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Yutaka the crowning achievement in Japanese industry

Interview - December 21, 2022

As one of the only companies in Japan to provide pressure and flow control products to the semiconductor industry, Yutaka Crown is proving itself to be indispensable 

KAZUAKI TOYOKAWA, PRESIDENT OF YUTAKA ENGINEERING CORPORATION
KAZUAKI TOYOKAWA | PRESIDENT OF YUTAKA ENGINEERING CORPORATION

What is your take on monozukuri? What is your manufacturing philosophy, and more generally, what are your strengths that make you an ideal partner for clients both here in Japan and overseas?

There are only a few makers that specialize in pressure and flow controls both in Japan and overseas. Unlike consumer goods manufacturers, we are in a very niche business and it's difficult to understand.

In Japan, apart from us there are only a few companies who only deal in these areas. I think CKD Corporation is one example, but we very specialized.

We provide one stop services covering end to end processes including quality control. We cover every process in manufacturing from processing, assembling, testing and packaging.

I think we are the only company in Japan that provides our products for the semiconductor industry. Our only competitor is in the US. They are also providing their products to the semiconductor industry, but they don't specialize in pressure and flow control products only, they are dealing with other products as well. That's the strength of our monozukuri.

Another strength of our company is that we can develop things based on customers’ needs. We don’t just use the existing product lineups, but upon request, we can develop products from scratch. I think the essence of monozukuri is creating a strong relationship and trust with customers. That means creating value for customers that will ultimately contribute to the society.

Our business is to reduce the pressure from high pressure gas. That is both very difficult and oftentimes dangerous. Our products are most often used in semiconductor manufacturing processes. Take the example of the Sony CMOS sensor. 80% of their pressure and flow control parts are provided by us. We have a big responsibility for securing our supply because there are only a few dedicated manufacturers supplying these parts. We provide our products to the Sony factories in Kumamoto and Nagasaki.

In terms of semiconductors, there are three major manufacturers – Intel, Samsung and TSMC – who account for 60% of worldwide equipment, and they are dealing with very dangerous gas and chemicals in their production facilities. In fact, in an overseas plant there was a gas leak accident, because of it, so they are using very toxic and corrosive gasses.

 

You mentioned those big three companies - Intel, Samsung and TSMC - all foreign companies, even though in the 80s and early 90s, Japan did have strong semiconductor device production, especially for things like D-RAM and memories, but device production has largely moved overseas. However, Japan is still very strong in some peripheral sectors like materials and manufacturing equipment. How has that affected your customer base? How many of your customers are overseas, compared to in Japan?

Yes, that's right, the production bases for semiconductors have shifted overseas. Some years ago there were a lot of companies manufacturing semiconductors in Japan, like Hitachi or Mitsubishi Electric. They manufactured semiconductors, and we mostly provided our products to those domestic customers with the remaining capacity going to overseas customers.

However, there is now more volume overseas than in Japan although some domestic customers remain, like Sony and Kioxia, Fuji Electric, so we prioritize suppling our product to those domestic customers because we have responsibilities, but shipment volume has increased overseas.

We have been very busy, as semiconductor demand is increasing. We are actually a bit overwhelmed by the surge in demand. We have large outstanding orders.

Overseas manufacturers are looking forward and placing orders with the next few years in mind. On the other hand, Japanese manufacturers are very careful not to be so aggressive. TSMC is the most aggressive manufacturer overseas. They are manufacturing the latest version of chips for Apple iPhones like the A15, A16 CPUs, so they want more and more products.

 

What’s your take on the new TSMC fab being opened in Kumamoto?

I have a positive view about that because the semiconductor industry and the technological innovation that went with it stopped a few years ago. Now, the Japanese government is very positive and eager to attract those production facilities, and they provide large subsidies of ¥480 billion. The total investment amount is ¥1.23 trillion.

How the government can support such investments with such large subsidies is a big issue. Of course, there are pros and cons about this, but I think Kumamoto city is very active and looking forward to having such huge manufacturing opportunities. I visited there and saw the efforts the local schools and companies are taking to develop engineers.

This is this is also linked to Japanese security policy. When US vice-president Harris visited Japan, she invited the stakeholders of the semiconductor industry and they had a discussion because Japan, Korea, Taiwan and the US have to collaborate in terms of manufacturing semiconductors. This new production base in Kumamoto comes with a lot of expectations. We actually receive orders from Kumamoto. That is a very difficult order we received. We have to procure difficult gas to treat the Kumamoto factory because we have a track record of them ordering from us.



After the completion of the factory, they are going to implement the facilities and equipment in the plant, and I think the value of our products will increase further, but we are concerned about the timing and whether we have the capacity to supply our products on time.

