Tokyo Electron Sees Potential Mid-Year Chip Rebound

(Bloomberg) -- Tokyo Electron Ltd., one of the world’s biggest makers of semiconductor manufacturing equipment, says it will take as long as another three months until it’s clear whether there will be a rebound in demand damped by U.S.-China trade tensions.

The pace of slowing demand from customers, which include all of the world’s major chipmakers, is moderating as they work through inventories, a process that could continue through the second half of 2019 and into the start of next year, Chief Executive Officer Toshiki Kawai said in an interview. The market for wafer processing equipment may shrink by about 15 to 20 percent this year, in part due to the trade war between the world’s two largest economies, Kawai said.

In October, Tokyo Electron slashed its full-year operating income target by 16 percent and cut revenue outlook 8.6 percent. The company last month forecast that capital investment for memory chips will slump about 30 percent this year, and for flash memory be half of what it was in 2018. Still, the Tokyo-based manufacturer has stuck to its forecast for profit and revenue growth over the next three years, citing a boost in chip demand from high-speed servers, the global roll out of 5G wireless technology and increasing use of smart devices for data collection.

“There is no way to avoid a short-term slide in plans due to the trade spat. China is the biggest consumer of semiconductors,” Kawai said. “But that doesn’t change our longer-term view. There will be growth in applications that call for chips offering speed, reliability, higher-capacity and lower power consumption.”

Tokyo Electron is forecasting sales will range from 1.5 trillion yen ($14 billion) to 1.7 trillion yen in the year ending March 2021, as much as a 50 percent gain from fiscal 2018. Profit might climb as much as 69 percent to 476 billion yen, it predicts. Revenue from flat-panel manufacturing equipment will probably decline after this year because of a smartphone industry slowdown.

Key Insights

• The company is watching investments into data centers, which still remain on pause but may get a boost from falling prices of memory chips, the impact of European privacy laws and the pace of shift to 3D Nand flash memory, Kawai said.
• The introduction of 3D flash chips which stack as many as 96 transistor layers will drive demand for more powerful etching equipment, which is used in wafer processing to remove photoresist and form circuit patterns.
• Smart devices for the so-called Internet of Things are likely to require low-cost chips, which will put pressure on semiconductor companies to cut costs. Tokyo Electron’s technology wafer bevel-cleaning technology could help improve yield by preventing deterioration of printed pattern in post-production, Kawai said.
• Tokyo Electron has the top share for atomic layer deposition gear, which lays down thin film layers of silicon oxide, aluminum and other materials from which the circuits are made. The technology will help chipmakers meet demand for higher performance and increased miniaturization, Kawai said.

To contact the reporters on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net;Yuki Furukawa in Tokyo at yfurukawa13@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson, Edwin Chan

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