January 25, 2014

14

JCI and Hitachi JV Creates Worlds Largest

Commercial Air Conditioning Provider

Last month, Johnson Controls (JCI) and Hitachi Group announced that the companies had signed a non-binding memorandum of
understanding (MOU) under which JCI will obtain a 60% ownership stake in Hitachi Appliances global air conditioning business.
JARN interviewed David Myers, president of Building Efficiency, JCI, to learn more about this MOU.
JARN (J): Johnson Controls (JCI)
has signed a memorandum of understanding (MOU) to establish
an air conditioning joint venture
with Hitachi Appliances (Hitachi).
Could you outline the details of this
MOU? When did you begin talks on
establishing the joint venture?
Myers (M): We are very happy to
announce this MOU with Hitachi.
This is the most recent and significant step in a long history of JCI and
Hitachi Air Conditioning partnerships that have been happening for
decades.
Under this agreement, JCI will
invest to obtain a majority stake in
Hitachis air conditioning business.
All of Hitachis air conditioning
technology and manufacturing capabilities globally would be part of the
JV, however Hitachis sales and service operations in Japan and certain
other assets would be excluded. JCI,
together with the new venture, will
create the worlds largest commercial
air conditioning provider.
J: What are the major objectives of
the partnership with Hitachi and
what benefits do you anticipate for
JCI?
M: Our objective for this partnership
is growth. We are bringing together
the best of both companies so that
we can grow together in the market.
In our long history of working together, we have found that we share
a common history, culture, and core
values. Most of our products and
capabilities are very complementary.
JCI will combine its expertise and
global reach with Hitachis technology. Together, we will have the
broadest range of commercial air
conditioning products and services
in the industry.
Simply said, we will be stronger
together than we are apart, and we
will form a powerful team to capture growth in this large, expanding,
global market.
J: According to the press release,
the JV will be established in 2014.
Where will it be headquartered?
M: The JV will operate globally and
therefore will have resources spread
across key markets throughout the
world. The details of the JV will be
determined in due course, but the JV
may continue to have a strong presence in Japan, including the product
development capabilities in Japan.

J: What is the current scale of JCIs

air conditioning business on a value
basis?
M: JCIs air conditioning business
is a part of our Building Efficiency
business. In fiscal year 2013, Building
Efficiencys revenue was US$ 14.6
billion globally. While we do not report our air conditioning revenue specifically, we do see ourselves as the
number 23 player in the commercial
air conditioning industry by market
share.

JCI Headquarters in Milwaukee, Wisconsin is the campus buildings to receive

LEED Platinum certification.

J: JCI is said to be the global No. 1

in commercial air conditioning.
What will your sales reach when
combined with Hitachis sales?
M: Once this agreement is finalized,
JCI together with the new joint venture will create the worlds largest
commercial air conditioning provider.
As majority owner of the proposed
joint venture, JCI would recognize the
joint ventures revenue as well as our
existing Building Efficiency revenue.
All together, we will become the largest provider with top market share,
the best overall product line and unmatched distribution globally.
J: Your York brand is well known
for its centrifugal and screw chillers, while Hitachi has strengths in
mini-splits and other residential
equipment. Will the JV include residential air conditioning?
M: Yes, residential air conditioning
manufacturing in most regions of the
world will be included in this agreement. By bringing together both of
our capabilities in the residential air
conditioning market, we intend to use
the best of both companies capabilities to drive growth. Residential air
conditioning products will be a key
part of our strategy to offer customers
complete air conditioning solutions.
J: What is the York brands share
of residential and light commercial
equipment in the U.S. market? With

Hitachi, will you focus on the U.S.

market? What about China?
M: In the United States, our residential and light commercial air conditioning business is among the market
leaders, gaining share in recent years.
We see this partnership as a key opportunity for us to further increase
our competitiveness in the United
States. We also plan to investigate introducing technologies from Hitachi,
including VRF and others, to answer
the needs of our distribution partners.
China is a critical market for
growth. Here again, Hitachi and JCI
products and distribution channels
are largely complementary, and will
help us serve customers in the way
they want to be served, with a broader range of air conditioning products,
services, and solutions.
J: According to the press release,
VRF and inverter technologies are
among the products included in the
joint venture. Korean manufacturers including LG have entered the
U.S. market with these technologies
in addition to Japanese manufacturers such as Daikin, Mitsubishi
Electric, Fujitsu General, Panasonic and Toshiba Carrier. What is
JCIs strategy for ductless products?
M: We see that the core technologies
in Hitachis ductless products meet
or exceed the competitive requirements of the U.S. market. In the next
phase of our partnership, we intend
to investigate the opportunity to
bring Hitachis ductless technology
to the United States. We see this as
a tremendous opportunity to serve
customers with a broader range of air
conditioning products, services, and
solutions.
J: Hitachi also has a product lineup
of large equipment including centrifugal and screw chillers. With
your overlapping portfolios, how do
you plan to separate or integrate
your large equipment products in
the market?
M: Hitachi has strong chiller technology for certain air conditioning
applications that are almost entirely
complementary to the JCI offering. We see an opportunity to bring
both of our technologies together to
offer customers a broader range of
products. Once the joint venture is
officially established, we will utilize
the best of both companies chiller
technologies.

David Myers, President of

Building Efficiency, JCI

J: Hitachi Group has strengths in

infrastructure equipment such as
steam turbines and technologies
and products related to large-scale
cogeneration systems and buildings, including elevators. Is there a
possibility of extending your partnership in the future to other business fields beyond air conditioning?
M: We are always looking for opportunity to grow partnerships. In particular, alongside with this joint venture, we look forward to exploring
further opportunities to collaborate
with JCI and Hitachis broad building solution business capitalizing on
IT-related technologies.
J: Daikin and Goodman are preparing to produce VRF outdoor
units in Houston, while Mitsubishi
Electric is getting ready to start
VRF indoor unit production in
Mexico. Is JCI planning any moves
in terms of VRF production?
M: Our focus is serving our customers well. Just like in the rest of our
business, we continually investigate
the competitive global operational
structure that allows us to do this
while delivering profitable growth.
J: Hitachi produces absorption
chillers in Guangzhou, China, but
demand for these is quite limited in
the United States and Europe. Do
you have any plans to add Hitachis
absorption chillers to JCIs lineup?
M: Hitachis absor ption chiller
technology is world leading and has
been for many decades. JCI saw this
over 20 years ago when we became
a licensee for Hitachi absorption
technology. There are many market
opportunities and changes that provide a clear path to expand sales of
absorption chillers from both teams.
J: JCI is well known in the HVAC
industry for controls, but does not
have a lot of news coverage or advertising in our industry magazine.
In conclusion, could you describe
JCIs market communications approach?
M: Hitachi Air Conditioning has
been a consistent and long-term advertiser in JARN. JARN is the leading source for news and information
in the global air conditioning industry. Through the joint venture, we
expect to continue this relationship.

JARN (Japan Air Conditioning, Heating & Refrigeration News) Ltd.