Japanese semiconductor equipment companies suffer in 2023
The Semiconductor Manufacturing Equipment Association of Japan (SEAJ) recently issued a report stating that it will lower its sales estimate for Japanese chip equipment in 2022 (April 2022-March 2023). The estimate released by the association on July 7, 2022 It was 4.03 trillion yen, and the new estimate was 3.68 trillion yen, a year-on-year increase of 7.0%. At the same time, SEAJ lowered its 2023 sales forecast to 3.50 trillion yen (the previous forecast was 4.23 trillion yen), a year-on-year decrease of 5.0%, which may become the first contraction since 2019.
Facing the recession in 2022, Japanese semiconductor equipment manufacturers still achieved considerable growth. Why are Japanese semiconductor equipment manufacturers cautious about 2023?
What are the semiconductor equipment companies in Japan?
According to the revenue ranking of global semiconductor equipment companies in the third quarter of 2022, there are four Japanese companies among the top ten companies in the world, namely: Tokyo Electron (TEL), Advantest ), Japan Deanshi (Screen), Japan's Hitachi High-Tech (Hitachi High-Tech).
Japan's Tokyo Electronics, Tokyo Electronics ranks as the world's third largest semiconductor equipment supplier, followed by Applied Materials of the United States and ASML of the Netherlands. Tokyo Electronics' products cover almost all processes in the semiconductor manufacturing process. Its main products include: coating/development equipment, heat treatment film forming equipment, dry etching equipment, CVD, wet cleaning equipment and testing equipment. Tokyo Electronics' coating equipment has a global share of 87%. Among FPD manufacturing equipment, etching machine equipment accounts for 71%. Other devices also have a considerable share.
Japan's Advantest produces and sells semiconductor and component test system products, as well as mechatronics-related products. The advantage of Advantest is its equipment for efficiently testing high-density chips. Advantest participated in the technical cooperation framework released by TSMC in October. It can detect complex chips at high speed and find defective products. In the field of tester equipment, Advantest ranks second in the world.
Japan's Deans is the world's leading supplier of semiconductor equipment. It was originally founded in 1868. In 1975, the company developed a wafer etching machine. In the following more than 40 years, the company focused on semiconductor manufacturing equipment. In the field of cleaning equipment, the company has A strong competitive advantage. Deans' business includes semiconductor manufacturing equipment (SPE), PCB equipment (PE), liquid crystal manufacturing equipment (FT), image information processing equipment (GA), and ICT solutions.
In the field of semiconductor equipment, Japan's Hitachi High-tech mainly produces dry etching systems and CD-SEMI and defect inspection systems. These devices are widely used in large-scale integrated circuits, power devices and surface acoustic wave filters, CMOS image sensors, MEMS and others (hard disks and flat panel displays).
In addition to these companies, there are also many equipment companies in Japan that have a high share of "post-process". DISCO has the largest share in the field of cutting equipment for cutting wafers for burning circuits and making chips. DISCO's core product is to grind manufactured semiconductor silicon wafers into thinner silicon wafers, then cut them into dies, and then assemble them into electronic products. Leading market share in the production of wafer grinders, grinding wheels, wafer dicing saws, laser saws and surface planarization.
The equipment market is riding a "roller coaster"
Japanese semiconductor equipment companies have performed gratifyingly in 2022. Technological progress has promoted the development of the semiconductor industry. Various fields such as smart equipment, deployment of 5G communications, and industrial equipment Internet of Things are inseparable from semiconductor equipment. The cumulative sales of Japanese semiconductor equipment exceeded 75.6 billion yuan in May 2022, setting a record for the same period in previous years. Statistics from the Semiconductor Manufacturing Equipment Association of Japan (SEAJ) show that in May 2022, sales of semiconductor manufacturing equipment in Japan were 15.232 billion yuan (307.718 billion yen). By May 2022, this data has maintained growth for 17 consecutive months. From January to May 2022, Japan’s cumulative sales of semiconductor equipment reached 75.691 billion yuan (more than 1 trillion yen).
When the time comes to the second half of 2022, the semiconductor market is deteriorating due to the slowdown in the supply of smartphones and personal computers. Data from the World Semiconductor Trade Statistics (WSTS) shows that the global supply of semiconductors decreased by 2% in July, which was lower than the same month of the previous year for the first time in 32 months. In addition, in August and September, it has been negative growth for three consecutive months.
Japanese semiconductor equipment companies believe that this impact is short-term. The Ministry of Economy, Trade and Industry of Japan predicts that with the expansion of robot applications, the world semiconductor market is expected to reach 100 trillion yen by 2030. Compared with 2020, Double in 10 years. During the same period, the market size of Japan's semiconductor manufacturing equipment will also double, exceeding 4 trillion yen. for the future
Looking at the current situation, regarding global manufacturing equipment sales in 2023, Tomohiro Katayama, a senior analyst at Sumitomo Mitsui Trust Asset Management Company, said, "Many opinions in the market believe that the manufacturing equipment of the previous process will decrease by 5 to 15% compared with the previous year." In May, TEL President Toshiki Kawai stated that global equipment sales for front-end processes are expected to achieve positive growth in 2023. However, at the financial report conference in August, he changed his tune and said that "it is too early to make predictions at this time."
Affected by this, demand for semiconductor equipment has also stagnated. Forecasts from SEMI, an international group for the semiconductor industry, indicate that investment in pre-process equipment used to form semiconductor circuits will turn negative for the first time in four years by 2023. Minamikawa Akira of the British research company Omdia pointed out that "until the first half of 2023, the situation will be quite serious."
