Hitachi Cable, Ltd. (President: Seiji Hara; hereinafter referred as "Hitachi Cable") and Sumitomo Electric Industries, Ltd. (President: Norio Okayama; hereinafter referred as "Sumitomo Electric") have reached an agreement to establish a study committee, chaired by senior executives from both companies, to explore all possibilities of a comprehensive business tie-up. This operating partnership will cover the two companies' Operations in OF cables, high-voltage XLPE cables, ACSR, and other high-voltage power cables and wires.

1. Aims of the Business Tie-up

The electric power cable and wire industry in Japan currently suffers from substantially excessive manufacturing capacity, as many major power transmission projects have been commissioned and new capital investment programs are being curbed both in the public and private sectors. In addition, growth in electric demand in future is expected to slow down, further squeezing demand for power cables. At the same time, increasingly popular trends toward international procurement will accelerate imports from overseas. Clearly, the domestic market environment is set to remain challenging for the foreseeable future. In exports, competition with manufacturers elsewhere in Asia and Europe is growing ever more intense. These factors are combining to make the profitability of high-voltage power cable operations extremely elusive. Many companies in the industry have a fear of finding it difficult to continue operations on a stand-alone basis in the near future.

Moreover, competitors in Europe and North America have for the past several years pressed forward with an aggressive program of restructuring, mergers, and acquisitions, giving rise to a relatively small number of large, powerful manufacturers with global competitiveness.

In due consideration of this challenging operating environment,
Hitachi Cable and Sumitomo Electric have agreed to study all aspects of a broad-ranging business tie-up with a view to streamlining their high-voltage power cable operations and establishing a sound, stable operating platform for both companies.

2. Content of the Business Tie-up to be Studied

A committee will be formed, chaired by senior executives from both companies, to study the issues outlined below. If the committee can obtain the acceptance and cooperation of customers and concerned authorities, and if a number of conditions can be met, the two companies will go ahead with the tie-up's implementation.

(1)	Merging of production by product type The two companies will need to streamline operations by merging production of high-voltage power cables and eliminating surplus capacity.
(2)	Establishment of a joint venture company The two companies wish to conduct operations in high-voltage power cables and wires through the establishment of a joint venture company on a 50-50 ownership basis.

Explanation of Technical Terms Used

1. OF cable (Oil-Filled cable)

This cable has oil-impregnated paper insulation, which is filled with insulating oil.
The soundness of the cable insulation is maintained by constantly applying a hydraulic pressure through an external oil adjustment tank so that any expansion or shrinkage of the cable caused by temperature variation is adjusted. This cable is applicable to high-capacity power transmission up to 500 kV, and used for urban underground power transmission and submarine cables.

2. XLPE cable (Cross-linked polyethylene insulated cable)

This power cable is insulated with cross-linked polyethylene. Crosslinking is chemically achieved by adding a crosslinking agent (e.g., organic peroxide) to polyethylene. With a wide voltage range of 600 V to 500 kV, the low-voltage type is used for wiring and distribution for office buildings and factories, while the high-voltage type is used for urban underground power distribution and transmission. In contrast with OF cable, the high-voltage type does not require maintenance, so the application of XLPE cable is becoming more common in recent years.

3. ACSR (Aluminum Conductor Steel Reinforced)

In the center of this conductor, galvanized steel wire is twisted together, and hard aluminum wire is twisted on the outside of that. This conductor is generally used for overhead power transmission line.