Hitachi GST Business Update · 2-3. 2008 Market Opportunities Source: IDC 2.5-inch ATA 2008 TAM: 204M units Notebook PC 75% Gaming 9% Enterprise Other Personal Storage 8% Desktop

Copyright © 2008, Hitachi Global Storage Technologies, All rights reserved.

Hitachi GST Business Update

Hiroaki NakanishiChairman & Chief Executive Officer

Hitachi Global Storage Technologies

April 17, 2008

Copyright © 2008, Hitachi Global Storage Technologies, 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

22

Agenda1. 2007 Business Review2.　HDD Market Environment & Hitachi3.　Critical Success Factors

- Products- Technology- Go-to-Market Strategy- Cost Structure

4.　Summary



1-1. 2007 Business Review

Strong unit and revenue growth Units: 89.5MRevenue: $5.56B

Product strategyFocus on core segments

Exited 1.0 and 1.8-inchNear-total product line refreshNew lower cost designsTTM leadership on 1 TB 3.5-inch and ½ TB mobile

Executive teamNew CFO, CAO and leadership in Head and Media operations

120

80

40

Shipments

Shi

pmen

t (M

uni

ts)

2003 2004 2005 2006 2007

20072003 2004 2005 2006

6

4

2

Rev

enue

(B$)

Revenue


1-2. 2007 Business Review (Restructure Head and Media operations)

Media Slider HGAUS - San Jose

Japan - OdawaraMexico

Philippines

China

Thailand

Philippines

Consolidate Slider MFG to Philippines (08/3)

Transfer Philippine HGA MFG to Shenzhen (08/3)

US - San Jose

China - ShenzhenPhilippines

China

Consolidate Slider Developmentto Odawara (08/3)

China - Shenzhen

Transfer Odawara Media MFG to Shenzhen (07/12)

Consolidate Media Development to San Jose (07/12)

HGA: Head Gimbal Assembly

Development

Manufacturing

• Fujisawa / Odawara, Japan• San Jose, California, USA

Current

Future


1-3. 2007 Business Review (Cost Reduction)

Head and Media operationsCompleted development and manufacturing site consolidationsManufacturing process improvements resulting in double-digit yield increasesRamped media manufacturing to full capacity; drastic per unit cost improvementLeveraged areal density increases to reduce platter count in 3.5-inch ATA and Enterprise drives

HDD cost efficiencies

Procured cost improvements

Headcount efficiencies2006

1.00

0.87

13%

2007

Scrap

Media

Head

Fixed Cost

HDD Cost

Achieved 2007 cost reduction targets


1-4. 2007 Business Challenges

Operating IncomeO

pera

ting

Inco

me

(M $

)

100

50

0

-50

-100

-150

-200

1Q07 2Q07 3Q07 4Q07

1H2007

Price erosion

Legacy product designs

High cost structure

2H2007

Strong demand and disciplined industry behavior

Ramped new lower-cost products

Continued appetite for high-capacity drives



1. 事業の概況


3. 事業計画

4. まとめ

Contents

77



4.　Summary



2-1. Future Industry Growth

2008 Industry Growth (YTY)

HDD Total: 12%

Enterprise (traditional): 9%

2.5-inch mobile: 28%

3.5-inch ATA: 7%

Digital content and new applications for storage are fueling HDDunit and revenue growth

Source: IDC Worldwide Hard Disk Drive 2007-2011 Forecast Update

Uni

ts M

800

700

600

500

400

300

200

100

02005 2006 2007 2008 2009 2010 2011

EnterpriseNotebookCE

DesktopExternal Storage


2-2. Industry Dynamics

Improved industry fundamentalsStrong 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 consolidationSurvival of the fittest

