Prices are rising across Japan, but not for the components of chipmaking gear. Tokyo Electron supplier Marumae is seeking out deals to change that.

Many Japanese makers of vacuum parts found in chip tools have yet to reap gains from an artificial intelligence boom that’s spurring billions of dollars of spending on Nvidia chips and other hardware, according to Marumae President Toshikazu Maeda. That’s because such manufacturers are fighting with dozens of other companies in Japan that specialize in creating airtight spaces inside bigger machines — a niche but essential area worth less than ¥100 billion ($680 million) in domestic sales.

The country’s chip tool components sector is long overdue for consolidation, said Maeda, who spearheaded the acquisition of peer KM Aluminum for ¥9 billion from private equity fund Japan Industrial Partners in March. Beyond that deal, talks have dried up, although there’s urgent need for scale in the sector, he said in an interview.

"Nobody is selling,” he said, adding that there are structural hurdles that prevent consolidation in Japan’s fragmented market. "But M&A is one tool for growth, and we will be ready when the chance and synergies present themselves.”

Potential targets include toolmakers for components needed in the final stages of chipmaking and companies with specialized technologies in areas such as resins. Marumae is also eyeing new areas including aerospace and defense, which are "challenging but profitable segments,” Maeda said.

The vacuum chambers, plates and electrodes that Marumae and its rivals make are crucial parts of machines that help process silicon into chips. High-precision manufacturing is needed to prevent fires or chip defects. But it’s hard for tiny suppliers to ask for price increases, Maeda said.

"While our customers continue to achieve record-high profits, our competitors face declines in margins,” he said. "They need more scale to negotiate with their customers.”

Marumae, a roughly 300-person company based in Kagoshima Prefecture, is one of the few that can afford to turn down orders that don’t pay well. The company — whose name denotes its founding principle "to move forward without disrupting others with pointy edges” — holds an estimated 7% market share in Japan’s vacuum chamber market and earns annual revenue of around ¥5 billion ($34.5 million). Its operating margin for the nine months through May stood at around 20%, although in the prior fiscal year its margin was 3%.

Small companies lack the scale to demand better prices and lower costs, resulting in profit margins of less than 10%, Maeda said. Vacuum parts are also made by companies like Aoi Seiki, whose equipment is used to make snacks and drugs as well as chips, and machine tools maker Nakaboshi Industry, further crowding the market.

That’s while big customers like chip gear giants Tokyo Electron and Applied Materials sport operating margins of around 30% even while grappling with canceled or delayed orders from Intel and U.S.-China technology curbs. Nvidia remains the biggest beneficiary of the AI infrastructure boom in terms of its market ascent over the past year.

Rivals rejecting Marumae’s overtures are often privately owned with strong backing from regional banks. Marumae’s next deal may take years, when more competitors’ owners age without succession plans, Maeda said.

Client chip gear companies also frown on their suppliers banding together. Vacuum components are tailored for each tool and can yield clues about chipmaking knowhow, and consolidation raises the risk that trade secrets might get leaked. Marumae would be ready to adopt a holdings structure to build firewalls to address clients’ concerns, Maeda said.

If any companies do begin exploring a sale, Marumae would also likely be up against foreign companies seeking the country’s chip knowhow, developed over decades. Taiwan-based Yageo, for example, is locked in a bidding war for Shibaura Electronics with Japan’s Minebea Mitsumi.

"Many of the companies we benchmark have unique skills, expertise and technology,” he said. "It would be a shame if these assets fall into the hands of foreign players.”