Achieving New Growth at Hitachi

All Rights Reserved Copyright© 2004,Hirachi,Ltd. 1

April 7, 2004

Michiharu NakamuraExecutive Vice President and Executive OfficerGeneral Manager, Research & Development GroupHitachi, Ltd.

R&D Strategy for the Hitachi Group

Achieving New Growth at Hitachi


Contents

1122

Closing Remarks55

Raising R&D Efficiency

“Inspire A” Businesses

The Role of R&D in the Hitachi Group

3344

Collaborative Creativity in R&D for the Hitachi Group


1-1 The Hitachi Group R&D Philosophy

Based on technology and collaborative creativity, direct the group’s R&D efforts towards satisfying customers in ways that contribute to the prosperity and safety of society.

Develop world-leading technologies that drive further growth of the Hitachi Group.

Create paradigm shifts in industrial technology with original ideas and an accurate understanding of social trends.

●

●

●


Goal of “i.e.HITACHI PlanⅡ”：Positive FIV(*)Net sales：¥9,000 billion, Operating income：over ¥400 billionGoal of “i.e.HITACHI PlanⅡ”：：Positive FIV(*)Net sales：¥9,000 billion, Operating income：over ¥400 billion

Promoting R&D ThroughGroup Collaborative Creativity

“Inspire A” BusinessesPromoting Technological

DevelopmentRaising R&D Efficiency

Hitachi Group CTO(*) MeetingHitachi Group Frontier /Platform ResearchTechnology platforms across the Hitachi Group

Foster and improve core technologiesConcentration of R&D resources

Synchronize with management strategyR&D collaboration with outside parties

“Engine” for Creating and Strengthening Businesses

1-2R&D in the Context of the “i..e. HITACHI PlanⅡ”Medium-Term Management Plan

Future Inspiration ValueFIV is Hitachi’s economic value-added evaluation index in which the cost of capital is deducted from after-tax operating profit. After-tax operating profit must exceed the cost of capital to achieve positive FIV.

(*)CTO : Chief Technology Officer

(*)FIV:


Contents

1122

Closing Remarks55




3344



Improving Hitachi Group Management

Business Groups Group Companies

Final staffing: 200

Hitachi Group - Global BusinessesHitachi Group - Global Businesses

Hitachi Group – Legal and Corporate Communications

Hitachi Group – Legal and Corporate Communications

Hitachi Group - Corporate StrategyHitachi Group - Corporate Strategy

Established April 2004Hitachi Group Headquarters

2-1

Industrial Systems

Power System

s

Hitachi M

etals, Ltd.

Hitachi C

hemical C

o., Ltd.

Hitachi C

able Ltd.President & CEO

Intellectual Property G

roup

‥ ‥‥

Autom

otive Systems

Hitachi Softw

are Engineering C

o., Ltd.

Hitachi H

igh-Technologies C

orporation

Hitachi M

edical Corporation

Hitachi C

onstruction M

achinery Co., Ltd.

Urban Planning and

Developm

ent Systems

Ubiquitous Platform

System

s

Laboratories

Research & Development Group

Hitachi Group Frontier/Platform ResearchAdvanced Sponsored ResearchSponsored Research

Coordination of Hitachi Group Headquarters and Research & Development Group

Capture technology synergies “Independent Value Creation” and “Strategic Integration”= Group management best suited to Hitachi

Hitachi M

axell, Ltd.

