By bypassing export controls through customized products, Japanese companies want to open up the Chinese lithography machine market?

According to a recent report by the Nihon Keizai Shimbun, Nikon, a Japanese company, plans to launch a new lithography machine on the market in 2024, using the "i-line" old-generation light source technology in the early 90s of the last century to bypass Japan's export controls on advanced semiconductors. According to the report, this is the first time that Nikon has launched a new product after a gap of 25 years. In order to save the declining business, Japanese lithography machine companies plan to customize products, bypass export controls, and re-enter the vast Chinese market in order to make a comeback. At the same time, Canon, another Japanese lithography giant, is also looking forward to getting more orders from China. According to Japanese media reports, Canon plans to increase the number of technicians in China by 50% compared to 2020 and expand its customer service team in places such as Shanghai.

"Discussions are under way with the Ministry of Economy, Trade and Industry"

The Nihon Keizai Shimbun reported that the Japanese government began restricting the export of advanced semiconductors to China in July 2023, following the export control policy of the United States. But for semiconductor equipment manufacturers, China's huge market must not be abandoned.

In June this year, visitors learned about Nikon's lithography machine at the China International Semiconductor Equipment Manufacturing Exhibition. (Visual China)

For Nikon in particular, the pressure on its performance is increasing. On August 9, Nikon released its financial report, which is expected to reduce the company's net profit by 22% year-on-year to 35 billion yen (about 1.68 billion yuan) in fiscal 2023. Takeshi Takaya, a senior analyst at SMBC Nikko Securities, said, "In order to recover its performance as soon as possible, Nikon now needs to expand the profitability of lithography machines." Nikon's investments have always been skewed towards advanced sectors, but returns have been low for a long time, and targeting the sizable market of the i-line is the right strategy. ”

Before the 90s, Nikon, which had dominated the global market, and Canon, another Japanese lithography giant, finally lost out in the competition with the Dutch ASML. In the global lithography machine market in 2022, ASML accounted for 62% of the global market share, Canon had 31%, and Nikon had only 7%.

Nikon intends to target the Chinese market again, but the risk of doing so is not small. According to the Nihon Keizai Shimbun, Nikon is also "taking measures while worrying about violations." Masato Hamatani, General Manager of Nikon Seiki's Business Headquarters, said, "We are discussing with the Ministry of Economy, Trade and Industry that we should have no problem [developing new products to enter China]. We will actively promote sales in China. He also explained that "even if it is listed as an export control, it is not always impossible to export." Exports to China are allowed if the conditions such as equipment performance and customer use are met. ”

Lithography machine exhibits at the Expo

At the 6th China International Import Expo, the Global Times reporter learned at Nikon's booth that the lithography machine products that Nikon will show and introduce in China this time are the liquid immersion scanning lithography machines that will be launched in China. According to booth staff, Nikon's product line covers the equipment needed to produce a wide range of chips. Across the street from Nikon's booth, Renesas, another Japanese semiconductor company, also showcased its key production equipment for the production of semiconductors. Although still constrained by U.S. semiconductor export restrictions to China, China's booming digital economy industry continues to attract international semiconductor equipment manufacturers.

On August 9, Nikon released data showing that in the second quarter of fiscal 2023, Nikon sold only four lithography machines for the production of semiconductors, compared with eight in the same period last year. Analysts believe that this is just the beginning, and after the Japanese ban is imposed, Nikon's lithography machine shipments may be lower, because fewer are sold to China. It's unclear whether shipments of Canon's lithography machines are also affected. Analysts believe that Canon is not immune to the same situation.

In contrast, ASML's lithography machines are a different kind of performance in the Chinese market. On October 18, ASML announced its financial results for the third quarter of 2023, and sales from China rose to 46% of its global sales, up from 24% and 8% in the previous two quarters. ASML's CFO explained that in addition to the fact that most of the shipments are orders made in 2022 or earlier, it is more important that ASML's lithography machines shipped to the Chinese market are based on mature technology processes and are allowed to be exported.

Luo Guozhao, an expert in the semiconductor industry and editor-in-chief of CHIP Qipu Technology, told the Global Times on the 13th that China is the only lithography machine market in the world that has visible growth and broad development potential. "And this is also the fundamental reason why ASML and Nvidia are unwilling to give up the Chinese market repeatedly."

Luo Guozhao said that in the context of the weak global economy, all of Nikon's main product lines are facing downward pressure, and lithography machines are one of the few businesses that can turn around the decline in business. Luo Guozhao believes that Nikon's i-line technology is superior to Canon, but inferior to ASML. However, under the current situation that the high-end business of lithography machines is limited by export controls, Nikon is "a smart approach" to seek to launch new products on i-line technology to enter the Chinese market. Luo Guozhao added that Nikon's lithography machines already have a certain number of products in China, and they are compatible with i-line technology, so Nikon's existing customers in China can smoothly transition to new products. These are all favorable factors for Nikon to launch lithography machine products in China.

"Nikon needs to move faster"

According to the light source, the mainstream lithography machines on the market can be divided into five types: g-line, i-line, KrF, ArF, and EUV. An analyst at Guojin Securities believes that although i-line lithography technology has been replaced by deep ultraviolet lithography technology, i-line lithography machines are still needed for some old semiconductor processes and manufacturing processes, MEMS (microelectromechanical systems) manufacturing, display manufacturing, and large-scale photomasks.

The Nihon Keizai Shimbun believes that in the case of export controls, whether it can recover the situation by opening up the Chinese market will become a litmus test for whether Nikon can achieve recovery. In an interview with the media, Kiharu Mori, a partner at Tokyo International Law Firm, believes that Nikon's strategy of returning to the Chinese market also reflects the problems faced by the entire manufacturing industry in Japan from another aspect: losing to competitors in the development competition in cutting-edge fields, being at a disadvantage in the competition in high-value-added fields, and shrinking the scale of its business. Enterprises can only hope for a "low-price strategy".

Luo Guozhao believes that the semiconductor market is fiercely competitive, and there are many uncontrollable factors. Geopolitics will have an impact on Nikon's plans. For example, if the United States has eased relations with China, export controls on advanced semiconductors have been relaxed, and ASML's high-end products have re-entered China, then Nikon's current plans may be in vain. "If you want to regain a certain share of the Chinese market, Nikon needs to move faster. ”