As U.S. export controls bite, Chinese makers of equipment needed to make semiconductors stand to benefit from a rush of domestic orders, though executives and analysts warn that boost could be short duration.
Since Washington introduced sweeping restrictions on Oct. 7 to limit the ability of Chinese companies to obtain or manufacture advanced computer chips, Yangtze Memory Technology, China’s largest memory chip maker, has issued at least 20 appeals. offers for a wide range of chip manufacturing equipment.
“The current strategy is that if there is a functioning domestic semiconductor production equipment, even if [the suppliers] need help, we will buy from Chinese companies. Otherwise, we buy from non-US suppliers, mainly Japanese,” said a senior YMTC engineer.
“I anticipate that most orders will end up in the hands of domestic suppliers who will prioritize customers like us, but there are still quite a few parts beyond their capabilities,” the person said.
The company will instead replace U.S. tool makers such as KLA and Applied Materials with Japanese makers including Hitachi and Tokyo Electron, a sign that local suppliers still lag behind foreign rivals with their technology.
To make matters worse, Chinese chipmakers’ loss of access to some irreplaceable US-made tools has halted the majority of production facility construction projects that power the businesses of domestic equipment makers.
According to a study by Sanford C. Bernstein, Chinese semiconductor equipment revenues tripled between 2018 and 2021, driven by aggressive expansion by domestic chipmakers. But the investment group estimates that only 15% of equipment demand from Chinese chipmakers has been met by local suppliers this year, well below the government’s ambitious target of 30%.
Export controls will further curb this crucial sector, analysts say. “They may want to build self-sufficiency in terms of chip-making equipment in response to export controls, but in fact localization will be slower due to controls,” said Semis analyst Mark Li. -drivers at Sanford C. Bernstein. in Hong Kong. “The biggest bottleneck is that their customers, without access to foreign equipment, will not be able to develop further.”
Three people with direct knowledge of the situation said that while YMTC has not canceled or postponed equipment orders already placed, the company’s expansion plans are on hold. ChangXin Memory Technologies, YMTC’s smaller rival, has also suspended some expansion plans, according to a person familiar with the matter.
Jefferies analysts predict that this disruption to Chinese chipmakers’ investment plans, particularly in the memory segment, will lead to a dramatic drop in demand for semiconductor production equipment over the next few years.
YMTC and CXMT should still have enough equipment to meet their expansion plans next year, but “if they cannot access advanced equipment from the United States and cannot find sufficient alternatives good from Japanese or European suppliers, they will likely have to halt expansion altogether,” Jefferies analyst Nick Cheng wrote in a research note. As a result, China’s total investment in chipmaking tools would rise from $26 billion previously forecast by the analyst to $18 billion in 2024, and from $24 billion to $16 billion in 2025. .
That would rob Advanced Micro-Fabrication Equipment, one of China’s largest chip-equipment makers, of a quarter of Jefferies’ projected revenue for 2025. AMEC rival ACM Research would lose nearly 20% of revenue planned for that year, the note predicts. .
The chip companies did not respond to an official request for comment.
Despite stockpiling efforts, several equipment companies could also be affected by the inability to source foreign components for their products.
“Only the assembly part of our products is entirely based in China, while the rest requires foreign technology and components. . . only limitations on components can easily suffocate us,” said a senior engineer at AMEC.
Additionally, equipment makers face a talent drain as engineers seek better-paying jobs at chip design houses and semiconductor makers.
“Chinese equipment companies should also be concerned about the stability of their existing R&D team, as we have received many inquiries from equipment engineers regarding moving to other sectors that have not been affected as much. by the new sanctions,” said a Shanghai-based official. head hunter.
Faced with growing challenges, the response of some equipment companies is to explore greater collaboration with their rivals.
“The new sanctions force companies like ours to seek more cooperation with each other,” an AMEC official said. “Executives from several companies, including ACMR, AMEC and others, are breaking down walls and have had meetings about it.”