OXIDE Corporation’s core competence is its optical wavelength conversion technologies (see below). The company manufactures single crystals, optical components, laser sources and systems, and optical measurement equipment. The company has an estimated 95% share of the global market for single crystals used in laser sources, which are essential components of semiconductor wafer inspection systems. It also claims a 20% share of the global market for laser systems and a 20% share of the global market for scintillation single crystals, which are used in PET scanners. OXIDE was founded in October 2000 by Mr. Furukawa, current representative director and president of the company, and listed on the Mothers section of the Tokyo Stock Exchange (now the Tokyo Stock Exchange Growth Market) in April 2021.
Optical wavelength conversion technology involves the use of single crystals to modify the wavelength of lasers. It is possible to convert lasers to UV, visible, or infrared wavelengths by selecting from a variety of single crystals. Applications include semiconductor wafer inspection systems and PET scanners. The performance and durability of the single crystal components used is a main factor in determining the performance and lifespans of these systems.
OXIDE has proprietary single crystal manufacturing technologies such as the double crucible method. It has also acquired single crystal and laser system businesses from major companies that withdrew from the field. This accumulation of expertise has enabled end-to-end production where it manufactures single crystals (the material) and laser systems (the final product).
Wavelength refers to the distance from peak-to-peak of an electromagnetic wave. Normal light is a mixture of various dispersed wavelengths. A laser is light that has been extracted to a certain wavelength, amplified, and directed toward a specific point using a device. Lasers can be infrared light, visible light, or UV light depending on their wavelength. Different wavelengths are suitable for different applications.
The company’s business comprises the Semiconductor business (FY02/22 revenue of JPY2.5bn; 51.8% of total revenue), the Healthcare business (JPY1.7bn; 36.0%), and the Optical Measurement and New Fields business (JPY579mn; 12.2%). Shared Research estimates the company’s marginal profit ratio for FY02/19–FY02/22 at 55–60%, with break-even revenue of JPY2.4–3.7bn.
In the Semiconductor business, OXIDE manufactures optical single crystals and laser systems incorporating them. It sells these products to manufacturers of semiconductor wafer inspection systems. The company has an estimated 95% share of the global optical single crystal market. In 2010, OXIDE acquired Magnescale’s laser systems business, which boosted its share of the global market for UV lasers from next to nothing to roughly 20%. The semiconductor industry has been undergoing miniaturization, creating the need for UV lasers in shorter wavelengths and laser systems with the durability to withstand the resulting higher outputs. The company responded to these needs by developing more durable single crystals that could convert lasers to shorter wavelengths. These innovations rested on its proprietary technology (including the double crucible method) and the crystal and laser manufacturing technologies of Magnescale. The upshot was that new clients (wafer inspection systems manufactures) embraced OXIDE’s products.
The company also provides maintenance services to clients in the Semiconductor business. These services mainly involve the replacement of deteriorated optical single crystals and laser systems. In 1H FY02/22, optical single crystals accounted for 33% of revenue, UV lasers for 42%, and maintenance for 25%.
Sales volumes of optical single crystals and UV lasers (Semiconductor business) are affected by trends in equipment upgrades by manufacturers of semiconductor wafer inspection systems. Maintenance orders are meanwhile affected by the utilization rates of clients’ wafer inspection systems. Unit prices for optical single crystals are JPY6–8mn and for UV laser systems are JPY30–40mn. OXIDE notes that maintenance is highly profitable because orders come directly from existing clients and the company does not incur any marketing costs.
Competitors in the Semiconductor business are Coherent, Inc. (US; NASDAQ: COHR) and II-VI (“two six”) Incorporated (US; NASDAQ: IIVI). II-VI did not manufacture or sell UV lasers as of October 2021, but in June 2021 it acquired Coherent, which has the largest share of the global market for UV lasers.
In the Healthcare business, the company manufactures scintillation single crystals for use in PET scanners. OXIDE acquired the business in 2015 from former Hitachi Chemical Co., Ltd. (currently Showa Denko Materials Co., Ltd., a consolidated subsidiary of Showa Denko K. K. [TSE Prime: 4004]). Since the acquisition, the company has succeeded in mass-producing scintillation single crystals by improving quality and thereby yield. One of its main applications is cancer diagnosis, in which the patient is injected with a radioactive drug (tracer) that collects near cancerous cells and emits radiation that is picked up by a scanner, allowing physicians to locate tumors.
The unit price of a scintillation single crystal element is roughly JPY2,000. With one PET scanner requiring 20,000–30,000 elements, this translates to revenue of JPY40–60mn per scanner. The company’s global share of the scintillation single crystal market is about 20% and its main clients are manufacturers of PET scanners. Competitors include Crystal Photonics, Inc. (CPI; US; unlisted), which has a global share of over 50%. The product uses lutetium oxide, a rare earth, as a raw material, which results in high material costs. Further, scintillation single crystal unit prices are lower than those of more highly processed laser systems, and Shared Research understands the marginal profit ratio is relatively low.
The company divides the Optical Measurement and New Fields business into existing businesses and new fields. In the former, it develops, manufactures, and sells single crystals, optical components, lasers, and optical measurement instruments to manufacturers of optical measuring instruments and other optical equipment, as well as to universities and other research institutions, in both Japan and overseas. In new fields, it pursues R&D projects with a view to creating new sources of earnings.
In FY02/22, OXIDE recorded revenue of JPY4.8bn (+32.9% YoY), operating profit of JPY597mn (+63.2% YoY), recurring profit of JPY599mn (+85.5% YoY), and net income of JPY496mn (+59.7% YoY). In the Semiconductor business, orders from semiconductor wafer inspection system manufacturers, users of the company's products in the business, increased as they did in FY02/21, driven by growth in global semiconductor demand. In the Healthcare business, revenue rose due to robust demand for PET scanners globally and as the company's efforts to increase its share among users gained traction.
Company forecast for FY02/23 calls for revenue of JPY6.3bn (+33.3% YoY), operating profit of JPY706mn (+18.3% YoY), recurring profit of JPY695mn (+16.0% YoY), and net income of JPY487mn (-1.8% YoY). The company projects revenue growth YoY in all three mainstay businesses: Semiconductor, Healthcare, and Optical Measurement and New Fields. In terms of costs, the company has factored into the expected increases in depreciation owed to new investments and in labor costs on increased headcount to generate higher revenue.
In April 2021, the company released “Disclosures Concerning Business Plans and Growth Potential,” in which it stated that its business plan was to achieve revenue growth of 20% and an OPM of 10% every year. OXIDE said it expects its revenue growth to outpace growth of the overall market due to increased adoption of the company’s laser systems by new clients (Semiconductor business) and scintillation single crystals (Healthcare business). It also expects revenue growth in the Optical Measurement and New Fields business due to contributions from new businesses. The company set its OPM target at 10% to leave room for R&D spending in new businesses.
Shared Research sees the company’s strengths as:
Success in meeting performance needs for UV lasers in semiconductor wafer inspection systems, which has earned the company a 95% global share in single crystals used in lasers and a 20% global share in laser systems, although the company was a late market entrant in the latter
The company’s practice of acquiring businesses at low cost from companies exiting the field before applying its single crystal manufacturing technology to enhance the performance of their products and achieve mass production, thereby capturing new clients
The company’s use of M&A to secure equipment and specialized human resources and build a dominant position in the Japanese optical single crystal space
We see the company’s weaknesses as:
Asset efficiency below that of its two US competitors due to substantial fixed assets (single crystal manufacturing facilities are costly relative to revenue)
A less diversified business portfolio with greater susceptibility to the influence of specific industries and clients than that of its two US competitors
High dependency on China for raw materials for scintillation single crystals, and the fact that they are made from expensive rare earths, depresses GPM
|Gross profit margin||43.0%||50.8%||34.5%||40.4%||35.6%||21.9%||30.5%||25.0%||30.3%||34.3%|
|Operating profit margin||3.0%||4.2%||-12.9%||-3.0%||6.0%||-18.2%||4.0%||4.0%||10.2%||12.5%||11.1%|
|Recurring profit margin||0.9%||14.5%||-15.4%||-5.3%||4.9%||-20.5%||3.3%||3.4%||9.0%||12.6%||11.0%|
|% of revenue||-||-||-||-||-||-||41.0%||17.2%||8.1%||21.1%||31.3%|
|% of revenue||-||-||-||-||-||-||6.2%||6.8%||6.3%||5.7%||6.3%|
|% of revenue||24.0%||32.4%||32.5%||27.3%||16.3%||20.2%||10.4%||4.3%||4.3%||6.6%||6.5%|
|Per-share data (JPY, after share split adjustments)|
|No. of outstanding share at year-end('000 shares)||7||7||7||7||7||7||7||8||3,782||4,903|
|EPS (fully diluted)||-||-||-||-||-||-||-||-||-||92.8|
|Dividend per share||-||-||-||-||-||-||-||-||-||-||-|
|Book value per share||191.1||199.2||156.2||193.8||216.9||164.0||280.0||315.5||399.7||935.7|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||580||541||1,047||691||526||291||1,024||675||1,181||2,146|
|Total current assets||1,491||1,451||1,810||1,490||1,660||1,412||2,292||2,606||3,432||4,761|
|Tangible fixed assets||700||915||1,267||1,784||1,852||1,852||2,528||2,811||2,865||3,575|
|Investments and other assets||40||24||25||33||32||26||170||164||206||297|
|Total current liabilities||737||813||876||958||1,156||1,217||2,003||2,331||2,414||1,786|
|Total fixed liabilities||876||908||1,684||1,717||1,670||1,538||2,145||2,176||2,640||2,338|
|Total net assets||667||696||546||677||757||573||1,045||1,190||1,512||4,587|
|Total interest-bearing debt||1,315||1,442||2,053||1,889||2,018||1,885||3,144||3,478||3,768||2,616|
|Cash flow statement(JPYmn)|
|Cash flows from operating activities||-||-||-||-||-||-||266||-126||568||435|
|Cash flows from investing activities||-||-||-||-||-||-||-1,085||-508||-301||-841|
|Cash flows from financing activities||-||-||-||-||-||-||1,529||333||241||1,376|
|% of revenue||0.5%||2.3%||-||-||4.5%||-||5.4%||2.5%||8.7%||10.4%|
|Total asset turnover||0.52||0.53||0.51||0.40||0.51||0.18||0.61||0.56||0.58||0.62|
On May 18, 2022, OXIDE Corporation announced that it had signed a capital and business partnership agreement with LQUOM Inc., as detailed below.
