Investors’ Meeting for Business Strategy
for the IT-related Chemicals Sector
Q&A Summary
Date and time:
Presenter:

Friday, October 4, 2019, 10:00 to 11:15 a.m.
Masaki Matsui, Representative Director &Managing Executive Officer＜Display-related materials＞
Q. I would like to ask how the U.S.-China problem and the Japan-Korea
problem are affecting your business. In addition, although it wasreported that products that leverage the materials development
capabilities of chemical manufacturers contribute to profits, I would
like to know the background behind your improvement in profitabilityin the last year or so.
A. In response to your first question, in the case of the U.S. and China
problem and the Japan-Korea problem, as well as the China-Taiwan
problem, over the past six months to one year, a variety of problems
have occurred, causing significant trouble, but they have not affected
our business very much in a broad sense. The U.S.-China problem ismainly tariffs, but the tariffs have never had any direct effect on ournegotiations with customers. Regarding the Japan-Korea problem,
there were various problems in commerce, and there were some cases
in which the timing of shipments was slightly affected, but there wasno large effect in general.
Regarding your second question about the background to ourimprovement in profitability, the main factor was the use of ourproducts in high-grade and large-size displays from the second half oflast year to the first half of this year. For TV applications, we believethat earnings have improved because our products were used relatively
early in customers' large-size and high-end displays. In mobile devices,
sales of polarizing films for full screen displays and OLED displays arehigher than expected.

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Q. Does your company expect to retain a competitive advantage for thetime being in polarizing films for high-end TVs and full screendisplays?
A. We believe we can maintain our advantage in the TV market, but themarket is now slightly more challenging, and that may have a slight
impact on sales prices and volumes. In mobile device applications, weexpect to retain our advantage and that, accordingly, the situation ofoverall solid performance will continue.
Q. I would like to ask separate questions about polarizing film for use inlarge TVs and for use in mobile phones. First, for large TVs, prices forpanels have fallen below costs for almost all sizes. Drastic changes are
forecast for the panel industry, which is your customer, and there is also
talk that subsidies from China will be cut.
Under thesecircumstances,
I would like to ask how you expect to maintain or expand sales volumes
and prices.
A. Slide 23, "Change of Polarizing Film Business Structure," shows salesof polarizing films by use in fiscal 2016 and fiscal 2021. Although notlisted in the documents, we believe that the proportion of sales ofpolarizing film films for TVs will not increase significantly in fiscal
2021 compared to fiscal 2018 and fiscal 2019 because sales of polarizing
films for TVs had already grown to account for a fairly large proportion
by fiscal 2018. We intend to maintain and improve competitiveness byusing acrylic protective film, a material we make ourselves and whose
production capacity we increased this year.

2Q. For polarizing films for use in OLEDs for mobile devices, an area inwhich you are very strong, do you expect to be able to maintain an
exceptionally high market share even after next year? In addition, it is
my understanding that competitors of yours are leading the market for
foldable displays, but is there any room for you to differentiate yourself
by developing liquid crystal-coated retardation films for mobile devices
as well?
A. We have had a high market share in OLED polarizing films for mobiledevices both last year and this year. We expect to maintain a relatively
high market share next year. For foldable displays, while one company
is already selling them and other manufacturers will soon begin sellingthem, we can exhibit a very high profile by approaching the market
with all of our products, such as window film, touchscreen panel, andpolarizing film.
Q. You stated that, in expanding core operating income from 35 billion yen
to 50 billion yen, the contribution from next-generation businesses isexpected to be large. Four next-generation businesses are listed inslides 30-33, and, in particular, which fields are expected to expand?
Please explain the competitive advantages of your company in thesefields.
A. One factor that increases core operating income from 35 billion yen to
50 billion yen is the materials related to foldable displays. Second,
Sanritz will become part of the Sumitomo Chemical Group, adding
income from polarizing films for automobiles. In addition, we expect
compound semiconductors to contribute to the increase. Our products
for use in foldable displays are highly rated by customers for theirperformance, and, although it will depend on how much the market
expands, but we believe that they will contribute to the profitexpansion if they are launched in the market. For polarizing films forautomotive applications, we will work with Sanritz to develop films tomeet the demand for high-performance panels.

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Q. You stated that you would focus on products for window films, fullscreen displays, and large TVs in the future. Can we understand thatthe current Corporate Business Plan can be achieved simply throughan extension of existing initiatives? I would like to ask if there is likely
to be any shortfall in the target for fiscal 2021.
In addition, I would like to ask about your investment spending
required for the development of next-generation businesses during theperiod of the Corporate Business Plan, including in materials for
foldable displays.
A. Our polarizing film business was extremely challenging around fiscal
2014-2015. Although we had a number of polarizing film production
facilities and benefited from them, some of them were inefficient.
Consolidating the production lines to some extent reduced theseinefficiencies. We have also taken various steps to achieve high yields
since the launch of new products. This was also true for polarizing film
used for TVs and mobile devices, but we believe that this steady effort
has resulted in improved profits.
In addition, from a relatively early stage we determined that we had acompetitive advantage in polarizing film for large-screen TVs andhigh-end televisions, and focusing on those areas led to our success,resulting in a significant improvement in earnings from the latter halfof fiscal 2017 to the present. Going forward, it will be difficult to achieveenormous profits from polarizing film for TVs, so we want to growbusiness in polarizing film for mobile devices.
The production system for such products as polarizing film, touchscreen
panels, and window film is basically in place, and there is no need forlarge-scale new investments for the time being. If the market for
foldable displays expands beyond expectations, it may be necessary toinvest in preparing a production system for window films and liquid
crystal-coated retardation films.

