# Japan's chip equipment giants are losing China and betting on AI to fill the gap > Source: > Published: 2026-06-21 06:27:22+00:00 *Tokyo Electron, Screen Holdings and Advantest are learning what export controls look like after they leave the policy paper and hit the sales line.* The story is no longer theoretical. Tokyo Electron, Japan's largest semiconductor equipment maker, said China's share of revenue fell from 47.4% in the fourth quarter a year earlier to 26.8% by the fourth quarter of fiscal 2026. In yen terms, China sales dropped from 279.4 billion yen to 175.5 billion yen across the fiscal year. You don't need to dress that up. A market that once made Japanese chip-tool executives look unusually well positioned is now being fenced off by rules they don't control. The main cause isn't that China has lost interest in semiconductors. It hasn't. Japan moved in July 2023 to restrict exports across 23 categories of advanced chipmaking equipment, alongside the United States and the Netherlands, and those controls are now visible in company results. According to reporting by Value The Markets, Screen Holdings and Advantest have also been dealing with the same pressure after historically drawing roughly 24% to 30% of revenue from Chinese customers. Tokyo Electron has a cleaner escape route than most. Its full-year fiscal 2026 revenue reached 2,443.5 billion yen, a record, while net profit came in at 574.45 billion yen. The company is telling investors that tools tied to advanced chips should approach 40% of sales by fiscal 2026, helped by demand for AI servers, high-bandwidth memory and advanced packaging. On paper, that works. Frankly, it only works while the AI buildout keeps running hot. China wasn't a spare customer for these companies. It was the market that absorbed capacity, supported mature-node expansion and gave Japanese suppliers leverage when demand elsewhere was uneven. The restrictions touch the equipment used for the most advanced chips, but they also reach into the 14nm and 28nm capacity that Chinese fabs were still trying to expand. Research published by the Institute for AI Policy and Strategy makes the harder point: Japan's controls bite because Japanese firms hold near-monopoly positions in some tool categories. China can't just buy a perfect substitute from another shelf. That is real leverage. It is also a real cost. Screen Holdings and Nikon don't have another Shenzhen or Shanghai waiting with purchase orders of the same size. Singapore, Malaysia and Europe are trying to take more of the semiconductor supply chain, but fabs are slow physical things. Land has to be chosen, clean rooms built, utilities secured, engineers hired, tools installed. The order book follows that work. It doesn't arrive because an export-control lawyer says the map has changed. Tokyo Electron is spending as if the new map will eventually pay. Its planned R&D budget rises to 330 billion yen in fiscal 2027 from 277.8 billion yen, and the company is building a smart fab meant to triple output capacity. That is a serious commitment, not a press-release pivot. But you should still separate capacity from demand. A new factory helps only if TSMC, Samsung, SK Hynix and the next round of non-China fabs keep buying at the pace investors now expect. China is not standing still either. As the South China Morning Post has reported, Beijing has used export curbs on tungsten, a material used in chipmaking tools, to put pressure back on Japan. That is the part of decoupling people tend to skip. One side restricts machines. The other side restricts materials. Then companies that never wanted to be foreign-policy instruments have to explain the margin impact on an earnings call. ## The AI winners are not equal Tokyo Electron is best placed because its product mix fits the AI cycle more naturally. Its equipment supports advanced packaging and high-bandwidth memory manufacturing, the areas now tied closely to AI accelerator demand from TSMC, Samsung and SK Hynix. Advantest has a different kind of cushion. It makes chip-testing equipment, and its testers are needed for the HBM and logic chips going into AI systems. Screen Holdings has the tougher hand. Its cleaning and surface-treatment tools are widely used in mature-node fabs, exactly the part of China's semiconductor program that had been expanding aggressively before the export controls landed. If your strongest customer base is the one being narrowed by policy, you don't solve the problem with a slogan about AI. You need replacement orders, and those take time. The timeline is awkward. TSMC's Arizona expansion, Samsung's Taylor project in Texas and European chip investments under the EU Chips Act may all become meaningful customers for Japanese toolmakers. Most of that capacity, though, isn't expected to reach full production until 2027 or 2028. Until then, these companies are using AI demand to bridge the gap left by China. It's a reasonable bet, but it isn't the same thing as having the old China market back. A recent Financial Times report added another reason this story is still current: Tokyo Electron cut ties with Jay Chen, a former executive closely associated with its China business, after discovering family links to Chinese startups developing rival chipmaking tools. Tokyo Electron said it found no evidence that confidential information had leaked, according to the FT. Still, the episode shows how quickly the commercial problem has become a governance and security problem too. Value The Markets reported that Tokyo Electron declined to specify which customers are taking redirected capacity, while Screen Holdings and Advantest did not respond to its requests for comment. That silence fits the moment. Japanese equipment makers are trying to replace a huge China business without loudly naming who benefits from the shift. The earnings already say enough: this isn't a one-quarter wobble. 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