Under the capital and business partnership agreement between OXIDE and LQUOM, OXIDE will acquire roughly a 3% stake in LQUOM and otherwise facilitate the research and development work being done by LQUOM to bring long-distance quantum communications equipment to market.
The partnership agreement calls for the two companies to work together on R&D in the area of long-distance quantum communications, a promising area considered the most secure means of telecommunications. More specifically, the R&D will be aimed at developing entangled photon sources and quantum repeaters that can be combined to create a long-distance quantum communications system.
Under the terms of the partnership agreement, OXIDE will supply LQUOM with key components for the entangled photon sources it is developing, including high-grade CLBO crystals (for frequency conversion), high-grade mono crystals for use in quantum repeaters, and high-performance wavelength conversion elements. Because this development work will use single crystals and elements that are the product of OXIDE's proprietary crystal growth technology for high-grade single crystals, and are closely tied to both microtechnology and wavelength conversion technology, the two companies decided to enter into a formal capital and business partnership agreement.
On February 25, 2022, OXIDE Corporation announced that it had been selected, along with its partners, by the New Energy and Industrial Technology Development Organization (NEDO) for the Green Innovation Fund project under the category of Construction of Next-Generation Digital Infrastructure.
The New Energy and Industrial Technology Development Organization (NEDO) has selected OXIDE and its partners for the Green Innovation Fund project under the category of Construction of Next-Generation Digital Infrastructure to pursue “Development of Wafer Technology for Next-generation Power Semiconductors.” OXIDE had made a joint application with Mipox Corporation (TSE JASDQ: 5381), U-J Crystal Co., Ltd., Nagoya University (Tokai National Higher Education and Research System), AIxtal Corporation, and the National Institute of Advanced Industrial Science and Technology (AIST). The project aims to equip society with ultra-high-quality 8-inch SiC wafers for next-generation power semiconductors by 2030 through the development of SiC crystal growth technology using the solution method and process informatics technology, as well as processing and evaluation technology for large-diameter SiC wafers.
On the same day, the company made an announcement regarding the construction of Factory No. 5.
With the selection for the Green Innovation Fund announced on the same day, the company decided to build a fifth plant on a site adjacent to the its head office to develop technology for growing SiC single crystals, a next-generation power semiconductor material, using the solution method and to prepare for mass production. The factory will be built in Hokuto, Yamanashi Prefecture, for an estimated expenditure of JPY400mn, to be financed by loans. Construction is scheduled to begin in June 2022, and operations are scheduled to start in December 2022.
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Cost of revenue||461||1,030||1,682||2,496||773||1,636||2,353||3,126|
|Gross profit margin||20.2%||17.6%||26.5%||30.3%||33.0%||33.3%||34.1%||34.3%|
|Operating profit margin||-||-||4.8%||10.2%||10.6%||13.8%||13.9%||12.5%||11.5%|
|Recurring profit margin||-||-||2.9%||9.0%||11.2%||14.1%||14.0%||12.6%||12.0%|
|Cost of revenue||461||569||652||814||773||863||717||773|
|Gross profit margin||79.8%||84.7%||62.8%||63.0%||67.0%||66.5%||64.0%||65.3%|
|Gross profit margin||20.2%||15.3%||37.2%||37.0%||33.0%||33.5%||36.0%||34.7%|
|Operating profit margin||-||-||22.4%||19.8%||10.6%||16.6%||14.0%||8.5%|
|Recurring profit margin||-||-||20.9%||19.8%||11.2%||16.7%||13.6%||8.4%|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Optical Measurement and New Fields||525||180||318||436||579||103.6%||559|
|Optical Measurement and New Fields||180||138||118||143|
Since the company reports in a single segment, the Optics business, it does not disclose segment information. It began disclosing revenue by business (Optical Measurement and New Fields, Semiconductor, and Healthcare) in Q1 FY02/22.
In FY02/22, revenue rose to JPY4.8bn (+32.9% YoY) due to YoY revenue growth in all three businesses: Semiconductor, Healthcare, and Optical Measurement and New Fields. Gross profit was up 50.5% YoY, and the GPM was 34.3% (+4.0pp YoY). SG&A expenses increased JPY316mn YoY, with the SG&A ratio at 21.7% (+1.7pp YoY).
Revenue was JPY2.5bn (+42.6% YoY). Orders and inquires for the company's products from semiconductor wafer inspection system manufacturers (users of the company's products) increased as they did in FY02/21, driven by higher demand for semiconductors worldwide. The full-year FY02/22 orders, revenue, order backlog, and maintenance revenue, as disclosed by the company, are as follows.
Orders: JPY4.4bn (+128.5% YoY)
Revenue: JPY2.5bn (+42.6% YoY)
Order backlog: JPY2.5bn (+341.6% YoY)
Maintenance revenue (a component of revenue): JPY473mn (+34.4% YoY)
Revenue was 5.1% below the company's full-year FY02/22 forecast of JPY2.6bn (+50.3% YoY). There has been a continued delay in delivery corresponding to the replacement of parts stemming from client requests to change specifications previously in Q3, and so a portion of revenue that the company had planned to record in FY02/22 has been pushed back to FY02/23. According to the company, supply restrictions also had an impact. The company was able to respond to demand for UV laser production by implementing holiday working and overtime, but the company states that it refrained from scaling up its operations in January or February because of the enduring effects of the COVID-19 pandemic. Additionally, the issue of warranty periods and the requirement for stable temperature settings make it difficult for customers to store laser systems over long periods of time after delivery. Accordingly, the company adjusted manufacture rates to control delivery timing.
Maintenance demand arises 1.5–2 years after the delivery of laser systems to a client. According to the company, maintenance demand will materialize in higher volume from FY02/23.
Revenue was JPY1.7bn (+29.3% YoY). This growth was attributed to robust global demand for PET scanners equipped with scintillator single crystals, the mainstay product, as well as the company's initiatives to increase its share among users, which began to bear fruit. Revenue amounted to 103.6% of the company's full-year FY02/22 forecast of JPY1.7bn (+24.8% YoY). Average annual growth for PET scanners is around 5%. According to the company, the revenue growth rate was driven by increased revenue from rebounding PET scanner manufacture after the reduction caused by COVID-19 in FY02/21, and the company taking an expanded share of revenue. This increased market share is due to the company enhancing price competitiveness with its continued efforts to augment the yield per crystal.
Revenue was JPY579mn (+10.2% YoY). The company proposed and developed new applications and products using its single crystal technology and its core technology in the optics field, and advanced sales activities focused on small projects on a prototyping and development base. Revenue amounted to 103.6% of the company's full-year FY02/22 forecast of JPY559mn (+6.5% YoY).
Revenue in the Semiconductor business was JPY695mn (+26.8% QoQ), revenue in the Healthcare business was JPY345mn (-24.2% QoQ), and revenue in the Optical Measurement and New Fields business was JPY143mn (+21.2% QoQ).
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||1H Est.||2H Est.||FY Est.|
|Cost of revenue||1,030||1,466||2,496||1,636||1,490||3,126|
|Gross profit margin||17.6%||37.1%||30.3%||33.3%||35.3%||34.3%|
|Operating profit margin||-9.7%||20.9%||10.2%||13.8%||11.2%||12.5%||11.1%|
|Recurring profit margin||-12.0%||20.3%||9.0%||14.1%||11.0%||12.6%||11.0%|
|Optical Measurement and New Fields||298||576||525||579||902|
|% of total||11.4%||18.8%||14.7%||12.2%||14.2%|
|% of total||47.1%||41.8%||48.3%||51.8%||54.8%|
|% of total||41.4%||39.3%||37.0%||36.0%||30.9%|
|Operating profit margin||4.0%||4.0%||10.2%||12.5%||11.1%|
Company forecast for FY02/23 is as follows.
For FY02/23, OXIDE forecasts revenue of JPY6.3bn (+33.3% YoY) on the back of anticipated revenue growth in all three businesses: Semiconductor, Healthcare, and Optical Measurement and New Fields. In terms of costs, the company has factored into the projected increases in depreciation owed to new investments and in labor costs on increased headcount to generate higher revenue.
The company forecasts revenue of JPY3.5bn (+41.0% YoY). The company expects revenue to remain on an uptrend in FY02/23 due to new sales of optical single crystals and UV lases and also maintenance revenue for the products it has sold, which is expected to grow in proportion to the cumulative number of products sold.
The company has not disclosed full-year FY03/23 forecasts for orders or order backlog, but stated that it expects the Semiconductor business to see continued strong orders, citing the ongoing semiconductor shortage as the principal reason for this. Additionally, the completion of production bases for major semiconductor manufacturers from FY02/23 will lead to greater demand for semiconductor manufacturing equipment producers, which are the company's as clients.
