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Toto's Steady Rise: Japan's Bidet Maker Turns Expert in AI Chips

· side-hustles

The Toto Effect: When Old Industries Meet New Technologies

Toto, Japan’s largest bidet maker, has seen its stock prices surge, sparking a story about old industries meeting new technologies. Unlike Allbirds’ dramatic pivot to chipmaking, which grabbed headlines with market swings, Toto’s steady rise is a testament to building expertise over decades.

Toto’s ceramics division has manufactured electrostatic chucks for 40 years, components that hold silicon wafers in place during memory chip fabrication. This segment has delivered an impressive ¥28.9 billion ($181 million) in operating profit, now accounting for more than half of the company’s total. Toto has announced a ¥30 billion ($188 million) investment through fiscal year 2028 to expand capacity and research and development for semiconductor ceramics.

Toto’s success story highlights transferable expertise across seemingly disparate fields. Like Ajinomoto, which discovered the electronics potential of its umami seasoning byproducts, or SCREEN Holdings, originally a printing company turned wafer cleaning equipment leader, Toto has leveraged its ceramics expertise to tap into the lucrative AI chip market.

The AI Chip Supply Chain: A Complex Web

The AI chip supply chain is often overlooked but consists of an intricate network of specialized component makers and material suppliers. Companies like Ajinomoto, Lasertec, and SCREEN Holdings have built near-monopolies in their respective niches, commanding significant market share. This phenomenon highlights the importance of vertical integration in high-tech industries.

Japan’s AI chip supply chain is particularly noteworthy, with a mix of industry giants and smaller specialists contributing to the complex ecosystem. Companies like Toto are benefiting from this expertise, which can be applied to emerging technologies. Many of these companies have their roots in unrelated fields, underscoring the adaptability required for success in the tech sector.

A Warning for Shareholders

Japan’s corporate governance has made significant strides over the past decade, but its cash-to-asset ratios remain high compared to Western markets. This creates a challenge for foreign investors looking to tap into Japan’s lucrative tech industry. The proposed revision to the Corporate Governance Code aims to reinvest corporate cash in wages and capex rather than buybacks and dividends, which could have far-reaching implications for shareholder value.

The Toto story serves as a reminder that companies with deep expertise can navigate the complex world of AI chipmaking with relative ease. For investors looking to capitalize on this trend, it’s essential to dig deeper than surface-level market fluctuations. By understanding the intricate relationships between old industries and new technologies, we can uncover hidden gems like Toto.

As companies like Toto continue to ride the wave of demand for AI chips, investors must be cautious not to overhype market momentum. The recent Allbirds debacle serves as a cautionary tale about the dangers of jumping onto bandwagons without proper understanding. By focusing on core competencies and vertical integration, companies can build sustainable success in the high-stakes world of AI chipmaking.

The Toto effect is a powerful reminder that old industries can meet new technologies, yielding unexpected results. Japan’s complex web of specialized component makers and material suppliers underpins this industry, making it essential to appreciate these intricate relationships as we look to the future of AI chip supply chain.

Reader Views

  • RH
    Riley H. · indie hacker

    The Toto Effect is more than just a testament to gradual innovation - it's also a reminder that old industries can have a head start on new ones when it comes to high-tech manufacturing. But as Japan's AI chip supply chain grows increasingly complex, we should be wary of overemphasizing vertical integration. It's not just about owning every step in the process; sometimes, specialization and strategic partnerships are more valuable assets than internal control.

  • ML
    Mei L. · etsy seller

    It's refreshing to see Toto's steady success in AI chip manufacturing get some attention, but let's not forget that vertical integration is just one piece of the puzzle. The article glosses over the challenges of supply chain coordination and material sourcing for these high-tech components. Companies like Lasertec, which specializes in precision cutting tools, are crucial to the ecosystem but often underappreciated. Their expertise is not merely a byproduct of adapting their existing business model; it requires significant investment in research and development to keep up with rapidly evolving technology demands.

  • TH
    The Hustle Desk · editorial

    While Toto's success is undeniably impressive, one can't help but wonder if its expertise in AI chip components will soon become commoditized. The AI chip supply chain is notorious for its boom-and-bust cycles, and companies like Toto that have cornered a niche market often find themselves struggling to maintain their edge as technology advances. Japan's dominance in this space won't last forever – what happens when the next Ajinomoto or SCREEN Holdings comes along with an even more innovative approach?

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