August 26, 2025 06:41 AM GMT Semiconductor Production Equipment | Japan Media Reports Elimination of China-made Advanced Process Systems by Overseas Chipmaker: Implications for Japan SPE The Aug 25 Nikkei Asia reported that TSMC will no longer use China-made SPE in advanced processes in order to avoid US government restrictions. TSMC has not made any official announcement and we have not been able to confirm the veracity of the report, but we would see positive implications for Japan SPE if true. Key Takeaw ...

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: Greater China Technology Hardware and Semiconductor Production Equipment in Japan - **Industry View**: - Greater China Technology Hardware: In-Line [1] - Semiconductor Production Equipment: Attractive [1] Core Insights and Arguments - **Delta Electronics (2308.TW)**: - **Bull Case**: The bull case has now become the base case for Delta, indicating strong confidence in future performance [11] - **AI Server Power Supply**: - Projected revenue from AI server power supply is expected to grow significantly, with a YoY increase of 188% in 2024 and continuing growth through 2027 [11] - Contribution to total revenue is projected to rise from 2.3% in 2023 to 12.6% by 2027 [11] - **Cooling Revenue**: - AI server cooling revenue is expected to see substantial growth, with a YoY increase of 233% in 2024 and 865% in 2025 [12] - Cooling fans and liquid cooling systems are key components driving this revenue [12] - **AVC (3017.TW)**: - **AI Server Cooling Contribution**: - Significant growth in AI server-related revenue, projected to increase from US$25 million in 2023 to US$1.293 billion by 2027 [15] - Gross margin for AI server-related revenue is expected to remain stable at around 35% [15] - **Market Position**: AVC is positioned to capture a significant share of the AI server market, with a projected 40% supply share for cold plates [15] Additional Important Insights - **Semiconductor Equipment Market**: - **Lasertec**: Downgraded to Underweight due to a plateau in the mask SPE market, with indications of capex cuts from advanced logic makers [19] - **SCREEN Holdings**: Forecasts flat WFE market at ~$110 billion for 2025, with stronger sales to foundries and memory makers [20] - **Advantest**: Reported a 90.1% YoY increase in sales for 1Q, raising guidance for the fiscal year [21] - **Tokyo Electron**: Cut guidance for fiscal year 2026 due to capex plan revisions and changes in NAND investment plans [22] Conclusion - The conference call highlighted a positive outlook for AI server-related products in the Greater China Technology Hardware sector, with significant growth expected in both power supply and cooling solutions. The Semiconductor Production Equipment market is facing challenges, particularly in advanced lithography, but certain companies are still showing strong performance and growth potential.

Summary of Semiconductor Production Equipment Conference Call Industry Overview - **Industry**: Semiconductor Production Equipment (SPE) - **Region**: Japan - **Industry View**: Attractive [1] Key Insights - **Market Forecast**: The SEAJ updated its forecast for Japan's semiconductor and flat panel display (FPD) manufacturing equipment market, predicting a growth of 2% for F3/26 and 10% for F3/27 [13] - **Sales Projections**: - Total SPE sales for the year ending March 2026 are estimated at ¥5,124.9 billion, reflecting a year-on-year growth of 10% [15] - Wafer Process Equipment sales are projected at ¥3,648.9 billion for the same period, also showing a 10% increase [15] - **WFE Revenue Trends**: - WFE revenue is expected to reach ¥109,058 million in 2025, with a year-on-year growth of 6% [12] - Total semiconductor revenue is forecasted to be ¥710,095 million in 2025, with a 13% increase from the previous year [12] Company-Specific Insights - **Tokyo Electron**: - Price target raised due to improved sentiment in the front-end SPE market [14] - **DISCO**: - Non-consolidated sales increased by 10.1% year-on-year to ¥75.4 billion for Apr-Jun 2025, exceeding guidance [24] - Demand for SiC device applications is accelerating, with strong shipments reported for Taiwan OSAT and China [25] - **Advantest**: - Anticipated strong demand for AI GPU testers and a significant increase in F3/26 guidance due to robust sales [30] - **Screen Holdings**: - Recommended as an Overweight (OW) due to high operating rates and attractive share price [28] Market Dynamics - **AI Demand**: The computation required for AI is increasing exponentially, driving demand for semiconductor production equipment [6] - **China's Capex Resumption**: Chinese manufacturers are resuming capital expenditures towards the second half of 2025, although risks remain due to US restrictions [27] - **Back-End Equipment Demand**: There is a booming demand for back-end equipment, particularly for generative AI HBM devices [27] Risks and Considerations - **Downside Risks**: - Sluggish global demand for electronics and prolonged corrections in the semiconductor market due to high inflation and US-China trade tensions [56][66] - **Upside Risks**: - Stronger-than-expected recovery in smartphone demand and semiconductor investments could drive growth [60][65] Conclusion The semiconductor production equipment industry in Japan is poised for growth, driven by advancements in technology and increasing demand for AI-related applications. Companies like Tokyo Electron, DISCO, and Advantest are well-positioned to benefit from these trends, although potential risks from geopolitical tensions and market corrections remain.