Japanese semiconductor equipment that “must be released”
In 2022, many Japanese semiconductor equipment companies will choose to expand production, and Japanese semiconductor manufacturing equipment manufacturers will strengthen their production systems in Japan.
Japanese semiconductor equipment manufacturer Disco has decided to increase the production capacity of its wafer and electronic component cutting and polishing equipment. To this end, it will invest approximately 40 billion yen ($310 million) to build a new factory in Nagano, Japan. In addition to the Chino factory in Nagano, DISCO also has factories in Sanduan and Kure in Hiroshima, a total of three production bases. After the new plant is completed, the production capacity can be increased by about 40%. In addition to building a new factory, the Chino plant also invested 17.5 billion yen to build a new factory in the park to meet the long-term demand for wafer cutting equipment. DISCO believes that the demand for the most advanced process nodes and power semiconductors is completely different from the demand for consumer electronics chips such as memory, where the market is currently declining. High-tech products are also expected to continue growing in the long term. In response to strong demand, DISCO decided to expand production capacity.
Japan's V-Technology established the company's independent production base for the first time. Focusing on the full spread of pure electric vehicles (EVs) and other products, TSMC, which is involved in semiconductor foundry, has entered Japan. In the medium to long term, demand for semiconductor test equipment and other equipment is expected to grow. From the perspective of economic security, it is also necessary to independently build a stable supply system domestically. V-Technology has newly established and officially opened a factory and research center in Yokosuka City, Kanagawa Prefecture. The investment amount is approximately 2 billion yen. The company is engaged in the development of testing equipment for photomasks, components used in semiconductor manufacturing. However, it has previously implemented fabless operations without owning its own factories and outsourcing production to outside parties. The new factory became the company's first production site.
Japan's KOKUSAI ELECTRIC, which is involved in semiconductor wafer film forming equipment, will also invest 24 billion yen to build a new factory in Tonami City, Toyama Prefecture. The scale of investment is the largest since the company was founded in 2017. The company's two factories in South Korea and Japan maintain full capacity, but supply cannot keep up with demand. It will increase production capacity to approximately double that of fiscal 2020 through the completion of new factories in 2024 and the enhancement of equipment at existing factories. .
In the medium to long term, demand from high-speed communication standard "5G" and pure electric vehicles will continue to increase. The Ministry of Economy, Trade and Industry of Japan predicts that with the expansion of applications such as robots, the world semiconductor market is expected to reach 100 trillion yen by 2030, doubling in 10 years compared with 2020. During the same period, the market size of Japan's semiconductor manufacturing equipment will also double, exceeding 4 trillion yen.
While actively expanding production, semiconductor equipment companies suddenly faced a cold winter in the semiconductor market. But the arrow has to be fired when it is on the string. Minamikawa Akira of Omdia pointed out, "If you are worried about the current bad market and reduce equipment investment, you may lose share and be eliminated in the demand growth situation after the second half of 2023." For the revival of Japan's semiconductor industry, it is also indispensable for semiconductor equipment manufacturers to improve their competitiveness.
The Dilemma of Japanese Semiconductor Equipment Companies
Facing a sluggish market, the Japanese government is trying to join the United States in sanctioning China's semiconductor development. Analyst Panai. Cortastana once pointed out that as long as China can obtain semiconductor equipment from ASML and Japan's Tokyo Electronics, the blockade imposed by the US government will be in vain. Due to layers of obstruction by the U.S. government, Japanese semiconductor suppliers such as Murata, Sony, and Kioxia have been unable to conduct normal business transactions with Huawei in the past two years.
Now, upstream Japanese semiconductor equipment companies are also beginning to worry that similar experiences may happen to them. Dr. Satoshi Tachibana, an international business management expert and founder of Wheelis Japan Consulting Company, claimed that Japan's semiconductor industry has lagged behind Taiwan and South Korea. Japan's joining the US sanctions against China has actually not caused much economic losses, so it is not as good as Go with the flow. He believes that if Japan does not join the chip sanctions this time, the result will be displeasing to both China and the United States, and it will become a bad person both inside and outside. The United States passed the Chip and Science Act in August and plans to invest US$39 billion in attracting semiconductor factories in the next five years or so, which will promote active investment in the world's equipment industry.
For semiconductor equipment companies, these are not good things. Tokyo Electron executives admitted that the company is "very worried" about the United States expanding high-tech export controls to China. China is a key market for the Japanese semiconductor equipment giant.
Tokyo Electronics has learned lessons from its concerns about the United States’ expansion of export controls to China. In 2019, due to the United States restricting normal trade between Huawei and American companies, Huawei purchased parts and components from Japanese companies in 2019 reaching 1.1 trillion yen (approximately RMB 71.3 billion). Japan has thus replaced the United States as Huawei's largest source of parts and components.
The normal trade between Japanese companies and Huawei did not last long. In 2020, the United States successively blocked Huawei's access to chips, and Japanese companies were inevitably affected. In April 2021, Huawei's rotating chairman Xu Zhijun said that Huawei's purchases from Japan in 2019 were about US$10 billion, and in 2020 they were about US$8 billion, a 20% drop.
Obviously, joining the sanctions against China is a self-destructive behavior for Japanese companies. If a Japanese company wants to sell a chip or a device to Huawei, it needs approval from the US government. This is a typical unfairness and a typical obstacle to free trade. And it’s not just Japanese companies that are affected.
"Trying to block other people's roads will only block your own road in the end." If Japanese semiconductor companies, which are expanding wildly, lose the Chinese market, will it be good or bad in the long run? I believe the answer will come out soon.
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