Railway Systems Business Strategy
Hitachi IR Day 2011

June 16, 2011

Hiroshi Nakayama
President & CEO, Rail Systems Company
Hitachi, Ltd.

© Hitachi, Ltd. 2011. All rights reserved.

Railway Systems Business Strategy

Contents
１. Overview
２. Market Environment
３. Policy and Strategy
４. Performance and Targets
５. Conclusion© Hitachi, Ltd. 2011. All rights reserved.

1-1 Revenues by Systems and Products & Services
Rolling stock systems

Transport management & control systems
Signaling/traffic management systems

Rolling stock/Overseas maintenanceSignaling/train control systems

High-speed trains Limited express trains

32%

FY2010consolidated
revenues¥133.1 billion

68%
Traffic management systems/
power management systems

Commuter trains

Monorails

Electrical components

Power supply systems Platform gates

Main circuit/main motor

Air-conditioning/
air-moving systems

Overseas maintenance© Hitachi, Ltd. 2011. All rights reserved.

3

1-2 Organization
Rail Systems Company
Rail Systems Division
Kasado Rail Systems Product Div.

Sales & Marketing Division
Rail Systems Sales Div. (Domestic market)(Rolling stock)

Global Sales & Marketing Div.
(Overseas market)

Mito Rail Systems Product Div.
(Electrical components, signaling/train control systems, traffic management systems/
power management systems)

Global Rail Business
Development Division

Hitachi Works(Main motors, IGBT modules)

Kokubu Engineering & Product Div.
(Power supply systems)

Omika Works(Traffic management systems/
Power management systems,
Business support systems)© Hitachi, Ltd. 2011. All rights reserved.

4

Railway Systems Business Strategy

Contents
１. Overview
２. Market Environment
３. Policy and Strategy
４. Performance and Targets
５. Conclusion© Hitachi, Ltd. 2011. All rights reserved.

2-1 Market Trends
Japan
Increase investment in services and environment-related areas, but major growth in capital
expenditures cannot be expected
Drop off construction of new Shinkansen lines, and increase demand on replacement/upgrading
aging lines, etc.

Overseas
11 trillion yen per 3 years average (2007-2009)⇒ 13 trillion yen per 2 years average(2015-2016)(CAGA2.3%)
High growth in service and Signaling/control segments
Increase investments in railway networks in emerging countries■Market Size by Segment¥11 trillion
Signaling/control

1.25

Infrastructure

2.31

Services(Maintenance, etc.)

3.15

Others 4.5％
15%

¥13 trillion
1.55

3.2%

2.47

1.0％

4.00

3.3％

By region Europe
Asia &
2.2％
36%
2015-2016
Pacific
27% ¥13 trillion
1.3％

Rolling stock

4.20

4.83

2.0％

2007-20092015-2016（3years average） （2 years average)

North
America 2.4％
21%

show CAGR from 2009 to 2016
Source: UNIFE World Rail Market Study 2010
© Hitachi, Ltd. 2011. All rights reserved.

6

2-2 Competitive Environment and Hitachi's Position
Position as a Total Systems Integrator
Rolling stock
systems
Rolling
stock

Hitachi○Electricalcomponents○

Transport management &control systems

Position

Signaling/traffic management○

ChineseCompany A

800

★

China
(Company A)

Japanesemanufacturers

Rolling stock(Company A)

Electrical
Components(Company B)

○
○
○
−

○
○
−
○

○
○
−

Revenues (Billion yen)

Big 3

Big3

◇ Company C

Big3Company B

×

Big3
Company A

Hitachi¥320.0 billion(FY2015 target)

400

Japanese Rolling stock
Company A

Hitachi¥133.1 billion(FY2010)○0Signaling(Company C)

−

−

○

5

10

Operating income (%)* Figures are for FY2010© Hitachi, Ltd. 2011. All rights reserved.

7

2-3 Strength and Key Target
Rolling stock systems

Transport management & control systems

Higher efficiency, lower environmental impact

High reliability

Aluminum train technology(High-speed trains, Commuter trains)■ Highly economical rolling stock in the next
generation (A-train)

Signaling/train control systems
technologies■Developing signaling systems compliant
with European standards (ETCS*)

Inverter technology*ETCS: European Train Control System■Developed small, lightweight, low noise(World-class) products

Traffic management systemtechnologies

Hybrid technology■Provide high-performance, high function
systems to support high-density
transportation with advanced control
technologies (Top share in Japan)■World's first to enter service(Ki-Ha E200 series for East Japan Railway
Company )Total project integration

Develop globally with own core systems technologies on traffic
management, signaling, power supply and rolling stock© Hitachi, Ltd. 2011. All rights reserved.

