Toto, the king of toilets, crosses over into AI chips and ceramics! Semiconductor investments will take up half of the market share, and the profits from new businesses have already exceeded their core business.

A century-old toilet manufacturer is quietly becoming a hidden beneficiary in the AI chip material supply chain with a "dimensional reduction" using ceramic technology. Japanese bathroom giant Toto, known for its smart toilets and heated bidet seats, is accelerating its entry into the core material field of AI chip manufacturing. The company expects that in the next few years, more than half of its capital expenditure on semiconductor-related businesses will account for more than half of total capital expenditure, marking a deep strategic shift for this century-old bathroom enterprise. The AI boom is generating "unexpected demand," with electrostatic chuck becoming a growth engine The global artificial intelligence investment wave is reshaping the semiconductor supply chain, and Toto, with decades of technical expertise in ceramic materials, has unexpectedly become one of the beneficiaries of this boom. Chip equipment manufacturers have seen a sharp increase in demand for the electrostatic chuck produced by Toto this component is used to securely hold silicon wafers during the chip manufacturing process and has high requirements for material resistance to dirt, corrosion, and high temperatures. In addition, materials produced by Toto such as aerosol deposition films are effective in preventing semiconductor substrate corrosion and reducing particle contamination, also gaining market popularity. According to the company, in the fiscal year ending in March of this year, the capital expenditure for semiconductor-related products accounted for 11%, a proportion that is expected to soar to over 50% in the coming years. New business profits have already exceeded the core business, and capacity expansion is increasing Most importantly, the profit from Toto's emerging business segment (with semiconductor materials at its core) has surpassed that of its traditional residential equipment business. This structural profit reversal has attracted close attention from the capital market. In a letter to Toto's board in February, the UK-based activist investor Palliser Capital bluntly stated that Toto is the "most underestimated, most overlooked beneficiary of AI memory" and urged the company to increase investment in semiconductor business while strengthening marketing of this "little-known" business. A Toto spokesperson declined to comment on the interaction with Palliser. In the face of rapidly rising demand, Toto is actively expanding its capacity. The company plans to invest around 30 billion yen (approximately $190 million) in capital expenditure in the current fiscal year, focusing on expanding the production capacity of electrostatic chucks. Chief Technology Officer Ryosuke Hayashi stated that the company will create a production environment that "can properly respond to market demand." Hayashi pointed out that as the company's large-scale expansion plans in the US and China have been basically completed, the investment ratio between the residential equipment business and the emerging business sector will be reversed in the future. Although the profit margin of this business is still affected by equipment depreciation costs and exchange rate fluctuations, Hayashi emphasized, "Revenue will definitely grow." Microchip technology will open up new spaces Toto, headquartered in Kitakyushu City, Fukuoka Prefecture, Japan, entered the semiconductor supply chain in the 1980s leveraging its technical expertise in toilet ceramic materials. Its anti-fouling material technology has led to aerosol deposition films used to prevent corrosion of semiconductor substrates; while in the field of electrostatic chucks, even slight changes in thermal conductivity can lead to wafer deformation, making Toto's material control capability a key barrier. However, Toto's chip-related business experienced a long period of downturn lasting several years, until some production lines were automated in 2020, significantly improving profitability and risk mitigation during downturns. Chief Technology Officer Hayashi pointed out that the small chip technology integrating multiple chips in a single package is becoming increasingly popular, creating new incremental demand in high-performance engineering ceramics and other fields. "Resins and metals are no longer sufficient to meet the requirements," he said. SBI Securities market analyst Koki Takada believes that Toto's chip-related business still has plenty of room for growth as chip manufacturing processes become more complex, the demand for high-performance ceramic materials will continue to rise. In terms of market performance, Toto's stock price has doubled in the past year, far surpassing its domestic bathroom competitor Lixil Corp. Meanwhile, the ongoing Middle East conflict continues to drive up prices of petrochemical by-products such as resins and plastics, putting cost pressures on traditional bathroom businesses, which objectively reinforces the urgency for Toto to accelerate its transformation into the semiconductor business.