Information &Telecommunication Systems
Business Strategy
November 29, 2013

Yutaka Saito

Senior Vice President and Executive Officer
President & CEO
Information & Telecommunication Systems Company
Information & Telecommunication Systems Group
Hitachi, Ltd.
© Hitachi, Ltd. 2013. All rights reserved.

Contents
情報・通信システム事業戦略
1. 2015 Mid-term Management Policy and Results/Forecasts Outline
2. Hitachi’s Comprehensive Capabilities in the Social Innovation Business3. Transforming a Business Portfolio with Growth Potential
4. Developing the Global Business Structure
5. Business Targets
6. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

1-1. FY2013 1H Results and Full-Year Forecasts
FY2013 1H Results
 Revenues: Increased due to higher sales in services and ATMs, and foreign currency
fluctuations impact, etc.
 Operating income: Increased due mainly to the higher revenues and progress withcost-cutting programs, despite lower profitability resulting from some unprofitable projects

FY2013 Full-Year Forecasts
 Revenues: Raised forecast due to strong services revenues, foreign currency fluctuations
impact, etc.
 Operating income: Largely on track to achieve full-year forecasts, as expect to haveaddressed most unprofitable projects in the current fiscal year

FY2013 1H
Revenues
Operatingincome(Operating income ratio)

Year over yearchangeFY2013

Year over yearchange884.7 billion yen

106%

1,860.0
billion yen

104%

31.3 billion yen(3.5%)+4.1
billion yen

120.0
billion yen(6.5%)+15.3
billion yen© Hitachi, Ltd. 2013. All rights reserved.

31-2. Management Policy
Become a global major player by 3Gs (Growth, Global and Group)
1. Hitachi’s Comprehensive Capabilities in the Social Innovation Business Enhance Group collaboration for displaying “One Hitachi” strengths
 Strengthen upstream approaches using frontline expertise Utilize IT for supporting global business operations
2. Transforming a business portfolio with growth potential
 Strengthen priority fields
 Expand global businesses Strengthen services businesses
3. Developing the global business structure Strengthen global operations and human resources Promote the Hitachi Smart Transformation Project Strengthen cash flow management© Hitachi, Ltd. 2013. All rights reserved.

41-3. Management Targets (Overview)
FY2012FY2013
Forecasts

FY2015
Targets

1,786.5billion yen

1,860.0
billion yen

2,100.0
billion yen

margin5.8%(5.9%)

5.9％(6.5％)

9.8%(10.0%)

Overseas revenue ratio

26%

31%

35%

Services revenue ratio

60%

63%

over 65%

Revenues
EBIT* (Operating income)Expanding global businesses and strengthening services businesses
toward achieving FY2015 targets* EBIT: Earnings Before Interest and Tax© Hitachi, Ltd. 2013. All rights reserved.

5

Contents
情報・通信システム事業戦略
1. 2015 Mid-term Management Policy and Results/Forecasts Outline
2. Hitachi’s Comprehensive Capabilities in the Social Innovation Business3. Transforming a Business Portfolio with Growth Potential
4. Developing the Global Business Structure
5. Business Targets
6. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

2-1. IT’s role in the Social Innovation Business (1)Major countries and regions
for global development

Growing global IT market
120
Japan

WW

100

China

106

CAGR*

CY2010CY2015

Source: IDC, October 2013 “Worldwide Black Book Query Tool, Version3, 2013”(Based on data excluding Client Systems, Feature Phones, Smartphones)

Manufacturing

Finance

Agriculture

City development* CAGR： Compound Annual Growth Rate

EnergySource: Calculated by the Hitachi Research Institute using data from the IHS Global InsightTransport

CY2025

Logistics（B$）

Telematics

8,848

BrazilMore sophisticated social infrastructure,
Business innovation, Safe/comfortable life
Healthcare

CY2010WWInfrastructure
Investment

Japan

Drive Social Innovation Business with "IT"MiningSocial infrastructure investment
Increasing particularlyin emerging countries
CAGR* 5%North
America

India
ASEAN
Sub-Saharan
Australia
AfricaWW 4%
Japan 1%4,356

EuropeIT (Big data, Cloud)© Hitachi, Ltd. 2013. All rights reserved.

