Hitachi GST Business Update Hiroaki Nakanishi Chairman & Chief Executive Officer Hitachi Global Storage Technologies April 17, 2008
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
Hitachi GST Business Update
Agenda Contents 1. 2007 Business Review 2. HDD Market Environment & Hitachi 1. 事業の概況 3. Critical Success Factors 2.- 世界市場の動向 Products Technology 3.- 事業計画 Go-to-Market Strategy 4.- まとめ Cost Structure 4. Summary Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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1-1. 2007 Business Review Revenue
Strong unit and revenue growth Revenue: $5.56B
Product strategy Focus on core segments
Revenue (B$)
Units: 89.5M
6 4
2
Exited 1.0 and 1.8-inch
2003
Near-total product line refresh New lower cost designs
Executive team New CFO, CAO and leadership in Head and Media operations
2005
2006
2007
2006
2007
Shipments 120
Shipment (M units)
TTM leadership on 1 TB 3.5-inch and ½ TB mobile
2004
80
40
2003
2004
2005
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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1-2. 2007 Business Review (Restructure Head and Media operations)
Consolidate Media Development to San Jose (07/12) Consolidate Slider Development to Odawara (08/3)
Transfer Odawara Media MFG to Shenzhen (07/12)
Consolidate Slider MFG to Philippines (08/3)
Manufacturing
Transfer Philippine HGA MFG to Shenzhen (08/3)
Development • Fujisawa / Odawara, Japan • San Jose, California, USA
Media
Slider
US - San Jose
Current
HGA China
Mexico Thailand
Japan - Odawara Philippines China - Shenzhen
Future
Philippines
US - San Jose
China Philippines
China - Shenzhen
HGA: Head Gimbal Assembly Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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1-3. 2007 Business Review (Cost Reduction) Achieved 2007 cost reduction targets Head and Media operations
1.00 13%
Completed development and manufacturing site consolidations Manufacturing process improvements resulting in double-digit yield increases Ramped media manufacturing to full capacity; drastic per unit cost improvement Leveraged areal density increases to reduce platter count in 3.5-inch ATA and Enterprise drives
0.87 Scrap Media Head
Fixed Cost
HDD cost efficiencies Procured cost improvements
HDD Cost
Headcount efficiencies 2006
2007
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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1-4. 2007 Business Challenges Operating Income 1Q07
2Q07
3Q07
4Q07
Operating Income (M $)
100 50 0 -50 -100 -150 -200 1H2007
2H2007
Price erosion
Strong demand and disciplined industry behavior
Legacy product designs High cost structure
Ramped new lower-cost products Continued appetite for high-capacity drives Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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Hitachi GST Business Update
Agenda Contents 1. 2007 Business Review 2. HDD Market Environment & Hitachi 1. 事業の概況 3. Critical Success Factors 2.- 世界市場の動向 Products Technology 3.- 事業計画 Go-to-Market Strategy 4.- まとめ Cost Structure 4. Summary Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-1. Future Industry Growth Digital content and new applications for storage are fueling HDD unit and revenue growth 800 700
2008 Industry Growth (YTY)
600
HDD Total: 12% Enterprise (traditional): 9% 2.5-inch mobile: 28% 3.5-inch ATA: 7%
Units M
500 400 300 200 100 0 2005 2006 2007 2008 2009 2010 2011 Enterprise Notebook CE
Desktop External Storage
Source: IDC Worldwide Hard Disk Drive 2007-2011 Forecast Update Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-2. Industry Dynamics Improved industry fundamentals Strong unit demand More rational and predictable behavior Better data has led to informed decision making Stronger, better resourced competitors focused on achieving financial objectives
Industry consolidation Survival of the fittest Three major HDD suppliers continue to emerge Vertical integration is a necessary ingredient
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-3. 2008 Market Opportunities 2007 Industry Shipments: 497M units Gaming 9%
2008 Forecast: 558M units (12% CAGR)
Other
Enterprise Personal Storage 8% 2.5/3.5-inch Enterprise 7%
Desktop PC Notebook PC 75%
2.5-inch ATA 38%
3.5-inch ATA 55%
2.5-inch ATA 2008 TAM: 204M units
Source: IDC Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-3. 2008 Market Opportunities 2007 Industry Shipments: 497M units 2008 Forecast: 558M units (12% CAGR) 2.5/3.5-inch Enterprise 7%
Other CE Gaming DVR Other 9% 12.2% Enterprise Personal Storage Storage8% 14% Desktop PC Desktop Notebook Enterprise PC 69% PC 75% 4.5%
2.5-inch ATA 38%
3.5-inch ATA 55%
2.5-inch 3.5-inch ATA ATA 2008 2008 TAM: TAM: 204M 300M units units
Source: IDC Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-3. 2008 Market Opportunities 2007 Industry Shipments: 497M units 2008 Forecast: 558M units (12% CAGR) 2.5/3.5-inch Enterprise 7%
2.5-inch ATA 38%
3.5-inch ATA 55%
Other CE Gaming DVR Other 9% 12.2% Enterprise External Personal Storage Other 18% Storage Storage8% 38% 14% Desktop PC Desktop Notebook Enterprise PC 69% PC 75% 4.5% Server Storage 44%
2.5-inch ATA 2.5/3.5-inch 3.5-inch Enterprise ATA 2008 TAM: 204M 2008 2008TAM: TAM:32.6M 300M units units
Source: IDC Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-4. Hitachi HDD Portfolio Hitachi Travelstar 2.5-inch
Hitachi Deskstar 3.5-inch ATA