Information &

Telecom

munication

Systems


Collaborative Creativity in Group R&D

・ Introduced Hitachi Group Frontier / Platform Research (April 2004)・ Technology platforms across the Hitachi Group

・Bolster R&D through the utilization of existing group technologies・ Improve product competitiveness through the vertical integration of

group technologies

Aims

OrganizationHitachi Group CTO Meeting

Research & Development

GroupBusiness Group CTOs

Group Company CTOsIntellectual Property Group

Hitachi Group-Corporate StrategyHitachi Global Storage TechnologiesHitachi Information Systems, Ltd.Hitachi Software Engineering Co., Ltd.Hitachi High-Technologies CorporationHitachi Medical Corporation, Hitachi Cable, Ltd.Hitachi Chemical Co., Ltd., Hitachi Metals, Ltd.Hitachi Transport System, Ltd.Hitachi Capital Corporation, etc.(29 companies)

Measures

2-2Promote R&D as the driving force for the expansion of current businesses and the creation of new businesses that capture group synergies


Roadmap of business strategy

Hitachi Group Platform ResearchTechnology platforms across the Hitachi Group

Hitachi Group Frontier Research

Sponsored research Advanced sponsored research

2006Management strategy

Business / technology strategy

Creation of next-generation core businesses / new

businesses

Group R&D

Creation of paradigm shift in industrial

technology

Year

Long-term technology development plan

Expansion / incubation of“Inspire A” businesses

20142004 2009

2-3 Hitachi Group R&D Scheme (from April 2004)

“i.e.HITACHI PlanⅡ”


Themes

Hitachi Group Frontier Research (from April 2004)

ObjectivesDevelop future core businesses of the Hitachi GroupDevelop new technologies / business models that cause a paradigm shift, and make them intellectual properties

■ Human Interaction Systems ■Medical and Health Solutions ■ Energy and Environment ■Materials, Nanotechnologies ■Management Systems

Secure research resources globally, promote collaboration with academia

Structure

Strengthen the fundamental research scheme on a group-wide basis

Hitachi Group: 200 researchers(6 Corporate Labs., Overseas Labs., Design Div., etc.)Outside: 150 researchers(Universities, National Labs., Hospitals, etc.)

2-4Portfolio of Research Schemes

Commercialization timeframe

Sponsored ResearchAdvanced

Sponsored Research

Hitachi Group Platform Research

Hitachi Group

Frontier Research

NearFarN

arro

wW

ide

Tech

nolo

gy

appl

icat

ion


2-5

Improve productivity, reliability, and speed of R&D in the Hitachi GroupUpgrade basic manufacturing technology, construct platforms

Hitachi Group: 100 researchers(6 Corporate Labs., MONOZUKURI (Prototyping) Engineering Division, etc.)Outside: 　30 researchers

(Universities, National Labs., Hospitals, etc.)

Prototyping Concept

■ Composite technology for design & manufacturing■ Embedded software production engineering ■ Basic manufacturing technology ■ TSCM (Total Supply Chain Management)

Sell Procure-ment

Composite technology for　Design & Manufacturing

Develop

Plan

Manufac-ture

Market

Design

Basic manufacturing technology

Embedded software Production engineering TSCM

HiSPEED/Next

Hitachi Group Platform Research (from April 2004)

Themes

Objectives

Structure

Sup-plier

Cus-tomer

Fabrication, Materials, Packaging,Assembly, Processes Inspection, etc.


2. Advanced Measurement & Analysis Center

1. Materials Research Laboratory

3. Advanced Simulation Center

4. Software Design Platform Technology Center

Create world-leading new products / technologies based on nanotechnologies and material technologies

Enhance extreme measurement and analysis technologies and upgrade facilities

Develop advanced simulation environment utilizing research grid

Establish software design process platform mainly for embedded software

Material Research Laboratory

Advanced Measurement & Analysis Center

Advanced Simulation Center

Software Design Platform Technology

Center

Business Groups


Group Companies

Collaboration with academia

Global collaboration Scientific-

society activities

Objective Maximize Hitachi Group R&D resources by concentrating researchers on platform technologies

Technology Platforms Across the Hitachi Group2-6

(from April 2004)


　　Mission: Develop world-leading new products / technologies based on the nanotechnologies andmaterials technology

Materials for electronic devices

Materials for:- Semiconductors- Packaging(Semiconductor / Automobile)

-Displays-Storage-Sensors-Optical devices

Materials for environmental

technology /energy

Materials for:-Batteries (Lithium-ion batteries, Fuel cells)

