Tokyo Electron is poised for strong revenue growth on the back of strong Chinese demand for chip making machines.

This week, chip equipment market participants continued to publish their quarterly reports, and the Japanese company Tokyo Electron improved its forecast for operating profit in the current fiscal year by 8% to $4.3 billion, citing, among other things, strong demand in China.

Image source: Tokyo Electron

It is no secret that Chinese chip manufacturers are actively purchasing equipment from Japan that is suitable for producing components using not the most modern lithographic technologies. As a rule, it is not yet subject to either US sanctions or Japan’s own restrictions. However, Chinese manufacturers are stockpiling such equipment both out of fear of further worsening sanctions and to achieve the goal of making the Chinese economy self-sufficient in terms of chip production.

Last quarter, Tokyo Electron’s revenue beat analysts’ expectations by more than 10%, reaching $3.8 billion, Bloomberg reported. Operating income reached $1.14 billion and also exceeded third-party analysts’ forecasts. The company has to work in contradictory conditions. On the one hand, the boom in artificial intelligence systems is spurring demand for equipment for the production of chips used in specialized server systems. On the other hand, the desire of the US authorities to limit the supply of advanced chip production equipment to China could potentially reduce Tokyo Electron’s revenue in this region. As of March of this year, 47% of the company’s total revenue was provided by Chinese clients.

It is noteworthy that the representative of the financial department of Tokyo Electron, Hiroshi Kawamoto, at the quarterly reporting event, said that there were no signs of an imminent worsening of US sanctions regarding the supply of equipment for the production of chips. At the same time, the company considers it necessary to closely monitor the situation in this area. In the longer term, Tokyo Electron’s revenue was impacted by Intel’s past failures to embrace advanced lithography technologies, as the latter began buying less of the Japanese brand’s equipment. As a result, Tokyo Electron’s revenue became more dependent on Chinese customers.