Tokyo Electron Sees Significant Sales Decline in China by 2025

• Tokyo Electron expects China sales to drop to 30% by 2025.
• The company plans to invest ¥1.5 trillion in R&D over five years.
• Demand for AI equipment helps mitigate the sales decline.
• Last quarter, China accounted for 34% of the company’s revenue.
• U.S. tariffs under the previous administration have limited impact.

Tokyo Electron Faces Sales Decline in China

Tokyo Electron, a major player in the semiconductor equipment market, is bracing for a significant decline in sales from China, mainly due to the tightening U.S. export controls and increased tariffs that are shaping the landscape for tech manufacturers. According to recent reports from Bloomberg, the company predicts that by 2025, sales from China will drop to approximately 30%, a marked decrease from the 40% expected in the latter half of 2024. This transition reflects broader shifts within the industry as manufacturers reassess their dependence on the Chinese market amidst ongoing geopolitical tensions.

Investment Plans Amid Rising Costs

Despite this looming decrease in sales from China, President Toshiki Kawai highlighted that demand for AI-related technologies is contributing to a more positive outlook for the company’s overall growth. He indicated that Tokyo Electron plans to invest heavily—around ¥1.5 trillion—in research and development over the coming five years, alongside the intention to recruit 10,000 new engineers. In terms of sales composition, just last quarter, China accounted for a striking 34% of Tokyo Electron’s revenue, which was notably higher than peers such as ASML and Applied Materials.

Limited Impact from U.S. Tariffs

Additionally, while the company experiences challenges in the Chinese market, the impact of U.S. tariffs under the previous administration appears limited, according to Kawai. The firm only derives about 8% of its sales from the U.S., and with transactions primarily conducted in yen, Tokyo Electron enjoys a certain level of insulation from currency fluctuations and their potential risks. Other companies, like ASML, are forecasting their exposure to China differently, anticipating over 25% of their sales to come from the region by 2025, while KLA stated a projected 20% decline year over year.

To summarize, Tokyo Electron is expecting its Chinese sales to significantly decrease due to tightening U.S. sanctions, moving from 40% to 30% by 2025. Despite this challenge, the company is positioning itself for growth through substantial R&D investments and recruitment. Meanwhile, the overall industry landscape shows varied forecasts for sales dependencies on China, highlighting a complex interplay between geopolitical factors and market demands.

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