Tokyo Electron's China revenue fell from 279.4 billion yen to 175.5 billion yen as Japanese manufacturers pivot toward AI to offset geopolitical headwinds
Japan’s semiconductor equipment industry is learning what happens when your biggest customer gets cut off. Export restrictions targeting China’s access to advanced chipmaking technology have driven a 10% decline in China sales across Japan’s chip equipment sector, forcing manufacturers to rethink their revenue playbooks in real time.
The numbers are stark. Tokyo Electron, Japan’s largest semiconductor equipment maker, saw its China sales plummet from 279.4 billion yen to 175.5 billion yen in the third quarter of fiscal year 2026.
The export control squeeze #
Japan imposed restrictions on 23 categories of semiconductor manufacturing equipment back in July 2023, aligning with parallel efforts by the US and the Netherlands to choke off China’s access to advanced chip production tools.
China’s share of Tokyo Electron’s total sales dropped to 31.8%, an 8.5 percentage point decline compared to the previous quarter. TEL had previously expected China to account for 41-42% of its sales. The company now projects that figure will stabilize around 30% in the second half of FY2026.
TEL isn’t the only firm feeling the pinch. SCREEN Holdings, Advantest, and Nikon are all affected by the same restrictions. Historically, China accounted for roughly 24-30% of revenue for TEL and SCREEN in preceding years.
The AI hedge #
Tokyo Electron forecasts that AI-driven demand could represent up to 40% of its total revenue by FY2026. The company has already revised its sales forecasts upward on the strength of AI and other demand categories.
What this means for investors #
On the China side, investors should probably model China at roughly 30% of sales for TEL going forward. That’s down from the 41-42% peak. China still buys enormous quantities of legacy chip equipment that falls outside export control boundaries.
China’s domestic policies have been pushing its chipmakers toward local equipment alternatives. Overcapacity in legacy chips could depress equipment orders globally.
TEL’s upward revision of its sales forecasts, despite declining China revenue, suggests management is confident the AI tailwind can more than compensate. Investors watching this space should track two metrics closely: China’s percentage of quarterly revenue, and AI-related order backlog.
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