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Hitachi pursues 10% profit margin by trimming fat

Japanese conglomerate unloads power, chemicals and diagnostic imaging businesses

Hitachi's joint venture incurred cost overruns during the construction of this power station in South Africa.

TOKYO -- Hitachi has been lopping off major peripheral businesses, including chemicals and diagnostic imaging equipment, in its quest to form a lean operation capable of generating an operating margin of 10%.

The Japanese conglomerate is selling its diagnostic imaging business to Fujifilm Holdings, and its Hitachi Chemical unit will be taken over by Showa Denko.

The latest move came Wednesday when Hitachi announced a settlement with Mitsubishi Heavy Industries regarding the joint venture Mitsubishi Hitachi Power Systems. Mitsubishi Heavy will take over Hitachi's stake in the unit.

MHPS, which makes equipment for coal-fired power plants, incurred billions of dollars in cost overruns in South Africa. Mitsubishi and Hitachi had fought for years over how the costs should be distributed.

"If possible, I want this problem to be resolved before the end of this year," Hitachi President Toshiaki Higashihara told executives in November.

Thanks to reports of the settlement, Hitachi's stock price touched a nearly two-year high. The company also announced an earnings downgrade on Wednesday.

The group aims to lift operating margin to 10% or above by fiscal 2021. For that purpose, Hitachi now requires segments to produce margins between 7-8%, according to an executive.

Thermal power generation systems hovered below that threshold during the previous fiscal year. The same holds for health care, which contains the diagnostic imaging business being purchased by Fujifilm. Hitachi Chemical, which will be sold to Showa Denko, posted a 5.3% margin.

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