Hitachi, Ltd. Business Information, Profile, and History

Company Perspectives:

Hitachi, Ltd. celebrated its 90th anniversary in 2000, and with the motto 'reliability and speed,' we are determined to enter the 21st century with enthusiasm and confidence. We have recently announced a new strategy for growth called 'i.e. Hitachi,' a medium-term consolidated business plan. With our wealth of knowledge and strength in information technology, we will make effective use of the Internet to offer customers higher value and become their 'Best Solutions Partner.' Further, in order to achieve our goal of becoming 'Hitachi, the brand of choice,' we have created a new corporate slogan: Inspire the Next. It is a statement of our intention to invigorate the next era, as we focus our corporate activities in directions aimed at making Hitachi the most trusted company in the world.

History of Hitachi, Ltd.

Hitachi, Ltd. is both Japan's largest electronics manufacturer and one of the largest conglomerates in the world. Fittingly, Hitachi is often called the General Electric of Japan, and is in fact considered to be one of the 'Big Five' sogo denki, or general electric companies, a group that is typically said to also include Fujitsu Limited, Toshiba Corporation, Mitsubishi Electric Corporation, and NEC Corporation. Hitachi's full range of electronics products includes semiconductors, personal computers, computer peripherals, consumer audio and video equipment, telecommunications equipment, and medical electronics equipment. Beyond electronics, the company is involved in power and industrial systems, including nuclear and hydroelectric power plants, control equipment, elevators and escalators, trains, automotive equipment, and construction machinery; home appliances such as air conditioners, refrigerators, washing machines, microwave ovens, and vacuum cleaners; and materials manufacturing, including pipes, wires, and cables, and products made from iron, steel, copper, and rubber. Approximately 30 percent of the company's sales are derived outside of Japan. Hitachi is part of the Fuyo keiretsu, a loose grouping of affiliated companies linked through history and tradition, as well as cross-shareholdings.

Roots in Motors

Hitachi's historical foundations can be traced back to 1910, when Namihei Odaira took his first engineering job with Kuhara Mining. The recent graduate of the Tokyo Institute of Science soon became frustrated with his company's reliance on technology imported from Europe and the United States. Odaira used his engineering skills to build small five-horsepower electric motors that rivaled the imports in quality and durability. His employer soon became his first, and--for a few years--only customer.

While Odaira's motors worked efficiently for the copper mine, he had trouble selling them to other Japanese firms. It was not until the outbreak of World War I that he was able to gain some large customers. A major power company found that, because of the war, it could not obtain the three large turbines it had ordered from Germany and was forced to turn to Hitachi in the absence of a better alternative. Odaira made the most of his opportunity, delivering the 10,000-horsepower generators in five months. Impressed with his work, the power company soon ordered more equipment. Soon other corporations came to Odaira for help in improving their industrial capabilities.

Odaira incorporated his company in 1920 and named it for the town of Hitachi, where he had made his first sale. True to the company name, which means 'rising sun,' Odaira's success increased rapidly in the interwar era. In the 1920s Hitachi expanded its operations to meet the growing demand of Japan's burgeoning industrial economy. Through the acquisition of other companies, Hitachi evolved into the nation's largest manufacturer of pumps, blowers, and other mechanical equipment. The company also became involved in metal working and began manufacturing copper cable and rolling stock. These developments served to consolidate Hitachi's ability to build and supply a major manufacturer without outside help. In 1924 it also built Japan's first electric locomotive.

The ascendancy of the Japanese military government in the 1930s forced some changes at Hitachi. Although Odaira struggled to maintain corporate independence, his company was nonetheless pressured into manufacturing war material, including radar and sonar equipment for the Imperial Navy. Odaira, however, was successful in preventing Hitachi from manufacturing actual weapons.

World War II and its aftermath devastated the company. Many of its factories were destroyed by Allied bombing raids, and after the war, American occupational forces tried to disband Hitachi altogether. Founder Odaira was removed from the company. Nevertheless, as a result of three years of negotiations, Hitachi was permitted to maintain all but 19 of its manufacturing plants. The cost of such a production shutdown, though, compounded by a three-month labor strike in 1950, severely hindered Hitachi's reconstruction efforts. Only the Korean War saved the company from complete collapse. Hitachi and many other struggling Japanese industrial firms benefited from defense contracts offered by the American military. Meanwhile, Hitachi went public in 1949.

