Management Policies, the Management Environment,and Challenges Facing the SUMCO Group
Note that forward-looking statements herein are based on the Group's judgment as of the end of fiscal year 2017.
1. Basic Policies for Management of the SUMCO Group
Management of the SUMCO Group is aimed at being “the world’s No. 1 silicon wafer supplier, by exceeding the expectations of our customers and stockholders, by recognizing the value of our employees, and by being good neighbors in communities.” Guided by this Mission Statement, the Group has built up a wide range of product development strengths and technological capabilities for the manufacture of silicon wafers used in making semiconductor devices, covering large to small wafer diameters. By taking full advantage of these strengths to create a stable supply capability, the Group seeks to contribute to the advancement of society. An especially strong effort goes into raising technology levels to meet the extremely strict quality and cost demands of customers, as the Group seeks to maintain and improve its standing in the silicon wafer industry.
In keeping with these basic policies, the Group is committed to further strengthening its business foundations, aiming for sustainable growth of the business, and meeting its mandate from stakeholders.
2. Targeted Management Indicators and Medium- to Long-Term Corporate Management Strategies
The market for semiconductor silicon wafers is expected to grow in the medium to long term along with semiconductor market growth, even if there are short-term variability factors. Driving this growth are 300 mm wafers that meet leading-edge miniaturization needs. Firm demand for 200 mm wafers is also expected over the medium to long term, sustained mainly by in-vehicle, consumer, and communications applications.
In this business environment, regarding its mainstay 300 mm wafers, the Group will seek to further its competitive edge through technology development and investment designed to meet increasingly challenging demands for high precision and quality along with advances in miniaturization technology. In response to the issue of demand exceeding production capacity, the Group will make individual, disciplined capital investments at appropriate times, while giving all due consideration to the economic rationality of such spending. As for smaller wafers of 200 mm and below, the Group will continue ensuring its production capability is commensurate with the market environment. In addition to strengthening cost competitiveness, the Group will seek differentiation from rivals by concentrating management resources in fields such as wafers for IoT and power semiconductors where demand is expected to expand.
Since the business of semiconductor silicon wafers is part of a field with wide swings in the market environment, the Group will continue working to lower the break-even point, and to develop a corporate constitution able to respond quickly and suitably to changes in the demand situation.
The Group targets for financial soundness are to achieve a shareholders' equity ratio of 50% or higher and gross D/E ratio of 0.5x or below.
3. Management Environment and Challenges Facing the Group
The current vigorous demand for semiconductor wafers has made it difficult for SUMCO to supply the quantities required by customers, particularly of the mainstay 300 mm wafers. Moreover, supported by demand for smartphones, automotive, communications, and industrial applications, the market for semiconductor silicon wafers is projected to continue gradual growth in the future.
In this environment, and following the direction set by the SUMCO Vision, the Group will continue striving to raise its presence among customers through technology development to meet demand for higher precision and distinctive products, while improving profitability through increased productivity along with appropriate pricing in the tight supply/demand situation.
Regarding capital investment, besides aiming for a full-scale price improvement and return to normal pricing, the Group has invested appropriately in equipment for development of the next generation of higher-precision 300 mm wafers and supporting leading-edge products. As wafer demand is expected to continue growing, in August 2017 the Group further decided to make investments to raise production capacity by 110,000 wafers per month, to come on line in the first half of 2019, aimed at fulfilling the Group’s responsibility to supply high-precision 300 mm wafers for leading-edge semiconductors, a product area where SUMCO has a large market share.
In the future, while taking into consideration wafer market demand forecasts at each point in time, and the time needed for introducing new production equipment or expanding existing equipment, SUMCO is committed to meeting its supply responsibilities to customers by making individual, disciplined capital investments matching our market share at appropriate times, thereby further strengthening ties with customers.
Due to strong volatility in the market for polycrystalline silicon, the principal raw material for silicon wafers, a significant disparity has emerged between demand forecasts at the time of concluding long-term purchase agreements and consumption outlook, as a result of which SUMCO is currently holding excess inventory. This excess, however, peaked at the end of the previous year and is expected to return to normal levels in the medium to long term.
The Raw materials and supplies balance was 152.8 billion yen as of the end of the fiscal year, up 1.4 billion yen year on year. Although the inventory of polysilicon declined, this increase is the result of stocking strategic inventory of materials and subsidiary materials that are other raw materials and supplies, for the sake of Business Continuity Planning (BCP).