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Follow UsBy Yuka Obayashi
TOKYO: US software giant Microsoft Corp and Hitachi Ltd., Japan's largest electronics maker, on Thursday unveiled plans to cooperate in the system solutions business, uniting two of the biggest companies in the global IT market.
The joint venture, to be set up in October, will develop and provide Microsoft's Windows 2000-based systems solutions, and targets annual sales of 20 billion yen ($190 million) in 2003, they said.
The joint venture will initially focus on the Japanese market but the partners eventually plan to expand the alliance globally.
"I will emphasise that this is a global relationship," Microsoft chairman Bill Gates told a news conference in Tokyo. "This is the first global alliance with a Japanese company that Microsoft has entered into".
For Microsoft, the alliance is part of a drive to expand its sales in Asia, now the fastest-growing market for the software titan. Boosting overseas sales is important now that a U.S. court has ordered Microsoft be split in half, after finding it violated U.S. antimonopoly laws by using its market clout to stymie competition.
For Hitachi, the pact should help expand sales of computer design and support services, which are more profitable than selling electrical machinery and electronic hardware. Hitachi had 1.67 trillion yen in computer sales in 1999/2000, almost 20 percent of total group sales.
Hitachi reported a group net profit of 16.9 billion yen for the past business year to March 31, recovering from a whopping loss of 336.9 billion yen ($3.15 billion) the year before.
Its share price has also been under pressure in recent months, which analysts blamed in part on a sluggish recovery in some of its traditional markets such as mainframe computers, heavy machinery and electric appliances.
Hitachi's shares showed little reaction to Thursday's announcement, ending down 2.44 percent at 1,317 in line with a general decline on the Tokyo Stock Exchange.
Initial Public Offering
The two companies said details of the joint venture such as capital and their respective stakes will be decided later. They also plan an initial public offering for the venture in the future, but did not give an exact date. The move underlines Hitachi's commitment to expanding its computer network business, analysts said.
"Over the past year, Hitachi has been putting increasing emphasis on their systems solutions business," said Scott Foster, senior analyst at Lehman Brothers in Tokyo.
The Hitachi group, Japan's largest private-sector employer with 338,000 workers, has been speeding ahead with restructuring measures and partnerships with other companies in a bid to boost profitability.
As part of that effort, Hitachi has been considering alliances or acquisitions of U.S. software firms to reinforce its computer network business, company president Etsuhiko Shoyama told Reuters in an interview this month.
"Our clients want a total network solution service, not just computer hardware. To meet their needs, we need to tie-up with - or buy - foreign software firms," Shoyama said.
In a business plan unveiled last November, Hitachi set aside 300 billion yen ($2.80 billion) for acquisitions and alliances, mainly targeting overseas companies, in an effort to transform the integrated electronics manufacturer into a global services provider. ($1=107.07 Yen).
(C) Reuters Limited 2000.