May 10, 2017 1:00 pm JST

Japan manufacturers react differently to chip market bounce

Shin-Etsu focuses on raising prices while Tokyo Electron goes for growth

YOSHIFUMI UESAKA and TOMOHISA TAKEI, Nikkei staff writers

Silicon wafers for integrated circuits

TOKYO -- With memory chips in short supply worldwide, a materials maker and a semiconductor-manufacturing equipment maker in Japan are taking contrasting approaches.

For Shin-Etsu Chemical, which produces silicon wafers for integrated circuits, raising prices is a more pressing issue than making risky new investments to boost production. By contrast, Tokyo Electron, which makes chip-manufacturing equipment, sees a long-term growth opportunity and is spending big to increase output.

Shin-Etsu's semiconductor silicon business suffered a 3% year-on-year fall in operating profit in the half year period through last September, but nevertheless achieved a 19% rise for the full year ended March, thanks to increasing sales volumes and successfully negotiating price hikes with clients.

"We were able to raise wafer prices starting in January. It's something we were last able to pull off 11 years ago," said Toshiyuki Kasahara, a director with Shin-Etsu, during a news conference on April 28 after the company announced its full-year results.

Sensing that wafer supply was tightening as microchip prices rose, the company said that it would seek to raise prices, mainly for wafers measuring 300mm across, to bolster its bottom line.

"We're seeing robust demand in all our segments. The tide has turned," remarked Managing Director Masahiko Todoroki.

Sumco, a global leader in wafer making along with Shin-Etsu, also is in the process of hiking prices. The company said global demand for 300mm wafers reached 5.2 million per month, nearing global wafer production capacity. By next year it is predicting a shortage of 500,000 wafers a month.

Given the prospect of robust demand, equity analysts at Shin-Etsu's earnings briefing barraged company executives with questions about the possibility of increasing its monthly output on the order of 100,000 wafers.

But Todoroki dodged the question: "We have plants that can boost production in their clean rooms [essential for wafer production] and those that can't. So we will study our options, including what we will do about the buildings."

Todoroki rejected suggestions that production could be increased incrementally this year, by about 20,000 to 30,000 units a month. "If we decided to do it, it would have to be from next spring or later," he explained.

Sumco's management also is cautious about raising output. "We are losing money at our current pricing," CEO Mayuki Hashimoto said. "Unless we can raise prices by over 40%, any investment to boost production won't allow us to break even."

Seizing the moment

In contrast to the two wafer makers, Tokyo Electron, whose semiconductor-manufacturing equipment business saw record revenue in the year ended March, has announced an aggressive expansion plan.

CEO Toshiki Kawai announced that the company will more than double its capital spending to 42 billion yen ($370 million) compared with the previous fiscal year to strengthen its research and development and increase production.

In 2016, the market for semiconductor-manufacturing equipment for front-end chip production -- Tokyo Electron's mainstay segment -- grew 11% to $36 billion. Kawai remarked on this, saying that the company is "seeing no sign that the market has peaked." 

Tokyo Electron forecasts the market to grow to over $40 billion, and aims to take advantage of that growth to push profit at its equipment business to a new high this fiscal year. To support its efforts, about 70% of additional capital spending will be allocated to R&D, with the rest earmarked to expanding production lines.

Projects to raise output include building a 25,000-sq.-meter logistics center at an existing etching-equipment plant in Miyagi Prefecture, in northern Japan. The work started in March, with completion scheduled for December.

Tokyo Electron Chairman Tetsuo Tsuneishi does not think the current brisk market is similar to the dot-com bubble that collapsed at the turn of the century. "The situation is different from around the year 2000, when the dot-com [bubble] peaked," he said.

According to Tsuneishi, the chipmaking industry has since undergone a weeding-out and now has fewer, more viable manufacturers. Smaller players also maintain steady profits by specializing in certain products.

"It's different from the overheated situation back then, where you saw lots of contract manufacturers of semiconductor products competing fiercely to expand investment," he said.

Kawai pointed out that growth of the semiconductor-manufacturing equipment market is not a short-lived trend because it is driven by new technologies that also show signs of growth. These include the internet of things, artificial intelligence and autonomous driving technology.

Rather than a fleeting spurt of growth, the market "has risen to a new level," Kawai said.

Shin-Etsu Chemical Co., Ltd.

Japan

Market(Ticker): TKS(4063)
Sector:
Industry:
Process Industries
Chemicals: Specialty
Market cap(USD): 47,327.90M
Shares: 432.10M

Tokyo Electron Ltd.

Japan

Market(Ticker): TKS(8035)
Sector:
Industry:
Electronic Technology
Electronic Production Equipment
Market cap(USD): 32,417.57M
Shares: 165.21M

SUMCO Corp.

Japan

Market(Ticker): TKS(3436)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 7,819.88M
Shares: 293.28M

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