TOKYO – In the 1980s, Japanese chipmakers dominated the world’s semiconductor industry.
Companies like NEC, Toshiba, Fujitsu and Mitsubishi Electric together controlled half the global semiconductor market back then. Their market share, however, has now shrunk to just a tenth.
Toshiki Kawai, chief executive of leading chip equipment maker Tokyo Electron Ltd. (TEL), says that the key factor behind their fall was their failure to respond to industry trends that led to explosive growth in demand for PC memory in the 1990s.
"The chip industry is characterized by rapid technological innovation and dynamic changes. As the economy turned bad, Japanese chipmakers slashed their investments. By contrast, foreign firms, including Korean chipmakers, made aggressive investments. This difference led to Japanese chipmakers' decline,” the CEO told The Korea Economic Daily in a recent interview.
Tokyo Electron is one of the world's top chip device makers (screenshot captured from its website) He said Tokyo Electron, Japan’s largest chip devices maker, is among Japan's top companies that are heavily investing in future projects.
Over the next five years, the company plans to spend over 1.5 trillion yen ($10.5 billion) in research and development (R&D), of which 700 billion yen will go to facility upgrades.
“We’re also considering a large-scale recruitment, hiring 1,000 people each in Japan and abroad annually, for a total of 10,000 new hires over five years,” he said.
With an operating profit of 456.3 billion yen on sales of 1.83 trillion yen in fiscal 2023, TEL is the world’s fourth-largest chip equipment maker.
Tokyo Electron's annual investment plans (screenshot captured from its website) The Japanese company counts the world’s two largest chipmakers, Samsung Electronics Co. and SK Hynix Inc., among its major clients. TEL’s shares, listed on the Tokyo Stock Exchange (TSE), were the most purchased stocks by Korean retail investors in the past year.
TEL’s market capitalization has ballooned tenfold to 10.38 trillion yen over the past decade, making it the third most valuable company on the TSE.
In Japan, industry officials often call TEL a "giant that hasn't lost its animal spirit,” meaning a company with a tireless bold entrepreneurial spirit.
Tokyo Electron's R&D centers wordwide (Screenshot captured from its website) The following is an edited transcript of the interview:
▶ What is your outlook for the global semiconductor market?
"Applications that handle massive amounts of data in real-time, such as generative AI represented by ChatGPT, autonomous vehicles and digital twins, including virtual reality, will continue to drive the semiconductor industry."
▶ How much do you expect the chip market to grow?
"The size of the semiconductor market was about $530 billion last year. By 2030, it is projected to exceed $1 trillion. In essence, the market that took 70 years to build, starting from the transistor in 1947, will double in just seven more years.”
▶ What are the challenges facing the semiconductor industry?
"Power consumption is a big issue. At the current rate, we could face an energy shortage in the next 20 to 30 years. The common global goal is to balance digitalization with decarbonization. Technological innovation in the chip sector will become increasingly important to achieve this."
▶ What are the key points of technological innovation?
“First, we need to process more data at faster speeds – high speed and large capacity. Secondly, high reliability is crucial, especially for applications like autonomous vehicles where failures are unacceptable. Finally, low power consumption is essential."
▶ How fast will the demand for high-performance chips grow?
"Currently, AI accelerators use GPUs made with 4-nanometer technology, containing about 80 billion transistors. These are combined with six high-bandwidth memory (HBM) chips of 141 gigabytes (GBs) each. Next-generation AI accelerators will feature three GPUs made with 2 nm technology, with an estimated 480 billion transistors. HBM, currently stacked with eight DRAM chips, will be upgraded to 16 within five years."
▶ How is Tokyo Electron responding to these demands?
"Patterning (a technology that imprints circuits onto wafers) is critical for developing high-performance HBM. TEL is the only company in the world that possesses the equipment necessary for four key processes: deposition, coating/developing, etching and cleaning for fine patterning. We have a 100% global market share for coating/developing equipment used in advanced EUV (extreme ultraviolet) lithography). It's no exaggeration that every semiconductor you see has passed through our equipment.”
▶ The semiconductor conflict between the US and China is deepening
"We are closely monitoring the situation. Most of our equipment is exported.”
▶ What’s your plan to strengthen cooperation with South Korean companies?
"South Korean chipmakers have many global clients. We aim to strengthen our partnerships with our Korean clients to help achieve digitalization and decarbonization.”
▶ How can digitalization and decarbonization coexist?
"We approach it with the idea of incorporating green into digital. For example, holding meetings online without traveling is green through digitalization. Reducing power consumption in data centers is green within digital. Semiconductor technology is essential for achieving these goals.”
"Motivation is the key. That's why we have set ambitious performance goals. By 2027, we aim for over 3 trillion yen in annual sales, an operating profit margin of over 35% and a return on equity (ROE) of over 30%. There are about 1,600 companies on the TSE prime market, and we aim to be the only one to achieve these targets three years from now."
▶ Has the fluctuating yen-dollar exchange rate affected TEL?
"Our sales are carried out in yen, so the impact of the foreign-exchange rate fluctuation is limited."
▶ Can Japan's semiconductor industry make a comeback?
"Government support is becoming more active worldwide. Japan has many excellent universities and its supply chain, including equipment and materials companies, remains strong."
A major Tokyo Electron plant in Tokyo (Courtesy of the Worldfolio) Established in 1963, Tokyo Electron is best known as a supplier of equipment to fabricate integrated circuits (IC), flat panel displays (FPD) and photovoltaic cells (PV).
Headquartered in Akasaka, Tokyo, TEL owns about 23,000 patents – the highest number among global chip-making equipment makers.
This year, the company aims to achieve 2.3 trillion yen in sales with an operating profit of 627 billion yen.
Tokyo Electron established its Korean unit in 1993. Tokyo Electron Korea has offices and factories in eight locations, including Hwaseong, Pyeongtaek, Icheon and Cheongju.
Last year, Tokyo Electron Korea, with about 2,000 employees, posted 1.2 trillion won ($896 million) in sales and an operating profit of 71.1 billion won.
