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Electronics

Chipmaking gear makers look for way out of global downturn

Profits tumble at Japanese and Western peers amid memory glut and trade war

The chip industry downturn has hit suppliers including Japan-based Disco, which makes machines that slice, dice and polish silicon wafers. (Photo courtesy of the company)

TOKYO -- Dusting themselves off after a rough quarter, the world's leading suppliers of semiconductor-manufacturing equipment are looking for signs of when demand will recover in an industry beset by sluggish investment and trade frictions.

Processors may offer better prospects for growth than long-suffering memory chips after Japan's six major producers of chipmaking machinery reported their first combined profit drop in six years.

The 39% plunge for the April-June period followed a jump of 30% in 2018 and 73% in 2017.

Including American and European industry peers, nine out of 10 companies saw profit declines in their latest quarter, with Japan-based Screen Holdings slipping to a net loss.

U.S.-based Applied Materials expects demand for memory chips to recover in 2020 and not this year. It expects NAND flash memory to recover before dynamic random access memory, or DRAM.

Memory chip makers have cut spending on production equipment as big tech groups like Google and Amazon.com have slowed investment in data centers.

This has had a ripple effect on suppliers to such leading memory chip producers as South Korea's Samsung Electronics and SK Hynix and Taiwan's Nanya Technology.

Trade frictions have also taken a toll on equipment makers. At Japanese industry leader Tokyo Electron, whose net profit tumbled 43% for the April-June quarter, a Chinese chipmaker's investment plans fell behind schedule as a result of the Sino-American trade war. South Korean chipmakers that the company supplies are also wavering on when to restart investment after being hit with restrictions on Japanese exports of key materials.

Processors are emerging as an area of earnings support for equipment makers while memory chips remain beset by a supply glut. Netherlands-based ASML maintained its full-year sales forecast based in part on the strength of processor demand.

Worldwide investment in fifth-generation mobile networks is also helping sustain semiconductor gear sales even amid a loss of momentum in smartphones and data centers.

5G-related demand contributed to better-than-expected quarterly orders at Japan's Advantest, which builds chip-testing equipment. 

Junichi Makino, an analyst at Japan's SMBC Nikko Securities, said global semiconductor sales are recovering on a value basis after hitting bottom in March. Mizuho Securities said memory chip prices will rebound next year.

The PHLX Semiconductor Sector Index, or SOX, hit an all-time high in late July.

Even so, Japanese industry executives remained cautious on the earnings outlook.

"We still cannot tell whether investment will recover in the second half," said Shinji Sakurai, chief financial officer of Hitachi High-Technologies.

Global sales of chipmaking equipment by original equipment manufacturers are forecast to fall 18% in 2019 to $52.7 billion, according to trade group SEMI.

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