For a long time investors were skeptical of Japanese corporate stocks. However, recently the Japanese manufacturers of machines used in chip making are on boom. Tokyo Electron shares recently surpassed $ 100 billion. This is almost 10 times higher than the company ‘s market capitalization 10 years ago. Tokyo Election is now the fourth biggest firm in Japan standing side by side with Japanese giants traded in Tokyo stock exchange like Mitsubishi.
The total market capitalization of four big Japanese manufacturers of chip making tools doubled in 2023. The chip demand is rising. The arrival of new artificial intelligence models increased the global demand for powerful processing units that are capable of tuning AI models.
Japan firms have the higher hand in the supply chain of chip manufacturing. Tokyo Electron controls up to 90 percent the supply of machines that apply photoresist coating on the semiconductor wafers.DISCO another Japanese firm has almost the same dominance in the precise cutting and grinding tools that is necessary for the Chip making process.
As the technology is advanced, the cost of manufacturing tools is high. McKinsey, a consultant farm, estimates that the cost of a factory which produces 5 nanometer chips is almost 6 times higher than the cost of a 28 nanometer production line. And 28 nanometer chips were the cutting edge in technology just a decade ago.
The demand from China is increasing, in the last quarter of 2023, almost half of Tokyo Electron sales came from China. However as the Beijing- Washington are not in a progressing shape. Things may change. Because the Chinese are not just trying to make their own chips but the tools that are needed to manufacture them. Deteriorating China-US relations would increase pressure on China to control the whole supply chain of the chip making industry. This may challenge Japanese dominance.
Source: Economist
