Practicing Integrated Thinking

Evolve customer-oriented strategies

In 2024, the global semiconductor market grew to its largest scale ever with demand for advanced applications centered on generative AI expanding significantly, despite sluggish automotive and industrial applications*1 . The semiconductor industry continues medium- to long-term growth through the successive emergence of driving forces in each era, while competition among semiconductor manufacturers and materials manufacturers intensifies year by year.

In this environment, the TOK Group achieved record-breaking performance in the fiscal year ended December 2024 by deploying a robust product portfolio for generative AI applications. Furthermore, TOK increased its ROE by 4.6 percentage points from the previous year to achieve a record high of 11.8% by expanding market share in high value-added, advanced fields across semiconductor front-end photoresists, semiconductor back-end related materials, and high-purity chemicals.

Additionally, the Group’s strength at the world’s forefront, including continued victories in the competition for development of EUV photoresists for advanced semiconductors with the world’s smallest circuit line widths, has been highly valued by capital markets, resulting in the PBR maintaining levels above 2x.

There are several reasons why TOK has been able to achieve such remarkable progress in innovative fields but let me first explain the evolution of one of our core competencies: the TOK customer-oriented strategy. TOK traditionally established customer-oriented sites near major overseas customers and built competitive advantages through the combination of sales, development, and manufacturing working together to provide swift, meticulous, high-level responses. Because semiconductor miniaturization has progressed in recent years and technical difficulty and quality requirements have increased exponentially, whether we can stably provide the same high quality in mass production as in development samples has become a major factor determining adoption success. Therefore, TOK not only generously invests in world-class technologies for product development but also simultaneously advances process development with mass production in mind by rapidly establishing mass production systems with high and stable quality to expand adoption. The TOK Group intends to continue winning at the world’s forefront by continuously improving the speed and quality of its customer-oriented strategy.

*1 Source: World Semiconductor Trade Statistics (WSTS)

Growing social impact

The beginning of the mass production of advanced 2nm semiconductors is expected to bring a variety of benefits to humanity. As I mentioned in the integrated report two years ago, not only will power consumption and CO2 emissions per computer operation decrease but the response speed of data servers, generative AI, and autonomous driving will further improve, which will enhance convenience and safety throughout society. By using materials with high and stable quality, customers achieve cost reductions through yield improvement and thus enable the benefits of innovative semiconductors to reach more end users at lower costs. As a result, we have great expectations for the creation of such social impacts as the reduction of global working hours and global GDP growth as shown at the beginning of this report. Furthermore, when mass production of semiconductors with circuit line widths in the 1nm range begins, edge AI will penetrate every corner of society, which will in turn enable robots to act more autonomously and create even greater social impact.

As such, semiconductor evolution has no end point where we can say the level we have achieved is sufficient. Whether to challenge the limits of each era is always judged from the perspective of how much of a social impact can be generated for how much cost, and it’s not uncommon for cases to be deemed too costly relative to the characteristics gained, making practical application difficult during the consideration stage. However, when actually created and implemented, benefits and social impact far exceeding expectations become apparent and will then give birth to new markets. I believe the semiconductor industry has continued to evolve and expand through precisely this kind of cycle. Since this cycle will continue, the TOK Group will continue to play a role in the semiconductor industry as the world’s top share manufacturer of semiconductor photoresists and will continue to strive alongside customers to create an even greater social impact.

The practice of integrated thinking leads to victory

The strategic reasons why the TOK Group continues to win in the world’s most advanced fields are as stated above; however, let me discuss another reason: our unique mindset approach—the practice of the TOK management philosophy.

The TOK management philosophy consists of four elements: create a frank, open-minded business culture; continue efforts to enhance technology; raise the level of quality of products; and contribute to society. The details of the philosophy are presented at the beginning along with the purpose. These were systematized into four elements upon the stock listing in 1986 to communicate clearly to investors and employees with the original prototype coming from the following statement raised by the founder Shigemasa Mukai. —“Under a frank and openminded business culture, we continue efforts to enhance our technology, raise the quality levels of our products, and contribute to society.”—In other words, integrated thinking that all of our company’s activities ultimately lead to contributions to society is deeply rooted throughout the company as DNA from the founding.

For example, in the development divisions, we first carefully listen to, grasp, and understand what customers are thinking and seeking, then evolve our technology accordingly. This is precisely the concept of “continuing efforts to enhance technology”; as a result, the level of development samples and products improves as we upgrade them to meet customer needs. When adoption is achieved, dopamine is released in the engineer’s brain. This is because there is a real sense that achievements lead to contributions to society and the creation of a social impact through innovative semiconductors. This dopamine is also a form of employee happiness, which TOK positions as one of its material issues.

