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Breathing new life into semicon and FPD manufacturing machinery

Interview - January 13, 2023

Led by CEO Moriaki Abe, Hightec Systems Corporation has defied a challenging economic climate to blossom into a market-leading provider of manufacturing equipment and engineering services.

MORIAKI ABE, PRESIDENT OF HIGHTEC SYSTEMS CORPORATION
MORIAKI ABE | PRESIDENT OF HIGHTEC SYSTEMS CORPORATION

If we could start by talking a little bit about the company's history. What are some of the key milestones of your company? What are some of your strengths?

The company launched in 1991 and by 1992 we had relocated to Shibuya-ku, Tokyo, and had begun our plant business for semiconductor devices. We quickly gained the trust of our customers in the semiconductor industry.

Let me first give you my take on where I’ve seen the industry go, and more importantly where I see the industry going in the future from the perspective of a president of an SME in Japan.

Our business focused on the manufacture of semiconductor equipment and flat-panel displays (FPD), as well as the sales activities for new equipment and devices that have been imported from abroad. Our business in selling used equipment isn’t referred to in the company as used, but rather we like to think of it as renovation technology. This renovation technology business actually has two key parts, first is the trade of used equipment and the other is the engineering of such parts. Additionally, as a sales agent, we introduce advanced systems and products to Japan from overseas.

How we have evolved to who we are now, really comes down to our history. As I mentioned we were established in 1991 and we are now celebrating our 31st year of business. The firm currently has, annual sales not included, in just 30 years of sales, grown to JPY 25 billion, and by the end of the 2022 fiscal year, we will have hit the JPY 30 billion mark.

There are 50-70 used equipment traders in Japan in the form of various sizes, and the biggest ones are the famous leasing companies and the comprehensive trading companies. Globally there are 250 used equipment traders. Domestically we are the number one trader of used equipment, and globally we are in the top 5.

Going back to 1991 when we started the business, used equipment traders had different backgrounds, and in our company’s case, we were started by just a single semiconductor engineer who had left their company and started their own consulting business. The consulting conducted was in the manufacturing process for semiconductors, and in order to teach and transfer their knowledge, the consultant went to Taiwan to hold seminars. The audience of those seminars were individuals that wanted to start semiconductor companies in Taiwan, South Korea, and China. To those audience members, that consultant, our company’s founder, taught them how to produce semiconductors, how the semiconductor market is operating, and how semiconductor manufacturing equipment should work. So to summarize, our founder was an engineer that was hired by some of Japan’s major semiconductor manufacturers.

In 1991 the economic bubble burst, so Japanese electrical companies suffered from the low utilization of facilities. At that time the small semiconductor manufacturers in Taiwan, South Korea, and China had difficulty funding their production because it required a minimum of JPY 10 billion. The founder was asked by a Taiwanese venture business operator how to procure low-priced equipment. He knew that there were Japanese manufacturers with excess facilities or equipment, but 30 years ago nobody shared the idea of selling used equipment because semiconductors require precision manufacturing. Nobody believed that one-day people would trade used semiconductor manufacturing equipment back then. Now when you compare it to today, the market for used semiconductor manufacturing equipment is JPY 500 billion worldwide, with over 200 used equipment traders. In order to cater to such small businesses in Taiwan, China, and South Korea as well as help those passionate business ventures to start their business, our founder started a brokerage business. Back then our company didn’t do anything like disassembling the equipment or engineering services, instead, we asked Japanese sellers such as Tokyo Electron to disassemble them for transportation to other countries, with that transportation commissioned to companies such as Nippon Express. Once parts reach their destination the setup of the equipment or the re-assembly was conducted by the manufacturer, not by ourselves.

From 1991-2000 the company served as a broker, and the company’s revenue source came from commission fees or margins. The company only employed 3 people, and the revenue was around JPY 1 billion. This may sound small by today’s standards, but please remember that this kind of business does not require any upfront investment costs. Our margins were around 1%-5% and that continued for around 10 years. At the time the idea of using used semiconductor manufacturing equipment spread around Japan.

 

Your firm in the scope of Japan is quite young, with the country being well known for its very old and long-established companies. As such we find that Japanese businesses are very wary of the experienced track record of companies, specifically in the semiconductor industry. Back at the beginning how were you able to convince these large firms to trust your business as a broker? 

Back then it was just between the sellers and the buyers, so even if the seller didn’t trust us, in the end it came down to who the buyer was. It is possible that some of the semiconductor manufacturing businesses saw us as a kind of shady business.

