Hitachi Announces Plans for Completion of Emergency Management Measures and Initiatives to Enhance Its Competitiveness

Business Wire, Feb 28, 2002

Business Editors/High-Tech Writers

TOKYO--(BUSINESS WIRE)--Feb. 28, 2002

Toward Restoring Business Performance in Fiscal 2002

Hitachi, Ltd. (TSE:6501)(NYSE:HIT) today announced plans for completion of its emergency measures and to strengthen its competitiveness.

Hitachi is making concerted efforts toward achieving a turnaround in business performance in fiscal 2002, the year ending March 31, 2003. To this end, Hitachi is stepping up the implementation of emergency management measures initiated in 2001. We will work to enhance our competitiveness on the global stage, set new evaluation standards for our businesses, and clearly define our strategic business domains. To stimulate greater demand, we will advance a new business development strategy designed to maximize the synergies generated across the Hitachi Group.

I. Emergency Management Measures

1. Effects of Business Restructuring

In fiscal 2002, Hitachi will cut fixed costs by approximately 200 billion yen year on year. This will be achieved through reducing personnel expenses and measures to accelerate business restructuring.

(1) Reducing Personnel Expenses

At the time of the interim earnings announcement in October 2001, we planned to reduce the number of employees by about 15,900 (11,100 in Japan and 4,800 overseas) on a consolidated basis. By the end of June 2002 we will lower our headcount by approximately 20,930 (15,100 in Japan and 5,830 overseas) following withdrawing from and downsizing of overseas businesses in unprofitable businesses, the introduction of an early retirement benefit system, and additional schemes.

Due to the deterioration in business performance in fiscal 2001, managers at the department-head level and above at the parent company will receive a lower June bonus in 2002. Given the need to restore Hitachi's competitiveness as early as possible, we also plan to reduce their salaries by an average of around 5%. From fiscal 2003 onward, the level of remuneration will be linked to the recovery in business performance. The above measures will also apply to fiscal 2002 remuneration at underperforming affiliates.

Through these initiatives, we expect to reduce consolidated personnel expenses by 110 billion yen in fiscal 2002, including a 15% cut in total personnel expenses at the parent company.

(2) Businesses Restructuring Improvement Effect

In the current fiscal year, Hitachi will incur business restructuring costs of 134 billion yen. These costs are associated with various initiatives, including the consolidation and reorganization of production centers in semiconductor and consumer products businesses, withdrawal from color picture tube (CPT) for PC monitors business, and withdrawal from under-performing businesses at Hitachi Metals, Ltd. in the high functional materials business. Implementation of such initiatives is expected to have a beneficial earnings effect of 90 billion yen in fiscal 2002.

2. Boosting Management Efficiency

Hitachi will accelerate the pace of the Corporate Innovation Initiative (CII), which encompasses the following elements. We intend to accelerate the pace of CII as we work steadily toward its achievement.

(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% over the two years through March 2003, by using such measures as net-based centralized purchasing and by making major reductions in distribution costs. The PRP is expected to lower procurement costs by around 260 billion yen in fiscal 2001. Adding further impetus to the project, we intend to reduce procurement costs by approximately 640 billion yen in fiscal 2002.

(2) Project C

Project C is a scheme designed to generate an additional 1 trillion yen cumulative improvement in cash flow through a 25% decrease (by March 31, 2003, compared with September 30, 2000) in the number of days it takes to turn over inventory and accounts receivable. As of March 31, 2002, we expect to have shortened inventory and accounts receivable turnover periods by approximately 15% since September 30, 2000, resulting in an 800 billion yen cumulative improvement in cash flow.

We aim to continue generating positive cash flow.

(3) Project A

Hitachi is in the process of strategically promoting this project. Each business group and division is developing businesses and services aimed at securing world leadership positions within 2 to 3 years. We estimate that sales generated from the products and services targeted by the project will amount to 1,140 billion yen in fiscal 2001 and increase to 1,440 billion yen in fiscal 2002.

(4) Globalization Strategy

At present, around 30% of net sales are generated overseas. We intend to raise this percentage to 40% in fiscal 2002 and to roughly 45% in fiscal 2005. Our long-term goal is for overseas sales to account for half of net sales. To achieve these targets, our mainstay information businesses will focus on gaining top share in the SAN/NAS solutions market in Europe and North America. Another step will be to expand operations quickly by acquiring leading local companies engaged in various other solutions businesses. In China and Asia, we will help improve information systems infrastructure and promote e-government initiatives. Efforts will also be made to put in place social infrastructure in the electric power and industrial sectors.