Client mix: According to the company, there were no major changes to the company's main clients through FY02/22 (Hitachi High-Tech Corporation, Skyverse Technology Co., Ltd., and KLA Corporation), but there are increasing numbers of clients to whom OXIDE makes a lower volume of sales. Deep-ultraviolet (DUV) lasers are an essential product for the process of inspecting delivered products, and the company is one of only a limited number of manufacturers that sell DUV lasers. The company states that greater recognition following its IPO has also played a part in increasing inquiries concerning its DUV lasers.
Production capacity: A sharp increase in orders led to an order backlog of JPY2.5bn in FY02/22 (+341.6% YoY). The company states that the issue is to do with supply, and that it is important to secure and combine production capacity (strengthening investment in factory space and production equipment, as well acquiring the corresponding engineers, etc.) to meet expanding demand. OXIDE has increased investment in production capacity expansion from FY02/22, and its full-year FY02/23 forecast calls for further increases to capital expenditures (see below for more details).
Engineer proficiency: In terms of personnel, improving the proficiency of engineers involved in manufacturing is an issue. Two years previously, there were only five engineers working in the laser manufacturing department, which had a production capacity of two lasers per month. At present, a monthly production capacity of five units is needed to meet increased demand, and a monthly production capacity of 10 units to clear the current order backlog. The system for training newly hired engineers has changed so that where previously two instructors were required for each new employee, there is now one instructor for three new employees (this is due to factors such as an increase in mid-career hires). As a result, a longer period of time is required to raise proficiency than had been the case, and failures involving the disposal of components are becoming more frequent. The company states that it expects operating profit to increase in FY02/23, factoring in a YoY rise in costs associated with issues such as the disposal of components.
Maintenance revenue: The company forecasts revenue of JPY580mn in full-year FY02/23 (+22.6% YoY). In anticipation of rising maintenance revenue over the medium term, the company is in the process of building Factory No. 4 (in Yamanashi prefecture), which will handle maintenance and is scheduled for completion in FY02/24. According to the company, the completion of Factory No. 4 will enable it to respond to maintenance demand for laser systems received up to the previous year. The maintenance cycle (previously 1.5–2 years) is shortening as a result of increased utilization rates from clients, and the company states that the maintenance cycle will approach 1.5 years in the medium term.
The company projects revenue of JPY2.0bn (+14.6% YoY) for the Healthcare business. It anticipates stable annual growth of around 5% for its scintillation single crystals for PET scanners going forward, supported by robust demand for medical devices worldwide. Further, as in FY02/22, the company intends to continue working to increase its share among major users by enhancing quality. The impact of delays to parts procurement by clients was almost completely resolved in Q4 FY02/22. Breaking down the forecast of 14.6% revenue growth YoY for FY02/23, approximately 5% is expected to come from market growth, and the remaining 10% or so from an increase in the company's share among existing users.
The company expects its revenue share to increase as a result of improving price competitiveness by raising the productivity of its scintillation single crystals. According to the company, it has started to work on improving the productivity of scintillation single crystals, which are approaching the theoretical limit, to achieve productivity improvements that exceed the theoretical value. By producing single crystals in larger sizes compared to conventional sizes, the company said it will be able to increase the number of elements extracted from scintillation single crystals and improve price competitiveness.
The market for lutetium oxide, a raw material for scintillation single crystals, is on the rise. Lutetium oxide is a rare-earth oxide, and its price fluctuates widely, which causes fluctuations in the company’s material cost-to-revenue ratio. OXIDE sources lutetium oxide through a trading company that handles chemical products. Lutetium oxide is produced as a by-product, not as a main product, and there are no mines that mine lutetium oxide exclusively. The company mainly procures rare earths from China, and there is the risk that prices may fluctuate depending on conditions within the country. The price of lutetium oxide has continued to increase from 2H FY02/22 due to reports of stockpiling by the Chinese government, as well as factors such as rising tensions in Ukraine. The company is taking efforts to diversify its sources of lutetium oxide, looking to regions such as Australia and Africa.
The company's full-year forecast incorporates a decline to OPM due to the rising price of lutetium oxide. In response to the rising cost of this raw material, the company states that it will take efforts to lower the cost at which it acquires lutetium oxide, as well as negotiating price increases with its own clients. Because OXIDE has used improved price competitiveness resulting from the enhanced productivity of scintillation single crystals to expand sales to clients, it will keep a close eye on factors such as market competition during price negotiations.
The company expects revenue of JPY902mn (+55.8% YoY) for the Optical Measurement and New Fields business. Impact from the COVID-19 pandemic, which persisted through FY02/21, has largely dissipated, and the company anticipates revenue growth driven by inquiries from new fields. According to the company, its full-year revenue forecast has taken account of projects such as femtosecond lasers for use in MicroLED processing, "single crystals for optical isolators" for optical communications applications including 5G, and lasers for photomask writers.
The company has released a new femtosecond laser with a shorter wavelength than it's previous product, which allows more precise micromachining. The earlier product had a wavelength of 343nm, and the existence of other similar products on the market meant that competition was fierce. The new product has a deep UV (DUV) wavelength of 257nm; OXIDE is the first company to develop a femtosecond laser with this wavelength. Femtosecond lasers involve the application of a laser for bond cleavage, and are used for cutting and processing. A shorter wavelength increases the energy density, as well as the rate at which energy is transferred to a volume or surface. This allows more precise micromachining and reduction of irregularities in the scission surface. The company envisions that product applications would include MicroLED repair.
At Shared Research, the full-year FY02/23 forecast for cost of revenue, calculated by subtracting the full-year forecast for gross profit (of JPY2.0bn, +21.1% YoY) from revenue, is understood as being JPY4.4bn (+39.6% YoY, +JPY1.2bn YoY). According to the company, the rise in cost of revenue is mainly the result of increasing lutetium oxide prices (accounting for approximately JPY100mn of the increase), as well as higher costs relating to the disposal of materials arising from the process of improving personnel proficiency (almost than JPY100mn of the increase). The company also expects labor costs to increase by JPY200mn–250mn as a result of hiring more staff, and depreciation to increase by JPY130mn.
The company forecasts SG&A expenses for full-year FY02/23 of JPY1.3bn (+22.7% YoY, +JPY234mn YoY). The increase is mainly due to higher R&D expenses (accounting for approximately JPY100mn of the increase) and one-time expenses associated with the relocation of the Yokohama branch (JPY84mn). The company states that one-time expenses associated with the relocation of the Yokohama branch are temporary.
Based on information such as manufacturing cost, Shared Research has estimated a marginal profit ration of around 55% for FY02/22. According to the company, the full-year FY02/23 forecast assumes that the marginal profit ratio remains level YoY.
The company forecasts capital expenditures of JPY2.0bn (+97.5% YoY). Factory No. 4 (Yamanashi Prefecture) is scheduled for completion in FY02/24, and will expand the Semiconductor business' capacity to perform maintenance on laser systems. Construction of Factory No. 5 (Yamanashi Prefecture) is to commence in June 2022, and the site is scheduled to become operational in December 2022. Factory No. 5 was selected for investment by the Green Innovation Fund (GIF, see below), and will be used to develop technology for growing SiC single crystals, a next-generation power semiconductor material, using the solution method and to prepare for mass production. The company will invest capital in relocating the Yokohama branch and increasing floor space, due to expansion of the business. With commencement of operations at Factory No. 5, among other factors, the company forecasts depreciation (including goodwill amortization) of JPY400mn (+48.8% YoY). R&D expenses of JPY411mn (+30.5%) are expected as the company progresses with the development of new businesses such as the GIF business.
|Capital expenditures, depreciation, R&D expenses||FY02/19||FY02/20||FY02/21||FY02/22||FY02/23|
|% of revenue||41.0%||17.2%||8.1%||21.1%||31.3%|
|Depreciation, amortization of goodwill||223||325||287||270||400|
|% of revenue||6.2%||6.8%||6.3%||5.7%||6.3%|
|Amortization of goodwill||62||116||62||1|
|% of revenue||10.4%||4.3%||4.3%||6.6%||6.5%|
This business will engage in the development of silicon carbide (SiC) crystal growth technology using the solution method and process informatics technology, and the development of processing and evaluation technology for large-diameter SiC wafers, in order to equip society with ultra-high quality 8-inch SiC wafers for next-generation power semiconductors through manufacture and sale to device manufacturers by 2030. The specific research themes are to develop ultra-high quality SiC wafers using the solution growth method, as well as processing and evaluation of large-diameter SiC wafers. The ultimate objectives are the mass production of high-quality 8-inch SiC wafers and sale of those wafers to power semiconductor manufacturers.
According to the company, if the development schedule progresses smoothly, sample shipments to Japanese power semiconductor manufacturers will commence in spring 2024. OXIDE expects that one of its other two development projects is very likely to use the same solution method as the company, but states that the crystal growth method for the third project remains unclear at present. The company aims to use its own crystal growing technologies to increase the diameter of crystals created through the solution method on a more accelerated schedule than its other projects.
Research and development will be undertaken at Nagoya University (Tokai National Higher Education and Research System), U-J Crystal Co., Ltd., AIxtal Corporation, and the National Institute of Advanced Industrial Science and Technology (AIST). The company will develop ultra-high-quality SiC wafers using the solution growth method, and Mipox Corporation (TSE STD: 5381) will engage with the processing and evaluation of the large-diameter SiC wafers.
This project is one of three that have been targeted by the fund, which has a scale of approximately JPY25.8bn. Around JPY18.6bn of that amount has been allocated as support to this project by the fund, including incentives (this amount is subject to change, depending on project progress and other factors).