Investment Rating - The industry view for Semiconductor Production Equipment is rated as Attractive [6]. Core Insights - The report highlights a significant shift towards CoPoS (Chip-on-Panel-on-Substrate) technology, with TSMC investing in a pilot line for 310mm² substrates, indicating a growing trend in the industry [4][9]. - ASE Technology has introduced a 2.3D package technology using 300mm² substrates, suggesting a contraction in substrate sizes from the previously defined standards [5]. - The anticipated timeline for equipment deliveries to pilot lines for 310mm² PLP is set for mid-2026, with large-scale investment decisions expected by mid-2027 [10]. Summary by Sections Industry Overview - The WFE market (excluding lithography) is projected to grow by 5% YoY in 2025, driven by investments from Chinese manufacturers and improved yields for logic makers [22]. - The report indicates a potential contraction of the WFE market by 4% YoY in 2025 due to a slowdown in the Chinese market, although investments in flash memory are expected to resume in the latter half of the year [23]. Company Performance - SCREEN Holdings has raised its price target from ¥13,600 to ¥13,800, reflecting an optimistic outlook on earnings growth driven by the adoption of 310mm² substrates [6][11]. - The earnings forecast for SCREEN Holdings has been adjusted, with projected PLP-related sales increasing to ¥5 billion for F3/27 and ¥7 billion for F3/28 [11]. Financial Projections - Operating profit for SCREEN Holdings is expected to reach ¥135.7 billion in 2025, with a gross margin of 37.6% [29]. - EPS is forecasted to be ¥1,155.5 for the base year F3/28, which is anticipated to be the next earnings peak [18][22]. Market Dynamics - The report identifies key beneficiaries of the shift to smaller substrates, including Disco, Screen HD, and Ulvac, which are expected to see increased orders for CoPoS technology [9][11]. - The demand for cleaning systems remains strong, contributing positively to the overall market outlook for SCREEN Holdings [18].

Investment Rating - The industry investment rating for Semiconductor Production Equipment is Attractive [2]. Core Insights - The semiconductor production equipment market is expected to experience strong growth driven by demand for advanced packaging materials and AI-related technologies [12][34]. - Major companies like Microsoft and NVIDIA are significantly increasing their capital expenditures, which will positively impact the semiconductor equipment sector [8][21]. - The demand for high-bandwidth memory (HBM) and advanced packaging technologies is projected to rise, creating opportunities for companies like Advantest and Disco [34][12]. Summary by Sections Market Overview - The semiconductor production equipment market is anticipated to grow despite a slow recovery in the overall semiconductor market, with advanced packaging applications expected to outpace other segments [12][34]. - The WFE (Wafer Fabrication Equipment) market is projected to see low-single digit negative growth in 2025 [16]. Company Ratings - Advantest (6857.T) is rated Overweight with a target price based on a P/E of 14.0x [49]. - Disco (6146.T) is rated Overweight with a target P/E of 25.1x [46]. - SCREEN Holdings (7735.T) is rated Overweight with a target P/E of 11.9x [54]. - Tokyo Electron (8035.T) is rated Equal-weight [113]. Demand Drivers - The increasing need for AI servers and advanced packaging materials is driving demand for semiconductor production equipment [8][12]. - Companies are expected to ramp up capital expenditures directed at HBM4 and advanced packaging technologies starting from the second half of 2025 [8][12]. Geopolitical Factors - The US-China trade tensions and export restrictions are influencing the semiconductor equipment market, particularly affecting sales to China [20][22]. - Domestic production of AI chips in China is expected to increase capital intensity, benefiting companies like Advantest and Tokyo Seimitsu [21].

June 19, 2025 02:51 AM GMT Semiconductor Production Equipment | Japan Stronger Restrictions on Chip Exports to China and Our SPE Picks Taiwan's Bureau of Foreign Trade, Ministry of Economic Affairs updated the entity list on its website on Jun 14, adding Huawei and SMIC. With possibility of other US allies making similar moves, we focus on Disco and Advantest as they make back-end SPE exposed to relatively little regulatory risk. Key Takeaways Taiwan adds Huawei, SMIC to export control list: Taiwan's Bureau ...

