Amid concerns on the impact of the U.S. presidential election as well as the ongoing chip war between the world’s two superpowers, China’s chipmaking equipment market is expected to contract next year, according to a report by Nikkei. Citing remarks from SEMI, in 2025, the semiconductor equipment market in China is anticipated to drop below USD 40 billion and back to the level of 2023, after peaking in 2024.

According to SEMI, the decline can be attributed to the cooling demand after a period of accelerated purchasing spurred by U.S.-China tensions, the Nikkei report mentions. Spending on semiconductor manufacturing equipment in China is projected to exceed USD 40 billion this year for the first time, according to SEMI.

On the other hand, according to an executive of the Chinese branch of a global chip equipment supplier cited by the report, in 2025, the semiconductor equipment market in China is anticipated to decrease by 5-10% from the previous year, which is resulted from the decline of utilization rates for equipment at China’s semiconductor factories as well as the previous rush in purchases.

The projection aligns with Dutch chip equipment giant ASML’s financial forecast released earlier in October. It now forecasts 2025 net sales between 30 billion and 35 billion euros (USD 32.7 billion to USD 38.1 billion), in the lower end of its previous guidance range, according to a report by CNBC.

Though during the July-September quarter, China contribute to around 50% of ASML’s sales, Chief Financial Officer Roger Dassen noted that the company expects its China business to show a “more normalized percentage in our order book and also in our business,” indicating that China would come in at around 20% of its total revenue for next year, according to the CNBC report.

It is also worth noting that according to SEMI, the market contraction in China extends beyond next year. According to the Nikkei report, SEMI projects that China’s spending on chipmaking equipment will experience an average annual decline of 4% in compound growth from 2023 to 2027.

On the other hand, chipmaking equipment spending remains robust in regions other in China. Citing SEMI’s projection, Nikkei notes that spending in the Americas is projected to grow 22% annually between 2023 and 2027, with Europe and the Middle East increasing by 19%, and Japan by 18%.

Despite declining growth, China will remain the largest market for semiconductor manufacturing equipment, with estimated spending of USD 144.4 billion from 2024 to 2027, according to SEMI. This exceeds investments in South Korea (USD 108 billion), Taiwan (USD 103.2 billion), the Americas (USD 77.5 billion), and Japan (USD 45.1 billion).

To elaborate a bit, Nikkei suggests that China’s heightened outlay aligns with its goal of achieving greater self-sufficiency in chip production, as its self-sufficiency rate was only 23% in 2023.

Naura Technology Group, a state-owned company, is China’s largest supplier of semiconductor manufacturing equipment, followed by Advanced Micro-Fabrication Equipment (AMEC), according to Nikkei.

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(Photo credit: Naura Technology)

According to a report by Nikkei, Chinese semiconductor equipment manufacturer Advanced Micro-Fabrication Equipment Inc. (AMEC) has announced that it has filed a lawsuit against the U.S. Department of Defense (DOD) in a U.S. court over being blacklisted as a Chinese military-industrial company.

Reportedly, in January, AMEC was placed on the U.S. Department of Defense’s list of Chinese military-industrial enterprises operating in the United States.

Thus, the company argues that this action violates procedural due process and has severely harmed its reputation. AMEC asserts that it has never engaged in any military-related activities.

Addressing the matter, neither AMEC nor the U.S. Department of Defense has commented on the matter.

The lawsuit comes days after the Financial Times reported that the U.S. Department of Defense planned to remove Chinese automotive LiDAR manufacturer Hesai Technology from its export control blacklist.

At that time, per Nikkie’s report, Hesai had sued the DOD in May and its CEO, David Li, pointed out that allegations of military ties are ridiculous.

AMEC stated that it was previously listed as a Chinese military-industrial enterprise in January 2021 but was removed from the list in June of the same year after requesting the U.S. Department of Defense to provide sufficient facts and evidence. The CEO reportedly expressed shock at AMEC’s re-inclusion on the blacklist, calling it a mistake and baseless.

AMEC specializes in chip equipment with a focus on etching processes. The company reported first-quarter revenue of CNY 1.6 billion (approximately 223 million USD), a 31% increase compared to the same period in 2023.

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• [News] China Makes Progress in Chip Tool Self-Sufficiency, Yet Lithography Remains a Key Bottleneck
• [News] ASML Former CEO Predicts Chip War Between China and the US May Persist for Decades

(Photo credit: iStock)

According to a report from the South China Morning Post, the U.S. export controls, which are restricting China’s access to advanced chips and technology, have intensified China’s efforts to replace global semiconductor manufacturing equipment. However, industry sources have indicated that China still faces significant bottlenecks in this area.

The report mentions that Chinese semiconductor equipment companies like NAURA and AMEC are leading efforts to encourage local foundries to adopt domestic equipment.

