Tokyo Electron (TEL) has reaffirmed its positive annual outlook and announced plans to invest JPY104 billion (approx. US$685 million) in a new factory for circuit etching equipment. This move underscores the company's expectation that artificial intelligence (AI)-related spending will continue to rise.
According to reports from Bloomberg and Nikkei, TEL President Toshiki Kawai stated during the company's earnings call that advanced logic ICs for data centers, as well as memory chips for AI smartphones and AI PCs, are expected to drive double-digit growth in the semiconductor equipment market by 2026. This trajectory is expected to further enhance TEL's growth.
Kawai projected that in 2025, the bulk of semiconductor equipment investments will be driven by advanced logic IC manufacturers and high-bandwidth memory (HBM) producers, as they expand to accommodate the growing demands of the AI industry.
TEL has maintained its financial outlook from three months ago, forecasting record revenue of JPY2.4 trillion for the fiscal year ending March 2025, representing a 31% year-over-year increase. Operating profit is also expected to reach an all-time high of JPY680 billion, marking a 49% annual growth.
For the October–December 2024 quarter, TEL posted an operating profit of JPY199.6 billion, primarily fueled by strong sales of wafer cleaning, etching, and processing equipment. This segment recorded a 51% year-over-year growth, exceeding analysts' average forecast of JPY174 billion.
New factory to compete with Lam Research
TEL has unveiled plans to invest JPY104 billion in a new factory in Miyagi Prefecture, Japan, dedicated to producing circuit etching machines. This strategic move aims to bolster its competitive stance against US-based Lam Research, a dominant player in the etching equipment market while leveraging the rising demand for semiconductor equipment fueled by AI chip advancements.
Recognized as a key barometer for future AI chip-related spending, TEL remains cautious in its outlook. Unlike Japan's Advantest, which recently raised its earnings forecast, TEL has opted to maintain its current performance projections for now.
DeepSeek's impact uncertain: low-cost AI poised to reshape the industry
TEL's decision to expand production in Miyagi underscores the sustained strong demand from major customers, including Samsung Electronics, TSMC, and SK Hynix. These companies continue to commit to significant capital investments in wafer manufacturing equipment to meet the growing needs of the AI server market.
However, TEL expects a slowdown in equipment purchases from Chinese customers, particularly new players in wafer manufacturing. Kawai projected that in the new fiscal year starting April 2025, China's contribution to TEL's sales will decrease from over 40% to approximately 35%.
Meanwhile, the rise of low-cost, open-source AI models from China's DeepSeek has sparked industry concerns. These developments could intensify price competition in the AI sector, potentially impacting revenue growth for companies like Nvidia. On the other hand, lower-cost AI models may encourage new market entrants, ultimately fueling greater demand for AI infrastructure in the long term.
TEL is still evaluating the broader implications of DeepSeek's emergence. During an earnings call, CFO Hiroshi Kawamoto noted that if low-cost AI models lead to market expansion, it could be a positive outcome for AI chip equipment suppliers. However, he emphasized that it remains too early to draw firm.