Monthly tracking of Japanese small and mid-sized technology manufacturers: AI, data centers, and semiconductor materials remain the main themes

Overview

This is a Morgan Stanley investor briefing on monthly technology trends among Japanese small and mid-sized manufacturers, covering semiconductor materials, semiconductor manufacturing equipment, test equipment, electronic materials, advanced packaging, power equipment, computers, smartphones, PCs, home appliances, industrial equipment, and automotive. The report focuses on AI and data center demand, WFE growth, semiconductor capex, penetration into the Chinese supply chain, material capacity expansion, and the latest earnings and guidance for several covered companies.

Core views

The central view is that business conditions are clearly diverging within technology-related small and mid-sized manufacturers. Semiconductor materials, front-end materials, test equipment, probe cards, advanced packaging materials, and data center-related power equipment have strong demand support; higher counts of AI-related devices and performance upgrades are expanding demand in the testing segment; Chinese semiconductor capex remains robust, and supply chain penetration capability is becoming a differentiating factor in earnings. At the same time, demand for smartphones, PCs, home appliances, and consumer electronics is weak, and while Middle East procurement risks have eased somewhat, high prices and lagged price pass-through remain risks.

Analysis framework

The report combines monthly industry tracking with company updates: it starts by looking at share price, orders, and sales trends for semiconductor-related companies, then breaks down demand drivers by equipment, materials, and end-use applications, and finally validates the themes through the earnings, guidance, margins, and medium-term plans of companies such as Micronics Japan, Tokyo Seimitsu, TOWA, Ferrotec, Daihen, Japan Material, Nitto Boseki, Toyo Gosei, MEC, Fuso Chemical, Fujibo Holdings, Asahi Diamond Industrial, and ZACROS.

Methodology notes

• Industry cycle trackingSemiconductor WFE and order-sales trend analysis

  Assess the business cycle for semiconductor equipment and components through WFE growth, order assumptions, revenue growth, and margin changes.

  The report repeatedly references WFE market growth, semiconductor equipment order plans, and the recovery in component demand to gauge growth-rate expansion and earnings contribution for equipment-related companies.

• Demand driver decompositionAI and data center demand mapping

  Map demand for AI-related devices, data centers, HBM, DRAM, NAND, and advanced packaging to test equipment, probe cards, electronic materials, and power equipment.

  The report argues that more AI-related devices, performance upgrades, and data center investment will increase testing workloads, expand probe card demand, support demand for low-CTE and low-dielectric materials, and raise attention on power equipment.

• Supply chain competitiveness analysisDifferentiation by Chinese supply chain penetration

  Assess company earnings contribution by the depth of its penetration into the Chinese semiconductor supply chain.

  The report notes that Chinese semiconductor capex remains strong, and the degree of entry into the Chinese supply chain is becoming a differentiating factor for returns contribution.

• Company fundamentals validationCross-checking earnings, guidance, and medium-term plans

  Use company revenue, operating profit, margins, order plans, capacity expansion, and medium-term targets to validate industry themes.

  The report lists each company’s latest fiscal-year results, next-fiscal-year guidance, margin changes, and medium-term targets to see whether industry strength is translating into company earnings.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Semiconductor materials and electronic materials companies

  Benefit from AI, advanced packaging, front-end process materials, and Chinese semiconductor capex.

  Strengths

  Demand for photoresists, CMP slurry, wiring materials, low-CTE, and low-dielectric materials remains solid; some companies have room for price revisions and capacity expansion.

  Weaknesses

  It takes at least two years from land acquisition to mass production for capacity expansion, and depreciation and initial costs may pressure near-term margins.

  Comparison

  Compared with ordinary volume-growth logic, advanced packaging offers a higher-quality growth driver through larger scale, multilayer structures, and higher density.

  Risks

  Middle East procurement risk, high raw material prices, delayed price pass-through, and execution risk in capacity construction.

• Semiconductor manufacturing equipment and test-related companies

  Benefit from WFE growth, the end of inventory adjustment, more AI-device testing projects, and demand for HBM/DRAM/NAND.

  Strengths

  Demand for testers, probers, and probe cards is driven jointly by more AI-related devices and performance improvements; better temperature control and supply capabilities help secure orders.

  Weaknesses

  The initial cost of some new equipment and uncertainty around order timing may affect margins.

  Comparison

  Test and probe-card segments benefit more directly from the increase in the number of testing projects than general equipment does.

  Risks

  WFE growth below expectations, order delays, and volatility in customer capex.

• Data center and power equipment-related companies

  Benefit from AI data center investment and rising interest in power equipment such as transformers from the private sector.

  Strengths

  Data center demand remains strong, energy storage system demand continues, and transformer interest is increasing.

  Weaknesses

  Project delivery, cost control, and subsidiary profitability improvement remain key issues.

  Comparison

  Compared with the consumer electronics chain, data center and power equipment demand has more structural support.

  Risks

  Changes in capex timing, equipment delivery bottlenecks, and slower-than-expected margin improvement.

• Smartphone, PC, home appliance, and consumer electronics-related companies

  Highly sensitive to end-market consumer demand and memory price changes.

  Strengths

  If end-market restocking recovers, related components and materials may benefit.

  Weaknesses

  The report remains cautious about demand weakness and production cuts caused by rising memory prices; stagnation in home appliance and consumer electronics demand has already been reflected in company plans.

  Comparison

  Compared with the AI and data center chain, the consumer electronics chain has lower demand certainty.

  Risks

  Rising memory prices, weak end demand, inflation suppressing consumption, and lower production volumes.

