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DISCO Corporation: The Semiconductor Samurai and the Will Revolution
I. Introduction & Episode Roadmap
[0:00 - 4:00]
Picture this: a Japanese company that started making grinding wheels in 1937 now controls 70% of the global semiconductor dicers and grinders market. Not ASML. Not Applied Materials. Not Tokyo Electron. But DISCO Corporation—a name you've probably never heard unless you're deep in the semiconductor supply chain.
Here's the puzzle that captivates us today: How did an 87-year-old abrasives manufacturer from Hiroshima transform into the world's essential supplier for cutting the most advanced chips powering everything from your iPhone to ChatGPT's data centers? And perhaps even more intriguingly, how did they revolutionize their entire management structure with a radical internal currency system that boosted operating margins from 16% to 36%?
Today's journey takes us from post-war Japan through the semiconductor revolution, into the heart of a management experiment so radical that companies like Sony, Toyota, and Panasonic have studied the system, though none have adopted it. This is the story of DISCO Corporation—where precision engineering meets organizational alchemy, and where machines can grind a silicon wafer down to a near-transparent thinness and cut the tip of a hair into 35 sections.
II. Origins: From Grinding Wheels to Silicon (1937-1990s)
[4:00 - 14:00]
The story begins in May 1937, in the industrial port city of Kure, Hiroshima Prefecture. The company was founded as Daiichi-Seitosho in May 1937, as an industrial abrasive wheel manufacturer. Mitsuo Sekiya, the founder, had left a bureaucratic job in Manchuria to start this venture, initially hoping to supply grinding wheels to Japan's naval shipyards. But orders were scarce in those early days.
The real transformation began in the aftermath of World War II. After World War II Japan faced a construction boom which also helped DISCO to boost its sales. The company's grinder discs found unexpected demand from utility companies, which needed them to manufacture watt-meters. By 1950, DISCO had developed the abrasive wheel to process key part of electricity meters and achieved 100% market share—an early hint of the market domination to come.
The breakthrough that would define DISCO's future came in December 1968. In December 1968 the company developed and released an ultra-thin resinoid cutting wheel, Microncut. The wheel contained diamond powder and as a result it was capable of making sharp, precision cuts as demanded in the semiconductor manufacturing process.
But here's where the story takes an entrepreneurial turn. There were no cutting machines available in the market on which ultra-thin precision wheels could be mounted and run, DISCO decided to develop its own machine in 1975. The result was the DAD-2H, a machine that would change everything. The cutting machine, DAD-2h, received instant recognition from semiconductor companies, including Texas Instruments.
The 1977 Semicon West conference in Silicon Valley became DISCO's coming-out party. The engineering team, led by Shinji Sekiya (the founder's son), faced a critical challenge: their dicing wheels had a tendency to break when stopping and restarting. Their solution? They simply never turned the machine off during the entire multi-day conference. They had issues with the dicing wheels breaking when stopping and restarting the saw, so the DISCO team decided to make their saw and dicing wheel never turn off during the entire multi-day long show. Apparently, this was all the rage among semiconductor nerds at the show in 1977. The machine's "unstoppability" became legendary, instantly establishing DISCO's reputation for reliability.
The company adopted the name of DISCO Corporation in May 1977, was listed with the Japan Securities Dealers' Association in October 1989, and entered the First Section of the Tokyo Stock Exchange in December 1999. The name change reflected not just internationalization, but a fundamental shift in identity—from a traditional Japanese abrasives company to a global semiconductor equipment powerhouse.
III. The First Pivot: Full Process Equipment Provider (1990s-2002)
[14:00 - 22:00]
The 1990s marked DISCO's evolution from a component supplier to a full solutions provider. The company had learned a crucial lesson: in semiconductor manufacturing, the blade and the machine are inseparable partners in a delicate dance of precision. Rather than just selling consumables, DISCO began offering complete systems.
The company introduced full-process equipment in 1997, catering to the rapidly evolving demands of the industry. This wasn't just about adding products—it was about understanding that semiconductor manufacturers needed partners, not just vendors. DISCO's engineers would work directly with customers to determine optimal combinations of equipment, consumables, and processing methods.
The philosophy that emerged during this period still defines the company today: "Kiru, Kezuru, Migaku" which means cutting, grinding, and polishing. These three words became more than a tagline—they represented DISCO's commitment to mastering every aspect of wafer processing.
