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JAPANESE VENDORS

  Analysis of Hitachi's FY98 Financial Results

Hitachi's Profits Vanish

Profits Drop Sharply for Second Year in a Row

  PHOENIX - Hitachi's meager (1%) net margin in fiscal year 1997 has turned to no margin, a virtual zero, as the giant Japanese conglomerate reported a net profit of only $25 million on revenues of $60 billion in its latest fiscal year (FY98) ended March 31. As a result, Hitachi's returns on sales and equity plunged from the 3%- and 8%-levels in 1990, to zero in FY98. Its operating margin also hit an all-time low of 2.5% in the latest fiscal year, as compared to the 7%-level at the start of this decade.

There are also two upside records which Hitachi set in its FY98; unfortunately also of the wrong kind. Its overall debt and the debt/equity ration were also at all-time highs. And its price-earnings ratio was a real skyscraper at 970! Now, match that - Microsoft with your "piddly" 74 P/E multiple! J

Unfortunately for Hitachi, its "skyscraper multiple" was due to its virtually non-existent earnings, not because the stockmarket suddenly fell in love with this Japanese establishment company.

One relatively bright light in a series of dismal financial statistics was the performance of Hitachi's information technology sector. To be sure, its revenues also declined (by 9%) to $24.1 billion. But they were up 3% in Japanese yen. The company said that sales of mainframes "continued to be strong, especially in markets abroad."

But increased sales did not help the profitability of Hitachi's IT systems segment. As a result of the severe price cuts brought on by tough competition with IBM and Amdahl, this unit's operating profits plummeted by 46% (39% in Japanese yen).

A 13% drop in the value of the Japanese currency also boosted the company's overseas exports. Although virtually flat in U.S. dollars, exports rose by 13% in Japanese yen. Nevertheless, the overseas revenues continue to be a minor portion (21%) of this multinational giant's business, with the domestic Japanese market accounting for 79% of its business.

In short, Hitachi's report card for the FY98 illustrated that it isn't just the Japanese banks that are sick and in need of fixing. But laying millions of employees off has not been the Japanese way of "fixing" things.

Nor does it appear to be the case with Hitachi, either. Despite its disappointing financial results, the company has maintained its employment at about 331,000 throughout the tough decade of the 1990s. Contrast that with the severe cuts which IBM implemented in the first half of the 1990s, to the applause of Wall Street (see the chart below).

Happy bargain hunting!

Also, check out our report on Fujitsu...

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Volume XIV, No. 98-26
July 15, 1998

Editor: Bob Djurdjevic
Published by Annex Research;
e-mail: annex@djurdjevic.com

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