Japanese chip company Ferrotec rejigs supply chains to access US and China

A Japanese chip equipment supplier has started to reorganise its supply chains and factories in a strategy designed to access both US and Chinese markets after Washington rolled out new chip export controls.

The group chief executive of Tokyo-based Ferrotec told the Financial Times that the company was accelerating plans to expand production outside China in response to requests from US clients including Lam Research and Applied Materials.

“In the future, we would like to be able to manufacture not only in China, but also in Japan, Malaysia and possibly in the US,” said He Xianhan, a native of Shanghai who has headed Ferrotec since 2020.

“The Chinese market will grow in the future, so we will respond to Chinese demand with our production in China. In that way, we can continue being a winner,” said He, conducting the interview over video from his base in Hangzhou, a city in eastern China.

Ferrotec’s strategy to cater to both its Chinese and US customers provides a window into how companies that have traditionally gambled on China’s growth are hedging their risks as the US attempts to curb Beijing’s capability to develop advanced chip technology.

The US restrictions have forced leading American chip equipment suppliers Lam Research, Applied Materials and KLA Corporation to suspend sales and maintenance services for their tools to semiconductor manufacturers in China.

Ferrotec, which produces ceramics and silicon parts used in chips, makes 80 per cent of its products in China. While the company planned to maintain its large manufacturing footprint in the country, it would diversify its supply chains over the next two years, said He.

In the initial turmoil following last month’s announcement of the export controls, He said Chinese chip companies made unsuccessful requests for Ferrotec to supply the products that their US suppliers could no longer supply.

“But I told them that as an OEM [original equipment manufacturer], we need a permission from the US manufacturers [we supply to] and the Chinese chip companies understood our position.”

The impact of the US sanctions have also started to filter through to the Japanese company. Recently, a senior executive of a US chipmaking equipment manufacturer said it would no longer procure certain Ferrotec components produced in China.

“We haven’t seen such an impact from other large US manufacturers but we cannot definitively say that we won’t be impacted in the future,” He said.

The executive cited geopolitical uncertainty as one of the reasons why Ferrotec had invested $120mn to create a new plant in Malaysia, which is expected to start operations by next September.

Established in 1980, Ferrotec posted record sales of ¥133bn ($938mn) and a record operating profit of ¥22bn for the year ending in March by taking advantage of China’s rapid growth in the semiconductors market.

The group, which raised ¥45bn from the Chinese government and private investment funds over the past three years, plans to list four of its local group companies in Shanghai and Shenzhen by 2024.

Masahiko Ishino, a senior analyst at advisory company Tokai Tokyo Research Institute, said that bifurcating supply chains for the US and Chinese markets was an “inevitability of the times”.

But he said it was unclear if Ferrotec’s series of large investments in the years to come would pay off, with the global chip market suffering from a global slowdown that had been exacerbated by the US export curbs.

Japanese chip company Ferrotec rejigs supply chains to access US and China Republished from Source https://www.ft.com/content/119d90c8-2e58-474b-bc05-4e62afd6c0cb via https://www.ft.com/companies/technology?format=rss

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