Japan Semiconductor Equipment Market Share in China Poised for Recovery

Overview

Published by Bernstein, this report focuses on the reasons, nature, and future trajectory of the declining market share of Japanese semiconductor equipment (WFE) companies in China. Data shows that Japanese equipment makers' import market share in China fell from 26% in 2024 to 23% in 2025, having previously reached 30% in 2021. However, the report argues this trend is not structural, primarily resulting from significant yen depreciation (31.5% over the past five years) and differences in investment pacing by key customers (such as CXMT). The FX-adjusted share actually stabilized at approximately 28.6%, close to the 2021-2023 average of 28.1%. Looking ahead, the report believes that as FX headwinds subside, Japanese equipment gains pricing room (highlighting cost-effectiveness post-yen depreciation), and Chinese customer orders normalize, Japanese equipment makers are poised to regain share starting in H2 2026. The report assigns Outperform ratings to TEL (Tokyo Electron) and Kokusai, and a Market-Perform rating to Screen.

Core views

The report's core views progress logically, analyzing industry aggregates first, then breaking down company-specific drivers, and finally presenting a reversal outlook. **Aggregate Level: Share Decline Driven by FX and Pacing, Not Structural Loss.** Japanese equipment makers' nominal share in China's import market dropped from 26% in 2024 to 23% in 2025. However, adjusting for FX impact (yen depreciated 31.5% against USD over the last five years), the 2024/25 market shares would be 31%/26% respectively, rather than 26%/23%. The FX-adjusted share averaged over 2024 and 2025 stands at 28.6%, comparable to the 2021-2023 average of 28.1%. This indicates the significant decline is mainly due to timing differences in customer orders (e.g., CXMT reducing investment due to expansion delays and funding issues) and nominal losses from yen depreciation, rather than a structural replacement of Japanese equipment competitiveness by domestic Chinese or other overseas vendors. Although Japan saw notable share declines in dry etch (TEL) and thermal process (Kokusai/Screen) in 2025, the report judges these losses are likely to be repaired between H2 2026 and 2027. **Micro Level: Three Major Front-End Equipment Makers Differ, But Reversal Logic Is Clear.** Tokyo Electron (TEL, Outperform): The 2025 share decline stemmed mainly from customer mix (reduced investment by CXMT, etc.) and insufficiently aggressive pricing. However, TEL has recently become more proactive on price hikes, especially for tools in China that are difficult to replace locally, adding surcharges. Screen (Market-Perform): Share loss was primarily because CXMT placed no orders for two years to push equipment localization, and DRAM customer Swaysure halted investment. Yet, in recent communications, Screen expects CXMT orders to return, substantial orders from JHICC, and YMTC order volumes to increase to 1.5x the prior year. Kokusai (Outperform): China's memory capacity expansion cycle is expected to support demand, and local competition in its core segments has not yet fully caught up. While localization of thermal processing in China poses a medium-term risk, the report believes 2025 data alone does not warrant changing the investment thesis. **Industry Catalyst: SPE Sector Relatively Lagging, Market Attention Set to Return.** The report notes that over the past 2-3 months, the semiconductor equipment (SPE) sector has significantly underperformed analog chip and material semiconductor stocks. However, the market will gradually recognize increased capex in coming years and the potential for Japanese equipment makers to recover share in China. Preference order is TEL > Kokusai > Screen. Furthermore, China's WFE market size in 2025 is approximately USD 50 billion (~42% of global), and still growing. Although localization (self-sufficiency rate expected to rise from 21% in 2025 to 43% in 2028) will compress the addressable share for import suppliers, the absolute value remains sufficiently large.

