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SDK Makes Progress in 2nd Year of Cheetah Project

December 13, 2001

Showa Denko K.K. (SDK) is making progress in the implementation of its medium-term consolidated business plan "Cheetah Project" that started last year under the slogan of "Transforming a diversified chemical company into a focused, individualized chemical company."

In the initial three-year period (2000-2002), SDK is carrying out an action plan aiming at renovating operations to pave the way for future growth. During this period, SDK is strategically reducing its scope of operations, while maintaining investments in high growth potential areas.

Specifically, SDK is reducing fixed costs and improving its consolidated balance sheet by selling operations and affiliated companies that are not consistent with its target business portfolio as well as reducing debt and personnel. Through these measures, SDK is establishing a stronger base for earning power.

Major accomplishments in the second year of the Cheetah project are as follows:

  • 1)Completed the merger with Showa Aluminum Corporation
  • 2)Almost completed restructuring in the petrochemicals sector
  • 3)Made progress in reducing debt, personnel and accumulated consolidated deficit, exceeding the numerical targets set forth in the Cheetah Project.

Furthermore, to cope with the deterioration of the business environment, SDK will take additional measures, centering on personnel reduction, to cut costs by approx. ¥10 billion in 2002. (Details are shown in the accompanying news release.)

In view of the accomplishments in the second year, SDK will continue working hard to achieve the goals of the Cheetah Project for 2002.

1. Segment-wise accomplishments in 2001

  • 1)Hard Disk (HD & MD):
    Completed arrangements for recovering profitability HD: Placed on the market 1.8-inch glass-substrate HDs MD (aluminum substrates): Focused domestic operations on R&D and concentrated MD production at our plant in Malaysia.
  • 2)Compound semiconductors:
    Expanded production capacity for InP wafers (used in optical fiber communications equipment)
  • 3)InGaP HBT epitaxial wafers for electronic devices: Contract manufacturing for NTT-AT
  • 4)Rare earth magnet alloys:
    Started operation of the world's largest 1.5-ton neodymium-based alloy producing furnace
  • 5)Specialty gases for semiconductor processing:
    Expanded production capacities for F14 etching gas and F116 cleaning gas; Started operations in Singapore (Four sites in three foreign countries)
  • 6)Solid aluminum capacitors:
    Started selling solid conductive polymer aluminum surface-mount capacitors
  • 7)Specialty ceramic polishing agent:
    Steadily expanded the chemical mechanical polishing (CMP) slurries business
  • 8)TMAH (raw material for developer for semiconductor production):
    Established a joint venture with Sachem, Inc. of the United States, the world's largest TMAH producer

1-2. Aluminum

  • (1)Merger with Showa Aluminum Corporation
    • 1)Technological synergies
      • (a)R&D
        • * Out of the research subjects narrowed down to around 30, working groups have been established for several research themes. These working groups have already started their activities.
        • * Focal R&D themes related to automobiles Development of materials/parts to enable the construction of lighter cars
          Development of heat exchangers for the next-generation cars
      • (b)Production technologies
        Showa Aluminum's mechatoronics technology and Showa Denko's chemical process engineering technology complement each other.
    • 2)Cost reductions:
      Integration of head office/branch offices: approx. ¥0.4 billion
      Reduction in administrative expenses: approx. ¥1 billion
    • 3)Reorganization of subsidiaries/affiliates
      • * Integration of laminates operations (Improvements through the interconnection between inorganic/aluminum technologies and organic chemical technologies)
        Showa Denko's fabricated aluminum foil operations and Heisei Polymer's plastic laminate operations have been separated and consolidated into Showa Packaging Co., Ltd.
      • * Merger of Shotic Corporation
        Expansion of the automotive parts/components business
      • * Divestiture of panel operations into a newly established subsidiary
  • (2)Consolidation of two aluminum business sectors (To take effect in March 2002) For the purpose of strengthening the value chain
  • (3)New products and topics
    • 1)Heat exchangers:
      Production facilities at Hikone are being transferred to our subsidiaries in Thailand and Czech
    • 2)ST60:
      Started supply of this newly developed alloy for use in high-performance heat sinks for plasma display panels
    • 3) Suspension arms:
      Adopted by major car manufacturers
    • 4)Aluminum beverage cans:
      Increased production centering on use for beer cans
    • 5)High-purity aluminum foil for electrolytic capacitors:
      Increased market share
    • 6)Extruded heat sinks:
      Placed on the market new types of products with improved cooling performance and airflow resistance

1-3.Chemicals

  • 1) Surfactin sodium salt:
    Newly developed biosurfactant for cosmetic applications based on SDK's biotechnology; Mass production technology has been established.
  • 2)Dry-film solder mask:
    Developed for use in the production of flexible printed wiring boards; Improves production efficiency at wiring board manufacturers
  • 3)Herbicides:
    Acquired the Grachitor business; Placed benzobicyclon on the market
  • 4)Hydrofluorocarbon 125:
    Started toll production for Asahi Glass Co., Ltd.

