Hitachi Announces Consolidated Financial Results for the First Half of Fiscal 2005

Hitachi, Ltd. (NYSE:HIT) (TSE:6501) today announced itsconsolidated financial results for the first half of fiscal 2005,ended September 30, 2005.

1. Business Results and Financial Position

Notes: 1. All figures, except for the outlook for fiscal 2005,
were converted at the rate of 113 Yen to the U.S. dollar,
the approximate exchange rate on the Tokyo Foreign
Exchange Market as of September 30, 2005.

2. Segment information and operating income (loss) are
presented in accordance with financial reporting
principles and practices generally accepted in Japan.

Business Results

(1) Summary of Fiscal 2005 First Half Consolidated Business Results
The half year ended September 30, 2005
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen % change of U.S.
dollars
----------------------------------------------------------------------
Revenues 4,413.3 2% 39,056
Operating income 77.7 (39%) 688
Income before income taxes and
minority interests 82.1 (40%) 727
Income before minority interests 21.1 (69%) 187
Net loss (10.9) -- (97)
----------------------------------------------------------------------

During the interim period, the world economy remained healthy,despite slowing economic growth in the U.S. caused mainly by spiralingcrude oil and gasoline prices and only a moderate recovery in EUeconomies. China's economy continued to expand on the back ofincreasing domestic demand while other Asian economies saw growth inexports to China.

In Japan, the economy remained strong thanks mainly to growth inprivate-sector plant and equipment investment spurred by highercorporate earnings and to growth in consumer spending.

Against this backdrop, the Hitachi Group in the first half offiscal 2005 made Fujitsu Hitachi Plasma Display Limited (FHP) aconsolidated subsidiary with the aim of further expanding the group'splasma display business. In another move, Hitachi agreed to cooperatemore closely with Clarion Co., Ltd. with the view to bolstering theCar Information Systems (CIS) business. Other actions were also takenduring the first half to strengthen businesses targeted for growth.Furthermore, to increase its brand value, Hitachi ran the HitachiGroup Pavilion at the 2005 World Exposition held in Aichi, Japan. Thepavilion attracted more than 1.7 million visitors.

Hitachi's consolidated revenues were 4,413.3 billion yen, up 2%year on year. The Power & Industrial Systems segment posted higherrevenues on the back of recovering private-sector plant and equipmentinvestment, as did the High Functional Materials & Components segment,mainly due to growth in sales of components and materials forelectronics- and automotive-related fields. On the other hand, theElectronic Devices segment saw revenues decrease as sales of LCDsdeclined due to stiffer competition, and the Digital Media & ConsumerProducts segment recorded lower revenues due to falling prices.

Operating income dropped 39% year on year, to 77.7 billion yen duemainly to lower earnings in the Electronic Devices and Information &Telecommunication Systems segments and an operating loss in theDigital Media & Consumer Products segment. On the other hand, thePower & Industrial Systems, High Functional Materials & Components andFinancial Services segments recorded higher operating income.

As a result, Hitachi recorded income before income taxes andminority interests of 82.1 billion yen, down 40% year on year. Afterincome taxes of 60.9 billion yen, Hitachi posted income beforeminority interests of 21.1 billion yen. Hitachi posted net loss of10.9 billion yen, compared with net income of 41.1 billion yen in thefirst half of fiscal 2004.

(2) Revenues and Operating Income (loss) by Segment
Results by segment were as follows.


(Information & Telecommunication Systems)

The half year ended September 30, 2005
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen % change of U.S.
dollars
----------------------------------------------------------------------
Revenues 1,057.1 (1%) 9,356
Operating income 23.2 (20%) 206
----------------------------------------------------------------------

Information & Telecommunication Systems revenues were 1,057.1billion yen, largely on a par with the previous period. Software andservices revenues were slightly higher year on year as a whole mainlybecause of growth in the outsourcing business; although software salesdeclined year on year due in part to lower sales of platform software.Hardware revenues declined because of the sale of Hitachi PrintingSolutions, Ltd. to Ricoh Company, Ltd. and because of falling pricesof servers and PCs as competition intensified, although hard diskdrives (HDDs) and disk array subsystems posted higher sales.

The segment posted operating income of 23.2 billion yen, down 20%year on year. Earnings were higher year on year in software andservices due to fewer unprofitable projects and other factors.However, segment earnings were brought down by lower year-on-yearearnings in hardware due to a loss in HDD operations, despite a solidperformance in disk array subsystems and other areas.

Note: HDD operations are conducted by Hitachi Global StorageTechnologies (Hitachi GST), which has a December 31 fiscal year-end,different from Hitachi's March 31 year-end. Hitachi's results for thefirst half of fiscal 2005 include operating results of Hitachi GST forthe period from January through June 2005.

(Electronic Devices)
The half year ended September 30, 2005
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen % change of U.S.
dollars
----------------------------------------------------------------------
Revenues 583.1 (16%) 5,161
Operating income 9.2 (69%) 82
----------------------------------------------------------------------

Electronic Devices revenues declined 16%, to 583.1 billion yen.This was due to lackluster sales of LCDs in the display business owingto stiffer competition.

Operating income declined 69%, to 9.2 billion yen due mainly tothe loss of LCDs in the display business.

(Power & Industrial Systems)

The half year ended September 30, 2005
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen % change of U.S.
dollars
----------------------------------------------------------------------
Revenues 1,278.9 14% 11,318
Operating income 23.2 130% 205
----------------------------------------------------------------------

Power & Industrial Systems revenues rose 14%, to 1,278.9 billionyen. This growth reflected healthy sales of industrial machinery andair-conditioning systems thanks to recovering private-sector plant andequipment investment. Another factor was growth in the elevator andescalator business and at Hitachi Construction Machinery Co., Ltd.,mainly outside Japan. The October 2004 merger with TOKICO LTD. alsocontributed to revenue growth.

