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Ferrotec Holdings 6890

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Nihonbashi Plaza Building 2-3-4 Nihonbashi Chuo-ku Tokyo, Japan 103-0027
http://www.ferrotec.co.jp/
03-3281-8808
Summary
Supplies cutting-edge materials to semiconductor and other electronics manufacturers. Searching for new growth businesses based on its long-nurtured core technologies.
Semiconductors & Semiconductor Equipment
Key dates
2011-02-10
Coverage initiation
Full Report
2021-11-24
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Key financial data

Income statementFY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons. Est.
Sales60,08838,42544,74659,07969,46473,84890,59889,47881,61491,313125,000
YoY3.8%-36.1%16.4%32.0%17.6%6.3%22.7%-1.2%-8.8%11.9%36.9%
Gross profit16,5246,97610,82013,48417,31419,70924,91527,13726,92830,782
YoY-10.8%-57.8%55.1%24.6%28.4%13.8%26.4%8.9%-0.8%14.3%
Gross profit margin27.5%18.2%24.2%22.8%24.9%26.7%27.5%30.3%33.0%33.7%
SG&A expenses12,39910,58510,02211,81313,28914,03116,47818,35420,91521,142
YoY7.0%-14.6%-5.3%17.9%12.5%5.6%17.4%11.4%14.0%1.1%
SG&A ratio20.6%27.5%22.4%20.0%19.1%19.0%18.2%20.5%25.6%23.2%
Operating profit4,124-3,6087981,6714,0255,6788,4378,7836,0139,64122,500
YoY-40.5%--109.4%140.8%41.1%48.6%4.1%-31.5%60.3%133.4%
Operating profit margin6.9%-9.4%1.8%2.8%5.8%7.7%9.3%9.8%7.4%10.6%18.0%
Recurring profit3,288-3,4661,2622,0313,8225,6767,1588,0604,2648,22823,500
YoY-47.7%--60.9%88.2%48.5%26.1%12.6%-47.1%93.0%185.6%
Recurring profit margin5.5%-9.0%2.8%3.4%5.5%7.7%7.9%9.0%5.2%9.0%18.8%
Net income1,715-6,5331,392-2,1322,1623,2562,6782,8461,7858,28123,500
YoY-61.7%----50.6%-17.8%6.3%-37.3%363.9%183.8%
Net margin2.9%-17.0%3.1%-3.6%3.1%4.4%3.0%3.2%2.2%9.1%18.8%
Per-share data (JPY)
Shares issued (year-end; '000)30,70630,90430,90430,90430,90430,90437,09737,10737,21037,305
EPS59.2-212.145.2-69.270.2105.777.176.948.1222.9604.7
EPS (fully diluted)58.4--0.069.9105.176.676.847.4201.5
Dividend per share20.05.06.08.010.018.024.024.024.030.046.0
Book value per share986.6966.11,216.81,260.81,255.61,271.81,386.51,337.31,303.91,803.0
Balance sheet (JPYmn)
Cash and cash equivalents9,5617,3737,55110,51810,03914,77823,64931,55623,70930,203
Other31,76926,89832,28533,90135,24636,46743,59245,71647,74357,875
Total current assets41,33034,27139,83644,41945,28551,24667,24077,27171,45288,078
Tangible fixed assets25,39724,91529,04227,73926,04534,29543,54276,133110,81753,043
Intangible assets2,3691,6841,6141,8762,0632,0612,9223,5575001,814
Investments and other assets3,4755,4744,2325,3775,3774,5004,7536,1367,24234,255
Total assets72,57266,34474,72479,41178,76992,101118,458163,098190,010177,190
Accounts payable8,6108,55410,47413,24110,99613,92718,41920,88718,25220,270
Short-term debt15,01212,53412,42411,67410,3099,54111,51820,47526,16917,654
Total current liabilities29,59227,24428,52231,53629,35232,10943,48160,18061,44358,890
Long-term debt6,0565,8365,6735,2406,39912,62513,89641,03255,24532,115
Total fixed liabilities8,7928,6618,1418,4449,92920,29123,16453,07078,41940,060
Total liabilities38,38535,90536,66339,97939,28152,40066,645113,250139,86298,950
Total net assets34,18730,43938,06139,43139,48939,70151,81249,84850,14878,240
Total liabilities and net assets72,57266,34474,72479,41178,76992,101118,458163,098190,010177,190
Total interest-bearing debt21,06818,37018,09716,91416,70822,16725,41461,50881,41549,769
Cash flow statement (JPYmn)
Cash flows from operating activities6431,5843,9287,8294,6428,2189,94711,4668,90313,218
Cash flows from investing activities-8,493-402-2,814-3,553-4,024-7,070-12,389-37,063-34,472-20,879
Cash flows from financing activities10,098-3,991-1,861-2,111-5213,89810,83134,50717,99621,695
Financial ratios
ROA (RP-based)4.9%-5.0%1.8%2.6%4.8%6.6%6.8%5.7%2.4%4.5%
ROE5.9%-20.7%4.1%-5.6%5.6%8.4%5.9%5.7%3.6%14.3%
Equity ratio46.0%44.9%50.2%48.9%49.1%42.6%43.3%30.3%25.5%37.9%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods. 

Full-year performance

FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Full-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-year
Sales60,08838,42544,74659,07969,46473,84890,59889,47881,61491,313
YoY3.8%-36.1%16.4%32.0%17.6%6.3%22.7%-1.2%-8.8%11.9%
Gross profit16,5246,97610,82013,48417,31419,70924,91527,13726,92830,782
YoY-10.8%-57.8%55.1%24.6%28.4%13.8%26.4%8.9%-0.8%14.3%
Gross profit margin27.5%18.2%24.2%22.8%24.9%26.7%27.5%30.3%33.0%33.7%
SG&A expenses12,39910,58510,02211,81313,28914,03116,47818,35420,91521,142
YoY7.0%-14.6%-5.3%17.9%12.5%5.6%17.4%11.4%14.0%1.1%
SG&A ratio20.6%27.5%22.4%20.0%19.1%19.0%18.2%20.5%25.6%23.2%
Operating profit4,124-3,6087981,6714,0255,6788,4378,7836,0139,641
YoY-40.5%--109.4%140.8%41.1%48.6%4.1%-31.5%60.3%
Operating profit margin6.9%-9.4%1.8%2.8%5.8%7.7%9.3%9.8%7.4%10.6%
Recurring profit3,288-3,4661,2622,0313,8225,6767,1588,0604,2648,228
YoY-47.7%--60.9%88.2%48.5%26.1%12.6%-47.1%93.0%
Recurring profit margin5.5%-9.0%2.8%3.4%5.5%7.7%7.9%9.0%5.2%9.0%
Net income1,715-6,5331,392-2,1322,1623,2562,6782,8461,7858,281
YoY-61.7%----50.6%-17.8%6.3%-37.3%363.9%
Net margin2.9%-17.0%3.1%-3.6%3.1%4.4%3.0%3.2%2.2%9.1%
Capital expenditures7,8773,7063,8253,3753,4407,32212,30035,95333,92014,297
Depreciation2,8253,3213,9423,9644,3033,5934,1885,7557,6009,155
Amortization of goodwill43645638014915519739724214326
R&D expenses1,4941,1489471,4771,5901,7362,4093,4184,1874,439
FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Full-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-year
Sales60,08838,42544,74659,07969,46473,84890,59889,47881,61491,313
YoY3.8%-36.1%16.4%32.0%17.6%6.3%22.7%-1.2%-8.8%11.9%
Semiconductor Equip.-related24,88418,86821,62826,56731,40532,24346,66257,00152,88160,669
YoY-10.1%-24.2%14.6%22.8%18.2%2.7%44.7%22.2%-7.2%14.7%
Vacuum feedthroughs6,7634,6865,4227,5197,1638,16011,76111,8898,1368,795
Quartz5,5093,4204,4845,1697,6248,24211,52315,58916,37317,116
Ceramics4,5074,1083,9655,1826,1476,2668,72910,2219,04812,267
CVD-SiC----1,6851,9053,0392,8012,0362,186
EB-gun, LED, other4,0782,7243,2423,9054,4683,8173,9364,7503,9733,872
Silicon wafer processing4,0273,9304,5154,7914,3173,8545,1617,2366,7544,638
Cleaning-------3,4685,6067,579
Photovoltaic27,35712,34513,20417,94818,50618,77320,939---
YoY29.3%-54.9%7.0%35.9%3.1%1.4%11.5%---
Silicon growing equipment12,9592,280687452359967157125--
Quartz crucibles4,8872,7093,6993,3653,5242,0411,8501,072--
PV silicon7,4205,5097,57011,4588,48310,59913,0663,611--
PV cells, others2,0911,8471,2472,6746,1415,1665,8653,275--
Electronic Devices5,3374,5646,6099,68013,32812,62712,70112,89713,48917,273
YoY-22.8%-14.5%44.8%46.5%37.7%-5.3%0.6%1.5%4.6%28.1%
Thermoelectric modules4,9334,1266,0548,93212,55911,74711,63411,93012,70116,527
Magnetic fluids, others4044385557487698791,068967789746
Other current assets2,5102,6483,3044,8846,22410,20410,29619,58015,24313,370
YoY18.5%5.5%24.8%47.8%27.4%63.9%0.9%90.2%-22.1%-12.3%
Operating profit4,124-3,6087981,6714,0255,6788,4378,7836,0139,641
Semiconductor Equip.-related2,4991385051,5243,1484,2347,4979,1444,1926,183
Photovoltaic776-3,934-387-1,272-1,692-1,184-1,593---
Electronic Device5552587331,4602,4672,5953,0072,3662,7694,453
Other current assets368-8810143244-429-1,931260-321
Eliminations-74-61-61-50-42-211-45-796-1,208-675
YoY-40.5%--109.4%140.8%41.1%48.6%4.1%-31.5%60.3%
Semiconductor Equip.-related-19.3%-94.5%265.8%201.9%106.6%34.5%77.1%22.0%-54.2%47.5%
Photovoltaic-68.7%---------
Electronic Device-52.4%-53.6%184.5%99.1%69.0%5.2%15.9%-21.3%17.0%60.8%
Other current assets55.1%--27.4%1,313.8%70.7%----
Operating profit margin6.9%-9.4%1.8%2.8%5.8%7.7%9.3%9.8%7.4%10.6%
Semiconductor Equip.-related10.0%0.7%2.3%5.7%10.0%13.1%16.1%16.0%7.9%10.2%
Photovoltaic2.8%-31.9%-2.9%-7.1%-9.1%-6.3%-7.6%---
Electronic Device10.4%5.6%11.1%15.1%18.5%20.5%23.7%18.3%20.5%25.8%
Other current assets14.7%-0.3%0.2%0.2%2.3%2.4%-4.2%-9.9%1.7%-2.4%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Photovoltaic segment earnings are included in the Others segment from FY03/20. FY03/19 figures for the Others segment have been retroactively adjusted. 

