Nikon (TSE:7731): The Camera Company That Lost the EUV Race — and Its Plan to Win the Next One
Nikon Corporation (TSE:7731) is best known for cameras. But anyone who has followed the semiconductor equipment industry knows a different Nikon story: the company that built the world's best lithography systems in the 1980s and 1990s, was overtaken by ASML in the race to develop EUV, and has spent the past decade searching for a path back to the leading edge.
That path is now visible — in the form of two products and a company forecast that explicitly targets "significant earnings recovery around 2030."
This article is part of our series on Japan's hidden semiconductor stocks: companies that are not primarily known as semiconductor plays, but whose future is increasingly determined by the chip industry.
The EUV Loss: How Nikon Got Here
In the 2000s, Nikon and ASML were the two dominant suppliers of photolithography systems — the machines that expose circuit patterns onto silicon wafers. Nikon held a strong position in KrF and ArF (dry and immersion) scanners, with a significant share of TSMC and Samsung's installed base.
The pivotal moment was EUV (extreme ultraviolet lithography). Developing EUV required a generation-defining technological leap: a completely new light source (plasma-generated 13.5nm wavelength), new optical systems using reflective mirrors rather than lenses, and a completely new chamber design operating at extremely low pressure.
ASML won. The company had built a consortium of technology partners — Zeiss for optics, Trumpf/Cymer for light sources, key customers investing directly — and made EUV work. Nikon could not match the investment or the ecosystem and exited the EUV race. Today, ASML has a global monopoly on EUV lithography systems. Nikon does not make EUV scanners.
The consequence is structural: every advanced chip manufactured at TSMC, Samsung, and Intel Foundry at 7nm and below uses ASML EUV scanners. Nikon has no revenue from the world's most advanced fabs at the most critical process step.
The Precision Equipment Business Today
Nikon's Precision Equipment segment (semiconductors + FPD lithography) generated revenue of approximately JPY 185 billion in FY2025 (ended March 2025), down from over JPY 200 billion in FY2023.
The decline reflects a brutal reality: as leading-edge logic nodes advance from 5nm to 3nm to 2nm, those nodes are EUV-dependent, and Nikon has no product. Its ArF immersion scanners remain essential for older nodes and non-critical layers at advanced nodes — but the revenue opportunity shrinks with each generation as more layers migrate to EUV.
Operating profit from the Precision Equipment segment has been under pressure. Nikon's total operating margin across the company (which includes Imaging, Healthcare, and other segments) sits in the low single digits — a dramatic decline from the double-digit margins of its peak lithography era.
The company's own long-range forecast uses the phrase "significant earnings recovery around 2030." That is not a near-term recovery story. It is a 3–5 year transformation.
Bet 1: DSP-100 — Lithography for the Back-End Era
The first new product is the DSP-100 Digital Stepper, Nikon's entry into a category that did not exist when ASML won the EUV battle: back-end lithography for advanced packaging.
Advanced packaging — chiplets, CoWoS, hybrid bonding, interposers — has become the second front of semiconductor scaling. Instead of shrinking transistors further, the industry is assembling multiple dies into a single package with sub-micron interconnect precision. This requires lithography at scales that were previously only needed in front-end wafer processing.
The DSP-100 uses digital exposure technology (no physical reticle — the pattern is written directly from a digital file) to handle the geometric complexity of advanced package substrates and interposers. Key advantages over conventional steppers:
- No mask cost: pattern changes require only a file update, not a new reticle. For the heterogeneous, low-volume designs of chiplet packaging, this is a significant economic advantage
- Large-field exposure: handles the panel sizes and substrate dimensions of advanced packaging, which differ from front-end wafer formats
- Lower specification requirements: packaging layers don't require EUV-class resolution, making Nikon's ArF and DUV heritage directly applicable
The packaging lithography market is growing rapidly. CoWoS capacity at TSMC has been a bottleneck for AI accelerator production, and the industry is investing heavily in expanding advanced packaging capability. The DSP-100 is Nikon's attempt to establish a position in this market before it reaches commodity scale.
Bet 2: Next-Generation ArF Immersion — The 2nm Wildcard
The second bet is more speculative but potentially transformative: a next-generation ArF immersion scanner that Nikon is developing for sub-2nm logic nodes.
ArF immersion (193nm wavelength, water immersion lens) has been the workhorse of semiconductor lithography for 20 years. Even in the EUV era, ArF immersion remains essential for non-critical layers — metal interconnects, contacts, some fin patterning — and represents a large installed base at every fab globally.
Nikon's next-generation ArF system targets a step-change in resolution, throughput, and overlay accuracy that would make it competitive on layers where EUV is currently the only option. According to company disclosures, a prototype was developed with a major unnamed customer for delivery in FY2028.
The significance is this: if Nikon can demonstrate that its next-generation ArF scanner can handle layers currently reserved for EUV on certain nodes, it would create a second-source option for fabs — reducing their dependence on ASML and potentially reopening Nikon to a leading-edge customer relationship that has been closed for a decade.
This is a high-risk bet. ASML is not standing still — it is shipping High-NA EUV systems and has a 10-year head start in EUV process integration. The probability of Nikon's ArF system genuinely displacing EUV on critical layers is low. But even a position as a competitive second source on certain non-critical layers at N2 nodes would be strategically significant.
The Recovery Math
Nikon management has outlined a path back to substantially higher earnings — but the math requires both bets to succeed.
For context: at its peak (FY2007–2008), Nikon's Precision Equipment segment generated operating margins above 20% on revenue exceeding JPY 300 billion. Current revenue of JPY 185 billion at thin margins represents roughly a third of that peak earnings power.
The recovery scenario requires: 1. DSP-100 adoption: Nikon captures meaningful share of the packaging lithography market as CoWoS and advanced packaging scale. This could add JPY 30–50 billion in annual revenue. 2. ArF refresh cycle: Even without regaining leading-edge logic share, the installed base of ArF scanners at trailing-edge fabs (mature logic, display drivers, analog) will require upgrades and replacements as aging equipment reaches end-of-life. 3. Next-gen ArF at 2nm nodes: The high-risk scenario where Nikon's FY2028 prototype leads to a commercial product that wins allocation at one or more leading-edge customers.
The combined impact of DSP-100 + ArF refresh could plausibly push Precision Equipment revenue toward JPY 220–250 billion, and operating margins toward the high single digits, by FY2030. Adding Healthcare segment growth (another Nikon diversification effort), the company's overall earnings picture could look substantially different from today.
What This Is — and Isn't
Nikon is not a near-term semiconductor equipment recovery play. It is not going to win back EUV share. The "significant recovery around 2030" timeline is honest about how long transformation takes.
What Nikon is: a company with deep lithography expertise, an established installed base in non-leading-edge fabs, a new product (DSP-100) addressing a real and growing market (advanced packaging), and a long-shot bet (next-gen ArF) that could reopen the leading edge.
For investors who typically screen for semiconductor equipment companies, Nikon screens out — the margins are too thin, the recovery too distant, the EUV loss too defining. But for investors with a five-year horizon who believe that (a) advanced packaging will require serious lithography investment, and (b) the industry will eventually want an alternative to ASML monopoly pricing, Nikon presents an unusual combination of deep heritage and genuine optionality.
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