Expanding the Supply of Lumada Digital Solutions

To help realize a sustainable society, Hitachi is promoting global upscaling of the Social Innovation
Business by increasing the supply of solutions that utilize digital technology based on collaborative
creation with customers.

1. Digital Solution Supply Initiatives to Date
Hitachi’s stated aim in the 2018 Mid-term Management Plan
is to be “an Innovation Partner for the IoT Era” by embracing
the digital revolution that is transforming society and industry.
Since April 2016, Hitachi’s operations have been divided
along organizational lines into the three levels of “Front,”“Platform,” and “Product.”
The rationale behind this move is to adopt a customer-centricbusiness model to identify new markets for applications,rather than the conventional focus on supplying products.
The aim of “Front” operations is to identify customer issues
and to put in place a “Platform” that makes full use of OT and IT
in a bid to efficiently provide relevant solutions, while the aim of“Product” operations is to supply highly competitive products.
In May 2016, Hitachi began supplying Lumada-based
digital solutions to help address management issues linked tocustomer value chains.
Condensing the OT and IT expertise that Hitachi has
accumulated over many years into a rich array of solutions,
Lumada is a way of supplying customers with digitaltechnology-derived innovations in a speedy and efficient manner.
In practical terms, Hitachi is amassing Lumada customer cases
through collaborative creation with customers as well as internal
development of Lumada solutions within the Hitachi Group.

In both instances, a digital solution is created using Lumada
to support the analysis of multiple types of variable datausing AI or other big data analytical methods.
Based on existing customer cases, Hitachi is accelerating
global upscaling of the supply of Lumada digital solutions
by seeking to develop solution cores with generalized
applicability to the needs of various customers.
In fiscal 2015, to expand collaborative creation throughassignment of researchers to centers based close to customers
while reinforcing innovative capabilities aimed at creating
original technologies to satisfy market requirements, Hitachi
established the Global Center for Social Innovation (CSI) as
part of reforms to the Group’s global R&D structure. The CSI
focuses on collaborative creation in which researchers,designers and other Hitachi personnel work with customers
on the development of digital solutions. Currently, there are
CSI facilities in five key regions, with bases in Tokyo, North
America, China, Europe, and Asia-Pacific (APAC). The
collaborative creation process at these bases with customers,business partners, and other stakeholders is called“NEXPERIENCE.” It involves finding multifaceted ways to visualize
knowledge to facilitate smooth solution development, the utilization of IT tools, and a systematized co-creation methodology.

FY2016 (result)
Billions of yen

FY2017 (result)
Initial target*1

FY2018 (forecast)
Initial target*1

Revenues of Lumada business

900.0

950.0

1,006.0

1,050.0

1,070.0

Lumada core business*2

120.0

190.0

230.0

290.0

310.0

Lumada SI business*3

780.0

760.0

776.0

760.0

760.0

*1 As released on Hitachi IR Day 2017 in June 2017
*2 Service businesses where AI and analytics are utilized to convert customer data into valuable insights to help improve management indicators or offer solutions to business-related issues*3 Lumada core business-driven SI operations within the IoT field (industry/social infrastructure-related)

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Strategy for Value Creation

2. Global Development Initiatives
To support the development of the Social Innovation Business from a global perspective, Hitachi is looking to expand
the provision of digital solutions by focusing on social issues that are specific to certain markets or regions.

North America

EuropeIn North America, Hitachi is focusing mainly on the businessdomains of Industry, Urban (including railways), and Finance.
In the Industry domain, the July 2017 acquisition of US aircompressor manufacturer Sullair not only strengthened
Hitachi’s industrial equipment business, but also created
opportunities to expand into digital solutions tailored tosectors such as manufacturing and mobility. For example,
Hitachi has developed a service platform to automatically
propose optimal repair work for various types of industrial
machinery, based on combining Hitachi’s strong track recordand related know-how in the manufacture and maintenance ofindustrial machinery (OT) with AI or other digital technologies(IT). Hitachi plans to use this platform to expand sales of itsMaintenance & Repair Service to various industrial
machinery manufacturers.
In the Urban domain, Hitachi is supplying a wide range ofrailway products/systems and solutions, from rolling stock tosignaling systems. This includes major metro projects in cities
such as Miami and Baltimore. Going forward, in addition to
supplying railway systems, Hitachi is working to secureorders for turnkey projects that include local construction andengineering as part of expanding the business in North
America. Supplying digital solutions utilizing Lumada is anotherelement of regional growth plans.
In the Finance domain, Hitachi established the Financial
Innovation Laboratory in 2016 in Santa Clara, California,
USA to undertake R&D into FinTech solutions using blockchain and other technologies. Through its involvement in joint
research with Stanford University and in the Hyperledger
project hosted by the Linux Foundation, Hitachi is working todevelop and test practical FinTech solutions using
cutting-edge analytical tools for credit scoring, while also
contributing to the blockchain community and the development of commercial applications.

