Hello, everyone. I am [Matsutani], your moderator today. I am from the Investor Relations office. Thank you very much for joining despite your busy schedules. Let me introduce today's speakers. Representative Executive Officer, President and CEO, Mr. Nakamura. President and Representative Director, Ajinomoto Fine-Techno Co., Inc., Mr. Mago. Those are our two speakers. We also have with us four other people: Executive Officer and VP, General Manager of Bio & Fine Chemicals Division, Mr. Arashida. Executive Officer and Vice President in Charge of Finance, Mr. Mizutani. Executive Officer in Charge of Investor Relations, Kaji. Corporate Fellow, Deputy General Manager, Research Institute for Bioscience Products & Fine Chemicals, Mr. Narahashi. We have four attendees other than the speakers.
After Mr. Nakamura's opening remarks from Mr. Mago, we will deliver a presentation about the growth strategy of electronic materials business, including a virtual factory visit, and we will conclude with a Q&A session. The materials are available on Ajinomoto's Investor Relations section on our website, so please refer to the materials where necessary. We will be taping this session, including the Q&A session, and we will be updated on it on our Investor Relations site on a later date. We would like to now start. Mr. Nakamura, please.
Hello, everyone. Thank you for joining. Despite your busy schedules, I am Nakamura, Representative Executive Officer, President and CEO. There are three key messages I would like to convey today. First, regarding the ICT sector, this is an important area that continues to grow sustainably against a backdrop of increasing data volumes and the spread of AI.
Staying ahead of these technological advances and leveraging our high-speed development system, we are achieving growth centered around Ajinomoto Build-up Film, ABF. Moving forward, we will continue to stay ahead of technological advances so that our products remain the de facto standard in both the creation of social value and sustainable business growth. Today, I will explain the growth strategy of the electronic materials business and offer a virtual tour of our new plant in Gunma Prefecture that began operations in 2025. First, let me talk about the group's growth strategy. Based on our unique strength, AminoScience, we are focusing heavily on areas where we can achieve both growth potential and the creation of social value. Specifically, we have designated four areas: healthcare, food and wellness, ICT, and green as our key growth areas, where we are concentrating resources such as R&D for medium to long-term growth.
Today I will discuss the ICT sector and explain our electronic materials business. Regarding the market environment for the ICT sector, demand for data processing is expanding rapidly, driven by the spread of generative AI and IoT, further accelerating the transition toward higher semiconductor performance and density. In addition to the evolution of individual chips, system integration via advanced packaging technologies is moving forward. On the other hand, the surge in data processing volume is causing an increase in power consumption, making the improvement of power efficiency a critical challenge. Amid these structural changes, the sophistication of substrates is becoming increasingly crucial, creating expanding and sustainable growth opportunities for relevant materials.
In this external environment, our electronic materials business, the core of our ICT sector centered on Ajinomoto Build-up Film, or ABF, continues to evolve and expand in response to the growth of the semiconductor market. By fiscal 2025, it is projected to account for about 30% of our total business profit, making it one of the key businesses driving our growth. Moreover, as we explained previously, we have established a high-speed development system that integrates and rapidly executes all phases, from product development and mass production to customer support. Under this system, starting from customer needs, we rapidly explore multiple solutions such as material design, prototyping, and evaluation in parallel, while consistently incorporating feedback even after mass production, thereby accelerating the cycle from development to improvement. This allows us to transform speed and quality into competitive advantage and achieve sustainable growth based on the trust relationship with our customers.
Furthermore, in the ICT field, the pace of technological evolution is accelerating further, with advancement in generative AI and AI agents, and is expected to continue. We are not only responding to the growing demand for HPC and AI, but also anticipating technology areas likely to become mainstream in the future, such as new packaging technologies like opto-electronic integration for power saving and next-generation sensing, and advancing development with companies across the value chain. In response to these technological advancements and shifts in demand structures, we will expand our competitive advantage by proactively delivering value starting at the materials level, maintaining our position as a de facto standard in the ICT sector, and achieving sustainable growth in the future. The foundation of this competitive advantage lies in our intangible assets: technology, human assets, customers, and our organization.
We regard these as the source of our competitiveness and are enhancing their value through continuous investment and strengthening. In the electronic materials business as well, we will continue to strengthen our intangible assets to sustainably enhance our competitive advantage and achieve business growth, while maintaining and reinforcing our de facto standard. Today we will explain our growth strategy for the electronic materials business, including a virtual tour of our new Gunma Plant, which began operations in 2025. Next, Genjin Mago, President of Ajinomoto Fine-Techno Co., Inc., the core group company for the electronic materials business, will provide further details. I will send over to you.
Hello, everyone. I am Genjin Mago, President and Representative Director of Ajinomoto Fine-Techno Co., Inc. Thank you very much for taking time out of your busy schedules to join us today. There are four key points I would like to explain to you today. Since its launch in 1999, ABF has maintained a market share of over 95%, establishing an overwhelming position. With our high-speed development system, we anticipate customer needs from the early stages of product development and build a competitive advantage through collaboration across the entire value chain. Building on this solid foundation, we are advancing the sophistication of ABF by improving performance and co-creating value in step with semiconductor evolution, capturing the expanding demand for AI and HPC to accelerate our growth. For fiscal 2026, the robust demand from the previous year has continued, resulting in a strong performance since the beginning of the period.
