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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
2022-05-18
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Key financial data

Income statementFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22FY03/23
(JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons. Est.
Sales38,42544,74659,07969,46473,84890,59889,47881,61491,313133,821180,000
YoY-36.1%16.4%32.0%17.6%6.3%22.7%-1.2%-8.8%11.9%46.6%34.5%
Gross profit6,97610,82013,48417,31419,70924,91527,13726,92830,78248,677
YoY-57.8%55.1%24.6%28.4%13.8%26.4%8.9%-0.8%14.3%58.1%
Gross profit margin18.2%24.2%22.8%24.9%26.7%27.5%30.3%33.0%33.7%36.4%
SG&A expenses10,58510,02211,81313,28914,03116,47818,35420,91521,14226,076
YoY-14.6%-5.3%17.9%12.5%5.6%17.4%11.4%14.0%1.1%23.3%
SG&A ratio27.5%22.4%20.0%19.1%19.0%18.2%20.5%25.6%23.2%19.5%
Operating profit-3,6087981,6714,0255,6788,4378,7836,0139,64122,60030,000
YoY--109.4%140.8%41.1%48.6%4.1%-31.5%60.3%134.4%32.7%
Operating profit margin-9.4%1.8%2.8%5.8%7.7%9.3%9.8%7.4%10.6%16.9%16.7%
Recurring profit-3,4661,2622,0313,8225,6767,1588,0604,2648,22825,99428,000
YoY--60.9%88.2%48.5%26.1%12.6%-47.1%93.0%215.9%7.7%
Recurring profit margin-9.0%2.8%3.4%5.5%7.7%7.9%9.0%5.2%9.0%19.4%15.6%
Net income-6,5331,392-2,1322,1623,2562,6782,8461,7858,28126,65917,000
YoY----50.6%-17.8%6.3%-37.3%363.9%221.9%-36.2%
Net margin-17.0%3.1%-3.6%3.1%4.4%3.0%3.2%2.2%9.1%19.9%9.4%
Per-share data (JPY)
Shares issued, year-end('000 shares) 30,90430,90430,90430,90430,90437,09737,10737,21037,30544,645
EPS-212.145.2-69.270.2105.777.176.948.1222.9668.1380.8
EPS(fully diluted) --0.069.9105.176.676.847.4201.5222.9
Dividend per share5.06.08.010.018.024.024.024.030.050.070.0
Book value per share966.11,216.81,260.81,255.61,271.81,386.51,337.31,303.91,803.02,940.9
Balance sheet (JPYmn)
Cash and cash equivalents7,3737,55110,51810,03914,77823,64931,55623,70930,20352,579
Other26,89832,28533,90135,24636,46743,59245,71647,74357,82180,835
Total current assets34,27139,83644,41945,28551,24667,24077,27171,45288,024133,414
Tangible fixed assets24,91529,04227,73926,04534,29543,54276,133110,81753,14684,083
Intangible assets1,6841,6141,8762,0632,0612,9223,5575001,9651,996
Investments and other assets5,4744,2325,3775,3774,5004,7536,1367,24234,25545,277
Total assets66,34474,72479,41178,76992,101118,458163,098190,010177,190264,772
Accounts payable8,55410,47413,24110,99613,92718,41920,88718,25220,01226,702
Short-term debt12,53412,42411,67410,3099,54111,51820,47526,16917,65415,058
Total current liabilities27,24428,52231,53629,35232,10943,48160,18061,44358,97868,800
Long-term debt5,8365,6735,2406,39912,62513,89641,03255,24532,11524,462
Total fixed liabilities8,6618,1418,4449,92920,29123,16453,07078,41940,17435,014
Total liabilities35,90536,66339,97939,28152,40066,645113,250139,86299,152103,814
Total net assets30,43938,06139,43139,48939,70151,81249,84850,14878,240160,957
Total liabilities and net assets66,34474,72479,41178,76992,101118,458163,098190,010177,392264,771
Total interest-bearing debt18,37018,09716,91416,70822,16725,41461,50881,41549,76939,520
Cash flow statement(JPYmn)
Cash flows from operating activities1,5843,9287,8294,6428,2189,94711,4668,90313,21817,833
Cash flows from investing activities-402-2,814-3,553-4,024-7,070-12,389-37,063-34,472-20,879-29,399
Cash flows from financing activities-3,991-1,861-2,111-5213,89810,83134,50717,99621,69530,601
Financial ratios
ROA (RP-based)-5.0%1.8%2.6%4.8%6.6%6.8%5.7%2.4%4.5%11.8%
ROE-20.7%4.1%-5.6%5.6%8.4%5.9%5.7%3.6%14.3%26.9%
Equity ratio44.9%50.2%48.9%49.1%42.6%43.3%30.3%25.5%37.9%49.5%
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

