To counter the U.S.’s ongoing semiconductor restrictions launched the U.S., China has outspent the U.S., South Korea, Japan, and Taiwan combined on chip manufacturing equipment in the first half of this year.

However, sources cited by a report from Commercial Times have warned that China’s excessive investment could soon lead to global overcapacity issues in traditional chip production, which is similar to the oversupply problems seen in the electric vehicle and solar energy sectors in recent years.

Per the data cited by CNBC from the Semiconductor Equipment and Materials International (SEMI), China spent USD 24.73 billion on chip manufacturing equipment in the first half of 2024, surpassing the combined USD 23.68 billion spent by the U.S., South Korea, Japan, and Taiwan during the same period. This surge in spending is driven by China’s efforts to achieve semiconductor self-sufficiency amid U.S.-China tensions.

The report further notes that since the U.S. implemented stricter export restrictions in October 2022, Chinese companies have been rapidly accelerating their procurement. SEMI data suggests that China’s total procurement this year is expected to exceed USD 35 billion.

Citing Clark Tseng, Senior Director at SEMI, the report indicated that the current equipment stockpiling trend may continue into the second half of this year and is expected to ease only by 2025 as companies work to absorb excess capacity.

Citing Alex Capri, a Senior Lecturer at the National University of Singapore and Research Fellow at the Hinrich Foundation, CNBC pointed out that Chinese companies are preemptively stockpiling chip manufacturing equipment in response to the risk of further export restrictions from Washington before the U.S. presidential election.

Capri highlighted that as China is making smooth progress in traditional chip production, the world might soon face an oversupply of traditional chips, similar to the overcapacity issues seen in electric vehicles and solar panels.

As a result, companies outside China could struggle to compete in the sector with lower-priced products from Chinese companies.

A previous report from Bloomberg pointed out that China has thus become the largest market by revenue for top global chip equipment suppliers. The latest quarterly financial reports from companies such as Applied Materials, Lam Research, and KLA show that China contributes approximately 40% of their revenue.

For Japanese company TEL and Dutch company ASML, the contribution from the Chinese market is even more significant, with nearly half of their revenue coming from China.

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• [News] China’s 1H24 Chip Equipment Purchases Exceed Taiwan, Korea, and US Combined, Reaching USD 25 Billion
• [News] China’s Import of Chip Making Equipment Hit New High This Year, with Mature Nodes Driving the Demand

(Photo credit: SMIC)

Amid the escalating tech war between China and the US, along with rising geopolitical tensions, China has accelerated its import of chip manufacturing equipment since the middle of last year to counter potential US chip sanctions, with Dutch company ASML and Japanese company Tokyo Electron (TEL) benefited the most.

Notably, according to the Semiconductor Equipment and Materials International (SEMI), despite US sanctions preventing China from acquiring advanced EUV lithography equipment from ASML, it reported that China’s spending on chip manufacturing equipment has reached USD 25 billion in the first half of this year, exceeding the combined total of Korea, Taiwan, and the US. SEMI data also shows that China’s spending remained strong in July and is expected to set a new annual record.

Meanwhile, per the trade data from China’s General Administration of Customs cited by Bloomberg, from January to July this year, Chinese companies imported chip manufacturing equipment worth nearly USD 26 billion, surpassing the previous record set in the same period in 2021.

SEMI projects that China will become the largest investor in new fab construction, including equipment purchases. It is expected that the country’s total spending on chip equipment for the entire year of 2024 will reach USD 50 billion.

Clark Tseng, SEMI’s senior director of market intelligence, further highlighted that at least more than 10 tier-two chip manufacturers are actively purchasing new equipment, which is driving China’s overall spending.

China is now reportedly the largest market by revenue for top global chip equipment suppliers. The latest quarterly financial reports from companies such as Applied Materials, Lam Research, and KLA show that China contributes approximately 40% of their revenue.

For Japanese company TEL and Dutch company ASML, the contribution from the Chinese market is even more significant, with nearly half of their revenue coming from China.

Additionally, per a report from Commercial Times, amid a global economic slowdown, China is the only region where chip manufacturing equipment spending increased in the first half of this year compared to the same period last year.

Tseng also noted that SEMI anticipates spending on new plant construction in China will “normalize” over the next two years.