7

2-2. IT’s role in the Social Innovation Business (2)More advanced society driven by valuable data
Advancing social
infrastructure

Businessinnovation

Safe/Comfortable
LivingUtilize information / Total engineering
Front areas

Back areas

PeopleIntelligenceFeedbackManagement, Marketing Analysis prediction
Communication
Visualization

Information

ＯＴ*1
Business know-how
Control technology

Accumulation

Data

Datacollection

Enterprise Social
SNS, Mobile*1 OT: Operation Technology*2 M2M: Machine-to-Machine

ＩＴ

Utilization of information
M2M*2© Hitachi, Ltd. 2013. All rights reserved.

8

2-3. Initiatives in the Social Innovation Business (Healthcare)
Support the creation of a society in which each person can live healthily and safe

Social changes / customer needs
Pre-medical(prevention and early discovery)Post-medical(home medical treatment and care)
Medical expense reductions
Provision of integrated medical services

Hitachi’s initiatives

Use IT to get more out of healthcare
data for prevention, treatment and care
Support the delivery of healthmanagement and disease prevention
services
Support the development of
new medicine, health foods, etc.

Launched Proof of Concept projects with NHS GM (October 2013)
NHS GM*: Improve disease-prevention services
1. Integrate management of treatment history(facilitate collaboration among multiple medical institutions)
2. Develop program for improving lifestyles to prevent diabetes

Linking Hitachi’s IT and know-how
with the NHS GM

Utilize Big Data analysis techniques fromprevention to treatment
Build a secure integrated healthcare platform* NHS GM： National Health Service England (Greater Manchester)© Hitachi, Ltd. 2013. All rights reserved.

92-4. Initiatives in the Social Innovation Business (Agriculture)
Improve the level of agriculture by effectively utilizing data
about growing agricultural production
Hitachi’s initiatives
Social changes / customer needs
Declining number of farm workers
Declining food self-sufficiency rate
Food crisis caused by population
growth and abnormal climate

Get more out of data on growing foodwith IT (sensors, satellites, etc.)
Support production and facility
management with IT

Solution examples
Cooperation with agricultural
venture GRANPA Co., Ltd.

Cooperation with Mitsui & Co., Ltd.
in precision agricultureDome-type cultivation facilities- Using sensors to automatically regulate
the growing environment

Targeting grain crops in Brazil and elsewhere- Use satellite image analysis to ascertain growing status(Capital Investment by Hitachi (May 2013))(Examining commercial viability)

Data analysis using satellite imagery© Hitachi, Ltd. 2013. All rights reserved.

10

Contents
情報・通信システム事業戦略
1. 2015 Mid-term Management Policy and Results/Forecasts Outline
2. Hitachi’s Comprehensive Capabilities in the Social Innovation Business3. Transforming a Business Portfolio with Growth Potential
4. Developing the Global Business Structure
5. Business Targets
6. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

3-1. Business Growth Strategies
Key fields to lead growth
1. Expand global businesses● Overseas revenue ratio: 26% (FY2012)  35% (FY2015)

2. Strengthen services businesses● Service revenue ratio: 60% (FY2012)  over 65% (FY2015)

3. Strengthen priority fields● Smart information● Big Data ● Highly reliable cloud computing ● Security© Hitachi, Ltd. 2013. All rights reserved.

123-2. Global Business Expansion (1)Deliver customer value as One Hitachi

SI

Manufacturing

Hitachi Systems
Hitachi Solutions
Hitachi-Omron
Terminal Solutions

SoftwareFinance

Hitachi Groupbusinesses

IT services

Agriculture

City development

EnergyTransport

Logistics

Telematics

Healthcare

MiningConsulting

Increase revenues to 2,100 billion
yen in FY2015
Business target:
Overseas revenue ratio
26% (FY2012) → 35% (FY2015)

Business enhancement initiative (1)Strengthen solutions proposal capabilities
Expand Social Innovation Business
Expand business domains centeredon Hitachi Consulting
Business enhancement initiative (2)Strengthen IT services platform
Add value with software and IT services
Expand business scale centeredon Hitachi Data Systems

Integrated platforms/cloud
Storage, servers and networks

Operatingincome ratio
Target: 10%+4% or more
FY2015
6.5%
FY20135.9%
FY2012© Hitachi, Ltd. 2013. All rights reserved.