Third-party share allocation (the third time) by a subsidiary that makes semiconductor-manufacturing components (quarts crucibles and silicon parts)  

2022-05-18

Ferrotec Holdings Corporation announced that a subsidiary that makes semiconductor-manufacturing components (quartz crucibles and silicon parts) would issue new shares to a third party. This is the subsidiary’s third third-party share allocation.

Ferrotec Holdings Corporation announced that Ningxia Dunyuan Juxin Semiconductor Technology Co., Ltd. (FTNC) would allocate new shares to a third party in order to obtain funds to raise production capacity. The decision was made at the parent company’s board meeting held on May 17, 2022. FTNC, a subsidiary that makes semiconductor-manufacturing components (quartz crucibles and silicon parts), changed its English name on September 24, 2021, from Ferrotec (Ningxia) Advanced Quartz Material Co., Ltd. (AQM-N).

This is not the first time that FTNC will issue new shares to a third party. When it did so the previous time (the company’s second third-party share allocation), it used the funds for the repurchase of government-owned land and buildings for the Yinchuan plant, purchase of equipment for the manufacturing of large-diameter quartz crucibles and silicon parts, and the establishment of a silicon materials R&D center  (See “Notice of allocation of new shares to a third party by a subsidiary that makes semiconductor-manufacturing materials [quartz crucibles and silicon parts]" released on August 6, 2021.) TFNC will raise capital for the third time to obtain funds for investment as it seeks to further increase its production capacity. See the press release for details.

Chinese subsidiary approved for listing on the ChiNext Market of the Shenzen Stock Exchange

2022-05-10

On May 9, 2022, Ferrotec Holdings Corp. announced that its Chinese subsidiary was approved for listing on the ChiNext Market of the Shenzhen Stock Exchange. 

The company announced that on May 6, 2022, consolidated subsidiary Ferrotec (Anhui) Technology Co., Ltd. (hereafter, "FTSVA," changed from FTSA due to internal change in company name abbreviation), which applied for listing on the ChiNext Market of the Shenzen Stock Exchange, was notified of its approval for listing. 

FTSVA is scheduled to be listed on the ChiNext Market between September and November 2022. The impact this will have on the company's FY03/23 earnings depends on factors including FTSVA's stock price on the ChiNext Market and remains undetermined as of the date of this release.

Establishment of a manufacturing subsidiary (special subsidary) in Malaysia

2022-04-07

On April 6, 2022, Ferrotec Holdings Corporation announced the establishment of a manufacturing subsidiary (specified subsidiary) in Malaysia.

The company announced that at the board of directors meeting held on the same day, it had resolved to establish a manufacturing subsidiary, Ferrotec Manufacturing Malaysia Sdn. BHD (hereinafter FTMM).

FTMM will engage in metal processing, robot assembly, quartz/ceramic processing and manufacturing, and parts cleaning. It will be capitalized at USD2.5mn (approximately JPY3.1bn at USD1=JPY122.39), and is scheduled to start up in April 2022. The leading shareholder will be Ferrotec (USA) Corporation (stake of 40.0%), with Ferrotec Holdings Corporation and Hangzhou Dahe Thermomagnetic Electronics Co., Ltd. each taking a 30.0% stake. With many leading semiconductor companies entering the Southeast Asia, Ferrotec Holdings Corporation determined that it could capture more customer needs and expand its business by establishing a manufacturing base in the same area. The impact of this matter on the company's business performance in FY03/22 is expected to be minor. See company press release for further details.

