Tokyo Electron
Sells capital equipment (coater/developer, etch, deposition, cleaning, wafer probers/bonders) to chipmakers, plus a recurring field-solutions business (parts, services, modifications, used equipment) attached to a company-cited installed base of 96,000+ tools; field solutions were JPY 626.0B (~26%) of FY2026 sales
Earnings, margins, COGS & capex
FY2026 (ended Mar 2026) was a record but near-flat year (JPY 2,443.5B, +0.5%) as a China digestion trough (China mix fell from 41.7% to 34.1%) offset AI-driven logic/DRAM demand; gross margin compressed 1.8pp to 45.3% on soaring parts/materials costs, product mix, and field-engineer expansion, while operating margin fell 3.1pp to 25.6% partly on a deliberate R&D step-up (JPY 277.8B, +11.1%). Net income rose 5.6% to a record JPY 574.4B (EPS JPY 1,254.57) - note it was boosted by JPY 115.4B of extraordinary income from selling strategic shareholdings - with record FCF of JPY 433.2B. The exit rate was strong: Q4 revenue JPY 711.8B (+28.9% QoQ), GM 46.8%, OM 28.9%, EPS ~21% above analyst forecasts. H1 FY2027 guidance of JPY 1,570B (+33.1%, ~11% above the ~JPY 1,420B consensus) at 27.5% OM, plus management's statement that H2 growth should be stronger than H1, puts FY2027 on a path to clear the medium-term plan's >= JPY 3 trillion sales target for FY2027 (the >= 35% OM and >= 30% ROE targets are the stretch; FY2026 ROE was 29.6%).
Income statement — where each revenue dollar goes
% of revenueOf every $1 of revenue, ~55¢ is cost of goods and ~20¢ operating expense, leaving ~26¢ of operating profit (~24¢ net).
Revenue trend
Margins
down 1.8pp YoY on parts/materials cost inflation, product mix, and field-engineer expansion; recovered to 46.8% in Q4 FY2026; H1 FY2027 guided 45.5%
troughed at 21.0% in Q3 FY2026; Q4 28.9%; H1 FY2027 guided 27.5% (record half)
flattered by a JPY 115.4B extraordinary gain on sale of strategic shareholdings; underlying net margin lower
up; Q4 FCF JPY 239.0B was also a quarterly record
COGS structure
COGS is dominated by precision components and subassemblies (vacuum valves, RF power, mass-flow controllers, chambers, robotics) from a global supplier base, plus assembly at Japanese plants (Miyagi, Kumamoto, Yamanashi, and the new Iwate production and logistics center). FY2026 gross margin fell 1.8pp to 45.3% on soaring parts and materials costs, product-mix changes, and more field engineers outside Japan; FY2026 SPE new equipment mix was 59% non-memory (logic/foundry), 31% DRAM, 10% non-volatile memory.
Capex
Asset-light relative to chipmakers: FY2026 capex JPY 216.0B (~8.8% of sales), mainly completing development buildings in Miyagi and Kumamoto and the Iwate production/logistics center; the FY2027 plan steps down to JPY 190B while R&D steps up to JPY 330B - the real capacity investment is engineering headcount and process-development infrastructure (a new smart-production building in Miyagi completes summer 2027).
Latest earnings
Beat - Q4 EPS JPY 468.67, ~21% above analyst forecasts; FY2026 operating income JPY 624.9B vs the company's own February 2026 estimate of JPY 593B; the stock rallied on the print and guidance
H1 FY2027 net sales JPY 1,570B (+33.1% YoY, ~11% above consensus), operating income JPY 431B (+42.2%, 27.5% OM), net income JPY 328B (EPS JPY 721.12) - all guided to half-year records. From FY2027 TEL switched to disclosing half-year (not full-year) estimates, citing lumpier customer investment; management expects H2 FY2027 growth stronger than H1 on DRAM and leading-edge logic shipments in late CY2026. WFE market outlook: $150-170B/year in CY2026-27 (20%+ vs CY2025), leading-edge applications 30%+ growth. Interim FY2027 dividend forecast JPY 361/share. Next report (Q1 FY2027): expected late Jul / early Aug 2026 (date not yet posted on TEL's IR calendar).
