Tokyo Electron Boosts R&D to ¥250B, Aims for Diverse Markets

Key Takeaway

• Tokyo Electron announces record R&D spending of ¥250 billion amid a 20% sales increase to ¥2.2 trillion, driven by surging AI chip demand.
• The company's growth strategy reduces revenue dependency on China from 44% to below 40%, reflecting a diversified market approach.
• Expanding AI infrastructure boosts demand across sectors, benefiting companies in cooling technologies, power management, and semiconductor manufacturing.

Surging Demand for AI Infrastructure

Tokyo Electron Ltd., a key supplier to major semiconductor manufacturers such as Samsung Electronics Co., Taiwan Semiconductor Manufacturing Co. (TSMC), and Intel Corp., has announced plans for record research and development expenditures this fiscal year. This decision is driven by a robust demand for artificial intelligence (AI)-enabling infrastructure, with the company projecting a 20% increase in sales to ¥2.2 trillion ($14.1 billion) for the year ending in March. This forecast slightly surpasses analyst expectations, highlighting the growing appetite for high-end semiconductors, particularly AI chips. TSMC and memory maker SK Hynix Inc. have reported significant sales jumps and full bookings for AI chips, respectively, indicating a sector-wide surge in investment and capacity expansion.

Investment in Research and Development

In response to the booming demand, Tokyo Electron is dedicating ¥250 billion to research and development within the year. President Toshiki Kawai emphasized the recovery in demand for front-end equipment used in logic and memory chipmaking, projecting double-digit percentage growth next year. This growth is particularly linked to AI server demand. Additionally, the global demand increase for front-end gear is expected to reduce Tokyo Electron's revenue dependency on China from 44% to below 40%.

Financial Performance and Market Trends

For the March quarter, Tokyo Electron reported a 5% decrease in operating income to ¥145.2 billion and a 2% decline in sales, aligning with estimates. Despite these figures, the company's financial health appears stable, with no significant impact from currency fluctuations, as noted by Hiroshi Kawamoto, the company's general manager of finance. Meanwhile, TSMC's April sales surged by 60% to NT$236 billion ($7.3 billion), driven by sustained AI demand and a recovery in consumer electronics. This performance underscores the semiconductor industry's pivotal role in supporting the AI technology boom, with companies like TSMC and Nvidia Corp. at the forefront.

Expanding AI Infrastructure Ecosystem

The AI revolution extends beyond chipmakers to companies involved in data center operations and cooling technologies. Analyst Jake Levinson of Melius Research highlighted the critical need for cooling technologies in AI data centers, pointing to increased demand for HVAC systems from manufacturers like Carrier Global and Trane Technologies. Additionally, companies like Parker-Hannafin and Dover are benefiting from the need for temperature regulation infrastructure, with stocks witnessing significant gains. The demand for AI also boosts sales for industrial giants such as Caterpillar and Cummins, which supply backup power engines to data centers. GE Vernova, through its electrification segment, is addressing the growing need for smart grid software and power management solutions, indicating a broad-based impact of AI on various industrial sectors.

Management Quotes

• Toshiki Kawai, President of Tokyo Electron:

  "Demand is recovering for equipment used at the front end of logic and memory chipmaking... Production of such front-end machines, which form circuits onto wafers, is expected to clock double-digit percentage growth next year, helped especially by AI-linked server demand."

• Hiroshi Kawamoto, General Manager of Finance at Tokyo Electron:

  "The weak yen has no impact on the company, as Tokyo Electron’s equipment sales are denominated in yen."