Financial overview

In million JPY	FY2006	FY2005	Increases (%)	Factors
Overall
Sales	10,247,903	9,464,801	8.3	While cutting costs and improving production efficiency, the Company focused on selecting targets for capital investment and reorganizing its businesses.
Operating income	182,512	256,012	(28.7)
Pretax	202,338	274,864	(26.4)
Electric Power and Industrial Systems Division
Sales	3,022,299	2,805,169	7.7	- Year-on-year sales of construction machinery grew, being supported by increased demand in and outside Japan. - Sales at the automotive system business grew based on the contributions made by Clarion Co., Ltd., which the Company turned into a consolidated subsidiary in December 2006. - Sales at the elevator business were favorable, thanks to increased demand in China.
Operating income	36,391	92,552	60.7	- Operating income resulting from sales of construction machinery grew, thanks to increased sales, while operating income resulting from sales of automotive systems business also rose due to cost reduction initiatives such as procuring parts/materials from locations overseas. However these were offset by materials prices increases, costs to repair an atomic power  plant in Japan, and additional costs for a  thermal power plant for the U.S.A.
High functional materials Division
Sales	1,794,506	1,600,246	12.1	- Sales of electric wires and cables were favorable, thanks to increases in product prices as a result of sharp rises in materials prices. - Sales of materials  for semiconductors and  materials and parts for automotive use  were  strong, thanks to strong demand.  - Sales of three major affiliates, namely Hitachi Cable, Ltd; Hitachi Chemical Company, Ltd; and Hitachi Metals, Ltd., which handled this product category,   totaled 881,919 million yen in FY2006, up 11% from the previous year, contributing to increased sales for this division.
Operating income	132,399	110,069	20.3

Acquisition
Clarion turned into consolidated subsidiary
- The Company announced that it has completed on November 30 the tender offer for common stocks of Clarion Co., Ltd., which commenced on October 25, 2006, and that it will make Clarion its consolidated subsidiary on December 7, the day to start settlement. Hitachi acquired all Clarion shares offered, raising its ownership to 63.66% from 14.41% before the purchase. The amount required for the purchase will be 31.9 billion yen. (From an article in the Nikkan Jidosha Shimbun on Dec.6, 2006)

- The Company announced that it has signed a share transfer agreement with Clarion Co., Ltd. on December 12. As a result of the share transaction, Xanavi Informatics Corporation, now 100 percent owned by Hitachi, will become a wholly owned subsidiary of Clarion effective January 1, 2007. This move will allow Xanavi and Clarion to promote joint development of car navigation systems, strengthening their capabilities to engineer platform software and technologies for the future. (From an article in the Nikkan Jidosha Shimbun on Dec.14, 2006)

Disposal
- The Company announced on March 13 that it will subscribe to Nidec Corporation's tender offer for the share of Japan Servo Co., Ltd., a Hitachi's subsidiary, listed on the Second Section of the Tokyo Stock Exchange. Hitachi formulated its new management policy last November to review and reorganize its business. In line with this management policy, the company has decided to sell the shares of Japan Servo, aiming to increase profitability of the group as a whole. Hitachi will tender 16,585,000 shares which corresponds to about 46% of total shares issued out of about 18,330,000 shares it owns, which corresponds to 51.37% of total shares, of Japan Servo. It will continue to hold the remaining 1,740,000-plus shares. (From an article in the Nikkan Jidosha Shimbun on Mar. 14, 2007)

R&D costs for the term ended March 2007 were 412,534 million yen, accounting for 4.0% of sales.
Electrical Power/ Industrial Systems: 95,065million JPY
High Functional Materials: 50,179million JPY

