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Ajinomoto Fine-Techno Electronic Materials Division

2012 12th Porter Prize Winner Electronic materials
Ajinomoto Fine-Techno, Electronic Materials Division is clearly focused on a product area in which it can achieve differentiation through technology leadership. It complements this focus strategy with an open innovation strategy. It is unique, however, in its development of a tight network encompassing various players in Japan’s packaged printed circuit board industry and global CPU manufacturers. AFT maintains the position of global leadership in an extremely competitive market.

Industry Background

img_2012_01_p.jpgThe packaged printed circuit board, one of the most important components of a CPU, determines the data processing speed of a personal computer. Inside a packaged printed circuit board there are layers of printed circuits. Insulation films prevent electrification between layers, which enables printed circuits to function properly. In a sense, the insulation film functions as a wall. At the same, it functions as a canvas. The flatter the surface, the narrower the copper line width can be. Also, the characteristics of the surface determine which methods of printing can be used.

Some of the chemical manufacturers who supply insulation materials are large diversified companies or medium-sized companies. Others are small chemical manufacturers, which, like Ajinomoto Fine-Techno, specialize in a particular area. Major packaged printed circuit board manufacturers include Ibiden, Shinko Electric Industries, Samsung Electro-mechanics, and Nan Ya (Taiwan), who supply to Intel, AMD and other CPU manufacturers.

Executive Summary

Ajinomoto Fine-Techno's Electronic Materials Division (hereafter, AFT) focuses on interlayer insulation film for packaged printed circuit boards for CPUs used in personal computers, the area in which improvements in the CPU's processing speed are being undertaken most aggressively.

In the semiconductor industry, leading CPU manufacturers have a very strong say in setting technological requirements and choosing the components and materials used in CPUs for personal computers. The direct buyers of interlayer insulation materials are packaged printed circuit board manufacturers, and they all tend to follow the lead of the CPU manufacturers. If the leading CPU manufacturer has selected a supplier for a specific material, the others will source that material from the same supplier. This has created intense competition among suppliers. The leading CPU manufacturer switched suppliers each time it introduced a new model for three consecutive model changes implemented in 1993, 1995 and 1997, until it began sourcing from AFT in 1999. Since then, AFT has been that leading CPU manufacturer's sole supplier of insulation materials for seven consecutive models. AFT supplies to other CPU manufacturers besides the leader, and enjoys a 100% market share in the high end.

AFT has achieved technological leadership by focusing on varnish (which determines the technological performance of insulation materials), investing in technologies and developing capabilities that respond to specific customer needs, while leveraging the network of companies in the cluster of electric materials and printed circuit manufacturers in Japan in order to respond to the needs of global customers.

Unique Value Proposition

AFT specializes in interlayer insulation film for packaged printed circuit boards for the CPUs used in personal computers. Its interlayer insulation film is called Ajinomoto Build-up Film (hereafter, ABF). ABF enables faster processing speed for CPUs, lower manufacturing cost, and more stable quality.

To improve the processing speed, the printed circuit board needs density and narrower line width. Interlayer insulation film, which has a smoother surface and better adherence for copper, serves this purpose. AFT completely changed the printing process from one requiring the application of copper over the entire surface, with the unnecessary parts scraped off (a subtractive method), to a process involving the plating of copper only where necessary (a semi-additive method). This helped AFT to go beyond the technological limit of 75 microns achieved under the subtractive method, and enabled it to downsize to 15 microns, while simultaneously lowering the cost.

The use of film rather than ink or sheets is what made possible the stable quality and lower cost. Prior to the introduction of film, CPU manufacturers used a liquid insulating material, which made it more difficult to achieve a smooth surface and was more prone to attracting foreign materials before drying. It also created byproducts that required special treatment before being discarded because of their negative impact on the environment. With this method, only one surface at a time could be treated. Competitors are currently supplying insulation materials in sheet form for lower-end printed circuit boards. These, however, cannot be processed continuously the way that insulation film can.

AFT's target customer is manufacturers of high-end CPUs for personal computers. ABF is used in all CPUs produced for personal computers. It is also used in CPUs for tablet PCs and mobile phones, because of the rapid acceleration in processing speeds.

Since AFT is the only supplier of the film, it is difficult to comment on its relative price compared with those of competitors.

Unique Value Chain

The uniqueness of AFT's value chain is its focus on the R&D and production of varnish, which determines the performance of an insulator. AFT has been working closely with other companies to develop the raw materials to be used in the varnish, and also to develop a method for making the varnish into film. It communicates extensively with other industry players to understand their needs.

