In the semiconductor materials market, Japan captures 50% of the market share

Japanese materials manufacturers that support semiconductor production are showing signs of restructuring. This is because in terms of semiconductor materials, Japanese companies have about 50% of the global share, but each company is small in scale and faces the risk of being acquired by foreign capital. From the perspective of economic security, the importance of semiconductors is increasing. Can technologically advanced but small behind-the-scenes companies continue to remain competitive and provide support for attempts to revive Japan's semiconductor industry?

"We hope to lead the restructuring of the industry and maintain international competitiveness in the long term," Eric Johnson, CEO of JSR, a large Japanese materials company, emphasized.

The company will be incorporated into the Japan Industrial Innovation Investment Corporation (JIC), a sovereign wealth fund, through TOB (Tender Offer) in 2024. With the backing obtained, it has shown a positive willingness to reorganize domestic materials enterprises.

Shogo Ikeuchi, president of JIC Capital, which became the buyer, pointed out, "In Japan's semiconductor material field, the companies involved are scattered, and the investment efficiency as an industry is low." In terms of research and development expenses, it is not as good as the United States and Europe, and there is also the risk of being acquired by foreign capital.

Comparing the industry share data obtained through Japan's Ministry of Economy, Trade and Industry and corporate financial reports with the total market value as of the end of August, we can find the actual situation of Japanese companies with "high market share but small scale".

Semiconductor manufacturing is divided into "pre-processing" of building circuits on silicon wafers and "post-processing" of cutting the wafers into chips. JSR has about 20% of the global market share in the "photoresist" field that is applied during the previous process.

However, the total market value is only 850 billion yen, less than one-fifth of DuPont, which has a market share of about 10%. The world's largest company of this material, Tokyo Onka Industry, is smaller, only about 420 billion yen.

Looking at the "etching gas" used to cut excess parts of the wafer, in the field of cutting-edge products, Kanto Denka Industries and Resonac Holdings (formerly Showa Denko) have a share of more than 50%. The total market value of the two companies combined is only 1/20 of that of Merck of Germany, which has a 20% share.

There are also many Japanese companies whose price-to-book ratio (PBR), calculated by dividing the total market capitalization of their stocks by their own capital, is lower than the dissolution value standard of 1 times. As of June 30, Sumitomo Chemical was at 0.6 times, Resonac was at 0.8 times, and Kanto Denka Industries was at 0.9 times. A low stock price may increase the risk of being taken over.

There is a reason for the high share of Japanese companies. Previously, semiconductor materials have been dealt with by subsidiaries of chemical companies, and research on material combinations has taken a long time. Minamikawa Akira from the British research company Omdia believes that "Japanese companies have always maintained an advantage over overseas companies by focusing on research and development."

Generally speaking, the equipment investment in the semiconductor industry is relatively large, and scale plays an important role. This is also one of the reasons why the competitiveness of Japan's semiconductor industry has declined in the past.

Japanese companies such as NEC and Hitachi Manufacturing took the semiconductor industry by storm in the 1980s. Omdia data shows that in its heyday in 1988, the market share was 50%, but was later surpassed by South Korea and others, and the market share dropped to 9% in 2022.

According to data from the Center for Security and Emerging Technologies (CSET) at Georgetown University in the United States, Japanese companies account for approximately 30% to 60% of the share of materials and manufacturing equipment. Due to the confrontation between China and the United States, the "block economy" of semiconductors is intensifying, and the importance of producing indispensable components will increase.

Overseas, efforts are also being made to cultivate materials companies and compete. Taiwan Global Wafer, the world's third largest silicon wafer company, will conduct a TOB against Germany's Siltronic, which ranks fourth, in 2020. The German government did not approve the acquisition and the acquisition could not be completed.

Omdia's data shows that Japan's share in semiconductor materials is 48%, Taiwan's 17%, and South Korea's 13%. Minamikawa said, "What is needed is not a company-wide approach, but a mindset to secure market share across Japan." Changes in material manufacturers that are growing in niche areas will affect the success or failure of domestic production of the most cutting-edge semiconductors that the government and the private sector are striving to achieve.

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