Postwar Moves into Electronics and Household Appliances

During the 1950s Chikara Kurata, who had succeeded Odaira as president of Hitachi, directed the company into an era of market expansion. Anticipating the future of electronic engineering, he established technology exchanges with General Electric and RCA. He also initiated a number of licensing agreements which allowed Hitachi to compete, through affiliates, in the worldwide market. In the 1960s the firm also began marketing consumer goods, introducing its own brand of household appliances and entertainment equipment.

Perhaps Hitachi's most important decision, however, was investing in computer research. In 1957 Hitachi built its first computer and entered into the high-tech age. During the 1960s Hitachi developed Japan's first online computer system, and emerged as the world's largest producer of analog computers, which were used in scientific research to compile complex statistical data.

Despite its technical advances, Hitachi and most other Japanese electronics companies still lagged behind U.S.-based International Business Machines Corporation (IBM). The Japanese Ministry of International Trade and Industry took direct action to narrow the gap and make Japan competitive. It funded a cooperative research and development effort which involved most of Japan's major technical firms. Hitachi benefited greatly from this program, and ended its overseas policy of non-confrontation. From that point forward, the high-tech competition between America and Japan, and between IBM and Hitachi in particular, was underway. In 1974 Hitachi developed and launched what were then known as 'plug compatible mainframes.' These 'clones' cost less than but were compatible with IBM's machines, which set the industry standard.

Hitachi has long been recognized for its ability to adapt to changing economic conditions. Its flexibility was especially evident during the 1974 OPEC oil crisis that devastated Japan (which imported nearly 95 percent of its energy) and its industrial sector. Drastic cost-cutting measures were taken to keep the firm financially solvent, and company executives voluntarily took 15 percent pay cuts. Following 1975, when the company had its first disappointing fiscal year, sales and profits at Hitachi began to increase dramatically.

Scandals and Other Problems in the 1980s

Hitachi worked hard--many said too hard&mdashø transform itself into the IBM of Asia in the 1980s. In July 1982, Hitachi and 11 of its employees were indicted on charges of commercial bribery and theft. Apparently some employees at Hitachi had been stealing confidential design secrets from IBM so as not to lose ground in the intense race for technological superiority. The FBI and the U.S. Justice Department arranged an operation that caught Hitachi employees paying for IBM documents.

Penalties for the offense were, on the surface, quite light. Hitachi was fined $24,000 and only two employees were given jail sentences. The negative publicity caused by the scandal damaged Hitachi considerably, however. News of the trial appeared just as the company was beginning a full-scale marketing campaign for its products in the United States. Many American companies canceled their orders or refused to receive shipments. A civil suit brought by IBM won the American company at least $24 million in annual royalty payments over the ensuing eight years and the right to examine Hitachi's new software releases for five of those years.

Hitachi recovered from this unfortunate set of circumstances, but soon faced other problems. Marketing had always been the company's weakest department, seriously hampering its competitiveness abroad. For many years, Hitachi's products were sold under competitors' names, thereby undermining the company's brand recognition. In 1986, profits dropped for the first time in a decade, down 29 percent from 1985 to $884 million. Part of the decline could be attributed to external market factors: the strong yen made Hitachi's products comparatively more expensive; a global decline in semiconductor sales hamstrung that industry; and competition from low-cost manufacturers in Korea and Taiwan put a squeeze on profit margins. But Hitachi's sliding profits were also attributable to its concentration in mature and slow-growth markets. Its two largest sectors, industrial equipment and consumer products, were not all that promising: the conglomerate's large industrial customers had cut back on orders, and lackluster marketing efforts made Hitachi virtually indiscernible from the plethora of consumer electronics brands. The company was simply not positioned to enter into fast-growing markets.