Recent updates

New share issue and secondary offering 

2021-11-24

Ferrotec Holdings Corporation announced the issuance of new shares the secondary offering of shares.

The company announced that it had resolved, at a meeting of its Board of Directors held on the same day, to issue and sell new shares. 

The issuance of new shares by way of offering (public offering) will be of 4,858,300 common shares in the company. In accordance with the Regulations Concerning Underwriting, etc. of Securities provided by the Japan Securities Dealers Association, the issue price (offer price) shall be provisionally calculated by multiplying the closing price of the company's common stock on the Tokyo Stock Exchange on the Price Determinate Date by a factor of 0.90 to 1.00, and determined with reference to conditions such as demand. The secondary offering (by way of over-allotment) will be of 728,700 shares (upper limit), but may be reduced or not carried out at all on the basis of demand and other market conditions. The number of shares to be sold will be determined on the Price Determination Date, taking into account demand and other market conditions. The 728,700 ordinary shares will be issued by third-party allotment. Determination of the amount to be paid, increases in capital and capital reserve, and all other matters necessary for the third-party allotment shall be at the discretion of  to the President and Representative Director of the company. If the public offering and third-party allotment take place, the total number of shares issued is expected to increase from 38,958,486 shares (as of October 31, 2021), to 44,545,486 shares. 

In its new medium-term management plan, the company announced that it intends to invest JPY95.0bn over three years, comprising investing in growth to take advantage of market opportunities for expansion in the semiconductor and electronic devices fields and strategic investment in long-term growth. This financing is positioned as part of that plan. The funds raised will be used for capital investment in production bases in China and Japan, including repayment of interest-bearing debt. See the press release for details.

Ferrotec wafer manufacturing subsidiary signs joint-venture agreement with city of Lishui, China

2021-11-17

On November 17, 2021, Ferrotec announced that its semiconductor wafer manufacturing subsidiary in China had entered into a joint-venture agreement with the city of Lishui, in Zhejiang Province, as detailed below.

On this date, the board of directors of Hangzhou Semiconductor Wafer Co., Ltd., an equity-method subsidiary of Ferrotec, reached the decision to establish Zhejiang-Lishui Semiconductor Wafer Co., Ltd. (tentative name) and the acquisition of related fixed assets. 

With this new joint-venture company, Hangzhou Semiconductor Wafer Company will be adding additional manufacturing capacity to meet the growing demand for semiconductor wafers in the city of Lishui, Zhejiang Province, a major center of semiconductor manufacturing activity and a nationally designated technology development zone. Plans call for the tentatively named Zhejiang-Lishui Semiconductor Wafer Company to be officially established by November 30, 2021; the new joint venture will be accounted for as a consolidated subsidiary of Hangzhou Semiconductor Wafer Company, with stakes in the new company being held by government-affiliated and private sector investment funds. The timeline for investments in the new joint venture is such that Ferrotec does not expect a material impact on its consolidated results in either FY03/22 or FY03/23. (See company press release for further details.)

Revision in its full year forecast

2021-11-15

Ferrotec Holdings Corporation announced a revision to its consolidated earnings forecast.

Revised 1H FY03/22 consolidated earnings forecast (as of November 11, 2021)

Sales: JPY125.0bn (previous forecast: JPY115.0bn)

Operating profit: JPY22.5bn (JPY20.0bn)

Recurring profit: JPY23.5bn (JPY20.0bn)

Net income*: JPY23.5bn (JPY20.0bn)

Earnings per share: JPY604.70 (JPY534.63)
*Net income attributable to owners of the parent

Reasons for revision

Sales were up 8.7% from the previous forecast. Factors behind the increase include increased demand for vacuum components, various material products, and precision regeneration cleaning services in the company's Semiconductor Equipment-related segment. The global spread of remote-work drove an increase in demand for PCs and data centers, which resulted in increased semiconductor production. In the Electronic Device segment, mainstay thermoelectric modules performed well for medical testing equipment such as 5G communication system equipment and PCR testing equipment, as well as for semiconductors. The company adopted new powered semiconductor substrates for industrial equipment and automotive applications. In terms of profit, operating profit is expected to increase by 12.5% and recurring profit by 17.5%, as a result of the above-mentioned increase in sales and the transition of a consolidated subsidiary in the semiconductor wafer business to an equity-method affiliate, meaning it is no longer included in the scope of consolidation. It is presumed that net income will be at the same level as recurring profit, taking into account the extraordinary gain from the change in Ferrotec's stake due to the third-party allotment of new shares of an equity-method affiliate involved in semiconductor wafers in 1H FY03/22, other extraordinary losses, and corporate tax.

Ferrotec Holdings Corporation has announced the progress of its lawsuit and countersuit against a Chinese equity-method affiliate.

Announcement of change in trade name and expansion of business scope in specified subsidiary

2021-11-02

Ferrotec Holdings announced a change of trade name and expansion of business scope for a specified subsidiary.

Ferrotec announced on the same day that consolidated subsidiary, Ferrotec (Ningxia) New Energy Co., Ltd. (FTSN), will change its trade name to Ferrotec (Ningxia) Semiconductor Technology Co., Ltd. in line with an expansion of business scope, as the subsidiary has newly entered the business of manufacturing and selling silicon products for use in semiconductor diodes. The change will be completed during November 2021. See the press release for details. 

Ferrotec Holdings announced a change of trade name for a specified subsidiary.

Ferrotec announced on the same day that consolidated subsidiary, Ferrotec (Jiangsu) Semiconductor Technology Co., Ltd. (FTSJ) will change its trade name to Ferrotec (Jiangsu) Semiconductor Technology Corporation (FTSJ), in line with changing its format to a joint stock company in preparation for listing on the Shanghai Stock Exchange STAR Market. The change will be completed during November 2021. See the press release for details.

The impact of power supply problems in China / Change to its specified subsidiaries due to the capital increase of a consolidated subsidiary

2021-10-14

Ferrotec Holdings announced the impact of power shortage problems in China.