Technology development
Basic technological research is conducted at Ajinomoto Company's Research Institute for Bioscience Products & Fine Chemicals, where technical competence in organic and polymer chemistry is developed. At the laboratory, Ajinomoto moves researchers among different application areas, encouraging cross-pollination.

AFT is able to identify customers' needs with regard to next-generation insulation materials through its technological service activities, , and also through its communications with various business partners, which include materials suppliers, the film manufacturer, CPU manufacturers, and printed circuit manufacturers, as well as the suppliers of materials or manufacturing equipment to printed circuit manufacturers, such as those involved in the pre-conditioning, layer-building, laser drilling, copper

line plating processes. Actually, the idea to develop insulation in film form was originally presented by one of the printed circuit manufacturers. Recognizing that it did not have the technological capability to develop such films, AFT worked closely with a film manufacturing company to develop ABF.

Sales
The sales force focuses on quarterly order-taking, and the sales force is small. There are only ten people, who cover the global market.

Manufacturing
AFT focuses on varnish production. Varnish formulations are shipped to the film manufacturer, who produces the films.

AFT customizes its products for each customer, and manufactures to order.

Outbound logistics
AFT does not carry a large inventory because it manufacturers to order.

Films are kept at low temperatures and sent to printed circuit manufacturers by a transportation company that uses temperature-controlled logistics.

Firm infrastructure
In the early 1990s, Ajinomoto started a project to develop an insulation formulation, and continually invested in R&D at the headquarters for about ten years before ABF was accepted by the leading CPU manufacturer in 1999. The company has a history of differentiation through technology leadership.

Fit among Activities

AFT's activities are selected and coordinated around key strategic choices, namely: 1) a focus on a product area in which it can achieve differentiation through technology leadership (i.e. varnish); 2) a focus on key customers; and 3) the identification of customer needs (through close communication with players in the packaged circuit board cluster in Japan and key global customers). (Please refer to Ajimonoto Fine-Techno's activity system map, which appears at the end of this report.)

Innovation that Enabled Strategy

  • Technological innovation to enable a line width of 15 microns.
  • Technological innovation to make possible an insulating material in film form.

Consistency of Strategy Over Time

The core of AFT's competitive strategy is to achieve differentiation through technology leadership, focus on a product area in which it can achieve differentiation, and identify customer needs before others do. These strategies remain unchanged from the beginning.

In 1970s, Ajinomoto began research and development activities focused on epoxy resin and surface treating agents, leveraging its expertise in materials and the manufacturing of amino acids. (Note that Ajinomoto's core product, MSG, is a kind of amino acid.) In the early 1990s, it chose packaged printed circuit boards for personal computers as a target market for epoxy resin. It would be very difficult to achieve a strong performance, but if successful high returns could be expected.

It was apparent that the leading CPU manufacturer was the decision maker to choose the manufacturer of the components and materials in the circuit board market for personal computers. This was another reason why AFT, as a latecomer, chose this market where the number of decision makers was limited.

Having said that, AFT had to understand the needs of various players, as well as those of the market leader. Even in the business planning stage, Ajinomoto communicated extensively with various players,trying to understand their needs. Now, it has succeeded in developing a very tight communication network throughout the circuit board industry value chain.

Trade-offs

  • Does not enter electronic materials other than an insulation formulation.
  • Does not get into upstream (chemical materials) or downstream (film manufacturing) processes of the value chain. Focuses on varnish R&D and production.
  • Does not develop sheet or liquid forms. Focuses on film.
  • Does not target low-end printed circuit boards. It focuses on high-end applications. (Tablet PCs and mobile phones have been using low-end printed circuit boards and insulation materials in the form of sheets. However, as more processing capability is required for tablet PCs and mobile phones, some of the manufacturers have started using ABF. AFT believes that the lower-end market segment will move up to the high end. For this reason, it has decided to remain at the high end and wait there.)

Profitability

Both return on invested capital and return on sales exceed the industry average.

Return on invested capital (ROIC)   (Unit = percentage point)
Difference from industry averag
over 5 year period
Difference from industry average, by year
2007 2008 2009 2010 2011
34.3%P 52.4%P 30.2%P 31.3%P 32.1%P 24.8%P
Inter quartile range (IQR) = 5.1%P
Return on invested capital = Operating income / Average invested capital

Return on sales (ROS)   (Unit = percentage point)
Difference from industry average
over 5 year period
Difference from industry average, by year
2007 2008 2009 2010 2011
35.2%P 37.1%P 34.6%P 33.7%P 33.9%P 30.3%P
IQR = 4.0%P
Return on sales =Operating income / Net sales

Activity System Map

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