To deal with these problems, Hitachi president Katsushige Mita sought to change the company's approach to its business. 'We cannot live with tradition alone,' he said. 'I have to make Hitachi a more modern company.' To this end, Mita reorganized Hitachi's operations and instituted new business strategies in the mid-1980s. Cost-cutting measures such as increased automation helped reduce labor expenses and helped the corporation compete more effectively with its rivals in Southeast Asia. The transfer of production to other countries helped diffuse fluctuations in the exchange rate. The 1989 purchase of a controlling interest in National Advanced Systems (NAS), an American distributor of mainframe computers, helped shore up Hitachi's sales efforts in that important market. The subsidiary, renamed Hitachi Data Systems, hoped to challenge segment leaders IBM and Amdahl Corporation with machines that ran 20 percent faster than their competitors.

Increased investments in research and development helped the company stay in the technological vanguard, especially in semiconductors, consumer electronics, and computers. With the support of the Japanese government, Hitachi and its domestic competitors formed a research and development alliance known as the Very Large Scale Integration (VLSI) Project. The joint effort proved very fruitful, enabling Hitachi to stay one technological step ahead of its overseas competitors, continuously developing semiconductors with ever-higher memory capacity. By the early 1990s, Hitachi's R & D expenditures amounted to 6 percent of all corporate R & D spending in Japan. It also ranked as that country's top patent holder, and was even a contender for that standing in the United States.

Technical superiority, however, proved insufficient for the company; it also sought market share dominance. A 1985 memo leaked to the public revealed what American competitors had suspected: Hitachi was 'dumping' its semiconductors on overseas markets. Dumping, or selling goods in foreign markets at significantly lower prices than those set in domestic markets, is an anticompetitive practice. Once again, the company faced the wrath of the U.S. government.

Restructuring: 1990s and Beyond

An apparently contrite Hitachi charted a new, more cooperative course in the late 1980s and early 1990s. In 1988 it formed a trendsetting venture with Texas Instruments Incorporated to jointly develop a 16-megabyte dynamic random access memory (DRAM) chip. In the early 1990s, Hitachi formed alliances with Hewlett-Packard Company, TRW Inc., and even longtime rival IBM. The latter partnership, which began in 1991, involved Hitachi reselling IBM notebooks in Japan under the Hitachi name.

Still, Hitachi was unable to parlay its technological leadership into earnings growth: while the conglomerate's sales were essentially flat at around ¥7 trillion from 1991 to 1994, its profits dropped more than 71 percent, from ¥230 billion to ¥65 billion. In 1990, President Mita announced a reorganization that focused, in part, on transforming the conservative corporate culture that some observers blamed for Hitachi's declining earnings. The leader shifted the company's primary emphasis from heavy industrial equipment to information systems. Organizational changes focused on the dismantling of a 'plant profit center' scheme. Sometimes known as just 'pc,' this system integrated production, quality, and cost control as well as product design and planning within each factory. The new plan reorganized some divisions into autonomous operations in an effort to emphasize consumer demands over production requirements. Pay freezes and cuts of up to 15 percent for white-collar workers were also instituted.

Mita became chairman in 1991 as Tsutomu Kanai took the reins as president. As Hitachi struggled to improve its profitability, it continued to gain renown in Japan for the bullet trains that it built. Having built the first cars for the bullet train in 1964, Hitachi introduced a new model in 1993 that boasted maximum speeds of 270 kilometers (167 miles) per hour. This achievement was a prime example of why Hitachi suffered from such low profit margins throughout the 1990s. Although best known as an electronics manufacturer, the company was saddled with numerous slow-growth, low-margin product lines that were holdovers from earlier decades in the company's history. At mid-decade Hitachi's workforce totaled more than 330,000 workers, comprising the largest private labor force in Japan, and the company had more than 860 subsidiaries. Many U.S. observers believed that Hitachi and the other Japanese conglomerates needed massive restructurings involving huge workforce reductions and the selling off or closing down of large numbers of noncore operations. Although often compared to General Electric, Hitachi had nothing like the strategy of GE chief Jack Welch, who professed to abandon any business in which his company could not attain the number one or number two position. Such ruthless business practices, particularly any action involving mass layoffs or firings, remained taboo in Japan. Hitachi was seen by many as a lumbering giant, unable to move quickly enough to improve profitability or develop new products in a timely manner.

