Annual Report 2005 Hitachi, Ltd

Review of Operations Review of Operations Information & Revenues Operating Income Electronic Devices Revenues Operating Income ¥2,268.3 billion ¥67.7 billion ¥1,320.1 billion ¥37.0 billion

Telecommunication Main Products and Services Main Products and Services ■ Systems Integration ■ Servers ■ LCDs Systems ■ Software ■ Mainframes ■ Semiconductor Manufacturing Equipment ■ Disk Array Subsystems ■ PCs ■ Testing and Measurement Equipment ■ Hard Disk Drives ■ Telecommunication Equipment ■ Medical Electronics Equipment

This segment recorded a 2% year-on-year decline in revenues, Segment revenues edged up 1% year on year, to ¥1,320.1 billion to ¥2,268.3 billion (US$21,200 million), due in part to the effect of (US$12,338 million), while operating income climbed 22%, to ¥37.0 lower hardware prices. Operating income declined 3% year on billion (US$346 million). year, to ¥67.7 billion (US$633 million), the result of unprofitable projects in the services business and other factors.

Software and Services Hardware Earnings rose year on year as a result of a Displays Hitachi High-Technologies In software and services, sales rose com- Hardware sector sales decreased from the smaller loss in HDD operations and increased Sales declined year on year. Small and Corporation pared with the previous fiscal year. Software previous fiscal year. Storage products, one of earnings from telecommunications. medium-size thin-film transistor (TFT) LCDs Sales increased year on year. In electronic sales declined year on year due to lower Hitachi’s targeted businesses, recorded lower In October 2004, Hitachi’s ATM and recorded lower sales due to lackluster device systems, sales soared on the back of sales of platform software in line with falling year-on-year sales. This result reflected a other information equipment businesses demand for LCDs used in mobile phones. strong sales of semiconductor and LCD demand for mainframes as well as other decline in sales of disk array subsystems due were integrated with those of Omron Sales of large TFT LCDs also declined due manufacturing equipment. Sales declined in factors. This was despite healthy sales to customers putting off purchases until the Corporation to form Hitachi-Omron Terminal to a large drop in prices of LCDs for PCs both life science and information systems & growth of middleware, particularly system shipment of new products in the high-end Solutions, Corp. This joint venture company and TVs. Sales of picture tubes for projection electronic components, but rose in advanced operation management software. Services market and other factors. Another factor was a is a subsidiary of Hitachi. The same month, TVs fell, too. industrial products. recorded higher year-on-year sales due to slight decline in sales in HDDs on a yen basis, Hitachi established another subsidiary, The sector posted a loss, a major reversal Earnings were up markedly year on year, strong growth in the outsourcing business. due to the impact of foreign exchange move- ALAXALA Networks Corporation. A joint from the previous year’s profit, due to a fall in the result of significantly higher earnings in Earnings decreased due to unprofitable ments. Server operations saw sales fall sharply venture with NEC Corporation, ALAXALA LCD sales and to lower prices. electronic device systems. projects in the services business and year on year due to lower prices and a shift in integrated the backbone router and switch In January 2005, operations commenced other factors. demand to low-priced models. PC operations operations of Hitachi and NEC. Furthermore, at IPS Alpha Technology, Ltd., a joint venture Hitachi Medical Corporation also posted sharply lower sales because of a Hitachi sold its entire stake in Hitachi Printing Hitachi formed with Toshiba Corporation and Sales declined year on year, despite higher trend toward lower priced products and other Solutions, Ltd., a company that develops, Matsushita Electric Industrial Co., Ltd. IPS sales of X-ray CT systems. This decline was factors. Telecommunications, however, re- manufactures and sells printers, to Ricoh Alpha Technology is an equity-method affiliate the result of lower sales of accessories for corded higher sales on the back of growth in Company, Ltd. of Hitachi. Plans call for the start of mass image analysis systems. Earnings declined sales of base stations for data communication production of large LCD panels for TVs at this year on year. systems for third-generation mobile phones in company in the second quarter of the fiscal Japan as well as other factors. year ending March 31, 2007.

