[Chipformation] Japan's Semiconductor Equipment 'Pride' Tokyo Electron... Dreams of Revival

Japan's Contribution to 'Chip 4' Inclusion
Attractive R&D Investment and Business Portfolio

[Asia Economy Reporter Moon Chaeseok] Tokyo Electron (TEL), a Japanese semiconductor equipment company known as the 'pride' of Japan, is a major equipment manufacturer attracting attention for its facility investment in Hwaseong, Gyeonggi-do, South Korea. It holds a 13.4% share of the global semiconductor equipment market and is mentioned as one of the 'world's top four companies' alongside the US's Applied Materials (18.6%), the Netherlands' ASML (18.1%), and the US's Lam Research (15%).

According to industry sources on the 21st, the company is a top-tier player holding about 87% of the global market share in track equipment fields such as coaters and developers. It has a solid business model with a comprehensive equipment portfolio necessary for key semiconductor processes, including etching (27%), deposition (38%), cleaning (20%), and testing (45%). It is also a historic company celebrating its 60th anniversary next year. Located in Minato-ku, Tokyo, Japan, the company reported sales of $16.3723 billion (21.942 trillion KRW) as of the end of March. It employs 15,140 people and has a market capitalization of approximately 7.08 trillion yen (about 68.757 trillion KRW).

The company is notable for its significant contribution to Japan's inclusion in the global key supply chain group 'Chip4' (South Korea, United States, Japan, Taiwan). Japan's unique differentiator compared to the US (design) and South Korea and Taiwan (manufacturing) is 'equipment.' As Japan's top equipment company, TEL is credited with helping Japan avoid isolation in the global key supply chain by joining Chip4.

If TEL falters, the Japanese government would face difficulties as well. The Japanese government broke ground on April 21 for a factory of Taiwan's TSMC, the world's largest foundry (semiconductor contract manufacturer), in Kumamoto Prefecture, aiming for production by the end of 2024. Recently, on the 11th, news emerged that eight Japanese 'private dream team' companies, including Toyota, Sony, SoftBank, and Kioxia (formerly Toshiba Memory), decided to establish a company called 'Rapidus.' With the world watching whether Japan can secure momentum in its domestic market, many eyes are on TEL's management moves as it plays a key role in the supply chain.

From South Korea's perspective, the question is why TEL chose to invest in Hwaseong. The hint lies in the company's sales distribution. According to Statista, TEL's largest sales market this year is China, accounting for 28%, followed by South Korea at 19%. China has been hit hard by US semiconductor equipment import restrictions. For TEL, it is crucial to diversify risks in the Chinese market, which accounts for a quarter of its sales. South Korea cannot be overlooked. The Gyeonggi-do area is an optimal investment location, housing production facilities of two of the world's top three memory semiconductor companies, Samsung Electronics and SK Hynix.

TEL is also committed to its own research and development (R&D) investments. According to a report by Nihon Keizai Shimbun (Nikkei) in June, TEL plans to invest more than 1 trillion yen (about 9.55 trillion KRW) over the next five years in R&D, including semiconductor process miniaturization. This is more than double the 400 billion yen (about 3.8 trillion KRW) invested over the past five years.

Global inflation, expanding management uncertainties, demand decline, and semiconductor industry downturns are macro variables that also burden TEL. However, TEL's position in Japan and its business portfolio optimized for fine processes strengthen its appeal. Semiconductor expert Lee Seung-woo, Center Head at Eugene Investment & Securities, evaluated TEL as "a company with strengths in coaters and developers (track equipment) and a total solution for etching, deposition, and cleaning equipment," calling it "a key partner suited to the trend of semiconductor process miniaturization."