In the marketing departments as well, we promote the idea of continuing efforts to enhance technology by accurately conveying customer views internally and collaborating with technical departments. After delivery, we collect customers’ candid feedback on whether our concept of raising the quality levels of products has been sufficiently achieved and we then provide feedback internally. Particularly in the Sales Strategy Department, we take an overarching view of both social needs and the company’s resources by using integrated thinking based marketing to identify which areas can be expected to have the next major social impact and then allocate management resources accordingly. In this way, departments that directly interact with customers and the markets always achieve victory through activities rooted in integrated thinking.

Meanwhile, the TOK management departments support the practice of integrated thinking by firmly handling indirect operations so that marketing, development, and manufacturing can concentrate on raising the quality levels of TOK products.

The TOK Group has maintained this approach for 84 years with all workplaces acting on the basis of the TOK management philosophy and integrated thinking. I am convinced this is the fundamental reason we continue to win at the world’s forefront.

We have seen firsthand how investing in human capital drives corporate value

It is precisely our human capital that carries out this integrated thinking practice every day. Since 2022, the TOK Group has positioned the pursuit of happiness by human capital as one of its material issues and accelerated human capital investment company-wide, including introducing employee engagement indicators into executive compensation KPIs.

In addition to the reforms to such internal processes as renewing personnel systems and strengthening education and training programs, we are focusing on the physical reforms of renovating facilities at each site. By expanding open spaces and lounges at research and development and production sites, we enable field personnel to demonstrate their capabilities in more comfortable and safe environments while working to improve the quality and quantity of internal communication.

As a result, the engagement scores increased significantly in fiscal year 2024. In fact, when I visit the TOK Technology Innovation Center, which is the heart of our development operations, I often see employees engaged in lively discussions over coffee in the lounge. I can see that the frank and open-minded spirit, which is one of our management philosophies and the core of our corporate culture, is taking even deeper root and spreading.

Recently, as I join these communication circles, I have noticed that the period when such casual dialogues became commonplace coincides with when the company secured a top position at the world’s forefront, and our PBR increased. I truly feel that investment in human capital is indeed leading to improved corporate value.

These results are evident not only domestically but every time I visit overseas sites in Korea, Taiwan, the United States, and elsewhere, I am keenly aware of the effects of the Tokyo Ohka Global Employee Shareholding Association System introduced in August 2023. Previously at overseas subsidiaries, there was often a somewhat detached working style as subsidiary employees of Tokyo Ohka, a Japanese company. However, when I speak with young international employees now, they demonstrate a strong sense of ownership as members of the Tokyo Ohka Group and actively participate in discussions. Our frank and open-minded culture is definitely taking root at overseas sites as well.

These series of results from human capital investment will continue to accumulate and should demonstrate even greater power as tremendous growth drivers for the TOK Group. My hope is to connect human capital investment not only to our company’s growth and corporate value improvement but to the realization of a happier society through the creation of a greater social impact.

Establishing New Core Competencies

Long-term initiatives are paying off in a big way

The strength of TOK materials for semiconductor back-end processes that I mentioned in last year’s integrated report further progressed and became evident in the fiscal year ended December 2024. As demand for package materials for innovative GPUs for generative AI and WHS-related materials for TSV expanded significantly, sales of materials for semiconductor back-end processes increased 45% compared to the previous period, recording the highest growth rate among product segments. Since we possess high market share and competitiveness for all of these materials, including KrF photoresist for 3D-NAND, we decided to add world-class stacking technology to our core competencies and now actively promote it. As the technical difficulty of front-end processes centered on micro-processing increases each year, the development of back-end technologies centered on stacking will be essential for the future evolution of semiconductors. Going forward, we will contribute to the sustainable growth of the semiconductor industry by continuing to refine stacking technology as a core competency.

Furthermore, TOK has pursued the package materials business persistently and tenaciously with a narrow focus for over 30 years as well as WHS-related materials for TSV for about 20 years. Neither market progressed well, and the Group endured a prolonged initial stage while thinking that someday this technology would take off. Nevertheless, as such package sophistication as flip-chip gradually progressed, signs of business potential began to emerge little by little. Demand suddenly expanded from the rapid growth of the generative AI market as we steadily continued to supply products while building relationships of trust with customers. In other words, the current success resulted from persistently refining and proposing core technologies for 20–30 years while keeping an eye on the long-term evolutionary direction of semiconductor stacking. This is exactly one representative example of the corporate culture of long-term R&D bearing fruit. Most importantly, I have been directly involved in leading the development of semiconductor three-dimensional packaging equipment, including WHS materials for TSV, since around 2005 (the equipment business was divested in 2023), experiencing firsthand the struggles and conflicts behind such long-term R&D. At that time, sales volumes were small compared to front-end materials, and the equipment business continued to operate at the break-even point, sometimes drawing ridicule from colleagues. Nevertheless, my superiors continued to give me opportunities and said, “Don’t give up, keep trying.” Those results led to establishing our current new core competency of stacking technology. The three-dimensional packaging equipment being developed by the company that bought the business is also growing, and we can expect future growth in our WHS-related materials.