Compounding Hitachi's travails was the prolonged economic stagnation that afflicted Japan in the wake of the bursting of the bubble economy of the late 1980s. Then the Asian economic crisis erupted in mid-1997, sending demand for, and the prices of, semiconductors and other electronics products tumbling. Hitachi barely eked out a profit for the fiscal year ending in March 1998, before plunging into the red the following year, posting a net loss of ¥336.92 billion ($3.33 billion). This was the company's first loss since it began using consolidated accounting in 1963 and one of the largest on record in corporate Japan.

Kanai in 1998 announced a restructuring involving a workforce reduction of 4,000. Then in April 1999 Kanai was named chairman, and Etsuhiko Shoyama was promoted from executive vice-president to president. Shoyama began implementing other restructuring efforts, including the reorganization of the company into ten divisions (which Hitachi called 'companies'), each of which had its own president with broad autonomy whose pay was linked to performance. The size of the company's board of directors was cut to help speed up decision-making. A semiconductor plant in Irving, Texas, was shut down and 650 people were laid off. Certain product lines, such as mainframe computers, were abandoned. To counter the company's engineering-driven culture, which tended to create products without regard to market needs, product developers were forced to get feedback from the marketing staff.

In another break with tradition, Hitachi abandoned its insistence on developing major products internally and turned to alliances and joint ventures with its competitors. In November 1999 Hitachi and NEC formed a joint venture, Elpida Memory Inc., to make DRAM memory chips. One month later, Hitachi joined with Taiwan-based United Microelectronics Corporation to form Trecenti Technologies, Inc., a venture focusing on the fabrication of semiconductor wafers. By early 2001 Hitachi had similarly entered into several other alliances, including ventures with: Fujitsu to develop, make, and sell large-screen plasma display panels for the widescreen television market; Computer Sciences Corporation of El Segundo, California, to offer information technology systems and services in Japan; Clarity Group to develop optical components for telecommunications through a U.S. venture called OpNext, Inc.; NEC on the joint development of next-generation optical transport systems; Omron Corporation of Japan in the area of factory automation control systems; Fuji Electric Co., Ltd. and Meidensha Corporation on the development, design, and production of equipment and components for facilities devoted to the transmission and distribution of electric power; and Kawasaki Heavy Industries to pursue contracts for overseas railway systems.

Hitachi also began pursuing acquisitions as a means of gaining positions in burgeoning high-tech companies in the United States and Japan. One of the company's main strengths was its huge hoard of cash, which totaled $15 billion at the end of the 1990s. Leveraging this asset, Hitachi planned to spend about $3 billion on acquisitions from 2000 through 2003. One of the first purchases was a $175 million deal for U.S.-based e-Business Consulting Group, which was renamed Experio Solutions Corporation. In another streamlining move, Hitachi announced in February 2001 that its instruments group and its semiconductor manufacturing equipment group would be merged into Nissei Sangyo Co., Ltd., a publicly traded firm controlled by Hitachi through a majority ownership. Nissei Sangyo had already been handling sales for the two groups, and this move was aimed at improving efficiency. Other mergers of subsidiaries and affiliates were accomplished as well.

Although relatively tame by U.S. standards, the restructuring efforts undertaken were certainly significant for a Japanese giant such as Hitachi. Less certain was the program's chances for success, although the emphasis on profitability was never more prominent at Hitachi as Shoyama made delivering a return on equity of 8 percent by March 2003 the main goal of the restructuring.

