Electronic Materials & Functional Chemicals FY2026 Full Year: AI Boom Widens Gap

Three major trends shaped the industry during this period.

First, the generative AI boom provided a massive tailwind, driving rapid demand growth for AI servers and data centers.

Second, stagnant demand in the Chinese market led to a drop in commodity chemical prices, putting downward pressure on profit margins for general-purpose products.

Third, investments in future growth brought short-term pain, resulting in massive impairment losses on new plants and overseas subsidiaries.

These market shifts highlighted the differing success of each company's business portfolio.

The clear winner this period was Taiyo Holdings, which recorded sales of 137.9 billion yen, up 15.8% year on year, and a surging net profit of 24 billion yen, up 122.7% from the previous year, driven by strong sales of high-value semiconductor materials.

In contrast, MGC struggled the most, with sales falling 4.6% year on year to 738.2 billion yen and a net loss of 40.3 billion yen, dragged down by 78.4 billion yen in impairment losses at overseas subsidiaries and other operations. The speed of transitioning to high-value-added products was the key differentiator in profitability.

Each company is executing its own survival strategy.

Dexerials continues to focus on proprietary, hard-to-replicate technologies. It achieved an extraordinary operating margin of 33.5% on sales of 113.8 billion yen.

Sumitomo Bakelite pushed forward with structural reforms by shedding unprofitable operations, which helped lift its operating profit by 43.1% year on year to 35.5 billion yen.

Daicel booked a 32.8 billion yen impairment loss due to struggling new plants, but its diversified product lineup, including automotive safety systems, provided support.

Additionally, Taiyo Holdings announced a tender offer by Bain Capital, drawing market attention as it seeks to go private to accelerate agile decision-making.

Companies in the electronic materials and functional chemicals sector face several shared challenges:

• Delayed recovery in China: Prolonged sluggishness in commodity chemical demand remains a risk.
• Concentration in specific markets: High sensitivity to fluctuations in the smartphone and AI server markets directly impacts earnings.
• High raw material and energy costs: Elevated prices for fuel and feedstocks squeeze profitability.
• Volatile foreign exchange rates: Large overseas sales exposure means currency swings heavily influence financial results.

This period highlighted a major shift in how companies generate profits. MGC ranked first in sales at 738.2 billion yen but ended with a net loss, constrained by a low operating margin of 6.1%.

Conversely, Dexerials, despite its smaller scale, generated 38.1 billion yen in operating profit on a 33.5% margin. The mid-to-long-term trend shows a clear shift from volume to high-margin profitability.

Candidates targeting chemical manufacturers should closely analyze operating profit margins. Companies reliant on high-volume production of commodity chemicals are highly vulnerable to market fluctuations.

In contrast, Dexerials and Taiyo Holdings maintain superior margins by dominating global niches with proprietary technologies.

Companies like Sumitomo Bakelite, which strengthened their operational health through structural reforms, also look highly attractive. Strong technological capabilities and robust profitability often correlate with better working conditions and compensation. Job seekers should prioritize a company's fundamental earning power when evaluating opportunities.