Analysis framework

The report primarily employs data decomposition and attribution methods, combining China Customs WFE import data, company disclosures, and the analyst team's proprietary estimates. It first identifies the phenomenon of declining import share for Japanese equipment makers in China in 2025, then decomposes the causes in two steps: (1) FX Impact—calculating the 'shrinkage effect' of yen depreciation on nominal share, deriving actual share trends by adjusting for FX (using 2015 as base year), finding adjusted share remained essentially flat; (2) Order Pacing Impact—analyzing share changes across specific process segments (dry etch, thermal, cleaning, deposition) and investment cycles of different customers (CXMT, JHICC, YMTC, Swaysure, etc.), proving the concentrated order decline in 2025 was episodic rather than structural. Next, using product-level and company-level data, it illustrates the specific reasons for share changes at TEL, Screen, and Kokusai, cross-validating against competitive dynamics where Malaysia/Singapore (corresponding to Lam Research/AMAT) gained share. Finally, based on judgments regarding the yen FX inflection point, pricing window, expected return of customer orders, and future capex growth, it reaches the core conclusion of a 'share reversal.' The report also reinforces valuation catalysts by comparing recent SPE sector performance against other semiconductor sub-sectors.

Methodology notes

• Industry Analysis FrameworkSupply-demand framework

  The core contradiction in the semiconductor equipment industry lies in matching supply (capacity/tech barriers) with demand (downstream wafer fab capex). The report analyzes the relationship between total demand (TAM) in China's WFE market and supply shares of equipment makers by country.

  The report first defines the total pie (TAM ~USD 50bn, 42% of global) of China's WFE market, then analyzes changes in Japanese equipment makers' slice of the import pie. This approach helps readers understand that share decline does not necessarily mean lost competitiveness for Japanese equipment; it could also result from structural changes in total demand (e.g., lithography equipment gaining share diluting Japan's portion).

• Industry Analysis FrameworkVolume-price decomposition

  The report decomposes nominal market share movements into 'FX factors' (price side) and 'order quantity factors' (volume side) to distinguish structural changes from temporary disturbances.

  Since Japanese equipment makers primarily price in yen, significant yen depreciation (31.5% over 5 years) systematically suppressed Japan's share in USD-denominated import data. By adjusting for FX to 'restore' actual share (2024-25 avg 28.6% vs. 2021-23 avg 28.1%), the report proves the so-called share decline is largely a currency denomination effect rather than genuine customer churn.

• Industry Analysis FrameworkCost curve analysis

  Post-yen depreciation, Japanese equipment became highly price-competitive, creating room for price hikes. This reflects cost competitive advantages brought by FX changes.

  The report argues yen depreciation makes Japanese equipment offer high 'value-for-money' to buyers, giving Japanese vendors confidence to proactively raise prices—without hurting competitive positioning while improving margins. This is a classic application of cost curve analysis: FX movements altered the position of Japanese equipment on the global cost curve.

• Industry Analysis FrameworkSubstitution Effect Analysis

  Analyzed whether Chinese customers are replacing Japanese equipment with domestic Chinese or other overseas equipment.

  Using import origin data, the report found rising shares for Malaysia (representing Lam Research) and Singapore (representing AMAT), alongside increasing domestic equipment self-sufficiency (expected to rise from 21% in 2025 to 43% in 2028). This indicates Japanese equipment indeed faces substitution pressure, but the magnitude is amplified by FX and customer pacing, and Japan retains advantages in cleaning and deposition.

• Valuation MethodologyPE/PEG valuation

  Report tables list historical/forward P/E ratios for each company to assess current valuation levels.

  The report provides 2025A, 2026E, and 2027E P/E multiples for companies like TEL, Screen, and Kokusai. For example, TEL drops from 50.7x in 2025A to 34.3x in 2027E, and Screen from 26.7x to 19.6x, reflecting valuation compression driven by earnings growth—a common method to gauge 'whether it is cheap enough.'

• Macroeconomic framework

  Analysis of FX rates (especially JPY/USD) impact on export competitiveness and nominal market share.

  The report treats the cumulative 31.5% yen depreciation over the past 5 years as a key macro variable, analyzing how it affects Japanese equipment makers' USD-denominated exports and nominal market share. This is a specific application within macro frameworks of 'FX impact on industry competitiveness.'

Asset mapping & comparison

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

• Tokyo Electron (8035.JP)

  Leading Japanese front-end equipment maker with high China revenue exposure; share loss mainly from customer pacing and insufficient pricing, but poised for reversal.

  Strengths

  More proactive pricing; certain tools (e.g., dielectric etch) hard to substitute locally; China customer mix to normalize.

  Weaknesses

  Historically insufficiently aggressive pricing; significant share decline in dry etch in 2025 (from 42% to ~30%).

