Kokusai Electric is fresh out of restructuring and fast gaining global market share amid booming AI chip demand
TOKYO – In a mark of the AI boom times, Japan’s Kokusai Electric is building its first new in-country factory in 35 years.
Kokusai competes with Applied Materials and Tokyo Electron in the markets for Chemical Vapor Deposition (CVD), Atomic Layer Deposition (ALD) and other thermal process and plasma treatment equipment used to form nanoscale thin films for the fabrication of integrated circuits (ICs) on silicon wafers.
The company has reemerged as a top maker of semiconductor production equipment after a successful spin-off from the Hitachi Group led by US private equity firm KKR.
While Kokusai is much smaller than Applied Materials and Tokyo Electron in terms of total sales, it commands high market shares in its key products – about 70% in batch ALD and 34% in batch CVD in 2023, according to market research organization Gartner.
Kokusai’s target applications include AI processors and other advanced logic ICs, the high-bandwidth memory (HBM) used with AI processors, 3D NAND flash memory and silicon carbide power devices.
“As semiconductor devices have become three-dimensional and more complex in recent years,” Kokusai explains, “the surface of wafers has become more complex. This, in turn, has increased demand for highly difficult deposition.”
Examples include the ever-rising number of layers in 3D NAND, the Gate All Around (GAA) transistors introduced with 3nm process technology and the Complementary Field-Effect Transistor (CFET) architecture being developed by nanoelectronics R&D organization imec for use at process nodes below 1nm envisioned at the end of the decade.
Kokusai also has also secured a hefty presence in the market for mature logic IC thermal processing equipment, first in Japan and China, and now in Europe and the US. In the past four quarters, just over 50% of the company’s sales were in China.
Graphic: Asia Times
Founded in 1949 as a telecommunications and other electronic equipment maker, Kokusai Electric Company launched its semiconductor production equipment business with a single crystal germanium/silicon ingot puller in 1956.
This was followed by the development of a diffusion furnace in 1964 and a CVD system in 1970. The company was listed on the Tokyo Stock Exchange in 1961.
In 2000, Kokusai Electric merged with Hitachi Denshi, a maker of video, communications and test equipment, and Yagi Antenna to form Hitachi Kokusai Electric, a consolidated subsidiary of electronic conglomerate Hitachi Ltd.
Over the years, Hitachi Kokusai became a leading maker of semiconductor production equipment and expanded around the world, with factories in Japan and South Korea and sales and service offices there and in Taiwan, China, Europe and the US.
But it was an awkward assemblage of three mainly unrelated businesses. In 2017, as part of the restructuring of the Hitachi Group, US buyout company KKR acquired 24.9% of Hitachi Kokusai in a complicated deal with other foreign and Japanese investors.
In 2018, Hitachi Kokusai was delisted from the Tokyo Stock Exchange and its semiconductor production equipment division was spun off, taken over by KKR and renamed Kokusai Electric Corporation.
In 2019, Applied Materials reached an agreement with KKR to buy Kokusai but that deal collapsed two years later due to Chinese antitrust regulator objections.
Because Kokusai’s product line would complement that of Applied Materials and increase its market concentration, the Chinese decision made commercial sense. Chinese approval is required if companies involved in a deal have a sizable business presence in the country.
In October 2023, Kokusai Electric Corporation was listed on the Tokyo Stock Exchange Prime Market (top tier), earning the “IPO of the Year” award from DealWatch of the London Stock Exchange Group. (The DealWatch Awards were established in 1995 to contribute to the development and expansion of Japan-related capital markets.)
In its evaluation of Kokusai, DealWatch wrote: “This is the first large-scale global IPO in Japan in approximately five years, exceeding 100 billion yen, and we carefully executed the transaction in a difficult situation with an uncertain market environment and a worsening semiconductor cycle. We attracted interest from blue-chip overseas investors, leading to extremely strong stock price performance.” Kokusai’s IPO price was ¥1,840, but it jumped more than 30% on the first day of trading.
KKR owned 43.4% of Kokusai as of the end of the fiscal year running to March 31, 2024. In July, KKR sold about half that stake. The most recent shareholder figures available show KKR at 23.2%, Applied Materials at 14.7% and the Qatar Investment Authority at 4.9%.
Since July, Kokusai’s share price has dropped from an all-time high of 5,940 to 3,320 yen. KKR took some profit, Applied Materials bought in the market some of what it could not acquire in a takeover and other investors scooped up shares. After escaping the Hitachi bureaucracy, Kokusai has now gained its independence from KKR.
The completion of Kokusai’s new 24 billion yen factory in Toyama Prefecture, northwest of Tokyo on the Japan Sea, should enable the company to achieve its goal of doubling production capacity in the five years to March 2026, with twice the efficiency of older facilities. It will also seek to strengthen the company’s R&D capability.
“To make our operations smarter,” Kokusai’s management said, “we plan to systematically introduce cutting-edge technologies, including IT, IoT [Internet of Things], digitalization, data utilization, automation, and even AI.” Production is scheduled to start in October.
Kokusai is also expanding its service and support operations in the US, Europe, India, Southeast Asia, Taiwan, mainland China and Japan.
Its customers include TSMC, Samsung Electronics, Micron Technology, Chinese DRAM maker CXMT, Intel and other leading semiconductor makers. Supplying equipment to implement their advanced process technologies will be key to filling up the new factory.
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