On the same day, the company announced, in relation to reported problems with power supply in China, that all of its factories in that country were operating as normal and that at present there had been no requests for planned power outages in order to meet the government's carbon dioxide reduction targets. See the company's press release for details.  

The company also announced changes to its specified subsidiaries due to the capital increase of a consolidated subsidiary. 

The company announced that it had resolved, at a meeting of its Board of Directors held on the same day, to a capital increase in Hangzhou Dunyuan Juxin Semiconductor Technology Co., Ltd. (FTHS) from Ningxia Dunyuan Juxin Semiconductor Technology Co., Ltd. (FTNC). FTHS is a wholly owned subsidiary of FTNC, which is itself a subsidiary that produces semiconductor manufacturing device parts (quartz crucibles and silicon parts).

With this capital increase, the company plans to expand production capacity at FTHS, its silicon parts base in Hangzhou, China. The Board of Directors of FTNC is scheduled to resolve accordingly on October 19, 2021, and the payment date will be October 20, 2021. As a result of the capital increase, FTHS will become a specified subsidiary of the company. The impact of this matter on the company's earnings outlook for FY03/22 is minor. See the company's press release for details.   

Conclusion of an investment agreement between an equity-method affiliate of the company (semiconductor wafer business) and the city of Lishui 

2021-09-30

Ferrotec Holdings announced that an equity-method affiliate (semiconductor wafer business) had entered into an investment agreement with the city of Lishui. 

The company announced that it had resolved, at a meeting of the company's Board of Directors held on the same day, that its equity-method affiliate Hangzhou Semiconductor Wafer Co., Ltd. (hereinafter “CCMC”) would enter into an investment agreement with the city of Lishui, Zhejiang Province, to enhance its epitaxial wafer business, and that CCMC had also entered into the agreement on that day. The date of this agreement was disclosed because of the requirement to publish the information on the same day as the city of Lishui. 

CCMC currently has the capacity to produce 60,000 12-inch epitaxial wafers per month, but it had been considering a new factory to increase production in response to strong customer demand. Accordingly, the company decided to enter into the investment agreement with the city of Lishui in Zhejiang Province, which has a national-level technological development zone and a remarkable concentration of semiconductor businesses, planning to further enhance its epitaxial wafer business. In order to benefit from various preferential policies, a new company will be established; to reduce risk, the investment is to take the form of a joint venture between CCMC and government-run and private investment funds. See the company’s press release for details. 

[Corrections/Revisions] Capital increase through its subsidiary via third-party allotment of shares / Change to its specified subsidiaries / Capital increase via third-party allotment of shares by its manufacturing subsidiary specializing in insulated heat sink substrates for powered semiconductor devices / Capital increase for its manufacturing subsidiary specializing semiconductor parts

2021-09-24

Ferrotec Holdings announced corrections/revisions to its notice regarding capital increase through its subsidiary via third-party allotment of shares, and a change to its specified subsidiaries.

The company made revision to its April 15 release titled “Notice of Third Party Allotment of Shares by a Subsidiary Manufacturing Parts for Semiconductor Manufacturing (quartz crucibles and silicon parts) and Change in Specified Subsidiary”. Partial corrections were made to the details of allottees, allotment amount, and issue price.　(See press release for details.)

On the same day, the company issued a correction notice for its previous press release concerning capital increase via third-party allotment of shares by its manufacturing subsidiary specializing in insulated heat sink substrates for powered semiconductor devices, as detailed below.

The company made a correction to its August 6 press release regarding its plans for raising additional capital for Ferrotec (Jiangsu) Semiconductor Technology Co., Ltd. (FTSJ), its manufacturing subsidiary in China specializing in insulated heat sink substrates for powered semiconductor devices. Ferrotec announced that some of the details of underwriters had changed and added new underwriters, and that the underwriting amount of each underwriter had been changed. In addition, the company announced that, upon reviewing the previous disclosure, it found errors in the details of the issue price, increased amount of capital, registered capital after the increase, and underwriters and revised them. (See press release for details.)

On the same day, the company issued a correction notice for its previous announcement concerning the capital increase for its manufacturing subsidiary specializing semiconductor parts, as detailed below.

The company made a correction to its August 6 press release titled “Notice of Third Party Allotment of Shares by a Subsidiary Manufacturing Quartz Crucibles and Silicon Parts for Semiconductor Manufacturing”. The company announced that there was a change in part of the underwriters regarding its plans for raising additional capital for its manufacturing subsidiary in China, FTNC (name changed on August 5, 2021 due to formation of the company in preparation to future listing on Shanghai Stock Exchange), formerly Ningxia Advanced Quartz Material Co., Ltd.(AQM-N). These changes did not alter either the total amount of the funds to be raised or the addition to the subsidiary’s capital stock resulting from the issue. (See press release for details.)

Establishment of a regional headquarters company / Second round of third-party allotment of new shares and capital investment / Completion of the second third-party allotment of new shares

2021-09-15

Ferrotec Holdings announced the establishment of a regional headquarters company (Foreign-invested enterprise) in China.

At a meeting held on the same day, the company's board of directors resolved to change the form of its consolidated subsidiary, Shanghai Shenhe Thermo-Magnetic Electronics Co., Ltd. (FTS) to a foreign-invested enterprise (FIE).

This will enable FTS to benefit from preferential treatment from the Shanghai Municipal People’s Government through incentives aimed at encouraging multinational companies to promote the development of regional headquarters, as well as to conduct integrated management and operation of Ferrotec group companies on a cross-business basis. There are no plans to change the capital of any Chinese subsidiaries or affiliates as a result of this transaction.

*Invested enterprises are companies whose purpose is to make direct investments in operating companies, so-called “holding companies.” Of these, a holding company in which 25% or more of the shares are held by foreign capital is called a “foreign-invested enterprise.” The change of form to a regional headquarters or invested enterprise requires the approval of the administrative authorities (Ministry of Commerce, Shanghai Municipal Commission of Commerce, and Baoshan Department of Commerce).

On the same day, the company announced a second round of third-party allotment of new shares and capital investment (acquisition of fixed assets) by a semiconductor wafer-related company.

On the same day, the company also announced changes in allottees in respect of the “(Change in Disclosure Items) Notice Regarding Third-Party Allotment of Capital (Second) and Capital Investment (Acquisition of Fixed Assets) by a Semiconductor Wafer Equity Method Affiliate” announced on July 15, 2021. According to the company, one of the allottees were changed due to the specific circumstances of the allottees, and that the final payment date was also amended due to a change of payment dates for some allottees. In addition, since the amount of stated investment by the allottees was wrongly stated as the amount for capital spending, this was amended to the actual amount of investment. Where there were mistakes with the names and numbers of some of the allottees, these were also corrected.

On the same day, the company announced the completion of the second third-party allotment of new shares to its semiconductor wafer equity method affiliate.

