Hitachi Global Storage Technologies

Copyright © 2007, Hitachi Global Storage Technologies, All rights reserved.

The Path to ProfitabilityHitachi Global Storage Technologies

Hiroaki NakanishiChief Executive Officer

March 22, 2007

Copyright © 2007, Hitachi Global Storage Technologies, All rights reserved. 2

1. Objectives and strategies2. HDD market perspective3. 2003-2006 achievements and challenges4. Roadmap for achieving profitability objectives in 2007

- Volume growth- Product strategy- Cost reductions - Restructure Head and Media operations

5. Summary “Collaborative creation and profits”

Agenda

The Path to Profitability

2Copyright © 2007, Hitachi Global Storage Technologies, All rights reserved.





Agenda




1. Objectives and strategies

• Achieve profitability objectives in 2007 and positive FIV in 2008

• Accelerate delivery of new leadership products

– Expand 2.5” leadership

– Continue strong growth in 3.5” business

– Expand DVR/STB market share position

– Launch of next-generation enterprise products

• Continue to ramp manufacturing capacity and increase productivity

• Establish technology and thought leadership

– From Perpendicular Magnetic Recording(PMR)

to patterned media

• Thorough cost reduction

• Increase efficiency of sales and manufacturing by enhancing Total Supply Chain Management (TSCM)





Agenda




2. HDD market perspective

Market expansion into new applications adds to the growth of the established HDD segments

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009 2010

Units (M)

Overall = 12% CAGRCE = 16% CAGR

Enterprise

Desktop

Notebook

Home/PersonalStorage

DVR

AutomotiveCE otherGame machines

MP3/PMP

Source: HitachiCE: Consumer Electronics (includes personal storage)CAGR: Compound Annual Growth Rate

CE

IT





Agenda




3. 2003-2006 achievements

• Invested in manufacturing capacity growth• Increased yields• Optimized product portfolio• Cemented partnerships with large OEMs and distributors• Improved quality through Total Quality Control

– Average quality rank went from #3 to #1.4• Continuous investment in R&D to close technology gap• Strengthened management team and reinvigorated corporate culture

– Accelerated management changes and adherence to Monozukuri (“Gemba”, “Tokken” and “Ochibo”)

0

2

4

6

2003 2004 2005 2006

Revemue(B$)

0

40

80

2003 2004 2005 2006

Shipment(M units)

Revenue Shipments


3. 2003-2006 challenges

• Enhancing cost competitiveness

• Timely market rollout

• Establishment of flexible manufacturing structure

-400-320-240

-160-80

02003 2004 2005 2006

Operating Income(M$)

Operating Income / Loss





Agenda




4. Roadmap for achieving profitability objectives in 2007

New Products

20072006

-8%

Cost Reductions

Profit

Operating Income

Volume Growth

• 100M/Y capacity is ready

• New modular lines provide flexibility for managing demand changes; improve inventory management

New Products

• New product ratio of approx. 75% in 2007

• Focus resources on 2.5”, 3.5” ATA and Enterprise

• Accelerate product time to market

Cost Reductions

• Restructure Head and Media operations

• Yield improvement and scrap reduction

• Approx. 10% cost reduction with new product designs

• Overall company focus on reducing cost

• New technologies (TMR, TFC etc.)

VolumeGrowth

±0

TMR:Tunneling Magneto-ResistanceTFC:Thermal Fly-height Control


4-1. Volume growth

• Hitachi 2007 target: 93-98M units

• Outgrow the market with 33-40% CAGR

• Increase share by providing high-quality new products

VolumeGrowth

0

5

10

15

20

25

30

1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07

Shipment(M Units)

Enterprise 3.5" 2.5" 1.8" Emerging

Shipment by form factor2007 Industry Growth (YTY)

HDD Total: 14%

Enterprise (traditional): 4%

3.5”: 12%

2.5”: 23%

1.8”: 18%

Source: HitachiEnterprise includes Traditional and SATA


4-2. Product strategy(1)

2.5" Travelstar• Maintain #1 share position with best-of-breed

products

• Travelstar 5K160 (5,400 RPM 160GB)– Leads the industry’s PMR transition– Ramp up production through 1H07

• Travelstar 7,200 RPM 200GB– High quality product with industry-leading capacity,

7,200 RPM and 200GB– Market-leading launch, coming in 1H07

• Travelstar 5,400 RPM 250GB– Industry-leading capacity, 5,400 RPM and quarter TB – Market-leading launch, coming in 2H07

• Upcoming products available with optional hybrid and encryption

New Products



3.5” Deskstar• Deskstar 7K160 /T7K500

– Ramp in high volume in Shenzhen, China– Fewer heads and disks than previous generation for cost savings

• Deskstar 7K1000– First-to-market 1.0TB drive

• CinemaStar 7K1000– CinemaStar version 1.0TB drive for DVR/STB

Enterprise• Complete product-line refresh in 2007• Increase customer satisfaction with high quality and reliability• Ultrastar 15K RPM 3.5-inch

– Fewer heads and media for significant cost improvement• Ultrastar 10K RPM SFF

– Our first small form factor product to address 2007 demand surge• Enterprise SATA

– 1.0TB drive to solidify Hitachi’s leadership position in Enterprise SATA

New Products



Expand CinemaStar salesAVSM file systemIdentify and create new opportunities with CE Design StudiosBroaden participation in DVR/STB marketPenetrate content delivery market

