Yageo Chairman Pierre Chen boldly declared, "Yageo is no longer the company you once knew." As the leading passive component manufacturer continues its transformation, Yageo is positioning itself to be at the forefront of all AI-related applications, ensuring it plays a key role in the ongoing AI revolution.
Speaking at Yageo's inaugural AI Forum on the 26th, Chen likened the current state of AI to the "first half of the first inning" of a game, emphasising that AI demand is constantly evolving. Yageo is committing significant R&D resources to stay ahead of these changes and to prepare for both current and future applications. As AI adoption continues to rise, there will be a substantial increase in demand for passive components, sensors, and power semiconductors.
Discussing the distinction between standard and specialised products, Chen highlighted that the AI market uniquely prioritizes absolute performance and durability, unlike notebooks or PCs, which may only operate for a few hours daily. AI applications, such as data centre servers, must function continuously in harsh conditions with high efficiency. Yageo's extensive experience in the automotive and industrial sectors enables it to meet these demands, which often exceed the capabilities of lower-cost suppliers in Asia.
Chen believes that AI is an irreversible, long-term trend. Currently, AI applications span data centres, servers, AI PCs, and AI-enabled smartphones. From a market perspective, global software giants are engaged in an AI arms race, promising massive investments and intense competition in the coming years. As software applications mature, they will, in turn, drive demand for new hardware.
Chen also cited the recent global excitement surrounding the game Black Myth: Wukong, noting how a single game can lead to the adoption of thousands of software applications, which in turn necessitates the purchase of high-performance computers to run them. This software-driven demand will fuel future AI applications.
Reflecting on Yageo's transformation, Chen recounted several key milestones in the company's journey, including the acquisition of Philips' advanced ceramic component business in 2000, the acquisition of two century-old U.S.-listed companies, Pulse in 2018 and Kemet in 2019, as well as two European sensor companies in 2023.
Yageo's true transformation began in 2018, and six years later, the journey continues. In the past, like many Greater China component manufacturers, as much as 80-90% of Yageo's business came from the region, with heavy reliance on volume and price competition, particularly in sectors like smartphones and notebooks. While Yageo was slightly more diversified, 70% of its business still came from Greater China.
However, with the integration of Pulse and Kemet and internal restructuring, by 2023, about 65% of Yageo's revenue now comes from high-barrier markets such as automotive, industrial, medical, and aerospace and defence, all of which show stable growth. Yageo's customer base is also much more diversified, with less than 25% of revenue now coming from Greater China, and 75% spread across high-end markets in Europe, the US, Japan, and South Korea.
Chen pointed out that while market conditions can still affect the company's business, as they do in all industries, Yageo's strategic transformation requires navigating one or two economic downturns in the tech sector to truly see the impact of these changes in its financial performance. In terms of profitability and revenue growth, Yageo continues to outperform its peers year over year.
The MLCC (multilayer ceramic capacitor) market, which was once the focus of all investors, now accounts for less than 17% of Yageo's revenue. Even though analysts continue to ask about MLCC's growth or decline during quarterly earnings calls, it's important to understand that Yageo is no longer the same company it was 10 years ago. The focus should now be on Yageo's evolving role in the industry and its long-term strategy.
Yageo currently has 42,000 employees worldwide, 85% of whom are non-Taiwanese, and operates 53 manufacturing sites across 35 countries. In light of geopolitical factors, customers are increasingly demanding that suppliers have production bases outside of China, known as the "China +1" strategy. Yageo, Chen notes, is already a "China +34" company.
Looking ahead, while passive components account for less than 5% of most product bills of materials, each component may have 4-5 suppliers, which presents a supply chain management challenge for customers. Yageo's long-standing strategy has been to expand its competitive product lines, offering customers a single point of contact for more valuable solutions. This approach not only provides convenience in supply chain management but also offers differentiated after-sales services and products. This strategy is evident in Yageo's 2023 acquisitions of two sensor companies and its moves into power semiconductors.
Article translated by Joseph Chen