Three major HDD suppliers continue to emerge

Vertical integration is a necessary ingredient


2-3. 2008 Market Opportunities

Source: IDC

2.5-inch ATA2008 TAM: 204M units

Notebook PC 75%

Gaming 9%Enterprise

Other

Personal Storage 8%

Desktop PC

3.5-inch ATA55%

2.5/3.5-inchEnterprise

7%

2.5-inch ATA38%

2007 Industry Shipments: 497M units

2008 Forecast: 558M units (12% CAGR)



Source: IDC


Notebook PC 75%

Gaming 9%Enterprise

Other

Personal Storage 8%

Desktop PC

3.5-inch ATA55%


7%

2.5-inch ATA38%

Desktop PC 69%

PersonalStorage

14%

Other CE

DVR 12.2%

Enterprise 4.5%






Source: IDC


Notebook PC 75%

Gaming 9%Enterprise

Other

Personal Storage 8%

Desktop PC

3.5-inch ATA55%


7%

2.5-inch ATA38%

Desktop PC 69%

PersonalStorage

14%

Other CE

DVR 12.2%

Enterprise 4.5%


External Storage

38%

Server Storage

44%

Other 18%

2.5/3.5-inch Enterprise2008 TAM: 32.6M units




2-4. Hitachi HDD Portfolio

Hitachi Travelstar2.5-inch

Hitachi Deskstar3.5-inch ATA

Hitachi Ultrastar2.5/3.5-inch

Hitachi CinemaStar

HitachiEndurastar


2-5. Enterprise Market Opportunity

0

5

10

15

20

25

30

35

40

45

RPM

2007 2008 2009 2010 2011

10K 3.5-inch

15K 3.5-inch

10K 2.5-inch

15K 2.5-inch

Uni

ts M

0

5

10

15

20

25

30

35

40

45

FORM FACTOR

2007 2008 2009 2010 2011

10K/15K 3.5-inch 10K/15K 2.5-inch

Uni

ts M


2-6. Hitachi’s Enterprise “Triple-play+”

Ultrastar 15K450 – built upon proven technology Designed for high performance, mission-critical enterprise 3.5-inch, 15K RPM, up to 450 GB capacityServer and external storage

Ultrastar C10K147 – Hitachi’s first small form factor enterprise HDDOptimized for power/performance requirements of servers2.5-inch, 10K RPM, capacities up to 147 GBServer storage

Ultrastar A7K1000 – industry’s first TB drive for enterpriseOptimized for cost and power per gigabyte enterprise 3.5-inch, 7,200 RPM, 32MB buffer, up to 1 TBServer and external storage

Trio of new HDDs built for performance, reliability and capacity


2-7. IT Market Opportunities

Data: IDC 11/07

Desktop PC

Portable PC

Personal Storage

0

100

200

300

400

500

600

2007 2008 2009 2010 2011

Uni

ts M


2-8. IT Product Strategy

3.5-inch ATAFull range of capacity pointsIndustry leading power consumption to support “green” initiativesSuperior product quality and reliability Improving cost competitiveness with new designs

2.5-inch ATAIndustry’s broadest product line of 5,400 and 7,200 RPM mobile drivesThe world’s highest capacity of 500 GB now in productionInnovating to meet customer needs, with encryption, models for 24x7 usage, etc.Higher levels of commonality to increase flexibility and improvecost


2-9. CE Market Opportunities

Data: IDC 11/07

Set-top Box/PVR/DVR Automotive

Gaming Digital Cameras/Camcorders

Digital Audio/PMP

2007 2008 2009 2010 2011

120

100

80

60

40

20

0

Uni

ts M


2-10. CE Product Strategy

2.5-inchCinemaStar 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-inchCinemaStar 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



1. 事業の概況


3. 事業計画

4. まとめ

Contents

1818



4.　Summary



3-1. Critical Success Factors

20082005 – 2007

ProductFocused on high-growth opportunitiesQualityTime to market

TechnologyHeadsMediaR&D

Go-to-Market StrategyOEMDistributionGlobal presenceCustomer technical support


3-2. Critical Success Factors

2008 2005 – 2007

Cost StructureDesign cost

Head and Media cost

Operational efficiency Asset utilization Supply chain management Yield and scrap improvements

Fixed cost structure


3-3. Financial Objectives

2007

2008

2009 2009 and beyond:sustained profitability

2008 financial target:positive FIV

2H2007:achieved profitability

achieved profitability Positive FIV

2H2007 2008



1. 事業の概況


3. 事業計画

4. まとめ

Contents

2222



4.　Summary



4. Summary

Hitachi is…

Invested and committed for the long-termSolidly backed by Hitachi, Ltd.In an early-stage recovery with more to be completedA company whose customers want it to succeed

Improving its financial positionTackling its challenges and focused on profitable growthAggressively driving cost out of its businessFocus 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 transitionPositive influence of new managementEmployees are engaged and optimistic about the future


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 GST Business Update · 2-3. 2008 Market Opportunities Source: IDC 2.5-inch ATA 2008 TAM: 204M units Notebook PC 75% Gaming 9% Enterprise Other Personal Storage 8% Desktop