Hitachi Chemical in second falsification scandal this year, shares slide

By Makiko Yamazaki

TOKYO (Reuters) - Hitachi Chemical Co has told customers it falsified inspections for material used to encapsulate semiconductors, an industry source familiar with the matter said - the firm's second compliance failing this year and the latest in a run of such scandals at Japanese firms.

Shares in the Hitachi Ltd unit tumbled 8 percent on the news. While the exact nature of the falsification is not known, the likelihood of a wide-scale recall is seen as slim as most clients normally conduct their own quality inspections.

"Therefore it may be the case that there are no major quality issues with the actual encapsulation materials," Nomura Securities analyst Shigeki Okazaki wrote in a note to clients.

The source, who is not authorised to speak to media on the matter and declined to be identified, said Hitachi Chemical recently notified customers of improper tests.

Hitachi Chemical said in a statement on Saturday that a committee of external experts was investigating the issue and that it would announce the results as soon as they were available.

Local media reported at the weekend that the inspections were not carried out in line with what Hitachi Chemical had agreed with clients.

The material is used to protect chips from scratches and debris. Hitachi Chemical is the world's second-biggest producer of such materials with 17 percent market share after Sumitomo Bakelite, which has 20 percent, according to Nomura's Okazaki.

He noted that encapsulation materials account for over 10 percent of Hitachi Chemical's core operating profit.

The Tokyo Stock Exchange on Monday issued a warning to investors about uncertainty surrounding the issue.

The 8 percent share slide represents a loss in market value of around 20 billion yen ($180 million), exacerbating recent slides. The stock has lost about 28 percent this month alone.

Sumitomo Bakelite saw its stock climb 2.6 percent on Monday, outperforming a 0.4 percent gain for the broader market.

The revelations follow Hitachi Chemical's admission in June that it found data falsification in quality tests of lead-acid batteries for industrial use over a period of more than seven years, affecting some 60,000 products shipped to roughly 500 companies.

Other recent compliance scandals at Japanese manufacturers include Kobe Steel Ltd's admission this year that data fraud had been going on for nearly five decades. Nissan Motor Co Ltd and Subaru Corp have admitted to misconduct in their inspection processes.

KYB Corp, a maker of earthquake shock absorbers, said this month that 900 buildings across the country have or may have used its products for which quality data was falsified.

($1 = 111.8800 yen)

(Reporting by Makiko Yamazaki; Additional reporting by Takashi Umekawa, Chang-Ran Kim and Naomi Tajitsu; Writing by Ritsuko Ando; Editing by Edwina Gibbs)