According to TrendForce’s compilation and analysis of various industry data and the recent financial reports of major representative companies, it appears that China’s local equipment industry can cover the various stages required in semiconductor manufacturing processes (excluding lithography machines).

Overall, locally produced equipment in China shows relatively high localization rates in processes such as photoresist stripping, cleaning, and etching. In recent years, there has been significant progress in processes like CMP, thermal processing, and deposition. However, in equipment related to measurement, coating and developing, lithography, and ion implantation, the Chinese equipment manufacturers still face challenges.

As per SEMI data, the semiconductor equipment market, including wafer processing, fab facilities, and mask/reticle equipment, is projected to decline by 3.7% to USD 90.6 billion in 2023. Looking ahead, semiconductor manufacturing equipment is expected to rebound in 2024, driven by both front-end and back-end market demands. Sales are forecasted to reach a new high of USD 124 billion in 2025.

The growth in the equipment market is closely tied to the extensive expansion of foundries. It is reported that approximately 70%-80% of the capital expenditure for fab expansion is allocated to the purchase of semiconductor equipment.

According to statistics from TrendForce, China currently operates 44 fabs (25 of which are 12-inch fabs, 4 are 6-inch fabs, and 15 are 8-inch fabs/lines).

Additionally, there are 22 fabs under construction (15 of which are 12-inch fabs, and 8 are 8-inch fabs). Furthermore, companies including SMIC, Nexchip, and Silan Micro are planning to construct 10 additional fabs (9 of which are 12-inch fabs, and 1 is an 8-inch fab). Overall, China is expected to establish 32 large-scale fabs focused entirely on mature processes by the end of 2024.

Per TrendForce’s data, from 2023 to 2027, the global mature process (28nm and above) and advanced process (16nm and below) capacities are expected to maintain a ratio of approximately 7:3.

Due to policies promoting localization and subsidies, China has shown the most proactive expansion progress. It is estimated that the proportion of mature process capacity in China will increase from 29% in this year to 33% by 2027, with SMIC, Hua Hong Group, and Nexchip being the most active in expanding production.

Despite rapid development in China’s equipment industry in recent years, Chinese semiconductor manufacturers still have room to catch up compared to international giants like Applied Materials, Tokyo Electron, Lam Research, ASML, and KLA Corporation, which boast billion-dollar scales and diverse high-end product lines.

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The world’s top five semiconductor equipment manufacturers have released their latest financial reports, signaling a surge in demand for advanced manufacturing equipment and positive signs of industry recovery.

The US has continuously thwarted efforts by equipment suppliers to export advanced machinery to China—citing national security concerns—mid its ongoing tech conflict. How have companies like Applied Materials, ASML, TEL, Lam Research, and KLA been impacted by the US’s stringent export controls on China?

Applied Materials

Applied Materials reported US$6.71B in 1Q24 earnings—marking a less than 1% decline in revenue. The Chinese market, doubling its revenue to $3B last quarter, emerged as a bright spot, jumping from a 17% share a year ago to 45%.

This surge is primarily due to China’s urgent push to build capacity for internet devices, telecommunications, automotive, power, and sensors. Despite not expecting to maintain the current growth rate, Applied Materials believes the continued demand for more chips will drive market development.

ASML

ASML, seen as a weathervane for the industry, reported 4Q23 net sales of €7.2B, up from €6.7B in Q3. With annual sales reaching €27.6B in 2023 and a 26.3% sales share in China, ASML has surpassed South Korea to become its second-largest market.

However, ASML warns that geopolitical tensions and potential US export control expansions to China remain operational risks. The company estimates that US and Dutch export controls could reduce its sales of mid-range DUV equipment to China by about 10–15% this year.

TEL

TEL posted 3Q24 revenues of ¥463.6B, with China accounting for 46.9% of its revenue, a 42.8% QoQ increase. TEL expects continued strong demand from China, noting that the country produces only a small portion of the chips it needs and will actively invest to reduce reliance on foreign technology. This momentum is expected to continue into 2025.

Lam Research

Lam Research saw a 7.9% QoQ increase in 2Q24 revenue to $3.76B, with the share of revenue from the Chinese market decreasing from 48% to 40%. With the semiconductor industry expected to grow robustly in the coming years, driven by innovations like AI, Lam Research is poised to benefit.

The company expects equipment expenditures by DRAM manufacturers to grow due to increased HBM production and process transitions, while NAND manufacturers’ expenditures will strengthen with technological upgrades.

KLA

KLA reported a 16.7% YoY decrease in 2Q24 revenue to $2.487B, with China remaining its largest revenue contributor, though its share dropped from 43% in Q1 to 41%. KLA estimates a mid-point revenue of $2.3B for this quarter.

The demand for wafer fabrication equipment is expected to reach the higher end of the $80B range in 2024, with the second half of the year anticipated to outperform the first.

(Photo credit: iStock)

Despite the ongoing intensity of the US-China tech war, Apple has been gradually leaning towards a more diversified supply chain, especially in the production of its latest head-worn device, Vision Pro. As per a report from Commercial Times, upon examination, it is revealed that the major supplier in chip manufacturing for this device is Texas Instruments (TI).

However, other components, such as the NOR Flash memory, originate from Chinese manufacturer GigaDevice, with the assembling being shifted from Taiwan-based facilities, previously relied upon, to Luxshare Precision.

On February 7th, following an in-depth teardown of internal components by the repair website iFixit, it was discovered that within the Vision Pro main unit, speakers, and external power supply, there are not only Apple’s self-developed processor chips but also multiple Apple-designed power management chips. It’s noteworthy that TI serves as the primary chip supplier in the Vision Pro.

