With the United States imposing stricter restrictions on China’s semiconductor sector, Chinese chip equipment manufacturers are experiencing a surge in orders from domestic foundries. Research indicates that local equipment companies like Naura (002371.SZ) and AMEC, specializing in etching equipment, are securing a significantly larger share of contracts from Chinese foundries. This shift is attributed to chip manufacturers’ urgent efforts to replace foreign-made equipment with domestically produced alternatives.
An analysis of 182 machinery equipment tenders conducted by Huatai Securities in the period from January to August 2023 revealed that Chinese manufacturers secured 47.25% of these contracts, signifying a significant shift in the industry.
The data from the brokerage’s analysts shows that from July to August 2023, Chinese suppliers won 62% of the tenders, a notable increase from the 36.3% won from March to April. This shift indicates the industry’s recognition that U.S. technology import restrictions are unlikely to ease and may even worsen, aligning with the importance of self-reliance as advocated by Chinese President Xi Jinping.
On Tuesday, the Biden administration announced an extension of measures targeting China’s semiconductor sector, with the objective of preventing Beijing from acquiring advanced U.S. technologies that could enhance its military capabilities. These measures are slated for annual updates. In response, China’s foreign ministry expressed strong disapproval of the new chip restrictions on Wednesday, contending that they contravene the principles of a market economy and fair competition.
Prior to the sanctions, leading Chinese foundries primarily used a small number of machines from Chinese suppliers, primarily for experimental purposes when expanding capacity, a source informed by the companies told Reuters. However, the situation has shifted dramatically, with foundries now conducting trials of Chinese-made equipment to replace foreign machines. They are increasingly interested in minimizing foreign equipment in their operations.
Specifically, companies like AMEC and Naura are seeing an uptick in orders from China’s major foundries, including SMIC and Hua Hong Semiconductor. However, AMEC, Naura, SMIC, and Hua Hong declined to comment when contacted.
The domestic equipment revenue of China’s top 10 domestic equipment manufacturers surged by 39% YoY in the first half of 2023, reaching $2.2 billion in sales, as reported by CINNO Research.
Chinese manufacturers have been stockpiling foreign-made chip equipment from Japan and the Netherlands, but this route is also expected to close soon as these countries are anticipated to implement restrictions in the coming months.
Experts believe that Chinese manufacturers are making notable strides in equipment production, particularly in areas like etching and cleansing, where they compete globally with U.S. companies such as Applied Materials Inc and Lam Research Corp. Some AMEC machines have been integrated into production lines for chips as advanced as 5-nanometer technology.
Nevertheless, there are challenges, notably in the lithography segment, which necessitates complex optics and precision. China has faced difficulties acquiring extreme ultraviolet (EUV) lithography machines for producing the most advanced chips. The U.S. has also restricted some less advanced deep ultraviolet (DUV) lithography systems from reaching China.
Data from Huatai Securities revealed that only one tender for lithography equipment was awarded to a Chinese firm in the first eight months of 2023. In the same period, China’s imports of lithography machines and components from the Netherlands surged by 81.2% YoY to $3.3 billion, largely supplied by ASML, the leading European technology company in this sector.
Despite challenges in lithography, Chinese companies have managed some breakthroughs. Analysts suggest that Huawei Technologies and SMIC have been able to produce an advanced chip for the Mate 60 Pro phone by modifying DUV machines they obtained from ASML.
However, there remains a gap in the capability of local players to supply a full range of equipment, especially in the EUV category, suggesting that the journey to establish advanced semiconductor equipment manufacturing in China is ongoing.