R&D for a High-Profit Growth Company

R&D for a high-profit growth company

Thursday, 7th April 2005

2 FY 2004 Achievements

3 FY 2005 Harvest 4 R&D with 2010 in sight

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.

Management “i.e.HITACHI PlanⅡ” strategy

Business / Long-term Technology Development Plan technology strategy Business Strategy Roadmap

Creation of next- HH aa Core Technology 2010 generation core Expansion / incubation of rr businesses / new “Inspire A” businesses vv ee businesses ss Paradigm-shifting tt Technology

Hitachi Group Platform Research Hitachi Group Group R&D Technology Platforms Across the Frontier Research Hitachi Group

Sponsored Research Advanced Sponsored Research

2 FY 2004 Achievements

3 FY 2005 Harvest 4 R&D with 2010 in sight

Presented at 2004/4/7 Information Meeting

Promoting R&D Through z Hitachi Group CTO* Meeting Group Collaborative Creativity z Hitachi Group Frontier / Platform Research z Technology platforms across the “Engine” for Hitachi Group Creating and *CTO : Chief Technology Officer Strengthening Businesses “Inspire A” Businesses Raising R&D Efficiency Promoting Technological Development

zSynchronize with management strategy zFoster and strengthen core technologies zR&D collaboration with outside parties zConcentration of R&D resources

<8 Areas of Business>

Business Aiming for No. 1 for next Areas to Potential new Expansion generation backbone business Foster backbone business areas Medical & Key Technologies, Production Biotechnology ** Across & Testing ・ Medical Diagnostic & Devices Divisions Systems ・ Nanotechnology & Materials Equipment ・ Medical Support ・ Li Batteries ・ Taking ・ Semiconductor Systems Fuel cells ・ advantage & Liquid Crystal Display Proton Beam Cancer of Hitachi Manufacturing Equip. Therapy Systems Automotive Group Social Service & ・ CIS Storage Infrastructure ・ Electric Solutions Power Train Systems ・ Cruise Control* ・ Storage Solutions ・ Outsourcing ・ Urban renewal ・ HDDs ・ E-government ・ Transportation Systems Individual ・ Ubiquitous HDD ・ Network Solutions ・ Coal Thermal Power CIS : Car Information ・ RFID Solutions Systems* Effort ・ Broadband Access Systems Propelled Equipment* PDP: Plasma Display Panels by ・ System Logistics Consumer 3PL : Third Party Logistics individual (3PL)* ・Degital Media ・PDPs* business ・TFT LCDs for TV* groups

* Newly added theme ** Key Technologies & Devices has merged with Batteries

Storage Solution HDD : 1 inch Microdrive Communications Network

Established ALAXALA Networks SANRISE USP HDD for Portable Music Terminal ALAXALA Networks Corporation, Information & Telecommunication Hitachi Global Storage Technologies Information & Telecommunication Systems Group Systems Group

Wooo Li Battery

Established Hitachi Vehicle Energy Automotive Systems Group, 55” PDP TV, DVD Recorder with 400GB HDD Shin-Kobe Electric Machinery Co., Ltd., Ubiquitous Platform Systems Group, Hitachi GST Hitachi Maxell, Ltd.

Transport Systems TFT LCD for TVs Outsourcing

Preferred manufacturer for CTRL Sankyo Co., Ltd. contract domestic service trains in the UK AS-IPS2 LCD Information & Telecommunication Power Systems Group Hitachi Displays, Ltd. Systems Group

Medical Diagnostics

Fuel cells, RFID Solutions, Ubiquitous HDD: Information Terminal “Nature Viewer” on display at Aichi World Expo Magnetic Cardiograph Information & Telecommunication Systems Group, (Received Ten Best New Products Award) Ubiquitous Platform Systems Group, Hitachi GST Hitachi High-Technologies Corporation

Strengthen competitiveness by integrating the Li-ion battery business in one company

Hitachi, Ltd. R&D Group Shin-Kobe Electric Hitachi Vehicle Energy, Ltd. (Materials Research ResourcesResources Machinery Co., Ltd. Dec. 2004: Pilot line completed Laboratory, etc.) Hitachi Group Hitachi, Ltd. Batteries / Components / Control Systems (Hitachi Chemical Co., Technology Technology Technology / Highly Functional Materials Ltd. Hitachi Metals, Ltd., Hitachi Maxell, Ltd. etc.)