Notably, sources cited in the same report also reveal that there is an unwritten rule among Chinese semiconductor fabs that locally-made tools should account for 70% of their production lines.

Per a report by TrendForce, Chinese manufacturers have achieved a self-sufficiency rate of 15% or higher in materials for mature processes, such as silicon wafers, photomasks, photoresists, electronic gases, and wet chemicals. However, items with a self-sufficiency rate still below 15% include photolithography equipment, photomasks, and EDA.

AMEC’s chairman and CEO, Gerald Yin Zhiyao, stated that China is expected to achieve a basic level of self-sufficiency in chip production equipment by this summer, something that was unimaginable just a few years ago.

He acknowledged that while there are still gaps in quality and reliability, China’s semiconductor supply chain can indeed achieve self-sufficiency. This, he suggested, is further evidence that U.S. export controls may have accelerated the development of China’s chip industry.

However, the report also pointed out that China remains constrained in one critical area: lithography technology, which is subject to the most stringent export controls.

Dutch company ASML is the sole supplier of Extreme Ultraviolet (EUV) systems, essential for producing advanced chips, and is also the main supplier of Deep Ultraviolet (DUV) systems needed for mature process chips.

President of foundry China Resources Microelectronics, Li Hong, stated that in 2023, only 1.2% of the lithography systems used by Chinese foundries was purchased from local suppliers.

In the second quarter of this year, ASML’s shipments to Chinese customers totaled EUR 2.35 billion, accounting for nearly half of its global sales. This indicates that China continues to rely heavily on ASML’s equipment in the legacy nodes, which is not subject to U.S. sanctions.

Paul Triolo, senior vice-president for China and technology policy lead at the U.S. consulting firm Albright Stonebridge Group, noted that the significant purchases of DUV lithography systems from ASML by Chinese companies highlight that SMEE, a major Chinese lithography equipment manufacturer, still lags behind ASML in reliably producing lithography systems for 28nm and below processes.

However, lithography technology is not the only bottleneck China faces. Li Hong also noted that the local supply ratios for ion implantation and inspection and metrology systems is only 1.4% and 2.4%, respectively.

As per Chinese customs data, the value of ion implantation systems imported by China in 2023 increased by 20% year-on-year to USD 1.3 billion.

A research report by Guohai Securities indicates as well that Chinese fabs rely heavily on metrology systems from companies like KLA, Applied Materials, and Japan’s Hitachi.

KLA reportedly holds a 50% global market share in inspection and metrology equipment.

An industry source cited in the report mentioned that the local supply ratio in the inspection and metrology sector is relatively low, with local substitution primarily occurring in lower-end products.

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(Photo credit: ASML)

From the Entity List in 2020 to the Chips and Science Act of 2022, the US government has been tightening its grip on China’s semiconductor industry by blocking the export of advanced semiconductor manufacturing equipment. The pressing question on everyone’s mind is: Will China’s semiconductor industry crumble under this pressure?

The answer, based on recent market reactions, is a resounding no.

Riding the Waves through Headwinds

Despite international semiconductor equipment manufacturers facing production cutbacks, China’s semiconductor equipment industry is thriving. In the first quarter, Naura, the leading semiconductor equipment manufacturer, reported a whopping 68.56%-87.29% increase in revenue, with a 171.24% to 200.3% increase in net profit. This has spurred growth across the entire Chinese A-share market for semiconductor equipment concept stocks such as Piotech, PNC process System, Advanced Micro, ACM Research and Hwatsing Technology.

This growth highlights a great leap forward in semiconductor process technology. Despite the adverse effects of the US’s broad-based restrictions, they have nonetheless created a favorable environment for testing and substitution opportunities. This, in turn, has enabled Chinese manufacturers of semiconductor equipment to increase their market share in the area of established semiconductor processes.

Full Speed Ahead: Aiming High for 5nm

In key semiconductor manufacturing processes such as thin film deposition, etching, ion implantation, CMP, and cleaning, Chinese manufacturers have already moved beyond traditional equipment development cycles and are progressing towards advanced process technology at full speed.

According to TrendForce, Chinese semiconductor equipment companies such as Naura and Advanced Micro(AMEC) are capable of supporting 28/14 nm in some process steps, and have even tentatively established their presence in 5 nm process technology.

Our summary identifies the main players to watch in thin film deposition, etching, and EUV:

• Thin film deposition: Naura

Naura has achieved full coverage of PVD, CVD, and ALD product lines, with product lines matching international leaders such as Applied Materials, Lam, and Tokyo Electron. Naura has unique competitive advantages in the PVD field, with over 20% of its PVD equipment being supplied to Chinese 12-inch production lines such as YMTC(Yangtze Memory Technologies Co., Ltd), making it the second-largest PVD equipment supplier after Applied Materials.

Additionally, since 2012, Naura has sold over 200 PVD equipment, gradually achieving their goals for equipment substitution.