- FY2026 net sales
- JPY 2,443.5B (record, +0.5%)
- FY2026 net income / EPS
- JPY 574.4B / JPY 1,254.57 (includes JPY 115.4B extraordinary gain on sale of strategic shareholdings)
- FY2026 FCF / cash
- JPY 433.2B FCF (record) / JPY 506.2B cash and equivalents
- China revenue mix
- 34.1% FY2026 full year (41.7% FY2025); 26.8% in Q4 FY2026 vs 47.4% in Q4 FY2024
- FY2026 SPE new equipment / field solutions
- JPY 1,775.4B (59% non-memory, 31% DRAM, 10% NAND) / JPY 626.0B (+16.3%)
- Shareholder returns
- 50% dividend payout policy (DPS floor JPY 50); FY2026 total return JPY 437.4B incl JPY 149.9B buyback; ROE 29.6%
Growth drivers
- AI server buildout — advanced logic (GAA/2nm) and DRAM/HBM capacity additions - coater/developer revenue guided to grow >50% and etch >25% (management: nearly 30%) in FY2027
- 3D NAND spending recovery after a multi-year pause — non-volatile memory rose to 10% of FY2026 SPE new equipment sales from 7% in FY2025, and layer-count upgrades favor TEL etch/deposition
- Advanced packaging (HBM bonders/debonders, logic probers, 3D integration) guided to grow >60% in FY2027 from a ~JPY 200B FY2026 base; leading-edge logic prober sales expected to top JPY 100B in FY2027
- POR wins in FY2026 — high share in DRAM capacitor and HBM interconnect etch processes, plus multiple advanced-packaging PORs spanning frontend to 3D integration and test
- Field solutions (parts/services/modifications) grew 16.3% to JPY 626.0B in FY2026 on rising fab utilization and the 96,000+ tool installed base
Bull & bear
TEL is an irreplaceable AI-infrastructure toll booth: a 91%-share monopoly product tied to every EUV scanner, top-tier etch/deposition franchises leveraged to HBM/DRAM and a restarting NAND cycle, guiding +33% H1 FY2027 growth at record-half margins with H2 guided stronger - while China exposure declines organically and the balance sheet is net cash.
- H1 FY2027 guidance (JPY 1,570B, +33.1%; OP JPY 431B, +42.2%) came in ~11% above consensus on sales - the cycle is inflecting up, not down, and management says H2 should be stronger than H1
- Coater/developer (91% share) guided +50%, etch +25-30%, advanced packaging +60% in FY2027; H1 SPE new equipment sales guided +41%
- Q4 FY2026 proved margin recovery: GM 46.8%, OM 28.9%, EPS ~21% above forecasts
- China de-risking is underway organically: China mix fell from 47.4% (Q4 FY2024) to 26.8% (Q4 FY2026) while total revenue hit records
- Record FCF (JPY 433.2B), net cash, 50% payout plus buybacks, and FY2027 revenue tracking above the JPY 3T medium-term-plan target
- NAND recovery is early - NVM rose to only 10% of FY2026 SPE sales after years of underinvestment, leaving a layer-count upgrade wave where TEL etch/deposition content is high
At ~$205-220B market cap (~50x reported trailing earnings, flattered by a one-off gain), TOELY prices in flawless execution of an AI capex supercycle. Any 2027 digestion in HBM/logic spend, a memory downturn, tighter China export controls hitting the remaining ~27-34% China mix, yen appreciation, or a protracted Middle East supply-chain disruption would compress estimates and the multiple simultaneously.