Announcement of a capital increase through third-party allotment by a subsidiary that manufactures insulated heat disspation substrates for power semicondoctors.

2022-03-18

Ferrotec Holdings Corporation announced a capital increase through third-party allotment by a subsidiary that manufactures insulated heat dissipation substrates for power semiconductors.

Ferrotec announced that at the Board of Directors meeting held on March 15, 2022, Jiangsu Ferrotec Semiconductor Technology Co., Ltd. (hereinafter “FTSJ”), which is a subsidiary that manufactures insulated heat dissipating substrates for power semiconductors, resolved to carry out a (fourth) capital increase through third-party allotment from the viewpoint of increasing production capacity, substrate development, and R&D.

The funds raised from the previous (third) capital increase through third-party allotment went toward growth investment, including increasing production capacity for DCB substrates, establishing systems for mass-producing AMB and DPC substrates, establishing a power semiconductor research institute, and furthering the research and development of substrates and related materials. The CNY500mn (approximately JPY9.2bn at JPY18.36/CNY) raised through the fourth capital increase through third-party allotment primarily will be put toward construction of a new factory in Neijiang City, Sichuan Province. While the schedule for the capital increase is still being arranged, the date of resolution by FTSJ's General Shareholders' Meeting will be during March 2022 and the settlement date will be during April 2022. As a result of the capital increase, Ferrotec's stake in FTSJ is expected to decrease. For Ferrotec, though, FTSJ remains an important consolidated subsidiary even after its listing. The impact of this matter on the company's business performance in FY03/22 is expected to be minor. See company press release for further details.

Announcement of investment agreement for a subsidiary that manufactures insulated heat dissipation substrates for power semiconductors.

2022-03-08

On March 7, 2022, Ferrotec Holdings Corporation announced the conclusion of an investment agreement for a subsidiary that manufactures insulated heat dissipation substrates for power semiconductors.

During a meeting held on the date of this release, the company's Board of Directors announced that Jiangsu Ferrotec Semiconductor Technology Co. Ltd. (FTSJ), a subsidiary that manufactures insulated heat dissipation substrates for power semiconductors, and the management committee of the Neijiang Economic and Technological Development Zone (operates under the jurisdiction of the municipal government of Neijiang, Sichuan province) have reached the decision to conclude an investment agreement regarding the construction of a new plant.

As demand for power semiconductors grows, demand for higher performance (improved heat dissipation, mechanical properties, and weather resistance, etc.) is also rising. The company currently manufactures power semiconductors through plants in Shanghai and Dongtai but is currently unable to expand production at these facilities. Due in part to these circumstances, the company had been considering the construction of a third manufacturing plant for power semiconductor substrates, and these considerations provided the impetus for this agreement. The total amount of investment associated with this agreement is CNY1.0bn (about JPY18.3bn, calculated at an exchange rate of JPY18.27/CNY), and the resulting plant will be located in the Neijiang Economic and Technological Development Zone in Sichuan Province. Through this agreement, the company expects to benefit from support and preferential policies from the Chinese government. The impact of this agreement on the company's earnings in FY03/22 is expected to be minimal.

Chinese manufacturing subsidiary for heat dissipation substrates signed an advisory agreement with Huatai Securities for stock exchange listing, and registered to the China securities regulatory commission

2022-02-28

On February 25, 2022, Ferrotec Holdings Corporation announced that its Chinese subsidiary that manufactures heat dissipation substrates for power semiconductors had signed an advisory agreement with Huatai Securities for its planned stock exchange listing, and that it had also registered to the China securities regulatory commission.

See company press release for further details.