2nd Generation Portable： 4,000 • New Manganese Hybrid Vehicles / Trucks Positive Pole • New Electrolyte Fuel-cell Hybrid Vehicles ExpandExpand Hybrid Diesel applications 3,000 Li-ion applications

st 2,000 1 Generation • Spinel Manganese Positive Pole (’03) • Carbon Negative Pole Ni-MH 1,000 Ni-MH (’01) Fixed：

Output Density (W/kg) Back-up Power Source (Cellular Phone Base Stations, 0 Buildings, etc.) 0 50 100 Energy Density （Wh/kg） ©2005 Hitachi, Ltd. All rights reserved. 10 -6. Examples of Hitachi Group 22 Frontier Research Achievements Silhouette Counter Organic TFT- driven Color LCD Nov. 2004

ＴＦＴ

Nov. 2004 Presented to the Prime Minister & World’s highest definition achieved Mirror Display 360°3D360°3D DisplayDisplay Cabinet (National IT (Collaboration with the National Institute of Advanced Industrial Strategy Council) Science and Technology (AIST); a NEDO supported project） Sheet Display June 2004 Human Interaction Sept. 2004

EMIEW*: An interactive robot responding to dialogue Successful Observation of the Spin-Hall Effect to support daily life (Magnetic properties induced by passing electric current through a semiconductor) Interactive Natural hand communication movement Hitachi Cambridge Agile collision Laboratory Research avoidance Achievement High-speed (Joint research with Univ. mobility 2005 Aichi World of Texas, etc.) Expo Exhibit (June 2005 - ) (Collaboration with the University of Tsukuba; NEDO supported project) Robotics March 2005 Spintronics Feb. 2005 * Excellent Mobility and Interactive Existence as Workmate ©2005 Hitachi, Ltd. All rights reserved. 11 -7. Examples of Hitachi Group 22 Platform Research Achievements

0.1mm

Fatigue Crack Solder

High Accuracy Strength Analysis Analysis tool for fatigue cracks in solder joints (developed for use in automotive LSIs, etc.) Cu

Sn Stator Current waveform analysis Cu-Sn 50µm Compound Optimal High-temperature Lead-free Solder Rotor motor dimensions Solder consists of Power Electronics System Cu powder / Sn powder mixed paste (developed for high heat-proof joints) Original optimal motor design algorithm

©2005 Hitachi, Ltd. All rights reserved. 12 22 -8. Open R&D Environment (1) Strengthening Global R&D Formation Hitachi America, Ltd. <40> Hitachi Europe Ltd. <25> Hitachi (China) Research & Development Corporation <80>

Storage Network Solutions Quantum Communications Car Information Systems Bioinformatics Broadband Wireless Systems Organic Electronics Total Supply Chain Management Technology

Hitachi Asia Ltd. <5> (Singapore） April 2004 : Established independent R&D organization in China IP Network Home Network Digital TV

R&D Organization

Main Research Themes April 2004 : Established Singapore Research Office

Magnetic Disks

©2005 Hitachi, Ltd. All rights reserved. 13 22 -9. Open R&D Environment (2) Establishment of Hitachi (China) Research & Development Corporation ・・ EstablishedEstablished：：AprilApril 20052005 (Beijing(Beijing HeadHead Office),Office), JuneJune 20052005 (Shangha(Shanghaii BranchBranch Office)Office) ・・ CapitalCapital ：：USD6,000,000USD6,000,000 ・・ NumberNumber ofof EmployeesEmployees：： 8080 (Estimate(Estimate forfor 2005)2005) →→ 120120 (Estimate(Estimate forfor 2006)2006)

1. Contribute to local business efforts as the R&D hub in China 2. Strengthen relationship with the government and major universities in China 3. Employ and develop talented staff Tsinghua Customer University Shanghai Jiao Tong Local Affiliates of Business University

Groups & Group Companies Collaborative Creation Fudan R&D Division Hitachi University (China) • Planning •• Localized Localized DevelopmentDevelopment Academic • Development •• R&D R&D HubHub FunctionFunction R&D Collaboration •Design Corp. •IP Hitachi (China) Ltd.

Development of innovative ・ technology through comprehensive WidespreadWidespread ・Univ.Univ. ofof TokyoTokyo Disaster Recovery Technology ・・MEXT*MEXT* collaborative alliances with Disaster Recovery Technology A method to universities and participation in update data at the Back-up Site national projects back-up site using transmission log ログLog data was Dataﾃﾞｰﾀ developed, reducing Logログ Update telecommunication Dataﾃﾞｰﾀ Main Site costs by 40%.

