Canon: This Nikkei 225 company aims to become the next ASML

Japanese stocks have done well this year as local and foreign investors – including Warren Buffett – moved to the stock market. The Nikkei 225 and Topix indices jumped to multi-decade highs this year. 

Focus shifts to Canon

While most Nikkei 225 index companies have done well this year, investors are now focusing on Canon. Canon is a company that is well-known for its cameras, printers, and medical imaging solutions. 

Canon stock price has surged this year as it aims to disrupt one of the biggest industries in technology. The stock surged to the year-to-date high of ¥3,860 in June this year, ~42% above it January lows.

The main reason for the surge is that the company is entering a new space that is now dominated by ASML, the giant technology company. ASML is the only company in the world that builds lithography products for semiconductor companies. 

Its primary product is a heavy bus-sized machine that costs more than $200 million. It is bought by fab companies like Taiwan Semiconductors and GlobalFoundries. Because of how complicated it is, no other company has come close to displacing it in the industry.

This is where Canon comes in. The company recently unveiled a new industry-oriented business structure that focuses on the industry. It has now unveiled FPA-1200NZ2C that can manufacture semiconductors as thin as 2 nanometers. Apple’s recent A17 Pro is a 3-nanometer chip.

Canon is entering a business that is seeing strong growth as countries rush to become semiconductor-independent. The US and the European Union have unveiled multi-billion dollar incentive programs to woo companies.

Firms like Intel, TSMC, and GlobalFoundries are now investing billions to boost their capacity to other countries like the US and Germany. China is also working to build its capacity as its ties to western countries rise.

Concern for Canon

Canon’s entry to the industry is good news for foundry companies. For one, it gives them the ability to negotiate with ASML, which has a monopoly in the industry. It is still unclear how much Canon’s product will go for. 

However, there are some concerns for Canon as it seeks to co-exist – not dethrone – ASML. For such huge investments, foundries will likely continue preferring the ASML products that they know and love. 

The other concern is that the semiconductor industry could go through a boom and burst cycle. As I recently wrote in this article, the ongoing investments could saturate the market in the coming years as supply rises.

There are signs that this is happening. For example, there are rumours that ASML will cut production as demand for its extreme EUV lithography product as demand from Apple slows. This explains why Canon share price has dropped by 5.5% from its highest point this year.