Investment Rating - The industry view for Semiconductor Production Equipment is rated as Attractive [6] Core Insights - Texas Instruments announced a historic investment of US$60 billion in semiconductor production in the US, specifically targeting fabs in Texas and Utah, in response to the US government's manufacturing repatriation policy [3][9] - NVIDIA will no longer include sales to China in its guidance due to US export restrictions, estimating a significant impact of US$2.5 billion from January to April and US$8 billion from May to July [4][9] - The ongoing US-China decoupling is expected to benefit certain Semiconductor Production Equipment stocks, particularly those with close ties to Texas Instruments, such as Disco and Screen HD [9][10] Summary by Sections Investment Announcements - Texas Instruments' investment is the largest in domestic legacy semiconductor production in history, emphasizing the shift towards US-based manufacturing [3][9] - NVIDIA's exclusion of China from sales forecasts reflects the impact of US regulations on semiconductor exports [4][9] Market Dynamics - The domestic production of AI chips in China is anticipated to increase capital intensity, particularly benefiting companies like Advantest and Tokyo Seimitsu due to rising demand for testing equipment [13] - Japanese equipment makers such as Disco and Tokyo Seimitsu are expected to gain from the increased semiconductor fab construction momentum in the US [10] Competitive Landscape - Some Japanese equipment manufacturers face no significant US competition, particularly in areas like cleaning equipment and thermal processing systems, which may insulate them from market share losses despite the US fab expansions [12] - The introduction of new semiconductor processes in the US could favor US-made equipment over Japanese counterparts due to local support advantages [11] Stock Ratings - The report includes specific stock ratings for companies in the Semiconductor Production Equipment sector, with Advantest, DISCO, and SCREEN Holdings rated as Overweight, while others like Nikon are rated Underweight [60]

Investor Presentation | Japan M Foundation Japan Summer School: Semiconductor Production Equipment June 13, 2025 03:18 AM GMT Morgan Stanley MUFG Securities Co., Ltd.+ Tetsuya Wadaki Equity Analyst Tetsuya.Wadaki@morganstanleymufg.com +81 3 6836-8890 Semiconductor Production Equipment Japan Industry View Attractive Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could aff ...

Investment Rating - The semiconductor production equipment industry is rated as Attractive [5][70]. Core Insights - The imminent launch of DeepSeek R2, which features 1.2 trillion parameters and significant cost efficiencies, is expected to positively impact the Japanese semiconductor production equipment (SPE) industry [3][7][11]. - The R2 model's capabilities include enhanced multilingual support, broader reinforcement learning, multi-modal functionalities, and improved inference-time scaling, which could democratize access to high-performance AI models [7][9][11]. - The development of efficient AI models like R2 is anticipated to increase demand for AI-related SPE, benefiting companies such as DISCO and Advantest [11]. Summary by Sections DeepSeek R2 Launch - DeepSeek's R2 model is reported to have 1.2 trillion parameters, a significant increase from R1's 671 billion parameters, and utilizes a hybrid Mixture-of-Experts architecture [3][7]. - The R2 model offers cost efficiencies with input costs at $0.07 per million tokens and output costs at $0.27 per million tokens, compared to R1's $0.15-0.16 and $2.19 respectively [3][7]. Industry Implications - The launch of R2 is expected to broaden the use of generative AI, leading to increased demand for AI-related SPE across the supply chain, including devices like dicers, grinders, and testers [11]. - The report reiterates an Overweight rating on DISCO and Advantest, which are positioned to benefit from the anticipated increase in demand for AI-related devices [11]. Company Ratings - DISCO (6146.T) is rated Overweight with a target P/E of 25.1x [12]. - Advantest (6857.T) is also rated Overweight, with a target P/E of 14.0x [15].

Investment Rating - The semiconductor production equipment industry is rated as Attractive [5] Core Insights - The imminent launch of DeepSeek R2, which features 1.2 trillion parameters and significant cost efficiencies, is expected to positively impact the Japanese semiconductor production equipment (SPE) industry [3][7] - The development of lightweight, high-performing AI models like DeepSeek R2 is anticipated to democratize access to generative AI, thereby expanding the market for AI-related SPE [11] Summary by Sections DeepSeek R2 Characteristics - DeepSeek R2 is reported to have 1.2 trillion parameters, with 78 billion active parameters and utilizes a hybrid Mixture-of-Experts architecture [3] - The input cost for R2 is $0.07 per million tokens, significantly lower than R1's $0.15-0.16, while the output cost is $0.27 compared to R1's $2.19 [3][7] - Enhanced multilingual capabilities and broader reinforcement learning are key upgrades in R2, allowing it to handle various data types including text, image, voice, and video [9][11] Market Implications - The anticipated launch of R2 is expected to boost demand for AI-related devices, including GPU and HBM, as well as custom chips and other AI devices [11] - The report reiterates an Overweight rating on DISCO and Advantest, which are expected to benefit from increased demand for AI-related devices [7][11] Company Ratings - Advantest (6857.T) is rated Overweight with a target price of ¥10,300 based on expected earnings peak [16] - DISCO (6146.T) is also rated Overweight with a target P/E of 25.1x based on earnings estimates [13]