Hitachi Ltd <6501.T>, Japan's largest electronics maker, will focus investments on infrastructure-related businesses such as power plants as it seeks to more than double its profit over the next three years.
Hitachi, a sprawling conglomerate of 900 group firms, has been trying to narrow its focus to give it a better chance of competing globally with more profitable rivals such as Germany's Siemens and General Electric Co .
Over the next three years, Hitachi will allocate about 70 percent of its 1.4 trillion yen ($15.4 billion) budget for capital spending and strategic investments to a group of businesses such as power plants, smart grids, cloud computing, batteries and railway systems.
Hitachi will look to mergers and acquisitions to bolster these operations, President Hiroaki Nakanishi said, in a sign the company is becoming more aggressive toward expansion after years of cost-cutting.
We are clearly stating that we will be changing to offence from defense, Nakanishi, a 40-year Hitachi veteran, who took the helm in April, told a news conference. Sales growth is not everything, but profit growth won't come without an increase in sales.
Hitachi, which makes everything from nuclear power plants to rice cookers, also plans to further shed non-core businesses, and Nakanishi said he expects the number of its major business units to be reduced from the current 40 in the next few years.
Hitachi said it would aim for an operating profit margin of more than 5 percent in the financial year to March 2013 on sales of 10.5 trillion yen. That would produce a profit of at least 525 billion yen, up from 202 billion yen in the year just ended.
The profit target seems conservative, said Yukihiko Shimada, a senior analyst at Mitsubishi UFJ Morgan Stanley Securities. Unless something really goes wrong, this profit figure is reachable.
The average forecast of six analysts is for Hitachi to report an operating profit of 469 billion yen for the year to March 2013.
Hitachi aims to boost the ratio of sales generated in overseas markets to more than half the total, up from 41 percent in the year ended in March, as it makes a push into emerging markets.
It also aims to lower its debt-equity ratio to 0.8 times or below, from 1.04 times at the end of last financial year.
The global economic downturn forced Hitachi to quicken its efforts to focus more on stable and promising areas and spin off what it calls commodity products such as chips, so as to make itself less vulnerable to price volatility.
It also cut its fixed and material procurement costs by 640 billion yen last business year.
The restructuring helped 100-year-old Hitachi, which has lost a cumulative 1.2 trillion yen in the past decade, to forecast a net profit this financial year for the first time in five years.
GE has generated a total profit of about $165 billion over the same period.
Nakanishi, 64, attributed Hitachi's lower profitability than global rivals to its reliance on its domestic business and past quality problems.
But he said the company can edge out its competitors with its ability to offer everything from IT services to electronics components.
I wouldn't say GE, Siemens and IBM are unaware of (the importance of having wider business offerings), and in fact they are shifting in that direction and I see tough competition ahead, said Nakanishi, who has served as head of the company's North American and European operations.
Analysts and fund managers said Hitachi businesses could benefit from an improving economic climate. But it still faces problems, including a delayed decision on an $11 billion train deal in Britain.
A Hitachi-led consortium was chosen as the preferred bidder in 2009 to build and maintain fleet of intercity trains, but the final decision was postponed due to a general election.
Hitachi has also seen difficulty in slimming its large operations.
In early 2009, it said it planned to slash the number of subsidiaries to below 800 by March 2010 to cut overlapping businesses and boost efficiency, but the number has gone down only by 10 so far.
Hitachi shares closed up 0.5 percent in a flat broader market <.N225>.
(Editing by Anshuman Daga and Michael Watson)