In a remarkable turn of events, Japanese chip stocks are experiencing a significant rally driven by heightened demand from China, despite looming concerns over US restrictions. The surge in demand from China for legacy chip making equipment has propelled Japanese producers to new heights, positioning them as key players in the global tech supply chain. This surge in demand comes at a time when the US has issued warnings about the potential threat posed by such developments to global security.
Japanese chip stocks have witnessed a remarkable upswing over the past 16 months, as China has ramped up its purchases of legacy equipment to support the production of older-generation semiconductors. Companies like Tokyo Electron Ltd. have seen their market value soar, with a staggering $12 billion added to their market capitalization in a single day. This surge in demand from China has been a driving force behind the success of Japanese chip making equipment manufacturers.
The demand from China has been a key catalyst for this impressive growth in the Japanese chip stocks sector
The MSCI Japan Semiconductor and Semiconductor Equipment Index has more than doubled in value, with Japanese companies gaining a staggering $147 billion in market capitalization since the Biden administration intensified restrictions on China’s access to US chip technology in October 2022. The strong demand from China has been a key catalyst for this impressive growth in the Japanese chip stocks sector.
Japanese suppliers are now competing with major players like Applied Materials Inc., Lam Research Corp., and Teradyne Inc., with revenue soaring as a result of China’s increased reliance on legacy chipmaking equipment. China has emerged as the single largest destination for a growing number of Japanese companies specializing in equipment used for various stages of semiconductor production, such as washing, cleaning, patterning, and cutting silicon.
Executives from Japanese chip equipment manufacturers have indicated that the demand from China is expected to continue growing, with Chinese manufacturers of logic and power semiconductors driving this trend. Tokyo Electron’s Deputy General Manager Hiroshi Kawamoto highlighted the company’s optimistic outlook, emphasizing the strong demand from China as a key factor in their success. Other companies like Screen Holdings Co., Canon Inc., Kokusai Electric Corp., and Disco Corp. are also benefiting from China’s increased focus on semiconductor production.
While the surge in demand from China has been a boon for Japanese chip stocks, concerns linger about US restrictions on chip technology exports to China. The US Commerce Department is closely monitoring Chinese production of legacy chips and assessing US companies’ reliance on Chinese suppliers. The fear is that China’s access to advanced chipmaking equipment could accelerate its goal of achieving self-sufficiency in semiconductor production.
Despite the current positive outlook for Japanese chip stocks, there are uncertainties about the future trajectory of the market. Some analysts caution that demand in China for certain front-end processes in semiconductor production may plateau, posing risks for companies investing in capacity to meet Chinese demand. The potential for business to shrink suddenly in the future adds a layer of complexity to the ongoing dynamics in the semiconductor industry.
The surge in demand from China has significantly boosted Japanese chip stocks, showcasing the resilience and adaptability of Japanese chipmaking equipment manufacturers. While US restrictions and uncertainties loom on the horizon, the current momentum in the sector underscores the pivotal role that Japanese companies are playing in the global semiconductor supply chain. As the industry continues to evolve, Japanese chip stocks are poised to remain a key player in this rapidly changing landscape.
