[Japan Semiconductor Revival] ③ Equipment Sales Expected to Surpass 4 Trillion Yen... "Investment Recovery Visible"

The sector supporting the reconstruction of Japan's semiconductor kingdom is the materials, parts, and equipment (SoBuJang) industry. This year, as the semiconductor market shows signs of recovery, forecasts suggest a notable growth trend in the related market. Experts evaluate that with the government's active support adding direct and indirect positive factors, the competitiveness of Japan's SoBuJang industry could be further strengthened.

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According to the industry on the 19th, the Semiconductor Equipment Association of Japan (SEAJ) projected that sales of Japanese-made semiconductor equipment for fiscal year 2024 (April 2024 to March 2025) will increase by 27% year-on-year to 4.0348 trillion yen. Looking at the sales growth rate over the past 10 years since fiscal year 2014, this would be the third highest growth following the boom years of 2021 (44.4%) and 2017 (30.7%). It will also be the first year that annual sales exceed 4 trillion yen.

SEAJ explained, "Following logic (system) and foundry (semiconductor contract manufacturing), a full-scale investment recovery related to DRAM is expected in the second half of the year," adding, "Along with the overall market recovery, government support is also expected to promote investment recovery." They also forecast that the generative artificial intelligence (AI) effect will benefit not only semiconductor manufacturers but also equipment companies.

Japan's government semiconductor industry promotion policies realistically focus on chip manufacturing. After establishing the 'Semiconductor and Digital Industry Strategy' in 2021, they completed revision work last year. This is based on the judgment that, unlike SoBuJang with global competitiveness, the manufacturing industry is lagging behind.

However, the Japanese SoBuJang industry believes that the multiplier effect of these support measures is significant. Increasing government support not only for domestic emerging semiconductor companies like Rapidus but also for overseas companies such as Taiwan's TSMC and the US's Micron means that SoBuJang companies also benefit accordingly.

SEAJ expects that as production facilities increase in Japan, the sales scale of both domestic and foreign semiconductor equipment companies within Japan will rapidly grow. They also forecast high sales growth rates of 20% this year (1.3008 trillion yen) and 30% next year (1.691 trillion yen), respectively.

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Moreover, the number of companies receiving direct support from the Japanese government is increasing. Japanese semiconductor materials company Sumco decided to build a silicon wafer (semiconductor substrate) factory in Shiga Prefecture aiming for mass production in 2029, receiving government support amounting to one-third of the total investment (225 billion yen), or 75 billion yen. The Japanese government also announced plans to acquire Japanese materials company JSR using the sovereign wealth fund (JIC) to expand its influence in the global semiconductor ecosystem.

Semiconductor experts see these moves by the Japanese government and local companies as a foundation that can enhance Japan's SoBuJang competitiveness. Especially with the increase in AI semiconductor demand, there is a forecast that the performance of SoBuJang companies, which had been stagnant, will definitely rebound from the second half of this year. According to Nihon Keizai Shimbun, Mayuki Hashimoto, chairman of Sumco, recently stated at a presentation of somewhat sluggish results, "Except for generative AI, demand recovery is taking time," but added, "Wafer demand recovery is expected after the second half of 2024."

Professor Nam Geon-wook of Far East University explained, "Japan has built influence in the global market because it has strengths in the SoBuJang sector," adding, "If various supports are added, it will be an opportunity to further enhance competitiveness."

The gap created by the US strengthening various semiconductor regulations against China is also acting as an opportunity for Japan. As the US blocks the export of related equipment to prevent advanced semiconductor production in China, China is increasing investment in legacy (older) semiconductors outside the regulated areas, and Japanese equipment companies are benefiting from this.

Japanese semiconductor equipment companies such as Tokyo Electron (TEL) and Kokusai Electric are showing growth in their China sales. TEL's China sales ratio was around 40%, but this year it has exceeded 45%. As China sales rapidly increase, earnings forecasts have also been revised upward. On the 13th, TEL's market capitalization surged by 12 billion dollars in a single day. Hiroshi Kawamoto, TEL's vice president, predicted, "Strong demand from China will continue or even strengthen."

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