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SDK to Invest in Trace and Increase HD Production Capacity

May 31, 2004

Showa Denko K.K. (SDK) has decided to invest in Trace Storage Technology Corp. (Trace) of Taiwan and make it a consolidated subsidiary. SDK has also decided to increase its hard disk media production capacity by more than 2 million disks a month through expansions at Trace, Showa Denko HD K.K. (SHDI) in Ichihara, Japan, and Showa Denko HD Singapore Pte. Ltd. (SHDS).

Subject to the Taiwanese Government’s approval, Trace will issue new shares in or around July and allot them to SDK. After the issue, Trace’s capital will be increased to approx. US$140 million. SDK will own two thirds of the capital, making Trace a consolidated subsidiary.

Furthermore, in addition to the 80-gigabyte, 3.5-inch aluminum-substrate HD technology licensed in May 2003, SDK will provide Trace with technologies to produce glass-substrate HDs, and aluminum-substrate HDs with memory capacity of more than 80 gigabyte per disk. SDK will receive a license fee of US$75 million in July.

As a result of the transfer of the latest technology to Trace and debottlenecking at the three sites of Trace, SHDI and SHDS, SDK will increase its total capacity by more than 2 million HDs a month, from the present capacity of 8.3 million HDs a month. Capital investment for the expansion will amount to around ¥4 billion.

Demand for hard disk drives (HDDs) is expected to increase at an annual rate of about 10% in and after 2004 due to increased sales of mobile PCs and DVD players containing HDDs. Thus, the tight supply situation of hard disk media is expected to continue. After the planned expansion, SDK will establish its status as the largest independent HD supplier in the world. SDK is committed to meeting customer requirements by supplying highest-quality products in a stable manner.

Following the scheduled receipt in July of the license fee of US$75 million from Trace, SDK’s non-consolidated revenue, operating income and recurring profit will increase by 8.3 billion each and net income will increase by ¥4.8 billion. However, as Trace is going to become SDK’s consolidated subsidiary, the consolidated performance of SDK for 2004 will not be affected by the receipt of the said license fee.

The non-consolidated performance of SDK for the period from January 1 to December 31, 2004 is now forecast as in the table below.

(Unit: billions of yen; %)
  Net sales Operating income Recurring profit Net income
Previous forecast
(as at Feb. 17, ’04) (A)
467.0 25.5 16.0 7.0
Revised forecast
(May 31, ’04) (B)
475.3 33.8 24.3 11.8
(B) – (A) 8.3 8.3 8.3 4.8
Percentage of increase 1.8% 32.5% 51.9% 68.6%
2003 results 462.0 22.9 13.0 5.0

[Profile of Trace Storage Technology Corp.]

Chairman of the Board of Directors Shinji Sakai (to be appointed in July 2004; currently, Corporate Officer, Chief Manager, Planning Department, Electronics Sector, Showa Denko)
Head office 8, Technology Fifth Road, Science-Based Industrial Park, Hsinchu, Taiwan
Established September 1990, as an affiliate of Chinatrust Financial Holding Co., Ltd.
Scope of business Production and sale of hard disks and their substrates
Accounting term Ending December 31
Number of employees 755 (at April 30, 2004)
Annual sales Approx. US$82 million (for the term ended December 31, 2003)

At the signing ceremony, Mr. Mitsuo Ohashi, President & CEO of Showa Denko (left) and Mr. Jeffrey Koo, Chairman of Chinatrust Financial Holding (right)