In Europe, the key focus is on the Urban domain,primarily railways.
Hitachi is working to expand operations from product/system businesses such as rolling stock and signaling systems
to include railway-related digital solutions. For example,
dynamic headway solutions optimize train frequency in line withpassenger demand, using predictions of passenger numbers
based on people flow analysis. Hitachi is developing a solutionof this type for the driverless Copenhagen Metro in Denmark.

China
In China, the key focus is also on the Urban domain.
Hitachi plans to develop its Chinese operations by focusing
on data-centric building service business where it has apresence in Japan, including round-the-clock remote monitoringof elevators and other building equipment and predictive
maintenance based on the use of operational data to forecast
breakdown probabilities.

Asia
In Asia, Hitachi is focusing mainly on the Industry and Social
Infrastructure domain.
In the Industry domain, Hitachi established the Lumada
Center Southeast Asia in Thailand in September 2018 as abase for the development of the digital solutions businesswithin the ASEAN region.
In the Social Infrastructure domain, in a collaborative creation project with Thailand Post, Hitachi is developing andtesting a digital post service to enable users to receive
notifications from public-sector institutions via a PC,
smartphone or other device as part of creating a new service
to provide information using the postal network. Elsewhere in
the region, in April 2018, Hitachi formed Hitachi MGRM Net
Ltd. following the acquisition of shares in Indian IT services
provider MGRM Net Ltd. The new company will lead Hitachi’sefforts to support the Indian government’s “Digital India”
initiatives including “e-Governance” and “e-Education” basedon the digitalization of government services.
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3. Systemic Investments to Support Global Expansion
Besides combining the digital solutions expertise cultivated todate with advanced technology to develop services withapplications across a wide range of sectors, Hitachi isexpanding the provision of digital solutions through Hitachi
Global Digital Holdings Corporation, which was established inApril 2018.
Interoperability with various systems and Lumada will be an
important part of the global expansion of digital solutions.
To this end, including participation in the Edgecross Consortium*1,
Hitachi is actively promoting collaborative creation projects
with various stakeholders ranging from other companies touniversities and other academic or research institutions.
As part of developing the human capital necessary forcreating digital solutions, Hitachi has instituted a training
program to cultivate data scientists with the required skills.
To help foster conditions needed to create original expertise,
Hitachi has also established the Professional Community for
top-class researchers and practitioners from every field toshare relevant knowledge.

Hitachi’s target through these initiatives is to increase thenumber of data scientists working in the Hitachi Group worldwide from around 700 at present to 3,000 by fiscal 2021 tosupport further expansion of the digital solutions business.
*1 A body established on November 29, 2017 with the aim of going beyond thebasic framework of companies and industries to create new value in the fieldof edge computing through involvement in activities to support the IoT
conversion of the manufacturing industry, the “Society 5.0” *2 plan advocatedby the Cabinet Office, and the “Connected Industries” *3 concept promotedby the Ministry of Economy, Trade and Industry (METI)*2 A series of initiatives aimed at sharing and realizing the future vision of a“super smart society” in which there is high-level merging of cyberspace withthe real world, as outlined by the Cabinet Office in the 5th Science andTechnology Basic Plan
*3 A conceptual vision for Japanese industry announced by METI in March 2017

To achieve the goal of being “an Innovation Partner for theIoT Era,” Hitachi is working to upgrade its service businesswith the aim of evolving global supply capabilities forend-to-end solutions.

Copenhagen Metro Project
Hitachi is working with Metroselskabet, the public-sector infrastructure owner of the metro in the Danish capital
Copenhagen, to test a dynamic headway solution to adjust the frequency of trains to real-time passenger demand.
The solution will combine Hitachi’s digital and IoT technologies with the train control systems of Ansaldo STS, a Hitachi
subsidiary operating in the railway systems business.
Passenger demand on the Copenhagen Metro varies significantly depending on the time of day and any eventsoccurring near the network. Moreover, the opening of a new line in 2019 is expected to result in a substantial increase inpassenger numbers on the existing lines. The elimination of overcrowding in trains is a major issue.
Having used rolling stock and signaling systems supplied by the Hitachi Group for many years, Metroselskabet is an
important Hitachi long-term partner. The advanced service provided by Hitachi for the Copenhagen Metro includes
driverless trains that run 24 hours a day.
The dynamic headway solution automatically adjusts train frequency using the results of an analysis of changes inpassenger numbers, visualizing congestion data collected from sensors located in each station. By easing congestion
before it occurs, this provides a more satisfying transport experience for passengers. The system also helps the metro
operator to reduce costs by adjusting train frequency to real-time changes in demand, contributing to energy savings
along with higher efficiency.

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