Tokyo Electron Limited (TEL) forecasts the global semiconductor market will surpass US$1 trillion by 2030, with AI-related semiconductors driving 70% of the growth. To seize this opportunity, TEL aims to invest JPY1.5 trillion(US$9.5 billion) in R&D by March 2029.
TEL CEO Toshiki Kawai highlighted AI as a key growth driver, prompting expanded R&D to secure market leadership. Speaking to Nikkei, he emphasized 2024 as a pivotal year for AI, with rising investments in GPUs and high-bandwidth memory (HBM).
Despite geopolitical risks, Kawai underscored strong semiconductor investment trends. Semiconductor equipment now accounts for 20% of the industry, double its share from a decade ago. AI-related spending is expected to grow from 30% of equipment investments in 2024 to 40% by 2025, with the global semiconductor market projected to hit US$5 trillion by 2050, according to Yahoo Finance.
Market dynamics and supply chain challenges
Micron CEO Sanjay Mehrotra, in a December 18, 2024 earnings call, raised the 2025 TAM for HBM from over US$25 billion to more than US$30 billion, as reported by Barron's. He highlighted NAND flash memory as crucial for AI workloads, reflecting Micron's confidence in the data center NAND market.
Micron projects the HBM TAM to rise from US$16 billion in 2024 to US$64 billion by 2028 and exceed US$100 billion by 2030, according to Blocks and Files and Investors. This growth aligns with TEL's forecast that AI will dominate 70% of the semiconductor market by 2030.
A Bain & Company report from September 2024 warns that rising AI computing demand is straining supply chains for data center chips, PCs, and smartphones. Coupled with geopolitical tensions, this could lead to a semiconductor shortage. Bain urges companies to diversify supply chains and secure long-term procurement agreements to avoid disruptions.
Advantest CEO Doug Lefever, via the Financial Times, cautioned that slowing AI investments from US tech giants like Meta, Google, and Microsoft could disrupt semiconductor supply chains. He noted that while AI-enabled smartphone demand remains limited, it could surge with innovative applications, offsetting declines in other sectors.
Geopolitical challenges and market response
TEL faces mounting challenges from escalating geopolitical tensions and stricter US-Japan export controls on China, exposing the company to shifting trade policies and diplomatic conflicts.
China represents over 40% of TEL's sales, according to CEPA, but export restrictions targeting China's technological advancements pose significant risks. Investment Monitor reports that China has threatened economic retaliation, further jeopardizing TEL's market access.
These geopolitical dynamics have also fueled market volatility, with TEL's stock experiencing sharp declines. According to Yahoo Finance, TEL shares dropped by up to 8.3% following reports of potential US trade restrictions targeting Chinese technology. Such fluctuations highlight the vulnerability of semiconductor companies to geopolitical developments.
Strategic adaptation and growth initiatives
Hiroshi Kawamoto, TEL's Finance Division Officer, told Nikkei that AI-related wafer fab equipment (WFE) sales are targeted to make up 40% of revenue by March 2026. TEL plans to grow its AI business to counter slowing sales in China, according to TechNews and Statementdog.
Kawamoto projects TEL's AI-related revenue to surpass JPY1 trillion next fiscal year, up from JPY275 billion in 2023. Growth is fueled by strong demand for HBM packaging and testing equipment, as well as high-value next-generation AI chips.
China market adjustment and technological advancement
Kawamoto noted TEL's China sales are expected to fall from 40% this fiscal year to 30% next year, with revenue declining over 10% from the JPY950 billion peak in the second quarter of 2024.
The China slowdown will have minimal short-term impact on TEL's profitability, as market adjustments are built into its WFE plans. Kawamoto expects 2nm chip production equipment to contribute revenue as early as 2026.
TEL is advancing its Process of Record (POR) certifications to boost market share, with progress in low-temperature etching technology for high-speed stacked NAND processing.
Innovation and sustainable growth focus
CEO Toshiki Kawai emphasized TEL's commitment to sustainable long-term growth over short-term expansion, leveraging AI technology to transform production processes.
TEL provides 10 types of deposition and etching equipment. Kawai outlined a JPY1.5 trillion R&D investment plan through 2029, with JPY202.7 billion spent in 2024 to secure market leadership.
Kawai noted that while semiconductor demand for EVs may fluctuate with economic conditions, AI remains a key growth driver, with autonomous driving and EV markets set for steady expansion.