Hitachi Chemical in second falsification scandal this year, shares tumble

By Makiko Yamazaki

TOKYO (Reuters) - Hitachi Chemical Co said it failed to properly test parts used to encapsulate semiconductors, the firm's second compliance failing this year and the latest in a run of such scandals at Japanese manufacturers.

Shares in the Hitachi Ltd unit slid 8 percent on the news. Encapsulation materials account for more than a tenth of its core operating profit, according to Nomura Securities analyst Shigeki Okazaki.

But there were few expectations of a wide-scale recall as most clients normally conduct their own quality inspections.

One client, Toshiba Memory, had been told in late September of improper product testing but its own checks had found no quality problems, a spokesman for the world's No. 2 producer of NAND chips said.

The products cover chips, protecting them 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 Securities.

Hitachi Chemical said a committee of external experts was investigating the issue and that it would announce the results as soon as they were available. So far, there has been no finding of illegality or problems with product quality, the company said in a statement.

Weekend reports by local media said that the inspections were not carried out in line with what Hitachi Chemical had agreed with clients.

A Hitachi Chemical spokesman said it had not informed investors sooner as the company was waiting for more information from the committee of external experts. The shares have fallen nearly 30 percent in the past month.

The news follows 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)