Tokyo Electron says China is snapping up its less advanced chip tools amid export controls

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Asia’s largest semiconductor equipment maker Tokyo Electron says it has largely managed to offset the impact of controls on exports to China by expanding its sales of less advanced products to the country’s chip industry.

The Japanese group has been navigating geopolitical tensions between Washington and Beijing with a two-track strategy of focusing on regulation-complying products for China while deepening technology development with cutting-edge clients in other key markets.

“Of course, we had some impact [from the Japanese and US export controls], but it was much smaller than we expected,” said Junko Takagi, head of investor relations, in an interview on the sidelines of the Semicon Japan trade show held in the capital this week.

Takagi added that demand for less-advanced semiconductor equipment was “really big”, with Tokyo Electron generating 43 per cent of its revenues from China in the third quarter, compared with 24 per cent a year earlier.

The Tokyo-based company is a crucial player in the semiconductor supply chain, providing chipmaking equipment for industry leaders Taiwan Semiconductor Manufacturing Company, South Korea’s Samsung Electronics, and Intel in the US.

Since July, some shipments to China have required clearance from export control officials, after Japan expanded restrictions on exports of 23 types of advanced chipmaking technology. It was aligning itself with the US and the Netherlands, where leading chip equipment makers Applied Materials and ASML respectively are also under pressure not to give China access to the latest semiconductor technology.

The measures forced more Chinese companies to focus on older technology that was not subject to the restrictions, resulting in more orders for Tokyo Electron.

Meanwhile, the company has leveraged its tech expertise to accelerate research with cutting-edge clients in the US, Taiwan, Europe and Japan. It says it has also developed new technology for etching channels in 3D NAND flash memory, competing with US-based rival Lam Research and aiming to increase its market share in the $500mn etching channel market.

Tokyo Electron’s resilience comes as other Japanese companies are struggling to handle US-China tensions.

“Japanese industry leaders do believe overwhelmingly that the global supply chain is bifurcating and splitting into two separate supply chains, one for the US and one for China,” said Christopher Thomas, chair of strategy advisory firm Integrated Insights, in a geopolitics session at Semicon Japan.

Forty per cent of nearly 100 Japanese semiconductor executives said they would focus exclusively on the US market, and 60 per cent said they would split their efforts between the US and Chinese markets if the world does split into two blocks, according to Thomas.

“There is a lot of optimism about the future of continued technological leadership of the US, which is Japan’s main technology partner in the semiconductor industry,” he added.

But a senior manager at a Japanese chip equipment maker, who declined to be named, said: “It’s extremely difficult to choose sides. We are asked to prioritise the relationship between Japan and the US rather than the commercial interests . . . China’s market is huge, but American technology is the future.”