Japanese vendor Hitachi Ltd. (NYSE: HIT; Paris: PHA) is planning a tighter integration of its IT and telecom business lines as it looks to capitalize on the demand for next-generation network (NGN) infrastructure and revive its financial fortunes.

The company is to merge wholly owned subsidiary Hitachi Communication Technologies Ltd., which makes CDMA-based mobile infrastructure, mobile WiMax, optical and Ethernet switches, and PON equipment, into the parent company from July 1. (See Hitachi, Carina Push GPON, Hitachi Rolls Out RFoG Gear , Core Network Challenges LTE Vendors, and Hitachi Beats Samsung at KDDI.)

Hitachi believes that combining the sales, systems engineering, and product development resources of its telecom and IT operations will result in technical and operational synergies. It also expects the merger to strengthen its overall proposition, technical capabilities, and systems integration options in the NGN market.

The company views the move as an important step towards revitalizing its Information & Telecommunications Systems (ITS) unit, which has just announced a dip in sales. In its most recent full financial year (fiscal 2008, ended March 31, 2009), the ITS unit generated revenues of ¥2,021 billion (US$20.6 billion), down 4 percent year-on-year, and operating income of ¥155.2 billion ($1.6 billion).

And the short-term outlook is bleak. The vendor expects the ITS unit's revenues to decrease by 9 percent to ¥1,837 billion ($18.74 billion) for the 2009 fiscal year (ending March 31, 2010), while its operating margin is set to dip to 5 percent from 7.7 percent in fiscal 2008.

However, an ITS strategy document released this week shows that the vendor expects its fortunes to pick up again after fiscal 2009, and the unit is targeting revenues of ¥2,000 billion ($20.4 billion) and an operating profit margin of 7 percent by 2011.

Part of that expected growth is set to come from international sales. The ITS unit expects to generate 24 percent of its revenues from outside Japan in 2011, compared with 21 percent in the current fiscal year. In particular, Hitachi ITS plans to expand its consulting, outsourcing, and managed services lines of business in China, Europe, and North America.

To achieve that 2011 revenue target, ITS is targeting development resources on virtualization and cloud computing technologies, for which it will have a new platform ready by the end of this month. Hitachi expects that particular line of business to grow during the next three years, and forecasts ¥100 billion ($1.02 billion) in revenues from enterprise cloud computing technology and associated services systems, integration, and platform products in fiscal 2011.

— Catherine Haslam, Asia Editor, Light Reading