Semiconductor Equipment Sector Sees Upturn

The semiconductor equipment industry in Japan has reached impressive heights, with reported exceptional performances from major manufacturersNotably, the primary buyers for these advanced technologies have been companies from ChinaThis interdependence highlights the intricate relationships within the global semiconductor supply chain and the urge for innovation in this fast-evolving sector.

On November 12, Tokyo Electron (TEL), one of Japan's largest manufacturers of semiconductor equipment, upgraded its profit expectations for the fiscal year 2024, which concludes in March 2025. This adjustment reflects a robust demand driven largely by investments in generative AI semiconductorsTEL's President, Toshi Kawai, emphasized the ongoing investment boom in AI-driven technologies, particularly for servers, personal computers, and smartphones

"Investment in AI servers remains vibrant, and there is proactive spending for bringing AI capabilities to personal computers and smartphones," Kawai noted, showcasing the buoyancy in this segment.

For the period from June to September 2024, TEL announced total revenues of 566.5 billion yen, with the first half of the fiscal year reporting sales of 1,121.6 billion yenLooking ahead, the company anticipates a 40% year-to-year revenue increase in sales related to DRAM, estimating around 325 billion yen, while logical semiconductors are projected to see a 10% growth to approximately 560 billion yenSuch forecasts are critical as the industry gears up for a new wave of semiconductor production amid a backdrop of heightened technological advancements.

However, it's noteworthy that while TEL celebrates robust sales figures, the stock prices of other Japanese semiconductor equipment manufacturers have struggled against headwinds

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Despite this, from April to September, five prominent companies, including Advantest, DISCO, SCREEN Holdings, and Tokyo Precision, reported a net profit of 419 billion yen, a staggering 80% increase compared to the previous yearSCREEN and two other firms have achieved record profits, highlighting a compelling narrative of success amidst broader industry fluctuations.

The surge in performance is primarily anchored in the widening demand for generative AI semiconductorsMajor players in the technology sector, like Microsoft, announced they would boost their equipment investments to $20 billion for the July-September 2024 period, marking an 80% increase year-over-yearThis influx of funding underscores the strong appetite for advanced computing capabilities and highlights the strategic importance of semiconductor advancements in sustaining growth trajectories in various sectors.

As technologies progress, the cost of semiconductor equipment has also risen

The sophisticated nature of generative AI semiconductors necessitates advanced packaging technologies that combine logic semiconductors with high-bandwidth memory (HBM). In the first half of fiscal year 2024, the net profit margin for the five major manufacturers reached 21%, the second highest on recordThis combination of sophisticated technology and significant investment culminates in a thriving environment for semiconductor production.

Furthermore, a key driver in this flourishing performance is the rising contribution of Chinese firms to the sales figuresFrom April to September 2024, the revenue share from China in TEL's and SCREEN's equipment business surged to around 45%. This trend signifies a pivotal shift in the industry's landscape, where Chinese companies are increasingly becoming essential partners in the semiconductor ecosystem.

On the other hand, Chinese semiconductor equipment producers are also making significant strides

On November 11, 2023, Shanghai Semei announced that its application for a 4.5 billion yuan fundraising plan was accepted by the Shanghai Stock ExchangeIndustry reports suggest that this fundraising scheme is the largest industry-specific capital raising in China for the year thus farThe gathered funds aim to be invested in research and development, platform construction for process testing, and the iteration of high-end semiconductor equipment, showcasing a determined effort to enhance domestic capabilities.

In a notable revelation, Semei achieved a revenue of 3.977 billion yuan in the first three quarters of 2024, a significant 44.62% increase year-on-yearThe company also reported a net profit of 758 million yuan, with an impressive profit margin of 12.72%. As of the third quarter, Semei's order backlog totaled 6.765 billion yuan, reflecting a 3.66% year-over-year growth

With projections for the full year expecting revenues between 5.6 billion and 5.88 billion yuan, Semei exemplifies the rapid advancements characteristic of the Chinese semiconductor industry.

Moreover, New Chipwave Technology has introduced D2W and W2W hybrid bonding devices, effectively filling a longstanding gap in the Chinese market for semiconductor bonding equipment and enabling greater self-sufficiency in essential technologySimilarly, Jingcheng Electromechanical Reference announced on November 3 that they have made notable strides in localizing equipment for large silicon wafers used in semiconductor manufacturing, further solidifying China's position in the industry.

Meanwhile, Northern Huachuang recorded a revenue of 20.353 billion yuan in the first three quarters of 2024, exhibiting a 39.51% year-on-year increase, which points to a strong growth momentum

The company indicated that its increase in revenue stemmed from a 46.96% growth in electronic processing equipment sales, contributing significantly to overall performance.

Contemporaneously, Zhongwei Company reported a revenue of 5.507 billion yuan for the same period, reflecting a 36.27% year-on-year growthNew orders for equipment reached 7.64 billion yuan, representing an impressive increase of approximately 52.0%. A large portion of the new orders was driven by enhanced demand for plasma etching devices, particularly recognized in the advanced logic and memory chip markets.

The trends in the semiconductor industry, especially the burgeoning demand for AI-related technologies, present exciting opportunities for growth and developmentAs companies both in Japan and China continue to innovate and invest heavily in semiconductor technologies, the future looks promising

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