As the U.S. imposes stricter regulations on China’s semiconductor sector, Chinese chip manufacturing equipment makers are experiencing increased demand. Orders from Chinese companies have surged in recent months.
Domestic equipment manufacturers like Naura (002371.SZ) and etching equipment maker AMEC are now securing a larger share of contracts from Chinese foundries. This is because chip manufacturers are hastening the transition from foreign-made equipment to domestically produced alternatives, according to research findings.
Recent data shows a significant shift in the Chinese semiconductor industry. From January to August 2023, Chinese manufacturers managed to secure 47.25% of machinery equipment tenders from Chinese foundries, according to an analysis of 182 tenders by Huatai Securities.
The trend continued to strengthen from July to August 2023, with Chinese suppliers winning 62% of tenders compared to only 36.3% from March to April. This shift represents a turning point in the industry, acknowledging that the US restrictions on technology imports are unlikely to ease.
Also, self-reliance, as advocated by Chinese President Xi Jinping, is the way forward.
The US Government Aims to Review Restriction of Chips to China Each Year
The Biden administration recently broadened its efforts to curb China’s chip industry with the aim of preventing Beijing from gaining access to advanced U.S. technologies. The United States claims that these chips could enhance Chinese military capabilities. These measures are planned to be reviewed and updated on an annual basis.
In response to these restrictions, China’s foreign ministry issued a strong protest. It has asserted that the new chip restrictions violated the principles of a market economy and fair competition. This reflects ongoing tensions and disagreements between the U.S. and China in the technology and semiconductor sector.
“Before the sanctions, top Chinese foundries would use a small number of machines from Chinese suppliers. But they would really only experiment with new equipment when they would add new capacity,” one source which is close to the matter told Reuters.
He also added that, “Now, foundries are testing out Chinese-made equipment for every foreign machine they own. If they find that it meets their needs, they replace all of them. They want as few foreign machines as possible.”
Companies like AMEC and Naura were getting more orders from China’s big factories, SMIC and Hua Hong Semiconductor. However, these companies didn’t reply to requests for comments.
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Chinese Equipment Makers are Making Great Sales
In the first half of 2023, the revenue from the equipment made by China’s top 10 equipment manufacturers grew by 39%. This growth percentage translates to an amount of $2.2 billion in sales. They were doing well, but they were also stockpiling chip equipment from other countries. However, these options are closing down because these countries are also making rules to limit selling to China.
Chinese companies are getting better at making equipment for processes like etching and cleansing. This allows them to compete with big American companies like Applied Materials Inc and Lam Research Corp.
Some Chinese machines are even used in making advanced chips, as good as those using 5 nanometer technology. They are used to clean the surface of silicon wafers.
A semiconductor analyst in China said the quality of equipment made in China is improving faster than he thought. He believes they are two years ahead of what he originally thought.
China Still Struggles to Make High-end Lithography Equipment
But there are still some challenges. Making equipment for lithography is really hard, and China hasn’t been able to get the machines they need to make the most advanced chips. The U.S. has even stopped some less advanced lithography systems from going to China.
A report from Huatai Securities said that only one Chinese company won a bid for lithography equipment out of many tries in the first eight months of 2023.
China’s imports of lithography machines and parts for those machines from the Netherlands went up by 81.2% from January to August, reaching $3.3 billion. Dutch based company, ASML is a big maker of these machines, and they said that almost half of their revenue in the third quarter of 2023 came from selling to China.
But the problem with lithography hasn’t stopped Chinese companies from making progress. Analysts think Huawei and SMIC were able to make an advanced chip for the Mate 60 Pro phone by adjusting machines they bought from ASML.
However, experts say that local companies in China still can’t make all the equipment they need, especially the most advanced kind. They are focusing on making equipment for older technology. Making advanced semiconductor equipment in China is still a long way off.