Hitachi eyes US, European IT service firms

Wed Jul 14, 2010 8:22am EDT

* Hitachi IT head: considering around 10 acquisition targets

* IT services providers in US, Europe to be key targets

* May do one big acquisition or several smaller purchases

(Adds comment, details, background)

By Sachi Izumi and Reiji Murai

TOKYO, July 14 (Reuters) - Japan's Hitachi Ltd (6501.T) is considering around 10 acquisition targets for its information technology business and sees IT service providers in the United States and Europe as key targets, a senior executive said on Wednesday.

Hitachi said last month it planned a large acquisition and aimed to pick up an IT firm with some $3 billion in annual sales to strengthen its overseas operations, in which it competes with larger rivals such as IBM (IBM.N) and Hewlett-Packard (HPQ.N). [nTOE65802Y]

Analysts and investors have mentioned Britain's Sage Group (SGE.L), Canada's CGI Group (GIBa.TO) and U.S.'s Brocade Communications Systems (BRCD.O) as potential acquisition candidates because of their markets and business portfolios.

Junzo Nakajima, head of Hitachi's IT operations, declined to identify possible targets but said companies with strong customer bases and established services would be key candidates.

"If we can (buy) IT services with data centres, we will likely to need more storages and see more consulting orders to customise them. That is something we are aiming at," he told Reuters in an interview.

"Companies that offer outsourcing services are close to being candidates for our third pillar," he said, adding Hitachi may make one big acquisition or several smaller ones.

Hitachi, whose products range from nuclear plants to rice cookers, plans to offer comprehensive IT services and wants to make such services the third pillar of its information and communication system business, alongside storage and consulting.

The IT sector is a key business for Hitachi, Japan's biggest electronics conglomerate with 900 group firms, as it aims to grow again after four straight years of losses. It is also one of the company's highly profitable operations.

Hitachi aims to increase sales in its IT division by a third to 2.3 trillion yen ($26 billion) by 2015/16 and to boost its operating profit margin to 8 percent from 5.8 percent expected this business year.

Nakajima said Hitachi made public its intention to buy partly because it hoped the comment would help it receive more information about potential targets. The plan worked and Hitachi is considering around 10 companies, he said.

Hitachi aims to use acquisitions to beef up its operations as the IT sector shifts to "cloud" computing, in which products and services are accessed online.

"An acquisition is not just a purchase to own (the company) but rather a start for us to work together and expand operations," Nakajima said. "What we do after (the purchase) is more important."

(Editing by David Holmes)

($1=88.66 Yen)

((sachi.izumi@thomsonreuters.com; +81-3-6441-1809; Reuters Messaging: sachi.izumi.reuters.com@reuters.net))

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