President Kojima on Future Growth Strategy: "Hitachi Will Grow via Digital and Green Solutions."

Dec. 24, 2021 Kai O’Connor
President & COO of Hitachi, Ltd. Keiji Kojima at the press conference

On December 8, 2021, at a press conference to talk about Hitachi’s future growth strategy, President Kojima stated: “Hitachi will grow via digital and green solutions.”

Enhancing investments in “hydrogen, cells, and quanta”

--At the moment, Hitachi is composed of five business sectors and Hitachi Astemo. Can you please tell us about Hitachi’s future investments and growth strategy?

President Kojima: Hitachi’s business focuses on the fields of IT, then energy and mobility which collectively includes rail, EVs, the power grid, and nuclear power. Additionally, we also provide solutions for industrial plants, and through the combination of all of these businesses, we believe that it is vital to solve social issues.

What we want to do is combine these fields to achieve carbon neutrality. For example, we believe that, to achieve carbon neutrality at an industrial facility, knowledge of the power grid, digital technologies, and industry is required. Hitachi will grow via digital and green solutions.

--In terms of the next Mid-term Management Plan, how are you going to utilize Lumada from the perspective of digital and green solutions?

Kojima: Digital and green solutions are the two main pillars, not exceptions. Most solutions are a combination of digital and green technologies, which is perfect for Lumada to step up to the plate. Even in terms of green solutions, large products connect to a network and analyze the data gathered from that network to achieve efficient operations. The EV-charging network follows that stereotypical pattern. We will deploy solutions that are a combination of digital and green technologies via the Lumada platform.

--Regarding R&D costs, Hitachi has stated that it will invest a total of 1.5 trillion yen(13.1 billion dollars) over the next three years. That’s an increase of about 100 billion yen(875.8 million dollars) annually, so in which areas are you going to allocate that money?

Kojima: The area in which we most have to enhance R&D is green technologies. Much of the increase in costs will be invested in green technologies. We are backcasting from 2050, and we want to enhance investments in areas that we can provide disruptive innovation. I can name three themes: hydrogen, cells, and quanta. These three themes have the power to change the world. We will enhance investment in the phase that is close to basic research as well.

Synergy generated by GlobalLogic

President Kojima at the press conference

--Looking back on 2021, I think the acquisition of GlobalLogic was very significant for Hitachi. What will you need to do in 2022 and beyond to generate real synergy?

Kojima: GlobalLogic is growing as a standalone entity and also has significant profitability. We are very confident about integration and so forth. As for synergy, GlobalLogic has been winning orders in conjunction with Hitachi Vantara and has started collaborating with Hitachi Energy.

Deployment in Japan, where Hitachi has an enormous customer base, has fallen behind due to the COVID-19 pandemic. While we are in the midst of preparations, until GlobalLogic employees can come to Japan and have face-to-face discussions, we cannot move forward. Therefore, we are creating synergy focusing on Europe and the U.S., and I’m of the understanding that this is progressing smoothly.

--Sales of Lumada are growing. Please tell us about profitability and the future Lumada growth strategy.

Kojima: In the IT sector, it is critical to grow GlobalLogic. Helping GlobalLogic grow quickly will lead to Lumada growth. Maintenance is an enormous job in the energy and mobility fields, so how we enter that area will connect directly to Lumada growth. Industry sector holds the most potential. There are great business opportunities in improving plant efficiency, supplier management, carbon neutrality, and other areas. We are in the middle of planning how we will spread the use of Lumada.

--While operating profit margin in the IT sector regularly experiences double-digit growth, you are lagging behind European and U.S. companies. What do you have to do go that one better?

Kojima: Operating profit margin in the IT sector has reached 12 to 13%. The IT companies that we consider to be the benchmarks have about 14 to 15% in operating profit margin, so we only have a short way to go to reach that. What we have left to do is increase our cloud services.

GlobalLogic is a digital engineering company, so profitability will rise if we can increase the volume of cloud migration. If we can do that overseas, Hitachi will be able to hold our own against foreign companies.

Forecast for the energy business moving forward

Acquiring GlobalLogic accelerated the global deployment of Lumada

--It has been a year and a half since Hitachi Energy was founded, and you also acquired GlobalLogic. Is there anything that you want to include in the next Mid-term Management Plan from the energy sector?

Kojima: In recent times, Hitachi Energy has been getting a lot of orders for EV chargers and EV charging networks. When charging with sunlight, charging has to be done when the sun is out, which means that digital control is necessary. It is a very interesting and important field.

Moreover, Hitachi Energy has a large installation base, uses digital technologies to their fullest, and is significantly increasing efficiency. Hitachi Energy has a great deal of synergy with GlobalLogic in terms of digital and EV-related technologies, and it has started to lead to orders.

--We would like to ask you about orders of small modular reactors (small nuclear reactors) manufactured by GE Hitachi Nuclear Energy (GEH). Where are you positioning small modular reactors in the energy business moving forward?

Kojima: Our number one priority in the nuclear energy business is the “recovery of Fukushima” and then the “decommissioning of reactors.” As humanity moves to green energy, restarting nuclear reactors will also be a considerable issue, and we would like to help power companies as much as possible.

GEH, which is majority-owned by GE, won an order for a small modular reactor from Ontario Power Generation Inc. in Canada. I feel that modular reactors will be essential technology-wise in the future. We have the capability in terms of technology, and, with the Canada project, there may be times that we will be asked to consult as well as provide components.

However, in the nuclear power business, we generally are not involved in civil engineering or other construction work both in Japan and overseas. Some news outlets reported that Hitachi might start another nuclear power business overseas, but we have no intention of doing so.

--GEH is deploying nuclear power globally. What do you think about the proliferation of new technology like this across the world?

Kojima: In order for nuclear energy to be trusted globally, a number of important technological breakthroughs are required. One is natural cooling. Even if a reactor loses power, it needs to be able to cool down slowly without easily going into meltdown. In this regard, small reactors have an overwhelming advantage over larger reactors and construction time is also shorter. Therefore, I am of the understanding that small reactors are one vital milestone in terms of technology.

Another point is the challenge of waste, which is an issue we must solve. The solving of these two challenges is essential for nuclear power to be used as a clean main power source worldwide moving forward. We will pursue the research of its technology.

Hitachi’s ideal form

--There is a lot of attention on company structures with a number of companies both in Japan and overseas announcing breakups. What do you think the ideal form should be for Hitachi moving forward?

Kojima: There are two things that are important to us. One is gaining the capability required as a company that solves social issues. Rather than a business portfolio, this is the basic capability to solve social issues. Carbon neutrality cannot be achieved by IT alone, and other capabilities, such as those related to hydrogen and the power grid, are also needed to solve social issues. I believe that companies such as these will absolutely be necessary in the future, and our basic philosophy is to continually hone those capabilities.

The second is, in order to return value to investors, we have to think about what structure is the most appropriate. We have to balance two things. Presently, we’re focusing on the SDGs, and everyone is moving in that direction. I think we have entered an era in which companies decide what capabilities they need and how to tackle problems.

--From Hitachi’s standpoint, is increasing shareholder value by splitting the company unthinkable?

Kojima: I think it is important to become a company that includes shareholders and that is needed by society. It is vital to not forget that. Some might think that value won’t increase unless the company specializes, but as Japanese professional baseball player Shohei Otani has shown us, in an era where two-way players are unheard of, he’s become an amazing player. I believe that Hitachi can also strive to solve social issues through information technology, operational technology, and products.

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