\n\t\tBy Mari Kiyohara<\/p>\n
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\n\t\tJapanese toilet maker Toto Ltd. expects spending in its chip-related operations to make up more than half its total capex in coming years, as it chases new gains from an artificial intelligence surge.<\/p>\n
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\n\t\tThe maker of heated toilet seats and bidets is capitalizing on an unexpected surge in demand from chip gear makers seeking Toto\u2019s expertise in ceramics designed to withstand dirt particles, corrosive materials and high temperatures. A global rush in AI spending is lifting sales of Toto\u2019s electrostatic chucks, which hold silicon wafers in place during chip fabrication, and other materials used in chipmaking.\u00a0<\/p>\n
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\n\t\tToto will prepare a production environment where \u201cwe can respond to demand properly,\u201d Chief Technology Officer Ryosuke Hayashi said in an interview. Now that the company has completed its large-scale expansion plans in the US and China, the ratio of spending on its housing equipment operations versus spending on new business domains will flip, he said. Toto\u2019s spending on semiconductor-related products accounted for 11 per cent of capex in the fiscal year ended in March.\u00a0<\/p>\n
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\n\t\tShares of Toto jumped as much as 11 per cent in Tokyo on Wednesday, the biggest intraday jump in over a month.\u00a0<\/p>\n
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\n\t\tProfit from the company\u2019s new business segment has overtaken that of its mainstay housing equipment operations. That\u2019s captured the attention of investors hunting for entry into AI-related equities. Toto is \u201cthe most undervalued and overlooked AI memory beneficiary,\u201d UK activist investor Palliser Capital said in a letter to Toto\u2019s board in February. It urged the company to increase investment in its semiconductor-related business and ramp up promotion of the little-known operations.<\/p>\n
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\n\t\tToto is allocating approximately \u00a530 billion ($190 million) to capital spending this fiscal year and is ramping up production capacity of its electrostatic chucks. While profit margins in the fast-growing business are affected by equipment depreciation costs and the exchange rate, \u201csales will definitely grow\u201d Hayashi said.<\/p>\n
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\n\t\tA company spokesperson declined to comment on Toto\u2019s interactions with Palliser.<\/p>\n
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\t\tBased in Kitakyushu, Fukuoka Prefecture, in western Japan, Toto entered the chip supply chain in the 1980s, leveraging its command of ceramic materials in toilet bowls. Its knowhow of dirt-resistant materials, for example, led to the development of its aerosol deposition film, used to fight corrosion in semiconductor substrates while reducing particle contamination. In electrostatic chucks, even small variations in thermal conductivity can deform wafers and lead to lower chip yields.\u00a0\u00a0<\/p>\n
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\n\t\tToto shares have roughly doubled over the past year, outperforming domestic bathroom fixtures competitor Lixil Corp. Conflict in the West Asia is raising production costs of petrochemical byproducts, such as resins, plastics and sealants that are used in sinks and bathtubs.<\/p>\n
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\n\t\tToto\u2019s chip-related operations suffered years of stagnation until partial automation of its production lines in 2020 improved profitability and resilience during down-cycles.\u00a0<\/p>\n
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\n\t\tIncreased use of chiplets, which combine various chips into a single package, will create new demand for high-performance engineering ceramics and other areas, Hayashi said. Resins and metals are no longer enough, he said.<\/p>\n
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\n\t\tToto\u2019s chip-related business has room to grow, according to SBI Securities market analyst Koki Takada. Growing manufacturing complexity will spur more demand for Toto\u2019s materials, he said.\u00a0<\/p>\n
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