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• [News] China’s Import of Chip Making Equipment Hit New High This Year, with Mature Nodes Driving the Demand
• [News] China Contributes Over 40% of U.S. Chip Equipment Makers’ Revenue despite Export Controls

(Photo credit: iStock)

As TSMC and other major chip manufacturers compete for AI business opportunities, chip production capacity is unable to keep up with demand. Industry sources cited in a report from NIKKEI claimed that the slow expansion of high-end chip production capacity is due to different packaging and testing technologies used by various companies and calls for the industry to standardize as soon as possible.

Jim Hamajima, President of the Japan office of the Semiconductor Equipment and Materials International (SEMI), recently stated in an interview with NIKKEI that leading chip manufacturers like Intel and TSMC should adopt international standards for back-end processes to effectively and quickly increase production capacity.

Hamajima further noted that each company is trying to apply unique solutions in back-end processes, with TSMC and Intel using different technical standards, which leads to inefficiencies.

Semiconductor manufacturing is divided into two major parts: front-end and back-end processes. While the photolithography technology used in front-end processes widely adopts international standards set by SEMI, packaging and testing in back-end processes vary among manufacturers. For example, TSMC uses CoWoS technology for advanced packaging, while Samsung Electronics uses I-Cube technology.

In recent years, chip manufacturers have actively invested in the development of advanced packaging technologies, primarily because front-end processes face technical bottlenecks, making back-end processes the key to gaining a competitive edge.

Hamajima believes that the current state of back-end processes in the semiconductor industry is “Balkanized,” with each company adhering to its own technologies, leading to a fragmented industry. He warns that this issue will start to impact profit margins as more powerful chips are produced in the future.

Hamajima stated that if semiconductor manufacturers adopt standardized automated production technologies and material specifications, it will be easier to acquire manufacturing equipment and upstream material supplies when expanding production capacity.

Hamajima is a director of a recently launched consortium led by Intel and 14 Japanese companies to jointly develop automated systems for back-end processes. The collaborating companies include Japanese companies such as Omron, Yamaha Motor, Resonac, and Shin-Etsu Polymer, a subsidiary of Shin-Etsu Chemical Industry.

Hamajima noted that Japan, with its numerous automation equipment and semiconductor material suppliers, is an ideal location to test international standards for back-end processes.

He also acknowledged that currently, Intel is the only multinational chip manufacturer in the alliance, which might lead to the development of technical standards that favor Intel. However, he emphasized that the alliance welcomes other chip manufacturers to join, and the research outcomes will serve as a reference for future industry standard-setting.

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• [News] Intel Reportedly Collaborates with 14 Japanese Companies to Develop Semiconductor Backend Process Technology
• [News] HBM Boom May Lead to DRAM Shortages in the Second Half of the Year

(Photo credit: TSMC)

This year, global semiconductor manufacturing equipment sales are expected to grow and set a new historical record. It is estimated that next year will see even more robust growth, with an anticipated increase of 17%.

According to the forecast report from the International Semiconductor Industry Association (SEMI) released on July 10th, it’s indicated that global chip equipment sales in 2024 are estimated to increase by 3.4% year-over-year to USD 109 billion, surpassing the USD 107.4 billion record set in 2022. Furthermore, 2025 is projected to show even stronger growth, with sales expected to surge to USD 128 billion, breaking the record set in 2024.

“The growth in total semiconductor manufacturing equipment sales already underway this year is forecast to be followed by a robust expansion of roughly 17% in 2025,” said Ajit Manocha, SEMI president and CEO. “The global semiconductor industry is demonstrating its strong fundamentals and growth potential supporting the diverse range of disruptive applications emerging from the Artificial Intelligence wave.”

SEMI noted that due to continued strong equipment investment in China and increased investment in DRAM and HBM driven by AI computing, global sales of wafer fab equipment (WFE) in 2024 are estimated to grow by 2.8% year-over-year to USD 98 billion.

This is a significant upward revision from the previous estimate of USD 93 billion made in December and surpasses the USD 96 billion recorded in 2023, setting a new historical high. With the increased demand for advanced logic and memory applications, global WFE sales in 2025 are projected to increase by 14.7% year-over-year to USD 113 billion.

SEMI further stated that until 2025, China, Taiwan, and South Korea are expected to remain the top three countries in chip equipment investment. Due to continued growth in China’s equipment procurement, China is expected to maintain its leading position throughout the forecast period (up to 2025). Equipment shipments to the Chinese market in 2024 are estimated to exceed USD 35 billion, setting a new historical high, solidifying China’s unshakable lead. However, due to large-scale investments in China over the three-year period ending in 2024, it is anticipated that investments will decrease in 2025.