According to the company, the SiC (see Medium-term outlook) market outlook is as follows. The power semiconductor market, including SiC crystal wafers developed by the company, is expected to expand up to 2030, the final year of the GIF project.
|SiC power devices(industrial use)||69,000||115,000||161,000|
|SiC power devices(automotive use)||184,000||368,000||529,000|
|SiC crystal wafers||63,300||103,500||138,000|
Several Japanese manufacturers have entered the power semiconductor market. These include Mitsubishi Electric Corporation (TSE Prime: 6503) and Fuji Electric Co., Lts. (TSE Prime 6504). On the other hand, only companies from countries such as the US and Germany have entered the SiC wafer (a raw material for SiC power semiconductors) market, and Japanese businesses are yet to enter this market.
According to the company, the solution method has the following advantages in comparison to the sublimation method, which is the traditional method for crystal production.
|Sublimation method||Solution method|
|Conventional growth method; SiC single crystals currently on the market are all produced with this method||Nagoya University and UJC succeeded in growing six-inch SiC single crystals|
|Mechanisms of crystal growth||Thermal distortion occurs as this method creates a temperature gradient during crystallization||Thermal distortion is minimal as this method creates no temperature gradient during crystallization|
|Enlargement of diameter||Thermal distortion increases with larger diameter||Small thermal distortion allows for enlargement of diameter|
|Low defect density||Thermal distortion causes defects||Creates only small temperature gradients and few defects|
|Lengthening||Growth is limited due to enclosed reaction chambers; thermal distortion increases as well||As with silicon, pull-up growth allows for easy lengthening; thermal distortion is small|
|Growth speed||Large temperature gradients are required to increase the growth speed, in a trade-off with defect density||Growth speed is in accordance with the supply of carbon; no temperature gradient is required|
|Results vs. Initial Est.||FY09/12||FY09/13||FY09/14||FY09/15||FY09/16||FY09/17||FY02/18||FY02/19||FY02/20||FY02/21||FY02/22|
|Revenue (Initial Est.)||4,279|
|Results vs. Initial Est.||-||-||-||-||-||-||-||-||-||-||11.2%|
|Operating profit (Initial Est.)||416|
|Operating profit (Results)||-22||33||52||-184||-39||106||-111||103||123||366||597|
|Results vs. Initial Est.||-||-||-||-||-||-||-||-||-||-||43.5%|
|Recurring profit (Initial Est.)||417|
|Recurring profit (Results)||-17||10||181||-219||-69||88||-125||87||105||323||599|
|Results vs. Initial Est.||-||-||-||-||-||-||-||-||-||-||43.6%|
|Net income (Initial Est.)||354|
|Net income (Results)||-20||5||28||-350||-230||81||-185||141||77||310||496|
|Results vs. Initial Est.||-||-||-||-||-||-||-||-||-||-||40.0%|
The company has stated that it will update the contents of "Disclosures Concerning Business Plans and Growth Potential," which it released in April 2021, and publish the updated version in May 2022. The text that follows is based on the original version of "Disclosures Concerning Business Plans and Growth Potential."
As of October 2021, the company had not announced a medium-term management plan. In April 2021, however, it released a document titled “Disclosures Concerning Business Plans and Growth Potential,” in which it disclosed the following performance indicators as targets for each fiscal year.
OXIDE has doubled its revenue every five years for the 20 years since its establishment. Its current business plan does not set specific numerical targets for each business. The company expects revenue in both the Semiconductor and Healthcare businesses to outpace market growth as it grows its market share. It also expects growth in the Optical Measurement and New Fields business due to contributions from new businesses.
OXIDE has set its OPM target at 10%, lower than its FY02/22 forecast of 11.5%, reflecting its intention to leave room for R&D spending in new areas, particularly in the Optical Measurement and New Fields business. The company believes that it might lose some of its commitment to investing in R&D for new products if it were to devise a plan that emphasized OPM, and said that it focuses on marginal profit instead. The company shares marginal profit levels internally as they have a significant impact on decision-making related to capital expenditures.
In Optical Measurement and New Fields, OXIDE has been searching for growth businesses to supplement the Semiconductor and Healthcare businesses. The following is a list of new development projects for which the company has made timely disclosures since its IPO.
OneFive ORIGAMI03XP-3P UV femtosecond laser (timely disclosure on June 24, 2021)
Start of sample shipments of SAM, a single crystal substrate for gallium nitride (GaN) epitaxial thin film growth (timely disclosure on June 18, 2021)
Capital and business alliance regarding R&D for the mass production of silicon carbide (SiC) single crystals (timely disclosure on October 14, 2021)
OXIDE is targeting a larger market for UV femtosecond lasers than it targets in the Semiconductor and Healthcare businesses. It is aiming to enter the power semiconductor market with SAM and the alliance for the mass production of SiC single crystals.
OXIDE launched the OneFive ORIGAMI03XP-3P UV femtosecond laser in June 2021 as the first product jointly developed with NKT Photonics (NKT), with whom it formed a business alliance in 2019. The product is equipped with an infrared femtosecond laser developed by NKT and a highly reliable wavelength conversion module manufactured by OXIDE. The company expects the product to be used for laser micromachining applications in OLED and MicroLED display manufacturing processes, processing of flexible printed circuit boards for electronic devices, and manufacturing of medical devices such as stents.
Femtosecond lasers: Lasers are classified into those that output light in a continuous stream and those that repeatedly output light in a series of pulses. The latter is called a pulsed laser. Femtosecond lasers are pulsed lasers that have a pulse duration in the range of several femtoseconds to several hundred femtoseconds. A femtosecond is a quadrillionth (one thousand trillionth) of a second, an extremely small unit of time. Femtosecond lasers enable high-precision micromachining because the laser beam does its work before the substrate has time to absorb heat, thus preventing burrs and cracks.
Femtosecond lasers do not produce significant heat, which enables micromachining as it prevents burrs and cracks on the substrate. The downside is that femtosecond laser processing is slow. Femtosecond lasers are ultraviolet, and OXIDE is well positioned for entry into the field by virtue of its strength in UV lasers. According to the company, there are competitors that deal with UV lasers, but they are having difficulty in stabilizing the femtosecond laser beams. In addition to developing processing lasers, the company is considering the development of femtosecond laser processing equipment through tie-ups with processing equipment manufacturers.
The company estimates the target market for femtosecond lasers at approximately JPY30.0–40.0bn. This is larger than the market for optical single crystals for semiconductor wafer inspection systems and UV lasers. However, it is also a market in which the company will have to compete with early entrants. Traditionally, the processing field has been a labor-intensive one in which it has been difficult to take advantage of superior crystals, which caused OXIDE to hesitate in entering the market. Considering the company’s relatively small size, it plans to maintain a narrow focus on the development and sale of products for the micromachining of semiconductors, electronic components, and displays.
SAM, a single crystal substrate for GaN epitaxial thin-film growth, is a GaN substrate that uses a different material (ScAlMgO4 single crystal) from existing sapphire single crystal substrates. OXIDE started sample shipments of two-inch substrates on June 30, 2021. Moving forward, the company plans to increase the diameter of this product based on client feedback.
Gallium nitride (GaN): Gallium nitride (GaN) is a III-V compound semiconductor with a 1:1 ratio of elements of group III and group V in the periodic table. Due to its high melting point and the high vapor pressure of nitrogen, it is difficult to produce large single crystals from a melt (as can be done with silicon) using current technology. Therefore, thin-film single crystals are fabricated by gas-phase synthesis. Recently, GaN semiconductors have been attracting attention for their application in power devices and high-frequency devices, for which high-quality GaN single crystals are required, in addition to optical devices.
Power devices: Semiconductor devices with applications in electric power control such as converting AC to DC or DC to AC, converting AC frequencies, converting DC voltage, and opening or closing of electric circuits. They are called power devices because they handle larger amounts of power than semiconductor devices used for CPUs and memory.
GaN single crystals first spread due to their application in blue LEDs. There has been recent progress in R&D investigating GaN as a semiconductor for visible lasers and power devices, and the material has begun to be adopted in these areas. Currently, GaN is produced by epitaxial growth, with sapphire often used as the single crystal substrate material. However, sapphire is mismatched with GaN in terms of crystal properties, which leads to lower yields in visible light lasers and power devices, and power output and durability have yet to reach their full potential.
The company’s ScAlMgO4 single crystal substrate (SAM) has a smaller mismatch in crystal properties with GaN than does sapphire, and SAM’s crystal dislocation density is also lower. Thus, growing GaN on SAM can produce a higher yield and higher quality film than GaN grown on sapphire.
Epitaxial growth method: A method of growing a crystal on top of a substrate crystal with a well-defined orientation with respect to substrate. Homoepitaxy refers to growing a crystal of the same material as the substrate, whereas heteroepitaxial refers to cases when the growing crystal and substrate differ, as in the case of GaN on sapphire. In heteroepitaxial growth, it is easier to obtain a good quality growing crystal if the difference in lattice constants (the physical dimensions and angles that determine the geometry of a crystal lattice) between the growing crystal and substrate crystal is small.
ScAlMgO4 single crystal (SAM): An oxide single crystal containing three metal elements, scandium (Sc), aluminum (Al), and magnesium (Mg), in equal proportions. As is the case with silicon and sapphire, SAM single crystals can be produced from a melt. However, due to their complex composition, growing large SAM single crystals requires advanced technology, a fact that has historically limited their adoption.
OXIDE has formed a business alliance with startup UJ-Crystal (UJC) for R&D related to the mass production of SiC single crystals for power semiconductors. OXIDE will invest in UJC, which is developing a manufacturing method for SiC single crystals for power semiconductors that makes use of OXIDE’s strength in crystal technology.
UJC is a startup established by Nagoya University that aims to develop, manufacture, and sell SiC single crystals for power semiconductors. SiC single crystals have traditionally been produced by the sublimation method, but UJC uses the solution method instead. The solution method has high technological affinity with the high-frequency induction heating Czochralski (CZ) method where OXIDE excels. This explains why the company decided to contribute to R&D for the mass production of SiC single crystals through the capital and business alliance with UJC.
