In a shifting landscape of global semiconductor manufacturing, Chinese companies specializing in chip-making equipment are witnessing a surge in demand, fueled by heightened restrictions on China's semiconductor industry by the United States. Recent research indicates that domestic equipment manufacturers, including industry giants like Naura and AMEC, are securing a larger share of contracts from Chinese foundries than ever before.
A recent analysis conducted by Huatai Securities reveals a significant trend. Between January and August 2023, nearly 47.25% of all machinery equipment tenders issued by Chinese foundries were won by local manufacturers. Notably, from July to August 2023, an impressive 62% of these tenders went to Chinese suppliers, up from 36.3% in the preceding months.
This development signals a pivotal moment for the industry, as it underscores the growing acknowledgment that U.S. restrictions on technology imports are unlikely to diminish and may even intensify. Chinese President Xi Jinping's call for self-reliance appears to be resonating within the industry.
The Biden administration recently expanded measures aimed at curtailing China's chip industry's access to cutting-edge U.S. technologies, particularly those with potential military applications. These measures are set to be reviewed and updated on an annual basis. In response, China's foreign ministry criticized these actions, contending that they contravene the principles of market economy and fair competition.
Before the sanctions, top Chinese foundries would occasionally experiment with Chinese-made machines, primarily when expanding their capacity. However, the landscape has evolved. Foundries are now actively testing Chinese-made equipment as replacements for foreign machines across the board.
Prominent Chinese manufacturers, AMEC and Naura, are reaping the rewards of this shift, securing more orders from leading foundries such as SMIC and Hua Hong Semiconductor. Representatives from these companies have yet to comment on this development.
Sales data highlights this industry transformation. The equipment-related revenue of China's top 10 domestic equipment manufacturers surged by 39% year-on-year for the first half of 2023, totaling $2.2 billion in sales, according to a report by CINNO Research.
Chinese companies have historically stockpiled foreign-made chip equipment, particularly from Japan and the Netherlands. However, these avenues are also expected to narrow as these countries align with U.S. restrictions.
Analysts have observed that Chinese manufacturers are making impressive strides in producing equipment, particularly in areas such as etching and cleansing, where they are increasingly competitive with global leaders like Applied Materials Inc. and Lam Research Corp. Some Chinese-made equipment has even been integrated into production lines for advanced 5-nanometer technology chips.
A semiconductor analyst based in China remarked that the quality of Chinese-made chip equipment was progressing at a faster pace than expected, estimating that they were ahead of initial projections by about two years.
However, challenges persist, particularly in the realm of lithography, which demands intricate optics and process precision. China has encountered difficulties in procuring extreme ultraviolet (EUV) lithography machines required for producing cutting-edge chips, and the U.S. has further restricted the export of some less advanced deep ultraviolet (DUV) lithography systems to China.
The Huatai Securities report revealed that, during the first eight months of 2023, only one tender for lithography equipment was awarded to a Chinese company, despite numerous bids. China's imports of lithography machines and components from the Netherlands surged by 81.2% year-over-year to $3.3 billion from January to August, a clear indication of the challenges in this area.
Nonetheless, some Chinese firms have managed breakthroughs. Huawei Technologies and SMIC reportedly produced an advanced chip for the Mate 60 Pro phone by tweaking DUV machines they were still able to purchase from Dutch technology company ASML.
While Chinese manufacturers have made significant strides, some experts maintain that they still lack the capacity to provide a full suite of equipment, especially EUV lithography machines. For now, their focus remains on covering mature node equipment, with a long road ahead to compete in advanced semiconductor equipment production.