Hitachi’s Flat-panel TV Business Strategy... Picture quality: Promotion of IPS and plasma, original Hitachi technology (2) Ultra-thin versions from 32 to 60 inches (3) Wireless capabilities

Copyright © 2008, Hitachi, Ltd., All rights reserved.

Hitachi’s Flat-panel TV Business Strategy

Makoto EbataVice President and Executive Officer

President & Chief Executive Officer, Consumer Business Group Hitachi, Ltd.

February 8, 2008

Copyright © 2008, Hitachi, Ltd., All rights reserved. 2


1. 事業の概況

2. 世界市場の動向

3. 事業計画

4. まとめ

Contents

2Copyright © 2008, Hitachi, Ltd., All rights reserved. 2

Contents1.　Business Vision2.　Promotion of Business Efficiency3.　Strengthening the TV Set Business4.　Strengthening the Plasma Panel

Business5.　Summary



1. 事業の概況


3. 事業計画

4. まとめ

Contents





1-1. Reflections on FY2007 Flat-panel TV Results

FY2005

Sales Volume(10 thousand units)

Sales Volume(10 thousand units)

FY2007FY2006

77

Analysis of Reasons for Poorer ProfitabilityRecover upfront investments made to expand global sales (Investments in development and panel facilities)Aim

Increase number of models to bolster lineup (36 models→67 models), expand sales Channels, begin operations at Fujitsu Hitachi Plasma Display Limited (FHP) 3rd plant Policy

Japan: Flat-panel TV market was brisk, but growth was lackluster in larger screens and LCD TV market expanded North America: Declining consumer sentiment, growth in low-priced brands China: Plasma TV market expanded, Hitachi’s brand power came to the fore (with the top share in 50V plasma TVs)

Markets

Sales volumes grew. However, results fell short of targets because of a poor showing in the North American marketSales volumes grew. However, results fell short of targets because of a poor showing in the North American market

Earnings fell because we failed to recoup our investmentsEarnings fell because we failed to recoup our investments

51

90

80 48

27

：LCD TVs

：Plasma TVs

(est.)


1-2. Business Vision

・ Fundamentally overhaul operatingstructure

・ Collaborative creation

・ Fundamentally overhaul operatingstructure

・ Collaborative creation

[Televisions]Bring to market value-added products led by

flagship ultra-thin models 　(Plasma TVs, LCD TVs)

[Televisions]Bring to market value-added products led by

flagship ultra-thin models 　(Plasma TVs, LCD TVs)

Business Vision

Business Vision [Panels]

Provide value-added panels through plasma solution company

[Panels]Provide value-added panels through plasma solution company ・ Strengthen products

・ Strengthen cost competitiveness・ Bolster external sales

・ Strengthen products ・ Strengthen cost competitiveness・ Bolster external sales

・ Develop value-added products ・ Rebuild sales framework around 　 value-added products ・ Ensure cost savings outstrip sales

price falls

・ Develop value-added products ・ Rebuild sales framework around 　 value-added products ・ Ensure cost savings outstrip sales

price falls



1. 事業の概況


3. 事業計画

4. まとめ

Contents





2-1. Strengthen Cost Competitiveness

Ensure cost savings outstrip sales price falls

Strengthencost competitiveness

Cost reductions (At least 20% reduction )Finished products: Review design, etc.

Panels: Process improvement, etc.

30% reduction in fixed costsOptimize manufacturing and sales sites

Optimize the allocation of personnel

Reduce logistics costs and inventories through SCM

Approx. 30 billion yen in FY2007 for restructuring charges


2-2. Reduction of Logistics Costs and inventory through SCM

• Shorten production and supply lead times and reduce product inventories• Review packaging specs from an eco-conscious standpoint, cut logistics

Costs

Basic policy

65％

China

50％

Europe

20％

North America

An additional 20%Targets(FY2008)

50％% reduction

(vs. FY2006)

Japan

• Ensure operations are conducted by sales channel and region based on actual sales