OXIDE is planning to update “Disclosures Concerning Business Plans and Growth Potential,” which it announced in April 2021. Although details are yet to be determined, the company plans to update the R&D pipeline in the Optical Measurement and New Fields business.
|Development pipeline||Main applications|
|Single crystal solid-state battery materials||Button batteries for medical use, batteries for automobiles|
|GPS single crystals||Radioactive contamination monitoring, security, oil exploration, SPECT equipment (healthcare)|
|Single crystals for isolators||Telecommunications devices for 5G and data centers|
|Single crystal substrate for GaN||Power semiconductors, visible lasers|
|Phosphor single crystals and devices||Laser lighting, mercury lamp alternative, light source for projectors|
|CW/QCW 213nm lasers||State-of-the-art measurement and semiconductor inspection equipment|
|Femtosecond lasers||OLED and MicroLED display manufacturing, micromachining|
|Laser mask writers||Photomasks, exposure systems|
OXIDE develops, manufactures, and sells optics such as laser systems for semiconductor wafer inspection systems, optical single crystals used in these systems, and scintillation single crystals for PET scanners. The company also accepts orders from companies and research institutes for the development of new applications and products for mass production in the optics field. OXIDE’s competitiveness lies in its optical wavelength conversion technologies and single crystal manufacturing technologies (see Core technologies).
Since OXIDE reports in a single segment, Optics, it does not disclose segment information. However, its financial results materials show the Semiconductor business accounting for 51.8% of revenue, the Healthcare business for 36.1%, and the Optical Measurement and New Fields business for 12.2% (FY02/22). The company does not disclose the profit breakdown by business, but notes that marginal profit is highest in the Semiconductor business, second-highest in the Optical Measurement and New Fields business, and lowest in the Healthcare business.
|Business||Summary||% of revenue||YoY|
|Optical Measurement and New Fields||Development of new applications and products using core single crystal and optical technologies||12.2%||up 10.3％|
|Semiconductors||Development, manufacture, sales, and maintenance of optical single crystals and UV lasers for semiconductor wafer inspection systems||51.8%||up 42.6％|
|Healthcare||Development, manufacture, and sales of scintillator single crystals for use in PET scanners||36.0%||up 29.2％|
A crystal is a solid in which the atoms and molecules are arranged in a highly ordered structure. A single crystal is a crystal in which the orientation of the atoms and molecules is perfectly uniform in all parts of the material.
Scintillation single crystal
Single crystal for wavelength conversion
Single crystal for isolators
Single crystal for lasers
Subjecting a crystal to an electrical signal, pressure, or light, reveals its unique properties. These properties appear more conspicuously in single crystals. Various single crystal products have been commercialized for industrial applications to take advantage of these properties.
OXIDE’s core technologies comprise single crystal manufacturing technologies (its original business) and optical wavelength conversion technologies, which use single crystals. The company has been able to achieve end-to-end production covering optical single crystals (upstream) to measurement devices (downstream) through acquiring businesses and pursuing capital tie-ups.
Optical single crystals
The wavelength of light refers to the distance between peak-to-peak and trough-to-trough of electromagnetic waves. Normal light is a mixture of various dispersed wavelengths. Laser is light that has been extracted to a certain wavelength, amplified, and directed in a certain direction using a device. Laser has an aligned wavelength, direction, and phase (an aspect of periodically repeating phenomena), with a narrow width, high directivity, and high energy density. It is used in many sectors such as medicine (surgery, inspection equipment), measurement (microscopes), information and home electronics (optical discs, optical communications), and industry (processing, welding). Laser light is divided into infrared light, visible light, UV light, and other divisions depending on wavelength. Wavelength used differs depending on the application.
Creating a laser beam involves extracting, amplifying, and directing light of a certain wavelength, resulting in laser beams having a fixed wavelength. Wavelength conversion technology converts the fixed wavelength of laser beams into visible light (mainly for lighting), UV light (mainly for semiconductor manufacturing, medical treatment, and sterilization), or infrared light (mainly for heating and communication). It is the core technology underpinning OXIDE’s laser source lineup. The company uses its single crystals (its original business) as a material in its wavelength conversion products. Crystals used in wavelength conversion need to be able to produce a high yield of high-quality single crystal elements that are resistant to damage from laser light.
There are multiple methods for manufacturing single crystals depending on the size, shape, and properties desired. Meeting the performance requirements of clients necessitates extensive technical expertise in areas such as material selection, large-diameter and high-quality crystal production, mass production, and stable supply. The company’s manufacturing technology originally was based on its proprietary double crucible (DCCZ) method. It has since expanded its lineup of single crystal growth equipment through business acquisitions, and has accumulated manufacturing know-how by hiring personnel from companies that withdrew from the single crystal business.
Between 2000 and 2010, major home electronics and materials manufacturers withdrew from single crystal manufacturing due to low profitability caused by low yields and the drying up of development resources. OXIDE seized the opportunity to recruit personnel from these business units. The company acquired the manufacturing know-how of many companies by recruiting personnel involved in various industries such as electronics, chemicals, steel, and non-ferrous metals.
The conventional single crystal growth method involves placing raw materials in a crucible, melting them at high temperatures, putting a seed crystal in contact with the melt, and rotating the seed crystal while gradually hoisting it upward to let the materials cool. This method is called the Chokralsky (CZ) method, and is suitable for growing large single crystals, including large single crystals for use in the production of silicon for semiconductors. When growing single crystals using this method, the amount of melt decreases as the growth progresses, and it is difficult to achieve stable crystal quality owing to the need for strict temperature control. In other words, the CZ method does not allow the growing of single crystals under a constant environment, and thus makes it difficult to grow single crystals with uniform composition, reducing the performance of crystals grown this way in optical communications and wavelength conversion applications.
To solve this problem, founder and current president Furukawa in 1999 jointly developed the double crucible (DCCZ) method, which involves the continuous feeding of raw materials. In this method, single crystals are grown from the inner crucible, and raw materials of the same composition and quantity as the growing single crystals are continuously supplied to the outer crucible from an automatic feeder. This keeps the amount of melt inside the crucible constant, making it possible to grow single crystals of uniform constant composition, even if the composition of the crystal to be grown differs from the composition of the melt. Using the method, OXIDE succeeded in commercializing large single crystals with a diameter of three to four inches, which have 10–100x fewer defects by area than conventional materials.
The CZ (Czochralski) method is used in the manufacture of semiconductor silicon and is suitable for mass production. The method involves putting a seed crystal into contact with molten silicon in a crucible and hoisting it upward while rotating it slowly.
Characteristics: Capable of producing large single crystals
Crystals that can be grown: SLN, CLN, SLT, CLT, BBO, LGT, TeO2, YAG, YVO4, LSO, YSO, sapphire, isolator crystals
This method is used to obtain single crystals by heating a portion of the raw material crystal, creating a molten zone between the lower single crystal (the seed crystal) and the sampling rod, then moving the entire crystal downward while supporting the molten zone by surface tension, and cooling the molten zone.
Characteristics: Because the method does not use a crucible, it is possible to grow high-purity single crystals without impurities from the crucible. Ideal for single crystal prototyping.
Crystals that can be grown: Isolator crystals such as YVO4, TiO2, YIG
Method in which a crucible filled with a seed crystal and raw material is moved to the upper high-temperature region of a furnace to melt the raw material and part of the seed crystal, and then gradually moved downward to cool the material and grow the crystal.
Characteristics: Capable of producing large single crystals
Crystals that can be grown: BSO, LGT, LGS, LN, LBO, sapphire
Characteristics: Capable of producing high-quality single crystals
Crystals that can be grown: CLBO, LBO, KT, KGW
Characteristics: Capable of producing single crystals in controlled shapes, such as plates
Crystals that can be grown: STO, YVO4, sapphire
Characteristics: Capable of producing large crystals with low distortion
Crystals that can be grown: Various types of crystals with high melting points, sapphire, isolator materials
Source: Company data
OXIDE’s proprietary DCCZ method
The company’s R&D-to-revenue ratio over the past 10 years has averaged 15.0%. Its R&D spending was particularly high from FY09/12 through FY09/16 at over 20% of revenue. This was due to upfront spending in the laser business acquired in 2010, in order to meet client quality requirements for semiconductor manufacturing equipment. R&D expenses declined in FY02/20 and FY02/21, but the company expects them to increase again in FY02/22. OXIDE said it would increase R&D spending to accelerate new development projects in its Optical Measurement and New Fields business.
|R&D expenses to revenue ratio||24.0%||32.4%||32.5%||27.3%||16.3%||20.2%||10.4%||4.3%||4.3%||6.6%||6.5%|
A significant percentage of the company workforce (35.6%) has a doctorate, master’s, or MBA degree. In addition, four of the six internal directors have doctorate degrees (FY02/21).
|Employees with qualifications||FY02/21||% of total|
|(No. of people, %)||Non-cons.||Non-cons.|
|No. of employees||160||100.0%|
Lutetium oxide, a raw material for scintillation single crystals in the Healthcare business, has a large impact on the cost of revenue. Lutetium oxide is a rare-earth oxide, and its price fluctuates widely, which causes fluctuations in the company’s material cost-to-revenue ratio. OXIDE sources lutetium oxide through a trading company that handles chemical products. Lutetium oxide is produced as a by-product, not as a main product, and there are no mines that mine lutetium oxide exclusively. The company mainly procures rare earths from China, and there is the risk that prices may fluctuate depending on conditions within the country. The company is working to diversify its sources of lutetium oxide, including looking to Australia and Africa. Lutetium oxide is the only difficult-to-obtain raw material that the company uses.
|Material cost to revenue ratio||28.7%||31.3%||34.4%||35.4%|
(This section is scheduled for update on the basis of the company's FY02/22 annual securities report. The following information is based on FY02/21 results.)
