June 14, 2006 – In a move to join forces to move up the chain in the $8.3 billion silicon wafer market, Sumitomo Mitsubishi Silicon Corp. (SUMCO) has agreed to acquire a 51% ownership in rival Japanese wafer maker Komatsu Electronic Metals Co. Ltd. (KEM), for approximately 36.9 billion yen (US $321.8 million).

Both companies have been making investments in expanding capacity for wafers both in specialty sizes and up to 300mm, and SUMCO believes a combination will help combine efforts, as well as achieve synergies (and reduce costs) in R&D, technology, production, and sales. The new SUMCO group will consist of two pure-play silicon producers with “similar and complementary technology,” the company said.

KEM has been treated as an independent entity by parent company Komatsu Ltd., which sees its core markets as the comprehensive “industrial machinery business,” including construction and mining machinery. Joining forces with SUMCO will enable KEM to expand development through both an acceleration of capital investment in 300mm as well as leverage synergies in technology development, the company stated. KEM, which has wafer plants in Nagasaki and Miyazaki (including a 300mm pilot line established in 1997) and a 10-year-old 200mm wafer facility JV in Taiwan with Formosa Plastics Group, likely felt the need to partner in order to ride the wave of the industry’s transition to larger 300mm wafers, according to Takashi Ogawa, research VP at Gartner Dataquest. “”For Komatsu, it would have been difficult to plan for the future. Then you have SUMCO, which has just had an IPO and had invested heavily in 300mm,” he said, quoted by Reuters.

SUMCO — which launched its $1.3 billion (158.4 billion yen) IPO in late 2005 — plans to nearly double its total 300mm wafer capacity to 700,000 wafers/month by April 2009, with investments at its facility in Imari, Saga Prefecture, estimated at roughly $1 billion. SUMCO posted sales of 220.5 billion yen ($1.92 billion) in its fiscal year ended in January, about 14% higher than the previous year. KEM reported 16% higher sales of 86.67 billion yen ($755.9 million) for its fiscal year ended in March, with profits increasing 67% to 9.94 billion yen ($86.7 million), and operating margins increasing to about 10% from 8%.