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Hitachi Thrives in U.S. Despite Sullied Image : Consumers Overlook Company’s Darker Side and Snap Up Goods

Times Staff Writer

Hitachi, the big Japanese conglomerate, has had its troubles with the U.S. government. The antitrust people at the Justice Department, for instance, are investigating a Hitachi sales document that suggests that the $20-billion-a-year company was trying to nickel-and-dime its competitors into the ground earlier this year by slashing prices below cost on some $1-apiece semiconductor chips.

Back in 1982, Hitachi was the main target of one of the FBI’s famous “stings,” an elaborate undercover operation usually aimed at burglars or crooked politicians. The G-men caught agents of the venerable company buying IBM computer secrets.

Not all of Hitachi’s run-ins with the government have been unpleasant, however. Uncle Sam seems to like Hitachi’s big mainframe computers, which are bought and then resold in this country, under a different name, by a subsidiary of National Semiconductor in Santa Clara, Calif.

“Our biggest customer,” said a smiling Tsuneo Tanaka, president of Hitachi America, “is the IRS.”

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As trade tensions between the two nations grow ever worse, Hitachi’s schizophrenic relationship with the U.S. government mirrors an ambivalence displayed by the rest of the nation toward Japan and its hugely successful industrial companies: Americans find it easy to condemn Japan’s trade tactics and, at the same time, embrace its products.

Hitachi represents an object lesson in both cases.

The company has become a symbol of the dark side of Japan’s image here, which has Japanese companies stealing U.S. technology, “dumping” their high-tech gadgets on the market, throwing Americans out of work and sapping our industrial strength. Hitachi’s misadventures seem to confirm the worst suspicions about Japan’s trade strategies and motives.

“At the mention of their name,” says research director Brian Jeffery of the International Technology Group in Palo Alto, Calif., “people cross their hearts.”

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But the indignation somehow peters out when it comes to Hitachi’s products, which range from washing machines to supercomputers and are apparently too good to pass up. National Semiconductor, for instance, is one of the sharpest critics of Hitachi and other Japanese semiconductor makers, yet is buying Hitachi mainframes at the rate of $150 million a year and reselling them through its National Advanced Systems subsidiary.

(It wasn’t any of the IRS’ 14 Hitachi mainframes that malfunctioned on income-tax returns earlier this year, the government allows, but some American-made Sperry machines. The only foreign makes in the agency’s inventory of 106 mainframe computers, the Hitachi-NAS machines were purchased on the basis of competitive bidding.)

And there are testimonials like this one from Jack Ordway, who was marketing vice president for Hitachi’s U.S. semiconductor operations for six years until he left in 1984 to join Vitelic, a start-up company: “I didn’t see any sign whatsoever of any illegal or unethical business practices. Never once did anyone ask me to do anything unethical or illegal.”

Espionage Not Unique

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At the same time, corporate espionage and brutal marketing tactics are nothing new in Silicon Valley. Thus there is a “There but for the grace of God go I” reaction to Hitachi getting caught at various misdeeds. Said analyst Jeffery, referring to the confidential IBM material that was dangled in front of Hitachi engineers in 1982, “A lot of U.S. companies might not have turned their noses up at that information.”

In fact, according to court documents, it was employees of National Advanced Systems who first made IBM materials available to Hitachi. Mitsubishi, another Japanese electronic conglomerate, became the second defendant in the case.

Indeed, consumers seemed to view the intrigues as a case of business as usual. While the FBI sting operation and subsequent criminal charges were a humiliation at home in Japan, a Hitachi sales executive said the firm’s own U.S. surveys soon after the incident found a “significant awareness” of the indictments but that “the average consumer felt nothing negative about it. They felt this is the way business is done.”

A Major Conglomerate

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In other words, the consumer said, “Bring on more of those Hitachi videocassette recorders"--the most visible of an incredible range of products made and sold around the world by Hitachi under various brand names. It is a company whose structure and products defy categorization.

How does one describe a company with 47 subsidiaries and 700 affiliates--a firm that built the Japanese bullet train and whole power plants, is at the forefront of research into fifth-generation computer technology and, according to company sources, is the world’s leading producer of the type of vibrator sold in sex shops?