There are many employees in the TOK Group who, like me 20 years ago, are persistently challenging the markets that have not yet materialized. Just as I was once given a frank and open-minded environment where I could do research, make decisions, and take the initiative along with opportunities to take on challenges, I want to provide such environments and opportunities to today’s young generation. Creating an environment where all employees can work in a frank and open-minded way is my greatest mission. With these thoughts in mind, we plan to develop a new product portfolio consisting of six pillars: photoresists, package peripheral materials, optical materials, high-purity chemicals, surface modifiers, and new business as we work toward realizing tok Vision 2030. By deliberately including fields where markets have not yet significantly materialized, our main focus is to shine a light on all human capital.

Summary of tok Medium-Term Plan 2024

We achieved all quantitative and qualitative targets and set new performance records

 

Under the above series of integrated thinking by management, the tok Medium-Term Plan 2024, which was formulated by backcasting from tok Vision 2030 and concluded in the fiscal year ended December 2024, saw revenue decline in the second year because of customer production adjustments and other factors. However, as mentioned above, both semiconductor front-end photoresists and back-end related materials expanded significantly, and we established a global supply system for high-purity chemicals and expanded product market share, which allowed us to achieve all quantitative targets.

We were also able to advance people-oriented management through expanded human capital investments, initiatives to activate our four earning capabilities through digital, and reforms to improve governance effectiveness, which in turn allowed us to accelerate carbon neutrality efforts. For our company-wide strategy “Build a sound, efficient management foundation,” we met all qualitative targets and steadily achieved results. We can say that the first step toward achieving tok Vision 2030 progressed smoothly overall.

Recognition of Business Environment

Ever-expanding opportunities and risks

Global semiconductor market expansion—which is one of the main rationales for the upward revision of our tok Vision 2030 sales and EBITDA targets by 1.7 times and raising ROE targets by 3 points in February 2024—is progressing smoothly at present. In 2024, it expanded 19.7% compared to the previous year to $630.549 billion*2 and is expected to grow to approximately $1 trillion by 2030, about 1.6 times the 2024 level*3 . We can say that opportunities related to TOK’s further creation of social impact and sustainable corporate value improvement continue to expand.

Meanwhile, risks, which are the other side of the coin to opportunities, continue to expand with climate change risks and geopolitical risks becoming increasingly more serious over the past year. Currently, we are addressing two risks specific to our company.

The first is the further intensification of the US-China confrontation and the rise of domestic Chinese photoresist manufacturers. While TOK recorded the highest sales ever in China, one of the world’s leading semiconductor markets, in the fiscal year ended December 2024, export restrictions stemming from the US-China confrontation have become even more stringent, which raised concerns as a factor that could slow future growth, given that we adopt a full lineup strategy. Regarding the status of the Chinese market, while we will fully comply with the Japanese government’s policies on export restrictions, in our product strategy, we intend to maintain our advantages by continuing to refine development capabilities for high value-added advanced products and high and stable quality during mass production as our lifeline. In particular, production technology that can achieve high and stable quality is the result of the ecosystem built through years of fine-tuning between domestic photoresist manufacturers that include ourselves and domestic raw material suppliers and, as mentioned above, leads to greater social impact by improving customer yields. Going forward, we intend to maintain our position as the world’s top manufacturer of semiconductor photoresists by continuing to refine world-class fine processing technology, high-purity technology, and stacking technology, as well as our production technology that achieves high, stable quality together with the raw material suppliers, thereby raising barriers to entry.

Additionally, another risk we are working to convert into an opportunity is responding to PFAS*4 . Regarding PFAS regulations, while legislation for the semiconductor industry is expected from 2038 onward, concerns about the impacts on biodiversity make this a risk factor for the sustainability of the current supply chain. Since substitution with alternative materials has become one competitive advantage, we have been actively working on R&D for PFAS-free products for several years, and customer evaluations are currently underway. Going forward, we plan to accelerate the development of PFAS-free products for advanced products as well, converting risks into growth opportunities and leading to further market share improvement for our products.

*2 Source: World Semiconductor Trade Statistics (WSTS)
*3 Source: SEMI Japan
*4 Per- and polyfluoroalkyl substances. Substances that are widely used in daily necessities, semiconductor materials, including photoresists, and semiconductor manufacturing equipment, but about which there are concerns about the impacts on human health and biodiversity

With the ERM Department and Risk Management Committee at the center, risk response capabilities continue to evolve

In responding to this series of risks, the ERM Department newly established in April 2024 is functioning steadily by centrally managing all risks our company faces and countermeasures, including responses to export regulations and PFAS, as well as strengthening BCP responses during disasters. Additionally, we have built a system for the entire company to respond promptly to rapid environmental changes by enhancing the TOK Group’s overall risk response capabilities and by increasing the frequency of the Risk Management Committee, which I chair, from twice to four times per year. Based on recognition of the risks and opportunities I have described up to this point, we identified new material issues to maximize corporate value by maximizing the positive impacts the company brings to society and minimizing the negative impacts.

