# Long Japanese Semiconductors Investment Thesis
## Summary
This thesis supports a long-term equal-weighted DCA investment strategy into four Japanese semiconductor companies:
- **Advantest (ATEYY)**
- **Resonac Holdings (SHWDY)**
- **Shin-Etsu Chemical (SHECY)**
- **SUMCO (SUOPY)**
### Key products/services/projects:
**Advantest (ATEYY)**
➡️ Semiconductor test equipment, essential for validating chip functionality pre-deployment.
**Resonac Holdings (SHWDY)**
➡️ CMP and wafer polishing chemicals enabling next-gen wafer flatness.
**Shin-Etsu Chemical (SHECY)**
➡️ Largest global supplier of silicon wafers and advanced chemical products.
**SUMCO (SUOPY)**
➡️ Precision high-purity wafers, critical for sub-7nm logic and advanced DRAM.
### Major milestones:
- **Advantest**: Test solutions expanding into AI and 2.5D/3D packaging.
- **Shin-Etsu & SUMCO**: Scaling 300mm wafer capacity to serve global foundries.
- **Resonac**: Deepening R&D into CMP for 3D NAND and FinFET/GAA nodes.
---
## Strategic Rationale
### 🎯 Focused Strategy
Japan dominates upstream semiconductor inputs: high-purity wafers, CMP slurries, and ATE.
### ⚙️ Innovation & Technology
- Advantest leads AI/ML test interface markets.
- Resonac improving polish chemistries for 3D and HBM integration.
- Shin-Etsu/SUMCO improving purity for <5nm nodes.
### 🌐 Regulatory & Megatrend Alignment
- High compliance with global purity and environmental standards.
- Alignment with trends: AI, EVs, 5G, edge computing.
### 📈 Market Potential
- Wafer market CAGR ~6-8% through 2030.
- ATE and CMP tracking foundry and IDM capex cycles.
---
## Quantitative Snapshot
| Company | Rev (2024E) | EBITDA Margin | ROE | Net Debt / Equity |
|----------------|-------------|----------------|---------|-------------------|
| Advantest | ~$4.5B | 27% | ~14% | Net Cash |
| Resonac | ~$10B | 12-14% | ~8% | Moderate Leverage |
| Shin-Etsu | ~$20B | 30%+ | ~20% | Net Cash |
| SUMCO | ~$6B | 18-20% | ~15% | <0.5x |
---
## Risks
- **Operational**: Capacity tightness, material delays.
- **Market**: Semi cycle downturns, price pressure.
- **Financial**: FX risk, cost of capital fluctuations.
- **Regulatory**: Export restrictions, ESG requirements.
---
## Scenarios: Base / Bull / Bear
| Case | Description | 5-Year Return on £1,000 |
|------------|-----------------------------------------------|--------------------------|
| Base | Gradual compounding, avg returns | ~£2,150 |
| Bull | Strong upcycle, semi capex boom | ~£3,400 |
| Bear | Global downturn, export or tech setbacks | ~£800 |
---
## Core Strengths (Linchpins)
1. **Oligopoly Positioning**
- Shin-Etsu & SUMCO control over 50% of the global wafer market.
2. **Trust in Quality**
- Preferred suppliers for precision and reliability globally.
3. **Persistent Reinvestment**
- Ongoing upgrades in R&D, sustainability, and capacity.
---
## Theoretical Backdrop
- Reflects **asymmetric return opportunity**: under-owned, structurally essential, less-covered firms.
- Builds on **quantitative value principles** (Piotroski, Graham) and **systematic return enhancement**.
- Dollar-cost averaging dampens volatility and exploits cyclicality.
---
## Allocation Strategy
- 💷 Initial: £700 divided across 4 stocks (£175 each).
- 🔁 DCA: £30 every 2 weeks, split into £7.50 per stock.
- ⏳ Timeline: 5 years (130 biweekly investments).
[[Why Japanese Companies Matter in the Global Chip Supply Chain]] | [[Japan Reflections Mar 25]]