The segment posted a 130% increase in operating income, to 23.2billion yen due to fewer unprofitable projects, as well as to higherearnings at Hitachi Construction Machinery and strong growth in salesof elevators and escalators, industrial machinery and air-conditioningsystems.
(Digital Media & Consumer Products)

The half year ended September 30, 2005
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen % change of U.S.
dollars
----------------------------------------------------------------------
Revenues 611.8 (5%) 5,414
Operating loss (16.2) -- (144)
----------------------------------------------------------------------

Digital Media & Consumer Products segment revenues declined 5%, to611.8 billion yen, despite the April 2005 consolidation of FHP. Thisperformance was due mainly to lower sales prices for flat-panel TVs,including plasma TVs, and home appliances.

The segment posted an operating loss of 16.2 billion yen, comparedwith operating income of 10.6 billion yen in the same period in theprevious fiscal year. In addition to an operating loss at FHP, thisloss reflected falling sales prices for flat-panel TVs and homeappliances.

Notes: The optical disk drive business is conducted by Hitachi-LGData Storage, Inc. (HLDS), which has a December 31 fiscal year-end.Hitachi's results for the first half of fiscal 2005 include theoperating results of HLDS for the period from January through June2005.
(High Functional Materials & Components)

The half year ended September 30, 2005
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen % change of U.S.
dollars
----------------------------------------------------------------------
Revenues 760.4 3% 6,729
Operating income 48.0 19% 425
----------------------------------------------------------------------

Revenues rose 3%, to 760.4 billion yen due mainly to steady growthat Hitachi Chemical Co., Ltd. and Hitachi Metals, Ltd., principally incomponents and materials for electronics- and automotive-relatedfields.

Operating income rose 19%, to 48.0 billion yen, due to healthygrowth principally in components and materials for automotive-relatedfields at Hitachi Metals.

(Logistics, Services & Others)

The half year ended September 30, 2005
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen % change of U.S.
dollars
----------------------------------------------------------------------
Revenues 570.5 (7%) 5,049
Operating income 6.8 (8%) 61
----------------------------------------------------------------------

Segment revenues declined 7% year on year, to 570.5 billion yendespite growth in sales at Hitachi Transport System, Ltd., mostly inthe third-party logistics solutions business. This decline in segmentrevenues was due to lower revenues at Hitachi Mobile Co., Ltd., aswell as lower sales at sales companies in North America and Europe.

The segment posted operating income of 6.8 billion yen, 8% loweryear on year. The decrease was due to lower earnings at Hitachi Mobileand overseas sales companies, although Hitachi Transport Systemrecorded solid earnings growth.
(Financial Services)

The half year ended September 30, 2005
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen % change of U.S.
dollars
----------------------------------------------------------------------
Revenues 260.8 (4%) 2,309
Operating income 16.0 60% 142
----------------------------------------------------------------------

Segment revenues declined 4%, to 260.8 billion yen, despitehealthy growth at Hitachi Capital Corporation, particularly in thehome loan and IT equipment leasing businesses. Operating incomeclimbed 60%, to 16.0 billion yen due to the healthy growth at HitachiCapital with lower financial costs.
(3) Revenues by Market

The half year ended September 30, 2005
---------------------------------------------------------------------
Billions of Year-over-year Millions
yen % change of U.S.
dollars
----------------------------------------------------------------------
Japan 2,741.2 1% 24,259
----------------------------------------------------------------------
Overseas 1,672.0 3% 14,797
----------------------------------------------------------------------
Asia 726.6 5% 6,431
----------------------------------------------------------------------
North America 455.2 3% 4,029
----------------------------------------------------------------------
Europe 340.1 (2%) 3,010
----------------------------------------------------------------------
Other Areas 149.9 9% 1,327
----------------------------------------------------------------------

In the first half of fiscal 2005, revenues in Japan edged up 1%year on year, to 2,741.2 billion yen.

Overseas revenues rose 3%, to 1,672.0 billion yen. Revenues inEurope declined year on year due to sluggish sales of digital consumerelectronic products in this region. However, revenues rose in Asia,particularly China, and North America.

As a result, the ratio of overseas revenues to consolidatedrevenues rose by 1 percentage point year on year to 38%.

(4) Capital Investment, Depreciation and R&D Expenditures

Capital investment on a completion basis, excluding leasingassets, rose 4%, to 178.7 billion yen, mainly due to investments toincrease output of HDDs, plasma display panels, automotive-relatedparts and other products as well as investments for realigning thedisplay product lineup. Depreciation, excluding leasing assets,increased 5%, to 159.2 billion yen. R&D expenditures, which areprimarily used to accelerate the launch of new businesses, strengthenfrontier and basic research, and upgrade development capabilities inautomotive-, displays- and digital media-related fields, increased 5%,to 197.9 billion yen, and corresponded to 4.5% of revenues.
Financial Position

(1) Financial Position

As of September 30, 2005
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen change of U.S.
dollars
----------------------------------------------------------------------
Total assets 9,889.6 153.3 87,519
----------------------------------------------------------------------
Total liabilities 6,597.8 90.5 58,389
----------------------------------------------------------------------
Debt 2,602.5 100.0 23,032
----------------------------------------------------------------------
Minority interests 955.8 34.8 8,459
----------------------------------------------------------------------
Stockholders' equity 2,335.8 28.0 20,671
----------------------------------------------------------------------
Stockholders' equity ratio 0.1 point
23.6% deterioration --
----------------------------------------------------------------------
D/E ratio (including minority 0.01 point
interests) 0.79 times deterioration --
----------------------------------------------------------------------

Total assets as of September 30, 2005 were 9,889.6 billion yen,153.3 billion yen more than at March 31, 2005 due to the consolidationof FHP and other factors. Debt increased 100.0 billion yen, to 2,602.5billion yen. Stockholders' equity rose 28.0 billion yen, to 2,335.8billion yen. As a result, the stockholders' equity ratio of 23.6% waslargely the same as at March 31, 2005. The debt-to-equity ratio(including minority interests) was 0.79 times largely the same as theprevious year.
(2) Cash Flows

The half year ended September 30, 2005
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen change of U.S.
dollars
----------------------------------------------------------------------
Cash flows from operating
activities 221.1 70.6 1,957
Cash flows from investing
activities (255.4) (61.8) (2,261)
----------------------------------------------------------------------
Free cash flows (34.3) 8.7 (304)
----------------------------------------------------------------------
Cash flows from financing
activities (37.7) 73.4 (334)
----------------------------------------------------------------------

Operating activities provided net cash of 221.1 billion yen, 70.6billion yen more than one year earlier.