By 2002, the results were clear. In 2002, Disco recorded a revenue of approximately ÂĄ60 billion (around $550 million) and net income of ÂĄ5.1 billion (approximately $46 million). The company had successfully positioned itself as the go-to provider for backend semiconductor processing, with machines that could handle the transition to 300mm wafers that was revolutionizing the industry.
What made DISCO different wasn't just the quality of their machines—it was their approach to customer relationships. While competitors sold equipment, DISCO sold outcomes. Their engineers would perform test cuts for customers, often going through thousands of combinations to find the perfect match of blade, speed, and pressure for each specific application. This consultative approach created switching costs that went far beyond the machines themselves.
IV. The Laser Revolution: SDBG and Advanced Packaging (2002-2010)
[22:00 - 32:00]
The year 2002 marked another inflection point. DISCO Corporation has announced that cumulative shipments for laser saws reached 2,000 units in March 2020 since sales began in 2002. But the real story isn't about the numbers—it's about DISCO's prescient bet on a technology that would become essential for the mobile revolution.
The rise of smartphones created an unprecedented challenge: chips needed to be thinner than ever before. Traditional blade dicing would damage wafers when cutting ultra-thin materials. DISCO's answer was Stealth Dicing Before Grinding (SDBG), a process that uses lasers to create modified layers inside the wafer before separation.
A larger number of companies have been adopting SDBG (Stealth Dicing Before Grinding) to produce thin memory chips in response to the need for high-density packaging and higher capacity cloud servers. The technology works like surgical precision at the atomic level—the laser focuses inside the silicon, creating a modified layer that acts as a predetermined breaking point. When the wafer is later expanded on tape, it separates cleanly along these invisible fault lines.
A significant milestone occurred in 2010 when Disco launched a new generation of automated machines that incorporated cutting-edge technology for enhanced efficiency and precision. These weren't just incremental improvements—they represented a fundamental rethinking of how semiconductor processing equipment should work in an era of mobile devices and cloud computing.
The numbers tell only part of the story. This record of 2,000 units was achieved within half of the period that it had taken cumulative shipments for laser saws to reach 1,000 units, in July 2014. The acceleration wasn't just about market growth—it was about DISCO having the right technology at exactly the right moment in semiconductor history.
V. The Will System Revolution: Radical Management Transformation (2011)
[32:00 - 50:00]
The Problem: Corporate Bureaucracy
By 2011, DISCO faced a paradox. They dominated their market, their technology was world-class, but internally, they were suffocating. DISCO faced problems that many large and old corporations have faced. Mountains of time wasted in endless meetings. Dozens of employees involved in every decision. Innovation stifled by bureaucracy.
Kazuma Sekiya, grandson of the founder and newly appointed CEO, saw the writing on the wall. The company that had disrupted semiconductor manufacturing was becoming exactly what it had once challenged: slow, hierarchical, and risk-averse. The operating margin of 16% was respectable but not exceptional. Something radical was needed.
The Solution: Internal Market Economy
What happened next sounds like something out of a business school thought experiment gone wild. Since 2011, Disco Corporation has operated under a unique management system based on an internal currency called Will, which applies free-market principles to its organizational structure. Introduced by CEO Kazuma Sekiya, the Will system eliminates traditional hierarchical directives, allowing employees to choose tasks freely through a company app, bidding or bartering for opportunities using Will. Tasks range from technical work, such as testing semiconductor grinding tools, to administrative duties, like processing invoices, each assigned a Will value.
The inspiration? Video games, particularly Final Fantasy, where players manage virtual currencies and resources. But this wasn't a game—it was a complete reimagining of how a multi-billion dollar company operates.
Implementation Details
The details of the Will system reveal its radical nature. Every employee starts each month with a negative balance—an "existence cost" that puts them in debt from day one. Want to book a meeting room? That'll cost you Will. Take a smoking break? Will deducted. Even using a company umbrella stand has a price.
But employees also earn Will by completing tasks, chosen not by managers but through an internal marketplace. Employees earn Will by completing tasks, which influences their quarterly bonuses, with high earners significantly boosting their income; in 2023, one employee earned over ÂĄ59 million through Will accumulation.
The system includes a weekly "Colosseum" event—a gladiatorial arena for ideas where employees pitch productivity improvements. Other employees vote with their Will, betting on which ideas will succeed. The CEO acts as the final arbiter, with the power to reverse decisions and award additional Will for exceptional proposals.