1-4.Petrochemicals

  • 1)Ethylene:
    Plant No. 1 was demolished while Plant No. 2 has been expanded and streamlined, yielding planned results. Further cost reductions being pursued through introduction of online optimizer, etc.
  • 2)Polyolefins:
    Polyethylene operations of JPO and Japan Polychem to be integrated. Prior to the integration, thoroughgoing cost reduction efforts are under way.
  • 3)Acetic acid:
    Secured the right to take acetic acid product from BPPA's plant in Malaysia (approx. 120,000 tons a year). One acetic acid production line at Oita has been suspended.
  • 4)Ethyl acetate:
    Demand for this product steadily increasing as environment-friendly solvent, replacing toluene.
  • 5)Injection molding subsidiaries outside Japan have been sold.
  • 6)Heisei Polymer Co., Ltd.'s unprofitable plants have been closed.

2. Status of achievement of goals set forth in the medium-term consolidated business plan

  • (1)Personnel and total labor cost:
    Aiming at reducing the number of employees by 2,500 and total labor cost by ¥20 billion in three years. Measures taken ahead of schedule and the goals are to be virtually achieved by the end of 2001; Additional substantial cut will be made.

    Goals under the plan At end of 2000 At end of 2001(Estimate) At end of 2002(Estimate)
    Personnel reduction 2,500 2,503 3,980 4,832
    Labor cost reduction ¥20 billion ¥13.5 billion ¥15.2 billion ¥25.5 billion

    Note: The goals were established as cumulative figures for the three years (2000-2002) as against the base figures as of the end of 1998. The figures representing the results at the end of 2000 and the estimates for 2001 and 2002 are also cumulative figures. They do not include the companies that were consolidated after the announcement of the Cheetah Project.

  • (2)Reduction in debt: From ¥711.6 billion at the end of 1998 to ¥600 billion or less by the end of 2002

    Progressing as planned. As of the end of 2001, debt will have been reduced to ¥620 billion, representing a reduction of ¥91.6 billion compared with the end of 1998.(When newly consolidated companies are excluded, the debt at the end of 2001 is estimated at ¥594.5 billion, a reduction of ¥117.1 billion over 1998.)
    (The above figures are based on our projections made in August at the time of the announcement of interim settlement of accounts for 2001.)
  • (3)Sale of operations and affiliated companies in 2001
    • * Operations / affiliated companies sold:
       1) Hymold Group companies outside Japan (six companies)
       2) TMAH business
       3) Paper reinforcing agent business
    • * Effect of the sale in 2001
      Reduction in debt ¥3.8 billion
      Reduction in personnel Around 950
  • (4)Elimination of consolidated accumulated deficit (Scheduled to be eliminated by the end of 2002)
    The consolidated accumulated deficit at the end of 2001 is estimated at ¥17 billion.
    (The above figure is based on our projections made in August at the time of the announcement of interim settlement of accounts for 2001.)
  • (5)Factors that will contribute to increases in profit for 2002
    (a) Labor cost reduction
    (¥8 billion by personnel reduction; ¥2 billion by salary cut)
    ¥10 billion
    (b) Purchasing and other cost reductions ¥2 billion
    (c) Profitability improvement in HD/MD businesses ¥2 billion
    (d) Profitability improvement in JPO ¥2 billion
    (e) Others
    Toll production of HFC125; Take of acetic acid for the whole year
    ¥1 billion
      Total ¥17 billion*

    Sale of major affiliated companies
    *Note: The factors mentioned above are based on our reasonable projections for 2002. However, we cannot guarantee that these projections will be realized in 2002 because actual results may differ materially due to a variety of factors, including substantial changes in economic conditions.

3. Shift from the strategic reduction in scope of operations to a growth strategy: R&D

3-1.Reform of R&D system (To take effect in March 2002)

  • 1)Introduction of technology platform: To attain higher levels of technology
  • 2)Interconnection between inorganic/aluminum technology and organic chemical technology: To develop individualized products
  • 3)Stage gate: To concentrate resources on selected R&D themes

3-2.Large-scale development themes now under way (Examples)

  • * Development of components for fuel cells:
    Solid polymer fuel cell separator (an example of interconnection between inorganic and organic chemical technologies)
  • * Nano technology
    • a)Carbon nanofiber
      Carbon nanotube (national project) From VGCF to VGNF
    • b)Nano-particles
      Titania; Metal oxides coated with thin film of silica
    • c) Nano-scale control

4. Growth strategy for 2003 and thereafter: An action plan is being mapped out.

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