Trends and outlook

Quarterly trends and results

CumulativeFY03/20FY03/21FY03/22FY03/22
(JPYmn) Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Sales21,00241,84960,78481,61420,52641,59566,54091,31327,65959,82693,981133,821107.1%125,000
YoY-7.4%-7.5%-10.0%-8.8%-2.3%-0.6%9.5%11.9%34.8%43.8%41.2%46.6%36.9%
Gross profit7,11413,90820,11726,9286,79514,09921,87930,78210,36922,23934,62248,677
YoY1.9%0.2%-5.4%-0.8%-4.5%1.4%8.8%14.3%52.6%57.7%58.2%58.1%
Gross profit margin33.9%33.2%33.1%33.0%33.1%33.9%32.9%33.7%37.5%37.2%36.8%36.4%
SG&A expenses5,02010,34215,21720,9155,23510,18515,63021,1425,55111,50518,43826,076
YoY17.5%17.4%13.4%14.0%4.3%-1.5%2.7%1.1%6.1%13.0%18.0%23.3%
SG&A ratio23.9%24.7%25.0%25.6%25.5%24.5%23.5%23.2%20.1%19.2%19.6%19.5%
Operating profit2,0943,5664,9006,0131,5613,9136,2499,6414,81710,73316,18422,600100.4%22,500
YoY-22.6%-29.6%-37.5%-31.5%-25.5%9.7%27.5%60.3%208.7%174.3%159.0%134.4%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%16.9%18.0%
Recurring profit1,7902,4723,4944,2645632,8255,7598,2286,50812,49318,18825,994110.6%23,500
YoY0.2%-49.2%-53.8%-47.1%-68.5%14.3%64.8%93.0%1,055.6%342.3%215.8%215.9%185.6%
Recurring profit margin8.5%5.9%5.7%5.2%2.7%6.8%8.7%9.0%23.5%20.9%19.4%19.4%18.8%
Net income1,3271,5401,9801,785-1,097716,5108,2819,07917,26921,44626,659113.4%23,500
YoY94.1%-45.5%-44.1%-37.3%--95.4%228.9%363.9%-24,252.0%229.4%221.9%183.8%
Net margin6.3%3.7%3.3%2.2%-0.2%9.8%9.1%32.8%28.9%22.8%19.9%18.8%
QuarterlyFY03/20FY03/21FY03/22
(JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
Sales21,00220,84718,93520,82920,52621,06924,94524,77327,65932,16734,15539,840
YoY-7.4%-7.6%-15.0%-5.2%-2.3%1.1%31.7%18.9%34.8%52.7%36.9%60.8%
Gross profit7,1146,7946,2096,8116,7957,3037,7808,90310,36911,87012,38314,055
YoY1.9%-1.5%-16.0%16.0%-4.5%7.5%25.3%30.7%52.6%62.5%59.2%57.9%
Gross profit margin33.9%32.6%32.8%32.7%33.1%34.7%31.2%35.9%37.5%36.9%36.3%35.3%
SG&A expenses5,0205,3224,8755,6985,2354,9515,4445,5125,5515,9546,9337,638
YoY17.5%17.3%5.7%15.5%4.3%-7.0%11.7%-3.3%6.1%20.3%27.3%38.6%
SG&A ratio23.9%25.5%25.7%27.4%25.5%23.5%21.8%22.2%20.1%18.5%20.3%19.2%
Operating profit2,0941,4721,3341,1121,5612,3532,3363,3914,8175,9165,4516,416
YoY-22.6%-37.7%-51.9%18.7%-25.5%59.8%75.1%204.9%208.7%151.5%133.3%89.2%
Operating profit margin10.0%7.1%7.0%5.3%7.6%11.2%9.4%13.7%17.4%18.4%16.0%16.1%
Recurring profit1,7906831,0217705632,2622,9342,4696,5085,9855,6957,806
YoY0.2%-77.8%-62.1%54.3%-68.5%231.4%187.3%220.7%1,055.6%164.6%94.1%216.2%
Recurring profit margin8.5%3.3%5.4%3.7%2.7%10.7%11.8%10.0%23.5%18.6%16.7%19.6%
Net income1,327213440-195-1,0971,1686,4391,7719,0798,1904,1775,213
YoY94.1%-90.1%-38.7%--448.6%1,363.9%--601.5%-35.1%194.4%
Net margin6.3%1.0%2.3%--5.5%25.8%7.1%32.8%25.5%12.2%13.1%
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. 