We've already received the orders from TSMC, but we are wondering whether we can manufacture in time or not. I think Tokyo electron will implement their products in the factories and then we have to place our product and add the dangerous gas to their equipment, and we have to do all the piping for that as well.

 

Having assumed the presidency in 2018, you took over at a very interesting time, right before the pandemic started and the demand for chips exploded as supply dwindled. Can you tell us a little more about the impact that the covid pandemic and the associated chip shortage has had on your operation, and what challenges and opportunities you see coming from it?

We have been affected a lot by those events. We have a large shortage of some products. We had a seriously tight supply and the situation has continued a little bit, but we overcame the most difficult time. We overcame it because we diversified our sourcing before the pandemic outbreak.

We were dealing with smaller companies, but after the covid outbreak, we started to have a relationship with major Japanese trading firms, and tried to procure raw materials from overseas with their help.

We faced new challenges that we had not faced before covid. For example, we rebuilt our supply chain system. Before covid, we just partnered with only one sourcing company, but we added one or two more to diversify the sourcing. We are also doing “just in case” manufacturing activities (as opposed to “just in time). We have stockpiled what we may need to handle shortages or emergencies in future.
 

Do you have a particular product in mind that you think is the best example of how you support the semiconductor sector?

We developed a new product. We worked on the new project over the last five years and developed a new product dedicated to the overseas market which is not sold in Japan. L25 is a mainstream product, but the specification for overseas models is more advanced due to demand. Due to that spike in demand during the covid period, we started providing this new product. It's called “A project series”.

We started providing the new series, “A project”, to TSMC and other customers at a volume that is five times more than Japanese demand, so that huge volume is required and we have more outstanding orders on top of that.

We studied production overseas for the semiconductor sector in collaboration with a partner, and production capacity is double the size of Japan’s.

We built a new production base in Taiwan and Korea because there are major manufacturers there such as TSMC and Samsung. There are many related manufacturers of equipment and subcontractors as well, and since we have that relationship with some companies there, we speeded up the process of construction and within a year we’d built the factory and launched operations. Over the last three years we doubled our production capacity.

 

What's next in terms of your international development?

There are three different directions in my mind. First, since we are successful in South Korea, we want to find one more partner there. The other day, a candidate company’s president came to Japan together with their engineering directors and we had a discussion, so possibly we can create another partnership in South Korea.

The second direction is Taiwan because there is large demand from TSMC, and we need to meet that demand. Our partner just asked us to enter the Taiwanese market to make our products there to ensure safe and stable supply. We will be investigating the possibility of local production to ensure a stable supply.

And thirdly, there’s China. China has a geopolitical risk attached, and we have to carefully monitor whether we should go into China or not. However, China’s investment in semiconductors has increased significantly, so we will be watching the market trends very carefully.

The semiconductor industry has a lot of risks, but we also have to act with speed. We have to take action quickly, otherwise we cannot win in the market. Japan is famous for being slow. They don't want to take risks in Japan. They want to maintain the status quo. In contrast, when we propose something to overseas partners, they never say no straight away. They always give it a lot of thought. That's the difference.

 

Let's say we come back to interview you again in six years' time for your 10th anniversary as president. What would you like to tell us about your goals and dreams for the company in that timeframe, and what would you like to have achieved by then?

I have a lot of ambitions and one of them is our revenue goal. We closed our accounts in August, and in August, a few months ago this year, we increased our revenue by 50% from last year, and by 2027 I want to double the current revenue.

We need to explain to our employees how we should achieve it. It's difficult. As for the market share, there is an industry magazine called Gas Review. They released the market shares of the gas industry in August, and according to the latest report, we are number two in terms of market share in Japan. Number one is a US company.

There are several manufacturers listed, but we are the only dedicated, specialized manufacturer. The third and fourth placed manufacturers in Japan are also from the US. The top four companies are the only manufacturers accepted by semiconductor companies.

The number one company, APTech in California, was purchased by the Japanese company SMC. We received a lot of offers, like they want to buy our shares. Major companies bought this type of company because of the unique technology involved in handling high pressure gas. It's a very technical, very special area.

Actually, we received an M&A offer from a Japanese VC company, a consulting company, and we said, “You have to give up because it's difficult to manage our company. We are too specialized. It’s not easy to manage”. We receive many such letters. Our industry is very special. It's not for mass production and making a lot of money. We develop products based on customer needs. This is the situation in the industry.

We aim to be become number one in the world by 2027 and we are motivating our employees to achieve that goal. It's difficult to work hard without goals, so we have to set up specific goals to work harder.

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