The CyberGovernment Square showcases A large disk array subsystem “Blade Symphony” blade system, which integrates An 80cm TFT LCD TV The NanoFrontier L, a high-performance Hitachi’s e-government solutions server, communications, storage and management (32-inch, 16:9 aspect ratio) liquid chromatograph for analyzing protein software functions

18 Hitachi, Ltd. Annual Report 2005 Hitachi, Ltd. Annual Report 2005 19 Review of Operations Review of Operations Information & Revenues Operating Income Electronic Devices Revenues Operating Income ¥2,268.3 billion ¥67.7 billion ¥1,320.1 billion ¥37.0 billion

18 Hitachi, Ltd. Annual Report 2005 Hitachi, Ltd. Annual Report 2005 19 Review of Operations Power & Industrial Revenues Operating Income ¥2,515.3 billion ¥73.6 billion

Systems Main Products and Services ■ Nuclear Power Plants ■ Construction Machinery ■ Thermal Power Plants ■ Elevators ■ Hydroelectric Power Plants ■ Escalators ■ Industrial Machinery and ■ Rail Vehicles Plant Construction ■ Air-conditioning Equipment ■ Automotive Products

Segment revenues rose 9% year on year, to ¥2,515.3 billion (US$23,508 million). While sales of power systems declined, automotive systems sales rose, boosted by the merger in October 2004 with TOKICO LTD. Sales of construction machinery also rose. Operating income climbed 117%, to ¥73.6 billion (US$689 million).

Power Systems development expenses resulting from up- services, to strengthen Hitachi’s elevators and Sales declined year on year due to lower front investments. escalators business. sales of power plants in Japan, despite Hitachi merged with TOKICO and growth in sales to overseas customers. Hitachi Unisia Automotive, Ltd. in October Hitachi Construction Earnings also fell, reflecting the lower sales 2004 to strengthen the automotive Machinery Co., Ltd. and additional expenses such as for systems business. Both sales and earnings rose year on year, environmental plants in Japan. driven higher by buoyant demand for con- Urban Planning and struction machinery in overseas markets, Industrial Systems Development Systems including the U.S. and Europe. Both sales and earnings increased in this Sales rose from the previous fiscal year due to sector due to healthy growth in sales of the consolidation in July 2004 of Guangzhou Hitachi Plant Engineering & railway systems, in addition to higher sales Hitachi Elevator Co., Ltd., a former equity- Construction Co., Ltd. of industrial and air-conditioning equipment. method affiliate that manufactures and sells Sales rose year on year despite lower sales elevators and escalators in China. Earnings from construction of power plants. The increase Automotive Systems decreased from the previous fiscal year. reflected firm growth in sales for the installation Sales rose year on year due to the merger In July 2005, Hitachi plans to raise its of clean rooms, industrial systems and other with TOKICO LTD. in October 2004, as well equity interest in two equity-method affiliates products. However, earnings declined. as strong sales accompanying higher in Thailand, one engaged in the manufacture automobile production in Japan. Earnings, and sales of elevators and escalators and the however, declined due to an increase in other in the provision of related maintenance

Proton Beam Therapy System for University Elevators for Japan Airport Terminal Co., Ltd., Hitachi Construction Machinery’s excavator of Texas, M.D. Anderson Cancer Center, Haneda Airport Terminal 2 Proton Therapy Center-Houston

20 Hitachi, Ltd. Annual Report 2005 Review of Operations Review of Operations Power & Industrial Revenues Operating Income Digital Media & Revenues Operating Income ¥2,515.3 billion ¥73.6 billion ¥1,280.3 billion ¥8.6 billion

Systems Main Products and Services Consumer Products Main Products and Services ■ Nuclear Power Plants ■ Construction Machinery ■ Optical Disk Drives ■ Refrigerators ■ Thermal Power Plants ■ Elevators ■ TVs ■ Washing Machines ■ Hydroelectric Power Plants ■ Escalators ■ Mobile Phones ■ Batteries ■ Industrial Machinery and ■ Rail Vehicles ■ LCD Projectors ■ Video Tapes Plant Construction ■ Air-conditioning Equipment ■ Room Air Conditioners ■ Information Storage Media ■ Automotive Products

Segment revenues rose 9% year on year, to ¥2,515.3 billion Segment revenues rose 4%, to ¥1,280.3 billion (US$11,966 (US$23,508 million). While sales of power systems declined, auto- million), and operating income climbed 25%, to ¥8.6 billion motive systems sales rose, boosted by the merger in October 2004 (US$81 million). with TOKICO LTD. Sales of construction machinery also rose. Operating income climbed 117%, to ¥73.6 billion (US$689 million).

