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Risk-averse Kyocera gambles nearly $10b of own shares on semiconductor growth

When the chips are down, bet the farm

In spite of uncertain economic conditions, Kyocera is reportedly putting its stake in Japanese telecommunications operator KDDI on the line to expand its semiconductor footprint.

While many know Kyocera for its ruggedized smartphones, tablets, or perhaps its office equipment, the company is actually a major supplier of ceramic components and packaging tech used in semiconductor manufacturing. In fact, the company was originally called the Kyoto Ceramic Company before it was rebranded in the early 1980s.

Over the next three years, Kyocera now plans to double its capital expenditures to the tune of $9.78 billion, looking to ride a wave of semiconductor growth and foundry expansion, Nikkei Asia reported this week.

Much of those funds will go toward expanding production of semiconductors while approximately $3 billion will go toward research and development. To pay for these investments, Kyocera will reportedly borrow as much as $7.5 billion, using its shares in KDDI as collateral. Kyocera holds a 15 percent stake in the telco valued at approximately $10 billion.

According to Nikkei, this is the first time the debt-averse company has ever leveraged its investments in KDDI.

The news comes just weeks after Kyocera announced its latest semiconductor manufacturing plant in Nagasaki, Japan. The 1.6 million square foot semiconductor manufacturing plant will employ 1,000 workers when it comes online in 2026. The plant will produce ceramic components and semiconductor packages, Kyocera President Hideo Tanimoto told Nikkei.

Meanwhile, Kyocera said it would build a $488 million manufacturing plant in Kagoshima, Japan this spring. The plant will produce organic semiconductor packages and crystal device packages. The 133,000 square foot manufacturing plant is expected to come on line in 2023 and is expected to boost the chipmaker's supply of organic packages more than fourfold.

Kyocera's manufacturing expansion comes as the semiconductor industry fights to meet pent-up demand in the wake of the COVID-19 pandemic. By 2024, industry association SEMI expects chipmakers will spend $500 billion on 84 fabs.

Yet, a weakening economy has called into question whether these new fabs are warranted. Micron this month saw its revenues fall 88 percent year over year, as demand for DRAM and NAND flash eroded. In response, the company laid off 10 percent of its global workforce and cut capex spending for the 2023 fiscal year. Meanwhile, AMD, Intel, and Nvidia have taken a beating on Wall Street in recent months as PC demand has tanked amid recession fears and rising inflation.

While demand may be down in some segments - storage and memory in particular - that doesn't mean the semiconductor shortage is over. Susquehanna recently reported average semiconductor lead times had fallen to 26 weeks. However, several components like microcontroller units, MOSFETS, insulated gate bipolar transistors, and other automotive products remain scarce with lead times of more than a year in some cases. ®

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