As the idea of selling used manufacturing equipment rose there was a movement. Since these devices usually required huge amounts of upfront investment, operators would resort to leasing programs and those leasing companies would buy back the used equipment. However, once the leasing company bought back the equipment, they would usually then depose of the equipment. Around that time, they began to discover that there was a slowly swelling market for used equipment, especially in China and Taiwan. So now we start to see some of the major leasing companies begin to enter this market as well. Once the used equipment market began to grow, it caught the attention of Japanese venture businesses who began to enter. Semiconductor manufacturing companies here that lack the funds for the upfront investments started resorting to the second-hand market.

The same thing happened in the FPD market as well, and back in the 1990s the market mainly consisted of LCDs. Back then almost all FPDs produced worldwide came from Japan. Japan’s LCD business was on the decline and there was a lot of excess capacity and equipment in Japan. Then the Taiwanese and Chinese small companies came to Japan to buy used FPDs.

By the year 2000, the number of semiconductor manufacturing equipment traders leaped to 40, and that included some large leasing companies. Such traders had different backgrounds, and in the case of our company it was started by a consultant, but many other companies were started by equipment manufacturers and workers from the leasing industry. Around that time the way to play the game had changed, and money was the only thing that mattered. Those major leasing companies had the finances available to buy entire factories of semiconductor manufacturing equipment. Also with the funds they had available to them they were able to partner with trading companies to form groups of different manufacturers together. Our company at the time only had 3 employees and we really were at a disadvantage in terms of corporate finance. In order to survive in the market, we decided to shift our focus to engineering too. We started hiring engineers so that we could break away from only running a brokerage business by buying used products for disassembly and refurbishment. Those were repurposed for sale as new products to customers. In 2005 we hired 30 engineers so at that time we were able to expand the scope of the equipment that we can sell.

Our pool of engineers are all from different Japanese manufacturers like Tokyo Electron, Canon, Sony, NEC, and Toshiba, and in fact, I was the first engineer hired by the company. In my case, I was the fourth employee of the company and the only one hired in their 20s, with the other three employees all being in their 60s.

 

What convinced you to come to Hightec Systems?

I used to work for an LCD R&D venture but the company decided to close the business. They wanted to find a buyer for all the equipment they had and through that, they met the founder of Hightec Systems, who talked to me and mentioned how they were looking to increase the number of engineers they had at their company. I then brought in 10 more engineers with me and those engineers were internally promoted along with myself. Needless to say, it was not easy because no one had any experience with dismantling and refurbishing equipment. Despite this, however, we have a passion to serve customers that have a passion to grow their businesses.

Our company wanted to increase our product lineup for the customers, and I have expertise in LCDs so I am engaged in the LCD business, and my colleague is engaged in the semiconductor business. That colleague is now the senior executive officer of the company. By developing our processes with the customers we have been able to cover the entire process from purchasing all the way to equipment that is ready for use.

Another turning point was in 2005 when we established a subsidiary in South Korea. With companies like Samsung and LG, when purchasing new equipment from Japanese companies they always include a clause in the contract which says that Japanese companies must dispatch their personnel to their South Korean offices so that they can train local employees to the extent in which they will be able to maintain the equipment on their own. Such engineers that were trained by Japanese manufacturers have become independent and started their own engineering companies for maintenance. Depending on which area they receive training in, they developed their own expertise and companies. Usually, such engineering companies established by former engineers provide services to Samsung or LG, so I approached them to work with us in order to establish a Korean version of our business model.

With their expertise, we were able to handle the equipment that Hightec Systems couldn’t handle. It works in a complimentary manner creating synergy between the companies.

Since 2010 our sales have grown because of the expansion of equipment in our lineup. In 2008 we established the Fuji Technical Center, which also has a clean room used for maintenance. The Fuji Technical Center is located in Susono city, Shizuoka. Around that time we started receiving inquiries for maintenance work and relocation engineering work. It meant that inquiries had shifted from equipment to engineering-related services.

When I first started here at Hightec Systems almost nobody knew of the company, but Japanese companies really value a track record, and other companies didn’t open any doors for new commerce. We had difficulty dealing with long-established companies, so I visited almost every prefecture and visited almost every semiconductor and LCD manufacturer over a period of 2 years. If a place turned me down I would visit them again and again until they allowed me in. As a matter of fact, around 10 years ago I tried multiple times to visit NEC but they always turned me down. Actually, there was one occasion when I went to a major Japanese manufacturer and stood at their front gates trying to hand out fliers that let people know all about Hightec Systems. Thanks to these efforts we are now trading with almost every Japanese manufacturer that is related to semiconductors and LCDs. It all started with distributing fliers.