-Hydrogen energy-Power plants-Magnets

Materials for medicine /

biotechnology

-Chip for analysis-MEMS(*)-Nano print

New materials-New materials-Next-generation

fabrication technology

Establishment of Materials Research Laboratory (April 2004)2-7

*MEMS：Micro Electro Mechanical System


Research Personnel: Corporate labs and labs of business divisions

R&D Expenditure

R&D expenditure (billion yen)

FY2002 FY2003 (estimated)

Net sales (billion yen)Operating income (billion yen)

　

R&D expenditure / Net sales (%)

11

22 377 380

8,350170

4.64.6

8,192153

Group companiesHitachi, Ltd.　

5,340

FY2002 FY2003 FY2004 (estimated)

5,150 5,480Total

3,4601,690

3,4601,880

3,5201,960

2-8 Size of Group R&D

Group companies

Hitachi, Ltd.61 (16%)

137 (36%)

179 (48%)Business groups

Corporate labs

(Billion yen)


Contents

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Closing Remarks55




3344



Long-term technology development plan

R&D strategy(medium & long term)

R&D plan

Management strategy

Technology development plan

Business strategy(Short & medium term)

Business strategy

Investigation of Market / Customer

demands

“i.e.HITACHIPlan II”

“i.e.HITACHIPlan II”

Hitachi GroupCTO

Meetings

Technologydevelopment

plenary meetings


Business GroupsGroup Companies

Headquarters

-Integrate technology strategy and business strategy

-Promote prioritization of R&D

Improve long-termR&D efficiency

Integration of technology and business strategies, understanding timeframes

Social trendsTechnological trendsBreakthrough /epoch-makingtechnologiesLeader of IndustriesTrends of Venture

Social trendsTechnological trendsMarket / CustomerdemandsBusiness strategyProduct plansCore technologies

3-1Long-Term Technology Development Plan and Business Strategy Roadmap (from April 2004)

Roadmap ofBusiness strategy


Activities to Bolster Product Development HiSPEED/Next3-2

Bolster product development to create products that “win in the market”

Improve organizational ability in processes from planning of development strategy to mass production throughout product lifecycles

Product planning

Develop-ment Design Ship-

mentManufac-

tureProduction

designBusiness strategy

Procure-ment

Maintenance,Recycle

Objective

Scope

HiSPEED / Next TSCM

Thorough front-end loading in product lifecycles

Strengthen processes for accurate decision-making and quick development

Improve ability for planning development strategy

Promote utilization of IT and digital technology

Sales


Goal : Speed up and leverage R&D for prioritizing businesses

3-3 R&D Collaboration With Universities

・Comprehensive alliances・Non-disclosure agreements

Hitachi

Universities

Research Laboratories

Business Groups

Group Companies

Research Projects

Consortiums

Development Plan

ManufacturingTechnology

Development Plan

ManufacturingTechnology

Innovative Ideas

AdvancedKnowledge

Innovative Ideas

AdvancedKnowledge

Universities

Keio University

The University of Electro-Communications

Hokkaido University

University of Tsukuba

Kyoto University

The University of Tokyo

Description of Collaboration Contract

Aug. 2002

Apr. 2003

Apr. 2003

Jan. 2004

Mar. 2004

Mar. 2004

Collaboration with 5 companies, including Mitsubishi Chemical Corporation, in different sectors on organic electronics

Leading edge IT education on industry application by Hitachi researchers

Joint research on nanotechnology

Interdisciplinary joint research on medical equipment

Measures: Strengthen and promote comprehensive alliances to utilize the collective strengths of universities

Collaboration for developing communities as a cluster of innovation

Collaboration with 4 companies, including Mitsubishi Heavy Industries Ltd., to study the future energy society

Education


“Dye-Sensitized Solar Cell”

　Flexible　Printable　Shape variation　Color, texture variation　Low-cost (1/5 of Si cell)

product image

Press release (March 2004)

