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Business

Dow Seeks Magic Specialties Recipe

At an exhibition in Philadelphia, Dow showcased its new advanced materials unit

by Alexander H. Tullo
May 31, 2010 | A version of this story appeared in Volume 88, Issue 22

UP! IN A NEW WAY
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Credit: Alex Tullo/C&EN
Dow displayed a new organic light-emitting diode television that is only 3 mm thick.
Credit: Alex Tullo/C&EN
Dow displayed a new organic light-emitting diode television that is only 3 mm thick.

Earlier this month in a Philadelphia hotel, Dow Chemical set up an exhibition for journalists and investors touting its advanced materials division, formed after Dow’s purchase of Rohm and Haas a little more than a year ago.

More than a dozen booths were set up, each on Dow Advanced Materials businesses and technologies ranging from photovoltaic roofing shingles to foundations—the cosmetic kind. Moving from display to display felt like judging a science fair. Each was manned by attentive scientists and business managers ready to give the spiel on their technologies.

And much like a science fair, each booth had demonstrations. In the water treatment booth, blue water left one tank, went through a Dow reverse-osmosis membrane, and came out crystal clear in another. The display technologies booth had a new, unbelievably thin organic light-emitting diode television from LG that contains Dow’s small-molecule organic semiconducting materials. At the solar display, attendees were invited to walk on the shingles to demonstrate how tough they are.

By showing a wide variety of applications, the company was hammering home the message that Dow Advanced Materials shouldn’t be considered merely a high-tech division of Dow but rather a specialty chemical company operating within Dow that can draw resources from the world’s second largest chemical maker.

“Dow Advanced Materials is the flagship of the Dow Chemical Co. in specialty chemicals,” announced Jerome A. Peribere, the chief executive officer of the unit. He has been a Dow hand since 1977, most recently as the head of Dow AgroSciences. He took over Dow Advanced Materials in October when its first leader, Pierre R. Brondeau, Rohm and Haas’s former chief operating officer, left his post abruptly to head FMC Corp.

The new unit, based in Rohm and Haas’s old Philadelphia headquarters, is an amalgam of specialties-oriented businesses from Dow and Rohm and Haas with a total of $9 billion in 2009 sales. It has Rohm and Haas’s electronic materials business, a leader in materials such as chemical mechanical planarization pads and slurries. The building and construction unit primarily has businesses from Dow, such as Styrofoam insulation.

In addition, Dow Advanced Materials includes businesses with contributions from both companies. For example, the specialty materials unit houses ion-exchange resins and antimicrobial chemicals from Dow and Rohm and Haas. Its coatings materials business marries Dow’s business in epoxy resins for industrial coatings with Rohm and Haas’s acrylics for architectural paints.

At the conference, Peribere emphasized that his integration strategy has been to blend the cultures of Dow and Rohm and Haas to create something unique. “I am telling every single Dow Advanced Materials employee that if he looks for the old Rohm and Haas in Dow Advanced Materials, he’s not going to find it,” Peribere proclaimed. “And I am telling every single Dow employee that if he looks for the good old Dow in the Dow Advanced Materials, he’s not going to find it.”

Peribere has a strong idea of the cultural strengths he wants to bring together. “We are taking the best of customer intimacy, the best of applications, and the best of the ownership and the agility of Rohm and Haas and enabling it with the best of the long-term core research, the best of manufacturing, and the best of the size and the global reach of the Dow Chemical Co. I think this is a magic recipe,” he said.

For example, Rohm and Haas spent $327 million on R&D in 2008, when it had $9.6 billion in sales. But the advanced materials unit garners about one-third of Dow’s $1.6 billion R&D budget, according to Attiganal N. Sreeram, vice president of R&D at Dow Advanced Materials. “That’s significantly larger than Rohm and Haas and what a company of that size could do on its own,” he told C&EN.

Dow can also bring more resources to bear on big R&D efforts than Rohm and Haas could, Sreeram added. “There were some things that Rohm and Haas wanted to do but couldn’t because it is a $50 million or a $100 million investment over four or five years,” he pointed out. “But we now have the size to do that.”

At the conference, Peribere unveiled ambitious plans for growth. He expects Dow Advanced Materials to expand by 10% annually, hitting $16 billion in sales by 2015. Meanwhile, pretax earnings—$1.6 billion last year—are expected to reach $4 billion in 2015.

Some of the growth will come from the economic recovery. Sales for products such as coatings and construction materials should rebound. And Peribere expects growth in Asia to be twice that of the other regions. In fact, at the event, the company unveiled two investments in Asia: an electronic materials lab in South Korea and an emulsion polymers plant in China.

Peribere also promised plenty of organic growth. He expects each of the businesses to grow faster than the economy. And he is pinning his hopes on exceptional growth for some products. For instance, solar shingles, which use thin-film copper indium gallium selenide technology, are applied to roofs as shingles, not as a covering on top of the roof, as conventional polycrystalline silicon photovoltaic cells are applied.

The company hopes to see the shingles installed in 50,000 homes annually by 2015, resulting in about $1 billion per year in sales for Dow. “This is going to be the largest and fastest ramping product in the Dow Chemical Co. ever,” Peribere said. “This is truly a revolutionary product.”

Morgan Stanley stock analyst Paul Mann, in a recent note to clients, called the shingles, along with Dow’s Aerify diesel particulate filters, “potentially disruptive technologies,” each with billion-dollar-per-year revenue potential.

But Mann added that a robust innovation pipeline is a relatively new development for Dow. “Lack of product innovation has been a problem for the broader specialty chemical group during the last 15 years, and the innovation pipeline at Dow, and most other chemical companies, has produced little in the way of significant new brands or products,” he wrote. “However, we see a number that are emerging within Dow’s portfolio.”

The solar shingles are a sign of another change at Dow. The company plans to take its chemistry further downstream than it used to. For instance, the cosmetic foundation displayed at the exhibition is actually makeup dispersed on a cellulose-based strip—analogous to Listerine breath-freshener strips. A couple of drops of water dissolve the strips to form a cream that can be applied to the face. Dow intends to formulate it for customers who would put it in their own packaging.

The company hasn’t had such an emphasis since it sold its DowBrands unit to S. C. Johnson & Son in 1997. Similar to how products such as Saran Wrap were ways for Dow to add value to polyvinylidene chloride production, Dow’s new strategy is aimed at capturing more of the value chain, Peribere said. He cited Dow’s wall system, in which a single sandwich of polymer sheet, cardboard, and polyisocyanurate foam substitutes for separate layers of house wrap, oriented strand board, and fiberglass insulation on house exteriors.

The Dow system, Peribere says, is lighter and easier to install, reducing costs. “If we manage to integrate products into one solution and reduce the builder’s cost of installation,” he says, “we are going to capture part of that labor reduction value.”

And this is an example of the key idea behind Dow’s Advanced Materials unit: creating value for customers while also capturing some of the value for Dow in a way that the company couldn’t before the unit was created.

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