Trends and outlook

Quarterly trends and results

CumulativeFY03/20FY03/21FY03/22FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2% of Est.1H Est.% of Est.FY Est.
Sales21,00241,84960,78481,61420,52641,59566,54091,31327,65959,826103.1%58,00047.9%125,000
YoY-7.4%-7.5%-10.0%-8.8%-2.3%-0.6%9.5%11.9%34.8%43.8%39.4%36.9%
Gross profit7,11413,90820,11726,9286,79514,09921,87930,78210,36922,239
YoY1.9%0.2%-5.4%-0.8%-4.5%1.4%8.8%14.3%52.6%57.7%
Gross profit margin33.9%33.2%33.1%33.0%33.1%33.9%32.9%33.7%37.5%37.2%
SG&A expenses5,02010,34215,21720,9155,23510,18515,63021,1425,55111,505
YoY17.5%17.4%13.4%14.0%4.3%-1.5%2.7%1.1%6.1%13.0%
SG&A ratio23.9%24.7%25.0%25.6%25.5%24.5%23.5%23.2%20.1%19.2%
Operating profit2,0943,5664,9006,0131,5613,9136,2499,6414,81710,733107.3%10,00047.7%22,500
YoY-22.6%-29.6%-37.5%-31.5%-25.5%9.7%27.5%60.3%208.7%174.3%155.6%133.4%
Operating profit margin10.0%8.5%8.1%7.4%7.6%9.4%9.4%10.6%17.4%17.9%17.2%18.0%
Recurring profit1,7902,4723,4944,2645632,8255,7598,2286,50812,493104.1%12,00053.2%23,500
YoY0.2%-49.2%-53.8%-47.1%-68.5%14.3%64.8%93.0%1,055.6%342.3%324.8%185.6%
Recurring profit margin8.5%5.9%5.7%5.2%2.7%6.8%8.7%9.0%23.5%20.9%20.7%18.8%
Net income1,3271,5401,9801,785-1,097716,5108,2819,07917,269107.9%16,00073.5%23,500
YoY94.1%-45.5%-44.1%-37.3%--95.4%228.9%363.9%-24,252.0%-183.8%
Net margin6.3%3.7%3.3%2.2%-0.2%9.8%9.1%32.8%28.9%27.6%18.8%
QuarterlyFY03/20FY03/21FY03/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2
Sales21,00220,84718,93520,82920,52621,06924,94524,77327,65932,167
YoY-7.4%-7.6%-15.0%-5.2%-2.3%1.1%31.7%18.9%34.8%52.7%
Gross profit7,1146,7946,2096,8116,7957,3037,7808,90310,36911,870
YoY1.9%-1.5%-16.0%16.0%-4.5%7.5%25.3%30.7%52.6%62.5%
Gross profit margin33.9%32.6%32.8%32.7%33.1%34.7%31.2%35.9%37.5%36.9%
SG&A expenses5,0205,3224,8755,6985,2354,9515,4445,5125,5515,954
YoY17.5%17.3%5.7%15.5%4.3%-7.0%11.7%-3.3%6.1%20.3%
SG&A ratio23.9%25.5%25.7%27.4%25.5%23.5%21.8%22.2%20.1%18.5%
Operating profit2,0941,4721,3341,1121,5612,3532,3363,3914,8175,916
YoY-22.6%-37.7%-51.9%18.7%-25.5%59.8%75.1%204.9%208.7%151.5%
Operating profit margin10.0%7.1%7.0%5.3%7.6%11.2%9.4%13.7%17.4%18.4%
Recurring profit1,7906831,0217705632,2622,9342,4696,5085,985
YoY0.2%-77.8%-62.1%54.3%-68.5%231.4%187.3%220.7%1,055.6%164.6%
Recurring profit margin8.5%3.3%5.4%3.7%2.7%10.7%11.8%10.0%23.5%18.6%
Net income1,327213440-195-1,0971,1686,4391,7719,0798,190
YoY94.1%-90.1%-38.7%--448.6%1,363.9%--601.5%
Net margin6.3%1.0%2.3%--5.5%25.8%7.1%32.8%25.5%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods. 
Quarterly operating profit
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods. 
Foreign exchange rates
Source: Shared Research based on Mizuho Bank data

1H FY03/22 results (out November 12, 2021)

1H FY03/22 results (April – September 2021)

  • Sales: JPY59.8bn (+43.8% YoY)
  • Operating profit: JPY10.7bn (+174.3% YoY)
  • Recurring profit: JPY12.5bn (+342.3% YoY)
  • Net income*: JPY17.3bn (versus gain of JPY71mn in 1H FY03/21) 
  • *Net income attributable to owners of the parent 
 Electronics industry trends

Sharp increase in demand for semiconductors such as memory led to shortages in some products resulted in device manufacturers to accelerate capex plans, with existing manufacturing facilities running at a high utilization rate. This is attributable to the global trend in penetration of remote-work and web conference which raised demand for PCs and servers for data centers. 

Ferrotec’s response 

In Semiconductor Equipment-related segment, sales for vacuum products and material products used in semiconductor manufacturing process exceeded the sales figure of 1H FY03/21 driven by strong demand. In the Electronic Device segment, although sales of mainstay thermoelectric modules for use in heated automotive seats were weak, they were strong for other applications including next-generation 5G communication system equipment and medical equipment (PCR testing equipment) and semiconductors. This resulted in a significant increase YoY. Sales of substrates for powered semiconductor devices grew significantly YoY on the back of increased production of DCB substrates for insulated-gate bipolar transistors (IGBT) and increased adoption of new AMB substrates.


Segment change:
From FY03/19, Ferrotec moved the cleaning business from the Others segment to the Semiconductor Equipment-related segment. This makes YoY comparisons difficult. In this report, we use values for FY03/19 onward in tables and graphs, and YoY comparisons made in the body text are based on figures after the segment change.

From FY03/20, the company shifted from the three previous segments (Semiconductor Equipment-related, Electronic Device, and Photovoltaic) to two: Semiconductor Equipment-related and Electronic Device. After the company decided to withdraw from the sale of in-house products in the group’s Photovoltaic segment and limit itself to OEM consignment manufacturing of silicon products for photovoltaic cells, the Photovoltaic segment became less significant in terms of quantity, and Ferrotec removed it from the list of reportable segments and shifted remaining business to the Others segment. In addition, quartz crucibles, which were managed as a Photovoltaic segment product, are now included under the Semiconductor Equipment-related segment, as their uses and targeted customers changed. 

Breakdown of results by segment 

 1H FY03/22 (April–September 2021)

The figures given for segment sales represent sales to outside clients only. Comparisons with the same period the previous year are calculated based on retroactively adjusted figures, adjusted for recent changes in the company’s segmentation scheme.

Semiconductor Equipment-related segment
Semiconductor Equip.-relatedFY03/20FY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2
Sales13,87727,18239,54352,88113,88828,78545,15360,66916,95935,895
YoY6.5%-1.4%-6.3%-7.2%0.1%5.9%14.2%14.7%22.1%24.7%
Operating profit1,6652,6813,3854,1927372,1773,5116,1833,1337,104
YoY-32.2%-47.0%-54.8%-54.2%-55.7%-18.8%3.7%47.5%325.1%226.3%
Operating profit margin12.0%9.9%8.6%7.9%5.3%7.6%7.8%10.2%18.5%19.8%
FY03/20FY03/21FY03/22
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2
Sales13,87713,30512,36113,33813,88814,89716,36815,51616,95918,936
YoY6.5%-8.5%-15.4%-9.9%0.1%12.0%32.4%16.3%22.1%27.1%
Operating profit1,6651,0167048077371,4401,3332,6733,1333,971
YoY-32.2%-60.9%-71.0%-51.4%-55.7%41.8%89.3%231.2%325.1%175.7%
Operating profit margin12.0%7.6%5.7%6.0%5.3%9.7%8.1%17.2%18.5%21.0%
Source: Shared Research based on company data
  • Segment sales: JPY35.9bn (+24.7% YoY)
  • Segment operating profit: JPY7.1bn (+226.3% YoY)
Trends by product type

With remote-work penetration on the rise globally, demand for semiconductors associated with smartphones and PCs are growing, leading to tight supply and demand for electronic components remain tight. Manufacturers of semiconductor devices and materials have announced plans to augment production capacity. Looking at the company's products, sales of material products (quartz and ceramics) were up YoY due to the high utilization rates of equipment by device manufacturers and progress in semiconductor process miniaturization. The silicon wafer processing business is not included in the results of this segment as it was transferred from a consolidated subsidiary to an equity-method affiliate due to the transfer of shares in a Chinese subsidiary to a Chinese government fund and a private investment fund, and third-party allocation of new shares. 


Electronic Device segment
Electronic DevicesFY03/20FY03/21FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2
Sales3,2596,99110,03513,4893,4687,11612,13917,2735,50212,214
YoY14.5%18.9%4.6%4.6%6.4%1.8%21.0%28.1%58.7%71.6%
Operating profit7141,3202,0562,7698841,8683,2574,4531,5403,053
YoY39.1%7.2%13.4%17.0%23.7%41.5%58.4%60.8%74.2%63.4%
Operating profit margin21.9%18.9%20.5%20.5%25.5%26.2%26.8%25.8%28.0%25.0%
FY03/20FY03/21FY03/22
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2
Sales3,2593,7323,0433,4553,4683,6485,0235,1345,5026,711
YoY14.5%23.1%-18.1%4.6%6.4%-2.3%65.0%48.6%58.7%84.0%
Operating profit7146067367138849841,3891,1961,5401,513
YoY39.1%-15.6%26.5%28.9%23.7%62.4%88.9%67.8%74.2%53.7%
Operating profit margin21.9%16.2%24.2%20.6%25.5%27.0%27.7%23.3%28.0%22.5%
Source: Shared Research based on company data
  • Segment sales: JPY12.2bn (+71.6% YoY)
  • Segment operating profit: JPY3.1bn (+63.4% YoY) 
Sales by product type

Sales of the segment's mainstay thermoelectric modules for heated automotive seats weakened due to the impact of automobile sales around the world. Sales of products used in system equipment for next generation 5G mobile telecommunications and medical testing equipment related to PCR testing both continued to be stable. A recovery in demand appears to driving an increase in production of DCB substrates for insulated-gate bipolar transistors (IGBT), and automotive AMB substrates grew YoY thanks to progress in mass production. Demand magnetic fluids related to speakers and smartphones remained stable.

