Review of Operations

In fiscal 2010, the Advanced Industrial Products business staged a recovery from the 2008 global economic downturn. Sales of automotive and smartphone components were particularly strong.

Sales of optical-related components declined during the year due mainly to weaker sales of solar cell manufacturing equipment and modules, as solar cell markets in Europe and other regions slumped. Sales of electronic devices and materials were on par with the previous year. While sales of silicon wafers increased on a tide of recovery in the semiconductor industry propelled by strong demand for mobile devices, the partial return of commercial rights weighed on results. Sales of fine chemicals and other products increased as a result of the expansion of the procurement solutions business.

Overall, sales in the segment rose 2% year on year to ¥295.6 billion.

In industrial materials, though the lingering effects of the earthquake will weigh on automotive components in the first half of fiscal 2011, a demand recovery is expected in the second half. In addition, sales of solar cell-related components are expected to rebound.

In optical-related components, demand for optical communications modules is expected to rebound, while sales of optical devices for LCD projectors are expected to decline. Sales of electronic devices and materials are likely to grow due to buoyant sales of smartphone components. In fine chemicals, we will continue to expand our procurement solutions business.

Furthermore, we plan to expand our trade with key local partners in the Asian region, in particular newly emerging economies. As a result, we expect overall segment sales to rise 3% year on year to ¥304.5 billion.

As with Industrial & IT Systems, in the Advanced Industrial Products segment we are promoting a shift to business areas where we can build a Global Top position in order to strengthen our trading functions.

We are pursuing three main business strategies: creating new businesses leveraging core competencies; accelerating the shift of resources to global growth markets; and promoting business with local partners in key regions. Geographically, the focus of the strategy will be on growth markets in the Asian Belt Zone (from Japan to the Arabian Peninsula). In one of our other trading functions, the Industrial & IT Systems segment, we have begun a project to bring solar generators and compact water purification systems to rural Indonesian communities lacking electric power. In this way, we are grasping the needs of our customers on a global basis and creating entirely new businesses.

Four key business areas are the environment and new energy, automobiles, social and industrial innovation, and lithium-ion batteries. In the area of social and industrial innovation, we are collaborating more closely with Hitachi, Ltd., which has made “Social Innovation” a core business. We are also building footholds in overseas markets in anticipation of taking a leading role in large-scale projects in the future.

As a new venture begun last year, we are developing system products which combine industrial materials we procure through the Advanced Industrial Products business with our own manufacturing equipment. This is an example of how we are leveraging our dual role as a trading company and manufacturer to expand business. Once configured, we plan to develop models like this integrating manufacturing, sales and services into a driver of future growth.

Going forward, we view our role as supporting Japanese companies as they explore business opportunities in the aftermath of the earthquake, including their expansion overseas. Instead of simply selling products, we will emphasize synergistic relationships and proactively develop new proposals geared towards business expansion.

Our priorities are to promote business in growing markets and expand value-added business around close collaboration with our leading customers and business partners, always aiming to be the Global Top in our field.

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