Full-year FY03/22 results (out May 16, 2022)

Full-year FY03/22 results (April 2021– March 2022)

  • Sales: JPY133.8bn (+46.6% YoY)
  • Operating profit: JPY22.6bn (+134.4% YoY)
  • Recurring profit: JPY26.0bn (+215.9% YoY)
  • Net income*: JPY26.7bn (+221.9% YoY) 
  • *Net income attributable to owners of the parent 
 Electronics industry trends

As a result of use of web conferencing systems spreading in businesses and schools due to the global trend for remote-work, demand for PCs and servers for data centers has been robust, leading to an imbalance between supply and demand for electronic components such as semiconductors, resulting in ongoing shortages. In addition, manpower shortages due to the COVID-19 pandemic, along with shipping and unloading delays, led to supply chain disruption, including delays in the supply of electronic components and other materials for industrial equipment, automobiles and home appliances. There is strong demand among major device manufacturers for capital expenditure into new manufacturing facilities, and existing facilities continue to operate at a high utilization rate.

Ferrotec’s response 

In the Semiconductor Equipment-related segment, sales were favorable in vacuum products for production equipment and material products used in semiconductor manufacturing processes (quartz products, ceramics, silicon parts, etc.), backed by strong demand from customers. In the Electronic Device segment, sales of mainstay thermoelectric modules were strong due to the capture of demand for next-generation 5G telecommunication system equipment and medical equipment, such as PCR testing equipment, in addition to semiconductors. As for substrates for powered semiconductor devices, demand remained strong due to increased adoption of AMB substrates for electric vehicles, in addition to DCB substrates for insulated-gate bipolar transistors (IGBT).


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 

 Full-year FY03/22 (April 2021–March 2022)

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–Q2Q1–Q3Q1–Q4
Sales13,87727,18239,54352,88113,88828,78545,15360,66916,95935,89557,31582,122
YoY6.5%-1.4%-6.3%-7.2%0.1%5.9%14.2%14.7%22.1%24.7%26.9%35.4%
Operating profit1,6652,6813,3854,1927372,1773,5116,1833,1337,10411,19715,886
YoY-32.2%-47.0%-54.8%-54.2%-55.7%-18.8%3.7%47.5%325.1%226.3%218.9%156.9%
Operating profit margin12.0%9.9%8.6%7.9%5.3%7.6%7.8%10.2%18.5%19.8%19.5%19.3%
FY03/20FY03/21FY03/22
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
Sales13,87713,30512,36113,33813,88814,89716,36815,51616,95918,93621,42024,807
YoY6.5%-8.5%-15.4%-9.9%0.1%12.0%32.4%16.3%22.1%27.1%30.9%59.9%
Operating profit1,6651,0167048077371,4401,3332,6733,1333,9714,0934,689
YoY-32.2%-60.9%-71.0%-51.4%-55.7%41.8%89.3%231.2%325.1%175.7%207.0%75.4%
Operating profit margin12.0%7.6%5.7%6.0%5.3%9.7%8.1%17.2%18.5%21.0%19.1%18.9%
Source: Shared Research based on company data
  • Segment sales: JPY82.1bn (+35.4% YoY)
  • Segment operating profit: JPY15.9bn (+156.9% YoY)
Trends by product type

