Hitachi aims to double computer services profits

TOKYO: Hitachi Ltd., Japan's biggest electronics manufacturer, said on

Thursday it aimed to double operating profit margins over the next three years

in computer software and services, a key growth area.

Like Japan's other chipmaking conglomerate, Hitachi is shifting resources

into the relatively stable services business, after the IT slump and agile

foreign rivals knocked most of its hardware operations into the red in the last

business year.

But profits in computer services have been modest at most of the conglomerates,
weighed down in part by low-margin projects that often involve little more than

dispatching engineers to build or maintain clients' systems.

"We will boost our operating profit margin to 10 percent (from five
percent) by the 2005/06 (April-March) business year," Isao Ono, head of

Hitachi's information business group, told a briefing for analysts and

reporters. One key to success will be shifting its focus to higher-margin,

fee-based businesses such as outsourcing, in which a provider takes over the

operation of a client's computer system, or consulting services in areas such as

system security.

But with all of Japan's computer and electronics conglomerates, including NEC
Corp. and Fujitsu Ltd., charging full-speed into software and services,

competition is bound to heat up, putting pressure on prices and profit margins.

Piling in

"I think there is definitely price pressure," Ono told Reuters

after the meeting. "It all will depend on securing volume and increasing

the number of customers in fee-based and product businesses."

The company is also targeting 10 per cent annual growth in revenues in the

sector, rising to 1.3 trillion yen ($10.3 billion) in 2005/06. One important

area for Hitachi will be data storage software, where it holds high hopes for

overseas demand.

Most of Japan's big computer services providers have little presence outside

their home market, although Fujitsu, the industry leader in Japan, has acquired

and restructured foreign operations in hopes of copying International Business

Machines Corp's success in global services.

Hitachi, for its part, achieved rapid growth worldwide in hardware for high-end
data storage systems, giving industry leader EMC Corp a run for its money, but

the Japanese company still lags well behind its US rival in the more lucrative

and fast-growing software side of the market.

It hopes a recently announced alliance with IBM will help it close the gap.

Thursday's announcement came after the close of share trade.

Japanese high-tech shares have trudged lower in recent sessions, with the TSE

electricals falling in seven of the last eight sessions and shedding 6.5 per

cent. Hitachi, usually one of the less volatile high-tech issues, has fallen

12.6 per cent.

(C) Reuters Limited.