Financial overview

In million JPY	FY2007	FY2006	Increases (%)	Factors
Overall
Sales	11,226,735	10,247,903	9.6	Sales in the financial service sector declined. But sales in the following and other sectors increased: electrical power/industrial systems and  information communication systems.
Operating income	345,516	182,512	89.3	Income in the digital-media and consumer-electronics sectors drastically declined. But performance in the areas of electrical power/industrial systems and information communication systems significantly increased. Income in all other areas also improved.
Pretax	324,782	202,338	60.5	-
Electric Power and Industrial Systems Division
Sales	3,568,151	3,022,299	18.1	-Sales in electrical power systems, the automotive business, and business with Hitachi Construction Machinery Co., Ltd. increased. -Sales in the automotive business increased as Clarion became one of the Company's consolidated subsidiaries in December 2006. - Japanese automakers increased their production volume destined for overseas markets.
Operating income	138,455	36,391	280.5	- Costs for repairing its domestic atomic power plants, in addition to costs for adding some US thermal plants, were posted in the last fiscal year only.
High functional materials Division
Sales	1,875,018	1,794,506	4.5	Hitachi Chemical Co., Ltd.: Sales increased in the areas of semiconductor materials and automotive products. But since the company sold its housing and environmental systems business in January 2008, all of its sales were at the same levels as those of the previous year. Hitachi Metals Ltd.: Sales of IT electronics/information components and high-grade metal products increased. Hitachi Cable Ltd.: Sales increased, thanks to a stable demand for electric wire and cables, as well as to higher product prices due to increased copper prices. The combined sales in 2007 of Hitachi Cables, Hitachi Chemicals, and Hitachi Metals, which are the leading companies of Hitachi Group,  exceeded the combined sales in the previous year.
Operating income	141,007	132,399	6.5	Income increased, thanks to higher prices charged for materials and effective cost reduction efforts, even though the cost of materials prices were higher.

Contracts
The Company has won a project award to supply lithium-ion battery systems for General Motors' (GM) hybrid electric vehicles that are scheduled to be launched in 2010. Based on this agreement, the Company will manufacture 100,000 lithium-ion batteries per year at Hitachi Vehicle Energy, in which the Company has a majority share. The Company's electronic segment has experiences in making inverters and motors for GM: its inverters are used in the Tahoe and the Saturn series; and its motors are installed in the Saturn. The new business will mark the first time that the Company produces batteries for the U.S. automaker. (From an article in the Nikkan Jidosha Shimbun on Mar. 6 2008)

Recent developments in Japan
Additional Investment in Hitachi Vehicle Energy
- At the end of FY2006 the Company's Automotive System Group and Shin-Kobe Electric Machinery Co., Ltd. made additional capital investments, a combined amount of 5 billion yen, to Hitachi Vehicle Energy Ltd., a joint venture company established by the two. Hitachi Vehicle Energy manufactures rechargeable lithium-ion batteries for hybrid electric vehicles (HEV) whose demand has been on the increase globally. The capital of Hitachi Vehicle Energy has been raised to 4 billion yen by additionally allocating the half of newly invested amount; the Company has a 63.8% stake in Hitachi Vehicle Energy while Shin-Kobe Electric Machinery owns 28.9% and Hitachi Maxell Ltd. 7.3% respectively, following the completion of the latest investments. (From a press release on Apr. 16, 2007)
- The Company, Shin-Kobe Electric Machinery Co., Ltd. and Hitachi Maxell, Ltd. will make a second increase in capital infusion in their subsidiary, Hitachi Vehicle Energy based in Hitachi Naka city in Ibaraki Prefecture, on January 23 in an attempt to beef up the operation of lithium-ion batteries for use in hybrid electric vehicles, the three companies jointly announced on January 21. The capital increase of 6 billion yen is broken down to 3,988 million by Hitachi, 1,200 million by Shin-Kobe and 812 million by Hitachi Maxell. The fund will be allocated for capital and capital reserve fifty-fifty. Under the initiative of Hitachi, Ltd, the group companies intend to strengthen the structure and capability of supplying a set of key components for the hybrid system, such as motors, inverters and batteries. (From an article in the Nikkan Jidosha Shimbun on Jan. 22, 2008)

Reorganization of R&D Activities on Car Information Systems
- The Company and Clarion Co., Ltd., a subsidiary of Hitachi, announced on December 11, 2007 that they will dissolve HCX Corporation, their joint venture company for the development of car information systems (CISs), on March 31, 2008. The research and development functions of HCX will be transferred to Clarion and Xanavi Informatics Corporation, which is Clarion's wholly owned subsidiary.

