Hitachi Ltd, Japan's biggest electronics maker, will add engineers to its software and support businesses in an effort to triple profit from computer services within two years.
The Tokyo-based company said it expects operating profit at the division to surge to ?128 billion (US$1.05 billion) in the year ending in March 2003, from ?45.5 billion in the year just ended. Sales will probably rise 26 percent to ?2.44 trillion.
Companies such as International Business Machines Corp and Dell Computer Corp are charging less for computers and other hardware to remain competitive, while getting more of their revenue from software sales and support services. Hitachi has no choice but to do the same to raise profitability, analysts said.
"It's a must for Hitachi to focus on services," said Hiroyasu Nishikawa, an analyst at Cosmo Securities Co.
"Japanese computer makers are likely to lose customers if they don't" boost the services they offer.
Software and services will account for 66 percent of profit at the computer and communication-equipment business in two years, up from 46 percent last year, Hitachi said.
The company will increase the number of engineers working in computer-related services by 30 percent to 49,300 people in two years by shifting staff from other divisions.
Hitachi forecast group operating profit of ?560 billion in the fiscal year ending March 31, 2003. The company had a group operating profit of ?342.3 billion for the year ended in March, which is almost double the previous year as it sold more computer chips and display screens for mobile phones and personal computers.
Operating profit is revenue minus costs such as marketing, labor and production costs.
"It shouldn't be difficult for Hitachi to achieve the profit target at computer business," said Yoshiharu Izumi, a senior analyst at UBS Warburg (Japan) Ltd, who rates Hitachi's shares "hold."
Profit margin of storage equipment, which keeps employee payrolls and customer databases for corporate clients, has improved, offsetting dropping profitability of servers, he added.
Last year Hitachi stopped seeking new foreign customers that buy mainframe computers -- servers that run only IBM operating systems -- because their prices plunged. Domestic peers such as NEC Corp and Fujitsu Ltd are also selling fewer mainframes and more servers, which are cheaper and run other operating systems.
Hitachi's computer division -- including storage equipment, servers, mainframes, personal computers and telecommunications equipment for phone companies -- accounted for 23 percent of Hitachi's sales in the year ended March 2001.
The company's shares have risen almost 25 percent since Jan.1, outpacing the 17 percent decline for Toshiba Corp and a similar slide for the shares of NEC Corp Hitachi's shares were unchanged at ?1,257 today.
The 153-member TOPIX Electric Appliances Index, which includes Hitachi, NEC and Sony Corp, has fallen 7 percent since the beginning of the year.
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