In the context of the easing of trade friction between China and the United States, Ferrotec Holdings Corporation, which manufactures semiconductor materials and equipment components in Japan, has chosen to continue to invest in high-level equipment for China.

Ferrotec plans to increase its equipment investment in FY 2019 (as of March 2020) by 30% year-on-year to 48 billion yen, the highest in a single year. Among them, investment for China accounted for 96%, reaching 46 billion yen. The largest investment is in the production of semiconductor material wafers at the Hangzhou plant. It is planned to start mass production of 200mm wafers in January 2020.

"To tell the truth, I feel that the friction between China and the United States has a positive side for our company." At the May earnings briefing, Ferrotec Vice President He Xianhan was confident in the prospects of China's business.

In the process of Sino-US trade friction, Ferrotec continued to invest in China because the company believes that the domestic production of semiconductors in China will accelerate. Ferrotec is particularly concerned with the field of traditional semiconductors (non-tip semiconductors). Traditional semiconductors refer to low-cost semiconductors that are three generations behind the most cutting-edge semiconductors and are used in popular products such as home appliances. It has also been applied to facial recognition chips, and it is reported that demand is expected to grow.

Compared with the most advanced semiconductors, traditional semiconductors are not easy to be targeted by the United States, and China is currently likely to expand production. As of 2018, China’s semiconductor self-sufficiency rate is around 15%. It is planned to increase to 70% by 2025. Even if it is affected by US sanctions, China is expected to use its own equipment to manufacture traditional semiconductors.

At present, many Chinese semiconductor manufacturers are promoting the construction of traditional semiconductor factories. If used in China, semiconductor manufacturing equipment will drive demand for equipment components such as quartz and ceramic products from Ferrotec.

In the most advanced semiconductors, China is also likely to promote localization when the United States has not expanded its intervention. However, many fabs in China are also developing rapidly. As a result, Ferrotec's wafer and equipment parts cleaning needs are expected to expand. Parts cleaning requires expertise such as metal pollution countermeasures, and the company has already occupied 60% of the market in China.

Mr. Hasegawa of Mitsubishi-Japan's Morgan Stanley Securities said, "In the field of 200mm wafers, Ferrotec has a technological advantage and has established a sales network." Ferrotec has a sales network as of 2021. In the medium-term business plan of the year (as of March 2022), it is proposed to increase the combined sales by 40% compared with the 2018 fiscal year to a scale of more than 125 billion yen.

However, in the short term, it will inevitably encounter the headwind of Sino-US friction. The parts used in the semiconductor equipment produced by the company belong to the United States to impose tariffs. This will be the main reason for lowering the company's consolidated operating profit in FY 2019.

In addition, the market is also skeptical about Ferrotec's ambitious medium-term goals. The company's stock closed at 774 yen on June 26, down 7% from the end of May, when the medium-term target was proposed. There are voice concerns that large-scale investments will lead to debt inflation. The company's self-owned capital ratio at the end of FY18 was 30%, a decrease of 19% from three years ago, so the market's concerns are very strong. Some voices pointed out that "I hope to be able to recover the funds" (a Japanese domestic securities company). Turning Sino-US friction into a Dongfeng as soon as possible, and steadily harvesting the fruits of large-scale investment has become a necessary condition to dispel market concerns.

The performance of Ferrotec is also the main idea of ​​the entire Japanese semiconductor company.