Others segment
  • Segment sales: JPY11.7bn (+105.8% YoY)
  • Segment operating loss: JPY700mn (+103.1% YoY) 

Company forecast for FY03/22

FY03/20FY03/21FY03/22
(JPYmn)1H Act.2H Act.FY Act.1H Act.2H Act.FY Act.1H Act.2H Est.FY Est.
Sales41,84939,76581,61441,59549,71891,31359,82665,174125,000
YoY-7.5%-15.0%-8.8%-0.6%25.0%11.9%43.8%31.1%36.9%
Gross profit13,90813,02026,92814,09916,68430,78222,239--
YoY0.2%-4.2%-0.8%1.4%28.1%14.3%57.7%--
Gross profit margin33.2%32.7%33.0%33.9%33.6%33.7%37.2%--
SG&A expenses10,34210,57320,91510,18510,95621,14211,505--
SG&A ratio24.7%26.6%25.6%24.5%22.0%23.2%19.2%--
Operating profit3,5662,4476,0133,9135,7279,64110,73311,76722,500
YoY-29.6%-48.3%-31.5%9.7%134.1%60.3%174.3%105.4%133.4%
Operating profit margin8.5%6.2%7.4%9.4%11.5%10.6%17.9%18.1%18.0%
Recurring profit2,4721,7914,2642,8255,4038,22812,49311,00723,500
YoY-49.2%-50.7%-47.1%14.3%201.6%93.0%342.3%103.7%185.6%
Recurring profit margin5.9%4.5%5.2%6.8%10.9%9.0%20.9%16.9%18.8%
Net income1,5402451,785718,2108,28117,2696,23123,500
YoY-45.5%-90.1%-37.3%-95.4%3,247.6%363.9%24,252.0%-24.1%183.8%
Net margin3.7%0.6%2.2%0.2%16.5%9.1%28.9%9.6%18.8%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods. 
Revised company forecast for FY03/22 (August 13, 2021)
  • Sales: JPY125.0bn (versus previous estimate of JPY115.0bn (August 13, 2021))
  • Operating profit: JPY22.5bn (versus previous estimate of JPY20.0bn (August 13, 2021))
  • Recurring profit: JPY23.5bn (versus previous estimate of JPY20.0bn (August 13, 2021))
  • Net profit: JPY23.5bn (versus previous estimate of JPY20.0bn (August 13, 2021))
  • Earnings per share: JPY604.70 (versus previous estimate of JPY534.63 (August 13, 2021))
Reasons for revisions to forecast

From the initial forecast, there were subsequent revisions on July 15, 2021, August 13, 2021, and November 12, 2021, when Q2 results were announced. In terms of sales, the company expects strong demand to continue in both the Semiconductor Equipment-related and Electronic Device segments. In the Semiconductor Equipment-related segment, demand for vacuum products, various material products, and precision regeneration cleaning services is expected to increase in 2H, as semiconductor production capacity utilization remains at a high level and plans to increase production are anticipated. In the Electronic Device segment, the company also assumes that its mainstay thermoelectric modules will remain strong throughout the year due to steady sales for 5G communication system equipment, medical testing equipment and semiconductors, and powered semiconductor substrates for industrial equipment and automobiles.

In terms of profit, the upward revision was due to the effect of increased sales in the two aforementioned segments, as well as the transition of a consolidated subsidiary in the semiconductor wafer business to an equity-method affiliate in FY03/21. This will eliminate the impact of the amortization burden and other expenses of this business on the consolidated results. Net income is expected to be at the same level as recurring profit, due in part to the recording of extraordinary gains from the change in Ferrotec's stake resulting from the third-party allotment of new shares in the semiconductor wafer business.

Outlook for business environment

The electronics industry, including the Ferrotec group, continues to face a shortage in semiconductor supply that is adversely impacting production activities in various fields. Moreover, the mobile communications systems industry faces increased demand for addition of servers for data centers to accommodate the expansion of 5G and remote work using cloud services. Demand is also increasing for automotive sensors and power semiconductors. In addition, the Chinese government has responded to the ongoing trade friction with the US by coming out with aggressive plans to build up its own independent semiconductor production capacity. Given this situation, Ferrotec expects to see aggressive capital investment by device manufacturers to continue, with semiconductor demand also looking likely to remain strong into early 2022.

Historical forecast accuracy

Results vs. Initial Est.FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
SalesInitial Est.50,00042,00050,00065,00075,00083,00098,00092,00085,000
Results38,42544,74659,07969,46473,84890,59889,47881,61491,313
Results vs. Initial Est.-23.2%6.5%18.2%6.9%-1.5%9.2%-8.7%-11.3%7.4%
Operating profitInitial Est.1,2001,0001,8003,0005,0007,2009,8008,8006,500
Results-3,6087981,6714,0255,6788,4378,7836,0139,641
Results vs. Initial Est.--20.2%-7.2%34.2%13.6%17.2%-10.4%-31.7%48.3%
Recurring profitInitial Est.8008501,0002,5004,2006,4008,5008,1005,500
Results-3,4661,2622,0313,8225,6767,1588,0604,2648,228
Results vs. Initial Est.-48.5%103.1%52.9%35.1%11.8%-5.2%-47.4%49.6%
Net incomeInitial Est.4501,0007001,7003,0004,0005,3004,7001,500
Results-6,5331,392-2,1322,1623,2562,6782,8461,7858,281
Results vs. Initial Est.-39.2%-404.6%27.2%8.5%-33.0%-46.3%-62.0%452.1%
Source: Shared Research based on company data
Figures may differ from company materials due to differences in rounding methods. 
Past divergences from forecasts

Looking at the table above, past company estimates and results differ widely. Shared Research attributes the differences to Ferrotec’s performance being easily affected by trends in the industries of photovoltaic cells, semiconductors, electronic devices, LEDs and FPDs. In addition, when demand is on an upward trend, results tend to outperform estimates, and vice versa. Furthermore, operating profit tends to show greater divergence from estimates than sales. Shared Research believes this reflects the high marginal profit ratio of the company’s business.

Ferrotec missed profit targets in FY03/19 due to a slowdown in the semiconductor industry during 2H FY03/19 as well as a sluggish photovoltaic industry. The major divergence in actual profit compared to target is largely due to impairment losses recorded on equipment and inventory, as the company had made preparations to withdraw from the Photovoltaic business. As a result, the company incurred one-time impairment charges of JPY2.4bn, which negatively affected business results.

In FY03/20, operating profit declined YoY and fell short of the company’s initial forecast for the second consecutive year, because capital investment by semiconductor and organic EL panel manufactures continued to slow, resulting in lower sales and profit of the core Semiconductor Equipment-related segment, as well as sluggish sales of mainstay thermoelectric modules, mainly in the automotive sector, in the Electronic Device segment.

In FY03/21, semiconductor capital investment increased from around mid-year, leading to the sharp recovery in Semiconductor Equipment-related segment performance. Consequently, results exceeded initial forecasts. In the Electronic Device segment, expanded demand for mainstay thermoelectric modules for use in information and communications applications such as 5G service also contributed to profit growth. Further, the exclusion of the subsidiary that operated the wafer processing business, where operating losses continued, from consolidation also contributed to earnings recovery.

New medium-term management plan (FY03/22–24) Announced May 28, 2021

Basic Policy

The new medium-term management plan is centered on four fundamental principles: grow business, solidify financial standing, enhance quality, and strengthen human resources. 

Under the business growth principle of the new medium-term management plan, Ferrotec aims to grow the business and profits while continuing to invest for growth. Management looks to expand production capacity in the promising fields of semiconductors and electronic devices while boosting its market ranking and plans on investment related to electric vehicles (EVs) for future growth.

The company looks to strike a balance between investment opportunities and maintaining an appropriate financial position to ensure a solid financial standing. Specifically, net income will be used as a KPI while ROI and ROIC management is strengthened, and appropriate utilization of external funds is considered.  

Quality control will be enhanced under the banner of “quality is vital.” The production system will be upgraded through quality control, automation, and digitalization. 

To achieve sustainable growth while expanding the business, Ferrotec aims to recruit and train personnel, reform the organizational structure, and promote its corporate culture. 

In the new medium-term management plan, the company aims for FY03/24 sales of JPY150bn, operating profit of JPY25bn, net income of JPY15bn, ROE of 15%, ROIC of 8%, and an equity ratio of 40% or higher. In the long-term vision to FY03/31, management aims for sales of JPY300bn and net income of JPY30bn. 

