Tokyo Electron Lowers Silicon Wafer Outlook Amid Mixed AI Spending Signals

Tokyo Electron Ltd. has adjusted its forecast for the silicon wafer market, reflecting a complex landscape surrounding elevated artificial intelligence (AI) spending.

Shares of the Japanese supplier to major chipmakers Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. declined by 4.6% following the announcement, despite exceeding earnings expectations. Tokyo Electron had previously projected double-digit growth for the broader market in 2025, but now anticipates sales to align with 2024 levels.

This revision is partially attributed to accelerated deliveries to Chinese customers in 2024, which could lead to reduced investment from China in the current year. As a key chip gear manufacturer, Tokyo Electron's outlook provides insights into future chip spending allocated for AI development.

In the December quarter, the company reported an operating profit of ¥199.6 billion ($1.3 billion) from sales of machinery used in silicon wafer preparation, etching, and cleaning. This represented a 51% increase year-over-year, surpassing analyst estimates of ¥174 billion.

While sales also exceeded expectations, Tokyo Electron did not adjust its revenue forecast, unlike competitor Advantest Corp. Mixed signals have emerged from supply chain participants, with ASML Holding NV reporting a surge in orders, while Arm Holdings Plc and Advanced Micro Devices Inc. expressed caution, raising concerns about the sustainability of excessive AI spending.

Tokyo Electron has announced plans to construct a ¥104 billion plant in Miyagi prefecture, increasing its production capacity amid ongoing investments by major customers like Samsung, TSMC, and SK Hynix Inc. The CEO, Toshiki Kawai, anticipates that cutting-edge logic makers and high-bandwidth memory producers will drive much of the investment in 2025 to meet AI server demand.

However, the company expects chip gear purchases from Chinese customers to decelerate, particularly among new entrants to chipmaking. China is anticipated to account for a mid-30% share of Tokyo Electron's sales in the fiscal year starting April, down from over 40% in the current year.

The CEO acknowledges the impact of U.S. restrictions on exports of chip-related technologies and other geopolitical factors.

Meanwhile, the emergence of Chinese startup DeepSeek's low-cost and open-source AI model raises concerns about increased price competition and reduced revenue for companies like Nvidia Corp. However, AI industry leaders suggest that lower-cost models could attract more new entrants, potentially supporting demand for AI infrastructure in the long term. Tokyo Electron is still assessing the potential impact of DeepSeek.