Non-Tech Japanese Firms See Soaring Growth From AI Semiconductor Boom

At a time when investor attention has been on the semiconductor industry, some hidden gems with businesses quite dissimilar to high tech have turned out to be market winners, riding the AI boom.

Toto is best known for high-end toilets, Nittobo makes textiles and glass fiber, and Ajinomoto makes MSG seasoning. Their shares have gained 78%, 63% and 61%, respectively, this year, as they make use of their core technologies to benefit from the AI supply chain.

Toto makes ceramic electrostatic chucks used in semiconductor manufacturing equipment, while Nittobo supplies advanced glass fiber used in semiconductor package substrates.

Ajinomoto makes insulating material, known as "build-up film" or ABF, used in semiconductor packaging for high-performance computers and data-center servers.

All three companies reported sharp growth in businesses tied to semiconductor demand for their full financial years ended March 31, highlighting the impact of the AI boom.

Toto: plugging away

The company's advanced ceramics business enjoyed higher profit margin than its housing equipment segment, thanks to demand from IoT, digital transformation, AI and data centers for advanced semiconductor equipment.

Toto, in its full year results, said it saw a decrease in sales and profits for its core 100-year-old housing equipment unit, but this was made up by increases in revenue and profits in its advanced ceramics business.

The segment saw a 34% increase in annual revenue and 42% jump in operating profit, almost single-handedly pulling the overall company into growth for the financial year.

The company's expertise in ceramics led it to manufacture electronic chucks for semiconductor manufacturing equipment in 1988.

These chucks hold silicon wafers in place during the etching process inside semiconductor manufacturing equipment. Toto says that their ceramics significantly contribute to improving the manufacturing yield of advanced chips.

"However, we do not view one segment as superior to the other. Our Advanced Ceramics Business is a high-growth area, but we endured long periods of deficits over its 40-year history before reaching this point," the company said to CNBC in an email.

It plans to grow both segments and "maintain a balanced ratio" for sustainable overall growth, and "absolutely no plans" to pivot away from its core housing equipment business, as it provides a stable foundation for the company's balance sheet, while the chip sector remains volatile.

Nittobo: looking to ride the boom

Nittobo said electronic materials were already its mainstay, as it continues to develop markets for its traditional glass-fiber business. Its T-glass product, launched in 1984, is used in printed circuit boards, and electronic components.

The company told CNBC that its T-glass and other electronic materials are "the pillar" of its growth for the next decade, and that AI semiconductor demand was changing how it allocates capital expenditure, research and development, and human resources.

Nittobo's results tell the story: the company said that strong demand related to AI servers, as well as factors such as strong sales of "Special Glass" pushed up sales and profits for the electronics materials business segment.

Net sales in the electronic materials business climbed 20.4% year on year and operating profit climbed 39.7% compared to the previous financial year.

That segment contributed about 91% to Nittobo's net sales increase in the last financial year, according to CNBC's calculations, with the segment's profit rising by 5.5 billion yen (about $34 million), more than the company's operating profit increase of 4.4 billion yen.

The company said glass fiber has been used in many applications over time, including composite materials for plastic reinforcement, but now, the company sees that there is a "very strong possibility electronic materials will remain its most important business well into the future."

In its results release, Nittobo said it "expects to see strong demand for Special Glass used in electronic materials, particularly for servers at data centers, network equipment, and semiconductor package substrates, and will proactively strengthen its efforts to expand production capacity to meet this demand."

While semiconductor segment becomes increasingly lucrative for the company, it is also expanding applications for its traditional glass-fiber businesses, including composite and industrial materials.

Ajinomoto: an ABF boost

Ajinomoto has found applications for its products, such as producing the ABF insulation film used in semiconductors, even as food remains its primary focus.

According to Ajinomoto's website, a byproduct from the MSG manufacturing process helped the company develop technologies that eventually led to the creation of ABF.

The product was put on the market in 1999, and is currently used for high-performance semiconductors, including CPUs.

Ajinomoto says ABF's role has become more important as semiconductor packaging has grown more complex, and that AI, 5G and other advanced technologies will continue to drive semiconductor demand.

The company did not respond to CNBC's request for comment.

Ajinomoto does not break out ABF into its own segment, but said in its full year results that its "Healthcare and Others" segment — which include ABF — saw an increase in revenue of about 4% and business profit rising 45.1% year on year, partly due to higher revenue for electronic materials.

That segment, which makes up more than a third of the company's profit for this financial year, even surpassed Ajinomoto's frozen food segment in terms of revenue and profit.

"We foresee continued growth centered on ABFTM products in high-value-added and cutting-edge fields," the company said.

The company said it aims for a "one-to-one balance" between its food business and its AminoScience business, with ABF contributing to the latter.