13

3-3. Global Business Expansion (2)Business enhancement initiative (1)Strengthen solutions proposal capabilities

Promote centered on
Hitachi Consulting

1. Develop financial channel solutions targeting growth markets- Concluded agreement to acquire Prizm Payment Services(November 2013)

Expandbusinessdomains

2. Strengthen R&D and consulting to drive the Social Innovation- Business Established Hitachi Global Center for Innovative
Analytics (June 2013)- Strengthen synergies with consulting companies (Celerant Consulting, etc.)

Business enhancement initiative (2)Strengthen IT services platform

Promote centered on
Hitachi Data Systems

1. Provide advanced solutions that add value to data
- Began providing Hitachi Content Platform Anywhere (June 2013)- Began providing Hitachi Cloud Services (June 2013)

2. Expand business scale in integrated platform solutions- Expanded Hitachi Unified Compute Platform lineup (October 2013)- Expand provision of managed services

Establish
high-profit
structure© Hitachi, Ltd. 2013. All rights reserved.

143-4. Global Business Expansion (Financial Channel Solutions)
Expand business through Indian company acquisition
1. Utilize ATM track record in China to lead the financial channel market
2. Quickly expand business through acquisition ofIndian payment service company
ASEAN, India and China Banking Sector IT Investment
IT investment
(B$)
16
12
8

Growth rate

2012

2017

2012～2017 CAGR (%)

Rapid expansion in
6 ASEAN countries
and India in 2017

12 ％

(%)
20
15

No.1 share*

Accelerate penetration of financial systems in Asia

 Deliver ATMs in China, ASEAN countries, etc.
 Lead the industry in cash deposit andcash recycling ATMs
 Utilize IT know-how targeting enterprises

10

4

5

0

0

ASEAN
Japan
India
China
Top 6 countries
total
Source: IDC Japan, Oct 2013 “Asia/Pacific Q2 2013

Vertical Markets IT Spending Forecast”

Package required services for development
 Cash payment services  Non-cash payment services
 Payment service
platforms

 Customer/alliance partner
systems

Concluded agreement to acquire Prizm Payment Services (November 25, 2013)
Plan to acquire Prizm Payment Services, a provider of comprehensive payment services,extending from the provision of ATMs and card payment terminals to operational services, in India* Based on the number of operational ATMs in China / Hitachi estimate© Hitachi, Ltd. 2013. All rights reserved.

15

3-5. Global Business Expansion (Strengthen Solution Proposal Capabilities)

Strengthen frontline-focused R&D and consulting
Promote open innovation and strengthen
Consulting to help solve customers’ issues

Conduct the world’s most-advanced R&D by linking
systems and products with IT and cloud services

Expanding innovation collaborating bases globally
Healthcare
MiningTelematics

Logistics Transport

EnergyCity development Agriculture

Hitachi Global Center for Innovative Analytics (HGC-IA)

Manufacturing

EuropeEuropean Big Data Laboratory(The University of Manchester)(October 2013)- Healthcare service

Newly EstablishedFinance

North America
Japan- Central Research Laboratory- Hitachi Research Laboratory- Yokohama Research Laboratory- Design Division

U.S. Big Data Research Laboratory(April 2013)- Storage solution- Big data analytics

South America
Brazil Laboratory (June 2013)- Agriculture - Mining© Hitachi, Ltd. 2013. All rights reserved.

16

3-6. Global Business Expansion (Strengthen IT Services Platform)
Lead the world in data management services
1. Provide advanced solutions that add value to data
2. Expand business scale into integrated platform solutions
Cloud Service Market (IaaS)
(B$)

18

CAGR

+42%

6
CY2012

CY2015

Source: Made by Hitachi, Ltd. based on Gartner,
Nov 2013 “Forecast: IT Services,
2011-2017, 3Q13 Update”

Vertically Integrated
Platform Market(B$)

15 CAGR+48%

4.6
CY2012

CY2015Integrated platform solutions
Storage services

 Cloud storage services: Hitachi Cloud Services
 Managed services(Currently operating data more than 50 PB)- End-to-end platform solutions- Won orders from major global companies such as BMW

Content management middleware Content archive solutions
Hitachi Content Platform Anywhere (June 2013)

Integrated platforms (Integrated PF)

 Integrated PFs for private clouds
Strengthen lineup of Hitachi Unified Compute Platform(October 2013)- Won orders from Accadis, oXya and others

Source: IDC, Nov 2012 “Worldwide Converged
Systems 2012-2016 Forecast:
Adoption Fueled by Faster Time-to-Market Demands”(#237979)© Hitachi, Ltd. 2013. All rights reserved.