Investing activities used net cash of 255.4 billion yen, 61.8billion yen more year on year. This was due to increased capitalinvestment, mainly in businesses targeted for growth, despite effortsto collect investments in leases faster.

Free cash flows, the sum of cash flows from operating andinvesting activities, were an outflow of 34.3 billion yen, animprovement of 8.7 billion yen.

Financing activities used net cash of 37.7 billion yen, 73.4billion yen less, year on year, due to less redemption of corporatebond and other items.

Cash and cash equivalents as of September 30, 2005 amounted to646.0 billion yen, a decrease of 62.6 billion yen during the interimperiod.

Outlook for Fiscal 2005

Year ending March 31, 2006
----------------------------------------------------------------------
Billions of Year-over-year Millions
yen % change of U.S.
dollars
----------------------------------------------------------------------
Revenues 9,220.0 2% 83,818
Operating income 240.0 (14%) 2,182
Income before income taxes and
minority interests 220.0 (17%) 2,000
Income before minority interests 95.0 (17%) 864
Net income 20.0 (61%) 182
----------------------------------------------------------------------

Regarding the outlook for the global economy, the Hitachi Groupexpects the U.S. economy to experience a gentle slowdown due toslowing consumer spending and capital investments, as well as surgingprices for crude oil and gasoline and other factors. In terms of Asia,despite fears of falling exports to the U.S., the Chinese economy isexpected to continue growing briskly, supported by domestic demand.European economies are forecasted to continue their moderate pace ofrecovery. Overall, therefore, the global economy is expected tocontinue expanding, although at a slower pace.

The forecast for the Japanese economy is for firm growth,underpinned by continuing strong exports to China and elsewhere inAsia, despite concerns of a rise in long-term interest rates andpressure on corporate earnings from higher crude oil and raw materialsprices.

Under these circumstances, projections for fiscal 2005, as giventhe previous page, have been revised from those announced with fiscal2004 results released on April 28, 2005. Projections assume anexchange rate of 110 yen to the U.S. dollar.

The revision to forecasts for fiscal 2005 reflects projections forlosses in the HDD, LCD, flat-panel TV due to poorer performances thaninitially expected. Hitachi plans to take wide-ranging countermeasuresto quickly improve its development capabilities, cost competitiveness,sales abilities and other areas of its operations.

In other fields, Hitachi will push ahead with efforts to createnew businesses and strengthen targeted businesses by capturingsynergies in resource use across the Hitachi Group. The company willalso focus on structural reforms to concentrate more resources onhighly profitable businesses and on measures to improve its financialposition. For example, Hitachi decided in October 2005 to strengthenits social and industrial infrastructure systems business bytransferring parts of its Industrial Systems Group to Hitachi PlantEngineering & Construction Co., Ltd. on April 1, 2006. Hitachi PlantEngineering & Construction, Hitachi Kiden Kogyo, Ltd. and HitachiIndustries Co., Ltd. will merge on the same date as a series of thetransaction.

2. Management Policy

Basic Management Policy and Strategy

Amid intensifying competition in world markets, Hitachi aims tostep up its development by delivering competitive products andservices imbuing higher value for customers. By taking full advantageof the diverse resources of the Hitachi Group while at the same timereviewing and restructuring businesses, Hitachi will bolster itscompetitiveness. This process will be consistent with Hitachi's basicmanagement policy, which is to increase shareholder value by meetingthe expectations of customers, shareholders, employees and otherstakeholders.

In line with this basic policy, in January 2003, Hitachi unveileda medium-term management plan, "i.e.HITACHI Plan II," which runsthrough fiscal 2005 (ending in March 2006). This plan targets twoprimary business domains that are the focuses of the Hitachi Group --"New Era Lifeline Support Solutions," which further fuse and enhanceinformation systems services and social infrastructure systems, and"Global Products Incorporating Advanced Technology," where Hitachiaims to achieve strong growth in global markets by focusing onhigh-performance hardware and software incorporating the HitachiGroup's sophisticated technologies and knowledge. Various measures arebeing pursued for growth in both of these fields.

In April 2004, Hitachi established the Hitachi Group Headquartersto accelerate group management in a manner best suited to Hitachi intwo main ways: bolster the individual businesses of Hitachi Groupcompanies, and give full play to the collective strengths of theHitachi Group by encouraging greater inter-group collaboration. TheHitachi Group Headquarters will spearhead redoubled efforts toimplement measures aimed at raising the corporate value of the HitachiGroup.

To enhance competitiveness in global markets in its variousbusiness fields, Hitachi is pushing ahead with efforts to improveproductivity and cut costs by strengthening its production ability.Business structural reforms are also being implemented. In specificterms, Hitachi will examine and implement suitable measures to creategrowth in key fields as well as create new businesses by leveragingthe group's technological strengths and know-how; restructure thegroup with the aim of more effectively utilizing the group'sresources; and exit unprofitable businesses and push throughrestructuring measures that go beyond the Hitachi Group.

FIV(1) (Future Inspiration Value), a benchmark based on theestimated cost of capital, is used to make decisions on actions forstrengthening businesses. In deciding on individual investments,Hitachi uses FIV to select investments that will contribute tomaximizing shareholder value. Combined with a powerful drive to reduceassets, including trade receivables and inventories, Hitachi aims toraise the return on assets. Through these and other actions, Hitachihas set the goal of maintaining a single-A grade long-term creditrating by increasing asset efficiency and strengthening its financialposition.

(1) FIV is Hitachi's economic value-added evaluation index inwhich the cost of capital is deducted from after-tax operating profit.After-tax operating profit must exceed the cost of capital to achievepositive FIV.

Hitachi will also enhance corporate social responsibilityinitiatives and reinforce corporate governance with a view toincreasing the corporate value of the Group over the long-term.Furthermore, in order to respond to any external threats to corporatevalue, Hitachi will examine the introduction of measures that enableit to respond to changes in the regulatory environment and otherissues in a fair and neutral manner.