Will is generated primarily through sales revenue, with approximately 400 million Will created per ÂĄ1 billion in sales, distributed to incentivize tasks across departments. A dedicated team manages 772 penalty and 337 reward items, overseen by a Will Management Office.
The transformation wasn't immediate or easy. The head of management accounting initially resisted, and it took a small trial in 2011 with paper "Will Accounting Slips" to prove the concept. But once results started showing, the system spread company-wide.
VI. The Results: From 16% to 36% Margins (2011-Present)
[50:00 - 62:00]
The numbers speak louder than any management theory ever could. Since 2011, Disco's operating margin rose from 16% to 36%, and its stock price has quadrupled. This isn't a story of cost-cutting or downsizing—it's about unleashing productivity through radical autonomy.
Consider the revenue trajectory: DISCO CORP annual revenue for 2022 was $2.259B, a 31.4% increase from 2021. While the semiconductor industry is famously cyclical, DISCO's performance has shown remarkable resilience and growth even through downturns.
In the last financial report for Disco Corporation, released Monday 31st of March 2025, the company posted a revenue of JPÂĄ393.31 billion, up 27.88% from last year's revenue of JPÂĄ307.55 billion. The company spent JPÂĄ115.86 billion on producing its products, and the gross revenue ended at JPÂĄ277.45 billion with a exceptional profit margin of 70.54%. The result after financial and other costs ended at JPÂĄ123.89 billion, giving a positive profit margin of 31.50% and an earnings per share (EPS) of JPÂĄ1,143.26.
But the transformation goes beyond financial metrics. The Will system fundamentally changed how work gets done at DISCO. Meeting rooms that once hosted hours of unproductive discussions now cost $100 per hour to book, naturally limiting their use to essential gatherings. Employees who once waited for orders now scan the internal marketplace for tasks that match their skills and interests.
The system has created unexpected innovations. Teams discovered they could "trade" Will for expertise—a software engineer might offer coding help in exchange for Will from the marketing department. Departments that consistently lose Will (like HR or corporate planning) face the monthly humiliation of having a weeping toy horse placed at their desk, creating social pressure to find ways to add value.
Sekiya credits the Will system with improving business performance, employee engagement, and market share. The market share (~50% in dicers and grinders) has been maintained and even expanded despite increasing competition from Chinese manufacturers.
VII. The Modern Era: AI Chips and Advanced Packaging (2020-Present)
[62:00 - 75:00]
The AI revolution has created a new chapter in DISCO's story. Disco Corp's machines can grind a silicon wafer down to a near-transparent thinness and cut the tip of a hair into 35 sections. That know-how will allow chip makers to stack integrated circuits on top of each other in a process called 3D packaging, promising smaller chip footprints, reduced power consumption and higher bandwidth between various parts.
This capability has become essential for AI chips, where the race for computational density drives ever-more-complex packaging solutions. NVIDIA's H100 chips, AMD's MI300, and the next generation of processors all rely on advanced packaging techniques that would be impossible without DISCO's ultra-precision equipment.
The company captured a broader market share, achieving a record revenue of ÂĄ100 billion (around $910 million) by 2015. In 2020, despite the global impact of the COVID-19 pandemic, Disco displayed resilience with a reported revenue of ÂĄ114.8 billion (approximately $1.05 billion) and a net income of ÂĄ14.3 billion (around $130 million).
The semiconductor industry's pivot to heterogeneous integration and chiplet architectures has positioned DISCO perfectly. As chips are no longer monolithic pieces of silicon but complex 3D structures with multiple dies stacked and connected, the precision required for cutting and grinding has increased exponentially.
The stock market recognized this positioning. The all-time high DISCO CORP stock closing price was 42.71 on July 11, 2024. While the stock has since corrected from those peaks, the fundamental drivers remain strong: AI acceleration, advanced packaging adoption, and the physical limits of Moore's Law pushing the industry toward DISCO's strengths.
CEO Kazuma Sekiya captured the essence of their value proposition with a memorable analogy: "Imagine having to cut a croissant cleanly in half. That takes a special kind of knife and considerable craftsmanship". In the world of semiconductors, DISCO makes those special knives.
VIII. Competition & Moats: Why DISCO Wins
[75:00 - 85:00]
Clearly, Disco dominates the global semiconductor dicers and grinders market. With market share at least 4 times its closest competitor, Disco reminds me of KLA-Corporation (KLAC). But unlike KLA, which operates in the relatively visible world of wafer inspection, DISCO dominates a niche so specialized that most semiconductor investors have never heard of them.