As the audience for engineering services increased, sales grew to JPY 5 billion, and then we started receiving inquiries about purchasing whole factories. Usually, such inquiries go to the trading companies, but suddenly we started receiving such inquiries too. These larger orders started coming in around 2007-2008. If anything is left over by a factory then we disable that equipment and stock the parts. Additionally, if there is anything remaining after that then those parts are scrapped. The purpose of stocking parts is to have a good stock in our Kyushu center, and in our engineering business, we need the parts from old pieces of equipment. Customers will often ask for us to assist in relocating a factory that has older equipment, and that needs those older parts. This is even more true when a company approaches us to do a complete overhaul.

The parts center was opened in 2010 in the Kyushu area and was opened to support our engineering business. In fact, this parts center used to be a factory for NEC, and when NEC decided to shut down this facility we provided engineering services for this shutdown. Some of the factory lines were relocated to Akita, and this relocation was also run by our company. Engineers were made redundant, and we made sure to hire some of those engineers to work with us.

During the course of time, word of mouth spread about Hightec Systems and how we hold various different types of parts. This became known and our reputation improved. Factories around Japan in different sectors need some parts for maintenance and when that happens they remember the name of Hightec Systems because of word of mouth.

At the very beginning, our parts center was for our engineering service and for lending parts to all of the factories that are in trouble or need maintenance. As our inventory of parts increased to over 300,000 in 2015 we started selling such parts. Even today we still rent parts to semiconductor manufacturers with long relationships.

As of 2015 I rarely visit out in the field or actual customer sites in person, and instead, I have my special engineers visit customers in person and help them through their issues. Relocation engineering doesn’t just consist of moving equipment from one place to the other, because such equipment is often connected to a power source and wiring has to be safely removed. Additionally dangerous gas and electrical outlets need to be cut and the floor has to be reinforced. The company in fact has a certificate giving us permission for construction, and it relates to construction in large-scale projects. In a sense what we are doing for customers is like what a general contractor or a general construction company can do.

Earlier I mentioned how in the year 2000 there were 40 traders of used semiconductor and FPD equipment, and as it stands today in 2022 only 20% have survived. I think this comes down to the risky nature of the business. Imagine a situation where an entire production line may cost up to JPY 1 billion, and if a trading company cannot find a buyer then that becomes a stranded asset. About 10-20 companies enter the market every year, but 10-20 companies exit during the same time frame.

You may ask yourself how we can survive this, and I think it comes down to the fact that we listen to our customers. If a customer needs parts for maintenance or to resolve an issue we might lend them for free. I think however that the biggest point is that we take care of both semiconductor manufacturing and FPD manufacturing equipment. There are so many semiconductor manufacturing equipment traders in the world but there are only a few FPD manufacturing equipment traders and we actually have a 90% market share in used equipment for FPD manufacturing. Almost all FPD factories use parts for their equipment provided by us. In fact, the same cycle applies to LCDs and the second-hand market too. They alternate so if our semiconductor equipment business is at a low point, we have alternatives that can complement a shortfall and vice versa.



Since the COVID-19 pandemic started in 2020 we have seen some major disruptions, specifically in the semiconductor industry. Health measures and lockdowns led to logistics disruptions, that then led to supply chain issues, and now we have a worldwide chip shortage. As such we have seen an increase in the diversification of parts suppliers and also alternative markets such as the secondhand market grow. During the years of the COVID-19 pandemic, what opportunities or challenges emerged for Hightec Systems?

Our sales hit the JPY 10 billion mark in 2014 and this year they are expected to hit JPY 25 billion. However despite this, in the years 2014-2022, there was no single year where we hit that JPY 10 billion mark. After 2014 sales were around JPY 9 billion a year, and in 2020 they fell to JPY 3 billion but have since rebounded.

In 2020 I held a town hall meeting with our employees and I warned them that because of the COVID-19 pandemic we cannot continue to visit customers in person, but since 2000 our company policy has been to visit and listen to customers in person. Of course, our activities have been restricted but we were sure that the electrical business will rebound back. Once it rebounded we had to collect all of the customers’ orders without fail. I told employees that they should forget about sales targets for the time being and instead concentrate on addressing any needs that our clients may have at any cost.

As I mentioned earlier the semiconductor and FPD cycles alternate, and that has produced a very steady flow of income, and in 2015 we started learning mechatronics and the sales are stable and consistent in that business. Mechatronics is a multidisciplinary field that refers to the skill sets needed in the contemporary, advanced automated manufacturing industry. It now means that we have 3 different resources to generate a steady income. This advanced mechatronics business has added stability to our company as it deals with new products rather than second-hand equipment. As you can guess, the second-hand business has its ups and downs although it is stable.

