Headquartered in Osaka, Japan, Fuso Chemical has a market capitalization of about $1 billion and accounts for more than 90 percent of the global silica market for polishing silicon wafers, with TSMC, Samsung Electronics and Intel Corp among its customers.
However, it is such a small, large-scale company that is indebted because it cannot afford to pay the high cost of production, because it refuses to raise prices to customers.
President Shinichi Sugita said in an interview that the current ** needs to double to keep up with the company's capital expenditure plan, but doing so would be seen as a betrayal by customers. "We would be called traitors. ”
* The fear of rising prices is deeply ingrained in the fear that it will jeopardize years of relationships with major customers. On December 4, the company's stock price was 34%, the most moderate decline in a month.
Fuso Chemical built a new production line and invested its largest ever investment, leaving the company's cash flow in trouble. The widespread application of smart products and artificial intelligence continues to drive the demand for semiconductor products. Chipmakers are building new production lines in response to geopolitical contingencies.
The company borrowed 20 billion yen (1.) from banks in AprilUS$3.6 billion), which is the first time in many years that cash on hand is insufficient to cope with the increase in silica capacity.
"We used to invest every four years or so, but now we have to spend money every year to keep up," Sugita said. No matter how much money we make, we have to use it to pay off the loan. ”
Founded in 1957, Fuso Chemical controls a small but important link in the global chip chain, and there are several companies in Japan that are similar to Fuso Chemical's business. In the chip industry, the existing relationship has been established for decades, and the first businessmen are unwilling to offend customers because of price increases. But these companies' cost-cutting efforts are reaching their limits, and their efforts to meet their capex targets are turning into a risk for global chip production.
Hideki Yasuda, an analyst at Toyo Securities, said: "After 10 or 20 years of stagnation, you lose the right to raise prices. He said that even large companies such as Murata Manufacturing Co., the world's largest manufacturer of ceramic capacitors, and Shin-Etsu Chemical Co., Ltd., the world's largest silicon wafer manufacturer, have difficulty raising prices, in stark contrast to component and material manufacturers outside Japan.
Fuso Chemical is known for producing malic acid, which is used in soft drinks and snacks, but its real specialty is ultra-high-purity colloidal silica, a slurry component used by chipmakers to grind silicon wafers. For decades, the company has provided each customer with tailor-made silica slurries for unique blends consisting of nanoscale particles of a specific texture, shape, and density.
Mitsuhiro Osawa, an analyst at the Ichiyoshi Research Institute, said that in a business where the allowable error range is less than 1 nanometer, Fuso Chemical can make the necessary fine-tuning according to the temperature and humidity of the day, which is a proprietary technology that is difficult for competitors to replicate.
"Fuso Chemical's complete control over silica particles and its ability to produce this chemical in large quantities is unmatched," he said. ”
In order to meet demand, Fuso Chemical plans to increase its production capacity by 50% by July 2025 compared to March 2023. It is expected to cost 50 billion yen (3.)$400 million), which is about $2 of its annual operating profit5 times.
"This business has become unsustainable," Sugita said. We are elaborating on our livelihoods. ”
Fumio Kishida** has pledged billions of dollars to support Japan's chip industry, which has given the Japanese chip industry some respite. A spokesman for Fuso Chemical Co. said it had pledged to pay up to half of the costs for a large domestic capital expenditure program, and that the company could receive about 30 percent support for the 10 billion yen ($68 million) needed to expand its Kyoto plant.
To address the lack of price raising power among Japanese chemical companies, the state-backed Japan Investment said in June that it would buy synthetic rubber (JSR), a photoresist maker. Eric Johnson, the company's chief executive, said the move could lead to more consolidation among merchants.
However, while the subsidy is not a long-term solution, Sugita said that Fuso Chemical has no intention of engaging in any form of **. "We want to continue to run the silica business ourselves," he said. Instead, the company is looking to find new revenue** to help it keep pace with silica capital expenditures, although with current low cash levels, it will not be easy to achieve this through acquisitions.
Sugida said the decline in demand for chips after the pandemic is a good thing, giving the company more time to accumulate revenue to fund the next phase of factory expansion.
"If our factories stop operating, no one will be able to make chips," he said. ”