The primary competitor is Tokyo Seimitsu (Accretech Corp), which has total revenue for FY 2023 of about 135 billion yen, or about $880 million. Accretech's most recent integrated report further breaks down its revenue mix. Processing systems account for about 30% of Accretech's revenue. This puts Accretech's processing systems sales at about $250-260 million, about 8-9% of total market share.
The emerging threat comes from China. GL Tech poses the biggest threat to Disco in the long term. GL Tech entered the back-end dicer market by acquiring UK's Loadpoint, which is the inventor of the semiconductor dicing machine. To solidify its position, GL Tech also acquired the Israeli company ADT, which formerly was the cutting equipment and blade division of Kulicke and Soffa Industries (K&S).
But DISCO's moat isn't just about market share—it's about the intricate dance between hardware and consumables. In practice, Disco's engineers perform test cuts and determine the optimal combination of equipment, consumables, and processing methods for the client. This is no simple task, as Disco's selection of consumables, such as sawing blades and grinding/polishing wheels, is counted in tens of thousands.
This creates powerful network effects: the more wafers DISCO processes, the more data they gather, the better their recommendations become. It's a virtuous cycle that's nearly impossible for new entrants to replicate. When your equipment is processing chips worth tens of thousands of dollars per wafer, customers don't experiment with unproven alternatives.
IX. Playbook: Business & Management Lessons
[85:00 - 95:00]
The Power of Focus
For 87 years, DISCO has relentlessly focused on three things: cutting, grinding, and polishing. While competitors diversified into broader semiconductor equipment portfolios, DISCO went deeper. They don't make lithography equipment. They don't make deposition tools. They perfect the art of precision mechanical processing.
This focus extends to their vertical integration strategy. When the market couldn't provide machines precise enough for their blades, they built their own. When standard consumables couldn't meet specifications, they developed proprietary materials. Every expansion has been in service of their core mission.
The Will System Insights
The Will system offers profound lessons about organizational design, though perhaps not the ones you'd expect. Critics, including former employees, argue that Will fosters short-termism, as tasks with immediate revenue impact are prioritized, potentially undervaluing long-term innovation. This criticism reveals a fundamental tension in any market-based system: markets optimize for immediate, measurable value.
Yet the system works at DISCO because it aligns with their business model. Semiconductor equipment isn't about long-term R&D moonshots—it's about incremental improvements, customer responsiveness, and operational excellence. The Will system rewards exactly these behaviors.
The fact that companies like Sony, Toyota, and Panasonic have studied the system, though none have adopted it, citing its radical departure from conventional management suggests both its power and its limitations. It's not a universal solution—it's a specific tool for a specific context.
Capital Allocation Excellence
DISCO's approach to capital allocation reflects Japanese corporate philosophy at its best. The company maintains fortress-like balance sheet strength with no debt and substantial cash reserves. R&D spending consistently runs around 10% of revenue, funding incremental innovations rather than moonshot projects.
The dividend policy reflects this conservatism: a base payout ratio of 25% based on performance, with additional special dividends when excess cash accumulates. It's patient capital for a patient business.
X. Bear vs. Bull Analysis
[95:00 - 105:00]
Bull Case:
The bull thesis rests on three pillars. First, the AI revolution and advanced packaging megatrends play directly to DISCO's strengths. As chips become more complex and packaging more critical, DISCO's equipment becomes even more essential.
Second, the moat is widening, not narrowing. The market for thinning applications is soaring as advanced packaging takes off, especially hybrid bonding. Each new packaging technology requires new precision capabilities that only DISCO has demonstrated at scale.
Third, the Will system, for all its quirks, has created a sustainable competitive advantage. It's not just about margins—it's about organizational speed and responsiveness that traditional hierarchies can't match. The culture has become part of the moat.
The valuation, while elevated, reflects these strengths. As of October 2023, Disco Corporation's market capitalization stands at approximately ÂĄ540 billion (around $4.9 billion), reflecting its strong position in the semiconductor equipment market. The company's P/E ratio is approximately 35.5, highlighting investor confidence in its growth prospects.
Bear Case:
The bear case starts with cyclicality. Semiconductor equipment spending is notoriously volatile, and DISCO, despite its strong position, isn't immune. A prolonged downturn in chip demand would hit revenues hard.