“They’re an odd company,” summed up Marc Brien, a telecommunications and computer analyst at Domicity Ltd., a Toronto, Ont., management consulting firm.

Hitachi was founded as an electric-machine repair shop in 1910; its first product was a 5-horsepower motor and its first export to this country consisted of several electric fans in the 1920s. By World War II it was one of Japan’s biggest manufacturers of generators, turbines, compressors and the like.

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After its factories were destroyed in the war, Hitachi rebuilt and diversified into factory equipment, home appliances and, eventually, computers and semiconductors. One of its earliest American partners was RCA in the early 1960s--it continues to make all the VCRs sold under the RCA name. And it has played a major role in the Japanese government’s various high-technology research and development programs.

Now one of Japan’s blue-chip companies, Hitachi boasts of its basic scientific research and has historically stressed the development of its own technology, advertising itself at home as “Gijutsu no Hitachi, " or “Hitachi of Technology.” That sets it apart from some other Japanese firms which have tended to rely on technology acquired one way or another from U.S. firms.

Costly Settlement

It also made the FBI charges doubly humiliating; the cloud hasn’t entirely passed over, nor have the financial consequences. Fined just $10,000 after pleading guilty in the criminal case in San Francisco, Hitachi says it is still paying $25 million to $50 million a year to IBM as part of an out-of-court settlement of a subsequent lawsuit. Neither company will say anything else about it, although IBM is understood to have availed itself of the right under the settlement to inspect some new Hitachi products for pirated technology.

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Hitachi’s closest U.S. parallel in terms of products is probably General Electric. But it also has a reputation as a stodgy company which, according to Japanese industry sources, stands out at home because of its disdain for such ephemeral matters as image and public relations. Hitachi adheres to the notion that technology and quality products will carry the day in the marketplace.

That would help to explain some of its problems in this country. Late to begin with in establishing a U.S. presence, Hitachi today has only a handful of American division managers in the approximately 30 separate business units operating here. Manufacturing activities are limited, and just 4,100 American employees are racking up $3 billion in local sales.

“Wherever the company goes, it acts the same,” said an industry analyst in Tokyo. “It is not the kind of company which believes, ‘When in Rome, do as the Romans do.’ ”

Hitachi’s critics say this has impeded its understanding of how things work in this country, contributing to the company’s problems with the government and undermining some of its sales efforts here. Analysts note that the company’s personal computers fell flat in the U.S. market, for instance, and they say its telecommunications arm didn’t take full advantage of the divestiture of AT&T.;

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At last summer’s National Computer Conference in Chicago, analyst Brien said, “The people in Hitachi’s booth barely spoke English. The other Japanese companies really are presenting an American face. That is not true of Hitachi. It hinders their ability to make strategy. I think they really are a bit clue-less.”

Hitachi has been talking for years about “Americanizing” its operations here, and it does assemble television sets in Anaheim, semiconductors near Dallas and PBX equipment in Atlanta. As with many U.S. units of Japanese firms, the parking lots at Hitachi’s offices here are bulging with big American cars. Office equipment used by Hitachi here, its representatives like to point out, tends to be IBM, Apple and Xerox.

But the company’s troubles with the government and the general trade tensions seem to have given a new urgency to the company’s effort to expand its limited manufacturing base here and become more than cosmetically “American.”

Plans U.S. Expansion

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Hitachi’s Tanaka indicated, for instance, that the company intends to expand its Anaheim TV plant to assemble VCRs and that it is looking for a U.S. site to make large-scale computer disk drives, a major investment. It also will expand its semiconductor plant in Texas next year to make more sophisticated “semicustom” chips with higher U.S. value added than the memory devices now made there, he said.

Tanaka also declared that he has instructed his division managers “to train Americans as deputy general managers within one year. I am trying to change those Japanese general managers to Americans.” Hitachi has also pledged to buy more U.S. products.

“In the past, we were too keen to increase sales,” said Tanaka, a jovial man whose background is in power equipment and who was assigned to this country early this year. “We realize the company’s behavior in U.S. society is very, very important. We have to consider the behavior. It must be well accepted.”

Even as he says all this, Tanaka shows his own ambivalence as a manager of a company accustomed to lifelong loyalty from its employees: “Quite often, Tokyo is not so sure. Americans often take one job as a career (stepping stone). So if he quits, that is another headache, and I have no answer for that question . . . there is a doubt in my mind how long they stay.”

