Tokyo Electron shrugs off fears of Chinese rivals catching up
Toshiki Kawai shrugged off concerns about rising competition from China, adding that investors haven't adequately priced in Tokyo Electron's leadership in making machines that help process silicon into artificial intelligence chips. Technology at the Japanese company, whose main competitor is Applied Materials, is advancing at a pace that's faster than its Chinese rivals', due in part to close collaboration with contract chipmakers, the chief executive officer said.
"We have access to cutting-edge wafers, and our ability to provide cutting-edge process technology will become overwhelmingly faster than Chinese makers,' Kawai said in an interview. "Because we have such a strong lineup of products, Tokyo Electron can be in alignment with a technology roadmap that spans 10 years alongside the world's leading device makers.'
That roadmap covers roughly four generations of chip processing technology and represents significant potential for further growth as the pace of innovation accelerates, he said. "The gap will continue to widen.'
Kawai's confidence is in the face of a national push in China to work around U.S.-led export restrictions on chipmaking knowhow. China's Advanced Micro-Fabrication Equipment, Naura Technology Group and Shanghai Micro Electronics Equipment Group are spending heavily to develop cutting-edge chip equipment. That's while customers like Semiconductor Manufacturing International and Hua Hong Semiconductor have been buoyed by pressure from Beijing on its tech sector to source more chips from domestic manufacturers.
To maintain its leadership, Tokyo Electron plans to invest ¥1.5 trillion ($10.5 billion) in research and development and hire 10,000 engineers over the next five years — or about 2,000 every year — to bring up the total number of employees to more than 30,000. More than 25,000 college graduates applied for 500 positions this year.
The company's shares remain weighed down by fears about rising competition and its exposure to China, however.
A series of U.S.-led measures to limit China's ability to obtain chip gear and services are making investors fearful that the Tokyo company — which earned almost half of its revenue in China at one point last year — may suddenly be forced to halt its business with Chinese customers, Bloomberg Intelligence analyst Masahiro Wakasugi said. Tokyo Electron's shares are down around 25% from a year ago.
"We are not at all satisfied with our current market cap,' Kawai said, adding that the company targets a dividend payout ratio at more than 50% and plans to implement flexible share buybacks. Tokyo Electron was among the top five most valuable companies on the Tokyo Stock Exchange during most of April last year. The company would work to regain that standing, he said.
Customers investing in an AI hardware boom are more than making up for any declines in China and lowering Tokyo Electron's reliance there, Kawai said. Revenue from China is expected to settle at around 30% of total sales, down from less than 40% in the second half of last fiscal year, he said.
The company is on course to hit its target operating profit of at least ¥1 trillion on sales of more than ¥3 trillion revenue by 2027, Kawai said. Tokyo Electron generated ¥697 billion operating profit on revenue of ¥2.4 trillion in the just-ended fiscal year.
The company's exposure to potential U.S. tariffs is also limited as it earns just 8% of total revenue from America, and there's no foreign exchange rate fluctuation risks because the company transacts in yen with customers, he said. Nor has demand for chip tools fallen with the emergence of cheaper AI models such as DeepSeek, he said.
"Even as various AI solutions emerge, the demands don't change,' he said. "Tokyo Electron is always pursuing the latest cutting-edge technology, so we believe there will be no issues with our growth.'
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