Hold On, We Are On Recast Road, Says Hitachi Head

Tokyo, Nov 19: | Updated: Nov 20 2003, 05:30am hrs
Hitachi Ltd chief executive Etsuhiko Shoyama has a message for naysayers and industry analysts: be patient and wait for the results.

Japans biggest electronics maker laid out a mid-term business plan in January to pull out of businesses that currently account for 20 per cent of its revenues by end of March 2006; but so far, there has been no garage sale at Hitachi.

"Analysts ask me why hasnt Hitachi thrown away businesses, but my reply is, What happens when you throw something away and no one comes to take it away" Mr Shoyama, 67, told Reuters in an interview on Wednesday. "It just leads to more losses."

Hitachi is a sprawling conglomerate employing nearly 340,000 people, with annual revenues exceeding eight trillion yen ($74 billion) and makes everything from nuclear power plants to flat-screen televisions. It began restructuring after reporting a record loss of 484 billion yen in 2001/02, when spending on information technology came to a halt.

Japans five chip-making conglomerates, which include NEC, Fujitsu, Mitsubishi Electric and Toshiba, once ruled the semiconductor industry, but after losing customers to more nimble foreign rivals and a record downturn in 2001, Toshiba is now the only true chip-maker left.

Hitachi split off its non-computer memory operations into Renesas Technology, a joint venture with Mitsubishi Electric, in April. It had already split off its DRAM business into Elpida Memory Inc, a joint venture with NEC, in December 1999.

Both ventures plan to seek an initial public offering (IPO), but Mr Shoyama said the timing will depend on market conditions.

"Before that, its important to create a profitable structure and procure the necessary equipment," he said.

Mr Shoyama expects hard disk drives, now a core business after the $2.05 billion acquisition of International Business Machines HDD operations in January, to move into profit next year. "This business has boosted our revenues by about 400 billion yen and is now turning positive and will be profitable (on a quarterly basis) by the end of this business year," he said at Hitachis Tokyo HQ. The electronics giant has forecast a 20 billion yen operating loss for the full year to March from its HDD business, an improvement on an earlier loss estimate of 40 billion yen.

Hitachi aims to raise group operating profit to five per cent of sales by 2005/06, compared with an operating margin of less than two per cent in 2002/03. To achieve that, analysts say it must stop the losses at its HDD arm. It must also win market share from Seagate Technology HDD, Maxtor Corp and Western Digital. The HDD business is part of Hitachis information and telecoms systems division, which accounts for more than a quarter of its total revenues.

Hitachis progress has not gone unnoticed by analysts.

Merrill Lynch director Hiroshi Yoshihara lifted Hitachis investment rating to "buy" from "neutral" in a November 18 report, citing a sharp recovery in its HDD business and improving results from its liquid crystal display (LCD) unit. Since the start of the business year in April, Hitachi shares have risen 47 per cent, compared with a 24 per cent rise in the stock markets key Nikkei average Hitachi shares closed down 1.62 per cent at 608 yen on Wednesday.

Hitachis display unit had been seen as a potential alliance partner for Sony Corp, before the consumer electronics giant agreed to form a $2 billion LCD panel with South Koreas Samsung Electronics Co Ltd in October.

Reuters