R&D Structure
- The Hitachi Group companies, including Hitachi, Ltd. and Shin-Kobe Electric Machinery Co., Ltd., will accelerate their efforts on product development and sales promotion for lithium-ion batteries for hybrid vehicles in order to expand this business. Trial production of the batteries for hybrid commercial vehicles such as heavy-duty trucks and busses is in its final stage to start supply as early as 2008. The Group will enhance its capability to respond to on-going development projects and new inquiries so that it can move fast for winning large contracts, in an aim to establish a business unit of lithium-ion batteries by achieving sales of one billion yen level at an early stage. In the future, the Group plans to boost a market share close to the largest in lithium-ion batteries for hybrid vehicles. (From an article in the Nikkan Jidosha Shimbun on Nov.30, 2006)

- The Company has decided to change its development policy for automotive semiconductors. The same, latest generation of semiconductors as used in digital appliances and cell phones will be utilized for the automotive semiconductors, targeting for the next ECU (electronic control unit). As standards of heat and decay resistance for automotive semiconductors are very high, confirmation in specifications takes time. Therefore semiconductors of one to two generations older than those for cell phones and other appliances have been used for automotive semiconductors. Hitachi plans to take advantage of the semiconductor supplier and the home appliance business in the Hitachi Group and to speed up introducing the latest Hitachi technology into automotive products so that it will address new needs. It will incorporate the latest semiconductor, with features such as medium to low power consumption, small-size and high-performance, into automotive products to differentiate itself from competitors whose major business is in automotive products. The company is making sales expansion efforts targeting at the annual sales in automotive products of one trillion yen to achieve in 2010.(From an article in the Nikkan Jidosha Shimbun on Feb.16, 2007)

＜Electrical power/industrial systems＞
- At the product design stage, the Company developed a system to calculate costs and quantitatively evaluate environmental impact according to recycling methods. This was made possible by combining design information (such as product design, materials used, mass of the product,  and  chemicals contained within) with the recycling method being used in   a country or region. By providing guidelines to improve design, the system supports low-cost development of environmentally friendly products. This system was jointly developed with Fraunhofer IZM Research Center in Germany.

-The Company developed technology to reduce errors, by up up to 50%, in estimating the time required to arrive at  destinations. This was made possibly through analyzing past traffic data on both the change in the position of traffic jams and  the forward moving speed.

＜Highly functional material＞
- In the field of 3D sensor technology that detects acceleration speed of digital equipment when they are falling or moving, the Company developed the world's smallest digital output, three-axis acceleration sensor. (This was current as of August 2006.)  This sensor incorporates sophisticated design technology involving elements and circuits, and implementation technology.

Investment

Unit: millions of yen	Mar. 2007	Mar. 2006	Change(%)
Electrical power/industrial systems	151,964	106,778	42.3
High functional materials	91,893	84,557	8.7
Total	1,048,572	954,706	9.8

Capital investment plan (as of the end of Mar. 2007)

Unit: millions of yen	Mar. 2007	Description
Electrical power/industrial systems	178,000	The plans for capital investments in this area include increasing production volume at its construction machinery, automotive equipment, and railroad vehicles businesses; in addition to streamlining them.
Highly functional materials	112,000	The plans for capital investments in this area include increasing the production volume at its highly functional metal products, wrought copper, and copper alloys businesses; in addition to streamlining them.
Total	1,140,000	-

- The Company plans to decrease defect ratios of its automotive parts and greatly raise profits in this business. It will introduce clean rooms to all the new automotive parts production lines to be installed from FY 2007 and will decrease production processes by cutting welding processes as many as possible. To improve quality and parts precision, the company will use its clean room technology, acquired in semiconductor and general electric appliance production, for manufacturing all its automotive parts. Hitachi has become a leading automotive parts supplier in Japan in terms of item numbers, mainly in drive control and in-vehicle electronics components, as a result of affiliating Unisia Jecs, for electronic components such as engine control products; Tokico, for shock absorbers; Xanavi and Clarion, for AV products. Although Hitachi does not plan at present any major investment either in production increase or in new facilities for FY 2007 and after, many production line renewals for new orders and model changeovers are expected. Taking opportunities of facility replacements along with major line upgrades, installation of high-precision clean rooms will be accelerated. (From an article in the Nikkan Jidosha Shimbun on Mar.6, 2007)