The company has been looking for ways to leverage its expertise with mechanical-pencil carbon materials to develop new lines of business, now that the growth in its main market for stationery goods has slowed.

To date, it has utilized its carbon-processing technologies to branch into cosmetics and into parts and materials for heaters and audio equipment. But these new businesses now only generate annual sales of about 2.7 billion yen, accounting for some 5 per cent of group-wide sales.

With the debut of separators for tiny methanol fuel cells, Mitsubishi Pencil hopes to quickly boost its new business sales to 5 billion yen.

The separator is a core part of a methanol fuel cell, working to keep the hydrogen and oxygen separated while supplying them to the electrodes for the generation of electricity. The separator can be made from carbon, metal or resin compounds. Carbon is the lightest of the three, but it has problems with strength. Mitsubishi Pencil solved this shortcoming by baking the carbon as it does when making lead for mechanical pencils.

Both NTT DoCoMo Inc. (TSE:9437) and KDDI Corp. (TSE:9433) have announced plans to release phones powered by fuel cells in fiscal 2007.

Mitsubishi Pencil has already begun selling separators to a leading phone maker for prototype development and plans to install equipment for mass production at its Gumma plant this month. The goal is to have a system of mass production ready in fiscal 2006 and price the separators at 500 yen apiece, which is one-tenth the current price.