Japan's Towa sees stock price quadruple on AI chip demand

Japan's Towa sees stock price quadruple on AI chip demand

With the rise of AI, the stock price of Japan's relatively obscure chip equipment company Towa has surged an astonishing 390%. Companies like SK Hynix and Samsung are relying on Towa's equipment to produce high-end memory chips. Towa is also developing new tools, promising to cut chip molding costs in half.

The core business supporting its fivefold increase in one year involves encasing chip metal molds and wires in resin, protecting them from dust, moisture, and impacts, allowing them to be safely stacked together to provide enhanced capabilities for graphics processors like NVIDIA, improving AI training. Currently, with clients such as SK Hynix, Samsung Electronics, and Micron purchasing Towa's compression molding tools, the company's leading position is expanding.

Towa's stock price has nearly quintupled in the year due to the pursuit of high-performance chips and the increasing complexity of semiconductor design. Now, with major clients like SK Hynix, Samsung Electronics, and Micron purchasing Towa's compression molding tools, Towa's market-leading position is becoming even more entrenched. These tools, each valued at around $2 million, boast gross profit margins exceeding 50%.

"Our customers tell us that without our technology, they cannot manufacture high-end chips specifically for generative AI," said President Okada in an interview. He also mentioned that Towa holds almost the entire market share in the field of high-end chip molding machinery.

With the production of high-bandwidth memory chips expected to ramp up comprehensively from next year, Okada said, "Our journey is just beginning."

Towa is also actively developing new products aimed at halving molding costs and doubling processing speeds. The development of the new equipment is nearing completion, allowing customers to test its performance soon, with mass production expected to start by 2028.

Towa holds a technology patent for immersing chips in resin, a method that not only requires less material but also produces thinner chip packaging with fewer defects. Since its establishment in the suburbs of Kyoto in 1979, Towa has invented key chip packaging technologies widely used today. Its expertise in creating vacuum-sealed wires without bubbles has become increasingly important as the cost of integrating more transistors on silicon chips rises.

Despite competitors like Apic Yamada Corp. and ASMPT Group, Towa stands out in the compression molding field. As Mitsuhiro Osawa from a research institute put it, "It's as if there's no way to imitate them." This is thanks to Towa's key patents and deep connections with major clients.

On Okada's desk, pens and paper are neatly arranged, reflecting his extreme attention to detail. The Towa CEO says that this focus on detail runs through the manufacturing philosophy of the company, which employs 2,000 people.

Towa has set a goal to double its annual revenue over the next decade, reaching ¥1 trillion by 2032. To achieve this goal, the company plans to expand its capacity, aiming to bring in an additional ¥75 billion in revenue. Okada, 72, took over as company leader from founder Kazuhiko Bando in 2012, stating, "We're not interested in markets where competition is only possible through price cuts. We want to offer technology whose value far exceeds its price."