We have no concerns regarding our supply system across the entire supply chain. Over the medium to long term, in addition to expanding capacity up to 2030, we will steadily build up our supply capabilities by establishing new production bases while continuing to develop new generation of ABF to meet growing demand. Furthermore, looking to future technologies, we will take a proactive approach to address developments such as co-packaged optics. In addition to evolving ABF, we will extend ABF technology into next-generation packaging and other fields to realize sustainable business growth. First, let me address the general outlook of the semiconductor market.
According to WSTS, which compiles World Semiconductor Trade Statistics, the growth rate of the logic IC market within the broader semiconductor industry is projected to be around 37% in 2026 and roughly 27% in 2027, driven by advancements in AI, pointing to an expectation of continued high growth. Growth in the semiconductor market is being driven by AI-related demand. AI is expanding in scope from existing learning to inference. Learning is the process of training a pattern from data, whereas inference is the process of using those trained results to actually output an answer. Currently, backed by the rapid spread of AI agents, AI is evolving into a daily-use infrastructure. Along with this, inference, which requires processing every time AI is utilized, is gaining greater importance, significantly increasing data processing volumes.
At the same time, requirements such as response speed and power efficiency are becoming increasingly critical, requiring not only performance improvements in the chips themselves but also efficient processing across the entire system. Reflecting these changes, the configurations of AI semiconductors are also changing. In addition to the conventional demand growth centered on GPUs, the role of CPUs, which control overall processing, is being reevaluated due to the expansion of inference applications and the spread of AI agents, raising expectations for growth in CPU demand for data centers. In addition, ASICs chips optimized for specific applications are also expanding. Furthermore, as the trend toward combining multiple chips to function together advances, packaged substrates are becoming larger and having more layers, making the overall system configuration increasingly complex. Now, from this point forward, I'll explain our electronic materials business and our growth strategy for Ajinomoto Build-up Film, or ABF.
Our electronic materials business operates globally, centered on Ajinomoto Fine-Techno Co., Inc., AFT, with sites in the U.S., Taiwan, and Shanghai, meeting the semiconductor development needs of customers worldwide. The main product of our electronic materials business is ABF. It is an inner-layer insulating material used in substrates for logic ICs such as CPUs, GPUs, and ASICs, and is utilized across a wide range of applications, including PCs, network equipment, servers, and AI. ABF is not a commodity product, but rather custom-manufactured and optimized for each individual customer. When proceeding with development, we simultaneously adjust performance and price with the customer, designing the optimal performance specification tailored to their applications and needs, and develop the product through collaboration.
As a result, ABF goes beyond being a mere material and is integrated as a part of the customer's own product design, leading to continuous adoption and the building of long-term relationships of trust. Regarding pricing, our basic approach is individual pricing based on required performance and applications. One of the factors increasing the average selling price of ABF is a change in the product mix, accompanied by a shift toward higher performance and higher added value. Furthermore, in the event that we must request unit price adjustments due to rising raw material and fuel costs or other reasons, our policy is to explain the situation thoroughly to all of our customers to gain their understanding and implement appropriate price pass-throughs. Next, let me explain how this business is linking into structural changes along with the evolution of the market.
In line with higher performance in semiconductors, packaged substrates are becoming larger and having more layers. Driving this trend is the advancement toward chiplet technology, moving from a conventional single-chip configuration, where a single chip is mounted on a substrate, to a configuration where multiple chips are high-densely mounted and connected on a substrate. Furthermore, the adoption of advanced packaging technologies, such as 2.5D mounting, where chips are connected side by side, and 3D mounting, where chips are stacked and connected vertically, is progressing. This has brought about a structure where substrates are becoming larger and having more layers, leading to an increasing amount of ABF used per substrate. In addition to this structural change, the amount of ABF used in AI servers is increasing dramatically.
A single server contains a large number of various types of system substrates, and each of these substrates is mounted with large, multi-layered semiconductor packaged substrates for components like CPUs and GPUs, all of which use ABF. Furthermore, inside hyperscale data centers, the number of servers themselves is growing significantly. As a result, the multiplication of the increased amount used per unit and the increasing number of units will drive a dramatic expansion in demand for ABF, alongside the spread of AI. Furthermore, along with the evolution of substrates, the performance requirements for ABF are becoming more sophisticated. With more layers, it is necessary to form finer and higher-density wiring, and securing insulating reliability between layers has become crucial. In addition, properties such as dimensional stability and warpage suppression are strongly required in step with increasing substrate sizes.
Furthermore, as signal transmission speeds increase due to advancements in AI and high-speed communications, requirements for electrical properties such as low dielectric dissipation factor and low loss are intensifying. Products capable of meeting these sophisticated and complex requirements present a high level of technical difficulty, leading to an expansion of higher value-added domains. We have built our business foundation against these requirements by providing ABF for high-performance applications. We will continue to address this growing sophistication moving forward. In tandem with these performance improvements in ABF, our product mix has also changed. From 2018 to 2025, our business profit margin improved from approximately 30% to over 50%, driven by an increasing share of higher value-added products that address the higher performance needs of ABF. We will continue to invest solidly for medium to long-term growth and continue to develop new and higher value-added products.
