What stood out in second-quarter results and full-year guidance?

  • Tokyo Electron’s second-quarter revenue was 935.1 billion yen, up 48% year over year and 28% quarter over quarter. Operating profit was 295.4 billion yen, up 86% year over year and 40% quarter over quarter, exceeding the Bloomberg consensus of 256.1 billion yen and JPMorgan’s forecast of 279 billion yen.
  • In its initial full-year guidance for fiscal 2026, the company forecast revenue of 3.7 trillion yen, up 51% year over year, and operating profit of 1.169 trillion yen, up 87%. The profit forecast exceeded the Bloomberg consensus of 1.03 trillion yen and JPMorgan’s forecast of 1.0594 trillion yen.
  • The company’s revenue growth guidance also exceeds JPMorgan’s estimate of 31% year-over-year growth in the wafer fab equipment (WFE) market in calendar 2026; the two figures use fiscal-year and calendar-year periods, respectively.

Which equipment demand drove growth?

  • In second-quarter sales of new semiconductor manufacturing equipment, DRAM, nonvolatile memory chip, and logic chip/foundry equipment grew 45%, 27%, and 36% quarter over quarter, respectively. Logic and foundry equipment sales exceeded JPMorgan’s forecast by the widest margin.
  • Based on management’s forecasts, fiscal 2026 sales of new equipment are estimated at approximately 966 billion yen for DRAM, up 75% year over year; approximately 350 billion yen for nonvolatile memory, up 97%; and approximately 1.51 trillion yen for logic and foundry, up 44%.
  • The company sees the adoption of generative AI and agentic AI as drivers of continued equipment demand growth. It raised its calendar 2026 WFE market forecast from at least 150 billion dollars to approximately 160 billion dollars, and its 2027 forecast from at least 190 billion dollars to at least 210 billion dollars.

Why will second-half revenue growth not bring a larger gross margin improvement?

  • The company expects revenue in the second half of fiscal 2026 to rise 22% from the first half, while gross margin increases by only 0.9 percentage points to 48.3%.
  • Management said negotiations on price adjustments have progressed, but some high-margin projects were brought forward to the first half, and the cost of increasing production in the second half will also rise. By comparison, second-quarter gross margin rose to 48% on higher sales, above 47% in the previous quarter.
  • Material procurement remains difficult. The company is building advance inventories of components with vulnerable supply and adjusting manufacturing processes; management sees further upside to results if customers start projects earlier.

Why is JPMorgan positive on the medium- to long-term opportunity?

  • JPMorgan believes the company can meet the technical requirements arising from logic chip and DRAM process migrations and increasing NAND stack layers, and expects it to benefit over the long term from investment in advanced chips. Besides its already high share in coating and developing equipment, the bank is also watching the potential for gains in etching equipment share.
  • The company aims for growth in calendar 2027 to match or exceed market growth, corresponding to at least 31% year-over-year growth under its own forecast. JPMorgan has an overweight rating and a target price of 17000 yen for the end of December 2027, based on its fiscal 2027 earnings-per-share forecast and a price-to-earnings multiple of approximately 34. Equipment market growth and changes in etching share will affect that assessment.