Delayed reaction: Some big Japanese toolmakers still see strong Q3 sales

By Paula Doe

WaferNews Contributing Editor

Despite all the gloom and doom coming from Japan’s struggling chipmakers lately, a few of the country’s equipment suppliers continue to do surprisingly well.

Canon’s semiconductor equipment sales were up 33% in the third calendar quarter, compared to the same period last year. Tokyo Electron’s sales for July through September were up 22% from the quarter before, though still 26% less than the same period last year. And Hitachi’s semiconductor tool subsidiary just about matched last year’s pace.

But most of the Japanese companies reporting results so far expect things to get markedly worse for the next six months.

Canon doesn’t seem to be in the same economy as the rest of us. Its sales of semiconductor production equipment jumped to $417 million (50 billion yen) in Q3, on an 8% increase in units. Though the company expects a 10% sequential decline in Q4, it projects total semiconductor tool sales for the calendar year will still be up 30%, to some $1.57 billion (188.6 billion yen). The operating margin on the optical and semiconductor business in the quarter increased to 12% of sales.

“Our 300mm tool set was selected by the majority – more than 60% – of the 300mm fabs that came on-line in 2000 and 2001,” says Phil Ware, of Canon USA’s semiconductor equipment division. “Fortunately for Canon, much of our backlog for 2001 was for these 300mm projects in Asia, especially Japan, and in Europe.”

Ware also notes that customers, especially DRAM makers, bought Canon’s high NA KrF scanner to move to 130nm to cut costs by reducing die size. Canon also got a boost from the good old-fashioned i-line, which still accounts for half the lithography tool market, as chipmakers anxious to reduce costs looked to mix and match cheaper technologies for less critical layers.

“Canon’s decision to develop a very high-throughput, low-cost, i-line stepper, featuring full field matching with scanners, also played a major role in boosting sales in 2001,” says Ware.

The company was also helped out by a 12% exchange rate move in its favor. All these results are by SAB 101 rules, which Canon has been using since 2000.

Though TEL sales improved in the quarter, its plunging orders suggest things will get worse, fast. TEL’s net new orders in calendar Q3 dropped 58% from Q2, to a scant $228 million (27.3 billion yen), the lowest since the company started keeping quarterly data back in 1994. The company told analysts its customers cancelled $125 million (15 billion yen) worth of orders in the quarter, and it wrote off another $140 million (17 billion yen) itself, mostly from US customers. That left the company with a backlog of $1.25 billion (150 billion yen) at the end of September.

Essentially all of the Q3 orders were for 300mm tools, up from only about half in Q2. It figures net new orders in the current quarter will be about the same slim level, since cancellations from Elpida Memory are likely. So TEL projects its sales of semiconductor equipment for the next six months will drop 33% from the first half of the fiscal year, and now expects to lose $71 million (8.5 billion yen) on total sales of $3.6 billion (436 billion yen) for the year through March 2002.

Hitachi’s equipment sales subsidiary Hitachi High-Technologies, formerly known as Nissei Sangyo, says its sales of semiconductor tools in the six months through September remained close to last year’s pace, as increasing revenues from ASML lithography tools and e-beam writers countered slower sales of scanning electron microscopes and etchers. The company sold $136 million (16.3 billion yen) worth of scanning electron microscopes, $117 million (14 billion yen) worth of etchers, and $11 million (1.3 billion yen) worth of lithography tools for the period. While it expects SEM sales to drop another 7% in or so the second half, to $126 million (15.2 billion yen), it actually expects lithography sales to pick up. Hitachi figures strong interest in ASML products from foreign chipmakers’ fabs in Japan, and from companies developing resists and other materials, could boost its lithography revenues to $22 million (2.6 billion yen) in the next six months.

Not surprisingly, things look far worse in the back-end business. Advantest sales of semiconductor test equipment fell 55% in the half, to $430 million (51 billion yen). Orders were even worse, dropping 80% year on year, to $209 million (25 billion yen), leaving a backlog of only $88 million (11 billion yen). Advantest expects revenues to drop another 49% in the next six months, down to some $215 million (25.8 billion yen). The company remains profitable so far, but expects to lose $42 million (5 billion yen) for the year. It plans to delay installation of equipment in its new manufacturing facility in Gumma prefecture.

Other Japanese equipment companies also project lower results and are announcing more cutbacks. Shinkawa, expecting to lose some 10 cents on each dollar of sales for the year through March 2002, hopes to reduce labor expenses by about 4% by sending all workers (except marketing and R&D staff) home with 70% pay on Fridays for the rest of the fiscal year. It will also cut senior executive pay by 14% and manager salaries by 7%.



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