8

Railway Systems Business Strategy

Contents
１. Overview
２. Market Environment
３. Policy and Strategy
４. Performance and Targets
５. Conclusion© Hitachi, Ltd. 2011. All rights reserved.

3-1 Policy and Strategy
Accelerate Globalization with Technologies Developed in Japan
TargetStrategies

Revenues*: ¥320 billion
Overseas revenue : 60%
Operating income : 8%

Sustainable Growth in Japan¥320 billion
Transport management &control systems
Rolling stock systems

Overseas¥133.1 billion
Japan

FY2010(Actual)■Expand sales of rolling stock systems■Secure market share in signaling/train
control systems■Expand hybrid traction systems business■Create new businesses by collaboration
with customers

Expand overseas business■Focus on the High-speed trains market■Expand Electrical components business■Expand Signaling/train control systems
business■Accelerate to develop emerging countries

FY2015(Target)* Excluding business support systems which belongs to
Information & Telecommunication Systems segment(FY2015 sales target : ¥30 billion )© Hitachi, Ltd. 2011. All rights reserved.

10

3-2 Sustainable Growth in Japan
Expand Sales of Rolling Stock Systems
Expand aluminum trains (A-train) sales to municipal andprivate railways〔 Hankyu Corporation Series 9000 train, Tobu Railway Co., Ltd. Series 50000 train 〕

Secure market share of Shinkansen〔 East Japan Railway Company E5/E6 series〕
Expand sales of electrical components 〔 Central Japan Railway Company E233 series〕〔 〕: resent order receipt

Secure Share in Signaling/Train Control Systems
Complete Shinkansen signaling system projects(Hokuriku/Hokkaido)〔Hokuriku Shinkansen (Takasaki to Kanazawa),
Hokkaido Shinkansen (Shin-Aomori to Shin-Hakodate) 〕

Maintain and ensure high share in Traffic management systems (81% for JR)〔 〕: resent order receipt

Expand Sales of Hybrid Traction Systems
Develop by leveraging track record (World’s first to enter service)〔East Japan Railway Company Ki-Ha 200 series/ HB-E300 series〕〔 〕: resent order receipt

Create New Businesses in Collaboration with Customers
Create new business by fuse information and control technologies (IC card, Digital signage, etc)
© Hitachi, Ltd. 2011. All rights reserved.

11

3-3 Expand Overseas Business (1)Further Expansion of U.K. and Chinese Business
Challenge to Emerging Markets(Urban Transport Including Monorail)

U.K.
Rolling stock + maintenance, Electrical components,
Signaling/train control systems

ChinaElectrical components, Signaling/train control systems

Emerging markets(Southeast Asia, Brazil, India)
Total project integration business© Hitachi, Ltd. 2011. All rights reserved.

12

3-3 Expand Overseas Business (2)U.K. (1)Rolling stock + maintenance

Expand maintenance business by Rolling stock sales■Establish high profitable business model by
maintenance business- Starting-up a full maintenance service forClass 395 train■ Challenge to the future project,(Rolling stocks and maintenances)- Intercity Express Programme (IEP)- Commuter trains and replacement of aging trains

Ashford Depot (Class 395)

Electrical components

Signaling/train control systems

Actively target retrofit projects

Expand sales through the trial projectwith Network Rail■ Leverage Class 465 track record■ Complying with European standard(ETCS)■ Start trial running in 2012
© Hitachi, Ltd. 2011. All rights reserved.

13

3-3 Expand Overseas Business (3)U.K. (2)Intercity Express Programme (IEP)

BackgroundMar. 2009 Selected as preferred bidderMar. 2011 Resumed negotiations withUK Department for Transport

Dec. 2011 Financial close
Existing High Speed Train

New-type train (image)

Project overview
High Speed Trains (HST) replacement package(Rolling stock, maintenance)■ No. of vehicles: approx. 500 cars + options■ Maintenance period: 30 years

Edinburgh
East Coast
Main Line

Local manufacturing site
■ Candidate location: Northeast England■ Approx. 500 employees

Great Western
Main Line

LondonTarget lines© Hitachi, Ltd. 2011. All rights reserved.