Principal Subsidiaries: Babcock-Hitachi K.K.; Chuo Shoji, Ltd.; Hitachi Air Conditioning Systems Co., Ltd.; Hitachi Building Systems Co., Ltd.; Hitachi Cable, Ltd. (53%); Hitachi Capital Corporation; Hitachi Chemical Co., Ltd. (56%); Hitachi Construction Machinery Co., Ltd. (55%); Hitachi Denshi, Ltd. (64%); Hitachi Electronics Engineering Co., Ltd. (61%); Hitachi Electronics Services Co., Ltd.; Hitachi Engineering & Services Co., Ltd.; Hitachi Engineering Co., Ltd.; Hitachi Hokkai Semiconductor, Ltd.; Hitachi Hometec, Ltd.; Hitachi Information Systems, Ltd. (51%); Hitachi Keisho, Ltd.; Hitachi Kiden Kogyo, Ltd. (57%); Hitachi Life Corporation; Hitachi Maxell, Ltd. (53%); Hitachi Media Electronics Co., Ltd.; Hitachi Medical Corporation (65%); Hitachi Metals, Ltd. (55%); Hitachi Mobile Co., Ltd.; Hitachi Plant Engineering & Construction Co., Ltd. (56%); Hitachi Printing Co., Ltd. (98%); Hitachi Semiconductor and Devices Sales Co., Ltd.; Hitachi Service & Engineering (East), Ltd.; Hitachi Service & Engineering (West), Ltd.; Hitachi Software Engineering Co., Ltd. (53%); Hitachi Techno Engineering Co., Ltd.; Hitachi Telecom Technologies, Ltd.; Hitachi Tohbu Semiconductor, Ltd.; Hitachi Tokyo Electronics Co., Ltd.; Hitachi Transport System, Ltd. (61%); Hitachi Via Mechanics, Ltd.; Japan Servo Co., Ltd. (53%); Nissei Sangyo Co., Ltd. (58%); Hitachi (China), Ltd.; Shanghai Hitachi Household Appliances Co., Ltd. (China; 60%); Hitachi Computer Products (Europe) S.A. (France); Hitachi Semiconductor (Europe) GmbH (Germany); Hitachi Semiconductor (Malaysia) Sdn. Bhd. (90%); Hitachi Consumer Products (Asia) Corp. (Philippines); Hitachi Asia Ltd. (Singapore); Hitachi Consumer Products (S) Pte. Ltd. (Singapore); Hitachi Electronic Devices (Singapore) Pte. Ltd. (85%); Hitachi Nippon Steel Semiconductor Singapore Pte. Ltd. (54%); Taiwan Hitachi Co., Ltd. (62%); Hitachi Europe Ltd. (U.K.); Hitachi Home Electronics (Europe) Ltd. (U.K.); Hitachi America Ltd. (U.S.A.); Hitachi Automotive Products (USA), Inc.; Hitachi Consumer Products (America), Inc. (U.S.A.); Hitachi Data Systems Holding Corp. (U.S.A.); Hitachi Electronic Devices (USA), Inc.; Hitachi Home Electronics (America), Inc. (U.S.A.); Hitachi Semiconductor (America), Inc.

Principal Competitors: Fujitsu Limited; Toshiba Corporation; Mitsubishi Electric Corporation; NEC Corporation; Sony Corporation; Hewlett-Packard Company; International Business Machines Corporation; Compaq Computer Corporation; Matsushita Electric Industrial Co., Ltd.; Samsung Group; Intel Corporation; Texas Instruments Incorporated; Bull; Telefonaktiebolaget LM Ericsson; Motorola, Inc.

Chronology

• Key Dates:

• 1910: Namihei Odaira begins making small five-horsepower electric motors.
• 1915: Company manufactures a large 10,000-horsepower generator.
• 1920: Odaira incorporates his company as Hitachi, Ltd.
• 1924: Company builds Japan's first electric locomotive.
• 1939-45:Company is forced to make war material, and many of its factories are destroyed by Allied bombing raids.
• 1949: Hitachi goes public.
• 1957: Hitachi builds its first computer, marking the beginning of electronics production.
• 1960s:Production of household appliances begins.
• 1964: Hitachi builds the first cars for Japan's bullet train.
• 1974: Company produces its first IBM-compatible computer.
• 1982: Hitachi and 11 of its employees are indicted on charges of stealing confidential design secrets from IBM.
• 1988: Company forms joint venture with Texas Instruments to develop a 16-megabyte DRAM chip.
• 1989: Hitachi acquires controlling interest in National Advanced Systems, a U.S. distributor of mainframe computers; National is renamed Hitachi Data Systems.
• 1991: Through an alliance with IBM, Hitachi begins reselling IBM notebook computers in Japan under the Hitachi name.
• 1999: Company announces a ¥336.92 billion ($3 billion) net loss for the fiscal year ending in March; major restructuring efforts ensue.