Next, this page shows our growth trajectory heading toward 2030. Going forward, we expect growth driven by increased amounts used due to larger sizes and more layers in packaged substrates, and improvement in product mix due to an increasing share of high-performance applications. With the expansion of HPC and AI, higher performance and the structural evolution of substrates are expected to continue, which we believe will lead to an expansion in both the shipment volume and added value of the corresponding ABF. We will address these shifts in demand and aim to grow our sales and business profit through the evolution of our products. Regarding our progress in fiscal year 2026, our initial forecast called for an 11% sales growth rate.
Called for a 10% sales growth rate, but the strong demand momentum from the previous year has sustained, and we are tracking at a pace above expectations from the beginning of the year. From this page, I will explain in detail the development and production structure that supports the growth of ABF. Our ability to adapt to these market changes is supported by our high-speed development system, which integrates everything from R&D and technical verification to mass production under close collaboration with customers. We maintain continuous relationships across the entire value chain, including raw material, equipment, and chemical solution manufacturers, as well as packaged substrate manufacturers and end users. In particular, based on relationships of trust with end users, they share information with us regarding next-generation products and future needs at an early stage.
Using this information as a starting point, we deeply engage with our customers' development and manufacturing processes, optimizing even equipment and process conditions to reliably deliver the required performance. In addition to research and technology, the entire organization, including production, sales, quality assurance, and management departments, supports this in a unified system. For new applications or highly challenging products in particular, it is vital to launch mass production with stable quality, and quality assurance plays an extremely critical role in that process. This unified development structure and execution capability involving the entire value chain is our core strength, enabling us to maintain a high share in ABF. Furthermore, to support the high-speed development of ABF, we have established a structure that faithfully reproduces our customers' manufacturing and evaluation processes in-house.
This allows us to run development cycles from prototyping to mass production at high speed, differentiating ourselves from competitors through development speed. This slide illustrates the steps in ABF development on the upper portion and the customers' manufacturing and evaluation processes on the lower part. We possess the same environmental equipment as our customers so that we can reproduce and evaluate the reliability and warpage of substrates through various steps such as embedding processing and wiring. In particular, as packaging becomes larger and has more layers, addressing micro-wiring has become the key to new substrate development, making processing and wiring compatible with micro-wiring essential. Grounded in this system, our track record and relationships of trust, substrate design premised on our ABF, progresses at our customer sites from the early stages of development, which also serves to create high-entry barriers.
Next, I will discuss the ABF production system that supports the growth of the semiconductor market. We have adopted an asset-light business model and specialize in the production of varnish, the raw materials for ABF. Meanwhile, we outsource processes such as application to films, storage in freezer, and shipping, thereby establishing a system that enables flexible responses across the entire supply chain. At Gunma Plant, we leverage our proximity to our outsourcing partners to ensure efficient operations. Furthermore, based on long-standing cooperation relationships with each of our outsourcing partners, we coordinate closely with them based on ABF production plans. In particular, with the contractors for the coating process, we share our future demand forecasts, and they are already strengthening their production systems and expanding their production lines to ensure thorough production capacity across the entire supply chain.
As a result, we are fully capable of meeting current robust demand with ample capacity to spare and firmly prepared to respond to expanding demand in the mid to long term. Currently, we manufacture varnish for ABF at two sites: in Gunma Plant and at the head office plant in Kawasaki, operating on a single-shift system for eight hours out of every 24-hour day. Kawasaki handles everything from R&D to prototyping and mass production ramp-up, while Gunma performs mass production, dividing roles between them. With each complementing the other, we have established a system that provides integrated support from development through mass production, enabling us to respond flexibly and stably to fluctuations in demand. In May this year, we announced the acquisition of land for a new plant in Kani City, Gifu Prefecture.
Over the mid to long term, we have established a system that ensures a stable supply through a decentralized and complementary production structure, enabling us to fully meet expanding demand. Regarding production capacity, we are proceeding with phased investments to increase production through 2030, centered on the Gunma Plant. As shown on the left, a new facility at the Gunma Plant began operations in 2025. As you can see in the photo, we have secured space for future expansion. This will enable us to flexibly expand production capacity in response to demand. Furthermore, to meet the growing demand beyond 2030, we plan to establish a new production facility, our third base, in Kani City, Gifu Prefecture, and we will steadily build up our supply capacity over the mid to long term. We will also promote DX at the new plant to achieve even greater productivity improvements than our existing plants.
By gradually increasing capacity in this way over the mid to long term, we are securing a supply system capable of fully meeting the expansion of robust demand. This is the new plant that began operations in Gunma last year. It is designed to manufacture ABF varnish for cutting-edge applications and achieves both high quality and efficiency through the introduction of labor-saving and automation technologies. It has become a key facility supporting the strengthening of our supply capacity and competitiveness. Now, to give you a firsthand look at the production system we've been discussing, today we'll take you on a virtual tour of the manufacturing floor at this new Gunma Plant. Please enjoy this six-minute video.
