Japanese Chip Sector’s Earnings Show AI Appetite, Auto Slump

Artificial intelligence fueled a stronger-than-expected earnings season for Japan’s tech sector; Rising data center demand has caused chipmakers and equipment suppliers to raise their forecasts.

More than three-quarters of most companies in the MSCI Japan Information Technology Index beat analyst estimates, the company reported, ranking among the highest in the broader MSCI Japan Index. According to data compiled by Bloomberg, profit across the index increased by 35%, while Advantest Corp. was among the biggest contributors.

While a wave of optimistic guidance from leading suppliers and renewed government support has increased momentum in Japan’s chip revival, the earnings season also highlighted a widening gap in the global chip industry: While suppliers in the automotive industry continue to struggle, AI-driven demand continues to drive profits.

Tokyo Electron Ltd. raised its full-year operating profit forecast, while analysts expect strong demand for chip manufacturing equipment to continue next year thanks to strong capital spending by chipmakers. The 2026 outlook also improved, with Berenberg analyst Tammy Qiu noting that the company expects wafer manufacturing equipment spending to reach a record high as DRAM and NAND investments accelerate.

Bloomberg Intelligence analysts Masahiro Wakasugi and Takumi Okano said increasing chip complexity is also expected to increase demand for equipment. SK Hynix Inc. and Samsung Electronics Co. They added that demand from DRAM and NAND chip customers, including DRAM, is expected to increase in the coming fiscal year as the capacity of data centers increases. The company holds approximately 90% of the market in tools for the development of photoresist coatings and chip sheets.

Advantest raised its full-year operating profit forecast by 25% to ¥374 billion. The increasing use of high-bandwidth memory chips maintains strong demand for high-end chip test hardware. According to a statement made in April, Nvidia Corp. The supplier’s global share of the $1.9 billion memory chip testing market rose 7 percentage points to 63% in the latest fiscal year from the previous year.

Advantest Chief Executive Officer Douglas Lefever said in an earnings briefing that the increased guidance in its mid-term plan reflects “strong AI-related demand, improved supply capabilities and market share expansion.”

Iwai Cosmo Securities senior analyst Kazuyoshi Saito noted the optimistic tone, saying that Advantest management is confident that sales will exceed ¥1 trillion in the next fiscal year.

The broader rise of AI is expanding beyond AI-specific high-bandwidth memory chips into mainstream DRAM and NAND, driving demand for related materials and equipment. Interest in AI GPUs remains strong and could grow stronger by 2026, BI’s Wakasugi said in an interview.

“The age of AI has arrived,” Tokyo Electron CEO Toshiki Kawai said on the earnings call, adding that strong AI server demand and chip innovation required for AI servers “will be strong drivers of sustained, dramatic growth in investment in leading-edge semiconductors, with double-digit growth expected to continue beyond next year.”

Advantest shares rose 22% after reporting its biggest gain on record, while Tokyo Electron rose as much as 8.9%. Both strengthened their full-year guidance.

Government support and continued AI investment are strengthening optimism in the country’s technology sector. Japan has allocated about ¥5.7 trillion since 2021 to revitalize the chip industry, according to the Ministry of Economy, Trade and Industry. Lawmakers aim to provide about ¥1 trillion a year to continue support for chip and artificial intelligence development.

Yasuyuki Fukuda, chief portfolio manager for Nomura Asset Management’s Japan Information Electronics Equity Fund, said AI stocks are not in a bubble and there is room for further gains. The market is “just entering its second act.”

In contrast, demand for automotive and industrial semiconductors has yet to recover.

Renesas Electronics Corp. Its shares fell as much as 8%, the steepest drop in four months, after reporting results that pointed to a slower recovery and increased competition from cheaper power chips. Rohm Co. It also fell after forecasting a full-year operating profit of ¥5 billion, less than half of analysts’ forecasts and pointing to a loss in the second half. Resonac Holdings Corp. reported a quarterly operating loss for the first time since 2023 due to weak demand from a sluggish auto market.

Rohm expects automotive-related revenues from customers to decline in the final quarter of the fiscal year, President Katsumi Azuma said at a news conference last Friday. Azuma said the company anticipates the automotive-related market will recover in the next fiscal year.

This article was generated from an automated news agency feed without modifications to the text.