• Realize flexible production for finished products and supply (weekly reviews) • Promote VMI* and strengthen worldwide procurement functions

Themes(since FY2006)

*VMI (Vender Managed Inventory): Stockless operations whereby the manufacturer manages the distributor’s inventory

Establish Supply Chain Management (SCM) System

Logistics Cost Ratio

FY2006 FY2007 FY2008

(Logistics cost / Revenues)Index

100

70

FY2007 Product Inventories (No. of Days Inventory)


2-3. Establish Highly Efficient Sales System

Increase gross profit by expanding highly efficient channels and value-added products

30　・Leverage track record (top share)

→increase share at highly efficient stores 　・Expand premium products in newly emerging

countries

Asia, China

Exit due to market size and return on investments in development

Expand transactions with Europe-wide customers centered on the U.K.

Strengthen relationships with high-end specialist AV stores and regional stores

　・Focus even more on mass merchandisers 　・Energize regional stores and business routs

Specific Measures

－Australia

20North America

10Europe

40Japan

FY 2008 Sales Composition (%)Region

Strengthen

Improve


2-4. Strengthen Sales Framework

Strengthen Market-driven Sales Systems

・Bolster regional marketing divisions →Increase the percentage of local staff (from 80% now to 90%)

Entrust decision-making authority for product planning to regions・Promote local hiring

(Halve the number of loaned Japanese employees by the end of March 2009)

・Enhance regional product development capabilities, including through alliances with other companies

・Establish highly efficient frameworks in each region

Overseas

・Separate sales and product planning divisions from product divisions and establish as independent organizations directly under the CEO of Consumer Business Group→Promote a frontline-driven system in terms of earnings management

and product planning through the concentration of authority

Japan



1. 事業の概況


3. 事業計画

4. まとめ

Contents





3-1. Flat-panel TV Market Outlook—Worldwide Demand

Unit Demand Forecast (37-inch and larger)

2010

900700

1,600

(10 thousand units)

FY2005 FY2006 FY2007 FY2008

259181

100

FY2010

383：FY2006=100

：LCD TVs

：Plasma TVs

1,000

1,930

3,5005,000

5,800

7,400

930

1,600

580

172

2,400

1,1003,750

1,250

<Demand by Plasma TV Size> 2006Size180750930Total

50 inches or larger

Up to 42 inches

*Prepared with reference to data from DisplaySearch


3-2. Life in the Future With Flat-panel TVs

Era of individual taste and preferenceIncrease in number of people with

unique selection criteria

The future of the TV:TVs that “fit” people and their lifestyles

(Form, time and place)

　　　　　　　　　　

Emphasis on the interior

Increase in people who place importance on design

Higher-definition of content

Enjoyment anytime, anywhere

1)Attractive designs　・Changes in people, regional preferences,

sensibility, trends

2)Interior matching (Freedom with placement)

　・Wireless and much thinner models

　　　　　　　　　　

3)Larger screens, and higher picture quality　・High-definition playback of high-definition movies in the home

　・High contrast and real reproduction of pure black

　　　　　　　　　　

4)IP compatibility・Enjoy VOD (broadcasting-communication convergence)

・ iVDR storage

※ＶＯＤ（Ｖｉｄｅｏ　Ｏｎ　Ｄｅｍａｎｄ）

Eco lifestyles 　　　　　　　　　　5)Eco basics　・Energy efficient, environmentally friendly materials　・Packaging materials, logistics

VOD: Video On Demand


　　　　　　　　　　

　　　　　　　　　　

　　　　　　　　　　

　　　　　　　　　　

Wireless

IP compatibilityiVDR storage

Energy efficiencyPackaging materials Transportation efficiency

●Concentrate on establishing a competitive edge for Hitachi: 5 advance points for new TV lives (1) Picture quality: Promotion of IPS and plasma, original Hitachi technology (2) Ultra-thin versions from 32 to 60 inches (3) Wireless capabilities (4) IP compatibility (5) Eco ●Develop products suited to each region: “Designs”, “functions”

