Tech war: China chip tool makers see windfall from semiconductor investment boom amid US trade restrictions
Major Chinese semiconductor equipment manufacturers have reported significantly high revenue and profit, according to their latest financial disclosures, as they filled the void left by American suppliers who suspended local operations to comply with US trade restrictions on the mainland.
ACM Research (Shanghai) - a cleaning, electroplating and packaging equipment maker that is the Chinese subsidiary of US firm ACM Research - made 2.9 billion yuan (US$419 million) in total revenue last year, a significant rise from 1.6 billion yuan in 2021, on the back of increased domestic demand. Net profit reached 689 million yuan, up 254 per cent from a year ago, according to its annual report published in February.
State-backed National Silicon Industry Group, which sells silicon wafers to chip foundries, saw its revenue climb 46 per cent to 3.6 billion yuan in 2022, on robust demand from China's integrated circuit manufacturers using mature semiconductor process nodes of 28-nanometre and above, according to its annual report.
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"The US sanctions have advanced China's ambitions in semiconductor technology and helped boost revenue growth for Chinese equipment makers," said Sravan Kundojjala, senior semiconductor industry analyst at TechInsights.
An employee inspects a chip at an undisclosed Chinese semiconductor manufacturing facility in Suqian, a city in eastern Jiangsu province, on April 19, 2022. Photo: VCG via Getty Images alt=An employee inspects a chip at an undisclosed Chinese semiconductor manufacturing facility in Suqian, a city in eastern Jiangsu province, on April 19, 2022. Photo: VCG via Getty Images>
Naura Technology Group also credited high local demand for its 14.7 billion yuan revenue in 2022, up 51.7 per cent from the previous year. Another chip tool maker, Advanced Micro-Fabrication Equipment, reported 4.7 billion yuan in revenue last year, a 52.5 per cent jump from 2021, as net profit rose 15.6 per cent to 1.2 billion yuan, according to its annual report published in March.
These chip-making equipment makers are supplying some of the biggest Chinese foundries as well as domestic semiconductor testing and packaging companies.
Yangtze Memory Technologies Corp, for example, has doubled down on efforts to work with Chinese suppliers to help manufacture memory chips based on its innovative NAND Flash architecture, Xtacking 3.0, according to a recent South China Morning Post report.
NAND Flash is a type of non-volatile storage technology that retains data even without power, which has made it ideal for many electronics devices such as smartphones, tablets, laptop computers and solid-state drives.
Those developments underscore the resolve of China's sanctions-hit semiconductor industry to continue growing and innovating, despite their struggles with US trade restrictions.
In October last year, US firms Lam Research Corp and KLA Corp scrambled to comply with a new round of trade restrictions issued by Washington, which prompted them to cease supplying equipment and services to various Chinese chip projects. That allowed local suppliers to plug the gap in the market.
The American suppliers suspended their business on the mainland after the US Department of Commerce released updated policies intended to halt shipments of advanced chips and semiconductor-manufacturing technology of potential use to China's military build-up and bid to dominate key industries.
Although disruptive, US sanctions against China's semiconductor industry have brought a rare opportunity for domestic suppliers to become more closely aligned with the requirements of local foundries and Beijing's chip ambitions. China has a tacit goal of procuring up to 70 per cent in value terms from domestic suppliers, according to industry professionals.
The increased investment in new chip projects - southern Guangdong province alone is developing up to 40 new semiconductor projects worth more than 500 billion yuan - is expected to keep demand strong for locally sourced manufacturing equipment and tools.
Peter Wennink, chief executive at Dutch lithography systems maker ASML Holding, recently said it was "logical" for China to develop its semiconductor-manufacturing equipment sector in light of US trade sanctions that block mainland firms' access to advanced gear from overseas.
"So it is absolutely essential that we keep market access to China," Wennink said.
He indicated that one carmaker in mainland China, which is ASML's third-biggest market behind Taiwan and South Korea, plans to make so many electric vehicles in the next three years that it would require products from "six or seven full-fledged logic semiconductor factories".
Peter Wennink, chief executive of Dutch lithography machine maker ASML Holding. Photo: Reuters alt=Peter Wennink, chief executive of Dutch lithography machine maker ASML Holding. Photo: Reuters>
Yet even chip-making equipment vendors rely on foreign technologies, from materials and key components to specific semiconductors, to make their products, according to Kundojjala from TechInsights.
"It remains to be seen how they will overcome that dependency themselves," he said.
More than 600 Chinese companies, including some of its national tech champions, have been put on the US trade blacklist, known as the Entity List, which restricts their access to US technology, equipment and services without Washington's approval.