OXIDE’s production bases are located in Hokuto, Yamanashi Prefecture and Yokohama, Kanagawa Prefecture. In Yamanashi Prefecture, the company manufactures single crystals at three factories near the head office. In Kanagawa Prefecture, the company manufactures laser equipment at its Yokohama branch. The company’s single crystal manufacturing facilities have a high book value due to the high costs of machinery and equipment such as crucibles, which incorporate precious metals.
Factory No. 1 and Factory No. 2, which are in the same complex as the head office, are equipped with roughly 70 crystal growth systems capable of manufacturing more than 80 types of crystals. The two factories also produce components to be installed in the laser products manufactured at the Yokohama branch. Meanwhile, the Core Technology Division (Optical Measurement and New Fields business), housed in the same complex, responds to client issues and requests.
Factory No. 3, located approximately two kilometers from the head office complex, mass produces scintillation single crystals and optical modules. Factory No. 3 was built in 2015 and is the company’s first mass production facility for single crystals. The manufacturing facilities include equipment that was transferred from Hitachi Chemical when OXIDE acquired the scintillation single crystal business, as well as proprietary etching equipment and automatic inspection systems.
The Yokohama branch designs, develops, manufactures, and sells laser sources, which are the mainstay products of the Laser Division. Despite being housed in an office building, the branch includes production facilities equipped with a class 1,000 cleanroom.
|Office/Factory||Location||Description||Book value||Number of employees|
|Head office, Factory No. 1||Hokuto, Yamanashi Prefecture||Single crystal manufacturing facility||927||40|
|Head office, Factory No. 2||Hokuto, Yamanashi Prefecture||Single crystal manufacturing facility|
|Factory No. 3||Hokuto, Yamanashi Prefecture||Single crystal manufacturing facility||1,692||41|
|Yokohama branch||Yokohama, Kanagawa Prefecture||Laser systems manufacturing facility||235||40|
According to the OXIDE’s FY02/21 annual securities report, the company plans to expand its facilities, with a total planned investment of JPY1.9bn. Factory No. 3 and Factory No. 4 are investments in the company’s facilities in Yamanashi Prefecture. Factory No. 4 is a new factory for manufacturing laser equipment. The company spent JPY400mn for iridium crucibles at Factory No. 3, which is more than it spent on single crystal manufacturing equipment (see table below). This is due to the high price of iridium, which is a precious metal.
|Factory No. 4||Hokuto, Yamanashi Prefecture||Building||882||Jan 2022|
|Laser manufacturing equipment||333|
|Factory No. 3||Hokuto, Yamanashi Prefecture||Single crystal manufacturing equipment||100||Apr 2022|
|Yokohama branch||Yokohama, Kanagawa Prefecture||Laser manufacturing facilities and equipment||150||May 2021|
The company revised its investment plan in its Q2 FY02/22 financial results briefing.
OXIDE’s plan announced in April 2021 assumed that the construction site for Factory No. 4 would be on land owned by the company. The company later changed the construction site to land adjacent to the head office. As a result, the building construction period is now expected to be delayed by about six months compared to the previous forecast due to the need to procure construction materials and complete development procedures for the planned site. The delay caused the company to carry over JPY1.0bn of capex related to Factory No. 4 to FY02/23. OXIDE also decided to increase in-house production of laser components, some of which it had procured externally. As a result, the company plans to increase the total amount of capex related to Factory No. 4 from the previous forecast of JPY1.0bn to approximately JPY1.8bn. The company said that it would partially cover these increased capex (applying for JPY730mn in subsidies) through the Ministry of Economy, Trade and Industry (METI)’s Program for Promoting Investment in Japan to Strengthen Supply Chains.
OXIDE also decided to expand the cleanroom at its Yokohama branch by December 2021 in order to meet the short-term increase in maintenance demand until the start of operations at Factory No. 4. The company stated that Factory No. 4 will triple its laser maintenance capacity during normal operation and quintuple it during full operation.
(This section is scheduled for update on the basis of the company's FY02/22 annual securities report. The following information is based on FY02/21 results.)
The company leverages trading company partners in its Optical Measurement and New Fields and Healthcare businesses for both material procurement and product sales. In the Semiconductor business, OXIDE procures materials and sells products directly. As of FY02/21, the company had more than 120 clients with approximately JPY5mn in revenue per client.
A high percentage of the company’s revenue is from specific clients, mainly in the Semiconductor and Healthcare businesses. OXIDE discloses the total revenue generated by its six top clients as reference material in its annual securities report. Revenue from the six top clients accounted for 76% of total revenue in FY02/20 and 82% in FY02/21. In FY02/21, revenue from Hitachi High-Tech Corporation (delisted in May 2020 after it was made a wholly owned subsidiary by Hitachi, Ltd. [TSE Prime: 6501]]) and Skyverse Technology Co., Ltd. (China) together accounted for 59.7% of Semiconductor business revenue. In the same year, Marubeni America Corporation accounted for almost 100% of Healthcare business revenue.
Marubeni America Corporation: Healthcare business (supplies PET scan equipment manufacturers in the US through Marubeni America Corporation)
Hitachi High-Tech Corporation: Semiconductor business
Skyverse Technology Co., Ltd. (China): Semiconductor business
KLA Corporation: Semiconductor business
|Information on major clients||FY02/19||FY02/20||FY02/21|
|Revenue from specific customers||2,123||2,317||2,943|
|Marubeni America Corporation||1,058||1,166||1,323|
|Hitachi High-Tech Corporation||688||625||602|
|Skyverse Technology Co., Ltd||430|
|Three other companies||376||526||587|
|% of total revenue||81.4%||75.6%||82.2%|
OXIDE does not disclose revenue by segment (it reports in a single segment), but does disclose revenue by business for the Semiconductor and Healthcare businesses, which account for a large percentage of revenue, and the Optical Measurement and New Fields business, in which it develops new businesses.
In the Semiconductor business, the company develops, manufactures, and sells optical single crystals and UV lasers incorporating these products to semiconductor wafer inspection system manufacturers. It also provides maintenance services for these products. The company recorded JPY2.5bn in revenue in the business in FY02/22 (+42.6% YoY; 51.8% of total revenue).
In 1H FY02/22, Semiconductor business revenue of JPY1.2bn consisted of JPY402mn in optical single crystals and others (33% of Semiconductor business revenue), JPY516mn in UV lasers (42%), and JPY304mn in maintenance (25%).
A laser, an acronym for Light Amplification by Stimulated Emission of Radiation, is a device that generates electromagnetic waves (coherent light) of almost a single wavelength with excellent directivity and convergence. A laser beam is defined as light that is artificially created using a laser oscillator that generates coherent light.
UV lasers are lasers with a wavelength range of 10–400nm. The smaller the number, the shorter the wavelength of the light. The human eye can detect wavelengths between approximately 400–800nm, and UV light is of shorter wavelengths that are invisible to the eye. In order to set the wavelength of light to the desired value, it is necessary to convert the light emitted from a laser source to a shorter wavelength. One of the company’s core technologies is the development and manufacture of optical single crystals used for optical wavelength conversion.
Optical single crystals
Laser products incorporating optical single crystals
Sales to semiconductor wafer inspection system manufacturers account for nearly all the revenue generated from optical single crystals and UV lasers.
OXIDE was commissioned by Nikon Corporation (TSE Prime: 7731) and KLA-Tencor Corporation (now KLA Corporation; NASDAQ: KLAC) to develop optical single crystals in 2006. After a period of developing products and receiving feedback from clients, the company began mass production of optical single crystals in 2011. These products have since been adopted by laser module manufacturers, and have almost monopolized the market with a global share of about 95%.
Global Niche Top Products: Products that have the largest share of the global market in a niche field such as OXIDE’s optical single crystals for semiconductor wafer inspection systems. The market for this product is limited to the extent of discouraging large companies from entering it due to investment efficiency considerations. Meanwhile, small and medium-sized companies have difficulty entering the market without exceptional technology and know-how.
OXIDE has not entered the crystal market for SAW filters—the largest crystal application on a scale of approximately JPY10bn—due to the presence of major manufacturers. The company has instead focused on developing and manufacturing only crystals that are difficult to produce, where it believes it can more directly solve its clients’ issues.
OXIDE’s contribution to the development of laser modules with enhanced performance was the main reason it was able to gain a 95% share of the global market for single crystals for UV laser modules used in semiconductor wafer inspection systems. UV lasers are high energy, which causes degradation in crystals and peripheral components. It is essential that optical single crystals are durable because the inspection system operates continuously for 24 hours a day. Therefore, in response to client requests, OXIDE developed an optical single crystal with a product life of about one year (previous versions had lasted less than one week). Clients such as Hitachi High-Tech and KLA Corporation appreciated these innovations and sought to strengthen their relationship with OXIDE, resulting in capital and business alliances that continue to the present (both are major shareholders).
With a high global market share of about 95%, the sales volume of optical single crystals is closely linked to the number of semiconductor wafer inspection systems produced (the manufacturers of this equipment are the end users). The unit prices range from JPY6–8mn. Since one optical single crystal is used for each laser source, revenue is the sum of the number of wafer inspection devices multiplied by the unit price of optical single crystals. The company says that it receives more requests from clients to improve the stability of supply and reduce delivery times than it does requests to lower unit prices.