Through the execution of "i.e.HITACHI Plan II," Hitachi has beenaiming to transform its earnings structure into a highly profitableone. At the same time, Hitachi has made up-front investments with theaim of achieving growth over the long term. One notable example was aninvestment to make Fujitsu Hitachi Plasma Display Limited, asubsidiary in order to bolster the plasma display business. However,the Hitachi Group is facing challenges posed by rapid changes in theoperating environment that had not been foreseen when the "i.e.HITACHIPlan II" was formulated. The sharp rise in the cost of raw materials,a prolonged correction phase in the digital consumerelectronics-related market, and an extended period of deflation inJapan and the accompanying drop in system and product unit prices, areexamples of these challenges. With businesses in which Hitachi madeup-front investments still also not contributing sufficiently toearnings, management believes that further reforms will be necessary.

Hitachi will continue to make aggressive investments in targetedbusinesses while continuously executing business structural reforms.In this way, Hitachi will reinforce measures to become morecompetitive on a consolidated basis and work to establish a morepowerful earnings base.

Corporate Governance

(1) Basic Stance and Initiatives Regarding Corporate Governance

A. Corporate Governance Structure

Hitachi adopted the Committee System under the Japanese CommercialCode on June 2003. Through the adoption of the Committee System,Hitachi seeks to foster a transparent management system and to promotefaster decision-making by demarcating responsibilities for managementsupervision and those for the execution of business operations.

Under the Committee System, the Board of Directors focuses on thefunctions of decision-making with respect to fundamental managementpolicies as well as supervision of execution by the Directors andExecutive Officers of their respective duties. The Board of Directorshas, by resolution, delegated to the Executive Officers most of itsauthority to make decisions with regard to Hitachi's business affairs.As of September 30, 2005, the Board of Directors had 14 members, 4 ofwhom were from outside Hitachi. Three Directors served concurrently asExecutive Officers. The Board Director (Chair) does not serveconcurrently as an Executive Officer. Within the Board of Directors,three statutory committees have been established -- the NominatingCommittee, Audit Committee and Compensation Committee -- with outsideDirectors accounting for the majority of members of each committee.

The Nominating Committee is authorized to determine theparticulars of proposals concerning the election and dismissal ofDirectors to be submitted to a general meeting of shareholders. TheNominating Committee consists of five Directors, three of whom areoutside Directors. The Audit Committee is authorized to audit theexecution by the Directors and Executive Officers of their respectiveduties and to determine the particulars of proposals concerning theelection, dismissal and non-retention of Hitachi's outside auditor tobe submitted to the general meeting of shareholders. The AuditCommittee consists of five Directors, three of whom are outsideDirectors. The Compensation Committee is authorized to establish apolicy on the determination of the particulars of compensation foreach Director and Executive Officer and to determine the particularsof compensation for each Director and Executive Officer in accordancewith such policy. The Compensation Committee consists of fiveDirectors, three of whom are outside Directors.

Executive Officers execute Hitachi's business affairs and decideon matters pertaining to the same in accordance with the division ofduties stipulated by resolutions of the Board of Directors.

B. Internal Control System and Risk Management

The main structures regarding Hitachi's internal control and riskmanagement is as follows. The Board of Directors adopted theseresolutions to be used by the Audit Committee in performing itsfunctions.

(a) Board of Directors Office (the "Office") has been establishedas an organization devoted solely to supporting each Committee,including the Audit Committee, as well as the Board of Directors. TheOffice is staffed by employees not subject to instructions or ordersof Executive Officers. The Corporate Auditing and Legal & CorporateCommunications departments also provide support to the Board ofDirectors and each Committee.

(b) An Executive Officer or employee reports without delay toAudit Committee members matters prescribed by law, matters regardingthe content of an Executive Officer's decision in connection with animportant matter that will affect Hitachi as a whole, the result of aninternal audit conducted by the responsible departments, and thestatus of reporting under the internal report system maintained by theExecutive Officers.

(c) Records regarding decisions of an Executive Officer areprepared and preserved in accordance with Hitachi's regulations.

(d) Each relevant department establishes regulations andguidelines, conducts training, prepares and distributes manuals, andcarries out other such measures with respect to risks associated withlegal issues and compliance thereof, the environment, disasters,product quality, export control and other pertinent matters. When itbecomes necessary to respond to a new risk, an Executive Officer willbe promptly appointed to deal with the issue. A system enablingemployees to report directly to the Directors has been established.

(e) The business management system set forth below is to be usedto continuously monitor risks arising in the course of business and tofacilitate the efficient execution by Executive Officers of theirresponsibilities.

-- The Senior Executive Committee comprising principal Executive Officers deliberates on important issues that will affect Hitachi as a whole to facilitate the formulation of decisions based on the due consideration of the diverse factors coloring such issues.

-- In order to boost market competitiveness through the committed pursuit of profitability and by setting clearly defined goals, numerical targets are set for Hitachi as a whole and each business group and incorporated into the fiscal budget. The targets are used as the reference base for performance management.

-- Internal audits are conducted to monitor and identify the status of business operations and to facilitate improvements. In order to ensure strict compliance with its regulatory requirements, Hitachi has put in place a number of committees.

-- The Audit Committee receives the audit plans of the independent auditors in advance to facilitate the monitoring of the independent auditors and ensure that these auditors are not influenced by Executive Officers. The prior approval of the Audit Committee is required with respect to the remuneration of the independent auditors and non-audit services.

C. Internal Audits and Audits by Audit Committee

(a) Internal Audits

Hitachi's internal audits, for which the Corporate Auditing isprimarily responsible, are conducted with respect to Hitachi'sbusiness divisions, subsidiaries and affiliates.

The Corporate Auditing examines and evaluates, in accordance withauditing standards established by Hitachi, whether the implementationof each business, including sales, personnel, labor, procurement ofmaterials and components, production, information systems, accountingand finance, and property and asset management are being conductedproperly. In addition, it specifies any improvements that need to bemade as a result of such evaluation and conducts follow-up on thestate of progress of those improvements. The Corporate Auditing alsonotifies the Audit Committee in advance of its internal audit plansand reports the results of its audit to the President and ChiefExecutive Officer and the Audit Committee.

