize our unique digitaltechnologies to support Digital Government, the safety and security of local communities and public
spaces, and reinforcement of social infrastructure. In addition, we contribute to a decarbonizedsociety by combining energy management (including the supply-demand balance and control) andenvironment-related solutions that have proven expertise. We will also use materials informatics
technology to support value creation in various industrial fields aimed at realizing a sustainable society.

Case study

Case study

As a cooperative member of Japan Exchange Group (JPX) that issued thefirst Green Digital Track Bond in Japan, Hitachi will utilize its sustainablefinance platform to smoothly collect and record operational data on
the power generation facilities in which JPX has invested. By providing
high levels of convenience to issuers and investors, we will encourage
corporate ESG initiatives and help society as a whole, achieve carbon neutrality.

To address the rapid aging of social infrastructure facilities and fallingnumbers of experienced maintenance personnel, we will provide moreadvanced maintenance solutions through remote inspections using drones
and diagnostic imaging. In addition to infrastructure providers, we will
incorporate superior technologies through open innovation from companies,
universities, and other organizations to strengthen AI platforms for facility inspections and achieve
more efficient and cost-optimized infrastructure management throughout local communities.

Hitachi Integrated Report 2022

Digital Systems & Services

Introduction
Green Energy & Mobility

Whatʼs Hitachi
Connective Industries

Value Creation

Business Strategies

Sustainability

Corporate Governance

Data

56

Hitachi Astemo

IT Services
Hitachi Systems

Hitachi Solutions

We have business systems across a wide range of industries of varying sizes and a diverse
service infrastructure that includes data centers, network and security operation and monitoring
centers, contact centers, and around 300 service locations throughout Japan for system
operation, monitoring, and maintenance. Deploying these strengths, we provide one-stop
services covering the entire IT lifecycle.
In addition to services and security solutions to facilitate digitization of frontline processes, wewill focus on managed services that support system operation, maintenance, and monitoringin order to expand Lumada’s business. To broaden recurring businesses promoted by the DSS
Sector, we will also focus on “areas of continuous value delivery.” Specifically, we will leverageknowledge accumulated in each of our businesses to build a new growth model, and we will
use this model to provide cloud-managed services and software assets and thus expand ourbusiness.
In cloud computing, Hitachi will use the standardization of municipal systems as an opportunity
to step up deployment of its “ADWORLD” municipal solution, which incorporates know-how
gained through the fast-tracked standardization of Japan’s National Health Insurance system.
Through collaboration with local vendors, we will promote the horizontal deployment of thissolution. By also incorporating our business in managed services for the Government Cloud, we
will work to expand our share of the municipal government market.
In managed services, we will deploy Lumada’s solutions in a stable and efficient manner
to enhance our high-value standardization services, which include security monitoring, IT
operations, contact centers, and business process outsourcing (BPO). By also incorporating
industry-specific solutions, we will deliver our services to a wide range of customers, including
small and medium-sized companies. In security monitoring, which will become indispensablewith the spread of cloud computing, we will step up collaboration with domestic and overseas
group companies with specialized skills and actively engage in Groupwide initiatives.

As a member of society and the Hitachi Group, Hitachi Solutions provides digital solutions,particularly for the manufacturing, logistics, and communications industries, thus helping resolve
problems faced by customers and society. It also promotes sustainability transformation (SX) byservicing and providing high added value to existing commercial products.
We have been promoting data-driven management by stepping up internal DX to visualize
management data and improve productivity. Utilizing our expertise in this area, in Japan we haveprovided solutions to support productivity improvement and new business creation in the priority
areas of smart manufacturing, digital marketing, workstyle innovation, smart mobility, businesscooperation, security, spatial information, and data acceleration. As a result, we posted steadysales growth despite the COVID-19 pandemic.
Overseas, meanwhile, Microsoft’s Dynamics business performed well in Europe, the UnitedStates, and Southeast Asia, which are earmarked for advances in DX and high growth.
Hitachi Solutions America has received a global “Microsoft Partner of the Year Award” for four
consecutive years. In 2002, it was a “Winner” in Microsoft’s “Dynamics 365 Supply Chain
Management and Intelligent Order Management (IOM)” category.
Under the Mid-term Management Plan 2024, we will leverage “Hitachi Solutions DX Lab,” adigital co-creation space, to accelerate co-creation with customers and partners and deliver
solutions and services that help realize sustainable management and society. Internally, we
will refine data-driven management and promote human resource development that draws on
people’s individual strengths. Here, we will create opportunities for employees to take on global
challenges by holding SX-themed idea sessions and encouraging senior employees to excel. We
will also swiftly roll out commercial products that reflect market trends, such as IoT and smart
payment solutions, while collaborating globally with partners who excel in AI, blockchain, andother advanced technologies.