Sharpen focus on DVR/STB and other 3.5” CE opportunities

CinemaStar

Travelstar C3K80Travelstar C4K60 Slim

Endurastar

Consumer Electronics

Increase segment participation with next-generation products

Continue to improve profitability by optimizing mix

Leverage Enterprise SATA leadership

Increase share in Traditional Enterprise

Maintain #1 position in high-capacity Enterprise SATA

Deskstar E7K500/7K1000

Ultrastar 15K RPM 3.5-inch

Ultrastar 10K RPM SFF

Enterprise

Ramp new 2.5” drives with expanded feature set (hybrid, encryption)Leverage capacity leadership with new 1.0 TB 3.5” driveNew designs and improved yieldsOptimize mix and price

Maintain #1 share position in 2.5”Continue 3.5” growth momentum

Travelstar 5K160Travelstar 7,200 RPM 200GBTravelstar 5,400 RPM 250GB Deskstar 7K160/T7K500Deskstar 7K1000

PC

Product Strategy2007 Market StrategyKey Products

AVSM:Audio-Visual Storage Manager


4-3. Cost reductions

• 10+% cost reduction by enhancing cost management

• Focusing on cost reduction of Head and Media

1. Yield improvement with higher PMR ratio2. 25% YTY improvement from 2006 to 2007

1. Ramp China factory to full utilization2. Transfer Odawara manufacturing mission to Shenzhen3. Improve yield and reduce scrap cost4. Consolidate development in San Jose

1. Increase Femto slider ratio2. Transfer Mexico manufacturing mission to Philippines

and San Jose development to Odawara3. Yield improvement and scrap reduction

1. Improve throughput by higher yields 2. Shorten HDD test time 3. Improve capital investment efficiency4. Increase parts commonality (2.5” & 3.5”)5. Reduce mechanical component cost (3.5”)6. Reduce platters in 3.5” drives including 15K rpm

Cost Reductions

Scrap

Media

1.00*

0.8713%

9%0.78

Head

HDD

2006 2007 2008

* 2006 scaled to equal 1.00 unit cost


4-4. Restructure Head and Media operations(1)

Media Slider HGAUS - San Jose

Japan - OdawaraMexico

Philippines

China

Thailand

Philippines

Consolidate Slider MFG to Philippines

Transfer Philippine HDD/HGA MFG to Thailand and Shenzhen

US - San Jose

China - ShenzhenPhilippines

China

Thailand

Consolidate Slider Developmentto Odawara

China - Shenzhen

Transfer Odawara Media MFG to Shenzhen

Consolidate Media Development to San Jose

Development

Manufacturing

• Fujisawa / Odawara, Japan• San Jose, California, USA

Current

Future

HGA: Head Gimbal Assembly



Expected to generate approx. $300M of direct cost savings over five years

Slider Manufacturing Consolidation Media Manufacturing Consolidation

Transfer media manufacturing from Odawara to Shenzhen in 2007

- 20% reduction in media unit cost

- Additional cost savings in labor, services, infrastructure and logistics

- Increase operational efficiencies in media manufacturing

Consolidate development in San Jose in 2007

- Enable common development and manufacturing processes

• Transfer slider manufacturing from Mexico to Philippines by end of 2Q08

- Maximize operational efficiencies

- Centralize slider manufacturing closer to suppliers, customers and Hitachi GST’soperations

• Consolidate all slider development in Odawara by 2008

- Increase slider development efficiencies

- Result in a more focused and specialized development mission



Head Business 2007 Revenue: $950M

2007 Employees: 15,000

ObjectivesProvide Hitachi GST with most technologically advanced, cost competitive productLeverage relationships with vendors to enhance our competitiveness

2005 2006 2007 2008

Technology Competitiveness LMR PMR PMR+TMR PMR+TMR

Product Cycle Time Index 100 86 74 68

Product Cost Index 100 95 86 70

- Scrap 100 96 74 42

- Depreciation 100 107 100 91

- Materials 100 99 92 84

- Other 100 82 82 70

LMR: Longitudinal Magnetic Recording TMR:Tunneling Magneto-ResistancePMR: Perpendicular Magnetic Recording



Media Business 2007 Revenue: $800M

2007 Employees: 2,500

ObjectivesProvide Hitachi GST with most technologically advanced, cost competitive productLeverage relationships with vendors to enhance our competitiveness

2005 2006 2007 2008

Technology Competitiveness LMR PMR + LMR

Leader-ship

Leader-ship

Product Cost Index 100 87 77 73





Agenda





Achieve profitability Positive FIV

20082007Strategies

• Additional promotion of management reforms• Rigorous cost reduction

– Promote further optimization of operating sites for $100M– Reduce scrap cost by 20% year-over-year, primarily in Head and Media– Pursue strategic partnerships with vendors– Balanced use of internal heads and media with external sourcing for

supply flexibility• Strengthen technological capability

– Improve time to market– Strengthen the head and media development capability

• Intensive utilization of Hitachi group resources (R&D and Monozukuri culture)


Cautionary Statement

This presentation contains forward-looking statements within the meaning of U.S. federal securities laws, including statements about the following: the future demand for hard disk drives; Hitachi’s future product portfolio; the demand for HDDs in new applications; Hitachi’s ability to achieve cost improvements, yield improvements and structural improvements; and future profitability. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially, including the following: possible fluctuations in the demand for our products; possible delays in developing and marketing new products; possible delays in delivering cost improvements, yield improvements and structural changes; the introduction of new products by competitors or the entry into the market of new competitors; and the possibility of legal disputes.

These factors are not all-inclusive and are in addition to other factors contained in Hitachi Ltd.'s periodic filings with the U.S. Securities and Exchange Commission and other materials published by Hitachi Ltd. or Hitachi Global Storage Technologies. The forward-looking statements contained herein represent the company's judgment as of the date of this presentation and readers are cautioned not to place undue reliance on such statements. Hitachi Ltd. and Hitachi Global Storage Technologies undertake no obligation to update forward looking statements contained in this presentation.

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