Japan’s semiconductor equipment providers are increasingly relying on China as their largest revenue source, even as they navigate the complexities of US-China trade tensions.
As the US introduces new export controls on chip-related goods, Japanese firms find themselves in a delicate balancing act between maintaining economic ties with China and adhering to the demands of their key ally, the US.
Tokyo Electron’s China revenue jumps
Tokyo Electron, a leading semiconductor equipment manufacturer with a market capitalisation of nearly $72 billion, saw a significant rise in its revenue from China.
In the financial year ending March 2024, China accounted for 44% of Tokyo Electron’s revenue, a substantial increase from the 23% recorded in the previous year.
The company’s earnings report further revealed that this figure soared to nearly 50% in the first quarter of FY 2025, up from 39.3% in the same period last year.
This growing dependency on China comes amid intensifying US-China tensions over technology exports, placing Tokyo Electron in a complex geopolitical landscape.
The US government is imposing stricter controls on the export of advanced technology, including chip-related goods and quantum computing, potentially impacting the future revenue streams of companies heavily invested in China.
Screen holdings generates 51% of sales
Another Japanese semiconductor equipment maker, Screen Holdings, reported a surge in sales from China.
In the financial year ending March 2024, Screen Holdings generated 43% of its total sales from China, up from 19% in the previous fiscal year.
The first quarter of FY 2025 saw this share climb to 51%, compared to 23% in the same period last year. The company projects that China will account for 41% of its total sales by the end of FY 2025.
Screen Holdings’ significant business ties with China underscore the challenge for Japan, a close ally of the US, in balancing its geopolitical commitments with its economic interests.
The increasing reliance on China for revenue growth exposes these companies to risks associated with the US-led export control measures.
US export control measures pose a challenge
The US Department of Commerce recently announced plans to introduce new export control measures, including those for quantum computing and chip-related goods, tightening restrictions on China’s access to advanced technologies.
These measures could potentially affect Japanese semiconductor equipment companies like Tokyo Electron and Screen Holdings, which are major suppliers to China.
The semiconductor manufacturing equipment provided by Japanese companies is primarily intended for producing legacy chips.
These chips are widely used in automotive applications rather than in smartphones or advanced artificial intelligence training models.
The possibility of broader US restrictions poses a risk to Japanese companies that depend heavily on China as a key market.
China’s stance on export controls
China has responded to Japan’s export controls with criticism, labelling them an “abuse of export control” and a “serious violation of WTO duties.”
Beijing has also hinted at potential retaliatory measures if Japan expands its export restrictions on semiconductor equipment sales to China.
Nevertheless, China remains committed to maintaining a stable and secure global supply chain, according to Mao Ning, China’s Foreign Ministry spokeswoman.
This diplomatic tension highlights the complex dynamics in the global semiconductor supply chain, where multiple countries are vying for technological superiority while attempting to secure their economic interests.
China ramps up chip equipment purchases
Despite facing mounting pressure from the US and its allies, China has increased its purchases of chip-making equipment.
Industry body SEMI reported that China bought around $25 billion worth of semiconductor equipment in the first half of 2024.
This figure surpasses the combined total of the US, South Korea, Taiwan, and Japan.
China’s strategy to boost its domestic chip production capabilities reflects its intent to reduce dependency on foreign technology amidst the ongoing trade conflict.
Future outlook for Japan’s semiconductor firms
Japanese semiconductor equipment firms like Tokyo Electron and Screen Holdings are at a crossroads. While China remains a lucrative market, the increasing geopolitical tensions between the US and China pose substantial risks.
As these companies navigate these challenges, their strategies will likely focus on diversifying their market base while complying with international regulations.
The coming months will be critical in determining how these firms balance economic opportunities with geopolitical realities.
The post Japanese chip equipment firms rely on China sales amid US export curbs appeared first on Invezz