The Will system, while currently successful, contains seeds of potential problems. Some liken it to a gamified control mechanism, with Sekiya's ability to issue new Will and adjust rules raising concerns about autocratic influence. What happens when Sekiya retires? Can the system survive a leadership transition?
China represents both opportunity and threat. While Chinese chip manufacturing growth drives demand, the government's push for domestic suppliers could gradually erode DISCO's position. GL Tech and other domestic Chinese players will continue to take share from Disco and Accretech in the back-end process market.
The valuation at historical highs (P/E around 45 as of late 2024) leaves little room for error. Any disappointment in AI chip growth or advanced packaging adoption could trigger a significant correction.
XI. The Future: What's Next for DISCO?
[105:00 - 112:00]
The chiplet revolution is just beginning. As the semiconductor industry embraces heterogeneous integration—combining different chip types in single packages—DISCO's precision tools become even more critical. Intel's Foveros, TSMC's CoWoS, and emerging standards like UCIe all require the kind of ultra-precise processing that DISCO specializes in.
New materials present both challenge and opportunity. Silicon carbide for power semiconductors, gallium nitride for RF applications, and exotic materials for quantum computing all require different cutting and grinding approaches. DISCO's deep expertise in materials science positions them well, but each new material requires significant R&D investment.
The Will system's evolution will be fascinating to watch. More than 1,000 employees have only known Will during their careers. As these "Will natives" rise through the organization, how will the system evolve? Will it become more radical or gradually normalize?
Geographic expansion remains complex. Some 80% of Disco's workforce and 100% of manufacturing operations are located on the Japanese soil, while 86% of the revenue originates outside Japan, primarily in Asia. This concentration provides quality control but creates vulnerability to yen fluctuations and potential geopolitical disruptions.
The sustainability of 70% market share in an increasingly strategic industry raises questions. As semiconductors become central to national security, will governments accept such concentration in a Japanese company? Or will DISCO face pressure to localize production, potentially diminishing their competitive advantages?
XII. Epilogue: Lessons for Founders & Investors
[112:00 - 118:00]
DISCO's story offers profound lessons that extend far beyond semiconductors. First, true competitive advantage often lies in unsexy niches. While everyone focuses on AI chips and EUV lithography, DISCO quietly dominates the essential but unglamorous work of cutting and grinding.
Second, radical management innovations can work, but context matters enormously. The Will system succeeded at DISCO because it aligned with their business model, culture, and competitive position. It's not a template to copy but a reminder that organizational innovation can be as powerful as technological innovation.
Third, the paradox of running a market inside a company reveals deep truths about organizational design. Markets are powerful coordination mechanisms, but they're not always efficient for innovation and long-term planning. DISCO's hybrid approach—market mechanisms for operations, traditional structures for R&D—might be more broadly applicable than the Will system itself.
For investors, DISCO demonstrates that sustainable competitive advantages can exist in seemingly commoditized industries. The combination of technical excellence, customer intimacy, and organizational innovation creates moats that are wider than they appear.
Perhaps most importantly, DISCO shows that even 87-year-old companies can reinvent themselves. In an industry obsessed with disruption, sometimes the most radical act is patient, relentless focus on doing one thing extraordinarily well.
XIII. Outro
[118:00 - 120:00]
DISCO Corporation remains one of the most fascinating companies in the semiconductor supply chain—a hidden champion that makes the AI revolution possible, one precisely cut wafer at a time. They've proven that you don't need to be ASML or Taiwan Semiconductor to build an essential, defensible position in the chip ecosystem.
The Will revolution adds another layer to the story. In a world where every company claims to be "different," DISCO actually is. They've created a functioning internal market economy that would make Friedrich Hayek proud and management consultants deeply confused.
As we stand on the precipice of the AI age, with chips becoming ever more complex and packaging ever more critical, DISCO's importance will only grow. They are, in the truest sense, the picks and shovels of the semiconductor gold rush—except these picks and shovels can split a human hair into 35 perfect sections.
The question isn't whether DISCO will remain relevant—it's whether the rest of the business world is ready to learn from their radical experiment in organizational design. Because in the end, DISCO's greatest innovation might not be their machines that cut silicon, but their system that cuts through corporate bureaucracy.
Culture, as they say, eats strategy for breakfast. At DISCO, culture is priced in Will, and Will, it turns out, finds a way.
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