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Q. I would like to ask about the demand trends for smartphones in China.
A. When the commercial frictions occurred this past spring, demand forsmartphones, in general, as well as our products dropped slightly, but
we believe that it recovered relatively quickly. Although there are areasof uncertainty in the future, no signs of considerable severity have been
projected at the moment.
Q. I understood that Sanritz is strong for automotive applications, but I
would like to ask you if it has technological advantages. In addition,
the company has two production lines for polarizing film, but is it
considering investing in new facilities in the future?
A. In terms of technology, Sanritz and Sumitomo Chemical have slightly
different manufacturing methods, and Sanritz has a line that canprovide higher durability. The reason for the business partnership wasthat Sanritz has such technologies as polarizing films and adhesives forautomotive applications. Of the two production lines it currently has,
one line is mainly for smaller-scale applications, such as automotiveapplications, and the other line is mainly for monitors, notebooks, andTVs. As for additional capital investment, there is a possibility ofinvesting in improving the productivity of existing lines rather thanadding new lines, but we would like to make any such decisions after acareful examination of market trends.

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＜Semiconductor materials＞
Q. You stated that you are actively expanding your semiconductormaterials business, but it requires even greater R&D investments thanthe display-related materials business, and competition is intense. In a
field in which major players are leading the way, how will you
strengthen your competitiveness? You stated that your final goal is toachieve core operating income of 50 billion yen for the entire sector, butI would like to ask how much of that amount do you expect to be fromyour semiconductor business.
A. One of our strengths in semiconductor materials is immersion ArF
resists. We actively invested resources in this product, and we wereable to capture a high share of the market. Although we were not thefirst to enter the field of EUV resists, our EUV resists have received
high acclaim from customers. Our success was triggered by our highmarket share in immersion ArF resists, enabling us to establish very
deep relationships with customers, and enabling us to sell to customers
everywhere around the world. We are also actively strengthening oursales activities in China. The status of our product development andsales activities in the growing Chinese market is not bad at all, and wehave high expectations for the expansion of the market in China.
Of our core operating income target of 35 billion yen for the final fiscal
year of the current Corporate Business Plan (fiscal 2021), we expect
nearly half to come from our semiconductor business
Q. When your core operating income reaches 50 billion yen, will theproportion of profits from semiconductor materials exceed that ofdisplay-related materials?
A. Core operating income of 50 billion yen is expected to include
considerable profits from products for foldable displays and other newdisplays, and we expect profit from other display-related materials andcompound semiconductor to gradually add to the total. Regarding
semiconductor materials, since we have new plants that will start up in
China and Japan next year or the year after, it is expected that thecontribution to profitability will expand around that time, and that it
will flatten out at a certain level afterwards.

6Q. Unlike ArF resists, EUV resists have up to just three users, and there
are already three suppliers. Equipment is also very expensive in thisbusiness. Despite this situation, why did you decide to enter thismarket?
A. There were similar problems initially with ArF resists, but we decided
to enter the market in view of the prospects for the size of the market,
and finally succeeded. Although we still do not know how large theEUV resists market will be, we are implementing various initiatives.
For the time being, we will be supplying without making hugeinvestments. We are working in consulting with customers, and thequality of our product has been very highly rated.
＜Others＞
Q. Regarding Polymer coated-type light-emitting materials, you spoke
earlier about JOLED, but I would like to ask about your progress indeveloping Polymer coated-type light-emitting materials for TVs.
A. TV markets themselves have been determined to be somewhat
stagnant, so it is a very difficult situation, but indications from panel
manufacturers other than JOLED panel manufacturers are somewhat
good. Though it is the decision of the customer whether to adopt ourproduct, we believe that, in terms of our technology, it has reached thestage where it can perform well.
Q. I would like to ask about your thinking in regards to your M&A strategy.
You are collaborating with Japanese companies, such as Hitachi
Metals in compound semiconductors and Sanritz, but what criteria doyou use for partner selection?
A. Both companies had capabilities in areas where we felt we weredeficient. If there is a company that has the technology we need, wewould like to cooperate both in Japan and overseas. When we cooperate
however, if we are unable to understand and respect each other, it will
be difficult. In that sense, even though we need to speed up ourprogress, we would like to spend a certain amount of time building
bonds of trust with companies with which we would like to collaborate.

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Q. The market for materials for CMOS image sensors is not so large, butthere is already supplier. Why did you decide to enter this market?
A. There is one very strong supplier of materials for CMOS image sensors.
Although we are familiar with that company’s strengths, we continued to
study color in the LCD color resist business. We propose technologies
that are slightly different from that other company to our customers, andthese technologies have received very high ratings from our customers,
so we believe that we can gradually increase our market share.

(END)

Cautionary Statement
Statements made in this document with respect to Sumitomo Chemical’s current plans,estimates, strategies, and beliefs that are not historical facts are forward-looking
statements about the future performance of Sumitomo Chemical. These statements arebased on management’s assumptions and beliefs in light of the information currently
available to it, and involve risks and uncertainties. The important factors that could cause
actual results to differ materially from those discussed in the forward-looking statements
include, but are not limited to, general economic conditions in Sumitomo Chemical’smarkets; demand for, and competitive pricing pressure on, Sumitomo Chemical’s productsin the marketplace; Sumitomo Chemical’s ability to continue to win acceptance for its
products in these highly competitive markets; and movements of currency exchange rates.

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