HITACHI: THE LUMADA IOT PLATFORM

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1 analysysmason.com COMPANY PROFILE HITACHI: THE LUMADA IOT PLATFORM Ahmed Ali Analysys Mason Limited 2018

2 Company summary Hitachi is a multinational corporation that contains groups of companies operating across different industries and technologies including consumer electronics, power systems and information technology systems. Hitachi s first move into information technology was in 1989 when it established Hitachi Data Systems (HDS) as a mainframe company. In 1999, HDS expanded into the storage business. Over the years, the company has built and strengthened its data management and analytics capabilities through acquisitions such as oxya, Pantascene and Pentaho, as well as internal development. As of 2016, Hitachi has 2700 research and development employees and its spend on R&D was equivalent to 3.5% of its revenue in FY2016. The Hitachi Insight Group was established in May 2016 as the group s Internet of Things subsidiary with the Lumada IoT platform as its core solution. The division is built on and supported by other Hitachi platform solutions such as the Pentaho Big Data platform and the Hitachi Content Platform (HCP). Hitachi merged its platform businesses HDS, Hitachi Insight Group and Pentaho to form Hitachi Vantara in September 2017, to offer solutions and services for digital transformation including IoT, big data, analytics and machine learning. The Japanese IoT market remains under Hitachi s management while its worldwide business is managed by Hitachi Vantara. Figure 1: Hitachi company facts Founded Offices Employees Regional focus Revenue Selected IoT customers Selected IoT Partnerships Hitachi: 1910 Hitachi Data Systems: 1989 Hitachi Insight Group: 2016 Hitachi Vantara: 2017 Headquarters: Tokyo, Japan Consolidated number of employees: (March 2017) Global USD84.8 billion (JPY9162 billion) (FY2016) Caterpillar Marine, Curtin University, Daicel, Daikin, Okuma, Penske Atos, BT, Capgemini, Cisco, DGI, DXC Technology, GE Healthcare, HCL, IBM, Infosys, Intel, M1, Microsoft, Oracle, SAP, Telus, T-Systems, Tata Consultancy Services, Tech Mahindra, VMware, Wipro Analysys Mason Limited

3 (USD billion) Hitachi: the Lumada IoT platform Company summary: financials Hitachi has nine business segments; Social Infrastructure & Industrial Systems (23% of revenue), Information & Telecommunication Systems (20%), High Functional Materials & Components (14%), Electronic Systems & Equipment (12%), Automotive Systems (10%), Construction Machinery (7%), Smart Life & Eco-friendly Systems (6%), Others (6%) and Financial Services (2%). In FY2016, ending in March 2017, Hitachi s revenue fell by 9% YoY to USD84.8 billion because of the lower sales in the Information & Telecommunications Systems, High Functional Materials & Components, Smart Life & Eco-friendly Systems and Financial Services. Also, there was a significant 48% revenue drop in the Others segment due to the restructuring of some units such as Hitachi Transport System. The company s revenues and profit declined by 2% since 2013 (Figure 2). Hitachi s local market of Japan is the company s biggest, generating 52% of FY16 revenue. Almost 10% of the total revenue came from China. Including the rest of the Asia-Pacific market, Hitachi s generated 72% of its revenue in the region. North America and Europe sales made 12% and 11% of the total revenue, respectively. With 2% YoY increase in revenue, Europe was the only region that showed growth. This is because of the increased sales in the Electronic Systems & Equipment segment and the Social Infrastructure and Industrial Systems segment which relates to the growth in the railway business in the region. Figure 2: Hitachi s revenue and gross profit, worldwide, FY2013 FY Figure 3: Hitachi s revenue by region, worldwide, FY FY13 FY14 FY15 FY16 Revenue 12% 11% 20% 5% Total revenue: USD84.8 billion Gross Profit 52% Japan Asia Source: Hitachi North America Europe Other regions Source: Hitachi Analysys Mason Limited

4 Edge Cloud Co-creation services Hitachi: the Lumada IoT platform IoT business overview Hitachi s main IoT offering is the Lumada platform which offers device management, application enablement and analytics capabilities. The platform also integrates with other Hitachi s platforms and products such as the IoT Appliance and Pentaho Data Platform which provides advanced analytics capabilities. Hitachi operates in the IoT edge and fog computing space with its IoT Appliance. Supported by Hitachi s server business, the IoT Appliance brings computing and storage resources to the enterprise with a preloaded Lumada platform. Hitachi utilises the platform in different ways to generate revenue. First, the platform is the key enabler for its co-creation business where Hitachi works with partners to develop end-to-end IoT solutions. Second, the platform is licensed separately based on a PaaS model. Third, Hitachi uses the platform internally within its units. The co-creation approach allows Hitachi to use a range of its services portfolio and be involved in different stages of the IoT project development including business consulting, proof of concept execution, commercial rollout and service management. In FY2016, the overall Lumada business generated around USD8.3 billion (JPY900 billion) in revenue. The company is expecting the revenue to grow by 8% by FY2018, reaching more than USD9.3 billion (JPY1 trillion). Figure 4: Hitachi s IoT Platform stack Analysys Mason s IoT platform stack Applications Application enablement Device & Data management Connectivity management Fog and edge computing Industrial Energy Smart cities Partners apps Key Lumada SIM management, subscription management Hitachi Hitachi s IoT platform stack Hitachi IoT Appliance Partners Lumada Pentaho (Analytics) Analysys Mason Limited

