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Overseas chip demand spurs Japan's Disco to record profit

But outlook clouded by US tech sector's turmoil

Grinding wheels that process silicon wafers are selling well as chipmakers keep output high.

TOKYO -- Chipmaking equipment producer Disco is headed for a fourth straight profit record for fiscal 2017 thanks to strong demand abroad, but a potential slowdown in capital investment by U.S. tech companies has weighed on its outlook.

The Japanese company's operating profit appears to have surged 64% on the year to 51.5 billion yen ($480 million) for the year ended March, on sales of 167.5 billion yen, an increase of 25%.

For the January-March quarter, profit apparently rose about 10% on the year to 11.5 billion yen, the most ever for a fourth quarter, while sales are estimated to have grown 5% to a little over 40 billion yen.

The popularity of online video streaming is pushing demand for semiconductors used in data centers. And "internet of things" technology is also prompting chipmakers in North America and Asia to boost production capacity.

Disco has high market shares in equipment essential to semiconductor production, such as saws to cut silicon wafers, and grinders and polishers. The consumable components used in these products, such as blades and polishing wheels, also sold well as customers' factories ran at high capacity. Consumables are cheaper to produce and thus bring wide profit margins.

The global market for semiconductors jumped by 21.6% last year to $412.2 billion and is expected to grow another 9.5% this year, according to World Semiconductor Trade Statistics. And worldwide sales of semiconductor-making equipment increased 37% on the year to $56.6 billion, according to the Silicon Valley-based industry group SEMI.

In spite of the favorable environment, Disco's shares are down about 20% from the year-to-date high reached in January, closing Tuesday at 22,790 yen. Japanese peer Tokyo Electron has also seen its stock fall from over 23,000 yen at one point in January to around 20,000 yen.

As American online giants like Facebook and Amazon face political and business challenges, investors are beginning to fear that they may slow their investments in data centers.

Disco will announce its full-year results on May 9.

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