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Business

Hitachi gambles on cloud tie-up with Amazon

TOKYO -- Hitachi announced Tuesday a new strategy for its cloud computing service that includes a more in-depth partnership with Amazon.com, aiming to ride on the e-commerce giant's momentum to avoid facing it head-on.

Managing Executive Officer Keiichi Shiotsuka is in charge of Hitachi's systems business.

     Cloud services allow clients to use the Internet to access other computers or software. Major players in the field include U.S. companies Amazon, Microsoft and Salesforce.com.

     Hitachi has joined hands with Amazon and other cloud companies in the past, but it only offered their services to individual customers on request. It will now link its data centers to those of partners and develop technology to ensure secure data transmission. It also plans to offer partners' cloud services, including Amazon Web Services (AWS), alongside its own.

     The Japanese company will expand its offerings, using 300 staffers for technical development. It aims to boost cloud-related sales to 500 billion yen ($4.76 billion) by fiscal 2015, roughly double fiscal 2013 levels.

     Hitachi is shifting away from its in-house focus and working with big foreign companies so that it can "meet the diverse needs of customers," Managing Executive Officer Keiichi Shiotsuka said at a press conference Tuesday.

     One of Amazon's strong points is such basic services as renting affordable processing power to clients. Hitachi works in a complementary role, being a highly trusted service provider that can handle even software for mission-critical applications. This will allow for such arrangements as recommending AWS for clients who want cheap basic services and Hitachi for those who need something more advanced.

Defending against the giant

But the partnership is also a defensive measure by Hitachi, which hopes to stem an outflow of clients to Amazon.

     The king of online retail is also a massive presence in the cloud business, offering services to hundreds of thousands of clients worldwide, ranging from Samsung Electronics to the U.S. Central Intelligence Agency.

     One of its advantages is price. Amazon's services cost roughly half as much as using a computer purchased in-house. And fees are determined by the hour, so it does not charge for idle periods, which likely effectively makes it the cheapest option on the global market.

     It is gaining steam in Japan as well. Gulliver International, a major used-car dealer, plans to shift more than 200 programs to AWS, slashing system construction time by more than half a year and apparently cutting costs by 30-40%. Department store operator Tokyu Hands and trading house Marubeni are also using the service.

     Hitachi anticipates that working with Amazon will allow it to retain customers who have shown an interest in AWS, as well as make it easier to draw new clients.

     Japan's cloud market is expected to nearly triple between 2013 and 2017 to roughly 1.75 trillion yen, according to market research company IDC Japan. Cloud services are a strategic area for Hitachi, supporting the growth of its information and communications system business. It aims to pull away from rivals Fujitsu and NTT Data to solidify its position as Japan's largest cloud company.

     With the heavy electric machinery and information technology industries undergoing a global shakeout, "we want to increase the number of businesses in which we're in the global top three," says Chairman and Chief Executive Officer Hiroaki Nakanishi. Hitachi aims to catch up with IBM in the IT and telecommunications business, working with overseas giants to make up for its weak fields.

A double-edged sword?

But it remains unclear whether all will go according to plan.

     "I'd be lying if I said we weren't worried about clients being stolen," Shiotsuka said. If more of Hitachi's customers look to expand their use of AWS, its own sales could decline.

     For Hitachi, which aims to merge infrastructure and IT, the success of this new strategy of working with top players in the market will serve as a litmus test for its overall prospects.

 

 

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