Global chip tool makers set for double-digit revenue growth

Major global chip tool makers are on track to log their first double-digit revenue increase in three quarters on growing demand for artificial intelligence computing power.

The combined quarterly revenue for nine chip tool suppliers based in Japan, the U.S. and Europe is projected to grow 16% on the year, based on company guidance and QUICK FactSet analyst surveys. The forecasts cover the January-March quarter for all the companies except Applied Materials, for which the February-April quarter is used.

The revenue gain would be up from the 8% increase in the previous quarter. When range forecasts were given, the median figure was used.

The combined quarterly net profit is expected to jump 20%. This would mark the eighth consecutive quarter of double-digit profit gains, following a 26% rise in the previous three-month period.

Driving this growth is capacity expansion among chipmakers. In January, Taiwan Semiconductor Manufacturing Co. (TSMC) announced that it would boost capital investment to a record high in 2026. South Korea's SK Hynix and Samsung Electronics also announced plans to lift their investments this year.

ASML Holding, which supplies extreme ultraviolet (EUV) lithography equipment for making the world's most advanced chips, expects revenue to climb around 10% in the January-March quarter.

"The market outlook has notably improved in the last few months," ASML President and CEO Christophe Fouquet said during the fourth-quarter earnings call in January.

Suppliers of chipmaking equipment had expected a pickup in product deliveries around the second half of 2026, once clients secured space on production floors.

But demand for semiconductors has exceeded expectations, particularly in DRAM (dynamic random access memory) for AI servers. Chipmakers are reportedly rushing to step up production.

In response to requests to accelerate deliveries, Japanese chipmaking equipment supplier Tokyo Electron upgraded its forecast for new equipment sales for the six months ending March.

Many customers unable to wait to start up new factories or production lines are making do by modifying existing equipment. This has boosted sales in Tokyo Electron's maintenance business.

For front-end equipment used to form circuit patterns on silicon wafers, suppliers expect global market growth of 15% to the low 20% range this year. DRAM chip tools are seen driving growth, with solid performance also expected for equipment that makes logic chips used in AI applications. Suppliers of front-end equipment include ASML and Tokyo Electron.

Sales of chipmaking tools to China are growing despite ongoing frictions with the U.S. For their last reported quarter, eight companies saw their combined revenue in the Chinese market grow 8% on the year to $10.2 billion, with China accounting for over 30% of total sales. The numbers exclude U.S.-based Teradyne, which had not disclosed the relevant sales figures.

Although China is accelerating its development of a homegrown semiconductor supply chain, it still relies on Japanese, U.S. and European suppliers for equipment in areas where Chinese technology is lagging.

ASML's equipment sales to China grew roughly 60%. This is likely due to older-generation lithography equipment that is not subject to export restrictions. Advantest, Disco and other makers of back-end equipment for processing and testing chips count on China for 20% to 30% of their sales.

China's share of ASML's revenue is expected to fall to roughly 20% this year from 33% in 2025. But "it will take at least a few more years to close the performance gap in lithography equipment, for example," said Yasuo Imanaka, chief analyst at Rakuten Securities Economic Research Institute.

"The Chinese government also has national policies encouraging the development and production of AI semiconductors, so for the time being, U.S., European and Japanese players' Chinese sales will not decline significantly," Imanaka said.

Expanding business in China risks running afoul of U.S. export controls. In October, the U.S. House of Representatives Select Committee on the Chinese Communist Party called out chip tool manufacturers by name for making "sizeable returns" on sales to China. The list included Tokyo Electron, ASML and U.S.-based KLA.

On Feb. 11, the U.S. Department of Commerce said that Applied Materials had agreed to pay a $252 million penalty to settle charges alleging that the company illegally exported semiconductor manufacturing equipment to China. The company allegedly transferred the equipment between 2021 and 2022 through a South Korean unit.

Source: Nikkei Asia, Japan.