173-7. Expand Global Businesses (Business Plan)
458.1 billion yen

Asia, etc.

Asia, etc.
China
Europe

[5]

China

[5]

[5]

Europe

[8]

[9]

[6]
North
America[10]735.0 billion yen

Overseas revenue

Oversea
Revenue
Ratio
26%

North
America
[13]

Japan
[74]

Oversea
Revenue
Ratio
35%

Japan
[65]

Overseas ratio: 31%
FY2013 Forecast(FY2012)[ ]: % ratio(FY2015 Target)

56,100Japan
headcount
Overseas
headcount

55,00020,000Total headcount75,00015,400 [22%]71,500[27%]© Hitachi, Ltd. 2013. All rights reserved.

18

3-8. Business Growth Strategies
Key fields to lead growth
1. Expand global businesses● Overseas revenue ratio: 26% (FY2012)  35% (FY2015)

2. Strengthen services businesses● Service revenue ratio: 60% (FY2012)  over 65% (FY2015)

3. Strengthen priority fields● Smart information● Big Data ● Highly reliable cloud computing ● Security© Hitachi, Ltd. 2013. All rights reserved.

193-9. Strengthen Services Businesses
Increase service revenue ratio
1. Increase profitability in system integration services in Japan
2. Expand business domains in management support services,
operation services and product services

Service Revenue Composition
Service revenue ratio

63%

65%

Business target:
service revenue ratio
60% (FY2012) → over 65% (FY2015)

60%●System integration services (Japan)
Strengthen project management●Management support services
Consulting, analytics●Operation services
Outsourcing● Product services (Maintenance)
FY2012FY2013(Forecast)

FY2015(Target)© Hitachi, Ltd. 2013. All rights reserved.

20

3-10. Strengthen Services Businesses (SI in Japan)
Expanding demand in Japan
Finance

Government

Increasing opportunities
to replace existinglarge-scale systems

Increasing opportunities to makeproposals due to Abenomics-based
public works spending, the Social
Security and Tax Number System, etc.

Manufacturing and logistics

Social infrastructure

Increasing opportunities
Increasing investment into make proposals in thecloud-based services andnew service expansion, etc. Big Data utilization field

Steadily acquisitionof ordersStrengthen proposal
capabilities in response
to customer needs
Rightsize workforce

Strengthen project management (pursue even greater quality and efficiency)

New customers
Package application(1) Improve upstream operations

Eliminate vagueness in contracts and service details
Strengthen proposal capabilities for customers

Advancing estimates (2) Strengthen system design capabilities
New fields

Improve the skills of quality assurance experts
to respond to new technologies and new fields© Hitachi, Ltd. 2013. All rights reserved.

21

3-11. Strengthen Services Businesses (Operations services)
Bolster outsourcing services
Provide “Monozukuri (manufacturing) techniques”, “OT” and“IT” - strengths of Hitachi - on an outsourcing basis
Operations services

Services encompassing
entire information systems

 Value provided to customers“Stable operations”“enhanced competitiveness using IT”“more time to focus on core businesses”
and “cost reductions”

Expansion of Hitachi’s business domains
Provide comprehensive high-quality,
highly reliable information systems
services
Improve efficiency in development
and operations

Concluded share transfer agreement with TEPCO
for strategic business alliance relating to information systems services
Hitachi Systems Power Services, Ltd. (new company)
Corporate split of operational services and some other operations from Tokyo
Electric Power Company’s information subsidiary TEPCO Systems Corporation
Hitachi and Hitachi Systems plan to acquire shares in the new company inMarch 2014
© Hitachi, Ltd. 2013. All rights reserved.

22

3-12. Strengthen Services Businesses (Analytics)
Create new customer value and business opportunities
utilizing big data
New value created from data Integration of customer information systems
and user information from other types of businesses
Analysis of automobile probes and vehicle
information, and utilization of SNS data
 Innovation in smartphone andcarrier communication network technologies

Big data-related market(B$)

CAGR 31％18
8CY2012

Expanding big data analytics market
Hitachi Group integration solutions

CY2015

Source: IDC, Dec 2012 “Worldwide Big Data Technology andServices 2012-2016 Forecast” (#238746)

Transferred the CIS* Division from Hitachi Automotive Systems to
the Information & Telecommunication Systems Company (April 2013)

Automobile-related business know-how andinsight

Smart mobility services

Proven IT platform in car information services

Global telematics

 Hitachi Automotive Systems, Clarion, etc.