Certain major choke points are also holding back the progress of China's chip manufacturing supply chain. For example, there are no viable domestic alternatives for the metrology tools supplied by US firm KLA, or the advanced lithography systems from ASML and Japanese vendors such as Nikon and Canon.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.
China pumps $7bn into upgrading chip supply chain
Government and industry work together amid U.S. tech export restrictions
Chipmaking investments by Chinese foundry SMIC are driving suppliers to spend as well. (Photo by Shunsuke Tabeta
GUANGZHOU -- Chinese chipmaking suppliers and state-backed funds plan to spend an estimated 50 billion yuan ($7.26 billion) to strengthen the domestic supply chain as the U.S. curbs tech exports.
"We cannot avoid decoupling in semiconductors," Chiu Tzu-Yin, president of state-backed wafer giant National Silicon Industry Group (NSIG), said at a chip supply chain conference hosted in Guangzhou for two days through Wednesday. "This will be the greatest opportunity for Chinese enterprises that make production machinery and materials."
As imports of foreign-made chipmaking machines have slowed due to U.S. restrictions, Chinese companies that produce chipmaking equipment and materials have gained visibility, aided by subsidies and investment under the auspices of the government's Made in China 2025 initiative.
About 35% of Chinese semiconductor factories used domestic equipment in 2022, up from 21% in 2021, Chinese media report. Domestic players have won nearly half of all public bids for equipment by leading chipmakers here so far in 2023, a Chinese brokerage reports.
"Global political frictions will likely usher in a golden age to China's semiconductor manufacturing machinery sector," said David Wang, CEO of ACM Research, which specializes in wafer-cleaning equipment.
Naura Technology Group, China's top manufacturer of chipmaking devices, earned 14.6 billion yuan in revenue last year, more than six times the figure in 2017. The state-linked company bought a U.S. wafer cleaning device maker in 2018 and extended its business profile to include products for etching.
Naura Technology Group is China's biggest manufacturer of chipmaking devices. (Photo by Shunsuke Tabeta)
Naura is said to supply leading Chinese foundry Semiconductor Manufacturing International Corp. (SMIC) as well as Yangtze Memory Technologies. With an investment of 3.8 billion yuan, Naura will build a Beijing plant due to begin operations next year.
Advanced Micro-Fabrication Equipment, China's No. 2 manufacturer of chipmaking tools and a producer of etching devices, roughly quintupled its sales last year from 2017. Products from the state-backed enterprise can handle advanced 5-nanometer semiconductors. Construction is underway for a 1.5 billion yuan plant in Shanghai.
Sales of chipmaking equipment in China totaled 52 billion yuan last year, an industry group estimates, roughly six times more than in 2017.
About 62 billion yuan worth of chipmaking materials was sold in 2022 as well, nearly triple the 2017 figure. NSIG's revenue roughly quintupled during that span, and the company raised 10 billion yuan in funds last year alone.
"We plan to increase the monthly production capacity of 300-millimeter wafers up to 1.2 million units, quadruple the current level," Chiu said.
National Silicon Industry Group broke ground on a research hub in November 2022. (Photo courtesy of National Silicon Industry Group)
Beijing plans further support to domestic companies in light of its growing rivalry with Washington. Speculation centers on a package worth 1 trillion yuan or more.
"Upstream and downstream industries will work together on innovation, accelerating efforts for a Chinese-style self-reliance in semiconductors," said Tsinghua University professor Wei Shaojun, a policy adviser on semiconductors.
China ranked first worldwide in chipmaking equipment sales for the third consecutive year in 2022 despite a 5% decrease, industry group SEMI reports. Demand is expected to grow in 2023, especially as Chinese chipmakers anticipate new American export restrictions. SMIC plans a similar level of investment in 2023 as in 2022.
Overseas players also have an eye on opportunities in China, the world's largest market for chips. The three largest U.S. equipment makers generated around 30% of their total sales last year in China, according to Chinese research institution ChipInsights.
Sponsors for this week's Guangzhou conference included U.S.-based Applied Materials, KLA and Lam Research, as well as Germany's Siemens. A Singaporean executive from KLA used the event to highlight the company's expertise in automotive chips.
Current U.S. restrictions on tech exports to China focus on cutting-edge areas, like 10- and 14-nm logic chips. Shipments in more mature fields, like equipment, are still allowed.
One executive from a foreign company noted that losing the Chinese market would harm overall earnings, in turn impacting research and development.
From Japan, Disco and Hitachi Group were listed as sponsors for the Guangzhou event. But they kept a low profile, largely watching for U.S. moves.