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Thank you for watching the video. We aim to achieve dramatic growth that surpasses our previous growth trends. Next, I will explain our expansion into business areas around ABF peripheral materials and our initiatives for next-generation packaging. First, peripheral ABF areas. Building on the technology that we have cultivated through ABF, we are expanding into peripheral materials such as adhesive materials, ABF-RCC, molding, and magnetic materials. Albeit for different applications, they function as materials that support advancement of substrates, enabling higher performance, miniaturization, and power saving. For example, adhesive materials, which can bond even heat-sensitive parts and provide impact resistance, and ABF-RCC, which supports higher performance and miniaturization, are expected to drive business expansion in the mobile sector, including smartphones and tablets.
Furthermore, magnetic materials contribute to power saving and are expected to be adopted in semiconductors for PCs, servers, and 5G base stations, where even higher performance is anticipated. With ABF at the core, we provide a combination of peripheral materials to meet the expanding needs of various applications, expanding our business scope accordingly. Next, regarding our response to next-generation packaging. In the future, in addition to substrates becoming larger with more layers, we anticipate that co-packaged optics, or CPO, and higher integration will lead to increased adoption of built-in parts and high-performance substrate materials. As a result of these technological progresses, interchip connections will become even more integrated and faster. Challenges such as signal loss and heat generation in electrical wiring will become more apparent, while the use of optical transmission will advance to complement that, making it increasingly important to have electrically and optically enabled materials technologies.
This space shows an example of next-generation package. Given diverse future technological advancements, we will not only further enhance the performance of ABF, but also maximize our strengths based on the material technologies and manufacturing infrastructure cultivated through ABF to date. Specifically, by providing a combination of optical waveguides, adhesives, and molding materials on top of ABF, we will comprehensively cover the material domain supporting both electrical and optical applications. By delivering value that only we can provide, we will maintain and strengthen our indispensable position in the future packaging and further solidify our status as a de facto standard. This space illustrates the evolution of technologies. First, the current status. With the widespread adoption of AI, data volumes, and communication demand is surging, rapidly driving up the need for high-speed, high-capacity communication both in and outside data centers.
In this context, a key issue in conventional electrical signal transmission is power consumption increase as transmission distances grow. To address this, the adoption of technology that converts portions of the signals into light and transmits the long-distance segments via light is progressing. Since light suffers minimal loss even over long distances, it is effective for improving electrical efficiency. Looking ahead, the use of CPO, co-packaged optics, is anticipated, in which the interface that performs photoelectrical conversion is placed close to ASICs, thereby minimizing electrical transmission and expanding the area of optical transmission. As configurations evolve toward this electrical and optical combination, the materials required will also change significantly. We believe that this shift will lead to business opportunities in the materials sector on top of ABF.
In preparation for the communication of CPO, we are moving forward by leveraging our strengths, including the evolution of ABF and the technologies and manufacturing infrastructure cultivated through ABF. In CPO, not all wiring will be replaced by optical signals. Electrical circuit formation will remain near the chip, therefore it is crucial to further enhance the performance of ABF as electrical wiring material capable of supporting higher speed and higher integration signals. In addition, since areas of optical communication will be incorporated into the package, we are developing materials suited for the optical domain, such as optical waveguides that serve as pathways for optical signals, as well as adhesive and molding materials used to connect to optical devices. Thus, in next-generation packages where electrical and optical elements coexist, it is crucial to combine and optimize the various materials.
We are collaborating with various global materials manufacturers, spanning the entire supply chain from upstream to downstream, who are conducting research for next-generation packages. We have already provided material samples so as to contribute to the development of these packages. Leveraging the network we have established as de facto standard and the strengths of our ABF technologies, we will expand into materials that support both electrical and optical domains, maintain our indispensable position in the next generation, support the ICT industry, and achieve business expansion. Finally, I would like to explain the organizational structure, corporate culture, and human resources, the intangible assets that support our electronic materials business and our high-speed development system. The source of our competitiveness lies in our globally successful talent who practice our core competencies every day.
Guided by our vision of creating comfort in living through unseen materials, we are honing three key capabilities: the ability to see the future, the ability to solidly engage with customers, and technical capabilities. By applying these capabilities at our sites around the world, we are achieving business operations that win before the competition even begins. To realize this vision, in order to implement core competence, cross-departmental collaboration is essential. With quality as our core, we are fostering company-wide culture that prioritizes quality, from R&D to manufacturing, sales, and back-office operations. Personnel from each department collaborate under our high-speed development system, and R&D personnel even visit customers themselves to understand on-site challenges and needs. This is also being leveraged for future product development.
In a culture where anyone can share their opinions, regardless of position or seniority, we are strengthening our organizational capabilities to meet increasingly sophisticated customer demands through customer-centric talent development and cross-departmental collaboration. The competitiveness of our electronic materials business lies in the fact that our personnel who share what we value practice it every day in the field. Taking on challenges in the unknown, engaging in dialogues with customers, and consistently acting assuming changes underpin the evolution of our business and competitiveness. Finally, we would like to share a video showcasing our talent active on the global stage and young professionals who will lead our next-generation business as they take on challenges at the front line. Please take a look.
Here in Silicon Valley, at the forefront of innovation, we stay ahead of the semiconductor market real-time. By engaging closely with our customers via meetings and discussion, we turn insights into immediate value. The most advanced needs we identify are fed directly back into the organization, where they are combined with our technologies and transformed into next-generation solutions. This continuous cycle of insight, innovation, and delivery enables us to lead the next wave of competition.