• Etching: AMEC and Naura

As the leading CCP etching machine, AMEC has successfully penetrated TSMC’s 5nm production line, becoming the first domestic etching equipment to break through in the advanced process area. AMEC has also achieved large-scale adoption in 64-layer, 128-layer 3D NAND process, and 1x DRAM process. These main product portfolios contributed to the company’s 47.3% YoY revenue growth rate in the first half of 2022. In addition, AMEC’s etching equipment also enjoys a high gross profit margin of 46.02%.

On the other hand, Naura is at the forefront of ICP silicon etching equipment. Its first-generation 12-inch etching equipment underwent certification for 90-65nm at the SMIC’s fab in Beijing in 2008. In addition, with the support of national research projects, Naura’s ICP etching machine has also broken through 14nm barriers and been adopted by mainstream foundries.

• Photolithography: Shanghai MicroElectronics Equipment(SMEE)

Photolithography is a critical process that China is strategically including in their semiconductor industry plans. They’re aiming to develop 28nm immersion exposure machines and core components through collaborative efforts: SMEE will lead the overall design and integration, with five or more companies providing key components.

Although SMEE has preliminary DUV exposure machine technology, it’s limited to more mature processes on 8-inch and 12-inch wafers at 90nm, 110nm, and 280nm, leaving a significant gap with international leaders.

From Toddler to Major Player

Although China’s equipment manufacturers are still at their toddler stage, the increasing momentum suggests that they will continue to make significant progress. Assuming that China’s policy support towards the development of 14nm and below semiconductor processes remains unchanged in the coming years, it is highly likely that the country’s market will fundamentally experience a transformation.

At this point, China’s semiconductor industry will enter a new era of high-speed growth, paving the way for the country to become a major player at global level. As China’s domestic market grasps the technology and commercial logic along the way, it will potentially have more influence over the global supply chain, as a result triggering a shift in the worldwide semiconductor industry in the long run.

TrendForce’s latest investigations indicate that China has recently announced two additional investments funded via phase two of the CICF (China Integrated Circuit Industry Investment Fund, better known as the “Big Fund”). The first of these investments was announced on June 8, 2021 and totaled CN¥1.65 billion, which has been used to establish a joint venture called Runxi Microelectronics, co-funded with CR Micro and the Xiyong Micro-Electronics Industrial Park.

Runxi will operate a semiconductor fab specializing in 12-inch wafer fabrication, with a production capacity of 30K/M (that is, 30,000 wafer starts per month). The second investment, announced on July 2, 2021, will total about CN¥2.5 billion and be put towards AMEC’s efforts to raise capital for establishing an industrial center, a headquarter located in the Shanghai Lin-Gang Special Area, and an R&D headquarter.

Now that the Big Fund Phase 2 has invested in semiconductor equipment for the first time, more equipment suppliers are expected to receive investment capital from Big Fund Phase 2 going forward

Established in October 2019, Phase 2 of the Big Fund consists of CN¥204.15 billion in capital, some of which was subsequently invested into 12 companies across the IC design, IC fabrication, package testing, and equipment sectors, as of July 5, 2021. In terms of funding allocation, IC fabrication take the lion’s share with 78.2% of the aforementioned investment, followed by IC design at 11.6%, equipment at 7.7%, and package testing at 2.6%. To date, about CN¥36.6 billion of the Big Fund Phase 2 has been invested.

Investment in AMEC marks the first time that the Big Fund Phase 2 has purchased shares in domestic suppliers of semiconductor fabrication equipment. As fabrication equipment is the key determinant of whether China can achieve its goal of semiconductor independence, suppliers that previously received Phase 1 funding (including Naura, ACM Research, Piotech, Sky Technology Development, and Shanghai Wanye Enterprises), as well as those that have yet to receive investment from the Big Fund (including SMEE and Hwatsing), are likely to receive Phase 2 funding for their expansion projects going forward.

China’s Big Fund provides the domestic semiconductor industry considerable leverage against US sanctions as AMEC receives financing unaffected by US blacklist

As a major supplier of semiconductor etching equipment in domestic China, AMEC specializes in substrate etching technologies. The company provides products which are used for 8-inch/12-inch wafer fabrication and are compatible with 65nm-5nm process technologies. In addition, AMEC has also been actively developing CVD (chemical vapor deposition) equipment, making it an indispensable part of the Chinese semiconductor supply chain.

AMEC effectively had its overseas financing sources cut off after being blacklisted by the US Department of Defense in January 2021. Now that the Big Fund Phase 2 has infused AMEC with CN¥8.207 billion of investment capital, the company is no longer threatened by its inclusion on the economic blacklist. Hence, the substantial Big Fund Phase 2 has also become an important instrument in China’s fight against US sanctions amidst a persistent trade war currently taking place between the two countries.

（Cover image source: Unsplash）