Founded in 1970, AIKOKIKI has shown its strategic nous that sets it apart in the dynamic semiconductor landscape. "Our specialization is in flip Chip BGA semi-finished products, or package core substrates," says company president Tsukasa Kurata, a domain that constitutes a substantial 60-70% of the business. This unique focus offers an undeniable edge in a field where few even consider supplying semi-finished products.
I’d like to begin with a brief introduction to your company, AIKOKIKI MFG. CO., LTD., and what you believe to be your core strengths and competencies that differentiate you from your regional rivals.
About 60-70% of our business consists of providing flip Chip BGA semi-finished products, which we call package core substrates. This is a niche area with few companies specializing in this type of product. Many companies hesitate to enter this field because it involves supplying semi-finished products rather than finished goods. In Japan, we are the only company specializing in these semi-finished products, and globally, there are only one or two other companies with a similar business model. This unique positioning gives us high market competitiveness, as we cater to the majority of global package core board needs.
Another crucial aspect of our business is our factory in Nakatsugawa, Gifu Prefecture. We produce PWBs, primarily used in FA (Factory Automation), or industrial equipment such as inverters and PLCs. Many of these boards are supplied to major Japanese electronics manufacturers.
It is well-documented that Japan experienced highs and lows in the '80s and '90s. While Japan was once the world center for device manufacturing, with a focus on memory chips like DRAMs, it has shifted to a more peripheral role, supplying materials and manufacturing equipment. However, in recent years, there has been renewed excitement about Japan's potential resurgence in this industry, highlighted by collaborations like the new fab in Kumamoto between Sony Semiconductor Solutions and TSMC. What do you think Japan’s role in supporting this industry will be going forward?
In my opinion, the decline of the Japanese semiconductor industry can be attributed to several factors. One key reason was the presence of numerous companies pursuing similar goals, resulting in the scattering of resources and investments. That’s why Japanese companies were not able to be successful in making progress in semiconductors.
Unlike TSMC and Samsung, which made significant investments solely in semiconductors, Japanese companies couldn't achieve the same level of progress. Additionally, the lack of sufficient government support, unlike in countries such as South Korea and Taiwan, also contributed to the downfall. However, with recent developments such as TSMC's presence in Japan and increased government support, there is an opportunity for Japan to become an attractive hub for semiconductor production, leveraging its new ecosystem. The industry's future will depend on the extent of support from the Japanese government and the resolution of geopolitical issues.
Collaboration between the government, economy, and industry is crucial to pursue this industry effectively. To ensure economic continuity and stability, it is essential to avoid the kind of uniform fiscal austerity policies seen during the administrations before and after the Great East Japan earthquake.
You mentioned the advantages and disadvantages of specializing in semi-finished products, and being in such a niche market indeed provides numerous competitive advantages globally. However, it also means being highly dependent on market demands. We touched upon the perceived recent downturn in the PWB (Printed Wiring Board) market with your colleague before the recording began. I am interested to hear your perspective on why you believe this downturn is occurring, and how you plan to mitigate its effects.
The recent inactive state of the market can be attributed to several factors. Firstly, the covid-19 pandemic has led to a lack of semiconductor supply in recent years. Many companies aggressively stockpiled products, and we received orders that even made us worry about excessive stock.
Currently, many companies are working through their existing stocks, resulting in reduced new demand. Additionally, the surge in PC and game equipment sales during the pandemic consumed a significant portion of the demand that would have otherwise sustained the market for a few years.
Therefore, we believe it is a time of patience and waiting for the market to bounce back. Nevertheless, we are taking steps to prepare for the future rebound. Last year, we acquired the Shibata factory in Niigata prefecture from Kyocera. We are making preparations for the anticipated market resurgence, projected to occur in the fourth quarter of 2023.
Regarding the acquisition of the Shibata factory, what types of products do you plan on producing there, and why did you choose this location in particular?
If we were to start from scratch, including purchasing land, we would not be able to meet the production requirements within the desired timeframe. Many clients have requested our readiness by 2024, as they plan to increase production. To meet this deadline, we began searching for an appropriate location, since our existing factory here has been at full capacity since 2021.
We had no space to introduce a new production system, so after extensive searching, we found the Shibata factory and purchased it from Kyocera. This factory will serve as a 100% production site for our package core products. The decision was driven by strong requests from specific clients who rely on us for 100% of their flip-chip BGA core procurement. They have urged us to provide a stable supply to support their business expansion.
