April 4, 2000
Medium-term Management Plan
Three-year Plan to March 31, 2003
| In this article we present the three-year Mid Term Business Plan that Sanken Electronics Co., Ltd. has conceived for the period from last year through fiscal 2002. The objective of this 2000 Mid Term Business Plan is to offer shareholders, customers and employees a vision of consolidated management that will build a solid foundation for trust and confidence in Sanken.
With the aim of "building trust at all levels," Sanken is committed to emerging as a global niche player in the field of power and peripheral applications (P&P). In the 21st century, the Sanken Group will marshal its management resources to build Sanken as a unique and creative innovator, with a sharp focus on quick and decisive action. In this way Sanken looks forward to further extension of its operations in the months and years to come. 1. Management targets and target indices (year ending March 31, 2000)
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2. Specific Measures
1) Dynamic expansion in semiconductors as the Company's core business
Sanken plans further expansion in the semiconductor industry, with these operations forming its core business. We will further enhance the leadership in BCD process technology and assembly technology that differentiates us from the competition while providing unique, value-added products to serve emerging applications in automobiles and home appliances, s uch as in refrigerators and air conditioners, where the adoption of electronic control systems is accelerating. In existing markets, the Company will work to expand its operations in energy-saving and environmentally friendly products, boosting net sales in this area 27% to ¥123 billion and consolidated operating income from these operations 70% to ¥7.6 billion in the 2002 fiscal year (based on the forecast for fiscal 1999). Toward this end, Sanken will invest ¥24 billion in domestic operations and ¥6 billion in the Allegro over three years while forging strategic alliances and working to raise productivity and shorten development lead times.
(Specific actions)
| 1. | New markets and products | |
| Sanken will enter new markets, develop new products and applications, and develop value-added products to serve the growing need for products that are digital, feature-rich, portable, energy-saving and environment friendly. Such products include digital appliances, PCs, mobile telephones, LCD backlights and automobile ECUs.
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| 2. | Development of next-generation mixed-signal BCD process technologies
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| 3. | Strengthening of system (circuit) technology and development of modular products (joint development with electronics companies)
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| 4. | Improvement of productivity and shortening of lead times through an aggressive program of building alliances | |
| o | Building stronger relationships with companies such as International Rectifier Co., Ltd. and Analog Devices Inc. | |
| o | Devolving assembly and chip production to OEM contractors | |
| 5. | Strengthening collaboration on the Allegro | |
| o | Supplementary chip production, product development, process technology development and supplementary sales operations | |
| 6. | Continuous cost reduction by increasing wafer diameter, boosting productivity and enhancing VA/VE technology | |
2) Building profits through synergies between electronics and semiconductors
By fusing semiconductor technologies with electronics, Sanken will expand its line of switching power supply products and enter new markets such as motor control boards. By so doing, the Company aims to bolster consolidated net sales 30% in this area, to ¥28 billion in the 2002 fiscal year (against forecast net sales for the 1999 fiscal year). Moreover, with the development of one of the world's most advanced production sites, Sanken will slash labor costs and reduce material costs through local purchasing of materials. These efforts will yield shorter lead times to secure consolidated operating income of ¥1.1 billion.
The Company plans to spend ¥2 billion on capital investment, centered on expanding the production facilities of Sanken Indonesia.
(Specific actions)
| 1. | Deployment of SMPS, a core product line, in industrial machinery markets. | |
| 2. | Value-added, low-cost production of existing products through fusion with semiconductor technology | |
| o | SMPS and adapters mounted with hybrid ICs | |
| o | Power module SMPS | |
| 3. | Creation of new products and deployment in new markets through fusion with semiconductor technology | |
| o | Motor control boards for home appliances, such as refrigerators, air conditioners incorporating DSP | |
| o | DC-DC converters for IT devices | |
| o | Power modules for digital appliances | |
| 4. | Local design of motor controls in Europe and strengthened partnership with ADI Inc. | |
| 5. | Reduction of material costs by 20% and shortening of lead times by 33% through local purchasing | |
| 6. | Reorganization of the international sales network | |
3) Strengthened private-sector demand and expanding sales in electrical power supply equipment
We will continue to provide highly reliable power supply systems for rectifiers and large-scale UPS supporting the IT and electrical power industries. Sanken will also work to expand the IT industry with small and medium-sized UPS and achieve greater market penetration in China and Taiwan with inverters and UPS. We also plan early introduction of energy-efficient, environmentally friendly hybrid power supply. Through these strategic actions, Sanken expects to advance consolidated sales 20% to ¥23 billion in the 2002 fiscal year (against forecast net sales for the 1999 fiscal year). Through measures such as producing inverters and UPS in China, Sanken will secure consolidated operating income in this area of ¥1.6 billion. Capital investment will total ¥700 million, with emphasis on upgrading manufacturing equipment.