・・Univ.Univ. ofof TokyoTokyo PhotonicPhotonic CrystalCrystal DeviceDevice forfor ・・MEXT*MEXT* OpticalOptical CommunicationsCommunications ・・NEDO**NEDO**

sample

Successful application in compensation of signal deterioration in 2mm×2mm×1.5mm optical fibers *MEXT: Ministry of Education, Culture, Sports, Science & Technology ©2005 Hitachi, Ltd. All rights reserved. **New Energy & Industrial Technology Development Organization 15 Contents 1 Introduction

2 FY 2004 Achievements

3 FY 2005 Harvest 4 R&D with 2010 in sight

Priority allocation of research resources to contribute to earnings in FY 2005 Business Technological Strong Points

Storage Solutions* High performance & reliability, new storage technology

Perpendicular magnetic recording, signal processing, TSCM, high HDD* reliability technology

PDP* ALIS, low driving voltage, high luminescence efficiency

Semiconductor Manufacturing / High resolution e-beam lithography, high-throughput analysis Inspection Equipment* Automotive Equipment Motors, engine control, automation, EMC analysis (EPT, etc.)*

TFT LCDs for TV IPS mode systems, color reproduction, high yield technology

Coal Thermal Power Generation High efficiency, low cost, environment-conscious, combustion analysis System* technology Proton Beam Cancer Therapy Accelerator, radiation control technology System*

Home Appliances Beat washing, motors, inverter

Proton Beam Cancer Therapy Systems Semiconductor Inspection Equipment

High Resolution Treatment Room CD-Measurement SEM

Image Resolution： 2nm

Compatible with 300 mm wafer Synchrotron production line

Home Appliance Air-conditioner BeatWash : New style Energy & Resource washing machine -saving Design with dryer

Cyclonic Vacuum Cleaner (Awarded ECCJ Enhanced FY 2004 Grand cleaning Improved suction efficiency Prize for Energy Conservation) performance (High power fan & motor)

Information Information Security ・ Develop solutions based on technological Secure Social Platform strengths People Digital watermarking: 2004～ Terminal ・Preventing information leak (finance, government) Biometrics ・Contents protection (video, etc.) • Expand applications for Finger Vein Cryptography・Tamper resistant: 2007～ Personal Authentication ・Light-weight, low power consuming equipment encryption ・Custom LSI implementation & Bank ATM: 2005 ～ deployment in various equipment

Security PC ・ Achievement of a strong security environment and further reduction of TCO Entrance control: 2004～ Central Management by • Prevent illegal entry & theft Blade-type PC Servers: 2005 ～ PC log-in control: 2005 ～・Central management of client PCs Storage-centric: 2006 ～ Vehicle: 2007～・Client data consolidation • Anti-theft and isolation • Information access • Driving-support

(1) Resource prioritization for MONOZUKURI GroupGroup managementmanagement (Hitachi strategic products strategystrategy reformreform Group HQ) •HDDs •PDPs • TFT LCDs for TVs • Automotive components Business Groups Group Companies (2) Simultaneous Optimization IncreaseIncrease Fortify global for performance, high-reliability and cost development Fortify global development MONOZUKURIMONOZUKURI strengthstrength (3) Thorough pursuit of quality and yield (R&D Group) (MONOZUKURI Engineering Division) Hitachi Gr. MONOZUKURI Fortification Approach

MONOZUKURI Technology Result High-frequency EMC Design Technology Circuit Board FSW joint technology, CAE for manufacturing Reduced process, High-precision surface finishing, Magnetic field Significant cut-back in manufacturing measurement Embedded software production technology cost EMC trouble-shooting example time by clarification of High-frequency EMC design, Convergence Reduced the mechanisms based Engineering for Modeling & Simulation, Beam development on magnetic field application measurement time measurement near the circuit board. Quality management assessment method, Reduced defect loss Project risk management EMC: Electro-Magnetic Compatibility

2 FY 2004 Achievements

3 FY 2005 Harvest 4 R&D with 2010 in sight

Management Target: Achieve high-profit management in 2010

Approach: Fortify & foster No. 1 businesses (market share, profitability)

Core Technology 2010 （Select & Focus）

Present & Fortify & Foster Third generation Fortify & Foster Next-generation Paradigm-shifting No.1No.1 Technology Technology Technology BusinessesBusinesses

Priority allocation of R&D resources

R&D Measures 1. Fortify & foster technology platforms supporting core technologies 2. Vertical integration of businesses in the Hitachi Group, Black-boxing of technology 3. Promotion of technology for incubation for future No. 1 businesses

Mechanical & Electrical Electronics Information

No.1 Technology Education Product Competitiveness Service Business Purpose Business Enterprise Improvement Development Competitiveness Improvement Productivity Improvement Solution Operation Reform Digital Details Materials Embedded Systems Service Science Engineering Electronics Electron Beam Solution LSI Outsourcing Environment & Based Measurement EA*/SoA**/Initial Stage Consulting Efficient System Energy Non-Destructive Utilization of Advantage New Materials Measurement Development Platforming Technologies and Devices Medical & Product Design Project Management New Service Methodologies Biotechnology Support *EA： Enterprise Architecture Nanotechnology **SoA：Service Oriented Architecture