Sales by segment
Sales (JPYmn)FY03/21FY03/22FY03/23FY03/24
ResultsEst.MTPMTP
Semiconductor Equip.-related60,66966,27474,43489,605
YoY14.7%9.2%12.3%20.4%
Electronic Device17,27321,36635,25643,554
YoY28.1%23.7%65.0%23.5%
Other13,37017,36015,31016,841
YoY-12.3%29.8%-11.8%10.0%
Total91,313105,000125,000150,000
YoY11.9%15.0%19.0%20.0%
Source: Shared Research based on company data
Operating profit
(JPYmn)FY03/21FY03/22FY03/23FY03/24
ResultsEst.MTPMTP
Operating profit9,64015,00019,00025,000
YoY60.3%55.6%26.7%31.6%
Operating profit margin10.6%14.3%15.2%16.7%
Source: Shared Research based on company data

Sales objectives by category

The product lineup includes many semiconductor-related products and is not limited to capex-related products like vacuum feedthroughs, but covers a wide range running the gamut from materials used for repeat consumables by semiconductor device manufacturers to semiconductor wafer cleaning and recycling services. We summarize the new medium-term management plan final-year sales objectives for each category below.  

Sales by category
CategoryProductsFY03/21FY03/24Growth
ResultsMTP
ASemiconductor materialsQuartz ceramics34,79553,773+54.5%
Silicon parts
CVD-SiC, other
BSemiconductor servicesCleaning7,57917,717+133.7%
Wafer recycling
CMetals and equipment for semiconductorsVacuum feedthroughs18,29518,115-0.9%
Metal processing
Deposition tools, other
DElectronic devices (EV, other)Thermoelectric modules17,27343,554+152.1%
Power semiconductor substrates
Magnetic fluids, others
EOtherBlades, cleaning13,37016,841+25.9%
Other equipment
A+B+C+D+EConsolidated total sales91,312150,000+64.2%
A+B+CSemiconductor Equip.-relatedMaterials, services, metals, and equipment60,66989,20547%
Source: Shared Research based on company data
Semiconductor materials 

Semiconductor materials include quartz, ceramics, silicon parts, and CVD-SiC. 

Semiconductor materials sales
Semiconductor materialsFY03/21FY03/22FY03/23FY03/24
Sales (JPYmn)ResultsEst.MTPMTP
Quartz17,11618,86720,61624,533
YoY25.7%10.2%9.3%19.0%
Ceramics12,26714,96015,57918,539
YoY35.6%22.0%4.1%19.0%
CVD-SiC2,1862,9612,9613,257
YoY7.4%35.5%0.0%10.0%
Silicon3,2264,7326,1527,444
YoY17.2%46.7%30.0%21.0%
Source: Shared Research based on company data

Management anticipates continued growth of the semiconductor manufacturing equipment market in 2022 and looks for firm demand of consumables while forecasting growth in quartz product sales. Quartz production capacity is being expanded at factories in China in the Hangzhou, Changshan Zhejiang and Dongtai, Jiangsu provinces as well as at the Yamagata, Japan factory. The new medium-term management plan calls for increasing sales by 40.3%. 

In ceramics and CVD-SiC, the company’s competitive advantage in development is derived from its domestic materials, processing, and coating technologies. Ferrotec aims to strengthen machinable ceramics for laser processing (high valued added) probe cards. The Hangzhou factory in Zehjiang province is expanding production capacity of fine ceramics in response to strong demand. The new medium-term plan calls for ceramics sales to increase 51.1% while CVD-SiC sales grow 49.0%. 

The company is responding to semiconductor manufacturing equipment and semiconductor device customers’ requests to increase production of silicon parts. Ingots for silicon parts are currently manufactured in Yinchuan while processing and assembly are done in Hangzhou. In response to customer requests for increased future production, the company plans to boost ingot production (Yinchuan) and establish processing and assembly processes in Yinchuan for an integrated production system. The medium-term plan aims for 130.8% growth in sales. 

Semiconductor services

Semiconductor services are comprised of parts cleaning and wafer recycling.

 Parts cleaning service sales forecasts
CleaningFY03/21FY03/22FY03/23FY03/24
Sales (JPYmn)ResultsEst.MTPMTP
Cleaning7,5798,50510,20612,248
YoY35.2%12.2%20.0%20.0%
Source: Shared Research based on company data

The parts cleaning business is specialized to China and is expanding in line with rising production by client semiconductor and flat panel display (organic EL and liquid crystal) manufacturers. Sales increased 35.2% YoY to JPY7.6bn in FY03/21. Like semiconductor materials, the company anticipates continued growth as it is a recurring-revenue type business model linked to the production operations of customers. Currently, there are seven factories at five locations in China and management looks to continue expanding production capacity, aiming for nine factories at six locations by end-2021. A business expansion project is underway in collaboration with funding from the Tongling, Anhui government with the business being restructured around Tongling, Anhui Province. The company is preparing Tongling subsidiaries for lPOs in the Chinese market. The company’s market share in China is 60% (according to company research). 

Wafer recycling sales forecasts
Wafer recyclingFY03/21FY03/22FY03/23FY03/24
Sales (JPYmn)ResultsEst.MTPMTP
Wafer recycling01373,3865,470
YoY--2,371.5%61.5%
Source: Shared Research based on company data

The wafer recycling business is slated to launch from FY03/22. Accelerated domestic production of semiconductors in China has sharply driven up demand for recycled wafers, a business that leverages expertise Ferrotec accumulated from its semiconductor wafer and parts cleaning businesses. The company plans a technical alliance with a partner company for the film removal process. Construction of the production base was completed in November 2020, operations started in Q2 FY03/22 (Apr-Jun 2021), and mass production is slated to begin from Q4 FY03/22 (Oct–Dec 2021). Monthly production capacity is scheduled to be increased from an initial 65,000 wafers to 120,000 wafers, and eventually up to 200,000 wafers while capex is projected to increase from JPY7.9bn to JPY14.0bn. Accordingly, a third-party allotment of shares was made for the wafer recycling subsidiary Ferrotec Anhui Changjiang Semiconductor Material Co., Ltd (JPY1.1bn capital increase), lowering Ferrotec’s equity stake from 70.0% to 41.3%. 

The group’s equity stake in the semiconductor wafer business subsidiary is projected to further decline to 23% in FY03/22 due to the further transfer of shares following a second third-party allotment of shares to increase capital, so it was converted to an equity-method affiliate (no longer consolidated) from Q4 FY03/21. No sales forecasts are included in the new medium-term management plan, although FY03/21 sales totaled JPY4.7bn. 

FY03/22 production plans by diameter size include maintaining monthly production capacity of 420,000 wafers for 6-inch wafers owing to robust demand. During FY03/22, the company plans to strengthen direct sales for 8-inch wafers and build monthly production capacity up to 350,000 wafers in Shanghai and Hangzhou (equipment capacity is 450,000 wafers/month). The company further looks to boost monthly production capacity of 12-inch wafers from the current 30,000 to 70,000 by end-FY03/22. Additionally, the company plans to incrementally expand monthly production capacity from 100,000–200,000 wafers in FY03/23. Funding of the capital investment will be obtained through a third-party allotment of shares in China. 

The company formed an SiC (single crystal SiC ingot manufacturing, wafer development and manufacturing) joint venture from October 2020 in Tongling, Anhui Province partnering with the Chinese Academy of Sciences and government-run and private investment funds. SiC wafers entail a high degree of technical complexity such as crystal cultivation, substrate processing, control over electrical properties, and control over final defects. This is viewed as a strategic technology that the Chinese government wants to produce domestically given expected rising demand for electric vehicles. 

Electronic devices

The Electronic devices business is comprised of thermoelectric modules and power semiconductor substrates. 

Thermoelectric module sales forecasts
Thermoelectric modulesFY03/21FY03/22FY03/23FY03/24
Sales (JPYmn)ResultsEst.MTPMTP
Thermoelectric modules13,03614,58615,64818,302
YoY32.2%11.9%7.3%17.0%
Source: Shared Research based on company data

In the thermoelectric module business, demand for 5G communications equipment is expanding and the number of 5G communications base station installations in China is projected at 730,000 in 2022 compared to 640,000 in 2020 and 770,000 in 2021. Demand and applications are also expected to expand—eg, biomedical applications such as for PCR testing, consumer applications (wearables), IoT, phone applications, and uses for in-house digitalization. FY03/21 sales increased 32.2% YoY to JPY13.0bn. 