OXIDE’s UV laser products are based on the technology and personnel of Magnescale Co., Ltd., which the company acquired in 2010. The UV laser wavelength conversion units incorporate OXIDE’s optical single crystals. According to the company, revenue for these products was negligible when it first acquired the business, but as of FY02/21 its global market share was approximately 20%. The company’s global market share has increased since 2016, when progress in semiconductor miniaturization led to increased demand for UV lasers of shorter wavelengths and higher output power. The size of defects on semiconductor wafers that need to be detected is becoming smaller as circuit patterns become finer. In response, companies are increasingly adopting short wavelength UV lasers to improve the accuracy of defect detection. OXIDE has achieved a shorter wavelength (266nm) and a higher output power (2W) in its laser products (first developed in 2011 before moving to mass production in 2016).
The company has the opportunity to introduce its laser products when its clients, wafer inspection system manufacturers, update their facilities. On average, laser systems used in wafer inspection systems have a useful life of 10 years. It is crucial that the company has highly competitive products available at the time when its clients are updating their equipment.
Clients are demanding shorter wavelengths due to the miniaturization of semiconductors and higher output power to improve inspection efficiency. According to OXIDE, reducing the wavelength by one-half makes it possible to inspect microscopic defects one-quarter smaller than would be possible to pick up with lasers of conventional wavelength. According to the company, inspection applications in cutting-edge fields use UV lasers with linewidths of 3nm to 5nm at wavelengths of 266nm and below. OXIDE is developing laser sources with wavelengths of 193nm and 213nm in anticipation of the need for even shorter wavelengths.
The company’s UV lasers, like its optical single crystals, are affected by semiconductor wafer inspection system production. Unlike optical single crystals, the global market share of this product is approximately 20% and has room to grow, meaning it is affected by trends in client adoption. Revenue from UV lasers continued to increase in FY02/21, outpacing the growth in demand for semiconductor inspection system. This growth stemmed from an increase in new adoption of the company’s highly competitive laser with wavelengths of 266nm and below due to demand for shorter wavelength lasers due to semiconductor miniaturization and demand for higher output power to improve inspection efficiency. Unit prices run JPY30–40mn per laser system. UV laser systems offer higher value-added compared to optical single crystals owing to their high level of processing.
The single crystals and optical units in OXIDE’s laser systems require replacement or maintenance every one to two years, depending on how frequently the inspection system is used. Neglecting maintenance can result in the costly idling of inspection systems and require the replacement of laser systems. As this can lead to huge losses, including opportunity losses, companies order regular maintenance. This basically involves the periodic replacement of single crystals and optical units based on the frequency of use of the equipment and the level of power output.
The number of maintenance orders is proportional to the cumulative number of lasers sold. According to OXIDE, the unit price of maintenance orders is higher than that of product orders. The company does not incur any marketing costs for maintenance since orders come directly from existing clients. Shared Research understands that the profitability of the maintenance business is higher than that of product sales. It is also easy for the company to formulate maintenance plans because it can forecast maintenance cycles based on data on continuous usage and deterioration rates.
The Healthcare business comprises the scintillation single crystal business acquired from Hitachi Chemical in 2015. Upon acquiring the business, OXIDE improved the quality and product yield of the scintillation single crystals produced and achieved mass production. In FY02/22, revenue in the Healthcare business was JPY1.7bn (+29.2% YoY; 36.0% of total revenue). The company’s scintillation single crystals are used in PET scanners for cancer diagnosis. (PET imaging involves injecting a drug that collects near cancerous cells and emits radiation that is picked up by a scanner. This allows physicians to locate cancer cells).
OXIDE estimates that its share of the global market for scintillation single crystals is approximately 20%. Its main competitor is Crystal Photonics, Inc. (CPI; US), which has over 50% of the global market. As with the UV lasers in the Semiconductor business, revenue from specific clients accounts for a high percentage of Healthcare business revenue (see Market and value chain).
A scintillation is a type of phosphor that emits fluorescence when exposed to radiation such as X-rays and gamma rays. When radiation hits a scintillation, it absorbs the energy of the radiation its electrons move from the ground (stable) state to the excited state. When the electrons return to their original stable state, they emit energy in the form of light (visible or UV light), which is called scintillation. The emitted fluorescence is photoelectrically converted and amplified by a photomultiplier tube (PMT) or other device to quantitatively measure the radiation and produce an image as in a PET scanner. There are both solid and liquid scintillations. OXIDE’s scintillation single crystals are inorganic solid scintillations.
LGSO single crystal
GSO single crystal
In 2015, Hitachi Chemical approached OXIDE, informing the company of its withdrawal from the scintillation single crystal business. Hitachi Chemical once had a large share of the GSO single crystal market and was also involved in scintillation single crystals for PET scanners.
PET scanners are classified into three types according to functionality: low grade, medium grade, and high grade. Hitachi Chemical’s business was limited to the production of single crystals for medium-grade PET scanners. As the need for early detection of cancer (detecting tumors when they are as small as possible) increased and demand shifted to high-grade models, Hitachi Chemical saw its market share decline due to its late start in developing products for these models. The combination of a strong yen and rising raw material prices (the price of rare earths sourced from China soared) made business difficult and led Hitachi Chemical to decide to withdraw from the scintillation single crystal business. OXIDE’s Mr. Furukawa had interacted with the person in charge of single crystals at Hitachi Chemical when he was working at Hitachi Metals. According to the company, this, along with the desire to contribute to society in promoting the early detection of cancer, led OXIDE to acquire the business.
Unlike in its Semiconductor business, OXIDE sought after a model premised on mass-production in the scintillation single crystals business in light of the business’s high raw materials cost-to-revenue ratio and relatively low marginal profit ratio. This required the construction of a facility for mass production of scintillation single crystals in Yamanashi Prefecture, which was estimated to cost approximately JPY1.0bn, or about 70% of the company’s FY09/15 revenue of JPY1.4bn. OXIDE decided to take the plunge and invest in the business because the company believed it would be able to successfully mass-produce scintillation single crystals for high-grade PET scanners (see Commercialization process below).
The challenge in commercializing scintillation single crystals was the difficulty of improving the yield rate of crystals for high-grade scanners. These crystals were difficult to produce; as much as 99% of them ended up cracking. The manufacturing process involved extracting a rod-shaped element from a cylindrical crystal ingot (see diagram above). Hitachi Chemical had only been able to produce about 700 elements from a single ingot and this was not enough to be profitable. When OXIDE acquired the business, it was not long before it was able to manufacture crystals with no cracks. Within one year of taking over, it was able to produce 1,500 elements from a single ingot, and turned an operating profit. The company has continued to improve the yield, boosting it to 2,100 elements in 2020. OXIDE is currently targeting the theoretical limit of 2,400 elements. It has also succeeded in increasing the size of the crystal ingots, which raises the theoretical limit of the number of elements that can be extracted, further enhancing the profitability of the business.
Scintillation single crystal sales volume is driven by market factors (the sales value of PET scanners), the expanding applications for partial PET scanners (see below), and the sales share of specific clients. According to the company, the unit price of an element is roughly JPY2,000, with one PET scanner requiring 20,000–30,000 elements, which translates to revenue of JPY40–60mn per scanner. Growth in the revenue the company earns from these products outpaces the growth in the sales value of the overall market (see Market and value chain). OXIDE focuses on high-grade PET scanners, which have the highest market growth rate, contributing to the company’s relatively rapid growth. The company noted that improved product yields and stable quality have created room for it to reduce prices and capture market share. It has accordingly been investing in increasing its production capacity.
OXIDE’s scintillation single crystals are also used in partial PET scanners, such as those used in breast cancer screening. However, revenue from these types of scanners is currently less than 5% of Healthcare business revenue. That said, following the approval of a drug for the treatment of Alzheimer’s disease in the US, the company has been conducting R&D with a view to the expansion of the application of partial PET imaging to the diagnosis of Alzheimer’s and other types of dementia.
In the Optical Measurement and New Fields business, the company operates existing businesses and pursues R&D projects to develop new sources of earnings. In FY02/22 revenue was JPY579mn (+10.3% YoY, 12.2% of total revenue). Existing businesses include the development, manufacture, and sale of single crystals, optical components, lasers, and optical measurement instruments to manufacturers of optical measuring instruments and optical equipment, as well as to universities and other research institutions, in both Japan and overseas. The company assigns 30% of its R&D staff to new development projects in the Optical Measurement and New Fields business.
Commencement of domestic sales of OneFive ORIGAMI03XP-3P, a UV femtosecond laser (timely disclosure on June 24, 2021)
Began sample shipments of SAM, a single crystal substrate for GaN epitaxial thin film growth (timely disclosure on June 18, 2021)
Entered a tie-up to pursue R&D targeting the mass production of SiC single crystals (timely disclosure on October 14, 2021)
The company discloses its manufacturing cost statements in its annual securities report as it files non-consolidated results. Major items are material costs (35.4% of FY02/22 revenue), labor costs (17.9% of FY02/22 revenue), depreciation (4.8% of FY02/22 revenue), and subcontracting costs (4.7% of FY02/22 revenue).