We have discussed your second business segment supporting factory automation and industrial equipment, as well as the automotive sector, which is experiencing significant growth in circuitry and electronic components. As you're gearing up for this next wave, is there a particular industry or segment to which you anticipate greater demand?
The automotive market is expected to exhibit the largest growth. However, domestically, our PCBs can be replaced by manufacturers from China, Taiwan, Vietnam, and Thailand. Therefore, we do not anticipate significant growth in the automotive sector of the Japanese manufacturing industry.
On the other hand, our strength lies in the package core segment I mentioned earlier. Some companies rely entirely on us for their procurement, and the applications of package core include communication, such as beyond 5G communications, as well as connected cars and data centers. Semiconductors play a crucial role in these areas, as well as next-generation vehicles and the medical field.
AICHI ELECTRIC CO., LTD. is involved in the production of power supply transformers/controllers, hermetic motors, and X-EV electric compressor motors. In recent years, you joined forces with them. Could you tell us more about that relationship, and what synergies exist between the two companies?
President Kobayashi, who is the president of AICHI ELECTRIC CO., LTD., was the president of AIKOKIKI for seven years and has deep knowledge of our business. Currently, due to differences in business fields, we have not built a synergetic collaboration with our parent company. However, moving forward, we must progress as a group. For example, we could support AICHI ELECTRIC CO., LTD.’s smart grid project, and the production of power conditioner systems for renewable energy sources. We have the potential for future collaboration in these areas.
Working together is essential to remain competitive on the international stage. Many Japanese companies have adopted a horizontal approach, seeking collaborations and establishing overseas partnerships to better introduce themselves internationally. I'm curious to know your thoughts on this trend, and whether you are interested in partnering with foreign makers or companies.
In terms of international collaboration and capital partnerships, we have a trading firm in China. However, our company does not have enough human resources to develop overseas markets. The trading firm serves the purpose of importing to Japan and supplying substrates to overseas factories of Japanese customers. We have a partnership agreement with our customers that if they receive an order, we provide the required products. There is no specific target number or price, it is determined on a case-by-case basis.
As for PCBs, we have consignment agreements with Taiwanese and Chinese companies and factories. We supply our products directly to Japanese-affiliated companies in China from the Chinese factory. This is the current scheme of our international operations.
In an increasingly globalized electronics and semiconductor field, it is important not to rely solely on one country or region, as demonstrated during the covid-19 pandemic. Are you interested in perhaps expanding your consignment partnerships, or agreements, with other makers in any new countries that have a flowering semiconductor scene such as Malaysia, for example?
Expanding partnerships and consignment agreements with other makers in new countries could be a possibility. For example, if our customers expand to Malaysia, Singapore, or Thailand, and there is a demand for locally procured products, we would consider consignment or other means to meet that demand.
Establishing our own factory overseas poses challenges, particularly in terms of human resources. As a company with a turnover of less than ¥10 billion until a few years ago, we lack the necessary resources, including overcoming language barriers through translators for engineers. Establishing a new factory overseas is currently a hurdle for us.
Let's imagine we come back and conduct this interview again two years from now, for the 55th anniversary of your company. What would you like to tell us? What are your dreams for the company, and how would you like it to be perceived globally?
I'm not certain if I'll be here in a few years. My short-term goal is to enhance the wages and the welfare of our employees. Looking back at our 53-year history, for around 48 years, we have been an SME with fewer than 300 employees and a turnover of less than 10 billion Japanese yen.
While we have now surpassed that, our welfare system remains to be that of an SME. It is crucial to improve and upgrade our welfare and working conditions to attract talented new employees and the next generation, thereby expanding our business.
Simultaneously, we need technological advances for sustainable growth. At present, we are responding to changes in the structure of the core part accompanying the realization of 3D mounting in flip-chip BGA, and responding to the needs for high frequency, low loss, and high heat dissipation in printed circuit boards, it is important to be able to take the form of preparing and providing solutions in advance.
Our goal is to work with our customers while maintaining a balanced approach for both legacy and advanced products. And someday, just like many other well-known companies have achieved, we want to become the only company that is indispensable to our customers in a certain field. Achieving this goal will require a cooperation system with our parent company.
We also have our legacy products, which continue to meet market demand, alongside new advanced products. It is crucial to maintain a well-balanced approach, catering to both legacy and advanced products, while working hand in hand with our customers. Within my tenure, I will take on these endeavors, and to some extent, pass the torch to the next generation.