With our second-hand equipment business, we have customer bases in universities and research institutes, particularly science and engineering universities. We have sold equipment such as microscopes all around the country. Corporate-affiliated research and development centers are also our customers because they usually have limited budgets to purchase measuring instruments. Therefore they are reliant on us to provide them with equipment.

 

With your business, there is this type of double sale happening because, first of all, you need to find a supply, negotiate and convince companies to give you their old equipment, and then ultimately you need to find a customer to sell that equipment to. Essentially you have a two-channel negotiation which is quite interesting. With this in mind are you looking to further expand your supply partners and therefore the products you offer to clients?

In our semiconductor and LCD business, a seller can become a buyer at any time and vice versa. As I mentioned earlier in 2002, I visited almost all the factories in Japan, so everyone knows us and it really is a circular model of business. We are a direct buyer from customers and then we are a direct seller to customers also. We don’t need to expand our customer base because we are driven as a supply-based company.

I would like to talk about how we started our advanced systems agency business. A local researcher knew about advanced systems that were only available outside of Japan, and that individual found that there wasn’t any sales agent for those systems inside Japan. He wanted us to function as the sales agent for those advanced systems. Such information from customers is appreciated, but unfortunately, we cannot do everything, therefore it is important that we narrow down our focus. Once we made a decision, we began training our engineers in devices and equipment for process engineering. This means that our engineers can support the equipment purchased by Japanese customers.

In our clean room at our Fuji Factory, there are demo stations where our customers and engineers can identify and validate all process conditions. Once a customer is satisfied with the performance of a device, then a customer can then purchase and our engineers can do some calibration for them. So you can see that our agency business is not just moving new products, but also supportive services from our engineers too. To make that happen it was essential that we narrowed down our focus. Thanks to our activities in advanced systems as an agent we have not seen any sharp drops in sales when our second-hand equipment business was hit by the cycle.

 

It is widely known that American firms were the first to develop semiconductor equipment and then it later transferred to Japanese makers in the 1980s. If we look at the forefront these days it is a Dutch company; ASML, who are making extreme ultraviolet lithography (EUV) equipment and they are the only company in the world capable of producing these machines. In anticipation of this new technology, how would you go about getting your engineers up to speed with this cutting-edge tech that is exclusively coming from a European firm?

What we do is purchase older equipment that is no longer cutting edge. Take for example a semiconductor stepper machine. A stepper is a tool device used in the manufacture of integrated circuits (ICs) that is similar in operation to a slide projector or a photographic enlarger. Stepper is short for the step-and-repeat camera. Steppers are an essential part of the complex process, called photolithography, which creates millions of microscopic circuit elements on the surface of silicon chips. We purchased 3 of these steppers, and we allowed our engineers to completely disassemble 1 of them so that they may study it and learn how it works from the inside out. You are right, that we need to keep up with the intricacies of new technology, however, new technology is not the key focus of our current business model. The new technology of today will be the old technology in 10 years time, so when we reach that point we will start learning the technology. It is our company’s style to always go to the field and ask engineers what they want from us.

The essence of our corporate philosophy is that we serve our customers, and we are always striving to do whatever we can for those customers. Our business focus is Japanese companies, but of course, if a Japanese firm wants to relocate their equipment outside of Japan, we are happy to serve them. Vice Versa is also true, and we are more than happy to help a Japanese firm move their equipment from outside Japan back home to Japan, but I will stress that our focus is Japanese customers in Japan.

You may be asking yourself why our customers support us and how we have been able to increase our sales so rapidly, so I will talk a little about that now. People these days are saying that the semiconductor industry can make or break a country’s economy and its competitiveness in the global market.

Semiconductors and FPDs are considered high-tech products, but actually, they are part of the national strategy for national infrastructure. As a result, I’m sure that the semiconductor market will keep growing for sure. We see the market right now as at around JPY 50 trillion globally and the market revolving around cutting-edge mass production of 12-inch wafer fabrication, which is referred to as high-mix-low-volume. It extends from 2 inches all the way to 12 inches, but they say that there are over 650 fabrication plants producing smaller than 6 inches in operation worldwide. As you know there is a need to have the most advanced equipment to produce these discrete semiconductors and microelectromechanical systems (MEMS). In other words, manufacturers are using 20-year-old equipment that requires frequent maintenance. Mass producers require different parts or different semiconductors, meaning this market is high-mix but that high-mix is replacing shorter time periods than before. In layman’s terms that means that although Dyson for example might launch a new product that requires the latest semiconductors, producing such semiconductors doesn’t require the most advanced equipment, and can be produced by equipment that is 20 years old, or perhaps even older. To deal with this situation the 650 fabrication plants around the world need to fine-tune or calibrate their equipment to catch up with the demand. This high-mix-low-volume market these days equates to around JPY 25 trillion. In this used equipment market the maintenance and the prolonging of the equipment’s life is key, so that really makes up the focus of our business. 