Power Systems development expenses resulting from up- services, to strengthen Hitachi’s elevators and Digital Media Home Appliances Hitachi Maxell, Ltd. Sales declined year on year due to lower front investments. escalators business. Sales rose year on year on the back of Sales were on a par with the previous year Sales declined year on year. While sales of sales of power plants in Japan, despite Hitachi merged with TOKICO and strong sales of plasma TVs, optical disk as a whole. Although sales of room air con- rechargeable batteries, such as lithium-ion growth in sales to overseas customers. Hitachi Unisia Automotive, Ltd. in October Hitachi Construction drives and LCD projectors. ditioners rose, mainly in Europe and Asia, batteries for mobile phones, and sales in Earnings also fell, reflecting the lower sales 2004 to strengthen the automotive Machinery Co., Ltd. Earnings also rose on the contribution to sales of refrigerators languished due to stiffer new businesses, such as optical compo- and additional expenses such as for systems business. Both sales and earnings rose year on year, earnings of strong sales in plasma TVs, price-based competition in Japan. nents, were strong, sales of computer tapes environmental plants in Japan. driven higher by buoyant demand for con- optical disk drives and LCD projectors. However, thanks to the benefits of and video and audio tapes declined due to Urban Planning and struction machinery in overseas markets, business structural reforms, earnings falling prices. Industrial Systems Development Systems including the U.S. and Europe. improved dramatically as the sector returned Earnings also declined, the result of Both sales and earnings increased in this Sales rose from the previous fiscal year due to to profitability. lower prices and an escalation in the cost sector due to healthy growth in sales of the consolidation in July 2004 of Guangzhou Hitachi Plant Engineering & of materials. railway systems, in addition to higher sales Hitachi Elevator Co., Ltd., a former equity- Construction Co., Ltd. of industrial and air-conditioning equipment. method affiliate that manufactures and sells Sales rose year on year despite lower sales elevators and escalators in China. Earnings from construction of power plants. The increase Automotive Systems decreased from the previous fiscal year. reflected firm growth in sales for the installation Sales rose year on year due to the merger In July 2005, Hitachi plans to raise its of clean rooms, industrial systems and other with TOKICO LTD. in October 2004, as well equity interest in two equity-method affiliates products. However, earnings declined. as strong sales accompanying higher in Thailand, one engaged in the manufacture automobile production in Japan. Earnings, and sales of elevators and escalators and the however, declined due to an increase in other in the provision of related maintenance

Proton Beam Therapy System for University Elevators for Japan Airport Terminal Co., Ltd., Hitachi Construction Machinery’s excavator Digital consumer electronics Home appliances Hitachi Maxell’s lithium-ion rechargeable batteries of Texas, M.D. Anderson Cancer Center, Haneda Airport Terminal 2 (DVD camcorders, LCD projectors and (Refrigerators, washer-dryers, Proton Therapy Center-Houston HDD/DVD recorders) room air conditioners and vacuum cleaners)

20 Hitachi, Ltd. Annual Report 2005 Hitachi, Ltd. Annual Report 2005 21 Review of Operations Review of Operations High Functional Revenues Operating Income Logistics, Revenues Operating Income ¥1,504.3 billion ¥87.5 billion ¥1,248.2 billion ¥9.8 billion

Materials & Main Products and Services Services & Others Main Products and Services ■ Wires and Cables ■ Organic and Inorganic Chemical Products ■ General Trading ■ Property Management Components ■ Copper Products ■ Plastic Molded Products ■ Transportation ■ Semiconductor-related ■ LCD-related Materials Materials ■ Specialty Steels ■ Printed Wiring Boards ■ Magnetic Materials Segment revenues declined 1%, to ¥1,248.2 billion (US$11,666 and Related Products ■ Ductile Cast-iron Products ■ Forged and Cast-steel Products million). Operating income climbed sharply to ¥9.8 billion (US$92 Segment revenues rose 16%, to ¥1,504.3 billion (US$14,059 million), compared with the previous fiscal year when there were million) due to the effect of consolidating NEOMAX Co., Ltd., one-time charges such as for changes in pension plans. The as well as strong sales to companies in electronics- and higher earnings also reflect profit growth at Hitachi Transport automotive-related fields. Operating income climbed 87%, to System, Ltd., where system logistics performed strongly. ¥87.5 billion (US$818 million). Hitachi Transport System, Ltd. Others