＜Characteristics＞Kyoto

University

NTT Pioneer

MitsubishiChemical

ROHM

Hitachi

Joint project between Kyoto University & five private companies

Prof. Adachi(Institute of Advanced Energy, Kyoto University)

Development of novel titanium oxide

(1) Wiring technology for electronic devices(2) Printing technology(3) Liquid crystal encapsulation technology

Feedback to other four companies

【R&D Scheme】

3-4Joint Research Themes With Academia

Kyoto University Integrative Industry-Academia Partnership

Hitachi: Develop 12cm-diameter solar cell prototype

Dye-sensitized solar cell module under development for practical use

Dye-sensitized solar cell module under development for practical use


Collaboration with overseas universities and venture companiesFeed back customer requirements to the R&D Group

Reinforce R&D in China: from 50 to 100 staff (FY2005)Beijing Lab.: Open-source software, IP networksNew Shanghai Lab.: Information services, bio-systems

Asia

New Singapore site　　　　　(April 2004)

Collaboration on storage devices

North AmericaDevelopment of technology for the U.S. market

Feed back information on leading-edge U.S. technologies to Hitachi business groups and the R&D Group

Storage-systems technology

EuropeJoint development of advanced technology

Collaboration with Cambridge University. on advanced nanotech devices

R&D to drive business growth in China and elsewhere in Asia

3-5 Global Joint R&D

◆Quantum information processing

Collaboration with automobile industry and universities

Collaboration with European industry on advanced information & telecommunications


Contents

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Closing Remarks55




3344



Expansionary Phase Incubation Phase

Inter-division Businesses

Individual Businesses

Leveraging the collective strengths of the Hitachi Group

Development spearheaded by individual business groups

BatteriesLithium-ion batteries Fuel cells

Key technologies, devices

NanotechnologyMaterials

Automotive

On-board car information systemsElectric powertrains

ConsumerDigital home appliances Wooo-World (Plasma TVs, etc.)

Medical,

Medical diagnosticSystemsMedical related services

Social infra-structure systems

Urban planning and developmentRailway systems

Storage

Services, solutions

Outsourcinge-government

Production, testing equipment

“Inspire A” Businesses4-1

Semiconductors Displays

9 Business fields

Create core businesses that will support the Hitachi Group’s growth“Inspire A” Businesses

Next-generation core business aiming for No.1

New businesses that will become future core businesses

SAN/NAS

Ubiquitous HDDsHard Disk Drives

Biotechnology


Medical business +biotechnology

Information business + nano-packaging technology

Building management business + information technology

Clean and large-capacity battery technology

Fuel cell business

High-density HDD development technology by perpendicular magnetic recording

Hard disk business for consumer products using information technology

Integration of IT, energy and finance technologies

Urban development solutions business

Gene analysis / diagnosis technology

Medical, Biotechnology business

Core technologies

Radio car navigation system / traffic condition forecasting technology

Automobile-related business + information technology

Telematics business

Application of Core Technologies:Creating New Businesses /Expanding Existing Businesses4-2

Energy business + materials technology


In FY 2004: Assign approx. 42% of corporate lab. research personnel to “Inspire A” businesses

Main R&D Themes

Fundamental technology for prototypingKey technology devices

Batteries

Consumer productsAutomobilesSocial infrastructureMedical / biotechnology

Semiconductor fabrication and inspection equipment

StorageServices / Solutions


High-definition display panels, HDDs, networksDigital Media & Consumer Products

Measurement devices, information processing

High-density HDDs, operation and management

Materials design

Electric motor, information processing

High-precision machine control technology, electronic microscope

Electronic Devices

Film / electrode materialsHigh Functional Materials & Components

Operation control, energy savingPower & Industrial Systems

Security, IPv6 networkInformation & Telecommunication Systems

Core TechnologiesSegment

4-3 Strengthening and Incubating Core Technologies

Existing core businesses

42%“Inspire A” Businesses

42%

Hitachi GroupFrontier / Platform ResearchDistribution of research

personnel in FY2004 16%


“Committee on New Business Creation” spearheads business development

Corporate Marketing Group Business Incubation Division

Hitachi Group –Corporate StrategyCorporate Technology Office

Total Solutions Division


Committee on New Business Creation

Committee on New Business Creation

・・Examine incubation of businesses spanning multiple business fields・・Discuss possibility of developing core businesses