14

3-3 Expand Overseas Business (4)China (1)Electrical components

Signaling/train control systems

High-speed railways

Middle and high speed railways■ High-speed train(300kph)CRH380C
Order receipt for 25 trains■ Expand sales of Chinese-version train
control systems (CTCS)- Dedicated high speed passenger line
Target share: 40% (on-board units)
20% (wayside units)- Middle-speed onboard units
Target share: 70%■ Continuous sales expansion ofcomputerized-interlocking(Target: 100 stations/year)

Intercity transportation■ Middle-speed train （200kph）CRH7-Order receipt for proto type trains-Target share: 40% for commercial
production

Urban transportation■ Target: 200 sets/year(equivalent to no. of inverters)

Urban transportation■Promoting CBTC
- Chongqing No.3 line
Start commercial operation in
September, 2011

Main traction converters forhigh-speed rolling stock

Shanghai No. 6 line
rolling stock

CRH：China Railway High-speed
CTCS: China Train Control System (Compliant with European regulations)
CBTC: Communication Based Train Control (Wireless train control system)© Hitachi, Ltd. 2011. All rights reserved.

15

3-3 Expand Overseas Business (5)China (2)
Increase local production capacity (Establish Changchun plant)
Hitachi Yonge Electric Equipment(Xi‘an) Co., Ltd. (HYEE*)■ Expand production capacity
50sets/month → 80sets/month （2010）■ Established the second production site in Changchun（April, 2011）

Changchun(HYC)
Beijing
Xi'an(HYEE)
Shanghai- Hitachi Yonge Electric Equipment (Changchun) Co., Ltd. (HYC)- Start production in 2012
- Initial production capacity: 50 sets/month

Establish capacity of 130 sets/monthin total
Possible to increase production capacity
to 280 sets/month in the future*HYEE： Joint venture with Yongji Xinshisu Electric Equipment Co., Ltd.

HYC (image)© Hitachi, Ltd. 2011. All rights reserved.

16

3-3 Expand Overseas Business (6)Emerging Markets
Increasing demands for Total project integration■ Target projects- Systems integration for urban transport (E&M)
Metro, Monorail
Station- Subsystems integration
Signalingfacilities
Signaling, Rolling stockCommunication
E&M Depots■ Target region
ElectricalSoutheast Asia, Brazil and India

Strengthen capabilities for E&M■Sales and engineering- Establish the dedicated organization
for E&M- Strengthen local operations■ Project management- Promote the alliance with Mitsubishi
Heavy Industries

Power
supplyandMechanical

TracksRolling
stockElectrifi
cation＋ System Integration
Integration of E&M systems© Hitachi, Ltd. 2011. All rights reserved.

17

Railway Systems Business Strategy

Contents
１. Overview
２. Market Environment
３. Policy and Strategy
４. Performance and Targets
５. Conclusion© Hitachi, Ltd. 2011. All rights reserved.

4 Performance and Targets
60%

Revenues(Billion yen)

9

Overseas revenues
8.0%

31%

24%

31%

8.0%
８．０%

6

200

100

Transport
management &control systems

134

133.1

140

Transport
management &control systems
Rollingstock
systems■Rolling stocks- IEP (U.K.)- Shinkansen (Japan)■Electrical components- Middle-and High-speed (China)- New markets(India)■Signaling/train control
systems- Japan, China, U.K. and India

3

2.7%

■Total project Integration- Emerging Markets

2.7%(Southeast Asia, Brazil, India)

1.5% 1.5%1.5%
1.5%0FY2010
ActualCore systems and markets
Rolling stock systems

300

320

Operating
Income(%)

FY2011
Forecast

FY2012Plan

FY2015
Target0© Hitachi, Ltd. 2011. All rights reserved.

19

Railway Systems Business Strategy

Contents
１. Overview
２. Market Environment
３. Policy and Strategy
４. Performance and Targets
５. Conclusion© Hitachi, Ltd. 2011. All rights reserved.

5 FY2015 Targets

FY2015 Targets
Revenues: ¥320 billion
Overseas revenue : 60%
Operating income : 8%

Accelerate Globalization withTechnologies Developed in Japan© Hitachi, Ltd. 2011. All rights reserved.