Hitachi Chemical Co., Ltd. Earnings also increased year on year due In high-grade functional components and Sales increased year on year. In the domes- Hitachi Mobile Co., Ltd. recorded higher year- Sales rose year on year. Sales of electronics- to growth in electronics-related products as equipment, sales rose on a large increase in tic distribution business, sales rose on on-year sales due to firm growth in sales in related products increased due to growth in well as a recovery in earnings at group sales of high-grade ductile iron castings. sharply higher sales in the third-party logis- mobile communications and other businesses. sales of slurry for chemical mechanical companies, including Shin-Kobe Electric Earnings increased sharply due to higher tics solutions business, mainly due to new On the other hand, this company saw earnings planarization, die bonding materials for semi- Machinery Co., Ltd. and Hitachi Powdered sales and cost cutting. orders. Sales also increased in the overseas fall as costs increased in line with the develop- conductors and anisotropic conductive films Metals Co., Ltd. distribution business on higher volumes of ment of sales bases and due to other factors. for LCDs. In chemical-related products, sales Hitachi Cable, Ltd. goods handled. General trading companies overseas posted Earnings rose year on year due to growth lower sales, partly due to the transfer to rose on higher sales of carbon anode materi- Hitachi Metals, Ltd. Sales increased year on year. In wires and Hitachi Transport System operates a third- party logistics solutions business als for lithium-ion batteries and electromag- Sales increased sharply year on year, the cables, sales rose due to factors such as an in the third-party logistics solutions business Renesas Technology Corp. of semiconductor netic shielding films for plasma display panels result in part of expansion in the scope of increase in sales prices as the price of and cost cutting. sales operations. Earnings declined due to the and other products, in addition to strong consolidation to include companies such as copper surged. In information and tele- effect of lower prices for products and services. growth in sales of automotive-related prod- NEOMAX Co., Ltd., and Metglas, Inc. In communications networking, sales increased Review of Operations ucts, such as automotive molded parts and high-grade metal products and materials, on strong growth in information network Financial Services Revenues Operating Income disk brake pads. In housing equipment and sales rose due to higher sales of electronics- devices. Sales of sophisticated materials ¥529.6 billion ¥31.0 billion environmental facilities, sales rose on higher related materials, including sputtering target rose due to increased sales of semiconduc- Main Products and Services sales of system kitchens and other products. materials for LCDs, and automotive compo- tor packaging materials for LCD driver ICs ■ Loan Guarantees ■ Insurance Services nents and materials. In electronics and IT and high-speed memories as well as strong ■ Leasing devices, sales rose on sharply higher sales growth in auto parts. of magnets as well as growth in sales of Earnings increased due to higher sales Segment revenues decreased 4%, to ¥529.6 billion (US$4,950 million). multilayered components for mobile phones. and cost cutting. Operating income climbed 39%, to ¥31.0 billion (US$290 million), partly the result of the transfer of the Substitutional Portion of Employees Pension Fund Liabilities at Hitachi Capital Corporation.

Hitachi Capital Corporation volumes of agriculture and medical equip- Volume rose over the previous fiscal year. ment financing and home loans, overall Earnings also increased, the result of efforts finance sector volume increased, and to pare operating expenses, particularly earnings also increased. interest expenses. In other financial services, volume rose In the finance sector, volumes declined in due to an increase in alliance partners in the the automobile finance business as the securitization and outsourcing businesses. Hitachi Chemical’s carbon anode materials Hitachi Metals’ sputtering target materials Hitachi Cable’s µBGA (Ball Grid Array) packages, for lithium-ion batteries for LCDs which are used in Elpida Memory’s DDR2SDRAM company shifted its focus from automobile Earnings were also up in this sector. loans to leases. However, due to higher Electronic toll collection auto card and multifunctional IC card

22 Hitachi, Ltd. Annual Report 2005 Hitachi, Ltd. Annual Report 2005 23 Review of Operations Review of Operations High Functional Revenues Operating Income Logistics, Revenues Operating Income ¥1,504.3 billion ¥87.5 billion ¥1,248.2 billion ¥9.8 billion

22 Hitachi, Ltd. Annual Report 2005 Hitachi, Ltd. Annual Report 2005 23