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 2019.
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 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 scaling 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 requirements for high precision and quality along with advances in scaling 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 fifth-generation mobile communications system 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 endeavoring to improve profitability, and to develop a corporate constitution able to respond quickly and effectively to changes in the demand situation.
With improvement in its financial position, the Group has largely achieved the mid-term financial targets, namely, a shareholders' equity ratio of 50% or higher and gross D/E ratio of 0.5 times or lower, that were set at the time of our capital increase through public offering in 2015. We have therefore reviewed our shareholder return policy, so that in addition to the existing dividend payout ratio of 30%, a shareholder return of 10% will be initiated by purchase of treasury stock.
3. Management Environment and Challenges Facing the Group
As for current demand for semiconductor wafers, although customers are expected to continue inventory adjustment of those for memory semiconductors, demand of those for logic semiconductors is projected to be solid.
In this environment, the SUMCO Group will continue striving to maintain our strong presence among customers through technology development responding to their needs for leading-edge, distinctive products, and improve profitability through increased productivity, optimized pricing, and cost reduction, continuously in line with the SUMCO Vision.
Regarding capital investments, to fulfill our responsibility of supplying 300 mm high-precision wafers for cutting edge semiconductors, for which the Company has a large market share, we made the investment to increase our production capacity by 110,000 wafers a month as we announced in August 2017. We will implement capital investments as appropriate in line with the Company's share, in a disciplined manner, while fulfilling our responsibility to customers as a supplier and taking into consideration supply and demand forecasts of the wafer market on each occasion and the lead-time required to newly install and increase production facilities.
With regard to polycrystalline silicon, which is the main raw material of silicon wafers, due to abrupt changes in the market, a disparity existed between the demand forecasts upon entering into long-term purchase contracts and the current consumption forecasts. Consequently, we are now holding excess inventories. The inventory balance peaked at the end of fiscal year 2016 and has begun to decline, and it is expected to recover to an appropriate level in the medium to long term. The balance of "raw materials and supplies" including raw material inventories has decreased 3.7 billion yen from the end of the previous fiscal year to 149.4 billion yen.