21

Cautionary Statement
Certain statements found in this document may constitute “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995. Such “forward-looking
statements” reflect management’s current views with respect to certain future events and financial performance and include any statement that does not directly relate to any historical or
current fact. Words such as “anticipate,” “believe,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “project” and similar expressions which indicate future events and trends may identify“forward-looking statements.” Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ
materially from those projected or implied in the “forward-looking statements” and from historical trends. Certain “forward-looking statements” are based upon current assumptions of
future events which may not prove to be accurate. Undue reliance should not be placed on “forward-looking statements,” as such statements speak only as of the date of this document.
Factors that could cause actual results to differ materially from those projected or implied in any “forward-looking statement” and from historical trends include, but are not limited to:■economic conditions, including consumer spending and plant and equipment investment in Hitachi’s major markets, particularly Japan, Asia, the United States and Europe, as well as levels of demand in the
major industrial sectors Hitachi serves, including, without limitation, the information, electronics, automotive, construction and financial sectors;■exchange rate fluctuations of the yen and other currencies in which Hitachi makes significant sales or in which Hitachi’s assets and liabilities are denominated, particularly against the U.S. dollar and the euro;■uncertainty as to Hitachi’s ability to access, or access on favorable terms, liquidity or long-term financing;■uncertainty as to general market price levels for equity securities in Japan, declines in which may require Hitachi to write down equity securities that it holds;■the potential for significant losses on Hitachi’s investments in equity method affiliates;■increased commoditization of information technology products and digital media-related products and intensifying price competition for such products, particularly in the Components & Devices and the DigitalMedia & Consumer Products segments;■uncertainty as to Hitachi’s ability to continue to develop and market products that incorporate new technologies on a timely and cost-effective basis and to achieve market acceptance for such products;■rapid technological innovation;■the possibility of cost fluctuations during the lifetime of, or cancellation of, long-term contracts for which Hitachi uses the percentage-of-completion method to recognize revenue from sales;■fluctuations in the price of raw materials including, without limitation, petroleum and other materials, such as copper, steel, aluminum and synthetic resins or shortages of materials, parts and components;■fluctuations in product demand and industry capacity;■uncertainty as to Hitachi’s ability to implement measures to reduce the potential negative impact of fluctuations in product demand, exchange rates and/or price of raw materials or shortages of materials, partsand components;■uncertainty as to Hitachi’s ability to achieve the anticipated benefits of its strategy to strengthen its Social Innovation Business;■uncertainty as to the success of restructuring efforts to improve management efficiency by divesting or otherwise exiting underperforming businesses and to strengthen competitiveness and other cost reduction
measures;■general socioeconomic and political conditions and the regulatory and trade environment of countries where Hitachi conducts business, particularly Japan, Asia, the United States and Europe, including, without
limitation, direct or indirect restrictions by other nations on imports and differences in commercial and business customs including, without limitation, contract terms and conditions and labor relations;■uncertainty as to the success of alliances upon which Hitachi depends, some of which Hitachi may not control, with other corporations in the design and development of certain key products;■uncertainty as to Hitachi’s access to, or ability to protect, certain intellectual property rights, particularly those related to electronics and data processing technologies;■uncertainty as to the outcome of litigation, regulatory investigations and other legal proceedings of which the Company, its subsidiaries or its equity method affiliates have become or may become parties;■the possibility of incurring expenses resulting from any defects in products or services of Hitachi;■the possibility of disruption of Hitachi’s operations in Japan by earthquakes, tsunamis or other natural disasters, including the possibility of continuing adverse effects on Hitachi’s operations as a result of theearthquake and tsunami that struck northeastern Japan on March 11, 2011;■uncertainty as to Hitachi’s ability to maintain the integrity of its information systems, as well as Hitachi’s ability to protect its confidential information or that of its customers;■uncertainty as to the accuracy of key assumptions Hitachi uses to evaluate its significant employee benefit related costs; and■uncertainty as to Hitachi’s ability to attract and retain skilled personnel.

The factors listed above are not all-inclusive and are in addition to other factors contained in Hitachi’s periodic filings with the U.S. Securities and Exchange Commission and in othermaterials published by Hitachi.

© Hitachi, Ltd. 2011. All rights reserved.

22