Power semiconductor substrates sales forecasts
Power semiconductor substratesFY03/21FY03/22FY03/23FY03/24
Sales (JPYmn)ResultsEst.MTPMTP
Power semiconductor substrates3,4915,6788,41610,161
YoY23.0%62.6%48.2%20.7%
Source: Shared Research based on company data

The power semiconductor substrates business is primarily centered on direct copper bonding (DCB) substrates for consumer appliances and active metal brazing (AMB) substrates for automotive applications. Expansion of production capacity is planned for the factory producing substrates for powered semiconductors in Dongtai, Jiangsu while the Dongtai factory in Shanghai is expected to boost monthly production capacity of DCB substrates from 600,000 to 1mn units and to double AMB substrate production capacity from 100,000 to 200,000 units during 2021. The company plans to launch high-heat resistant and high-strength direct plated copper (DPC) substrates, expanding into optical communication and power LED products. The company is considering an eventual listing in China of the Dongtai, Jiangsu subsidiary.

Capital investment plans

A total of JPY95bn has been earmarked for capital investment over the three-year duration of the new medium-term management plan. This includes JPY55bn targeted to contribute to short- and medium-term revenues, including boosting production capacity by taking advantage of market opportunities for expansion primarily in the semiconductor and electronic devices fields. The remaining JPY40bn in capital investment will target long-term contributions to revenues such as product line expansion in semiconductors, electric vehicles, new energy vehicles, and other new businesses that could become earnings pillars. That said, long-term geared capital investment may fluctuate depending on M&A investment opportunities. 

The company forecasts it will generate JPY65bn in operating cash flow during this period and so will need to balance investment in business opportunities and growth investment while maintaining an appropriate financial standing. The operating cash flow policy is based on applying KPI to net income while the level of investment will be guided by strengthened ROI and ROIC management. 

The wafer recycling business represents strategic and long-term investment in the Chinese market and management is considering tapping into Chinese funding for this new business. The company is looking at IPOs and new share issues as funding options for the parts cleaning, power semiconductor substrates, silicon parts, and quartz crucibles businesses. 

Medium-term Targets (FY03/20–FY03/22, announced May 27, 2019)

On June 26, 2020, Ferrotec announced that it was conducting a review of the medium-term management plan released on May 27, 2019. The company elected to review the medium-term plan goals as the global spread of COVID-19 has made the economic outlook much more uncertain than it was when the plan was first announced. In particular, it noted that in the semiconductor sector in which the group operates, semiconductor device manufacturers are postponing capital investment due to restrictions on international travel by engineers charged with installing semiconductor equipment. The company also pointed to supply chains being disrupted due to delays in the delivery of parts, as well as higher shipping costs and the accumulation of excess inventory.

Improving profitability and entering the next phase of growth into a “billion-dollar company”

Ferrotec summarized the previous medium-term results (ended FY03/19) as follows: Sales and operating profit reached record highs and operating margins improved. Additionally, the company actively expanded business in China, growing its production capacity and customer base in the process. This will likely serve as a foundation for future business growth.

On the other hand, the company faces several challenges. Its business portfolio is heavily exposed to the semiconductor industry, with business performance at the mercy of the industry environment. The expansion of silicon wafer production capacity has increased capital expenditures and weakened the balance sheet. Additionally, Ferrotec is still in the midst of improving operating margins by withdrawing from the Photovoltaic segment.

Strengthening semiconductor demand through technological innovation

Ferrotec believes the operating environment will continue to benefit from semiconductor demand over the long term, driven by technological innovation. Specifically, it looks for the following trends:

a) IoT: increase in demand for semiconductors (discrete and power applications) in new fields as a wide range of new devices connect to networks
b) 3D NAND: ongoing demand for storage solutions driven by a shift to high-speed and large-capacity devices will lead to increasingly complex manufacturing processes for 3D-NAND, which in turn should increase demand for consumables (e.g., quartz products, ceramics)
c) Big data and AI: increase in memory demand for data analysis applications and for sensor demand for data integration applications
d) Automotive market: increase in component demand driven by the introduction of additional functions amid trends such as the growing adoption of electronics in vehicles and accelerating shift to electric vehicles
e) 5G: increases in edge server memory demand and sensor demand as a higher number of high-speed and high-capacity devices connect to networks
f) Power semiconductors: increase in demand driven by a shift to inverters amid global trend toward power-saving devices 

To address the market environment in the categories above, the company continued to concentrate capital investment in semiconductor-related consumables (materials). To this end, it implemented the following measures:

1）ocate management resources to the Semiconductor Equipment-related segment: 8-inch wafers, materials, cleaning business
2) Introduce applications for the automotive (electric vehicle) sector: applications other than heated car seats
3) Drive growth in the Electronic Device segment: strengthen communication, medical care, and home appliances fields. 

Medium-term Target KPIs:
▷ Sales: JPY125bn
▷ Operating Profit: JPY12.5bn
▷ Operating Margins: 10+%
▷ ROE: 10+%
▷ ROIC: 6+%
▷ Equity-to-Asset Ratio: 40+% 

Ferrotec set in place the groundwork to grow into a billion-dollar company over the course of the medium-term plan. The company planned to allocate resources primarily toward semiconductor-related products with aims to expand recurring sales and automotive related offerings. At the same time, it planned to reduce the scope of the Photovoltaic business down to selling only consumable products. Capital investment increased through FY03/20, then was planned to gradually decline afterward. In total, the company spent JPY71.0bn on capital investments over three years. The company also considered increasing dividend payouts in line with improving business performance. 

Sales by segment
Operating profit
Source: Shared Research based on company data

Business

Business description

Ferrotec was established in 1980 as a technology startup. With two core technologies, thermoelectric modules (which were attracting attention as a new promising component), and magnetic fluids (born from US NASA projects), the company provides products and services to the electronics, semiconductor, machine tool, and consumer equipment industries.