With remote-work penetration on the rise globally, demand for PCs and servers is growing, leading to a tight supply of electronic components, especially semiconductors. In response, manufacturers of semiconductor devices and materials have been working to establish new manufacturing facilities and create systems to boost production capacity, and this has led to an increase in demand for production equipment, particularly for semiconductors. Looking at the company's products, sales of vacuum feedthroughs and metal processing products increased across all production equipment applications. In material products used in semiconductor production processes, the company received strong demand from semiconductor production equipment manufacturers due to high equipment utilization rates at device manufacturers. Sales also grew in semiconductor and other parts cleaning services that are mainly being rolled out in China due in part to the company increasing the number of service facilities in response to strong demand. 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–Q2Q1–Q3Q1–Q4
Sales3,2596,99110,03513,4893,4687,11612,13917,2735,50212,21419,13127,023
YoY14.5%18.9%4.6%4.6%6.4%1.8%21.0%28.1%58.7%71.6%57.6%56.4%
Operating profit7141,3202,0562,7698841,8683,2574,4531,5403,0534,6946,689
YoY39.1%7.2%13.4%17.0%23.7%41.5%58.4%60.8%74.2%63.4%44.1%50.2%
Operating profit margin21.9%18.9%20.5%20.5%25.5%26.2%26.8%25.8%28.0%25.0%24.5%24.8%
FY03/20FY03/21FY03/22
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
Sales3,2593,7323,0433,4553,4683,6485,0235,1345,5026,7116,9187,892
YoY14.5%23.1%-18.1%4.6%6.4%-2.3%65.0%48.6%58.7%84.0%37.7%53.7%
Operating profit7146067367138849841,3891,1961,5401,5131,6411,995
YoY39.1%-15.6%26.5%28.9%23.7%62.4%88.9%67.8%74.2%53.7%18.1%66.8%
Operating profit margin21.9%16.2%24.2%20.6%25.5%27.0%27.7%23.3%28.0%22.5%23.7%25.3%
Source: Shared Research based on company data
  • Segment sales: JPY27.0bn (+56.4% YoY)
  • Segment operating profit: JPY6.7bn (+50.2% YoY) 
Sales by product type

Sales of mainstay thermoelectric modules were weak for heated automotive seats due to reduced automotive sales, but stronger YoY for next-generation 5G mobile telecommunication system equipment and medical testing equipment related to PCR testing. Sales exceeded plan to both the consumer sector (including beauty-related appliances) and the semiconductor sector.  Sales of substrates for powered semiconductors also grew due to the capture of demand for DCB substrates for insulated-gate bipolar transistors (IGBT), as well as progress in the mass production of automotive AMB substrates. Demand for magnetic fluids for new smartphone vibration function remained strong.

Others segment
  • Segment sales: JPY24.7bn (+84.6% YoY)
  • Segment operating profit: JPY315mn (versus losses of JPY321mn in FY03/21) 

Company forecast for FY03/23

FY03/21FY03/22FY03/23
(JPYmn) 1H Act.2H Act.FY Act.1H Act.2H Act.FY Act.1H Est.2H Est.FY Est.
Sales41,59549,71891,31359,82673,995133,82184,00096,000180,000
YoY-0.6%25.0%11.9%43.8%48.8%46.6%40.4%29.7%34.5%
Gross profit14,09916,68430,78222,23926,43848,677
YoY1.4%28.1%14.3%57.7%58.5%58.1%
Gross profit margin33.9%33.6%33.7%37.2%35.7%36.4%
SG&A expenses10,18510,95621,14211,50514,57126,076
SG&A ratio24.5%22.0%23.2%19.2%19.7%19.5%
Operating profit3,9135,7279,64110,73311,86722,60014,00016,00030,000
YoY9.7%134.1%60.3%174.3%107.2%134.4%30.4%34.8%32.7%
Operating profit margin9.4%11.5%10.6%17.9%16.0%16.9%16.7%16.7%16.7%
Recurring profit2,8255,4038,22812,49313,50125,99413,00015,00028,000
YoY14.3%201.6%93.0%342.3%149.9%215.9%4.1%11.1%7.7%
Recurring profit margin6.8%10.9%9.0%20.9%18.2%19.4%15.5%15.6%15.6%
Net income718,2108,28117,2699,39026,6597,8009,20017,000
YoY-95.4%3,247.6%363.9%24,252.0%14.4%221.9%-54.8%-2.0%-36.2%
Net margin0.2%16.5%9.1%28.9%12.7%19.9%9.3%9.6%9.4%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Full-year forecast for FY03/23
  • Sales: JPY180.0bn (+34.5% YoY)
  • Operating profit: JPY30.0bn (+32.7% YoY)
  • Recurring profit: JPY28.0bn (+7.7% YoY)
  • Net income: JPY17.0bn (-36.2% YoY)
  • Earnings per share: JPY380.78 (versus JPY668.06 in FY03/22)
Background to earnings forecasts and forecasts by segment

The company's view of the general business environment is that capex demand in the semiconductor industry, which was strong over 2021, will remain favorable through 2022 due to ongoing ambitious investment projects by major semiconductor manufacturers and foundries. It also expects demand in the mobile communication system industry to be relatively strong, backed by worldwide investments into 5G networks. In the automotive industry, it assumes gradual progress will be made in the shift to EV and self-driving systems. 

