- US restrictions strengthen China’s semiconductor tool makers
- Foundries choose Chinese-made equipment
- China’s technology is improving faster than expected
- Lithography machines remain a problem
SINGAPORE/BEIJING, Oct 19 (Portal) – As the United States tightens restrictions on China’s semiconductor industry, Chinese manufacturers are benefiting from chip-making tools, with orders from the country’s foundries increasing in recent months.
Domestic equipment makers such as tool maker Naura (002371.SZ) and etching equipment maker AMEC are winning a much higher share of tenders from Chinese foundries than in previous years, as chipmakers race to replace foreign-made equipment with domestically made alternatives, one said study showed.
According to an analysis of 182 tenders by Huatai Securities last month, nearly half, or 47.25%, of all Chinese foundry equipment tenders from January to August 2023 were won by local manufacturers.
In July-August 2023, 62% was won by Chinese providers, compared to just 36.3% in March-April, the broker’s analysts said.
It marks a turning point for the industry, reflecting an acceptance that U.S. restrictions on technology imports are unlikely to be eased and could get worse, and that self-reliance – as called for by Chinese President Xi Jinping – is the way forward.
The Biden administration on Tuesday expanded its crackdown on China’s chip industry to prevent Beijing from obtaining cutting-edge U.S. technologies to bolster its military. The measures are expected to be updated annually.
China’s foreign ministry said on Wednesday that it had strongly reprimanded the recent chip restrictions, saying they violated the principles of market economy and fair competition.
“Before the sanctions, leading Chinese foundries were using a small amount of machinery from Chinese suppliers, but were actually only experimenting with new equipment as they added new capacity,” a source briefed on the companies told Portal.
“Now foundries test Chinese-made equipment on every foreign machine they own and if they find it meets their needs, they replace it all,” he said. “They want as few foreign machines as possible.”
AMEC and Naura in particular received more orders from China’s largest foundries SMIC (0981.HK) and Hua Hong Semiconductor, he added.
AMEC, Naura, SMIC and Hua Hong did not immediately respond to requests for comment.
Sales increase
According to a report by CINNO Research, the equipment-related revenues of China’s top 10 domestic equipment manufacturers increased 39% year-on-year in the first half of 2023, accounting for revenue of $2.2 billion.
Chinese companies have stockpiled foreign-made chip equipment from Japan and the Netherlands, but those options are also expected to close as those countries are expected to join the U.S. in imposing restrictions in the coming months.
Analysts said Chinese manufacturers are getting better at making equipment in areas such as etching and cleaning, where they compete globally with companies such as U.S. firms Applied Materials Inc (AMAT.O) and Lam Research Corp (LRCX.O).
Some AMEC machines have been added to production lines for chips as advanced as those using 5-nanometer technology, earnings reports said. Its etching equipment removes excess material from the surface of silicon wafers.
A China-based semiconductor analyst, who asked not to be named because he was not allowed to speak to the media, said the quality of Chinese-made chip equipment is improving faster than expected and estimated it is two years ahead of its original estimates .
“There is definitely great progress in China’s semiconductor equipment sector, which is reflected in the strong sales growth metrics,” he said.
However, some weak points remain, particularly lithography, which requires extremely complex optics and process precision. China has been unable to obtain extreme ultraviolet (EUV) lithography machines needed to produce the most advanced chips, and the US has now barred even some less advanced deep ultraviolet (DUV) lithography systems from entering China.
Huatai Securities’ report found that in the first eight months of 2023, only one lithography equipment tender was awarded to a Chinese company out of many bids.
China’s imports of lithography machines and components used in such machines from the Netherlands rose 81.2% year-on-year to $3.3 billion in January-August, according to Portal calculations based on Chinese data customs.
Netherlands-based ASML, Europe’s largest technology company and advanced technology maker, reported on Wednesday that sales to China accounted for almost half of its revenue in the third quarter of 2023.
But the challenge of lithography hasn’t stopped Chinese companies from making some breakthroughs. Analysts believe that Huawei Technologies (HWT.UL) and SMIC were able to produce an advanced chip for the Mate 60 Pro phone by optimizing DUV machines that they were still able to purchase from ASML.
“Local players still lack the ability to supply a complete set of equipment such as EUV,” said Nori Chiou, investment director at White Oak Capital, saying Chinese manufacturers are focused on covering mature node equipment.
“There is a long way to go before advanced semiconductor equipment is manufactured in China.”
Reporting by Fanny Potkin in Singapore and Yelin Mo in Beijing; Additional reporting by Ellen Zhang in Beijing; Editing by Brenda Goh and Sharon Singleton
Our standards: The Trust Principles.
Acquire license rights, opens new tab