Tokyo Electron Shifts Focus to AI as China Slowdown Looms

Japanese chipmaking equipment manufacturer Tokyo Electron is pivoting toward artificial intelligence (AI) to offset a projected slowdown in its Chinese business, reports Nikkei Asia. The company aims to increase the AI sector's contribution to wafer fab equipment (WFE) sales to approximately 40% in the fiscal year ending March 2026, according to a senior vice president.

For the current fiscal year, Tokyo Electron expects AI to account for 30% of its WFE sales, driven primarily by companies manufacturing chips for AI server applications. This would represent a doubling from the previous fiscal year's ratio.

The potential revenue from AI in the next fiscal year could exceed 1 trillion yen ($6.4 billion), based on market forecasts, significantly exceeding the estimated 275 billion yen for the current fiscal year. This growth is fueled by the booming demand for high-bandwidth memory chips used in generative AI applications, which command premium prices.

China has historically been a major driver of Tokyo Electron's earnings, with chipmakers in the region accelerating equipment purchases in anticipation of stricter US trade regulations and to support China's drive for a self-sufficient chip supply chain. However, this investment momentum has slowed.

"The ratio of sales to China in the March 2026 fiscal year will fall to the 30% range, and the amount itself could decrease too," said Hiroshi Kawamoto, senior vice president in charge of finance, to Nikkei.

Tokyo Electron's China sales peaked at 50% in the April-June quarter. However, sales to China are projected to shrink by more than 10% in the next fiscal year, reflecting a potential decline from the record high exceeding 950 billion yen anticipated for the current fiscal year.

Despite the US government's recent expansion of export controls against China and the possibility of further restrictions under the incoming Trump administration, Tokyo Electron does not anticipate a substantial short-term impact on earnings.

"We have factored predictable scenarios into our WFE market forecasts," Kawamoto stated.

The company sees significant growth potential in advanced chips for various applications, including AI. Tokyo Electron is already preparing for the production of 2-nanometer chips, with these efforts expected to contribute to earnings as early as next fiscal year.

Tokyo Electron is also strategically expanding its market share by acquiring process of record (POR) certifications, which validate the use of its equipment in customers' semiconductor production processes. The company has made "significant progress" in obtaining a POR for cryogenic etching, a technology enabling high-speed processing for stacked NAND semiconductors.

Tokyo Electron's stock price has declined by about 40% from its all-time high in April, primarily due to concerns surrounding the slowdown in China.