5 IoT strategic direction Hitachi is trying to increase IoT platform revenues and move away from relying on the co-creation services Hitachi s main IoT revenue stream is coming from services related to partner co-creation and system integration rather than from its platform sales. At the moment, Hitachi is trying to compete in the IoT platform market by promoting its operational technology (OT) expertise and integration services as differentiators. Targeted customers in such scenarios will be customers with limited-tonone IoT deployment experience. The company, however, is aiming to expand on its platform-as-aservice (PaaS) delivery model. Hitachi is planning for Lumada core sales to become the main growth driver for Lumada business in the next two years. To do so, Hitachi is leading a campaign to demonstrate the capabilities of its platform by increasing the number of IoT use cases and diversifying them through collaborating with partners as well as using the platform internally. The Lumada s 270- member development team is continuously collecting insight from the platform current deployments to improve future collaborations. Based on 203 Lumada deployments in FY2016, Hitachi identified four primary reasons for customers to use the platforms. These are to boost sales, cost optimisation, risk mitigation and cost visualisation. By listing these different business benefits, Hitachi expects to accelerate the market recognition of the platform. The adoption of the platform by Hitachi s own units is an important part of the company s IoT strategy as a technology provider. First, internal operations support expanding the use case library and feed back into the overall platform development efforts. Also, by leveraging the platform internally, Hitachi will raise the confidence in the platform s capabilities in industrial applications, given the extent of Hitachi s own industrial operations. Second, the platform will help transform Hitachi s own products and operational efficiency which are integral parts of its overall business expansion strategy across verticals and regions. In vertical markets, Hitachi is targeting growth in four main domains which are utilities, urban environment, power and energy, and healthcare, public and finance services. Lumada is a key enabler for the company to extract additional revenue from these sectors based on the customised solutions. Regionally, Japan has been Hitachi s strongest market However, the company aims to leverage Lumada to expand its business globally outside Japan, focusing on Europe and North America regions. Hitachi anticipates 15% and 13% growth in these regions respectively by FY2018. Overall, the company plans to increase its international sales to account for 55% of its total sales in FY2018 compared to only 48% in FY2016. Analysys Mason Limited

6 Key acquisitions and mergers Figure 5: Hitachi s key acquisitions and mergers, Date Company Description May 2015 oxya Founded in 1998 in France, oxya, provides cloud services and implementation solutions for users of SAP systems including SAP HANA. oxya operates as a wholly owned subsidiary of Hitachi Vantara. February 2015 Pantascene Founded in 2011 in the USA, Pantascene developed video and sensor interoperability solutions for security and public safety applications. The technology is now part of Hitachi s visualisation suite. February 2015 Pentaho Founded in 2004 in the USA, Pentaho developed an open source big data integration and analytics platform. HDS acquired Pentaho for an undisclosed amount as part of its move towards IoT. Pentaho is now the main analytics and big data component in Hitachi Vantara. August 2014 Sepaton Founded in 1999 in the USA, Sepaton offered hardware and software solutions and consulting services for enterprise data protection, backup and recovery. The technology is now part of Hitachi Vantara s Data Protection Solution. September 2012 Cofio Founded in 2006 in the USA, Cofio offered solutions to unify and orchestrate data protection in the enterprise. The technology is now part of Hitachi Vantara s Data Protection Solution. September 2011 BlueArc Founded in 1998 in the USA, BlueArc developed a unified storage solution for data-intensive applications. The solution is now integrated into Hitachi Vantara s Network Attached Storage (NAS) platform. August 2010 Parascale Founded in 2005 in the USA, Parascale offered cloud storage solutions to ingest and store structured and unstructured data at scale. February 2007 Archivas Founded in 2003 in the USA, Archivas developed solutions that allow customers to manage and protect their online content. The company was acquired for USD120 million and now is integrated into Hitachi Content Platform (HCP). Analysys Mason Limited

