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Shakeup at Showa Denko Bets on Chipmakers’ Next Design Challenge

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(Bloomberg) -- Showa Denko K.K., a key chemicals supplier to global chipmakers like Taiwan Semiconductor Manufacturing Co., is overhauling its executive team and company culture in anticipation of an industry shift it expects will boost its business over the next decade.

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New hires Hideki Somemiya and Tomomitsu Maoka joined in October and have already taken steps to shake up the century-old company. 53-year-old Somemiya, the new chief financial officer, began offloading shares in partner companies that were held merely to maintain good relations, while 47-year-old Maoka, appointed chief strategy officer this month, is revamping how the company communicates with and retains employees.

Both have a track record in the semiconductor industry: Somemiya helped Sony Group Corp. boss Kenichiro Yoshida develop recurring revenue from its chip business while Maoka helped revive the fortunes of key auto chip supplier Renesas Electronics Corp. They were handpicked hires of recently appointed President Hidehito Takahashi, who is mapping out the overall strategy. Founded in 1908, Showa Denko counts Infineon Technology AG and Toshiba Corp. among its customers alongside TSMC, according to Bloomberg supply chain data.

“When Takahashi asked me to join the company, he told me that Showa Denko is making a huge bet to change itself radically to be a true global player, and I thought that challenge exciting enough to stake my career on it,” Maoka told Bloomberg News in an interview.

The Tokyo-based company is betting on chipmakers moving their focus from shrinking semiconductors to stacking them in layers to help it reach the prodigious growth rates of equipment-making peers like Lasertec Corp. It provides essential ingredients for the treatment and preparation of silicon wafers, which would be in growing demand once miniaturization processes are exhausted and each new chip starts to consume more material.

“Demand for our polishing and packaging products will surge when chipmakers begin stacking up layers,” Somemiya said. “We’ve previously failed to position ourselves well to profit from the value we provide, but our time to reap the fruit of our work is coming.”

Showa Denko positioned itself aggressively by paying more than double its own market value for the chemicals unit of Hitachi Ltd. in 2020. The $8.8 billion deal made it a key supplier of chemical mechanical planarization slurry, a liquid used to polish the surface of silicon wafers. The company also launched an industrywide consortium to research and develop next-generation 3D packaging technology last year.

Read more: Showa Denko Unveils $8.8 Billion Deal for Hitachi Chemical

“The next decade will be about stacking up when it comes to the cutting edge of chipmaking,” Ace Research Institute analyst Hideki Yasuda said. “Materials, such as those made by Showa Denko, will become more important and their suppliers will get a renewed look from investors.”

Central to Showa Denko’s strategy is the premise that the decades-long move to ever-smaller transistors will hit physical limitations that make it more economical to employ novel designs and architectures rather than chasing increasingly pricier fabrication equipment. TSMC and Intel Corp. already employ some layering in their designs and are expanding on that work with more 3D stacking for later this decade.

To properly capitalize on its position, Showa Denko’s management is taking steps to safeguard its intellectual property and technological advantage by boosting staff retention. As part of efforts to improve communication with employees, Maoka turned the company’s typically closed-doors new-year strategy meeting into a video chat address by the CEO to its entire global workforce.

“I see cash cows everywhere in the company,” Maoka said. “But our human resources policy has been so lax that competitors were able to take our manufacturing secrets by hiring our engineers. I am changing that.”

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