(1) Attractive designs

(2) Interior matching

(5) Eco

(3) High picture quality

(4) Anytime

Much thinner models

High-contrastPure black reproduction

High-efficiency panelReduced packaging (UT: 20% cut) Transportation (UT: 14% CO2 emission reduction) Plastic (UT: 12% cut)

acTVila VODiVDR storage (compatibility for all models)

High contrast of 15000:1 New panels

5 Advance Points(5A) FY2008 Products Products After FY2009

・無線の内蔵　

・Reduce PDPs power consumption by half・LED back light　(LCD TVs)

・Downloading(iVDR)

・Mega contrast・Ultra-fine resolution

Design

World-first: HDMI wireless unit

・Internal wireless

UT(Ultra-thin）LCDs32-inch, 37-inch, 42-inch

・Ultra-thin PDPs・Ultra-thin LCDs

3-3.

Comparisons with existing Hitachi models IPS: In-Plane-Switching, HDMI: High-Definition Multimedia Interface

Promoting a Product-Differentiation StrategyOriented Toward Future TV Life


January 2008Model exhibited at CES

Commercialize Ultra-thin PDPs

1. Ultra-thin　35mm2. High - resolution new panels3. Wireless4. Eco5. IP compatibility

2010　Phase 2Thickness: 10mm or less

2009　Phase 1Thickness: 35mm

3-4. Ultra-thin PDPs


Plasmas emit white light and therefore no backlight is necessary⇒Modules alone are only 10mm or less

Ultra-thin PDPs (9mm)Ultra-thin LCDs (19mm)(IPS LCD)

PDP module(Approx. 5mm)

LCD (2mm)

Circuits, etc.(4mm)

Backlights(Approx. 13mm)

3-5. The Days of Ultra-thin Plasma TVs of 10mm or Less

Circuits, etc.(4mm)


“IPS α Panels” “Other technologies “

Easy to view even on the wall: contrast of 100:1 at a viewing angle of 178 degrees

Low power consumption even with bright screen

Wide viewing angle IPS panels = Ultra-thin, wall-mountable

“Other Technologies”

10:1 　

“IPS α Panels”

100:1 　

3-6. Ultra-thin LCDs

Optimal IPS α Panels for ultra-thin LCD TVs

TransmissivityAt least 140% greater than other companies


3-7. Strengthening IPS α LCD TVs

Basic agreement on a comprehensive alliance with Matsushita Electric Industrial Co., Ltd. and Canon Inc.

　　-Accelerate development, strengthen products 　　-Develop cutting-edge IPS α Panels (Ultra-thin, larger models)　　-Develop organic light-emitting diode (OLED) panels in the future　

2007.12.25


　　　　　 2008 　　　　 2009　　　　2010～2012

PDP(FHP)

LCD(IPSα)

OLED

Size

60-inch

50-inch

42-inch

42-inch

37-inch

32-inch

IP compatibility

Wireless

130㎜ 35㎜ 10㎜

35㎜ 19㎜ 15㎜

3㎜

Thinness

VOD compatibility

Wireless (Optional)

Download service compatibility

Wireless (Internal)

Home network compatibility

Wooo cell phone

3-8. Flat-panel TV Roadmap


3-9.

　　Efficiently increase functions and design variations in models where the monitor and tuner are separate

U.S., EuropeChina, Singapore

Common design worldwideWireless, higher picture quality technology

Broadcasting format compatibility in each regionDesigns compatible with new standards in each country

Japan

Monitor

Tuner

CzechSan Diego

Fuzhou Japan

Singapore

Development Framework

Development Responsibility

Efficient Development Framework(Global Development Roles)


3-10. Efficient Development Framework （Drawing on Hitachi Group Capabilities ）

Product Development

Basic R&D

Advanced Technology

Development

Hitachi Research Laboratory

・Panels (Plasma and LCDs)