In the past, the main focus and application of semiconductors were for PCs, but now we see that it has shifted to mobile devices. The next frontier for semiconductors will be electric vehicles and drones. Once Japanese companies take that seriously I think that Japanese firms will once again reign supreme in the markets of semiconductors. The same description applies to FPD, and once the years go on, that is when we can become active in refurbishing older technologies for needed applications.

 

You’ve explained how at the beginning your firm began as a brokerage firm between Taiwanese and Korean semiconductor makers and you’ve had a base there for years now. Looking at the future, are you looking to further expand your business internationally? If so, which countries or regions will be key to your expansion?

My business focus is Japanese companies and the Japanese market, particularly long-tail semiconductor products and that focus has remained unchanged since the foundation of the company. Of course, yes we need to consider overseas markets, and geography wise China, South Korea, and Taiwan are very close and that means that it is easier for us to set up bases in those countries. We believe however that we need to enter the US market and of course, the United States is across the Pacific Ocean and therefore not easy to travel to. There are more than 650 fabrication plants in Europe and the United States, and the United States is focusing on local production of semiconductors due to President Biden’s CHIPS act. That said, there are a lot of American companies that are engaged in this long-tail market, and this is the kind of market we can survive in.

Once we enter the US market we can use it as a foothold to expand our business further abroad to Europe. In that sense, entering the US market is a strategic move of great importance. The market research is underway and we have recently closed a contract with a consultancy firm based in California. We also participated in SEMICON West this year jointly with that consultant. Not only are there cultural differences between the US and Japan, but also corporate differences which I think are huge. In fact, I personally feel that my company is more Japanese than most Japanese firms; perhaps you could say that we are the most Japanese company in Japan.

So far in our market research, we have found multiple US-based equipment traders that are both ambitious and competitive. It will be far from easy to compete with such rivals. The plan is rather than compete with such rivals, perhaps instead we can work collaboratively together in order to bridge the gap between the US and Japanese markets.

 

Your company celebrated its 30th anniversary just last year, so I would like you to imagine that we come back again to interview you in 20 years' time. Is there a personal goal or ambition that you would like to have achieved by then?

Looking back at the past 30 years I think my company has been very successful because the number of employees has increased from just 3, all the way to 100. Despite this, however, this is not the measure of my own personal success. I would like to make our company a really Japanese company, which is ironic considering that this company’s mission is to sell electronics which is essentially a global market. The industry we are in is considered high-tech compared to other manufacturing industries, but even still I find the monozukuri spirit lives on in the factories of electronic products. The reason that monozukuri is so strong and world-renowned is that in essence, it is a spirit that brings people together to address something. This strength works very well for Japanese companies, especially in particularly troubling times.

In March last year, a major Japanese semiconductor manufacturer had a fire at one of its factories and had to suspend its operations. At that time our company dispatched 150 engineers. Actually, the factory ended up burning down, but in 2 and a half months the factory was able to restore operations because 33,000 engineers from across different sectors of business gathered there to work on the restoration of the factory. That was only possible because it happened in Japan. In fact, we received a nice letter of appreciation from the company for our work on restoration.

In Western countries, innovation is started by a very small number of the most elite in society and they use people who are below them, but in Japan innovation has come about thanks to collective efforts in a bottom-up approach. Up until the 1980s Japan was seen as a threat to Western innovation because the US could not understand Japan’s approach. Such practices or behavioral patterns are a combination of Japanese culture, education, and family values.

This unfortunately was followed by the lost decades and Japanese corporate managers tried to adopt Western styles, which is to rely on a few elites to manage the entire system. In my view, this was a big change in society. Despite the longstanding value and culture of Japan, these companies have tried to adopt a Western style and in my opinion, it really doesn’t work. This is why there isn’t the next mega-corporation like Google or Apple coming from Japan. For this reason, I’ve bought back all the shares in the company, so right now there are only two shareholders; myself and another executive, and we have no plans or intentions of an IPO. In this kind of environment, I would like to continue to pursue the Japanese style of management for this company. My focus is on my employees and their families so that they can start innovation from within, and our corporate philosophy supports that.

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