- Valuation: ~50-55x trailing P/E (~$3.9B FY2026 net income at ~148 JPY/USD vs ~$205-220B cap) - and trailing earnings include a JPY 115.4B one-off gain on selling strategic shareholdings; roughly ~40x forward even if FY2027 delivers ~JPY 700-750B net income - little room for a guide-down
- FY2026 just demonstrated the downside shape: growth stalled to +0.5% and operating margin fell 3.1pp when one region (China) digested
- TEL now discloses only half-year guidance (policy change from FY2027) - full-year visibility is structurally lower, and WFE historically corrects hard after two-year booms (2019, 2023)
- Export-control escalation is a live tail risk on ~34% of FY2026 revenue; TEL is exposed to both US and Japanese policy rounds and cannot lobby Washington the way AMAT/LRCX can
- NAURA and AMEC are structurally taking Chinese domestic share - the China revenue that remains skews lower-quality and eroding
- Memory (DRAM+NAND ~41% of FY2026 SPE sales) makes TEL earnings more volatile than KLA/ASML through a downturn; yen strength adds an uncorrelated headwind for ADR holders; management itself flags Strait of Hormuz supply-chain risk
What it is worth
Peer comps (AMAT, LRCX, KLAC, ASML) + reverse-DCF sanity check on the ADR; JPY figures converted at ~145-150 JPY/USD (assumption)
ADR ~$140-170: 2027 AI capex digestion, a new China export-control round hitting the remaining ~27-34% China mix, or a protracted supply-chain disruption cuts revenue 10-15% and OM to ~23-24%; multiple de-rates to ~25x on cyclical earnings
ADR ~$220-250: H1 FY2027 guide delivers but H2 only matches it; ~JPY 3.1-3.2T revenue, ~27-28% OM, multiple compresses toward ~32-35x forward
ADR ~$300+: FY2027 revenue clears the JPY 3T target (H1 1,570B + stronger H2), OM approaches 30%, NAND recovery layers on top of HBM/logic, multiple holds ~40x on scarcity value
At ~$205-220B market cap vs FY2026 net income of JPY 574.4B (~$3.9B at ~148), TOELY trades ~50-55x reported trailing earnings - and that trailing number is flattered by a JPY 115.4B one-off gain on selling strategic shareholdings, so the underlying multiple is higher. That is a premium to AMAT/LRCX (typically ~25-35x forward this cycle) which narrows to roughly ~40x forward if FY2027 delivers on the guided H1 (net income JPY 328B) plus management's stronger-H2 framing (~JPY 700-750B full-year net income is the continuation case). The price embeds sustained ~20-30% revenue growth into the >= JPY 3T medium-term target and high-20s operating margins through FY2028 - achievable in the AI-capex bull case, demanding versus WFE's historical cyclicality. Vintage: Jul 2026.
SWOT
Strengths
- Near-monopoly (91% share, CY2025 per Gartner-based TEL disclosure) in coater/developers - the track tool paired with every ASML lithography scanner, including EUV
- Top-tier global positions in etch (>50% share in dielectric etch), deposition (38% in CVD) and cleaning; one of the four non-litho WFE majors (with AMAT, LRCX, KLAC) that leading-edge fabs cannot build without
- Record FCF (JPY 433.2B FY2026), net-cash balance sheet, 50% dividend payout policy plus buybacks (JPY 437.4B FY2026 total return)
- Deep co-development ties with TSMC, Samsung, SK hynix, Micron, Intel and imec at 2nm/GAA and HBM nodes; FY2026 POR wins in DRAM capacitor and HBM interconnect etch
- Recurring field-solutions revenue (JPY 626.0B FY2026, +16.3%) cushions the WFE cycle
Weaknesses
- FY2026 showed the cyclicality: +0.5% growth and 3.1pp operating-margin compression in a digestion year
- China still 34.1% of FY2026 revenue - the largest single geographic concentration and the most policy-exposed
- Yen-denominated cost base with global revenue — yen strength is a direct margin/translation headwind for ADR holders
- Overall dry-etch share (~23% CY2025) trails LRCX/AMAT outside its dielectric-etch stronghold; newer deposition entries are still share-building
