(Bloomberg) — One of the beneficiaries of booming AI-driven demand for high-bandwidth memory is a Kyoto-based company that controls a small but essential part of the chipmaking process.
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Towa Corp. commands two-thirds of the world’s chip molding equipment market, according to research firm TechInsights. It’s a key step that encases chip die and wires with resin, protecting them from dust, moisture and impact so they can be safely stacked together to give graphics processors, such as Nvidia Corp.’s, more capabilities to better train artificial intelligence.
The company’s stock price rose as much as 2.3% before paring gains, losing 1% Monday morning. Its shares are nearly five times what they were a year ago, thanks to demand for high-performance chips driving ever-more complex semiconductor designs.
Now Towa’s lead is expanding as clients such as SK Hynix Inc., Samsung Electronics Co. and Micron Technology Inc. buy the Japanese manufacturer’s compression molding tools. Since last summer, SK Hynix and Samsung together placed orders for 22 of these machines. Each machine costs around ¥300 million ($2 million), with some machines earning gross profit margins of more than 50%.
“Our customers say that they can’t make high-end chips, especially for generative AI, without our technology,” President Hirokazu Okada said in an interview. The company holds almost 100% market share for molding machinery for high-end chips, he said.
With full-scale production of high-bandwidth memory chips expected from next year, “we’re just getting started,” he said.
Towa’s also preparing its next product, which seeks to halve the cost of molding and double processing speeds. Development of the new machine is almost done and customers will soon be able to test its capabilities, with mass production of such gear to start by 2028, he said.
Towa holds patents covering a technique for dipping chip dies in resin, which uses less material and produces thinner chip packages than pouring the compound on. It also yields fewer defects, the company said.
Established in 1979 on the outskirts of Kyoto, the company invented milestone chip sealant technologies widely used today. Its expertise in creating vacuum seals around thin wires without creating air bubbles is rising in importance, due to the increasing cost of cramming more transistors onto slivers of silicon.
Competitors include Nagano-based Apic Yamada Corp. and Singapore’s ASMPT Group, but Towa is alone in the field of compression molding.
Other companies have tried to develop competing technology, but Towa has the key patents and deep ties with the main customers, said Ichiyoshi Research Institute’s Mitsuhiro Osawa. “It’s like there’s no way to imitate them,” he said.
A glance at Okada’s desk reveals pens and papers aligned in perfect formation. The Towa CEO says he feels compelled to adjust paintings in clients’ offices when their position is off even by a few millimeters. That attention to detail permeates the 2,000-person firm’s manufacturing philosophy, he said.
Towa targets doubling its annual revenue in 10 years to ¥10 billion by 2032. To reach that target, the company is considering expanding capacity to generate some ¥75 billion additional revenue, said the 72-year-old veteran who took the helm from company founder Kazuhiko Bando in 2012.
“We’re not interested in markets where we have to cut prices to compete,” Okada said. “We want to provide technologies whose results more than offset our price.”
(Updates with share reaction in third paragraph)
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