Hitachi Ultrastar 2.5/3.5-inch
Hitachi CinemaStar
Hitachi Endurastar Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-5. Enterprise Market Opportunity FORM FACTOR 45 40
RPM
30
45
25
40
20
35
15
30
Units M
Units M
35
10 5 0
2007
2008
2009
2010
2011
25 20 15 10
10K/15K 3.5-inch
10K/15K 2.5-inch 5 0
2007
2008
2009
2010
10K 3.5-inch
10K 2.5-inch
15K 3.5-inch
15K 2.5-inch
2011
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-6. Hitachi’s Enterprise “Triple-play+” Trio of new HDDs built for performance, reliability and capacity Ultrastar 15K450 – built upon proven technology Designed for high performance, mission-critical enterprise 3.5-inch, 15K RPM, up to 450 GB capacity Server and external storage
Ultrastar C10K147 – Hitachi’s first small form factor enterprise HDD Optimized for power/performance requirements of servers 2.5-inch, 10K RPM, capacities up to 147 GB Server storage
Ultrastar A7K1000 – industry’s first TB drive for enterprise Optimized for cost and power per gigabyte enterprise 3.5-inch, 7,200 RPM, 32MB buffer, up to 1 TB Server and external storage
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-7. IT Market Opportunities
600 Desktop PC
500
Personal Storage Portable PC
Units M
400
300
200
100
0 2007
2008
2009
2010
2011
Data: IDC 11/07 Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-8. IT Product Strategy 3.5-inch ATA Full range of capacity points Industry leading power consumption to support “green” initiatives Superior product quality and reliability Improving cost competitiveness with new designs
2.5-inch ATA Industry’s broadest product line of 5,400 and 7,200 RPM mobile drives The world’s highest capacity of 500 GB now in production Innovating to meet customer needs, with encryption, models for 24x7 usage, etc. Higher levels of commonality to increase flexibility and improve cost
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-9. CE Market Opportunities
120
100
Units M
80
60
40
20
0 2007
2008
2009
2010
2011
Set-top Box/PVR/DVR
Automotive
Gaming
Digital Cameras/Camcorders
Digital Audio/PMP Data: IDC 11/07 Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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2-10. CE Product Strategy 2.5-inch CinemaStar is the first and only 2.5-inch HDD customized for digital video use through unique command support and extended reliability Endurastar designed for automotive applications
3.5-inch CinemaStar product line is customized for digital video use and outstanding reliability Industry-leading low power on a 7,200 RPM 3.5-inch HDD in the P7K500 (250-500 GB) series Highest capacity available in 1 TB for the 7K1000 reliability and command support for demanding PVR and CCTV requirements, with “Enterprise proven” reliability
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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Hitachi GST Business Update
Agenda Contents 1. 2007 Business Review 2. HDD Market Environment & Hitachi 1. 事業の概況 3. Critical Success Factors 2.- 世界市場の動向 Products Technology 3.- 事業計画 Go-to-Market Strategy 4.- まとめ Cost Structure 4. Summary Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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3-1. Critical Success Factors 2005 – 2007
2008
Product Focused on high-growth opportunities Quality Time to market
Technology Heads Media R&D
Go-to-Market Strategy
OEM Distribution Global presence Customer technical support
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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3-2. Critical Success Factors 2005 – 2007
2008
Cost Structure Design cost Head and Media cost Operational efficiency Asset utilization Supply chain management Yield and scrap improvements Fixed cost structure
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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3-3. Financial Objectives
2007
2H2007:achieved profitability
2008
2008 financial target:positive FIV
2009
2009 and beyond:sustained profitability
achieved profitability
Positive FIV
2H2007
2008 Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
21
Hitachi GST Business Update
Agenda Contents 1. 2007 Business Review 2. HDD Market Environment & Hitachi 1. 事業の概況 3. Critical Success Factors 2.- 世界市場の動向 Products Technology 3.- 事業計画 Go-to-Market Strategy 4.- まとめ Cost Structure 4. Summary Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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4. Summary Hitachi is… Invested and committed for the long-term Solidly backed by Hitachi, Ltd. In an early-stage recovery with more to be completed A company whose customers want it to succeed Improving its financial position Tackling its challenges and focused on profitable growth Aggressively driving cost out of its business Focus on positive cash flow and becoming self-sufficient Vertically integrated, with industry leading technical capability Celebrated for product quality and reliability Holder of the industry’s strongest IP portfolio A company culture in transition Positive influence of new management Employees are engaged and optimistic about the future
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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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.
Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.
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