The business landscape today is in a state of rapid transformation, with companies across various industries seeking new avenues for growth through diversification. The semiconductor sector, characterized by its profitability and extensive applications, has drawn numerous enterprises to venture into its domain. As companies flock into this lucrative market, their intentions and strategies vary significantly. Some, lacking thorough analysis, hastily rush in, while others pursue well-thought-out long-term plans. In this burgeoning trend of cross-industry collaboration in semiconductors, it raises the question: who is merely following the crowd, and who is making strategic moves on the chessboard?

One notable example of a strategic player in this realm is TOTO, a household name primarily known for its innovative toilets and sanitary ceramics. Holding a significant position in the global bathroom market, TOTO stands as one of the largest toilet manufacturers worldwide. According to the latest iiMedia Ranking, TOTO secured the fourth spot in the 'Top 10 Smart Toilet Brands in China for 2024.' Moreover, in the domestic high-end bathroom market, TOTO holds a solid second place, trailing only behind Kohler.

Interestingly, TOTO's expertise in ceramic production has applications in semiconductor manufacturing. Since the 1980s, the company has been instrumental in developing electrostatic chucks (e-chucks), which are now indispensable in modern semiconductor fabrication. Reports indicate that the revenue generated from these products is projected to exceed $100 million this year.

In current semiconductor manufacturing, electrostatic chucks utilize electrostatic forces rather than mechanical clamping or vacuum-based methods to securely hold silicon wafers or other substrates. These chucks are critical components in several steps of chip production, including EUV lithography, plasma etching, chemical vapor deposition (CVD), physical vapor deposition (PVD), and other processes that require precise wafer positioning and minimal contamination.

While electrostatic chucks have traditionally been used in CVD, PVD, and plasma etching, they were not applicable to DUV lithography because the processes occur in an environment with immersion fluid, where the vacuum system under the wafers is sufficient to maintain their flatness and position. However, the situation shifts when it comes to EUV lithography, which operates at a significantly short wavelength of 13.5 nm, necessitating a high vacuum environment to prevent the absorption of EUV light. As a result, chip manufacturers opt for electrostatic chucks due to their ease of use in such conditions, offering uniform clamping force, reduced stress, minimized distortions, and enhanced coverage and critical dimension control.

Processing wafers and manufacturing chips involves over 4,000 steps. The utilization of EUV steps has been on the rise, mirroring the need for precise wafer positioning, and consequently, the demand for electrostatic chucks has surged, fueling TOTO's revenue and profits. The ceramics employed in these electrostatic chucks must exhibit high strength and crack resistance. TOTO has developed materials with consistent properties, leveraging its long-standing expertise in molding and firing ceramics. However, competition is intensifying in this sector. TOTO faces rivalry from Shinko Electric Industries, a player closely linked with chip equipment manufacturers and applied materials companies.

To secure its position, TOTO has made significant investments in its manufacturing capabilities. In 2020, the company allocated 11.8 billion yen to construct a ceramic production facility in Ōita Prefecture, Japan. From April 2020 to April 2024, TOTO has increased its workforce in ceramic production by about 20%. According to the company's president, Nobuaki Kiyotaka, plans for new factory developments are also being considered.

TOTO anticipates that its ceramics division will achieve an operating profit of 20 billion yen ($130 million) in the fiscal year 2024, with a profit margin approaching 40%. This figure is substantially higher than the company's projected overall profit margin of 7%. By the fiscal year 2026, TOTO aims to raise this number to 25 billion yen and expand its product range further.

Reports suggest that three-dimensional chip stacking requires innovative substrate technologies, and ceramics are expected to play a more prominent role in these processes. To date, TOTO has successfully established itself in the semiconductor industry, with its operations extending from wafer processing to downstream processes like cutting and packaging.

Similarly, in the domestic market, another company has successfully made its foray into the semiconductor sector. Yanggu Huatai, originally entrenched in the rubber additive sphere, plans to expand its business by acquiring Bomei Technology, thereby entering the critical electronic chemicals field for manufacturing semiconductor discrete components, advanced semiconductor packaging, and liquid crystal display panels.

Bomei Technology specializes in essential electronic chemicals crucial for manufacturing high-performance chips and display panels, a sector where demand for such chemicals is rapidly growing, particularly within the semiconductor supply chain.

By acquiring Bomei Technology, Yanggu Huatai not only gains entry into the high-value semiconductor materials market but can also leverage Bomei's technology and customer resources to swiftly penetrate the semiconductor supply chain. This strategic maneuver will aid Yanggu Huatai in achieving business diversification, reducing dependency on a single sector, and enhancing overall profitability.

Following the acquisition, Yanggu Huatai intends to maintain its leading position in rubber additives while intensifying investments in semiconductor-related sectors. The company plans to accelerate its entry into the semiconductor materials market by integrating Bomei’s technology and resources and gradually expanding its share in the electronic chemicals sector.

Additionally, Yanggu Huatai aims to raise additional funds to bolster its R&D and production investments, enhancing product quality and technological capabilities to meet the high-end market demand for electronic chemicals. The company also plans to strengthen collaborations with domestic and international semiconductor enterprises, promoting the synergistic development of the supply chain.