Yet, surprisingly, there are NOR Flash from the Chinese memory manufacturer GigaDevice. As the US-China tech war continues to escalate, Apple’s use of memory from a Chinese manufacturer raises concerns in the market about whether it may cross the red line set by the US government.

In fact, in recent years, Apple’s products such as the iPhone, MacBook, iPad, Apple Watch, and AirPods have leaned towards Chinese suppliers like Luxshare, Wingtech, BYD, and GoerTek in the assembling sector, while Taiwanese suppliers like Foxconn, Quanta, Pegatron, and Compal, which Apple used to heavily rely on, are gradually fading out of the supply chain.

The assembly for Vision Pro has also shifted from Pegatron to Luxshare. While Taiwanese suppliers are gradually reducing their reliance on Apple, they are simultaneously diversifying into emerging fields such as artificial intelligence, electric vehicles, and smart healthcare.

On the other hand, despite the strong sales of Vision Pro since its launch in the United States in mid-January, reports surfaced of a wave of returns within just two weeks. The most cited reasons by consumers include discomfort when wearing, eye fatigue, and unsatisfactory software experiences, prompting buyers to opt for returns within the 14-day return window.

Some early adopters also expressed that the current productivity and entertainment experiences offered by Vision Pro do not justify its high price point. Additionally, they find its interactive features insufficiently convenient for tasks such as programming, design, and presentation editing.

TrendForce has previously reported that one of the main issues impacting the Vision Pro is its hefty price tag. The $3499 price point, although seemingly steep, is expected to resonate with the market, especially given the promise of ample applications, a quality user experience, and Apple’s established brand loyalty.

Additionally, should Apple introduce a more budget-friendly version as speculated, the premium pricing of the Vision Pro could serve to accentuate the value proposition of the more economical model, potentially driving consumer interest towards it.

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(Photo credit: Apple)

It was reported earlier that during Samsung Electronics’ fourth-quarter financial announcement in 2023, the company revealed that its foundry division had secured orders for 2-nanometer AI chips. However, at the time, Samsung did not disclose the name of the relevant customer. Now, according to a report from the Business Korea, the customer is the Japanese AI startup Preferred Networks.

The report indicates that Preferred Networks, which placed an order with Samsung’s foundry division for 2-nanometer AI chips, was founded in 2014 and is in the field of AI deep learning development.

The company has attracted significant investments from major Japanese industrial enterprises such as Toyota, NTT, and Fanuc. The order placed with Samsung’s foundry division for 2-nanometer AI chips also includes HBM and advanced packaging.

As per Samsung’s previous roadmap, the 2-nanometer SF2 process is set to debut in 2025. Compared to the second-generation 3GAP process at 3 nanometers, it offers a 25% improvement in power efficiency at the same frequency and complexity, as well as a 12% performance boost at the same power consumption and complexity, while reducing chip area by 5%.

As stated in Samsung’s Foundry Forum (SFF) plan, Samsung will begin mass production of the 2nm process (SF2) in 2025 for mobile applications, expand to high-performance computing (HPC) applications in 2026, and further extend to the automotive sector and the expected 1.4nm process by 2027.

According to previous reports, the leading foundry TSMC has already disclosed the test results of its 2-nanometer prototype process to major clients such as Apple and NVIDIA, with the goal of commencing mass production by 2025. Apple is set to become TSMC’s inaugural customer for the 2-nanometer process, positioning TSMC at the forefront of competition in the 2-nanometer advanced process technology.

However, according to a previous report from the Financial Times, Samsung is preparing to attract customers to place orders for its 2-nanometer process at lower prices. The move is expected to compete for a portion of Qualcomm’s flagship chip production, as Qualcomm, a major customer of TSMC, may consider shifting some of its flagship chip production to Samsung’s 2-nanometer process.

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(Photo credit: Samsung)

On February 15^th, U.S. chip equipment giant Applied Materials released financial results that surpassed expectations, accompanied by an optimistic revenue forecast for the current quarter.

In the previous quarter (Q1 of the fiscal year), Applied Materials recorded a revenue decline of less than 1%, totaling USD 6.71 billion, surpassing the market anticipated USD 6.48 billion. Net profit amounted to USD 2.02 billion or USD 2.41 per share, exceeding the USD 1.72 billion or USD 2.02 per share reported in the same period last year. On an adjusted basis, earnings per share stood at USD 2.13, compared to USD 2.03 in the corresponding period last year, surpassing the previous market expectation of USD 1.90 per share.

Applied Materials forecasts sales for the current quarter (Q2) to range between USD 6.1 billion and USD 6.9 billion, with the midpoint of USD 6.5 billion exceeding market consensus projection of USD 6.34 billion.

Excluding certain items, earnings per share for the quarter ending in April are expected to be between USD 1.79 and USD 2.15. The market anticipated earnings per share of USD 1.80, is at the lower end of this range.

This optimistic outlook suggests a faster-than-expected rebound in the chip industry. As Applied Materials provides equipment to major semiconductor manufacturers, including Samsung Electronics, TSMC, and Intel, its financial forecasts serve as a crucial indicator of future demand in the semiconductor industry’s supply chain.

China emerged as a notable highlight, with sales more than doubling to USD 3 billion, comprising 45% of the company’s overall revenue. CEO Gary Dickerson attributed this surge to a rush to enhance capacity for IoT appliances, communications, the automotive industry, as well as power and sensors. In the telephone interview, Dickerson mentioned this sector as ICAPS.

Although the growth rate in this sector may not be sustained at its current level, the requirement for more chips per device will continue to propel the market forward, indicating that the current expansion is not a bubble.

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(Photo credit: Applied Materials)