Promotion Flowchart

Decide whether to start business

Feasibility

In-house venturecompany

Business promotion

division

Business promotion divisions in

business groups

Business promotion phase

Business promotioncenter

Headquarter’sInvestment

Headquarter’sInvestment

4-4 New Business Creation Activities (from April 2003)

Feasibility

Finance

On-going projects Fuel cells, Ubiquitous HDDs, Location information technology, etc.

Discover new subjects


Group-wide Strategic and Research Committee1. Formulate strategy for capturing Hitachi Group synergies to create

new businesses2. Share marketing and technical information to show all-round ability

Automotive Research CommitteeAutomotive Systems of Hitachi, Ltd., Hitachi Metals Ltd., Hitachi Cable Ltd., Hitachi Chemical Co.,Ltd., Shin-Kobe Electric Machinery Co.,Ltd, etc.

Urban Planning and Development New Business Strategic Committee

Urban Planning and Development Systems of Hitachi, Ltd.,Information & Telecommunication Systems of Hitachi, Ltd., Power Systems of Hitachi, Ltd., Hitachi Construction Machinery Co.,Ltd., etc.

Medical Strategic Committee Hitachi Medical Corporation, Hitachi High-Technologies Corporation, Life Science Group of Hitachi Ltd., etc.

Semiconductor Equipment Business Steering Committee

Hitachi High-Technologies Corporation,Hitachi Industries Co.,Ltd., Hitachi Kokusai Electric Inc., etc.

Fuel Cells System ProjectResearch & Development Group of Hitachi, Ltd., Hitachi Maxell, Ltd.,Hitachi Cable Co.,Ltd.,, Hitachi Chemical Co.,Ltd.,Hitachi Metals, Ltd., Shin-Kobe Electric Machinery Co., Ltd., etc.

Name Members

Objectives

4-5Expansion of Existing Businesses and Creation of New Businesses Across the Group


Promotion of development that organically combines technologies of Hitachi Group companies.

4-6Example of New Group-wide Business: Fuel Cells

Deployment of Nanotechnology

Panel Generator

Improvement in Power Density

PDA (Personal Digital Assistants) PIA (Personal Internet Appliance)

Cartridge

Fuel Cells

Fuel Cells

Notebook PC

Cartridge

Notebook PC

Developed Catalyst

Conventional Catalyst

Electrolyte Membrane

Fuel Cells for Portable Equipment Power Sources


Major Results of “Inspire A” Businesses in Fiscal 2003

Fuel Cell Membrane /ElectrodeNano-inprint LithographyLithium-ion Battery for AutomobilesHigh Functional Materials

& Components

Cleaner RobotAll-around Three-dimensional DisplaySystem

Plasma TV with HDDHigh Power Cyclone CleanerBill Validation System

Digital Media & Consumer Products

Railway Broadband Network System Digital ATC SystemsPower & Industrial Systems

LCD Panel Technology for Mobile EquipmentBio-MEMS

Flash-memory Embedded Micro ComputerDiagnostic Optical TopographyElectronic Devices

Embedded antenna µ-chipOpen Type Finger-vein Recognition System

RAID45oenasGigabit router/switch400GB HDD

Information & Telecommunication Systems

Major New TechnologiesMajor New ProductsSegment

Results of “Inspire A” Businesses

4-7


Contents

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0

2

4

6

8

10

0 2 4 6 8 10

R&D expenditure/Net sales(%)

Operating incom

eN

et sales

(%)

　　　FY 2005

Hitachi

FY 2005 R&D Expenditure and Operating Income Goals5-1

FY 2003 (estimate)

Other electronics companies (FY 2003 estimates)(source: 2003 financial statements)


DNA sequencer

µ-chip

Optical topography

UHF Plasma Ether

(Hitachi High-Technologies)

(Information & Telecommunication Systems Group)

(Hitachi Medical Corp.)