New Material Issues

Developing deep discussions for evolution of sustainability governance and corporate value improvement

We began identifying new material issues prior to formulating the new medium-term plan by conducting repeated discussions in the Council of Directors, which consists of executive officers, relevant department heads, and personnel in addition to board members. While developing deep discussions that included outside directors on such topics as the relationship between sustainability management and materiality, the relationship between how we address human rights and the pursuit of happiness by human capital, as well as how to link supply chains with ESG, we compiled five new material issues with the intention of strongly linking them with the tok Vision 2030 and the new medium-term plan tok Medium-Term Plan 2027 in terms of strategy, content, concepts, and verbal expression. All have been revised to align with changes in the external environment and management strategy while inheriting the framework of previous material issues, and we take pride in the fact that they have been refined to drive future corporate value improvement by appropriately reflecting the latest state of TOK’s risks, opportunities, and impacts.

In particular, the Evolution of Sustainability Governance, which represents the largest change from the previous material issues, expresses our determination to further increase board involvement in sustainability and accelerate integrated thinking management company-wide under the purpose of contributing to a sustainable future through chemistry. Furthermore, global environmental conservation considering future generations and the development of the semiconductor ecosystem are intentionally designed to closely align with our management vision of a “Sustainable Future” and “The e-Material Global Company™,” respectively. “Contributions to society through innovation and corporate value enhancement” deliberately links our management philosophy of contributing to society directly with corporate value enhancement by embodying our commitment to practicing integrated thinking by continuously winning at the world’s forefront as stated at the beginning.

tok Medium-Term Plan 2027

Setting nonfinancial quantitative targets that closely link material issues with the medium-term plan to further accelerate integrated thinking management

The new tok Medium-Term Plan 2027, which started in fiscal year 2025, aims to achieve six qualitative targets and six quantitative targets by promoting seven key strategies closely linked to the five new material issues. By incorporating the seven key strategies as the main initiatives to address material issues and setting two of the six quantitative targets as nonfinancial goals (employee engagement indicators and CO2 emission reduction targets), we aim to further accelerate integrated thinking management. 

Strategy 1: The concept of “building an environment where every employee can work safely and securely, both physically and mentally” focuses on ensuring psychological safety for each employee while aiming for more employees to feel that their workplace is a comfortable and enjoyable place to work with a focus on further investment in human capital. As part of this effort, we will strengthen communication between managers and subordinates while continuing proactive investment in the physical infrastructure.

Strategy 2: The concept of “building a robust supply chain” further evolves our customer-oriented approach. For electronics, functional materials require substantial capital investment; therefore, we will strengthen our base consolidation model, while for high-purity chemicals where transportation efficiency is crucial, we will enhance our local production and consumption model, in addition to deepening engagement with suppliers as mentioned earlier.

Strategy 3: The concept of “deepening and cultivating customer relationships through enhanced marketing capabilities” involves carefully nurturing individual promising sectors while maintaining an overview of the entire market. We will connect these results to deeper customer relationships and new customer development while focusing on organizational expansion and upfront investments to promote this throughout the company. Since the integration of marketing and development progressed sufficiently in the previous medium-term plan, we dissolved the dual executive system from 2025 to forge ahead with this strategy for the next evolution of marketing.

Strategy 4: The concept of “pursuing advanced technologies and developing proprietary TOK group technologies” focuses on refining world-class microprocessing technology, high-purity technology, and stacking technology, as well as production technologies that achieve consistently high-quality standards, as mentioned earlier.

Under Strategy 5: The concept of “establishing a financial foundation for long-term R&D and stable production” means that we will build a solid financial foundation that enables smooth capital deployment to necessary areas, including our largest-ever capital investment of 76 billion yen and R&D investment of 52 billion yen.

Under Strategy 6: The concept of “establishing a digital foundation for new value creation” means that we will leverage digital technologies to improve production and development efficiency and advance process visualization to achieve overall management efficiency and greater value creation.

Strategy 7: The concept of “deepening a corporate culture that contributes to the SDGs” aims to further permeate a culture that promotes the sustainability of both society and TOK as inseparable. Setting nonfinancial quantitative targets for the first time in the company’s medium-term plan is part of this effort as we focus on further integration of our sustainability and growth strategies.

We request your continued expectations regarding further corporate value enhancement through the TOK Group’s integrated thinking management.