Japan's Hitachi to cut procurement costs by 300 billion yen annually

Japanese electronics giant Hitachi Ltd. said on Monday it aims to slash its annual cost of procuring basic materials and components by 300 billion yen ($2.9 billion) to help it cope with surging crude oil and commodity prices, as well as achieve its profit ratio commitments for the year to March 2010.

Hitachi said it plans to cut overhead costs by 15 billion yen, while setting aside 5.0 billion yen in cash and cash equivalent for covering the rise in borrowing costs.

Huge assets will be tapped to improve its cash flow by 5.0 billion yen, the company said, but did not specify whether it was selling some of its assets.

With the help of cost-cutting measures, the company aims to achieve a consolidated operating profit ratio of 5 percent in the year to March 2010 as it had previously pledged, nearly triple the operating profit margin of 1.8 percent achieved in the year to March 2007.

To achieve its target profit growth, Japan's biggest integrated electronics maker said it will try to build a stronger foothold on the Chinese flat TV market, while ccontinuing its cost-cutting efforts in the hard disk drive business, which has been incurring losses until recently.

In a bid to improve profitability at its flat panel TV business, Hitachi, along with Matsushita Electric Industrial Co., Ltd. and Canon Inc. recently forged an alliance in the segment.

Hitachi said it will strengthen control and supervision of its operations through the use of its so-called Future Inspiration Value (FIV) approach, an in-house index obtained by subtracting the cost of capital from after-tax operating profits.

Under this method, if a segment recording negative FIVs for two straight years is deemed to be requiring attention, and if it fails to turn in profits within two years after its restructuring plan is approved, the company may consider withdrawing from such business segment.

Hitachi said it aims to achieve positive FIVs at key operating segments such as the hard disk drive business in the year to March 2009, in line with an earlier plan, and at its flat TV business in the year to March 2010.

yasuhiko.seki@thomsonreuters.com

MMMM

Related terms: business, commodity, crude oil, electronics, japan, market, prices, profit, restructuring, tv, yen