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I think that's my presentation. Thank you very much for your attention.
Mr. Mago, thank you very much. Now, we would like to start the Q&A session. If you have a question, please press the Raise Hand button on the screen. When your name is called, please unmute and go ahead with your question. You can also ask questions in English through the English line. We would like to ask you to only ask up to two questions each at a time. If there are too many people who want to ask a question, please understand that we might not be able to call on you during the call. Would you like to get started? The first question is from Mr. Saji from Mizuho Securities.
Thank you. Can you hear me? Yes, we can. I have a question on page 14 in the presentation. HPC AI applications, the mix has been increasing in contribution. That's what you've been saying.
My question is on the right-hand side, where you talk about timeline. For example, we're in FY 2026 and beyond FY 2031 that you've been referring to. What is the image you have according to the timeline? The conventional PC application has been declining, so AI, HPC with a higher mix, profitability has been increasing. Excluding FX impact, you have been saying that ASPs have been increasing. Going forward, upon talking about timelines, how far of profitability improvement can we expect? Can you talk about or give us some food for thought with respect to product mix improvement? For HPC weight, I think it's going to decline somewhat.
But for AI, if that were to increase, and let's say it were to reach 60% or so, when you look at profitability trends over the course of the last one year, more than HPC, there should be more products that have higher margins. That's the image I have in mind with respect to progress that you are likely to make. Can you talk about timeline as well as outlook on profitability? That's my first question.
Thank you, Mr. Saji, for the question. Mr. Mago, can you respond?
Yes, thank you for the question. First, regarding timeline, there's been generational changes at an early pace for semiconductors. We have about one or two years as an image, but that's just an image. After 2025, we don't mean it's going to be 2027 and then 2029. It's just a mere image.
For ASPs or unit prices, as you have asked in your question, for high-end applications, so what's going to happen beyond HPC? We are not really thinking about that yet. GPUs, network switches, high performance, large area packages, they're all called HPC right now. Going forward, we expect that the ratio is going to continue to rise. Like we've been communicating, due to mix improvement, profitability will either be maintained or be greater. That's what we hope to achieve. I hope that answers your question.
For AI applications, the more we see that happen compared to what you've been communicating, isn't your profitability going to be greater in value? With AI, agentic AI or physical AI and its adoption, I think it was on page 6 or something. With its higher penetration, isn't there more upside to unit prices and profitability?
Yes, we hope that happens, and yes, we do believe so.
For AI-related applications, looking at page 14's chart, how are we supposed to think about it? For new product developments, is that AI-related? For ABF, when you look at customer adoptions, advanced products are used for advanced AI.
Yes, that's the right way to look at this.
My second question, briefly, is about your production. I think that was on pages 20 and 21. Thank you for concisely explaining. For Gunma, you were saying that you were going to expand capacity next to Gunma, and you can also do three shifts plus alpha. My question is, for Kawasaki and when you go to three shifts, for Gunma, how much is the production portion going to look like?
If you were to build a new factory right next doors, is it going to be like the new factory you just built in Gunma times two? Regarding the magnitude of capacity expansion, can you talk about the production mix as much as possible?
Right. Thank you for the question. Unfortunately, I am not able to share specific numbers with you. However, can you repeat your question, please?
Kawasaki versus Gunma, currently you're working one shift. If you enable three shifts at full capacity or full utilization, what would the mix look like? Then for additional capacity expansion opportunities. Basically, for volume or sales with logic IC, we believe that it's going to triple by 2030. Before Gifu is established, you have been saying you will have sufficient capacity available. I just want you to give me a better image.
Well, I am not able to give specific numbers, but we are working on it as we speak. For Gunma, it will be quite advanced or state-of-the-art. For the new factory that we are operating, like explained, it is for advanced ABFs. So, when a product comes out, the growth has been higher than before. So, we would like to ensure that we are able to keep up with that demand. For Gifu, we are planning it to ramp up or become established after 2030. So, we will have a line that fits the type of ABF that is going to be manufactured. But in any case, we would like to ensure that we will be able to keep up with demand.
So, what about the mix between Gunma and Kawasaki? Is that no comment?
No comment, please.
Okay. Thank you. We look forward to it.
Thank you very much, Mr. Saji. Now, Mr. Igarashi from Daiwa Securities, please.
Thank you very much for calling upon me. I am Igarashi from Daiwa Securities. I have one question. The first question is about production system. Isn't there any problem about the workforce? Because there is competition in hiring, also intensive. And Ajinomoto Fine-Tech Co. Can you secure the required number of workforce? Is that something that you can envision?
Thank you very much for your concern. Well, in this day and age, it is very difficult to hire talent. But so far, we have been increasing our headcounts steadily. So, you do not have to worry about that.
Thank you. The next question, second question. It is a very rudimentary question. I am sorry for that.
But on page 11, as you saw, the larger size and multi-layer and higher layer count, it is expected to make progress. Your electronic materials, most of them are following this trend, or part of that, or part of that, like a pink portion, is for cutting-edge applications. Probably it is represented by 20% or so. So, is it the portion where you see this growth?
Well, we are talking about ABF, right?
