Data from the first quarter of this year shows that the proportion of income from the Chinese market for many Japanese chip equipment and material companies has reached a new high, with Tokyo Electron accounting for nearly 50% of its income from the Chinese market, which is in stark contrast to Japan's efforts to prevent Japanese chip companies from selling equipment and materials to the Chinese market.

Tokyo Electron, one of Japan's largest chip equipment and material companies, has contributed 39.3%, 42.8%, and 46.9% of its revenue from the Chinese market in the past three quarters, showing that the Chinese market has been steadily contributing to Tokyo Electron's revenue.

Since the second half of 2022, under the request of the United States, Japan has restricted the sale of 23 types of chip equipment and materials to China. This approach actually contradicts the situation of Japanese companies, as the global chip equipment and material market has undergone significant changes, and Japan's competitive advantage in chip equipment and materials has been continuously weakened.

A few years ago, when Japan and South Korea fell out, Japan stopped supplying photoresist to South Korea. South Korea concentrated on self-developed photoresist by multiple chip companies such as Samsung and SK Hynix. In just one year, South Korea successfully developed its own photoresist, and since then, South Korea no longer needs to purchase Japanese photoresist, thus Japan's photoresist lost an important market.

In terms of chip equipment, Japan faces fierce competition from European and American companies. For example, in the field of lithography machines, Canon and Nikon of Japan once accounted for more than 80% of the market. However, since the advent of immersion lithography machines, Japan's lithography machine industry has declined significantly. Now, ASML is the global leader in lithography machines, while a large number of components for EUV lithography machines are supplied by Japan and Europe. Japan's chip equipment and material industry is no longer as good as it used to be.

With no technological advantage, the Chinese market has actually become an important market for Japan's chip industry. After all, today's global chip equipment and material market is actually dominated by China, South Korea, Taiwan, and the United States. South Korea, Taiwan, and the United States have all developed advanced processes, and their demand for Japanese chip equipment and materials has steadily declined.

Only the Chinese market is currently mainly developing 28-nanometer processes, actively expanding 14-nanometer production capacity, and accelerating the research and development of advanced processes such as 7-nanometer. Under such circumstances, Japan's chip equipment and materials originally had broad space in the Chinese market, and Japanese companies are also actively expanding their presence in the Chinese market. Some Japanese chip companies even plan to build factories in China.

In addition to Japanese companies, ASML from Europe and Lam Research from the United States are also actively competing for the Chinese market. ASML, which has advanced lithography machines, is also one of the companies restricted by the United States. However, in September last year, ASML suddenly obtained a permit, and the proportion of its revenue from the Chinese market in the fourth quarter of last year suddenly increased to 46%, compared to only 10% during the previous trough period.

Lam Research and KLA-Tencor of the United States also showed a similar situation, with both companies earning nearly 50% of their revenue from the Chinese market, indicating that while these companies have suspended the sale of some advanced equipment and materials under US restrictions, they have also greatly increased their revenue from the Chinese market. Since US companies have done so, non-US companies such as ASML from the Netherlands and Tokyo Electron from Japan are naturally seizing the Chinese market. It's not wise to refuse to make money.

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