Case study

Case study“ADWORLD” has been adopted by more than 700 municipalities
nationwide, contributing to municipal DX by improving services forresidents and overall administrative efficiency. Using this solution,
Shibuya Ward undertook a complete renewal of its ICT infrastructure forworkstyle reform and reduced paper use by 40%. Going forward, we will
expand activities for system standardization in compliance with the Ministry of Internal Affairs andCommunications’ Municipal DX Promotion Plan and provide support for the Government Cloud.

Our “PointInfinity” digital marketing solution has been adopted by awide range of customers engaged in building loyalty point management
systems, including such convenience stores as FamilyMart. The total
number of “PointInfinity” members in Japan and overseas now exceeds
300 million. Here, we provide comprehensive marketing support, frombuilding membership and loyalty point programs to providing recommendations and effectivenessmeasurements using information collected by AI.

Hitachi Integrated Report 2022

Digital Systems & Services

Introduction
Green Energy & Mobility

Whatʼs Hitachi
Connective Industries

Value Creation

Business Strategies

Sustainability

Corporate Governance

Data

57

Hitachi Astemo

Services & Platforms
Services & Platforms Business Unit
The mission of the Services & Platforms BU is to utilize co-creation and data to provide sharedinfrastructure and services that strengthen Lumada and enable continuous value creation.
Through IT platforms and services that support society’s digital infrastructure in the era of “ultrabig data,” we have helped resolve issues for customers in Japan and overseas.
In overseas markets, Hitachi Vantara is driving Lumada’s global expansion by providing
data management solutions, while GlobalLogic is using its strengths in design-driven digitalengineering to provide DX services. In the domestic market, we also provide IT platforms
that leverage our expertise in cutting-edge digital technologies and mission-critical systemconstruction.
With the progression of DX in recent years, customers have become increasingly active inutilizing cloud services to revamp their core systems for business expansion and improved
operational efficiency. Based on their DX strategies, they are increasingly demanding hybrid
clouds that combine the advantages of both public clouds (which enable rapid startup andflexible expansion) and private clouds (which allow safe and secure use of important data on
corporate systems, management, and the like). With this in mind, we will focus on providing
digital engineering and hybrid cloud managed services to avoid operational complexity andachieve both agility and reliability in environments where multiple clouds and services are used
together. Specifically, we will strengthen our data management infrastructure by linking storage
virtualization, operational automation, data governance, and other technologies. We will also
provide a one-stop service that covers everything from understanding customers’ businesschallenges to formulating optimal cloud migration strategies, migration itself, and systemconstruction and operation.
Through these efforts, we will support the digital infrastructure that is the key to our customers’
DX. At the same time, we will strongly encourage innovation by addressing the problem ofdata silos, eliminating operational complexity, and ensuring protection and traceability of criticalcustomer data.

Case study 1. Hitachi Vantara and GlobalLogic

Data-driven solutions for BMW Group innovation
Hitachi Vantara has been selected as a strategic partner for cloud storage and data management.
It provides a storage-as-a-service solution called “EverFlex” to manage the BMW Group’s
worldwide IT infrastructure and deliver thehigh reliability required for mission-criticalmanufacturing and operations.
GlobalLogic provides design and digitalengineering services for the development,enhancement, and maintenance of middlewarefor connected cars. In these ways, we support
the BMW Group’s data-driven innovation
efforts, from the first quadrant (design anddigital engineering) to the fourth quadrant (hybrid
cloud support).

Case study 2. Hitachi Energy and Hitachi Vantara

Development of “Lumada Inspection Insights” to optimize inspection andmonitoring of facilities“Lumada Inspection Insights,” jointly developed by Hitachi Energy and Hitachi Vantara, uses
artificial intelligence (AI) to analyze satellite images, as well as LiDAR (a remote sensing technology)
and temperature distribution and other images and videos, to help customers automate facility
inspections, improve safety, reduce weatherrelated risks and environmental impacts fromwildfires, and achieve sustainability targets.
This solution leverages AI and machinelearning to analyze equipment conditions andrisks and identify various causes of failuresand equipment stoppages. Through predictive
analysis, it also assesses operational andenvironmental risks, enabling repairs to bemade efficiently before a failure occurs.