(Hitachi High-Technologies)

Fuel Cells, Nano-inprint lithography, etc.

Module for Mobile Communications

Access server AG8100(Information & Telecommunication

Systems Group)

Optical topography(Hitachi Medical Corp.)

(Renesas Technology)

Products / technology(relevant business group)

World-leading Technologies for Tomorrow’s Industry

0.4mm0.4mm

µ-chip

Optical topography

Hitachi Fellow, Dr. Kambara, received the Asahi Award

The Asahi Prize (Jan. 2004)

Nikkan Kogyo Shimbun’s Best Ten New Products Prize “Masuda Award” (Jan. 2004)Nikkei Superior Products & Services Award

(Feb. 2004)

Ohkochi Memorial Award (March 2004)

The Prize of Japan Society for the Promotion of Machine Industry(Jan. 2004)

Int. Nanotechnology Exhibition & Conferencenano tech Award (March 2004)

The Ichimura Prizes in Industry - Contribution Prize (April 2003)

Research that Breaks the Mold selected by MIT Tech. Review (April 2003)

R&D 100 Award (Nov. 2003) and 3 other awards

Awards

5-2

The Ichimura Prizes in Industry- Contribution Prize (March 2004)

SR8000(Information & Telecommunication

Systems Group)

JSPE Technology Development Award(October 2003)

Electron Beam Tomography

(Hitachi Global Storage Technologies)

Major Awards in FY 2003


5-3 R&D That Leads the Ubiquitous Age

Contribute to society through “Technology” and

“Creative Collaboration”

Accelerate Hitachi Group growth Create technology for paradigm shift

Group Collaborative CreativityOpen R&D

Promote Hitachi Group Frontier / Platform ResearchLong-term technology development plan

Synchronize with management strategyStrengthen and foster core technologiesPromote “Inspire A” Businesses

R&D Philosophy

The “Best Solution Partner” in the Ubiquitous AgeOffer total solution services from key devices to social infrastructure


Nex t MADE IN JAPAN.Nex t MADE IN JAPAN.’’


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まとめまとめ




All Rights Reserved Copyright© 2003,□□□□,Ltd.

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,” “intend,” “plan,” “project” and similar expressions which indicate future events and trends are used to assist readers in identifying these “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 on 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:

-rapid technological change, particularly in the Information & Telecommunication Systems segment and Electronic Devices segment;-uncertainty as to Hitachi’s ability to continue to develop and market products that incorporate new technology on a timely and cost-effective basis and to achieve market acceptance for such products;-fluctuations in product demand and industry capacity, particularly in the Information & Telecommunication Systems segment, Electronic Devices segment and Digital Media & Consumer Products segment;

-increasing commoditization of information technology products, and intensifying price competition in the market for such products;-fluctuations in rates of exchange for the yen and other currencies in which Hitachi makes significant sales or in which Hitachi’s assets and liabilities are denominated, particularly between the yen and the U.S. dollar;

-uncertainty as to Hitachi’s ability to access, or access on favorable terms, liquidity or long-term financing, particularly in the context of limited credit availability currently prevailing in Japan;-uncertainty as to Hitachi’s ability to implement measures to reduce the potential negative impact of fluctuations in product demand and/or exchange rates;-general economic conditions and the regulatory and trade environment of Hitachi’s major markets, particularly, the United States, Japan and elsewhere in Asia, including, without limitation, continued stagnation or deterioration of the Japanese economy, or direct or indirect restriction by other nations on imports;-uncertainty as to Hitachi’s access to, and ability to protect, certain intellectual property rights, particularly those related to electronics and data processing technologies;-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; and-uncertainty as to general market price levels for equity securities in Japan, declines in which may require Hitachi to write-down equity securities it holds.

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 other materials published by Hitachi.

Documents

Achieving New Growth at Hitachi