Lab. Open-Days) Cooperative Creation with Customers （ Embedded Systems Technology Platform Laboratory Mechanical Mechanical Innovation CenterInnovation Center Cross Laboratory Projects Advanced Simulation Center Advanced Measurement and Analysis Center Materials Research Materials Laboratory Technology Platform Technology Technology Platform Technology March March April April April From April 2005 2004 2004 2004 2005 2002 2005

©2005 Hitachi, Ltd. All rights reserved. 23 -3. Mechanical Innovation Center 44 (Established March 2005) MechanicalMechanical InnovationInnovation CenterCenter Strengthening mechanical & electrical research Location： Hitachi-Naka-shi, Ibaraki platforms Personnel： Approx. 400 (MERL*) • World-class Acoustics Research Laboratory & Building: 3 stories wind-tunnel experimental labs Floor space: 6,720m2 • Robotics research • Comfortable energy-conserving experimental facilities • Car mechatronics research • MEMS manufacturing process research • Environment-conscious buildings Collaboration with business divisions in the Hitachi-Naka region (1) Power & Industrial Systems Gr. (2) Urban Planning & Development Systems (3) Automotive Systems (4) Renesas Technology Corp. Acoustics Research Lab. (5) Hitachi High-Technologies Corporation, Hitachi Home & Life Solutions, Inc. (3) MERLMERL** (2) Roof Top HitachiHitachi SystemSystem (5) PlazaPlaza KatsutaKatsuta (4) (1)

Katsuta Station

Purpose: Improve competitiveness & production efficiency in the electronics field

Digital Vehicular Consumer Appliances Information Terminal

Flat Panel TV Car Navigation HDD/DVD Car Navigation Telematics Appliances Telematics Broadband Medical Diagnostic PC Automotive Equipment

Semiconductor AV・CIS Common Platform Transportation Manufac. Equip. Systems Embedded Software

Embedded Systems Platform Laboratory (Approx. 80 staff) Development of Leading Technology Development of Production Technology z Terrestrial digital broadcasting z Increased quality & production z Advanced navigation efficiency z Human interfaces z Development technitechniquesques & process innovations

Electric Digital TVs Power Trains

Ubiquitous Transportation Solutions Vertically Systems Integrated Businesses

Advanced Materials Batteries Software Crystals Common Platforms Original Key Components Advanced Material Common Applications Advanced Material Digital TVs, MRI SimulationSimulation CenterCenter ResearchResearch Lab.Lab. EmbeddedEmbedded SystemsSystems MechanicalMechanical PlatformPlatform LaboratoryLaboratory Hitachi Group InnovationInnovation CenterCenter Collaboration

Technology, Embedding Software Know-how Integration EmbeddedEmbedded SystemsSystems PlatformPlatform ResearchResearch LaboratoryLaboratory Technology Black-boxing

SensorNet Business: Taking roots in a safe, secure & comfortable society

SensorNet & Middleware Business Distortion sensor for Network structural surveillance • Management of data from numerous sensing nodes in buildings • Detection of change in sensed data • Simple interface for data access • Administration of sensing node location and condition

3mm World’s smallest sensing node : 6.9cm3 (Collaboration with YRP Ubiquitous Networking Laboratory) Social MarchMarch 20052005 Infrastructure Logistics Office Network-based hydrogen detection system for hydrogen Home生活 Medical stations &Healthcare SensorNode Temperature Humidity Human RF unit presence Antenna Acceleration Controller Illumination Industrial Infrastructure Agriculture Power Infra-red light Sensor

NEDO commissioned project Dec.Dec. 20042004 Oct.Oct. 20042004

(billion JPY) FY 2003 FY 2004 (estimate) (1)Revenue 8,632 8,840 Operating income 185 260 (2)R&D expenditure 372 390 %R&D of Revenue (2)/(1) 4.3 4.4 (billion JPY) Corporate 64 (17%) Hitachi, Ltd. Laboratories Business Groups 72 (19%) Group Companies 236 (64%)

Research Personnel: Laboratories & Development Centers FY 2003 FY 2004 FY 2005 (estimate) Hitachi, Ltd. 3,460 3,548 3,658 Group Companies 1,880 2,047 2,102 Total 5,340 5,595 5,760

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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:

z rapid technological change, particularly in the Information & Telecommunication Systems segment and Electronic Devices segment; z 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; z fluctuations in product demand and industry capacity, particularly in the Information & Telecommunication Systems segment, Electronic Devices segment and Digital Media & Consumer Products segment; z increasing commoditization of information technology products, and intensifying price competition in the market for such products; z 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; z 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; z uncertainty as to Hitachi’s ability to implement measures to reduce the potential negative impact of fluctuations in product demand and/or exchange rates; z 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; z uncertainty as to Hitachi’s access to, and ability to protect, certain intellectual property rights, particularly those related to electronics and data processing technologies; z 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 z 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.