14 January 25, 2014

JCI and Hitachi JV Creates Worlds Largest Commercial Air Conditioning Provider

JARN (J): Johnson Controls (JCI) has signed a memorandum of un-derstanding (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 signifi-cant step in a long history of JCI and Hitachi Air Conditioning partner-ships 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 capa-bilities globally would be part of the JV, however Hitachis sales and ser-vice 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 to-gether, 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 tech-nology. 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 cap-ture 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 pres-ence in Japan, including the product development capabilities in Japan.

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.

Hitachi, will you focus on the U.S. market? What about China?M: In the United States, our residen-tial and light commercial air condi-tioning business is among the market leaders, gaining share in recent years. We see this partnership as a key op-portunity for us to further increase our competitiveness in the United States. We also plan to investigate in-troducing 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 broad-er 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 manufactur-ers including LG have entered the U.S. market with these technologies in addition to Japanese manufac-turers such as Daikin, Mitsubishi Electric, Fujitsu General, Pana-sonic 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 require-ments 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 cen-trifugal 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 tech-nology for certain air conditioning applications that are almost entirely complementary to the JCI offer-ing. 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.

J: Hitachi Group has strengths in infrastructure equipment such as steam turbines and technologies and products related to large-scale cogeneration systems and build-ings, including elevators. Is there a possibility of extending your part-nership in the future to other busi-ness fields beyond air condition-ing?M: We are always looking for oppor-tunity to grow partnerships. In par-ticular, alongside with this joint ven-ture, we look forward to exploring further opportunities to collaborate with JCI and Hitachis broad build-ing solution business capitalizing on IT-related technologies.

J: Daikin and Goodman are pre-paring 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 custom-ers 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 absorption 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 pro-vide 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 ad-vertising in our industry magazine. In conclusion, could you describe JCIs market communications ap-proach? M: Hitachi Air Conditioning has been a consistent and long-term ad-vertiser in JARN. JARN is the lead-ing source for news and information in the global air conditioning indus-try. Through the joint venture, we expect to continue this relationship.

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 re-port our air conditioning revenue spe-cifically, we do see ourselves as the number 23 player in the commercial air conditioning industry by market share.

David Myers, President of Building Efficiency, JCI

JCI Headquarters in Milwaukee, Wiscon-sin 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 ven-ture 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 larg-est provider with top market share, the best overall product line and un-matched distribution globally.

J: Your York brand is well known for its centrifugal and screw chill-ers, while Hitachi has strengths in mini-splits and other residential equipment. Will the JV include resi-dential air conditioning?M: Yes, residential air conditioning manufacturing in most regions of the world will be included in this agree-ment. By bringing together both of our capabilities in the residential air conditioning market, we intend to use the best of both companies capabili-ties 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

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