Yes, as you know, as you said, in ABF, there are higher performance ones with substrates larger or more layers. ABF that can satisfy those requirements are the cutting-edge ABFs. So, the one in the right for high performance, high layer count ABF, the cutting-edge ABF will be used. But what about the ones that are not cutting-edge? How do you see the growth rate going forward?
Well, not the cutting-edge amongst the cutting-edge ones. For example, there is a solid demand for PCs applications. So, there is not going to be a large increase, but we can secure a decent level of demand.
Thank you. Just for clarification, when you say cutting-edge, is it about 20% of your product mix?
Well, we are not in a position to disclose that, but it is increasing. That is for sure.
Thank you.
Thank you.
Thank you very much for the question. Next is an English question. From Bernstein, Mr. McLeish.
Hi. It's Euan McLeish from Bernstein here. Thanks for taking my question. Could you maybe talk a bit more about the R&D relationships that are so important to your process? I'm interested in especially the earlier stage R&D and how you work with the chip designers versus working with the substrate manufacturers. Who's the most, when you're looking at these very new specifications, what's the relative importance of your relationship with the chip designers versus the substrate manufacturers, please?
Thank you very much for the question. The substrate manufacturers are the direct customers, so we do directly align with them. Globally, around the world, especially in the U.S., we have subsidiaries available. We go through our subsidiaries and regularly working with our customers to talk about next generation and hearing out their specifications and requests. Therefore, we reflect that and feed it back to our development people so that we could propose new types of materials to the substrate manufacturers at a high speed. That's what we do. I hope that answers your question.
Yeah, wonderful. That's very helpful. My second question is around the timeline for your next generation materials. You've talked for a long time about your adhesive materials, ABF- RCC, and the magnetic materials. Can you maybe talk a bit more about the timeline for these to become meaningful in terms of your business profit? Also, what the kind of key milestones we should be looking for that's going to help us to understand that these materials are likely to start growing? Thanks very much.
Well, we deal with specific customers, so it is really hard to guide you on specific volumes and timelines going forward. However, for each and every theme we have, we closely communicate with our customers as we develop the materials, especially for magnetic materials, as explained earlier. For AI servers, it does generate, it consumes a lot of power, and that is a challenge. In order to suppress the power consumed, our magnetic materials may have an advantage, and our customers are aware about that. I am not able to talk about business opportunities and specifics, but we will continue to well communicate with our customers so that we can respond to their demand and well supply them. I hope that answers your question.
Are you able to give a little bit of color around which one you think is likely to come first, second, third, fourth? What is the ranking of the best prospects at this stage based on what you know?
Narahashi-san can take that question.
Thank you very much. First, on the very right for magnetic materials, this is for semiconductor packaging related. It is a material that efficiently is able to transmit power. For this material, it is already being adopted. I would say the first contributor is already magnetic materials, to answer your question. Looking at adhesive materials and ABF-RCC, and molding materials, together with our value chain customers, we are working with them to develop the materials. Right now, we are still in the development stage for these materials. I hope that answers your question.
Yeah. Many thanks. Appreciate that.
Thank you very much, Mr. McLeish. Mr. Kinoshita, your company name is not shown. Mr. Kinoshita, please.
UBS Securities, Kinoshita speaking. Thank you. It is related to what was really referred to earlier, the AI servers and other semiconductors applications. The ABF or your materials, the ones that where your materials are not used, but you are about to enter or have the intention to enter, any such applications, like high-end packages especially, anything that you are keeping an eye on. The areas where ABF is not used, but high-end package areas, how we will see the demand for our materials. That was the question.
Thank you for the question. At the moment, the areas where ABF is not used currently, but what is the expectation that we can have in terms of entering, having ABF incorporated?
As for high-performance computing packaging substrate, especially for 2.5D interposer, on top of ABF substrate, there is another substrate, and then on top of that, there is a chiplet, many chiplets. There is a three-layer structure. That is what we are calling interposer. What is called silicon interposer or interposer uses silicon currently. That is the mainstream right now. But this silicon, as the packages are becoming larger, then larger silicon interposer cannot be produced efficiently. So, why not using organic materials? That is what many of the customers are exploring. Then we are ABF or peripheral materials that we can provide based on ABF could be used, and we are communicating with many customers for that. In terms of one step upward for the material development, I think that is the area that we can look at.
Thank you.
Thank you, Kinoshita-san. Mr. Morita from Nomura, you are next.
This is Morita from Nomura. Can you hear me now?
Yes.
Thank you. Apologies. I have two questions. My first question is about regarding competitor products. Like polyimide and glass, can you talk about the advantages that ABF has as well as the differences? Can you walk us through one more time? Regarding the second question, technology can improve even more. You talked about RCC. For PCB and shipment timing for RCC, what is the timing you have in mind? What kind of applications or sales expectations do you have? Can you share with us your thoughts on that as well? Thank you.
Going back to glass and polyimide, your question on that. For polyimide, in the previous question, we were talking about interposers.
Actually, polyimide is being considered as a material, and we are aware about that. The interposer, there are customers who make it from the front-end process, and some customers make the interposers in a back-end process. There are two types of customers right now, especially if they use polyimide in the front-end process, which is more. Often, people call this the middle-end, but the front-end technology, if you use it into the middle-end process, polyimide might turn into a competitive material. As you rightly said, the interposer, that is in the mid-end process. By using ABF, you could do it in the back-end process as well. That kind of development is underway too. Talking about the future, that may be one way of expanding our business. For glass substrates, we often get questions on that too.
