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Shin-Etsu Chemical, the world’s largest producer of semiconductor silicon wafers, is spending Y120bn ($1bn) to expand production and consolidate its lead over competitors.

The company plans to build two new silicon wafer production plants in Japan and expand capacity at its existing facilities to raise annual output of 300mm wafers to 1m a month by next autumn, compared with 700,000 per month.

The decision to expand capacity follows the agreed acquisition by Sumco, the number-two silicon wafer manufacturer, of Komatsu Denshi, the fifth-largest silicon wafer maker. That will increase Sumco’s share of the market from 22.1 per cent to 30.8 per cent, just shy of Shin-Etsu’s 31.7 per cent, according to statistics from Dataquest.

The expansion of capacity highlights growing demand for semiconductor silicon wafers as consumers switch to digital products.

“Demand for semiconductor silicon wafers used to come mainly from the PC industry but since about 10 years ago demand has increased from a broad range of products including games and mobile phones. Recently, there has been growing demand from vehicle manufacturers as well, as their vehicles use a lot of semiconductors too,” Shin-Etsu said.

At the same time, competition is intensifying, particularly among Japanese manufacturers, spurring the race to expand capacity. “Volume is very important. We need scale merit to reduce costs,” Shin-Etsu said.

Hisaaki Yokoo, chemicals analyst at Goldman Sachs in Tokyo, estimated that Sumco would have capacity to produce 820,000 wafers a month at the end of 2007, even including capacity at Komatsu Denshi.

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