TOTO and Yanggu Huatai exemplify proactive approaches to cross-industry expansion into semiconductors, with TOTO stepping ahead on the strength of its ceramic expertise, while Yanggu Huatai seeks growth through acquisitions. However, the reality of the semiconductor industry's high barriers and complexities poses challenges, causing numerous enterprises to stumble as they bravely navigate this terrain.

A contrasting narrative unfolds with companies like Aokang International, a traditional footwear manufacturer that boasts significant recognition in the domestic shoe market, holding the title of the "first stock of Chinese men's shoes." However, recent fluctuations in consumer behavior and fierce competition have put Aokang International in a precarious position. From 2022 to the third quarter of 2024, the company reported net losses of 370 million yuan, 93 million yuan, and 136 million yuan, accumulating losses close to 600 million yuan. Faced with persistent underperformance in its core business, Aokang International turned its eyes toward the booming semiconductor industry.

On December 23, 2024, Aokang International announced plans to acquire shares in Lianhe Storage Technology (Jiangsu) Co., Ltd. through a combination of cash payment and stock issuance. Established in November 2021, Lianhe Storage Technology focuses on providing high-performance, reliable memory chips and solutions, with its products widely applied in various fields and a solid technology foundation in the semiconductor sector. This announcement generated considerable market reaction, leading to the suspension of Aokang's stock, followed by the resignation of key executives shortly thereafter.

Nonetheless, this cross-industry acquisition journey abruptly halted just two weeks later. On January 7, 2025, Aokang International announced that it was terminating the acquisition discussions due to unresolved agreements on the final transaction terms. The next day, after resuming trading, Aokang's stock inevitably plummeted, closing at 6.37 yuan per share, down from 7.08 yuan per share before suspension, resulting in a dramatic loss of market capitalization and investor confidence.

What is particularly noteworthy is that Aokang International has a history of enthusiastic cross-industry investments in various sectors, including real estate, biological vaccines, and cross-border e-commerce. Investing in Chengdu Kanghua Biological Products Co., Ltd. in 2004, they later acquired a significant share in LanTing JiSheng in 2015 for approximately $77 million, only to sell that investment off in 2017.

The failure of this acquisition was a heavy blow for Aokang International. The company not only missed the opportunity to cement its position in the semiconductor industry but also faced increased challenges in pursuing future acquisitions. Moreover, the acquisition fallout significantly damaged the company's reputation and investor confidence, leading to deep skepticism about its transformation prospects.

Moreover, Shimao Energy, a company engaged in combined heat and power generation primarily using municipal waste and coal, had also intended to dip its toes into the semiconductor industry. Facing its own operational hurdles, it sought to acquire not less than 58.07% equity in Nantong Zhanding Material Technology Co., Ltd. to catalyze its cross-industry transformation.

However, this acquisition endeavor was fraught with complications from the outset, with negotiations revealing a disparity in valuation expectations and key issues such as performance commitments and post-acquisition integration plans remained unresolved. After several rounds of unsuccessful discussions, the parties ultimately had to abandon the acquisition.

The abrupt conclusion of Shimao Energy's prospective acquisition, following only three days from the announcement of their intentions, caught the market by surprise. The already unfavorable net profit drop of 12.73% in the first three quarters of 2024 compounded the strain brought on by this thwarted cross-industry attempt.

This hasty foray into the semiconductor sector illustrates the difficulties of making a pivot in a challenging market. Like Aokang International, Shimao Energy found itself grappling with various challenges in its core industry, including intensifying competition, fluctuating raw material prices, and increasingly stringent environmental regulations, which continuously squeezed profit margins. The high-growth potential of the semiconductor sector seemed like a lifeline amidst these woes.

A retrospective analysis of Shimao Energy's failed endeavors indicates a clear underestimation of the complexities intertwined with the semiconductor supply chain. The multitude of interconnected segments—from raw material supply through chip manufacturing to packaging testing—requires substantial financial investments, cutting-edge technological advancements, and strong industry networks. The rapid conclusion of their acquisition plans raises questions about the thoroughness of their initial planning. Given the lack of direct correlation between semiconductor materials and Shimao Energy's existing energy-oriented operations, the technical entrance barrier and the competitive landscapes are vastly different.

In stark contrast, organizations that managed to secure their footing within the cross-industry wave have done so by astutely identifying key factors. Among these are technological integration and innovation. TOTO ingeniously merged its precise forming processes for ceramics and high-temperature fracture resistance into semiconductor manufacturing applications such as electrostatic chucks and substrate materials. Continuous investments in R&D have refined their product performance, facilitating growth from initial adaptations to comprehensive applications across critical touchpoints within the semiconductor sector.

Equally indispensable is accurate strategic positioning. Yanggu Huatai steered clear of the fierce competitive landscape dominating the chip-making arena, instead opting to swiftly fill technological gaps and secure entry into the market while honing in on core products, expanding both its product line and market share.

Lastly, long-term vision is paramount. The semiconductor industry adheres to a cyclical development pattern, necessitating years of commitment to research and market cultivation. Companies must resist the allure of short-term profits, dedicating themselves to continual investment and perpetual improvement to gradually accumulate technology, brand authority, and market footholds, ultimately reaping the rewards of resilience. Enterprises drawn to reckless pursuits or trend-following strategies often face formidable challenges at the industry's high threshold, relegated to mere footnotes in the larger narrative of growth, while those who discern the true essence of the sector and grasp success factors are the ones capable of redefining their commercial trajectories.