Furthermore, each Hitachi division, including those responsiblefor compliance, the environment and export management, conductsexaminations and evaluations for compliance with those laws relatingto its activities and, as necessary, specifies improvements that needto be made.

(b) Audits by Audit Committee

The Audit Committee monitors whether the Directors and ExecutiveOfficers are conducting, in a legal manner, corporate management basedupon an appropriate internal control system.

The Audit Committee holds hearings and receives reports on aregular basis from the Directors and Executive Officers with respectto the performance of their duties. The Audit Committee sets auditpolicy and plans, and evaluates whether the implementation of businessand property and assets management at principal business divisions andsubsidiaries are being conducted properly. In addition, the AuditCommittee participates in important internal committees such as thebudget committee, reviews such things as materials of the SeniorExecutive Committee and audit reports of internal auditing departmentsand, as necessary, may instruct responsible internal auditingdivisions with respect to such things as the divisions for which anaudit should be conducted and the items upon which the audit shouldfocus. Furthermore, the Audit Committee receives reports andexplanations from independent auditors with respect to their auditplans and results, and examines Hitachi's financial statements basedupon such reports and explanations.

D. Independent Auditors

Audits of Hitachi's financial statements have been conducted byMr. Hideo Doi, Mr. Naomitsu Hirayama and Mr. Satoshi Fukui, all ofwhom are certified public accountants at Ernst & Young ShinNihon. Theyimplement the audit, supported, when necessary, by certified publicaccountants, junior accountants and other employees of Ernst & YoungShinNihon. Mr. Hideo Doi and Mr. Naomitsu Hirayama have auditedHitachi's financial statements for 16 years.

(2) Personal, financial, trading and other beneficialrelationships between Hitachi and outside directors

Hitachi has continuous business transactions with Nippon SteelCorporation, the chairman of the board of which is Hitachi outsideDirector Akira Chihaya, and with Asahi Glass Co., Ltd., where Hitachioutside Director Hiromichi Seya serves as Senior Corporate Advisor.

Furthermore, Hitachi outside Directors Toshiro Nishimura and GinkoSato have no conflicts of interest with Hitachi. Mr. Nishimura doesnot act as a legal representative of, or provide legal advice as anattorney to Hitachi.

Policy on the Distribution of Earnings

Hitachi sets dividends by taking into consideration a range offactors, including its financial condition, results of operations andpayout ratio. This policy is motivated by the desire to ensure theavailability of sufficient internal funds for making investments inR&D and plant and equipment that are essential for maintainingcompetitiveness and improving profitability based on medium- andlong-term plans, as well as to ensure the stable growth of dividends.Moreover, Hitachi has adopted a flexible stance toward the acquisitionof its own shares, taking its business plans and financial condition,market conditions and other factors into consideration in thisrespect.

Policy on the Reduction of Number of Shares ConstitutingInvestment Unit

Hitachi believes that the number of shares constituting investmentunit in Japanese stock exchanges should be carefully examined from theperspectives of the liquidity of Hitachi stock, shareholdercomposition and other items. Because Hitachi believes that its sharescurrently have sufficient liquidity, the company believes that itwould be difficult to obtain benefits that would justify the cost of achange in the number of shares constituting investment unit. Hitachiwill continue to consider actions related to the establishment of asuitable number of shares constituting investment unit.

Items Concerning Parent Company

Hitachi has no parent company.

Business Risk and Other Risks

The Hitachi Group is engaged in a broad range of businessactivities on a global scale. Furthermore, the group uses highlysophisticated and specialized technologies and information to conductthese businesses. As a result, business activities are vulnerable to adiverse array of risk factors.

Major risk factors include, but are not limited to, economictrends in major markets; changes in foreign exchange rates; rapidtechnological innovations; intense competition; supply and demandbalance; the procurement of raw materials and components; the abilityto acquire companies, conduct mergers and form strategic alliances;progress in business restructuring; overseas business activities;recruiting activities; protection, maintenance and acquisition ofintellectual property; product and service quality and liability; theuse of information systems; governmental regulations; trends incapital markets; and retirement benefit liabilities.

Cautionary Statement

Certain statements found in this document may constitute"forward-looking statements" as defined in the U.S. Private SecuritiesLitigation Reform Act of 1995. Such "forward-looking statements"reflect management's current views with respect to certain futureevents and financial performance and include any statement that doesnot directly relate to any historical or current fact. Words such as"anticipate," "believe," "expect," "estimate," "forecast," "intend,""plan," "project" and similar expressions which indicate future eventsand trends may identify "forward-looking statements." Such statementsare based on currently available information and are subject tovarious risks and uncertainties that could cause actual results todiffer materially from those projected or implied in the"forward-looking statements" and from historical trends. Certain"forward-looking statements" are based upon current assumptions offuture events which may not prove to be accurate. Undue relianceshould not be placed on "forward-looking statements," as suchstatements speak only as of the date of this document.

Factors that could cause actual results to differ materially fromthose projected or implied in any "forward-looking statement" and fromhistorical trends include, but are not limited to:

-- fluctuations in product demand and industry capacity, particularly in the Information & Telecommunication Systems segment, Electronic Devices segment and Digital Media & Consumer Products segment;

-- uncertainty as to Hitachi's ability to continue to develop and market products that incorporate new technology on a timely and cost-effective basis and to achieve market acceptance for such products;

-- rapid technological change, particularly in the Information & Telecommunication Systems segment, Electronic Devices segment and Digital Media & Consumer Products segment;

-- increasing commoditization of information technology products, and intensifying price competition in the market for such products;

-- fluctuations in rates of exchange for the yen and other currencies in which Hitachi makes significant sales or in which Hitachi's assets and liabilities are denominated, particularly between the yen and the U.S. dollar;

-- uncertainty as to Hitachi's ability to implement measures to reduce the potential negative impact of fluctuations in product demand and/or exchange rates;

-- general socio-economic and political conditions and the regulatory and trade environment of Hitachi's major markets, particularly, the United States, Japan and elsewhere in Asia, including, without limitation, a return to stagnation or deterioration of the Japanese economy, or direct or indirect restriction by other nations on imports;

-- uncertainty as to Hitachi's access to, or ability to protect, certain intellectual property rights, particularly those related to electronics and data processing technologies;

-- uncertainty as to the success of restructuring efforts to improve management efficiency and to strengthen competitiveness;

-- uncertainty as to the success of alliances upon which Hitachi depends, some of which Hitachi may not control, with other corporations in the design and development of certain key products;

-- uncertainty as to Hitachi's ability to access, or access on favorable terms, liquidity or long-term financing; and

-- uncertainty as to general market price levels for equity securities in Japan, declines in which may require Hitachi to write down equity securities it holds.