Lutetium oxide, the raw material for scintillation single crystals, accounted for the largest share of material costs. Lutetium oxide is a rare-earth oxide produced as a by-product of monazite, a rare-earth phosphate mineral. It is mainly mined in China, the US, Brazil, India, Sri Lanka, and Australia. The company purchases rare earths mainly from China via trading companies, but has been diversifying its procurement sources in response to soaring rare earth prices in China.
|% of revenue||28.7%||31.3%||34.4%||35.4%|
|% of revenue||15.4%||17.8%||20.3%||17.9%|
|% of revenue||27.3%||31.8%||27.1%||21.9%|
|% of revenue||6.3%||6.4%||5.5%||4.7%|
|% of revenue||4.8%||6.1%||5.6%||4.8%|
|% of revenue||4.4%||4.6%||3.4%||3.4%|
|Manufacturing costs total||1,787||2,357||2,455||3,130|
|% of revenue||68.5%||76.9%||68.6%||65.8%|
The company’s SG&A expenses are mainly fixed costs and do not substantially change. R&D expenses are recorded under SG&A expenses, and were 4.3% of revenue in FY02/20 and FY02/21.
|Remuneration for directors||94||104||106|
|Salaries and allowances||59||70||95|
|Provision for bonuses||3||-3||8|
|Amortization of goodwill||62||116||62|
|SG&A expenses total||693||644||718||1,034|
Shared Research understands that the company’s variable costs comprise material costs, subcontracting costs, and electricity costs (all of which are part of cost of revenue). If these three items are indeed considered variable costs, we estimate the variable cost ratio, marginal profit ratio, and break-even revenue for FY02/21 to be 43.3%, 56.7%, and JPY2.9bn, respectively. The company does not disclose marginal profit ratios by business, but notes that marginal profit ratios are highest in the Semiconductor business, followed by Optical Measurement and New Fields business, and third-highest in the Healthcare business. The marginal profit ratio of the Semiconductor business is high due to the large contribution from UV lasers, which involve significant processing and sell at high prices. Meanwhile, the marginal profit ratio of the Healthcare business is low due to the use of lutetium oxide, an expensive rare earth, as a raw material for scintillation single crystals. Shared Research believes that marginal profit ratios have declined from FY02/19 to FY02/21 as material costs have risen.
|Marginal profit ratios and variable cost ratios (Shared Research estimates)||FY02/19||FY02/20||FY02/21||FY02/22|
|Marginal profit ratio||60.6%||57.7%||56.7%||56.5%|
|Variable cost ratio||39.4%||42.3%||43.3%||43.5%|
(This section is scheduled for update on the basis of the company's FY02/22 annual securities report. The following information is based on FY02/21 results.)
Overseas revenue in FY02/21 was JPY2.6bn (+27.5% YoY; 72.6% of total revenue). By region, the US accounted for the highest percentage of overseas revenue at 49.1%. The main products the company sells in the US are scintillation single crystals (to PET scanner manufacturers; Healthcare business) and UV lasers (Semiconductor business). China accounted for the largest share of Other overseas revenue (which was 23.5% of overseas revenue). Almost all the company’s revenue is denominated in Japanese yen, so it is only minimally affected by forex fluctuations.
|Revenue by region||FY02/20||FY02/21|
|% of total||33.6%||27.4%|
|% of total||66.5%||72.6%|
|% of total||51.4%||49.1%|
|Overseas - other||461||840|
|% of total||15.0%||23.5%|
|% of total||100.0%||100.0%|
OXIDE’s mainstay products in the Semiconductor business, optical single crystals and UV lasers, are mainly used by manufacturers of wafer inspection systems used in the front-end of the semiconductor manufacturing process. Revenue from these products is accordingly affected by the capex trends of wafer inspection systems manufacturers, which tends to move based on demand for silicon wafers.
The Semiconductor Equipment and Materials International (SEMI) in October 2021 announced a silicon wafer shipment area forecast of record highs through 2024, with shipment area amounting to 12,290mn square inches (+5.3% YoY) in 2020, and 13,998mn square inches (+13.9% YoY) in 2021. SEMI expects the logic and memory fields to drive growth in silicon wafer shipment area in 2021.
|(mn square inches)||Act.||Act.||Est.||Est.||Est.||Est.|
According to SEMI, investment in front-end semiconductor manufacturing equipment is expected to increase 44% YoY in 2021 and 8% YoY in 2022, consecutive record highs, driven by a long-term trend of digital transformation (DX). The typical silicon cycle sees one to two years of growth followed by one to two years of stagnation or recession. However, the current forecast is for three consecutive years of growth from 2020 to 2022. Fabrication plants are expected to be the most active investment area in 2022, followed by memory. South Korea is expected to be the largest investor in terms of value in 2022, followed by Taiwan, China, Japan, Europe, and the Middle East.
According to the OXIDE materials, the market for semiconductor wafer inspection systems, which generates most of its orders, is forecast to reach JPY374.8bn in 2020 (+20.0% YoY) and continue to reach record highs from 2021 to 2024. The company said that although 2020 results were affected by the COVID-19 pandemic, demand for semiconductors for PCs and cloud computing increased due to the spread of digital transformation. Shared Research believes that the semiconductor wafer inspection systems market will continue to expand in 2021 and beyond, as semiconductor manufacturers build new plants in response to semiconductor shortages and semiconductor miniaturization continues to progress.
The scintillation single crystals that the company sells are mainly used in whole-body PET scanners. According to OXIDE, the market for scintillation single crystals is worth approximately JPY180bn, and scintillation single crystals for whole-body PET scanners account for roughly 4% of this, or JPY7.2bn.
Whole-body PET scanners are primarily used for the early detection of cancer cells. We therefore believe that the number of whole-body PET scanners will trend in line with the number of cancer patients. According to the International Agency for Research on Cancer, the number of cancer patients worldwide has been increasing every year that the survey has been conducted.
|New cancer patients||10,900||12,700||14,100||18,100|
|% change from previous survey||-||16.5%||11.0%||28.4%|
|% change from previous survey||-||13.4%||7.9%||17.1%|
According to the OECD, the number of PET scanners owned by countries around the world continued to increase YoY until 2020 after it began taking statistics in 2000. As of 2020, the US had 1,905 (49.3% of the total), Japan 586 (15.2%), Italy 212 (5.5%), South Korea 191 (4.9%), and France 167 (4.3%), with the top five countries accounting for nearly 80% of the total.
|% of total||49.3%|
|% of total||15.2%|
|% of total||5.5%|
|% of total||4.9%|
|% of total||4.3%|
Alzheimer’s disease is a type of dementia caused by the alteration of neurons in the brain, resulting in partial brain atrophy. When a person suffers from Alzheimer’s disease, a type of protein called amyloid beta attaches to neurons in the brain and gradually destroys them. According to the International Alzheimer’s Association, the number of Alzheimer’s patients is expected to increase from 54mn in 2020 to 82mn in 2030 and 152mn in 2050.
In June 2021, the US FDA approved an Alzheimer’s drug that targets amyloid beta, which, if effective, can slow the progression of Alzheimer’s disease. The treatment of Alzheimer’s disease requires precise testing of the degree of distribution and amount of amyloid beta near neurons in the brain. The testing can be done through blood tests, spinal fluid tests, and partial PET scans. Shared Research thinks that the testing options will mainly break down into categories: the simple and inexpensive blood tests and the more precise partial PET and spinal fluid tests.
OXIDE is working on the development of scintillation single crystals that can be used in the expanded applications of PET scanners. The company said it has received inquiries from universities and corporate research institutes for these products, and some of these inquiries have led to shipments.
OXIDE has a near monopoly share of about 95% of the global market for optical single crystals used in semiconductor wafer inspection systems. The company is not aware of any competitors in the remaining 5% of the market, and believes that the remaining 5% could be accounted for by optical single crystals used in low-power lasers, which do not compete with the company’s products. There are other manufacturers of optical single crystals used in lasers in China, North America, and Europe.
As the miniaturization of semiconductors progresses, OXIDE is receiving requests from manufacturers of semiconductor wafer inspection systems to develop optical single crystals that can withstand the high outputs power of UV lasers. Employing higher output lasers makes it possible to reduce inspection time. However, the higher the laser output, the higher the stress on the crystal, and the faster the crystal degrades. The company is continuing its efforts to maintain its global market share by considering the possibility of developing more competitive products with longer crystal life. This involves improving its crystal growth methods, processing methods, and surface coating methods.
The company has roughly a 20% share of the global market for UV lasers used in semiconductor wafer equipment. OXIDE’s competitor in this area is a company called Coherent, Inc. Coherent dominated the UV laser market until OXIDE entered the market and captured part of its share.
Coherent was established in May 1966, originally as a manufacturer of commercial CO2 lasers. It now manufactures and sells lasers, related equipment, and components for industrial, commercial, and scientific applications, and its product lineup is more extensive than OXIDE’s. Coherent develops, manufactures, and sells lasers in a broader range of wavelengths than does OXIDE, including visible lasers and infrared lasers in addition to UV lasers. Coherent also operates on a larger scale than does OXIDE in that it handles processing equipment. Considering that Coherent’s resources are dispersed among several product categories, OXIDE’s strategy since acquiring the laser business from Magnescale has been to specialize in UV lasers. This approach resulted in the company wresting market share from Coherent through the development and successful mass production of UV lasers for semiconductor wafer inspection systems with a wavelength of 266nm.
Another potential competitor is II-VI (“two six”) Incorporated, a materials manufacturer that manufactures and sells semiconductor crystals and other materials. II-VI has been expanding the scope of its business through M&A since 2007. In 2018, it acquired Finisar Corporation (unlisted), a US manufacturer of optical communication components. In June 2021, II-VI decided to acquire Coherent, despite having no current involvement in UV lasers. Once the merger is completed, the resulting company will become a competitor to OXIDE. That said, II-VI does not at present sell single crystals for lasers. Therefore, according to OXIDE, even if II-VI acquires Coherent, which handles UV lasers, it is unlikely that its business model will overlap with OXIDE’s.
In the US, there has recently been much M&A activity in optical-related industries, and Coherent and II-VI have each conducted several M&A in the past. One of the OXIDE’s medium- to long-term strategies is to strengthen its M&A activities (see Medium-term outlook). This approach is informed by the company’s awareness of M&A trends in the US, where Mr. Furukawa once studied. There is the possibility that there will be M&A opportunities in Japan, albeit on a smaller scale, as major manufacturers withdraw from the crystal and laser businesses. OXIDE is also considering capital tie-ups with companies in Japan and overseas.
|(JPYmn, people)||Fiscal year||Revenue||Gross profit||Gross profit margin||Number of employees||Revenue per employee||Gross profit per employee||Foreign exchange rate|