- US-listed exposure is an OTC ADR with thinner liquidity and no US-GAAP/SEC filings (Japanese-standard, JPY reporting)
Opportunities
- AI supercycle — >50% coater/developer growth, >25% etch growth, >60% advanced-packaging growth guided for FY2027; H1 FY2027 SPE new equipment sales guided +41% to JPY 1,200B
- 3D NAND upgrade cycle restarting after years of underinvestment — TEL cryogenic etch is a differentiator at high layer counts
- FY2027 is the medium-term plan's target year (net sales >= JPY 3T, OM >= 35%, ROE >= 30%): the sales target looks within reach on the H1 guide plus stronger-H2 commentary; the 35% OM target is the stretch (H1 guided 27.5%)
- Advanced packaging expansion (probers, HBM bonder/debonder, permanent wafer bonding for logic 3D integration) from a ~JPY 200B FY2026 base
- Japan's government-backed fab buildout (Rapidus 2nm, TSMC Kumamoto, Micron Hiroshima) is home-turf demand
Threats
- Tighter US/Japan export controls on China could compress the 34% China mix faster than advanced-node demand replaces it
- Chinese domestic toolmakers (NAURA, AMEC) are climbing the capability curve in etch/deposition, eroding TEL's mainland share over time
- WFE is inherently cyclical — an AI capex digestion in 2027-28 would hit orders with high operating leverage in reverse
- Memory-price downturns can freeze DRAM/NAND capex abruptly (TEL is more memory-exposed than KLA)
- Supply-chain disruption — management flagged a protracted Strait of Hormuz blockade as a parts/materials risk to monitor (Apr 2026), though H1 FY2027 parts are secured; customer concentration in a handful of leading-edge fabs compounds order volatility
Moats, dependencies & bottlenecks
Moats
Track systems are qualified inline with ASML scanners including EUV; switching is a multi-year requalification no fab undertakes mid-node; EUV multi-patterning at DRAM/logic grows track intensity
GAA/2nm and HBM process recipes are co-developed with TSMC/Samsung/SK hynix/Micron over years; FY2026 POR wins (DRAM capacitor, HBM interconnect etch, advanced packaging) persist across node generations
Company-cited 96,000+ installed tools generated JPY 626.0B of recurring parts/service/modification revenue in FY2026 (+16.3%), which is cycle-resilient
Only AMAT/LRCX/ASML/KLA spend comparably; the R&D bar itself excludes new entrants outside China
>50% share in dielectric etch and 38% in CVD (CY2025), but ~23% overall dry-etch share - contested by LRCX/AMAT in conductor etch
Dependencies
A handful of leading-edge fabs set the order book; HBM/logic capex timing is the single biggest earnings driver - the reason TEL moved to half-year-only guidance
partner/complement Coater/developer demand is directly coupled to EUV scanner shipments and EUV multi-patterning adoption
34.1% of FY2026 revenue from China; Japan METI rules track US BIS rules
MKS, Advanced Energy, Horiba, Ultra Clean, Ichor) Vacuum valves, RF power and flow control are oligopoly inputs; 2021-22 showed lead-time fragility, and management is monitoring Strait of Hormuz-driven parts/materials risk
Yen-based costs, global revenue (TEL notes export sales are largely yen-invoiced, muting direct FX impact on profits); yen strength still compresses ADR returns
Advantages
- Only non-US Western toolmaker with full leading-edge access — a geopolitical hedge for customers diversifying from US vendors
- Product breadth across coat/develop, etch, deposition, cleaning, probing and bonding lets TEL sell integrated process modules and win multi-product advanced-packaging PORs
- Net-cash balance sheet funds counter-cyclical R&D (FY2027 R&D up to JPY 330B even as capex steps down to JPY 190B)
- Home-market advantage in Japan's subsidized fab expansion (Rapidus 2nm, TSMC Kumamoto, Micron Hiroshima) - Japan was 9.8% of FY2026 sales
- Record FCF conversion and 50% payout policy plus buybacks give shareholder-return support through the cycle
Weaknesses
- No US exchange listing — OTC ADR with thinner liquidity, JPY/Japanese-standard reporting friction for US holders