The factors listed above are not all-inclusive and are in additionto other factors contained in Hitachi's periodic filings with the U.S.Securities and Exchange Commission and in other materials published byHitachi.


HITACHI, LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED SEPTEMBER 30, 2005


The consolidated financial statements presented herein are expressed
in yen and, solely for the convenience of the reader, have been
translated into United States dollars at the rate of 113 yen = U.S.$1,
the approximate exchange rate prevailing on the Tokyo Foreign Exchange
Market as of September 30, 2005.


SUMMARY

In millions of yen and U.S. dollars, except Net income (loss) per
share (6) and Net income (loss) per American Depositary Share (7).

The half years ended September 30
------------------------------------------------
YEN (A)/(B) U.S. DOLLARS
(millions) X100 (millions)
-----------------------
2005 (A) 2004 (B) (%) 2005
----------------------------------------------------------------------

1. Revenues 4,413,319 4,329,935 102 39,056

----------------------------------------------------------------------

2. Operating income 77,754 127,332 61 688

----------------------------------------------------------------------

3. Income before
income taxes
and minority
interests 82,117 136,001 60 727

----------------------------------------------------------------------

4. Income before
minority
interests 21,172 67,931 31 187

----------------------------------------------------------------------

5. Net income (loss) (10,946) 41,158 -- (97)

----------------------------------------------------------------------

6. Net income (loss)
per share
Basic (3.29) 12.48 -- (0.03)
Diluted (3.29) 12.43 -- (0.03)
----------------------------------------------------------------------

7. Net income (loss)
per ADS
(representing 10
shares)
Basic (33) 125 -- (0.29)
Diluted (33) 124 -- (0.29)
----------------------------------------------------------------------

Notes: 1. The Company's consolidated financial statements are
prepared based on U.S. GAAPs.

2. Segment Information and operating income (loss) are
presented in accordance with financial reporting principles
and practices generally accepted in Japan.

3. The figures are for 966 consolidated subsidiaries,
including Variable Interest Entities, and 159 equity-method
affiliates.



CONSOLIDATED STATEMENTS OF OPERATIONS


----------------------------------------------------------------------
The half years ended September 30
-------------------------------------------
YEN (A)/(B) U.S. DOLLARS
(millions) X100 (millions)
----------------------
2005 (A) 2004 (B) (%) 2005
----------------------------------------------------------------------
Revenues 4,413,319 4,329,935 102 39,056
----------------------------------------------------------------------
Cost of sales 3,439,903 3,324,078 103 30,442
----------------------------------------------------------------------
Selling, general and
administrative expenses 895,662 878,525 102 7,926
----------------------------------------------------------------------
Operating income 77,754 127,332 61 688
----------------------------------------------------------------------
Other income 29,070 36,400 80 257
(Interest and dividends) 11,389 10,135 112 101
(Other) 17,681 26,265 67 156
----------------------------------------------------------------------
Other deductions 24,707 27,731 89 218
(Interest charges) 15,673 14,235 110 138
(Other) 9,034 13,496 67 80
----------------------------------------------------------------------
Income before income
taxes and minority
interests 82,117 136,001 60 727

----------------------------------------------------------------------
Income taxes 60,945 68,070 90 540
----------------------------------------------------------------------
Income before
minority interests 21,172 67,931 31 187
----------------------------------------------------------------------
Minority interests 32,118 26,773 120 284
----------------------------------------------------------------------
Net income (loss) (10,946) 41,158 -- (97)
----------------------------------------------------------------------



CONSOLIDATED BALANCE SHEETS

----------------------------------------------------------------------


YEN U.S. DOLLARS
(millions) (millions)
------------------------ (A)/(B)
As of As of X100 As of
Sept. 30, March 31, Sept. 30,
2005 (A) 2005 (B) (%) 2005
----------------------------------------------------------------------
Assets 9,889,628 9,736,247 102 87,519
----------------------------------------------------------------------
Current assets 5,394,875 5,338,835 101 47,742
Cash and cash
equivalents 646,085 708,715 91 5,718
Short-term investments 180,472 146,568 123 1,597
Trade receivables
Notes 126,818 132,572 96 1,122
Accounts 2,051,288 2,065,194 99 18,153
Investments in leases 496,693 526,759 94 4,395
Inventories 1,329,110 1,198,955 111 11,762
Other current assets 564,409 560,072 101 4,995
----------------------------------------------------------------------
Investments and advances 970,789 894,851 108 8,591
----------------------------------------------------------------------
Property, plant and
equipment 2,400,050 2,357,931 102 21,240
----------------------------------------------------------------------
Other assets 1,123,914 1,144,630 98 9,946
----------------------------------------------------------------------

----------------------------------------------------------------------
Liabilities and
Stockholders' equity 9,889,628 9,736,247 102 87,519
----------------------------------------------------------------------
Current liabilities 4,110,892 4,064,546 101 36,380
Short-term debt and
current installments
of long-term debt 1,213,149 1,183,474 103 10,736
Trade payables
Notes 55,067 62,855 88 487
Accounts 1,235,110 1,246,401 99 10,930
Advances received 286,510 247,586 116 2,536
Other current
liabilities 1,321,056 1,324,230 100 11,691
----------------------------------------------------------------------
Noncurrent liabilities 2,486,989 2,442,818 102 22,009
Long-term debt 1,389,392 1,319,032 105 12,296
Retirement and
severance benefits 1,011,151 1,033,005 98 8,948
Other liabilities 86,446 90,781 95 765
----------------------------------------------------------------------
Minority interests 955,871 921,052 104 8,459
----------------------------------------------------------------------
Stockholders' equity 2,335,876 2,307,831 101 20,671
Common stock 282,033 282,033 100 2,496
Capital surplus 562,635 565,360 100 4,979
Legal reserve and
retained earnings 1,748,717 1,779,198 98 15,475
Accumulated other
comprehensive loss (239,991) (301,524) -- (2,124)
(Foreign currency
translation
adjustments) (69,637) (90,904) -- (616)
(Minimum pension
liability
adjustments) (237,662) (242,672) -- (2,103)
(Net unrealized
holding gain on
available-for-sale
securities) 67,589 32,996 205 598
(Cash flow hedges) (281) (944) -- (3)
Treasury stock (17,518) (17,236) -- (155)
----------------------------------------------------------------------






CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
YEN U.S. DOLLARS
(millions) (millions)
------------------------------------
The half The year The half
year ended ended year ended
Sept. 30, March 31, Sept. 30,
2005 2005 2005
----------------------------------------------------------------------
Common stock
Balance at beginning of period 282,033 282,032 2,496
------------------------------------
Conversion of convertible
debentures 0 1 0
------------------------------------
Balance at end of period 282,033 282,033 2,496
====================================

Capital surplus
Balance at beginning of period 565,360 551,690 5,003
------------------------------------
Gains on sales of treasury
stock 59 12,862 1
Increase (decrease) arising
from divestiture and other (2,784) 808 (25)
------------------------------------
Balance at end of period 562,635 565,360 4,979
====================================

Legal reserve
Balance at beginning of period 110,214 109,163 975
------------------------------------
Transfers from retained
earnings 245 921 2
Transfers from minority
interests 207 130 2
Balance at end of period 110,666 110,214 979
====================================

Retained earnings
Balance at beginning of period 1,668,984 1,651,272 14,770
------------------------------------
Net income (loss) (10,946) 51,496 (97)
Cash dividends (18,323) (34,628) (162)
Transfers to legal reserve (245) (921) (2)
Transfers from (to) minority
interests (1,419) 1,765 (13)
------------------------------------
Balance at end of period 1,638,051 1,668,984 14,496
====================================
Legal reserve and retained
earnings 1,748,717 1,779,198 15,475
====================================

Accumulated other comprehensive
loss
Foreign currency translation
adjustments
Balance at beginning of period (90,904) (95,786) (804)
------------------------------------
Current-period change 21,267 4,882 188
------------------------------------
Balance at end of period (69,637) (90,904) (616)
====================================

Minimum pension liability
adjustments
Balance at beginning of period (242,672) (329,536) (2,148)
------------------------------------
Current-period change 5,010 86,864 45
------------------------------------
Balance at end of period (237,662) (242,672) (2,103)
====================================

Net unrealized holding gain on
available-for-sale securities
Balance at beginning of period 32,996 31,499 292
------------------------------------
Changes in unrealized holding
gains and losses 34,593 1,497 306
------------------------------------
Balance at end of period 67,589 32,996 598
====================================

Cash flow hedges
Balance at beginning of period (944) (41) (8)
------------------------------------
Changes in the fair value of
derivative financial
instruments 663 (903) 5
------------------------------------
Balance at end of period (281) (944) (3)
====================================
Accumulated other comprehensive
loss (239,991) (301,524) (2,124)
====================================

Treasury stock
Balance at beginning of period (17,236) (32,162) (153)
Current-period (increase)
decrease (282) 14,926 (2)
------------------------------------
Balance at end of period (17,518) (17,236) (155)
====================================
Total stockholders'
equity 2,335,876 2,307,831 20,671
====================================





CONSOLIDATED STATEMENTS OF CASH FLOWS


The half years ended September 30
--------------------------------------
YEN U.S. DOLLARS
(millions) (millions)
--------------------------------------
2005 2004 2005
--------------------------------------
Cash flows from operating
activities

Net income (loss) (10,946) 41,158 (97)



Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities

Depreciation 218,599 206,271 1,935

Deferred income taxes 10,636 8,213 94

Loss (gain) on disposal
of rental assets and
other property 7,553 (445) 67

Decrease in receivables 137,913 182,556 1,221

Increase in inventories (152,059) (189,797) (1,346)

Decrease in payables (57,512) (83,972) (509)

Other 66,921 (13,484) 592
----------------------------------------------------------------------
Net cash provided
by operating
activities 221,105 150,500 1,957

Cash flows from investing
activities

(Increase) decrease in
short-term investments (25,286) 30,141 (224)

Capital expenditures (179,009) (166,845) (1,584)

Purchase of rental assets,
net (216,523) (232,004) (1,916)

Sale of investments and
subsidiaries' common
stock, net 50,388 25,222 446

Collection of investment in
leases 199,231 168,986 1,763

Other (84,293) (19,111) (746)
----------------------------------------------------------------------
Net cash used in
investing
activities (255,492) (193,611) (2,261)

Cash flows from financing
activities

Decrease in
interest-bearing debt (6,216) (94,126) (55)

Dividends paid to
stockholders (18,247) (16,406) (162)

Dividends paid to minority
stockholders of
subsidiaries (9,084) (8,135) (80)

Other (4,194) 7,429 (37)
----------------------------------------------------------------------
Net cash used in
financing
activities (37,741) (111,238) (334)



Effect of exchange
rate changes on cash
and cash equivalents 9,498 9,002 84
----------------------------------------------------------------------
Net decrease in cash
and cash equivalents (62,630) (145,347) (554)



Cash and cash equivalents at
beginning of period 708,715 764,396 6,272
----------------------------------------------------------------------
Cash and cash equivalents at
end of period 646,085 619,049 5,718
======================================================================

---------------------------------------------------- -----------------
Note: Cash flows related to inventory-related receivables, which were
previously included in "cash flows from investing activities,"
are now included in "cash flows from operating activities." As a
result of this change, cash flows for the first half of fiscal
2004 have been reclassified.