Mechanical Engineering Research Laboratory

・Thermal analysis ・Acoustic oscillation

・Networks ・Encryption

Systems Development Laboratory

Hitachi Group Technological

Synergies

・Design concepts

Design Division

Central Research Laboratory

・Recognition technology ・Hard disks

・Embedded software ・Visual navigation

Embedded System Platform Research Laboratory

Production Engineering Research Laboratory

・Reliability ・Production processes

(FHP)

Consumer Business Group

・Image processingLSIs ・Optical drives

Consumer ElectronicsLaboratory

HDDs Films LSIsiVDRLCD panels

(IPS Alpha Technology) (Hitachi GST) (Hitachi Chemical) (Hitachi Maxell) (Renesas

Technology)

Tuners and power

supplies

(Hitachi Media Electronics)

Plasma panels

High-contrast panels, full high definition, ultra-thin, home network compatible



1. 事業の概況


3. 事業計画

4. まとめ

Contents





4-1． Changes in the Plasma Panel Market

Changes in the Panel Business Environment

Changes in the market environment・Continued demand for replacing CRT TVs・Tight supplies of LCD panels・Chinese companies strengthening 　plasma TV businesses

Plasma TV market continues to grow

Expanding market for external sales

Dramatic increase in panel performance: new plasma panels・Maintaining edge over LCDs in terms of moving image performance and viewing angle

・Dramatic improvement in contrast and luminance

・Halving power consumption・High marks for progressive-scan plasma panels (1080p)

Sharper edge for PDPs in large screen sector

Continued expansion in demand

for plasma panels

Expansion of the ultra-thin TV market・Lighter, thinner = Freedom with placement　　Demand for wall-mountable TVs 　→Acceleration toward larger models

Expansion of market for ultra-thin PDPs


4-2． Basic Strategy for Plasma Panel Business

Plasma solution company that provides value-added panels

　　　　　　　　　　

Switch from ALIS to progressive scan　

Take lead in increasing panel performance, high contrast and making thinner panels

　Strengthen thin TV business by setting the pace in developing ultra-thin panels

　Expand external sales, achieve highly efficient production, strengthen sales system

　Strengthen cost performance, reduce material costs, rationalize module process and 　　　　consolidate module manufacturers

　Make FHP wholly owned (Hitachi Plasma Display) (From April 1)　　　　　　　　

＊ＡＬiＳ（Alternate Lighting of Surfaces Method）


4-3. Switch From ALiS to Progressive Scan

Market and technology trends

・Start of high-definition broadcasts

・High luminance picture quality

・Cost reductions

Change in format in response to market needs

・Increase in full high-definition content

(Blu-ray)

・Greater recognition of full high definition

・Cost reductions with full high definition

● ALIS format

・High luminance, high resolution

・Single scan (low cost)

● Progressive-scan format

・Full high definition, high contrast

・Single scan also possible with progressive scan

Panel development policy

Easier to watch


4-4. Strengthening Plasma Panel Products

Become industry leader: High picture quality, much thinner models, energy efficiency

1) High luminance, easy to watch　　　Spring 2008: High contrast panels (42-inch, 50-inch)

Autumn 2008: Progressive-scan plasma panels (37-inch, 32 –inch)　　　Spring 2009: Panel boasting 2.3 times luminous efficiency

2) Thinner TVs　　　2009: 60-inch, 50-inch, 42-inch

3) Lower power consumption　　　2010: Halve power consumption


Self-contained system from design and sales through procurement (from April 1)Self-contained system from design and sales through procurement (from April 1)

Provide support for module production to set finished product manufacturersProvide support for module production to set finished product manufacturers

4-5． Strengthening of Autonomous Operations

Hitachi Plasma Display Limited

Establishment of framework for increasing external sales

Promote the building of strategic partnerships with external customers

Resumed full-fledged external sales to more than 10 corporate customers worldwide from November 2007 (Doubled external sales staff)Establish China PDP Technology Center (Shanghai)

　Conduct design work locally with presence in China 　Provide customer-centric solutions by integrating design, sales and procurement

External sales forecast: 0.5 million units (2H FY2008), 1.2 million units (FY2009) Capacity utilization rate of just over 80% in FY2009 due to higher external sales (forecast)

