Sumitomo Electric Industries_Business Report FY2008

Business Highlights

Financial Overview (in million JPY)
  FY2008 FY2007 Rate of Change (%) Factors
Sales 2,121,978 2,540,858 (16.5) -In and after 2008, slowdowns in global demand, mainly in the automotive and electronics markets, became prominent. In addition, a sudden appreciation of the yen led to lower profitability in the export sector; and fierce, international competition lowered product prices. These global trends created a decrease in demand had a huge impact.
Operating income 23,527 148,996 (84.2)
Ordinary income 37,773 169,644 (77.7)
Current net income 17,237 87,804 (80.4)
Automotive related business
Sales 917,125 1,199,352 (23.5) The automotive market suddenly shrunk during autumn 2008 and has since stayed contracted, resulting in lower demand for wire harnesses and anti-vibration rubber. Since the Company transferred its automotive brake business to Aisin Seiki Co., Ltd. in the latter half of fiscal 2007, this also became another factor for the sharp reduction in sales volume.
Operating income 6,142 74,532 (91.8) The Company's operating income was greatly lower due to sluggish demand, but also was the result of the Company's financial outlays for reorganizing its operations and transferring its wire harness plants located in Europe and the U.S.

Business reorganization
-The Company officially decided that it will absorb Sumitomo Electric Wintec, Inc. and SEI Hybrid Products, Inc. effective April 1, 2009. On the same day, it will also absorb part of the business handled at Sumitomo Electric Hardmetal Corp., positioning the subsidiary as a spun-off unit. The board voted to integrate or take over part of the operations at these three wholly owned subsidiaries in order to reinforce its business structure. As a result of the consolidation, Sumitomo Electric Wintec and SEI Hybrid Products will be dissolved. Sumitomo Electric Wintec manufactures and sells automotive electric equipment and industrial motors. The integration will allow the Company to strengthen collaboration between the business unit and its other divisions. It will also help the Company respond to the changing business environment in a more effective manner. Prior to the merger, however, Sumitomo Electric Wintec will spin off its current production, production engineering, quality assurance, and development functions to a planned separate company. (From an article in the Nikkan Jidosha Shimbun on Jan. 31, 2009)

New company in Egypt established
-Sumitomo Electric Wiring Systems (Europe) Limited (SEWS-E), a UK joint venture of Sumitomo Electric Industries, Ltd. (SEI) and Sumitomo Wiring Systems, Ltd. (SWS), announced the establishment of an automotive wiring harness manufacturer in Port Said, Egypt, in order to enhance the supply of automotive wiring harnesses in Europe. This is the first automotive wiring harness production base in Egypt for the SEI Group. The new company "SE Wiring Systems Egypt S.A.E.," established in July 2008, is capitalized at value in Egyptian pound equivalent to 10 million dollars, wholly invested by SEWS-E.. With a workforce of approximately 1,400 and two Japanese representatives, the Egyptian company is slated to start operation in August 2009. It targets to generate annual sales of 5 billion yen in 2010 from the automotive wiring harness business. (From an article in the Nikkan Jidosha Shimbun on Sep. 9, 2008)

FY2009 Results Forecast
Actual result
Overall 2112.0 billion JPY 1780.0 billion JPY
Automotive related business 917.1 billion JPY 740.0 billion JPY


R&D Expenditure (in million JPY)
  FY2008 FY2007 FY2006
Overall 72,988 68,373 64,427
Automotive related business 38,890 40,891 38,019

R&D Structure and Activities
Wire harnesses / in-vehicle electronic equipment
-R&D activities are mainly conducted at AutoNetworks Technologies, Ltd.,  which is jointly owned by the Company and Sumitomo Wiring Systems, Ltd. R&D activities are mainly focused on developing new products meeting safety, comfort and environmental needs.

-The Company made Sumitomo Electric Wiring Systems, Inc. its wholly owned subsidiary in August 2007 in order to make advances in developing new products and technology using the combined expertise in the areas of materials and information technology under a  consolidated organizational structure.

To make in-car electronic devices capable of handling IT applications and performing more sophisticated functions, the Company is developing the following:
-Power Distributors (PDs)
-CDUs (Center Display Units) such as cameras that can monitor vehicles from three angles.
-Next-generation, high speed car information LANs and related software:
The Company also develops wire harness systems suitable for the devices or systems mentioned above.

Environmentally Friendly Products: The Company will develop lightweight wire harnesses that respond to environmental concerns.
-High voltage harnesses for EVs/HEVs.
-Environmentally friendly products for wire harnesses such as halogen-free electric wires, lead-free solder, and connecting terminals that do not require soldering

-To achieve the required standard of quality for new products and also shorten development time, the Company will develop technologies on testing, evaluation, and analysis that are essential for developing material elements. The Company is developing technologies that do not require prototypes, by enhancing simulation technology using computer-aided engineering (CAE). This technology simulates the life of wire harnesses and analyzes heat and vibration of electronic modules.

Vibration isolating rubber
-Tokai Rubber Industries, Ltd. reorganized its laboratory operations, establishing the New Business Development Laboratory. The purpose of this initiative is to enhance its R&D framework so that the Company has the capabilities to quickly find new business opportunities.

-The Company's activities in the automotive area include, mainly for rubber products, further cost reductions, measures for improving the natural environment, efforts for improving driving comfort, establishing the right corporate structure that ensures global capacity is met, and developing sufficient technology.

R&D Achievements
-The Company has developed for the first time in the industry a technology to analyze the amount of red phosphorus contained in resins. It says it has already filed a patent application for this innovative technique and expects the method to be used widely in areas including material development, quality control, and material acceptance inspection. Leveraging red phosphorus' behavior to sublime and gasify around 450 degrees Celsius, Engineers of the Company deployed pyrolysis-gas chromatography mass spectrometry method in measuring the amount of the substance. The qualitatively and quantitatively analysis of red phosphorus was made possible, since the element shows mass spectrum in the spectrometry method, which is used mainly for analyzing organic materials. The pyrolysis-gas chromatography mass spectrometry technique requires only some 0.1 milligrams of materials and eliminates troublesome preprocessing including separating and collecting of materials using solvents. (From an article in the Nikkan Jidosha Shimbun on Aug. 2, 2008)

-The Company successfully developed a prototype of the world's first electric vehicle powered by a superconducting electric motor. While conventional electric motors use copper wire, the new system uses bismuthic, high-temperature, superconducting wire rod which passes critical current of the world's highest level and therefore 200 times larger electric current can be applied. Taking advantage of its features including low friction, the prototype's CO2 emission has been decreased by approx. 13% compared to conventional electric vehicles. The Company aims to install this new system in vehicles for the market in ten years at the latest and will therefore start aggressive marketing towards automakers and electric motor manufacturers. (From an article in the Nikkan Jidosha Shimbun on Jun. 14, 2008)

Investment Activities

Capital Expenditure (in million JPY)
  FY2008 FY2007 FY2006
Overall 131,597 119,887 121,830
Automotive related business 69,567 69,075 75,263

-The Company invested in the automotive business to increase production and improve the efficiency of wire harnesses and vibration isolating rubber.

Capital Investment Plan (FY2009)
-The Company plans to invest 80,000 million yen in FY2009.

-Its Automotive Business Division plans to invest 32,000 million yen mainly in its facility that produces wire harnesses and vibration-isolating rubber.