7 Product summary Figure 6: Hitachi Lumada s solution components Product Functions Description IoT Platform Device connectivity Data acquisition Data management Application enablement Edge analytics Analytics Machine learning An open architecture platform that can be deployed on-premise, in the cloud or at the edge. Lumada provides device management and connectivity capabilities like device on-boarding, device configuration, data aggregation, protocol translation and information routing. Device data and metadata are exposed to the applications, services and analytics engines through open APIs. Through the studio component, the platform enables application development with a set of pre-built modules. It allows developers to integrate with existing systems and applications. The platform analytics and rule engines support advanced algorithms for machine learning. Co-creation Services Strategy analysis Proof of concept Planning, deployment integration Production Service management These services leverage Hitachi s industry expertise to create tailored solutions for specific markets and customers at different stages of IoT adoption. These include consulting and evaluation services, collaboration on application and solution development, service deployment as well as service management. Solution Cores Industrial IoT Energy IoT Smart Cities Pre-packaged solutions that provide sets of capabilities and support for certain verticals. Industrial IoT core leverages analytics and machine learning to deliver smart manufacturing solutions such as Dynamic Scheduling for production optimisation and Predictive Quality for predictive maintenance. Energy IoT core utilises AI to solve financial, environmental and efficiency related challenges in energy sectors. It allows customers in the energy trading businesses (generation and distribution) to forecast prices, predict demand and optimise production. It also provides solutions for customers on the receiving end to reduce their energy consumption. Smart cities focus on public safety and traffic management for public venues such as airports, hospitals, transportation hubs and shopping malls through features like facial and object recognition, video integration and streaming analytics. Related products and services include Hitachi visualisation suite, video management platform and video analytics. Analysys Mason Limited

8 Use cases Figure 7: Hitachi s selected customers Customer Country Scope Daicel Japan Daicel is a manufacturer of chemical products including cellulosic derivatives, organic chemicals, plastics and pyrotechnic devices. The company experienced major recalls for its automotive airbag inflators, which caused Daicel to reconsider its quality control system and look for ways to analyse the process and the formula data automatically to understand and then prevent the root cause of the defects, With Daicel, Hitachi developed an image analysis system that uses cameras to assess activities in the plant and connect with other manufacturing execution management systems. The solution statistically compares real-time activities with standard behaviour models that have been pre-defined. It allows the manufacturer to detect failures in the production lines promptly and lower the risk of product recalls. Penske USA Penske Corporation is a privately-held company offering diversified transportation services including truck leasing, retail automotive, motorsports and logistics. The truck leasing division operates more than vehicles across 1000 locations. Penske wanted to develop a connected vehicle solution to improve their vehicles uptime and drivers safety. The company also wanted to keep the customers updated about the status of their leased vehicles. Hitachi collaborated with Penske to develop the solution combining their own expertise in the big data analytics and artificial intelligence through Lumada with the customer s expertise in the vehicles data and operations. Curtin University Australia Curtin University covers sqm of floor space and is one of the largest universities in Western Australia with more than students and 4000 staff members. The university wanted to deploy an IoT solution to manage its campus operations and support building utilisation. Through sensors distributed across the campus, the university will collect contextual data and trends about students and staff behaviours such as study patterns and course attendance. These will also be supported by building insights such as the building dynamics and the environmental health in the library. To enable this, Hitachi provided several components including Pentaho analytics, video analytics and the visualisation solution. Analysys Mason Limited

9 Analysis: strengths, weaknesses, opportunities and threats STR ENGTHS Hitachi s experience in both OT and IT translates into strong capabilities in device and data management, visualisation and real-time alerts. Hitachi is very active in branding itself as an IoT platform and solution provider and is working to increase Lumada s presence in the industry. The consulting, support and deployment services through the co-creation offering can be an attractive proposition for companies starting their IoT projects. OPPOR TUNITIES Through its parent company, Hitachi Vantara has easier access to the wider Asia-Pacific market than other European and American platform providers like GE and HPE. Hitachi has been selling platform solutions like Pentaho, HCP and the Visualisation Suite and has established a customer base that Lumada can expand into. Hitachi subsidiaries cover a wide range of verticals, products and services which provide different channels to promote and sell Lumada. WEAKNESSES Hitachi reveals limited information about its customers. The company claims 203 use cases for Lumada but most of the involved customers are not disclosed. The platform is not targeted at the wider application developer community. Instead, customised applications are developed in collaboration between Hitachi and its customers. THR EATS The industrial and manufacturing vertical is one of the most competitive markets for IoT platforms. Hitachi is competing against established vendors like GE Digital, PTC, Siemens and SAP, which are investing heavily to assert their dominance in this space. Regional expansion will also be challenging for Hitachi as companies such as PTC and SAP are well recognised in Europe and North America. Local dominance is not also guaranteed as companies such as NEC and Mitsubishi Electric are also becoming active in Japan s IoT platforms and smart manufacturing markets. Analysys Mason Limited

10 About the author Ahmed Ali (Senior analyst) is the lead analyst for Analysys Mason's IoT Platforms and Technology research programme. His research covers IoT software, applications and solutions used by service providers to enable their IoT offerings. Prior to joining Analysys Mason, Ahmed worked as a senior analyst at ABI Research for more than 3 years, where he was part of the next-generation mobile network research programme, covering wireless and core mobile markets like small cells, in-building solutions, network virtualisation, unlicensed spectrum, and other 4G and 5G technologies. Ahmed holds a master's degree in Electronics Communications and Computer Engineering from the University of Nottingham and a bachelor's degree in Electrical Engineering from the University of Khartoum, Sudan. Analysys Mason Limited

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