- More memory-cyclical than KLA/ASML peers (DRAM+NAND was ~41% of FY2026 SPE new equipment sales)
- Contested positions in conductor etch and several deposition segments vs LRCX/AMAT (overall dry etch ~23%, ALD ~15% share CY2025)
- China share erosion to domestic vendors is structural, not cyclical
- Margin structure sensitive to parts/materials and Japanese wage inflation, as FY2026's 1.8pp GM decline showed
Bottlenecks
- Engineering headcount for process co-development — the binding constraint on serving simultaneous GAA, HBM and NAND ramps; FY2026 field-engineer expansion outside Japan was a stated margin drag
- Field-service engineer capacity at customer fabs during multi-fab ramp overlaps (Arizona, Kumamoto, Korea, Taiwan)
- Component lead times (RF generators, vacuum subsystems) in an industry-wide upcycle; management says H1 FY2027 parts and materials are already secured
- Strait of Hormuz blockade, if protracted, is a management-flagged parts/materials supply-chain watch item (Apr 2026)
- China policy headroom: how much of the remaining ~27-34% China mix survives further export-control rounds
Top signals & trends
Top signals
Given 2026-04-30 with 'H2 stronger than H1' commentary; watch the Q1 FY2027 print (expected late Jul / early Aug 2026) for confirmation
Cost pressure of mid-FY2026 (Q3 OM troughed at 21.0%) is being priced/mixed away
De-risking, but also a revenue hole that AI demand must keep filling
TEL flagged recovery signs in FY2026; layer-count upgrades are etch/deposition-rich
Binary policy risk on roughly a third of revenue; management itself is monitoring the blockade's parts/materials impact
Expectations are loaded and full-year visibility is structurally lower; any HBM/logic capex digestion signal would de-rate
Trends
Primary driver of the FY2027 +33% H1 guide; TEL sees CY2026-27 WFE at $150-170B/year (20%+ vs CY2025) with leading-edge applications growing 30%+
Every scanner needs a TEL track; DRAM EUV adoption and logic multi-patterning mean more coat/develop steps per wafer
Etch intensity per wafer rises with layer count
TEL advanced-packaging sales guided +60% FY2027 from a ~JPY 200B base; logic probers alone expected to top JPY 100B
Caps the China TAM and accelerates domestic Chinese substitution
Structural share loss in trailing-edge China fabs
Duplicative capacity means more tools per unit of chip demand
Ecosystem & competitor graph
Suppliers feed the company; customers pull from it. Line thickness shows the strength of each tie (supply-chain dependency, customer earnings contribution). Hover to isolate a tie.
Vacuum valves - near-monopoly input for etch/deposition chambers
RF power, pressure and flow instrumentation
RF/DC power delivery for plasma tools
Gas delivery subsystems and critical cleaning
Fluid delivery subsystems
Mass flow controllers
Vacuum pumps and CMP adjacency
Largest leading-edge logic customer; 2nm/GAA ramp; Taiwan was 22.0% of TEL's Q4 FY2026 sales
Logic foundry + DRAM/NAND capex
HBM leader - key driver of DRAM tool demand; South Korea was 24.3% of Q4 FY2026 sales
US/Japan DRAM + HBM capacity buildout
18A/14A foundry buildout
NAND recovery capex
Represent the export-control-constrained portion of the 34.1% FY2026 China mix
Broadest WFE portfolio; overlaps TEL in deposition, etch, and is the closest all-around comp
Etch and deposition leader, especially conductor etch and NAND; TEL's most direct rival in etch
Process control/metrology - adjacent rather than head-on, but competes for the same capex dollar
Lithography monopolist; complement more than competitor (TEL tracks attach to ASML scanners)
Main rival in wafer cleaning (TEL cleaning share ~20% CY2025); strong in single-wafer clean
Batch thermal/ALD deposition specialist competing in furnace deposition
Leading Chinese etch/deposition vendor taking domestic China share
Chinese etch specialist qualified at domestic logic/memory fabs