Segment business overview
R&DMfg.Sales
Semiconductor Equip.-relatedVacuum feedthroughs✓✓✓Ferrotec Material Technologies Corporation, Ferrotec (USA) Corporation
✓✓Hangzhou Dehe Thermo-magnetics Co., Ltd., Taiwan Ferrotec Co., Ltd., KSM Ferrotec Co., Ltd.
✓Ferrotec Corporation Singapore Pte, Ltd.
Quartz✓✓Hangzhou Dehe Thermo-magnetics Co., Ltd., Ferrotec (Jiangsu) Semiconductor Technology Co., Ltd., Aliontek Corporation
✓Ferrotec Material Technologies Corporation, Ferrotec (USA) Corporation, Ferrotec Corporation Singapore Pte, Ltd., Taiwan Ferrotec Co., Ltd.
Ceramics✓✓✓Ferrotec Ceramics Corporation, Hangzhou Dahe New Material Technology Co., Ltd.
✓Ferrotec (USA) Corporation, Ferrotec Corporation Singapore Pte, Ltd.
CVD-SiC✓✓✓Ferrotec Material Technologies Corporation
Silicon wafer processing✓✓Shanghai Shenhe Thermo-magnetics Electronics Co., Ltd., Hangzhou Semiconductor Wafer Co., Ltd.
Crucibles✓✓✓Ferrotec (Ningxia) Advanced Quartz Material Co., Ltd.
✓Ferrotec Material Technologies Corporation
Other✓✓Ferrotec (USA) Corporation, Ferrotec Europe GmbH, Hangzhou Dehe Thermo-magnetics Co., Ltd., Shanghai Shenhe Thermo-magnetics Electronics Co., Ltd., Ferrotec (Anhui) Technology Co., Ltd., Ferrotec (Anhui) Changjiang Semiconductor Material Co., Ltd., Ferrotec (Sichuan) Technology Co., Ltd.
Electronic DevicesThermoelectric modules✓✓Ferrotec Material Technologies Corporation, Ferrotec (USA) Corporation, Ferrotec Nord Corporation
✓Ferrotec Korea Corporation
✓Hangzhou Dehe Thermo-magnetics Co., Ltd., Shanghai Shenhe Thermo-magnetics Electronics Co., Ltd.
Magnetic fluids, others✓✓✓Ferrotec Material Technologies Corporation, Ferrotec (USA) Corporation
✓Shanghai Shenhe Thermo-magnetics Electronics Co., Ltd., Ferrotec Corporation Singapore Pte, Ltd.
Other✓✓✓Ferrotec Material Technologies Corporation, Ohizumi Mfg. Co., Ltd., Shanghai Shenhe Thermo-magnetics Electronics Co., Ltd., Ferrotec (JiangSu) Semiconductor Technology Co., Ltd.
Other✓✓✓Asahi Corporation, Toyo Knife Co., Ltd, Ferrotec (USA) Corporation, Shanghai Shenhe Thermo-magnetics Electronics Co., Ltd., Shanghai Hanhong Precision Machinery Co., Ltd., Hongkong First Semiconductor Technology Co., Ltd., Ferrotec (Ningxia) New Energy Co., Ltd., Shanghai MES Power Electronics Co., Ltd.
Source: Shared Research based on copmany’s FY03/21 financial statement 
Segment sales and operating profit
FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Full-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-yearFull-year
Sales60,08838,42544,74659,07969,46473,84890,59889,47881,61491,313
YoY3.8%-36.1%16.4%32.0%17.6%6.3%22.7%-1.2%-8.8%11.9%
Semiconductor Equip.-related24,88418,86821,62826,56731,40532,24346,66257,00152,88160,669
YoY-10.1%-24.2%14.6%22.8%18.2%2.7%44.7%22.2%-7.2%14.7%
Photovoltaic27,35712,34513,20417,94818,50618,77320,939---
YoY29.3%-54.9%7.0%35.9%3.1%1.4%11.5%---
Electronic Devices5,3374,5646,6099,68013,32812,62712,70112,89713,48917,273
YoY-22.8%-14.5%44.8%46.5%37.7%-5.3%0.6%1.5%4.6%28.1%
Other current assets2,5102,6483,3044,8846,22410,20410,29619,58015,24313,370
YoY18.5%5.5%24.8%47.8%27.4%63.9%0.9%90.2%-22.1%-12.3%
Operating profit4,124-3,6087981,6714,0255,6788,4378,7836,0139,641
Semiconductor Equip.-related2,4991385051,5243,1484,2347,4979,1444,1926,183
Photovoltaic776-3,934-387-1,272-1,692-1,184-1,593---
Electronic Device5552587331,4602,4672,5953,0072,3662,7694,453
Other current assets368-8810143244-429-1,931260-321
Eliminations-74-61-61-50-42-211-45-796-1,208-675
YoY-40.5%--109.4%140.8%41.1%48.6%4.1%-31.5%60.3%
Semiconductor Equip.-related-19.3%-94.5%265.8%201.9%106.6%34.5%77.1%22.0%-54.2%47.5%
Photovoltaic-68.7%---------
Electronic Device-52.4%-53.6%184.5%99.1%69.0%5.2%15.9%-21.3%17.0%60.8%
Other current assets55.1%--27.4%1,313.8%70.7%----
Operating profit margin6.9%-9.4%1.8%2.8%5.8%7.7%9.3%9.8%7.4%10.6%
Semiconductor Equip.-related10.0%0.7%2.3%5.7%10.0%13.1%16.1%16.0%7.9%10.2%
Photovoltaic2.8%-31.9%-2.9%-7.1%-9.1%-6.3%-7.6%---
Electronic Device10.4%5.6%11.1%15.1%18.5%20.5%23.7%18.3%20.5%25.8%
Other current assets14.7%-0.3%0.2%0.2%2.3%2.4%-4.2%-9.9%1.7%-2.4%
Source: Shared Research based on company data
Application markets for major products
AutomobilesElectronicsConsumer electronicsMedical care
Vacuum feedthroughsUsed to maintain vacuums and completely sealed spaces filled with specific gases that are commonly needed for the manufacturing processes of semiconductors and FPDsSmartphone/PC displayLiquid crystal televisionCT scanners
MRI equipment
QuartzUsed as jigs for many processes that treat silicon wafers in a high-temperature and clean environment, using the characteristics of quartz glass that it is resistant to heat and chemicalsFlash memoryLiquid crystal television
CPU
LED
CeramicsCeramics are ideal for components resistant to abrasion, heat, and chemicals, which are used in the manufacture of semiconductors and LCDs, which require high purity, rigidity, and precision, as well as general industrial machineryAero sensorsFlash memorySurgical endoscopes
CPUUltrasonic diagnostic equipment
LED
Thermoelectric modulesA thermoelectric module is a couple of bonded metal plates on which semiconductors with opposite characteristics are lined alternately. The element uses the "Peltier effect," in which direct current allows the heat absorption and radiation to be controlled easilyHeated seatsAir conditionerBlood analyzers
Navigation systemsAir cleanersDNA amplifiers
Cup holdersWine cellarsBiological sample testing apparatuses
Power semiconductorsFacial massagers
Shavers
Magnetic fluids, othersDeveloped by NASA during the Apollo program as a way of delivering fuel to rocket engines in a weightless environment without spilling. Later, magnetic fluids for various uses were developedAutomobile audio systemsSmartphoneIndoor audio systemsMagnetic Nano-Particle Developer
DVDTV speakers
CDs
Source: Shared Research based on company data

Segment updates

Semiconductor Equipment-related segment

Products used in the manufacture of semiconductors, FPDs (flat panel displays), LEDs (light emitting diodes), manufacturing equipment, etc. are sold in this segment. The key products are semiconductor materials like vacuum feedthroughs, quartz products, ceramics, EB (electron beam) guns, vapor deposition equipment, and silicon wafer processing. Separately, the Component Cleaning business was transferred from the Other segment in FY03/19. Additionally, the Quartz Crucibles business was transferred from the former Photovoltaic segment (eliminated in FY03/19) in FY03/20.

Ferrotec’s products and semiconductor manufacturing processes
Source: Shared Research based on company data
Fluctuations in semiconductor manufacturing equipment demand

These semiconductor materials are primarily used as consumables during the semiconductor manufacturing process. Thus, the business is not easily affected by changes in demand for semiconductor manufacturing equipment (Shared Research estimates one-fourth to one-fifth of the products are sold for use in equipment). Therefore, Shared Research pays close attention to the following points:
(1) Demand trends for etching equipment and consumables as the semiconductor manufacturing process becomes increasingly miniaturized and the use of 3D NAND expands (increase in layers and high aspect ratio).
(2) 8-inch and 12-inch wafer quality requirements, production yields, and sales expansion in the Chinese market. 

Ferrotec’s products for semiconductor manufacturing processes
Source: Shared Research based on company data
WSTS World Semiconductor Market Trends
201220132014201520162017201820192020CAGR 2017–2020
Worldwide (USDmn)291,562305,584335,843335,168338,931412,221468,778412,307440,3892.2%
Americas54,35961,49669,32468,73865,53788,494102,99778,61995,3662.5%
Europe33,16334,88337,45934,25832,70738,31142,95739,81637,520-0.7%
Japan41,05634,79534,83031,10232,29236,59529,96135,99336,471-0.1%
Asia Pacific162,985174,410194,230201,070208,395248,821282,863257,879271,0322.9%
Total (YoY)-2.7%4.8%9.9%-0.2%1.1%21.6%13.7%-12.0%6.8%
North America-1.5%13.1%12.7%-0.8%-4.7%35.0%16.4%-23.7%21.3%
Europe-11.3%5.2%7.4%-8.5%-4.5%17.1%12.1%-7.3%-5.8%
Japan-4.3%-15.2%0.1%-10.7%3.8%13.3%-18.1%20.1%1.3%
Asia Pacific-0.6%7.0%11.4%3.5%3.6%19.4%13.7%-8.8%5.1%
Japan (JPYbn)3,2743,3963,6813,7653,5074,1044,4133,9193,893-1.7%
% of total
North America18.6%20.1%20.6%20.5%19.3%21.5%22.0%19.1%21.7%
Europe11.4%11.4%11.2%10.2%9.7%9.3%9.2%9.7%8.5%
Japan14.1%11.4%10.4%9.3%9.5%8.9%6.4%8.7%8.3%
Asia Pacific55.9%57.1%57.8%60.0%61.5%60.4%60.3%62.5%61.5%
Semiconductor Equipment-related segment earnings
Semiconductor Equip.-relatedFY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
Sales24,88418,86821,62826,56731,40532,24346,66257,00152,88160,669
Vacuum feedthroughs6,7634,6865,4227,5197,1638,16011,76111,8898,1368,795
Quartz5,5093,4204,4845,1697,6248,24211,52315,58916,37317,116
Ceramics4,5074,1083,9655,1826,1476,2668,72910,2219,04812,267
CVD-SiC-1,6851,9053,0392,8012,0362,186
EB-gun, LED, other4,0782,7243,2423,9054,4683,8173,9364,7503,9733,872