Japanese AI Leaders: Beyond Chips, They’re Revolutionizing Toilets, Glass Fiber, and Seasoning

The AI revolution is creating unexpected beneficiaries, and the latest market movers aren’t your typical tech giants. Investors have been laser-focused on the semiconductor industry itself, but a closer look reveals established companies in seemingly unrelated sectors are quietly capitalizing on the artificial intelligence boom by leveraging their core technologies.

This year, shares of Toto, a renowned maker of high-end toilets, have surged 78%. Nittobo, primarily known for textiles and glass fiber, has seen its stock climb 63%. And Ajinomoto, famous for its MSG seasoning, is up 61%. Their impressive market performance is directly linked to their sophisticated contributions to the AI supply chain.

Toto, for instance, manufactures advanced ceramic electrostatic chucks, critical components for semiconductor manufacturing equipment. Nittobo supplies specialized glass fiber essential for semiconductor package substrates, a key element in the miniaturization and performance enhancement of microchips. Meanwhile, Ajinomoto produces a vital insulating material known as “build-up film” (ABF), indispensable for the high-performance packaging required by sophisticated CPUs and data center servers that power AI.

The impact of this AI-driven demand is clearly reflected in the financial results of these companies. All three reported significant growth in their semiconductor-related businesses for their fiscal years ending March 31st, underscoring the pervasive influence of the AI surge across diverse industrial landscapes.

### Toto: Precision Engineering Meets the AI Era

While Toto is globally recognized for its premium sanitary ware, its advanced ceramics division has emerged as a significant profit driver, outperforming its traditional housing equipment segment. This surge is fueled by burgeoning demand from sectors embracing the Internet of Things (IoT), digital transformation, AI, and the exponential growth of data centers, all of which require cutting-edge semiconductor manufacturing equipment.

In its latest full-year earnings, Toto disclosed that a decline in sales and profits within its century-old housing equipment division was more than offset by robust revenue and profit increases in its advanced ceramics business. This segment experienced a remarkable 34% surge in annual revenue and a 42% jump in operating profit, single-handedly propelling the company into positive growth for the fiscal year.

Toto’s deep-rooted expertise in ceramics, honed over decades, led the company to venture into manufacturing electrostatic chucks for semiconductor production in 1988. These precision-engineered chucks are vital for securely holding silicon wafers during the critical etching processes within semiconductor fabrication facilities. Toto asserts that its advanced ceramic materials play a crucial role in enhancing the manufacturing yields of next-generation chips.

“We do not view one segment as superior to the other,” the company stated in an email. “Our Advanced Ceramics Business is a high-growth area, but we endured long periods of deficits over its 40-year history before reaching this point.” Toto is committed to growing both segments and maintaining a “balanced ratio” for sustainable overall growth. Crucially, the company has “absolutely no plans” to pivot away from its core housing equipment business, which provides a stable financial foundation, while acknowledging the inherent volatility of the semiconductor market.

### Nittobo: Weaving the Future of Electronics

Nittobo has strategically positioned its electronic materials as a cornerstone of its business, while continuing to innovate and expand markets for its traditional glass fiber offerings. Its proprietary T-glass product, first introduced in 1984, is a staple in printed circuit boards and various electronic components.

The company confirmed that T-glass and its other electronic materials are poised to be “the pillar” of its growth strategy for the next decade. The insatiable demand for AI semiconductors is actively reshaping Nittobo’s capital expenditure, research and development, and human resource allocation.

Nittobo’s financial reports vividly illustrate this trend. Strong demand driven by AI servers, coupled with robust sales of its “Special Glass” products, significantly boosted sales and profits for its electronics materials business segment. Net sales in this division climbed an impressive 20.4% year-on-year, with operating profit soaring by 39.7% compared to the previous fiscal year. This segment accounted for approximately 91% of Nittobo’s net sales increase last fiscal year, with its profit contribution of 5.5 billion yen (approximately $34 million) exceeding the company’s overall operating profit increase of 4.4 billion yen.

While glass fiber has historically found applications in diverse fields, including composite materials for plastic reinforcement, Nittobo now believes that “electronic materials will remain its most important business well into the future.” In its earnings release, the company projected strong demand for Special Glass in electronic materials, particularly for data center servers, network equipment, and semiconductor package substrates, and affirmed its proactive approach to expanding production capacity to meet this anticipated surge. Concurrently, Nittobo is also exploring new applications for its traditional glass-fiber businesses, encompassing composite and industrial materials.

### Ajinomoto: A Flavorful Boost from ABF

Beyond its culinary prowess, Ajinomoto has successfully diversified into critical high-tech materials. The company’s expertise in amino science has led to the development of ABF insulation film, a crucial component in advanced semiconductors. Intriguingly, the genesis of this technology traces back to a byproduct of its well-known monosodium glutamate (MSG) manufacturing process. Introduced in 1999, ABF is now integral to high-performance semiconductors, including central processing units (CPUs).

Ajinomoto highlights the increasing significance of ABF as semiconductor packaging becomes more intricate. The company anticipates that advancements in AI, 5G, and other cutting-edge technologies will continue to fuel demand for semiconductors.

While Ajinomoto does not publicly segment its ABF business separately, its full-year results indicate a positive contribution. The “Healthcare and Others” segment, which encompasses ABF, reported a revenue increase of approximately 4% and a substantial 45.1% rise in business profit year-on-year, partly attributable to heightened revenue from electronic materials. This segment, which accounts for over a third of the company’s profits for the fiscal year, even surpassed Ajinomoto’s frozen food division in terms of revenue and profit.

“We foresee continued growth centered on ABFTM products in high-value-added and cutting-edge fields,” the company stated, signaling its strategic focus on this lucrative sector. Ajinomoto aims for a “one-to-one balance” between its food business and its AminoScience business, with ABF playing a pivotal role in the latter’s expansion.