(Specific actions)
| 1. | Providing power system solutions using core products such as rectifiers, inverters and UPS | |
| 2. | Nurturing new products in the fields of energy-saving and environmentally friendly technology | |
| 3. | Expanded collaboration in the development of a next-generation communication system circuit board for rectifiers | |
| o | IP exchangers | |
| o | IMT2000 | |
| 4. | Achieving top UPS share in the IT market | |
| o | Expansion of home electronics products | |
| o | Enhancement of software features | |
| o | Restructuring of the retail sales network | |
| o | OEM supply | |
| 5. | Production of UPS in China and expansion of sales into the Chinese market | |
| 6. | Expanded production of inverters in China and marketing in China and Taiwan | |
| 7. | Narrowing of the supplier base (25-33% reduction) and improvement of productivity to reduce prices | |
4) Strengthening the independence of the Company's subsidiaries
(1) Allegro Microsystems
Sanken will reexamine its relationship with Allegro Microsystems Inc., which earns revenues in its core semiconductor activities and the operations of which strongly affect the Group's results as a whole, to restore its place as a profit center for the Group. Sanken will accomplish this by enhancing the Company's exclusive technology to develop new products and focusing on expanding sales of sensors and power ICs. The Company will also bolster its collaboration with other firms in development, production and sales, including a supplementary production agreement with Yamagata Sanken, enabling Sanken to respond rapidly to changing market conditions. Through these efforts to strengthen its managerial capabilities, Sanken forecasts a 30% increase in net sales in these operations to ¥31 billion in the 2002 fiscal year (against forecast net sales for the 1999 fiscal year) and consolidated operating income of ¥1.6 billion. The Company will achieve this through a three-year- ¥6 billion capital investment plan.
(Specific actions)
| 1. | Continuation of management support to Allegro through the specialized team formed in October 1999 |
| 2. | Development of products that differentiate Sanken in the market, based on sensors and power ICs, as well as expansion of sales in the high-growth markets for automobiles, notebook PCs and mobile communications |
| 3. | Expanded production of sensors, a core product, and aggressive entry into the automobile and mobile telephone markets |
| 4. | Standardization with Yamagata Sanken on 6-inch production platforms to improve supplementary production and return on investment; bottlenecks will be removed and productivity increased in the Company's U.S. production line. |
| 5. | Throughput will be increased as inventories and fixed costs are trimmed, and interest-bearing liabilities will be decreased, to create a profitable management base. |
(2) Sanken Power Systems
This company plans to increase sales in the European market by fusing its technology with semiconductor technology, chiefly through the development of products in new fields such as switching power supply systems and motor control boards for home appliances. By establishing local design and purchasing and boosting productivity, the subsidiary will quickly transform itself into a profitable entity with a prominent market presence. By the end of fiscal 2002, we expect Sanken Power Systems to secure net sales of ¥4.9 billion and operating income of ¥100 million.
(Specific actions)
| 1. | Development of SMPS operations, limiting product scope to those with strong profit margins | |
| 2. | Expansion of motor control board operations through joint development with Analog Devices and establishment of a local design system | |
| * | Number of units produced: Approximately 200,000 units in fiscal 1999 ----- 1 million units in fiscal 2002 | |
| 3. | Lower costs in VA/VE operations through comprehensive pursuit of local design and production, improving cost competitiveness | |
| 4. | Reduction of adapter production | |
| 5. | Nurturing and development of new products through fusion with semiconductor technology | |
(3) Sanken Transformer Co., Ltd.
The Sanken Group is committed to further growth for this distinguished specialist in the production of transformers. We are buttressing the firm's preeminent market position by reorganizing and strengthening Sanken Transformer's production and sales bases and aggressively developing a range of new products, including high-frequency audio transformers and surge and noise protectors. Through all of these efforts, the Sanken Group seeks to realize consolidated net sales in fiscal 2002 of ¥8.5 billion and consolidated operating income of ¥700 million. This effort will be funded by a ¥600 million capital investment made over three years.
(Specific actions)
| 1. | Reorganization of production sites | |
| o | The Kumagaya Plant will be restructured to serve a new function as a center for technology and quality management. | |
| o | A new plant will be established in Southeast Asia to produce high-frequency transformers and reactors. | |
| o | The Dalian Plant will be strengthened and entrusted with production for the domestic market, while adjusting its range of production items with the Indonesia Plant. | |
| o | Singapore Plant will be overhauled to serve as an ASEAN logistics center. | |
| 2. | Restructuring of the Asian (ex-Japan) sales organization | |
| 3. | High-frequency transformers will be strengthened for use in audio power switching | |
| 4. | New products will be nurtured and introduced for the digital IT market. | |
5) Formation of energized employee organizations
With the stated aim of "developing permanent personnel that are ready for the 21st century," Sanken instituted a new personnel system in April 1999. This system dispenses with the old seniority-based arrangement to reward employees according to their performance, creating a positive environment that encourages excellent people to apply their talents to the best of their ability. We complemented the new personnel system with a training system to improve employee skills and boost morale while developing a corps of dynamic professionals.
(Specific actions)
| 1. | Implementation of a selective training system to develop senior management for the 21st century |
| 2. | Establishment of an employee evaluation system and provision of thorough evaluation training |
| 3. | Institution of a professional engineer program |
| 4. | Introduction of a new retirement benefit system |
6) Advancement of Group management and efficient asset allocation
In addition to revenues and earnings, the Sanken Group uses a third management index: efficiency of asset allocation. Efficient use of assets builds shareholder value and increases the value of a company to the Group. For this reason the Sanken Group has set consolidated management targets of net sales of ¥180 billion, operating income of ¥11 billion, ROE of 8% and ROA of 6%. The adoption of consolidated management also raises operating efficiency, ensuring that management resources are used to best effect. Sanken is committed to strengthening and firmly supporting the consolidated management system in the months and years ahead.
(Specific actions)
| 1. | Reduction of interest-bearing loans (from ¥68 billion to 48 billion) |
| 2. | Movement toward retirement of the Company's treasury stock |
| 3. | Reduction of inventories and improvement of ROI to strengthen cash-flow management |
| 4. | Measures such as expansion of dollar-denominated purchasing to minimize exchange-rate risk |