In the Semiconductor Equipment-related segment, the company assumes the uptrend in sales will be sustained. This is because the company has received strong requests from production equipment manufacturers to raise production of vacuum feedthroughs, contracted metal processing and material products used in semiconductor manufacturing processes, and investments by manufacturing facilities to raise production are expected to contribute to earnings from the latter half of 2022. In the production equipment parts cleaning business, the company assumes sales will remain firm, backed by ongoing high production equipment utilization rates at device and FPD manufacturers. 

In the Electronic Device segment, the company forecasts sales of mainstay thermoelectric modules to grow due to applications being expanded in the rapidly growing mobile communication system and medical industries, as well as in the consumer products industry. The company also assumes sales of substrates for powered semiconductor devices will grow due to demand for power semiconductors increasing, backed by the spread of EV and growth of power-saving devices. 

Historical forecast accuracy

Results vs. Initial Est.FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22
(JPYmn) Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
SalesInitial Est.50,00042,00050,00065,00075,00083,00098,00092,00085,000105,000
Results38,42544,74659,07969,46473,84890,59889,47881,61491,313133,821
Results vs. Initial Est.-23.2%6.5%18.2%6.9%-1.5%9.2%-8.7%-11.3%7.4%27.4%
Operating profitInitial Est.1,2001,0001,8003,0005,0007,2009,8008,8006,50015,000
Results-3,6087981,6714,0255,6788,4378,7836,0139,64122,600
Results vs. Initial Est.--20.2%-7.2%34.2%13.6%17.2%-10.4%-31.7%48.3%50.7%
Recurring profitInitial Est.8008501,0002,5004,2006,4008,5008,1005,50013,600
Results-3,4661,2622,0313,8225,6767,1588,0604,2648,22825,994
Results vs. Initial Est.-48.5%103.1%52.9%35.1%11.8%-5.2%-47.4%49.6%91.1%
Net incomeInitial Est.4501,0007001,7003,0004,0005,3004,7001,5007,800
Results-6,5331,392-2,1322,1623,2562,6782,8461,7858,28126,659
Results vs. Initial Est.-39.2%-404.6%27.2%8.5%-33.0%-46.3%-62.0%452.1%241.8%
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.

In FY03/22 results, sales considerably outperformed the company's plan, and profit was also ahead. This was because earnings grew in both segments, backed by strong demand. In the Semiconductor Equipment-related segment, shipments of semiconductor production equipment increased amid strong demand for semiconductors, and this led to product sales increasing. In the Electronic Device segment, demand grew for products for mobile communication system and medical-related equipment.  

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
Semiconductor wafers4,0273,9304,5154,7914,3173,8545,1617,2366,7544,638
Cleaning-------3,4685,6067,579
YoY-10.1%-24.2%14.6%22.8%18.2%2.7%44.7%22.2%-7.2%14.7%
Vacuum feedthroughs-12.9%-30.7%15.7%38.7%-4.7%13.9%44.1%1.1%-31.6%8.1%
Quartz-15.3%-37.9%31.1%15.3%47.5%8.1%39.8%35.3%5.0%4.5%
Ceramics18.0%-8.9%-3.5%30.7%18.6%1.9%39.3%17.1%-11.5%35.6%
CVD-SiC-----13.1%59.5%-7.8%-27.3%7.4%
EB-gun, LED, other-1.1%-33.2%19.0%20.5%14.4%-14.6%3.1%20.7%-16.4%-2.5%
Semiconductor wafers-26.6%-2.4%14.9%6.1%-9.9%