 Big data utilization platform, cloud platform,
analysis techniques

Car information services

SNS-based smart mobility services

New service: Began providing Hitachi Data Processing andDistribution Service for Telematics (May 2013)* CIS: Car Information Systems© Hitachi, Ltd. 2013. All rights reserved.

23

Contents
情報・通信システム事業戦略
1. 2015 Mid-term Management Policy and Results/Forecasts Outline
2. Hitachi’s Comprehensive Capabilities in the Social Innovation Business3. Transforming a Business Portfolio with Growth Potential
4. Developing the Global Business Structure
5. Business Targets
6. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

4-1. Strengthening the Financial BasisCash flow management
Increase cash flow
Increase profitability
and cash efficiency

Shift to high-value-added
service businesses, expand
business globally
Increase business efficiency
by implementing SCM reformproject (Execute E2E* 1
supply chain reform project)

Improve investment efficiency

Execute strategic investments

Improve investment
and asset efficiency

Accelerate
growth strategy

Evaluate investments according
to shift to new fields (service businesses)
Effectively utilize own assets

Engage in collaborative
creation with domain experts(R&D, PoC*2, M&As)

Hitachi Smart Transformation Project
Steady cost reductions → FY2015 53.0 billion yen (FY2013~FY2015 total)*1 E2E : End to End*2 PoC : Proof of Concept© Hitachi, Ltd. 2013. All rights reserved.

25

4-2. Hitachi Smart Transformation Project Progress

Consistent cost reduction toward FY2015 targets
Target earnings structure
6.5
32.1

10

Operatingincome29

SG&A*
expenses

4.6

5.0

6.0

R&D
expenditures

 Strengthen consolidated
management:
SG&A

5.9
30.3

Hitachi Smart Transformation Project Progress

Integrate sales organizations(October 2013) Reduce administration works:
Simplify internal transactions
within Hitachi Group Reduce manufacturing costs:
61.4

61

(%)

Costs

Costs

63.8

Launched Hitachi Information &Telecommunication Engineering, Ltd.
(October 2013)

 Curtail direct material costs

FY2012FY2013
Forecast

FY2015
Target* SG&A: Selling, general and administrative expenses

FY2013-1H: 10.0 billion yen
Cost
reduction FY2013: 16.0 billion yen (from FY2012)
effect FY2015: 53.0 billion yen (from FY2012)

FY2011~2015 total： 65.0 billion yen© Hitachi, Ltd. 2013. All rights reserved.

26

Contents
情報・通信システム事業戦略
1. 2015 Mid-term Management Policy and Results/Forecasts Outline
2. Hitachi’s Comprehensive Capabilities in the Social Innovation Business3. Transforming a Business Portfolio with Growth Potential
4. Developing the Global Business Structure
5. Business Targets
6. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

5-1. Performance Targets
Amount of orders
received (billion yen)Overseasrevenue
ratio
Revenue(billion yen)

24%
５.８％

1,787.5

1,838.3

25%

26%

９.８％
ＥＢＩＴ
ratio

5.9％

2,100.0

2,000.0
1,652.0

35%

31%

５.８％

５.５％

1,899.0

1,764.2

1.786.5

EBIT(billion yen)

３００.０

1,860.0

205.0
２００.０
1,000.0
96.0

0FY201096.2

FY2011

104.2

FY2012

110.0
１００.０

FY2013
Forecast

FY2015
Target© Hitachi, Ltd. 2013. All rights reserved.

28

5-2. FY2015 Business Targets

FY2015 Targets
Revenues: 2,100.0 billion yen(overseas revenue ratio: 35%)
EBIT (Operating income) ratio: 9.8% (10%)
Gross margin:
2.8 point improvement (from FY2012)
SG&A expense ratio:
1.3 point improvement (from FY2012)© Hitachi, Ltd. 2013. All rights reserved.

29

Contents
情報・通信システム事業戦略
1. 2015 Mid-term Management Policy and Results/Forecasts Outline
2. Hitachi’s Comprehensive Capabilities in the Social Innovation Business3. Transforming a Business Portfolio with Growth Potential
4. Developing the Global Business Structure
5. Business Targets
6. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

6. Conclusion

Become a global major player by 3Gs(Growth, Global and Group)© Hitachi, Ltd. 2013. All rights reserved.

31