The semiconductor equipment industry is entering a new round of price increases. Bernstein noted that Japanese equipment makers such as Tokyo Electron and Screen are raising prices, driven by yen depreciation and strong AI-related demand. SK Hynix has already received price increase requests of 3%–4%. If these hikes are successfully implemented, equipment manufacturers could see significant improvements in gross and operating margins, potentially shifting the sector’s investment thesis from cyclical recovery to profit expansion.
The pricing dynamics in the semiconductor equipment industry are undergoing a quiet transformation. Driven by sustained yen depreciation, mounting cost pressures, and robust downstream demand, Japanese equipment manufacturers such as Tokyo Electron and Screen have clearly signaled their intention to raise prices. This trend is expected to significantly enhance gross margins and operating profit margins for these companies and reshape the investment thesis for this sector.
According to the Zhui Feng trading desk, Bernstein’s latest research report states that $Tokyo Electron Device (2760.JP)$ has listed pricing improvement as its top strategic priority and plans to raise its gross margin above 50% and move operating margin toward a 35% target through a three-step approach; $Screen Holdings (7735.JP)$ is also implementing a two-phase price-increase strategy, with a long-term operating margin target set at 30%. Meanwhile, reports indicate that SK Hynix has already received price hike requests of 3% to 4% from equipment suppliers, signaling that pricing negotiations have moved from intent to concrete action.
Bernstein believes this shift will reverse the recent underperformance of semiconductor equipment stocks relative to the broader market. Over the past two months, semiconductor equipment stocks have risen by approximately 30% on average, significantly lagging behind other major technology segments such as analog chips (Renesas, +83%), copper-clad laminates (Ibiden, +126%), and silicon wafers (Sumco, +95%).
Yen depreciation opens a pricing window, and manufacturers’ willingness is shifting
The confidence of Japanese equipment makers in raising prices stems largely from structural support at the exchange rate level.
Bernstein notes that major Japanese equipment makers such as Tokyo Electron, Screen, $Kokusai Electric (6525.JP)$ all invoice in Japanese yen, and the yen has depreciated by approximately 30% against the U.S. dollar over the past three years. This provides strong justification for suppliers to pass on cost increases and renegotiate pricing with customers.
However, despite persistent exchange rate pressures, manufacturers previously lacked the willingness to proactively raise prices.
Bernstein observes a clear recent shift in this stance, as public statements from Tokyo Electron and Screen both demonstrate a clear intent to adjust pricing strategies. Concurrently, reports indicate that SK Hynix has received price increase requests of 3% to 4%, confirming that pricing negotiations have entered a substantive phase.
Tokyo Electron: A three-stage price increase targeting a 50% gross margin
Tokyo Electron has designated enhanced pricing power as its highest strategic priority and has outlined a clear three-phase roadmap to achieve this goal.
Phase one involves charging a premium for customers’ expedited delivery requests. Bernstein noted that Tokyo Electron historically did not impose additional fees for such requests, but current strong demand has created pricing leverage. Phase two entails negotiating surcharges with customers to account for inflationary pressures and rising costs of raw materials and labor. Phase three focuses on securing higher product pricing at new product launches by leveraging advantages such as technological upgrades, enhanced functionality, and the use of new materials.
Bernstein stated that if Tokyo Electron achieves the above objectives, it would create significant upside potential for earnings revisions—current consensus expectations project its FY2029/3 gross margin at only 48% and operating margin at 30%, both below the company’s own targets. The firm maintains an 'Outperform' rating on Tokyo Electron with a price target of JPY 59,200.
Screen implements a two-phase price increase; Kokusai expected to follow suit
Screen’s pricing strategy closely mirrors that of Tokyo Electron, also proceeding in two steps.
The first step adjusts prices to reflect inflation-driven cost increases, which Bernstein notes has already been accepted by customers. The second step involves negotiations centered on the added value delivered by new product introductions, aiming to raise the long-term operating margin to 30%, above the current consensus expectation of 27% for FY2028/3.
Bernstein expects Kokusai, which also prices in Japanese yen, to adopt a similar pricing strategy.
In contrast, manufacturers such as Disco, Lasertec, and Advantest use a mix of U.S. dollar and yen pricing and have already achieved substantial margin expansion, resulting in relatively limited incremental benefits from further price increases. Based on this, Bernstein concludes that Japanese front-end equipment makers are likely to outperform back-end equipment makers in the sector in the near term.
ASML and Besi: Product upgrades drive greater margin potential
Regarding European equipment leader $ASML Holding (ASML.US)$and$BE SEMICONDUCTOR INDUSTRIES NV ORD EUR0.91 (NY REG SHARES) (BESIY.US)$, Bernstein believes the potential for price increases driven by product upgrades is particularly significant.
Specifically, Bernstein estimates that the average selling price of ASML’s next-generation EUV tools could rise by approximately 60%, which would push gross margins on its EUV products well above 60%.
Bernstein also noted that this does not mean ASML lacks the ability or rationale to raise prices on its existing products, particularly against the backdrop of currently tight supply; charging a higher premium for expedited deliveries is also feasible. The firm maintains an 'outperform' rating on both ASML and Besi, with target prices of €1,700 and €280, respectively.
Editor/KOKO