• Industrial equipment and automotive-related companies

  Affected by semiconductors, defense, and changes in customer structure.

  Strengths

  Semiconductor- and defense-related areas are considered promising.

  Weaknesses

  Automotive demand depends on differences in customer mix, and visibility is weaker than in the data center chain.

  Comparison

  The industrial and automotive chains are more driven by individual customers and order mix.

  Risks

  Shifts in customer mix, automotive demand volatility, and slower industrial orders.

Key data

• Report date2026-05-25 08:58 GMTInvestor briefing, region: Japan.
• Micronics Japan F12/26 1QRevenue ¥20.9bn, OP ¥5.65bn, OP margin 27.0%2Q plan revenue ¥24.8bn, OP ¥7.25bn; 3Q plan revenue ¥25.9bn, OP ¥9.0bn, with margins expected to improve as product mix improves.
• Tokyo Seimitsu F3/26Revenue ¥166.9bn, +5% YoY; OP ¥33.7bn, +16% YoYF3/27 guidance calls for revenue of ¥181.5bn and OP of ¥40.0bn; first-half semiconductor equipment orders are planned to rise 20% YoY.
• TOWA F3/27 guidanceRevenue ¥64.0bn, OP ¥10.24bnDemand from HBM, general-purpose memory, and advanced packaging remains strong, but the initial cost of WLP equipment will pressure margins.
• Ferrotec F3/26Revenue ¥288.9bn, +5% YoY; OP ¥27.6bn, +14% YoYThe company assumes the WFE market will grow 20%; vacuum sealing and metal processing revenue are expected to grow 38%; optical transceivers are driving demand for thermo modules.
• Daihen F3/27 planRevenue ¥280.0bn, OP ¥25.0bn, OP margin 8.9%Semiconductor and power equipment contribute to profit, but Europe and newly acquired domestic subsidiaries weigh on margins.
• Japan Material F3/26Revenue ¥58.0bn, +10% YoY; OP ¥14.6bn, +31% YoYF3/27 guidance is revenue ¥61.0bn and OP ¥15.5bn, with inflationary costs such as labor planned to be passed through via service pricing.
• Nitto Boseki F3/27 guidanceRevenue ¥137.0bn, OP ¥26.0bnElectronic Materials is expected to generate revenue of ¥77.0bn; T-glass growth is driven by higher volumes and price revisions.
• MEC F12/26 1QRevenue ¥6.13bn, +39% YoY; OP ¥2.08bn, +90% YoYDemand was strong, driven by the CZ series, and the company raised its first-half and full-year revenue and OP guidance.
• Fuso Chemical F3/31 medium-term targetRevenue ¥120.0bn, OP ¥36.0bn, EBITDA ¥56.7bnThe Electronic Materials OP target rises from ¥15.9bn in F3/26 to ¥32.0bn in F3/31.
• ZACROS F3/27 guidanceRevenue ¥176.0bn, +11% YoY; OP ¥11.2bn, +1% YoYThe company has already assumed about ¥0.9bn of negative impact on OP from Middle East risk; growth businesses include ABF, SUB, and overseas packaging containers.

Impact & implications

In terms of investment implications, the report supports continued focus on Japanese small and mid-sized manufacturers benefiting from AI, data centers, advanced packaging, HBM, front-end materials, and Chinese semiconductor capex. Within the equipment chain, test equipment, probers, probe cards, and higher-value product mix improvement appear more resilient; within the materials chain, low-CTE, low-dielectric materials, photoresists, CMP slurry, wiring materials, and electronic glass have long-term capacity expansion and price-pass-through themes. By contrast, exposure to end-market consumer electronics, demand volatility caused by rising memory prices, and lagged cost pass-through may limit margin recovery for some companies.

Risks

• Although Middle East-related procurement risks have eased somewhat, high prices and delayed price pass-through may still pressure profits.
• Smartphones and PCs may be affected by rising memory prices, weak demand, and lower production volumes.
• Home appliance and consumer electronics demand is stagnant, and inflation may still suppress end demand.
• The expansion cycle for materials companies is long; from land acquisition to plant construction and equipment installation takes at least two years, creating execution and depreciation pressure.
• If WFE, HBM, advanced packaging, or Chinese semiconductor capex falls short of expectations, earnings resilience in the equipment and materials chains will weaken.
• Some companies face risks from initial mass-production costs, subsidiary profit drag, and higher raw material and fuel costs.
• The report contains Morgan Stanley disclosures regarding conflicts of interest and investment banking relationships for several covered companies, which should be read together with the disclosures.

What to watch

• The next Tech Monthly session is scheduled for June 23 (Tuesday), from 9:00-10:00 and 16:00-17:00 JST.
• Continue tracking WFE market growth, semiconductor equipment orders, the revenue cadence in 1H and 2H, and the share of higher-value products.
• Watch whether demand for HBM, general purpose DRAM, NAND, and advanced packaging continues to drive probe card, tester, and prober demand.
• Observe the progress of Chinese semiconductor capex and the penetration of Japanese materials and equipment companies into the Chinese supply chain.
• Track capacity expansion, price revisions, and margin changes for electronic materials such as low-CTE, low-dielectric materials, T-glass, NER glass, ABF, and SUB.
• Monitor changes in data center power architecture, such as vertical power delivery, as well as demand for energy storage systems and transformers.
• Watch the impact of rising memory prices on smartphone and PC production volumes.
• Observe whether Middle East risks, raw material costs, and fuel costs can be passed through to customers smoothly.