Last year, the proportion of sales to China of Japanese semiconductor equipment manufacturers saw a drastic increase. This is interpreted as Japanese companies reaping indirect benefits as China, unable to import advanced process equipment due to US-led semiconductor export controls, focuses on developing legacy (old model, 28nm or above) semiconductors.
According to Bloomberg on the 13th (local time), the proportion of sales to China for Japanese semiconductor equipment manufacturers increased from 29% in January last year to 55% in December. Due to a surge in domestic demand in China, Japanese semiconductor equipment manufacturers have shown strong performance, and the Japanese semiconductor and semiconductor equipment index compiled by Morgan Stanley Capital International (MSCI) has also more than doubled in the past 16 months since the US began to intensify semiconductor export controls in October 2022.
Japanese companies also plan to fully utilize China’s demand for legacy process equipment this year. Semiconductors produced in China only account for 20% of China’s total market. Therefore, China is expected to continue investing in legacy processes to reduce its import dependence and achieve semiconductor self-sufficiency, according to analysis by Japanese companies.
Tokyo Electron, for instance, raised its operating profit forecast for this year by 11% to 445 billion yen (approximately $2.96 billion) from the previous estimate due to increased semiconductor demand in China. This led to a 12% increase in Tokyo Electron’s stock price, setting a new record high.
SCREEN Holdings, a Japanese semiconductor cleaning equipment company, also expects its dependence on China, which was 19% last year, to increase to 44% by March. Canon also announced that it expects China to account for about 40% of its semiconductor equipment sales this year, double the level five years ago.
In addition, Disco expects about 40% of its sales this year to come from China, and Kokusai Electric is reportedly hiring employees locally in China to respond adequately to Chinese demand, accounting for half of its sales.
However, there are concerns as increasing dependency on a specific country also comes with associated risks. Especially as the US is showing signs of expanding its export control targets from advanced semiconductors to old models and is calling for allies to join, the uncertainty for Japanese companies can only get deeper as their dependence on China grows.
“The situation is good now, but there is a risk,” said Akira Minamika, an analyst at global market research firm Omdia. “Investing to meet China’s demand is risky because business could suddenly shrink.”
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