Chipmaking Tool Supplier Expects Demand Boom to Last Years

(Bloomberg) -- The global shortage for chips that’s shut down factory lines and fueled waiting lists for the hottest consumer electronics is showing no signs of abating and that’s good news for specialist suppliers like Tokyo Electron Ltd.

The provider of semiconductor fabrication tools expects orders from the likes of Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. to rise for years to come as those companies scale up their production to sate booming demand.

“Demand is overwhelming as the supply of various components is going to tighten toward this year’s end and more investment to increase manufacturing capacity is likely,” Chief Executive Officer Toshiki Kawai said in an interview with Bloomberg News. His remarks came ahead of TSMC announcing it’s raised its capital expenditure to more than $25 billion this year, helping push up Tokyo Electron’s share price by as much as 5.7% on Friday to a record high.

TSMC and Samsung are the leaders in adopting extreme ultraviolet lithography, the most advanced fabrication method that lets them reach smaller geometries like 5nm today and 3nm in 2022, unlocking more powerful and efficient chips. Tokyo Electron commands 100% of the business for photoresist coaters and developers used in factories deploying EUV technology, according to its CEO, so every new EUV machine that goes online adds to its bottom line.

“I can confidently say there’s no cutting-edge semiconductor manufacturer in the world that has no Tokyo Electron machineries in their lines,” Kawai said. “More factory investment means more business for us.”

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The automotive industry, which had been among the hardest-hit by the coronavirus outbreak, is showing signs of recovery, which have translated into a widespread chip shortage as smartphone makers like Apple Inc. and Samsung’s consumer division were already raising their orders. More advanced phones with 5G wireless technology require even more silicon, and capacitor supplier Murata Manufacturing Co. anticipates 500 million of those devices in the coming fiscal year.

Read more: Apple Supplier Murata Expects Half Billion 5G Phones in New Year

Intel Corp., the longtime leader in silicon technology, has also been in talks with TSMC and Samsung about outsourcing some of its business, adding to the urgency of investment and capacity expansion. Samsung has committed in excess of $100 billion over a decade to develop its semiconductor manufacturing capabilities and keep up with its Taiwanese rival.

Kazuyoshi Saito, an analyst at Iwai Cosmo Securities, said Tokyo Electron’s tools for EUV lines require extremely precise manufacturing to shut out any dust, making these EUV-compatible machines expensive.

“More adoption of the EUV technology benefits Tokyo Electron in terms of volumes and unit prices,” he said.

Tokyo Electron’s Kawai said demand for the company’s products has long been on the rise due to an expected boom of 5G smartphones and autonomous driving, but the Covid-19 pandemic ignited demand elsewhere, including logistics, retail and drug discovery.

“Our industry has become essential to people’s lives because all industries that serve those needs now require semiconductor chips to advance,” he said.

SEMI, a U.S.-based industry association, estimated global sales of semiconductor equipment to have grown 16% in 2020 from a year ago to a record $68.9 billion and the figure is expected to rise again to $71.9 billion this year. Tokyo Electron projects its revenue will hit 2 trillion yen ($19.3 billion) in the fiscal year ending in March 2024 from 1.13 trillion yen in the year ended in March 2020.

One possible disruption to Tokyo Electron’s momentum could come from ongoing U.S.-China trade tensions, with several Chinese companies like Semiconductor Manufacturing International Corp. now subject to sanctions and bans. Kawai said customers in China are as important as those in other regions, though his company will adhere to rules and restrictions set by the U.S. government.

“We won’t provide our products to customers that the U.S. manufacturers can’t, because that would be a risk for us if we do,” he said.