>>> See R&D for more details


Recent developments outside Japan
North American Holding Company Established
- The Company has started studies on establishment of a North American automotive holding company as early as 2008. It plans to consolidate two plants of Hitachi Automotive Products (USA), Inc. (HAPCO USA), managed directly by Hitachi Automotive Systems or the automotive division of the Company with seven plants of former UNISIA JECS, TOKICO and Clarion to improve efficiency in various areas including legal affairs, procurement and distribution. This new automotive holding company will be located in Michigan, close to the current holding company of HAPCO USA. and Detroit City is most likely to be selected. (From an article in the Nikkan Jidosha Shimbun on Nov. 6, 2007)

R&D Expenditures
R&D costs for the term ended March 2008 were 428,171 million yen, accounting for 3.8% of sales.
Electrical Power/ Industrial Systems: 110,450million JPY
High Functional Materials: 50,766 million JPY

R&D Structures
<Electrical power/industrial systems>
The Company conducted research and development activities on technology to improve the reliability and cost performance of electric and industrial systems. The Company also worked on developing ways to save energy, properly dispose waste so as to  protect the environment;  and upgrade automotive and transportation systems.
<Developing highly functional material>
The Company conducted research and development activities on materials and on processing technology mainly for semiconductors and liquid crystal.

The Company and Clarion Co., Ltd., a subsidiary of the Company, announced on December 11, 2007 that they will dissolve HCX Corporation (Shinagawa-ward, Tokyo), their joint venture company for the development of car information systems (CISs), on March 31, 2008. The research and development functions of HCX will be transferred to Clarion and Xanavi Informatics Corporation, which is Clarion's wholly owned subsidiary. By integrating the development resources to Clarion, the Company intends to increase its comprehensive engineering efficiency and capabilities in the growing CIS business. HCX was established jointly by Hitachi, Clarion, and Xanavi in December, 2000. It conducts development activities in the area of CIS products with particular emphasis on establishing a common platform for car navigation systems. (From an article in the Nikkan Jidosha Shimbun on Dec. 12, 2007)


Product Development
EPS (electric power steering)
The Company has developed a new EPS (electric power steering) system, which is skillfully better equipped with an electric unit and offers higher output to meet anticipated needs for more sophisticated driving support systems. The new pinion-type EPS system has pinion gears with an assist motor at the top of a steering shaft. The company successfully developed an integrated component combining a motor, torque sensor and electric control unit (ECU), which is small enough to be placed near the pinions, and secured superior space efficiency and collision safety. The supplier will begin mass production of the new product for 2-liter class vehicles in 2010. (From an article in the Nikkan Jidosha Shimbun on Dec. 13, 2007)

Investment

Unit: millions of yen	Mar. 2008	Mar. 2007	Change(%)	Description
Electrical power/industrial systems	163,039	151,964	7.3	Increasing and rationalizing the production of construction machines, automotive systems, and railroad vehicles
High functional materials	106,687	91,893	16.1	Increasing and rationalizing the production of high-grade metal products, magnetic materials, and semiconductor materials
Total	969,087	1,048,572	(7.6)	?勾/td>

Capital investment plan (as of the end of Mar. 2008)

Unit: millions of yen	Mar. 2008	Description
Total	950,000	-
Electrical power/industrial systems	167,000	The plans for capital investments in this area include increasing production volume at its construction machinery and automotive equipment businesses; in addition to streamlining them.
Highly functional materials	112,000	Increasing and rationalizing the production of high-grade metal products, magnetic materials, and semiconductor materials

Domestic Investment
Additional Capital Investment Made in Hitachi Vehicle Energy
- At the end of FY2006 the Company's Automotive System Group and Shin-Kobe Electric Machinery Co., Ltd. made additional capital investments, a combined amount of 5 billion yen, in Hitachi Vehicle Energy Ltd., a joint venture company established by the two. Hitachi Vehicle Energy manufactures rechargeable lithium-ion batteries for hybrid electric vehicles (HEV) whose demand has been on the increase globally. The capital of Hitachi Vehicle Energy has been raised to 4 billion yen by additionally allocating the half of newly invested amount; the Company has a 63.8% stake in Hitachi Vehicle Energy while Shin-Kobe Electric Machinery owns 28.9% and Hitachi Maxell Ltd. 7.3% respectively, following the completion of the latest investments. (From a press release on Apr. 16, 2007)

- The Company, Shin-Kobe Electric Machinery Co., Ltd. and Hitachi Maxell, Ltd. will make a second increase in capital infusion in their subsidiary, Hitachi Vehicle Energy based in Hitachi Naka city in Ibaraki Prefecture, on January 23 in an attempt to beef up the operation of lithium-ion batteries for use in hybrid electric vehicles, the three companies jointly announced on January 21. The capital increase of 6 billion yen is broken down to 3,988 million by Hitachi, 1,200 million by Shin-Kobe and 812 million by Hitachi Maxell. The fund will be allocated for capital and capital reserve fifty-fifty. Under the initiative of Hitachi, Ltd, the group companies intend to strengthen the structure and capability of supplying a set of key components for the hybrid system, such as motors, inverters and batteries. (From an article in the Nikkan Jidosha Shimbun on Jan. 22, 2008)

Overseas Investment
North American Automotive Holding Company Established
- The Company has started studies on establishment of a North American automotive holding company as early as 2008. It plans to consolidate two plants of Hitachi Automotive Products (USA), Inc. (HAPCO USA), managed directly by Hitachi Automotive Systems or the automotive division of the Company with seven plants of former UNISIA JECS, TOKICO and Clarion to improve efficiency in various areas including legal affairs, procurement and distribution. This new automotive holding company will be located in Michigan, close to the current holding company of HAPCO USA. and Detroit City is most likely to be selected. (From an article in the Nikkan Jidosha Shimbun on Nov. 6, 2007)