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For all the sniping at Hitachi’s policies and behavior, the company seems to be putting food on the table.

Several Profit Records

As the parent company has deliberately moved “from heavy to light,” as Tanaka describes its increasing emphasis on high technology, it has set records in sales and profits each year since 1976--a string that will probably be broken this year because of the semiconductor slump. Revenues during that period have tripled, to $20 billion last year.

In semiconductors, Hitachi is the world leader in production of memory chips and sells about $500 million worth of chips in the United States alone. It has risen to fourth place in global semiconductor production behind Texas Instruments, Motorola and Japanese archrival NEC.

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One of two major makers of mainframe computers that are compatible with the machines of world leader IBM--the other is Japan’s No. 1 computer firm, Fujitsu, with its U.S. partner, Amdahl--Hitachi is perceived by some analysts to have moved into a lead.

When IBM introduced its latest generation of mainframe computers nicknamed Sierra last February, Hitachi announced a faster and cheaper version in March. The Japanese company says it will beat IBM to the market with a superior second-stage product in the Sierra series.

The makers of IBM-compatible machines must improve on IBM’s computers to survive. Said analyst Thomas Crotty of the Gartner Group in Stamford, Conn., “In this generation, the Hitachi machines have lengthened their lead over IBM in performance and price. Historically, Amdahl (with Fujitsu) has been the preferred one. That balance may be shifting.”

Has Big Advantage

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Hitachi is like other Japanese chip firms in that it’s both a conglomerate and one of its own best customers for semiconductors, using them in its own computers, VCRs and other products. That gives them a big advantage over such independent U.S. firms as Intel and Advanced Micro Devices, which don’t have several divisions making unrelated products over which to spread the kind of losses endured by all semiconductor makers this year, Hitachi included.

That was one of the issues that came to the fore earlier this year when Hitachi’s infamous sales flyer, exhorting U.S. distributors to slash prices on some memory devices as low as necessary to win sales and guaranteeing them a profit, reached the hands of U.S. trade negotiators and hence the press.

It strongly indicated that if it were necessary to win sales, Hitachi was prepared to dump--that is, sell for less than the cost to make them--its chips. The company “reassigned” back to Japan the head of the U.S. semiconductor division in San Jose in the wake of the disclosure, but attributed the actual handiwork to a pair of low-level American sales employees who, it said, were violating company policy.

Ex-Hitachi executive Ordway said the company was only guilty of stupidity for putting the policy on paper. Others say the best light that can be put on the episode is that there was a serious management breakdown: first, in fostering the atmosphere that led to the memo, and second, in allowing the sales flyer to go out unchecked.

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Dumping Wouldn’t Hurt

What’s clear is that Hitachi’s structure and resources would enable it to dump products for a prolonged period without much financial harm. Indeed, investment analysts consider that one of Hitachi’s many virtues: the company’s slow-growth, low-tech divisions provide the cash flow and cushion for its fast-growing but volatile high-technology operations.

The semiconductor division in San Jose is part of Hitachi America, a collection of a dozen divisions--chips and computers are the biggest ones--that account for about $1 billion of the parent’s $3 billion in U.S. sales. A separate consumer-goods component called Hitachi Sales Corp. of America, headquartered in Compton, sells another $1.4 billion, most of it in color televisions and VCRs and only one-third of them under the Hitachi brand name. The rest is made up of small plants or sales offices for such products as hydroelectric turbines, air compressors, auto parts, cranes, printers and X-ray scanners.

As the company makes 20,000 products, it is almost as easy to list what Hitachi doesn’t make. For instance, there are firms with the name Hitachi that make ships and machine tools. They are not the same Hitachi, though.

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But the company is always looking for new products to bring here. Executive Vice President R. J. O’Neil, the top-ranking American in Hitachi’s Compton operation, noted that certain of the company’s small, apartment-size washing machines are sold in Canada and that there might be a market for them here because the big U.S. appliance firms don’t make them.

Said O’Neil, “We’re looking at laundry, we’re looking at refrigerators.”

Times Staff Writer Sam Jameson contributed to this article in Tokyo.


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