Resumed full-fledged external sales to more than 10 corporate customers worldwide from November 2007 (Doubled external sales staff)Establish China PDP Technology Center (Shanghai)

　Conduct design work locally with presence in China 　Provide customer-centric solutions by integrating design, sales and procurement

External sales forecast: 0.5 million units (2H FY2008), 1.2 million units (FY2009) Capacity utilization rate of just over 80% in FY2009 due to higher external sales (forecast)



1. 事業の概況


3. 事業計画

4. まとめ

Contents





5-1. Sales Targets

Targeting 10% market share, centered on ultra-thin models, in FY2010 (15% for 50-inch+ plasma TVs)

FY2006 FY2008FY2007 FY2010

9% 9% 9% 　15%

7790

90128170

210

360

-LCD TV units-Plasma TV units-Hitachi ultra-thin model share-Plasma and LCD revenue ratio

160

200

Total share for plasma TVs 8% 9% 6% 10%Share of 50-inch + plasma TVs

2%24%

45%

120

FY2009

7%

　10%

280

70%

55%

45%

(10 thousand units)


5-2. Improving Performance in Flat-panel TV Business in FY2008

0

Cost reductions

Loss

FY2007

Fixed cost reductions, etc.

40 20 40：Percentage contribution to 　projected FY2008 profit improvement

Sales price

declines

Profit improvement through fixed cost reductions,value-added products, and cost reductions

Increased gross profit (add value to products, etc.)


5-3. Business Targets for Flat-panel TV Business

Return to positive FIV in Digital Media & Consumer Products　

・Fundamentally overhaul operatingstructure

・Collaborative creation

・Fundamentally overhaul operatingstructure

・Collaborative creation

[Televisions]Bring to market value-added products led by flagship ultra-thin models 　(Plasma TVs, LCD TVs)

[Televisions]Bring to market value-added products led by flagship ultra-thin models 　(Plasma TVs, LCD TVs)

Business Vision

Business Vision [Panels]

Provide value-added panels through plasma solution

company

[Panels]Provide value-added panels through plasma solution

company ・Strengthen products ・Strengthen cost competitiveness・Bolster external sales

・Strengthen products ・Strengthen cost competitiveness・Bolster external sales

・Develop value-added products ・Rebuild sales framework around 　value-added products ・Ensure cost savings outstrip sales

price falls

・Develop value-added products ・Rebuild sales framework around 　value-added products ・Ensure cost savings outstrip sales

price falls


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,” “forecast,” “intend,” “plan,” “project” and similar expressions which indicate future events and trends may identify “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 upon 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:

- fluctuations in product demand and industry capacity, particularly in the Information & Telecommunication Systems segment, Electronic Devices segment and Digital Media & Consumer Products 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;

- rapid technological change, 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, particularly in the Information & Telecommunication Systems segment, Electronic Devices segment and Digital Media & Consumer Products segment;

- 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 implement measures to reduce the potential negative impact of fluctuations in product demand and/or exchange rates;- general socio-economic and political conditions and the regulatory and trade environment of Hitachi’s major markets, particularly, the United States, Japan and

elsewhere in Asia, including, without limitation, a return to stagnation or deterioration of the Japanese economy, or direct or indirect restriction by other nations on imports;

- uncertainty as to Hitachi’s access to, or ability to protect, certain intellectual property rights, particularly those related to electronics and data processing technologies;

- uncertainty as to the results of litigation and legal proceedings of which the Company, its subsidiaries or its equity method affiliates have become or may become parties;

- possibility of incurring expenses resulting from any defects in products or services of Hitachi;- uncertainty as to the success of restructuring efforts to improve management efficiency and to strengthen competitiveness;- 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;- uncertainty as to Hitachi’s ability to access, or access on favorable terms, liquidity or long-term financing; 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

Hitachi’s Flat-panel TV Business Strategy... Picture quality: Promotion of IPS and plasma, original Hitachi technology (2) Ultra-thin versions from 32 to 60 inches (3) Wireless capabilities