But even if we switch to glass substrates, I think people will continue to use ABF because for ABF, FR4 or glass epoxy substrates, we will have it on both sides, ABF. The glass cloth material is just going to change into glass substrates. So, even under that structure, ABF will continue to be used. So, we're not that concerned. The last question about RCC timing. We are talking with specific customers, so it's hard to talk about timing. But smartphones, mobile devices, they are becoming, the requirements are becoming for lighter and thinner. So, if there is an option of utilizing ABF, we would like our customers to proactively adopt our materials.
I have another question. In the case of RCC, miniaturization or because we're talking about mobile, I guess area shipments is not going to be that large, m eaning the scale of the business, what should we look at?
I think it's going to become decent. You mean sales volume, right? We should be able to expect a decent level, although I can't share any numbers with you.
I see. Thank you. For the photosensitive polyimide and glass substrates, thank you for answering my question. For polyimide, you are talking about new areas where you might be competing with interposers. But so far, you are not that concerned about the competing product becoming a threat. Also, do you have any examples of in which situations people will choose photosensitive polyimide and other cases where they will choose ABF? So that we can deepen our understanding.
Well, one is for polyimide, they have spin coaters. They have liquid materials, and they're going to drip it to create a thin film.
So, that's what they have strengthened in our case. Our materials are coated in a thicker way, but evenly, at about 10 microns. In a panel format, it is able to form insulation. When it comes to circles, the yields are not that great, which means that if it's going to become more panelized, we believe ABF has an upper hand.
Great. Thank you. So, you're not really afraid of competitive risk. It's more about interposers.
Yes. I think we should continue to be able to go with ABF. So, we would like to ensure that we're able to get that space for interposers.
Thank you, I see.
Thank you very much, Mr. Morita. Once again, from English Webinar, there is one question. Mr. McLeish from Bernstein, please.
Hi. Thanks for taking my other question. I just wanted to talk about the growing demand for CPU substrates that you flagged in the presentation. Is the growth of this part of the business going to be materially mixed negative compared to the ASIC ABF? Can you talk a bit about the ABF intensity for the latest CPU substrate specifications? Then maybe a second and related question is just around the impact of TSMC's CoWoS and CoPoS technology. How would that interplay with ABF usage or disrupt your ABF business? Thanks very much.
Thank you very much for your questions. The first question, the CPU question, if you can elaborate more on that.
I think—
I was not clear on what you were asking about.
Sure. So, obviously, the amount of ABF used for ASIC substrates is getting bigger and bigger and is very large. You've indicated that the pricing of the specifications for ASIC substrates are very high. If we see a significant growth of CPU substrates within your mix, should we expect to see lower pricing and lower margins as a result of that?
Thank you very much. For CPU substrates, if CPUs are used for PCs, then all type ABF is used. What we are focusing on as CPUs are those that are used for AI agents, the CPUs that are used together with GPUs. For those CPUs, like in GPUs, large size and higher layer count is the name of the game. I think this will be quite advantageous for our business. The CoWoS and CoPoS technologies, the 2.5D package substrates technology names were asked about. Basically, this uses interposer 2.5D package structure. So, interposer that uses wafers or the rectangular interposer that uses panels. That is the difference. The one you would actually get after the production is the same.
As I answered in the previous question, on the rectangular panel, if there is an insulating layer created or CoPoS, our opportunities for our materials to be used will be increased. We are expecting to supply if there is a chance for ABF to be used, and we would like to cope with that. Does that answer your question?
Yeah. That's wonderful. Thank you very much.
Thank you, Mr. McLeish. Next is Morgan Stanley MUFG Securities. Mr. Hasegawa.
This is Hasegawa from Morgan Stanley Securities. Thank you for taking my question. My first question is about you talked about the comparison against polyimide and thickness of ABF. You shared the thickness. Going forward, for interposers or middle-end, do you not have a disadvantage if your product has to be thicker and layer? At the end of last year, a film company was talking about miniaturization processing and that they would like to go into the space. When it comes to further miniaturization, what are your perspectives, solutions, et cetera? Thank you.
As you rightly said, in some instances, the thinner would be better, but in other cases, you need to have some level of thickness due to the structure of the package itself. It depends on what kind of design the customer wants. So, thick but high-performing may be an option of the customer. In that case, we will be able to continue to deliver ABF. When it is thin, the via needs to be small so that you can enable high density. For via formation and higher density together, we have a relationship and alliance with various manufacturers. We also have been working with the University of Tokyo to be able to poke very small holes with ABF. So, we are preparing so that we will be ready, whichever path were to be adopted.
The next question is about pricing. Of course, you are impacted by inflation, and you are going to expand your capacity. The coating company right next to Showa, the office site, you were talking about increasing capacity. They were talking about expanding capacity so that they can well support you, but this will also take some cost. So, I think it is not just your pricing, but you have to also consider your procurement cost when you think about improving your profitability. But will you be able to do so? Well, I know it is delicate.
Yes, it is delicate, so we cannot talk about everything. But that is the right way of thinking about it. We would like to ensure that we can achieve what we intended.
