High-priced drones and Japan’s hidden AI champion
Drone-flation
Chinese government regulations adopted in September requiring export permits for dual-use goods have more than tripled the price of drone components shipped to the US, according to a report by Nikkei’s Itsuro Fujino.
The analysis of Chinese customs data shows that the overall export volume of infrared devices, a key drone part enabling visibility in the dark, fell roughly 30 per cent between last September and April, while the export value rose nearly 50 per cent. The price per unit doubled during this period, stemming mainly from a tightened supply-demand balance. Exports to the US, which is the largest destination, dropped roughly 60 per cent by volume while the unit price jumped 3.5 times.
“Today, China has captured 90% of the U.S. market for commercial drones.” This statement comes from a 2024 report from the office of then-senator Marco Rubio, now the secretary of state, on the Chinese manufacturing sector. Rubio is surely well aware that Beijing could use drones as effective leverage in trade negotiations.
Nitto Boseki, or Nittobo, for short, may not be a household name, despite having a history that stretches back more than a century. But its products are so crucial for the AI supply chain that executives from Nvidia, AMD and Microsoft have been coming to Japan to pay it a visit.
In a collaborative work by Nikkei Asia’s Lauly Li and Cheng Ting-Fang in Taipei and Ryohtaroh Satoh in Tokyo, they explain how this relatively little-known AI-enabler is currently the only company in the world able to provide the highest-end glass cloth, a material essential for making high-powered AI servers.
Japan boasts several examples of seemingly obscure material makers that underpin the global tech supply chain. Nittobo, however, has a particularly interesting history. It was one of the “top 10 cotton-spinners” in Japan before second world war and helped lead the country’s economic reconstruction in the postwar era. As competition from other Asian economies pushed the entire industry to the corner, Nittobo became one of the most successful examples of a company transforming itself away from a sunset industry, while many of its peers perished. The boseki in its name, meaning cotton-spinning, is a reminder of that history of adaptation.