Chip equipment giant Tokyo Electron (TEL) announced in a press release on May 10 that starting in the second half of this year, the demand for DDR5 and HBM will increase, driving a projected recovery in investments in the most advanced DRAM.

As a result, the global market size for front-end chip manufacturing equipment in 2024 is projected to grow by 5% year-on-year to approximately 100 billion USD, matching the current historical high recorded in 2022 (around USD 100 billion). Additionally, with continued growth in AI servers and a recovery in demand for PCs and smartphones, the WFE market is anticipated to see a double-digit increase (over 10%) in 2025 compared to 2024.

In a financial report press release on May 9, semiconductor equipment company Screen Holdings stated that due to investments in mature processes in China and investments in the most advanced processes in Taiwan, the WFE market is expected to grow in 2024, with an estimated annual increase of about 5%.

Per a report by Nikkei on July 5th, SEAJ’s forecast report indicates that for the 2024 fiscal year (April 2024 to March 2025), the sales of Japanese-made chip equipment (including sales by Japanese companies both domestically and overseas) have been increased to JPY 4.2522 trillion, marking a significant increase of 15.0% compared to the 2023 fiscal year.

This will be the first time annual sales break the 4 trillion yen mark, setting a new historical record. The main drivers are the widespread adoption of AI, leading to extremely strong demand for GPUs used in AI servers, and the continued surge in demand for HBM used in conjunction with these GPUs.

In the Q3 of 2023 (July-September), global sales of semiconductor manufacturing equipment faced a substantial 11% decline, marking the most significant drop in four years and the second consecutive quarter of contraction. Notably, Taiwan’s market saw a nearly 50% reduction in sales, while the Chinese market achieved a historic step, crossing the 40% threshold of the global sales share for the first time, according to the report by Semiconductor Equipment Association of Japan (SEAJ).

In collaboration with the International Semiconductor Industry Association (SEMI), SEAJ gathered data from over 80 global semiconductor equipment companies. According to the “Semiconductor Manufacturing Equipment(World Wide SEMS Report)” released on December 1st, global chip equipment sales for Q3 2023 dropped by 11% to USD 25.6 billion compared to the same period last year, marking the second consecutive quarter of contraction.

Analyzing regional sales, Taiwan’s market sales dwindled to USD 3.77 billion, a nearly 50% decline from the same period last year (USD 7.28 billion), ranking it as the market with the highest contraction among the top 6. Conversely, the Chinese market experienced a remarkable 42% surge, reaching USD 11.06 billion, constituting 43% of the global sales for the first time and surpassing the 40% mark. This solidifies China’s position as the world’s largest semiconductor equipment market for the second consecutive quarter. Japan witnessed a substantial 29% drop to USD 1.82 billion, North America decreased by 5% to USD 2.5 billion, Europe grew by 2% to USD 1.7 billion, and South Korea faced a significant 19% decrease to USD 3.85 billion.

SEAJ highlighted that compared to the previous quarter (April-June 2023), global chip equipment sales in the last quarter decreased by 1%. In this context, the Chinese market saw a remarkable 46% increase, Taiwan witnessed a steep 34% decrease, South Korea plummeted by 32%, Europe grew by 5%, North America saw a significant 15% decrease, and Japan experienced a substantial 19% increase.

TEL’s Revised Outlook and China’s Rising Impact

Tokyo Electron Limited (TEL), a major player in the Japanese semiconductor equipment industry, released financial data on November 10. Despite delays in investments for advanced process and foundries, the company is experiencing a substantial increase in investments from Chinese customers, especially in mature process. Consequently, TEL has revised its global market size estimate for semiconductor front-end manufacturing equipment (wafer fab equipment, WFE) for the year 2023. The initial estimate made in August, which projected a market size of USD 70-75 billion (a YoY decrease of 25-30%), has been adjusted to USD 85-90 billion (a YoY decrease of 10-15%). Notably, in the last quarter (July-September), the Chinese market’s contribution to TEL’s overall revenue exceeded 40% for the first time.

TEL CEO Toshiki Kawai said, “We have seen around 20 to 30 new customers, and going forward we expect to see the Chinese market grow even further.” Kawai also added, “We have already received inquiries from China for CY2024, so we can expect some visibility. Our forecast for the first half of CY2024 in particular shows that China will continue to represent around 40% of sales by region.”