  Comparison

  Top pick among Japanese front-end equipment makers (Outperform); preferred over Screen (Market-Perform).

• Kokusai Electric (6525.JP)

  Thermal/deposition equipment supplier; 2024-25 share loss directly linked to sharp CXMT investment cuts.

  Strengths

  China memory capacity expansion benefits demand; local competition in core segments not yet fully caught up.

  Weaknesses

  China thermal process localization poses medium-term risk.

  Comparison

  Report argues investment thesis shouldn't change based on 2025 share data; rated Outperform (OP), ranked below TEL but above Screen.

  Risks

  Advancing thermal process localization in China may cause medium-term share pressure.

• Screen Holdings (7735.JP)

  Leading cleaning equipment maker; 2025 share decline mainly due to customer investment abandonment (Swaysure) and CXMT localization trials.

  Strengths

  CXMT orders expected to return; large JHICC orders and YMTC increments; foundry customers remain reliant on Screen.

  Weaknesses

  Local competition in cleaning (e.g., ACMR) gaining traction; Screen share fell from 48% to 39% in 2025.

  Comparison

  Rated Market-Perform (MP), below TEL and Kokusai.

  Risks

  Accelerating substitution by domestic cleaning equipment makers.

Key data

• Japanese Equipment Makers' Import Share in China (2024 vs 2025)26% → 23%Peaked at 30% in 2021.
• Yen Depreciation vs USD Over Past 5 Years31.5%Report cites this as a primary driver of nominal share loss.
• Japan Equipment FX-Adjusted Share (2024/25 Avg vs 2021-23 Avg)28.6% vs 28.1%Adjusted shares are essentially consistent, supporting non-structural decline view.
• China WFE Market TAM (2025)~USD 50 BillionAccounts for ~42% of global WFE.
• China WFE Self-Sufficiency Rate (2025 Actual vs 2028 Est.)21% → 43%Rapidly rising self-sufficiency pressures global equipment makers' share.
• Japan Cleaning Equipment Import Share in China (2025 vs 2019 Trough)76% vs 30%Japan continues gaining share in cleaning segment.

Impact & implications

The report believes the cyclical decline and subsequent recovery of Japanese semiconductor equipment makers' share in China are critical factors influencing future revenue and stock prices. Specifically: (1) For Tokyo Electron (TEL, Outperform), the report is bullish on its more proactive pricing strategy in China and advantages in tools hard to substitute, expecting customer mix normalization to aid share recovery; (2) For Kokusai (Outperform), China's memory expansion cycle should bring ample demand, and local competition in its core thermal process segment has not fully caught up—while mid-term thermal localization poses risks, it is insufficient to alter the investment thesis; (3) For Screen (Market-Perform), despite near-term share damage, positives like returning CXMT orders, large JHICC orders, and incremental YMTC orders are emerging, supporting fundamentals. Overall, after 2-3 months of relative underperformance, the report judges the SPE sector will regain market attention driven by increased capex and expectations of China share recovery, with recommendation order: TEL > Kokusai > Screen.

Risks

• China domestic WFE self-sufficiency rising rapidly from 21% in 2025 to 43% in 2028, compressing addressable market for import suppliers.
• Continued advancement of thermal process localization in China may pose medium-term threats to Japanese thermal suppliers like Kokusai.
• Customer order pacing is unpredictable; if major customers like CXMT delay or reduce orders again, near-term share recovery could be impacted.
• Overly aggressive proactive price hikes could backfire on price competitiveness, accelerating customer migration to local or US-based suppliers.
• Global semiconductor capex cycle downturn or geopolitical risks could suppress overall demand in China's WFE market.

What to watch

• TEL's subsequent pricing strategy and surcharge implementation in China, and whether customer orders warm up.
• Realization of returning orders from Chinese customers (CXMT, JHICC, YMTC, etc.) for Kokusai and Screen.
• Pace of China WFE self-sufficiency improvement, especially speed of local substitution in thermal and dry etch segments.
• Yen FX trends; continued yen depreciation could further amplify nominal share 'contraction' pressure.
• Whether Japanese equipment makers' share in China resumes recovery from H2 2026, validating the report's 'reversal' thesis.