Finally, just wanted to confirm about your production. Are you— so for the production time, is it pretty short? You are able to manufacture in eight times? So, will you be able to expand capacity if you adjust the timing or the reaction time?
Yes. As a process, we have certain orders so that reaction does not happen, b ut it is hard to give you the actual quantitative numbers. But yes, your way of thinking is correct.
The actual time for production, how much does that take?
I am so sorry. I cannot give you that.
So, I kind of thought that you do not have to go through a continuous manufacturing process.
Actually, that is the part where we are able to leverage our strength and our expertise.
Okay. Thank you very much for your commentary.
Thank you.
Mr. Hirata from UBS Securities, please.
Hirata from UBS Securities. Thank you very much. Technological advancement direction is what I would like to ask about, especially the miniaturized wiring is very important. That is what you said. Compared to the past, what are the changes that you are observing? If possible, quantitatively, if you can share with us, that would be appreciated. And miniaturization is important. As you go into interposers, you have to reduce the thickness of the wires. Is that why it is important? Or silicon-rich building parts or panel type? Or is that the reason why the miniaturization is important?
Well, rather than panels or wafers or processes, structurally, if you have to use chiplets, then you have to have more signals, a number of signals to be translated from chips to chiplets.
In order to have more information translated, then the via should be smaller and the wires have to be thinner. If you want to have more chiplets in structure, then on the substrate side, that is what you have to do. Does that make sense?
Well, quantitative explanation, would that be impossible?
Well, we cannot really do that. But in the chiplets, in the semiconductor chiplet, what was handled by wiring would have to be now performed by substrates. That is what we are talking about in chiplets. In the chips, with various combinations of various different chips, you can have more functions. But integrating them is on the substrate side. Now, the substrate side has to take the role of wiring. So, with the miniaturization substrate, you have to cope with that. Structurally speaking, that is unavoidable.
Thank you. Additional question as for interposers. In my understanding, the organic interposer interconnect, I think it is very thin. So, for ABF, if you use ABF, is it possible to what organic interposer can do with ABF?
Well, you use the ordinary ABF or for interposer, the thinner filmed ABF and specialized ABF is possible. So, we are talking to customers, what would be the best for performance and cost in selecting ABF? That is what we are discussing with customers. So, that is what also the potential that ABF has.
Thank you.
Thank you very much for your question. The next person is from JPMorgan, Fujiwara-san.
Thank you for taking my question. This is Fujiwara from JPMorgan. I have two quick questions. The first one about production. In Gifu, you are preparing to build a new factory. And several years ago, during Fujie-san's stays as president, from a BCP point of view, he was saying that you will consider building capacity overseas as well. What are your thoughts right now in your plans? That is my first question. My second question is about utilization. This might overlap with the previous question, but eight hours a day, that is very— a very wide or proper production base. But if you are able to secure people, will you be able to go to two shifts or three shifts? Is it possible? Or are there any obstacles to shift to more production shifts?
Regarding international capacity, yes, it is true that we considered in the past. But although I am not able to talk about the specific reasons, that has been canceled. That is why we acquired new land in Japan. For working time or working hours, if we are able to hire well, it is possible to increase our shifts to two or three. But we would like to ensure that we are able to build an organization that can cater to increased production.
Regarding maximum production levels, even at the current levels, do you still have opportunity to make more?
Yes, please feel assured. You still have opportunity to increase production, and you will be building new factories. You will be able to meet up to future increased demand. The risk not being able to cater to that demand is very low. We are working on it so that we can minimize the risk.
Thank you. That is all from me.
Thank you very much, Mr. Fujiwara. There is about five minutes left. We can still take questions. You can ask questions for the second time. If you have any questions, please push Raise Hand button. Thank you very much. Mr. Suzuki, you who just asked question, please go ahead for the second time. Suzuki from SMBC Nikko Securities. Thank you. Thank you. Go ahead.
On page 14, ABF product mix change is what I would like to ask about. At the outset of the Q&A, I think there was one person who asked this question. But on the right, the representative image of the bar chart. Can you talk about the timeline once again, please?
Depending on applications, the generational change timing would be different. You cannot really say and generalize it is one year or two years. But it is not about five years or 10 years. It is not that order of magnitude. But the former is what we are looking at.
The second question, the new product mix on the far right accounts for about half in this bar chart. The darkest red ones to the lighter red portions, I think that would mean that a bit older version of the new products. As you go by year by year, what used to be the unit price or margin for the new products would be lower. Or in terms of ABF, those prices would not be reduced but maintained. Even newer products have even higher margin. Would that be correct understanding?
Yes, the latter is correct.
Thank you. That is all that I wanted to ask. Thank you.
Thank you, Mr. Suzuki. Thank you very much for your questions. We have reached the hour, so we would like to conclude the Q&A time. Finally, Mr. Nakamura would like to extend some closing remarks.
Hello. Thank you very much for participating over a long period of time today. For the electronic materials business, it is our core business, and we would like to ensure it goes through continuous growth so that we can sustainably enhance the corporate value of Ajinomoto. We would like to ask you for your further support, as well as please look forward to our future. Thank you very much.
That concludes today's webinar. Thank you very much for participating.