Hitachi to Implement Emergency Management Measures and New Consolidated Management System

Business Wire, August 31, 2001

Business Editors/High-Tech Writers

TOKYO--(BUSINESS WIRE)--Aug. 31, 2001

Hitachi, Ltd. (NYSE:HIT)(TSE:6501) today announced that the Company is implementing emergency management measures aimed at bringing about an early improvement in its business results.

Hitachi has been working to achieve the goals of its "i.e. HITACHI" medium-term business plan through restructuring moves and management reforms implemented under a new management system launched in April 1999. However, with rapid changes in the market environment leading to a worsening of the Company's business results, Hitachi is implementing emergency management measures aimed at bringing about an early improvement in its business results.

Full-fledged consolidated management is essential to accelerate the increase in the corporate value of the Hitachi Group within an environment shaped by intense competition. As such, starting from the second half of the current fiscal year, Hitachi Group head-office function will be strengthened and a new "Future Inspiration Value (FIV)" index being devised by the Company will be used to re-evaluate the Company's business portfolio in terms of new segment units. Based on the outcome of this re-evaluation, the form the Hitachi Group should take will be defined, business strategies will be rigorously reviewed and operations will be resolutely reorganized.

I. Emergency Management Measures

(1) Company-Wide Emergency Measures

--1. Comprehensive Cutting of Fixed Costs

On an unconsolidated basis, targets for cutting fixed costs will be set for each business group to reduce the overall level of fixed costs by 60 billion yen by the end of fiscal 2001, the year ending March 31, 2002. In subsidiaries belonging to segments where results are particularly sluggish, such as Electronic Devices and High Functional Materials & Components, manufacturing facilities will be closed, merged or downsized. On a consolidated basis, fixed costs reduction target is set around 130 billion yen.

--2. Personnel Reductions

On a consolidated basis, in addition to natural attrition, the number of employees will be reduced by around 14,700 (10,200 in Japan and 4,500 overseas) by the end of fiscal 2001, mainly through restructuring of the Semiconductor Group and Display Group.

--3. Top-to-Bottom Review of Planned Investment in Plant and

Equipment

In response to a rapid deterioration in the operating environment, plant and equipment investment plans will be reviewed to reduce investment items to the minimum required. In the semiconductor business in which supply greatly exceeds demand, the initially-planned investment of 140 billion yen will be decreased to 60 billion yen in an effort to further prevent cash flow deterioration.

--4. Boosting Management Efficiency

The Company will continue to move forward with the Corporate Innovation Initiative (CII), encompassing the following elements.

- (1) Procurement Renewal Project (PRP)

The procurement specifications and methods of the Hitachi Group

are being reviewed to reduce consolidated procurement costs by a

planned 20% (approximately 600 billion yen) over two years, by

using such measures as net-based centralized purchasing and by

making major reductions in distribution costs. In the first half

of the current fiscal year, the project is being carried out at a

faster pace.

- (2) Project C

The aim of Project C is to ensure funds for strategic investments

and reduce interest-bearing debt through a 25% decrease (by March

31, 2003, compared to September 30, 2000) in the number of days it

takes to turn over inventory and accounts receivable. This is

expected to generate additional 1 trillion yen improvement in cash

flow over the period. It is targeted that by the end of September

2001, the number of days it takes to turn over inventory and

accounts receivable will have decreased by around 10% compared to

September 2000.

- (3) Project A

Hitachi is currently in the process of strategically promoting

this project. Each business group and division is developing

businesses and services, which aim at world leadership positions

within 2 to 3 years. Compared to fiscal 2000 sales, the aim is to

increase sales of products and services targeted by the project by

1.5 times in fiscal 2001, and to double sales by fiscal 2002.

(2) Business Group Emergency Measures

--1. Semiconductor Business

- (1) Selectivity and Concentration

Hitachi will concentrate resources where it has strengths and the

markets are large, or in products and applications that have high

growth potential. The Company's business portfolio will be

comprised of a commodity-product business segment for the many

customers that use general-purpose items, and an

application-specific business segment that will provide solutions

and products tailored to meet the needs of leading enterprises in

specific applications such as mobile systems and car information

systems.

Commodity-Product Business

For multi-purpose semiconductors, multi-purpose microcomputers,

SRAMs and non-volatile memory products, product groups to

concentrate resources on will be selected. The lineups of the