SEGMENT INFORMATION

(1)INDUSTRY SEGMENTS
----------------------------------------------------------------------
The half years ended September 30
----------------------------------------
(A)/(B) U.S.
YEN X100 DOLLARS
(millions) (%) (millions)
---------------------- -----------
2005 (A) 2004 (B) 2005
----------------------------------------------------------------------
Information & 1,057,198 1,071,736 99 9,356
Telecommunication
Systems 21% 21%
-------------------------------------------------------------
Electronic Devices 583,156 692,078 84 5,161
11% 13%
-------------------------------------------------------------
Power & Industrial
Systems 1,278,905 1,120,895 114 11,318
25% 22%
-------------------------------------------------------------
Digital Media & 611,837 646,112 95 5,414
Consumer Products 12% 13%
-------------------------------------------------------------
Revenues High Functional 760,441 740,423 103 6,729
Materials &
Components 15% 14%
-------------------------------------------------------------
Logistics,
Services & Others 570,548 610,317 93 5,049
11% 12%
-------------------------------------------------------------
Financial Services 260,896 270,778 96 2,309
5% 5%
-------------------------------------------------------------
Subtotal 5,122,981 5,152,339 99 45,336
100% 100%
-------------------------------------------------------------
Eliminations &
Corporate items (709,662) (822,404) - (6,280)

-------------------------------------------------------------
Total 4,413,319 4,329,935 102 39,056

======================================================================
Information & 23,248 28,961 80 206
Telecommunication
Systems 21% 21%
-------------------------------------------------------------
Electronic Devices 9,230 30,056 31 82
8% 22%
-------------------------------------------------------------
Power & Industrial
Systems 23,216 10,088 230 205
21% 7%
-------------------------------------------------------------
Digital Media & (16,231) 10,618 - (144)
Consumer Products (15%) 8%
-------------------------------------------------------------
Operating High Functional 48,053 40,328 119 425
income Materials &
(loss) Components 44% 29%
-------------------------------------------------------------
Logistics,
Services & Others 6,898 7,528 92 61
6% 6%
-------------------------------------------------------------
Financial Services 16,019 9,988 160 142
15% 7%
-------------------------------------------------------------
Subtotal 110,433 137,567 80 977
100% 100%
-------------------------------------------------------------
Eliminations &
Corporate items (32,679) (10,235) - (289)

-------------------------------------------------------------
Total 77,754 127,332 61 688

----------------------------------------------------------------------

Note: Revenues by industry segment include intersegment transactions.



(2)GEOGRAPHIC SEGMENTS
----------------------------------------------------------------------
The half years ended September 30
----------------------------------------
(A)/(B) U.S.
YEN X100 DOLLARS
(millions) (%) (millions)
---------------------- -----------
2005 (A) 2004 (B) 2005
----------------------------------------------------------------------
Outside 3,164,988 3,128,385 101 28,009
customer
sales 62% 62%
------------------------------------------------------
Japan Intersegment 459,321 482,620 95 4,065
transactions 9% 10%
------------------------------------------------------
Total 3,624,309 3,611,005 100 32,074
71% 72%
--------------------------------------------------------------
Outside 524,756 530,416 99 4,644
customer
sales 10% 10%
------------------------------------------------------
Asia Intersegment 203,001 193,389 105 1,796
transactions 4% 4%
------------------------------------------------------
Total 727,757 723,805 101 6,440
14% 14%
--------------------------------------------------------------
Outside 426,875 391,422 109 3,778
customer
sales 8% 8%
------------------------------------------------------
North Intersegment 23,678 14,968 158 209
America transactions 1% 0%
------------------------------------------------------
Total 450,553 406,390 111 3,987
Revenues 9% 8%
--------------------------------------------------------------
Outside 239,728 230,687 104 2,121
customer
sales 5% 5%
------------------------------------------------------
Europe Intersegment 13,175 10,319 128 117
transactions 0% 0%
------------------------------------------------------
Total 252,903 241,006 105 2,238
5% 5%
--------------------------------------------------------------
Outside 56,972 49,025 116 504
customer
sales 1% 1%
------------------------------------------------------
Other Intersegment 1,908 1,882 101 17
Areas transactions 0% 0%
------------------------------------------------------
Total 58,880 50,907 116 521
1% 1%
--------------------------------------------------------------
Subtotal 5,114,402 5,033,113 102 45,260
100% 100%
--------------------------------------------------------------
Eliminations
& Corporate
items (701,083) (703,178) - (6,204)

--------------------------------------------------------------
Total 4,413,319 4,329,935 102 39,056

----------------------------------------------------------------------


----------------------------------------------------------------------
The half years ended September 30
----------------------------------------
(A)/(B) U.S.
YEN X100 DOLLARS
(millions) (%) (millions)
---------------------- -----------
2005 (A) 2004 (B) 2005
----------------------------------------------------------------------
Japan 112,449 106,160 106 995
95% 71%
--------------------------------------------------------
Asia (8,082) 25,105 - (71)
(7%) 17%
--------------------------------------------------------
North America 7,681 7,548 102 68
6% 5%
--------------------------------------------------------
Operating Europe 4,159 7,858 53 37
income (loss) 4% 5%
--------------------------------------------------------
Other Areas 2,067 2,214 93 18
2% 2%
--------------------------------------------------------
Subtotal 118,274 148,885 79 1,047
100% 100%
--------------------------------------------------------
Eliminations
& Corporate
items (40,520) (21,553) - (359)

--------------------------------------------------------
Total 77,754 127,332 61 688

----------------------------------------------------------------------



(3)REVENUES BY MARKET
----------------------------------------------------------------------
The half years ended September 30
----------------------------------------
(A)/(B) U.S.
YEN X100 DOLLARS
(millions) (%) (millions)
---------------------- -----------
2005 (A) 2004 (B) 2005
----------------------------------------------------------------------
Japan 2,741,287 2,709,295 101 24,259
62% 63%
----------------------------------------------------------------------
Asia 726,662 694,304 105 6,431
17% 16%
--------------------------------------------------------
North America 455,238 442,531 103 4,029
10% 10%
--------------------------------------------------------
Europe 340,164 346,287 98 3,010
8% 8%
--------------------------------------------------------
Other Areas 149,968 137,518 109 1,327
3% 3%
--------------------------------------------------------
Outside Japan 1,672,032 1,620,640 103 14,797
38% 37%
----------------------------------------------------------------------
Total 4,413,319 4,329,935 102 39,056
100% 100%
----------------------------------------------------------------------