Analysis: More than half of Japan's chip equipment has entered China. Can the industry still survive?

According to data released by the Science and Technology Innovation Board Daily, for three consecutive quarters, more than half of Japan's semiconductor equipment exports went to the Chinese market.

Specifically, in the first quarter of this year, Japan's exports of semiconductor equipment and equipment parts, display panel equipment, etc. to China increased by an astonishing 82% year-on-year, equivalent to approximately RMB 24 billion, reaching the highest level since 2007.

According to SEAJ statistics, in April this year, Japan's semiconductor equipment sales reached 389.106 billion yen, equivalent to about 17.952 billion yuan, a year-on-year increase of 15.7%. This increase set a new high in nearly 17 months.

Now that the second quarter is coming to an end, according to statistical forecast data at the end of May, it is expected that the revenue of companies such as Tokyo Electron, SCREEN, Advantest, and DISCO will increase from April to June, with year-on-year growth expected to be in the range of 20% to 40%.

SCREEN also expects that the Chinese market will account for nearly half of its sales, reaching about 49%, between April and September this year.

In recent years, my country has achieved remarkable results in promoting the localization of integrated circuits.

Although a large amount of equipment was imported from overseas in the first quarter of this year, this does not conflict with the goal of localizing integrated circuits. Instead, it highlights the complexity and flexibility of the development of the integrated circuit industry.

Nikkei pointed out that one of the important reasons for China's export growth is the "last train rush" effect caused by regulatory policies.

Given the obstacles in introducing cutting-edge semiconductor manufacturing equipment, Chinese manufacturers are turning to general semiconductor production, a move that has significantly promoted the export growth of Japanese semiconductor manufacturing equipment in unrestricted areas.

Faced with uncertainties such as possible tightening of export controls in the future, the domestic semiconductor industry generally demonstrates a sense of risk prevention and is purchasing equipment in advance to avoid potential risks.

Currently, mainland China still faces technical challenges in achieving self-sufficiency in semiconductor equipment. In the short term, the demand for a local semiconductor supply chain has actually brought significant revenue growth to overseas equipment giants.

It can be observed from relevant financial reports that the performance growth of leading equipment manufacturers including ASML, Lam Research, and Applied Materials in recent years has mainly benefited from the strong demand in the Chinese mainland market.

In addition, the need to build an independent supply chain is also driving the development of local semiconductor equipment manufacturers.

According to data from Strategy Analytics, from 2020 to 2023, the localization rate of China's semiconductor equipment will increase from 7.2% to 11.7%, and is expected to further increase to 13.6% in 2024.

This trend shows that China is actively promoting the development of its domestic semiconductor equipment industry to achieve a higher level of self-sufficiency.

Strategic layout for industry to restore competitive level

In recent years, in order to promote the systematic development of the semiconductor industry, Japan’s Ministry of Economy, Trade and Industry has established the [Semiconductor and Digital Industry Strategy Research Council] since March 2021.

Subsequently, a series of policy measures were introduced to support the rapid growth of the industry.

In order to strengthen its industrial strength, Japan provided subsidies totaling approximately 476 billion yen, successfully attracting TSMC to invest in the construction of a semiconductor factory in Kumamoto Prefecture.

Sony is also actively involved, working with TSMC to promote the construction of a new factory in Kumamoto. The type of chips planned to be produced will represent Japan's latest achievements in cutting-edge technology.

This move will not only help enhance the competitiveness of Japan's semiconductor industry, but may also lay a solid foundation for building a pure electric vehicle (EV) supply chain in the Kyushu region.

Last year, Japan announced a 1.3 trillion yen investment with the United States to jointly develop next-generation semiconductor technology.

Against this backdrop, Rapidus, a company jointly funded by eight large Japanese companies including SoftBank, Sony, and Toyota, came into being. Its goal is to create cutting-edge semiconductor products with global competitiveness and it is expected to be officially put into operation in December 2024.

To this end, the Ministry of Economy, Trade and Industry took the lead in establishing the [Technology Research Group's Advanced Semiconductor Technology Center (LSTC)] to promote the research and development and innovation of semiconductor technology.

In addition, large companies such as Toyota Motor, Sony, NTT, NEC, and SoftBank also actively responded to the call and jointly established a joint venture Rapidus.

The company plans to achieve mass production of 2-nanometer chips in Japan as early as 2025, in an effort to recreate the glory of [Hinomaru Semiconductor].

To achieve this goal, Rapidus is engaging in in-depth technical cooperation with the Belgian Microelectronics Research Center (IMEC) to jointly develop cutting-edge lithography technology, including EUV lithography.

According to Reuters, Japan has decided to provide an additional 300 billion yen in financial support to Rapidus, on top of the 70 billion yen in subsidies it provides.

Rapidus estimates it will need 7 trillion yen in funding to ensure it can achieve its goal of mass-producing advanced logic chips by 2027.

At the end of last year, Rapidus signed a memorandum of technical cooperation with the Belgian Microelectronics Research Center (IMEC). In March this year, the two parties further reached a consensus on cooperation and jointly committed to the research and development of cutting-edge lithography technology.

As an independent research institution in the field of semiconductor manufacturing, IMEC has a close cooperative relationship with ASML for 30 years, jointly promoting the upgrading of EUV lithography technology and the research and development of the next-generation High-NA (high numerical aperture) EUV lithography machine.

For Japan, cooperation with IMEC will help introduce its core technology strength and inject strong impetus into the innovative development of the semiconductor industry.

Maintaining a high market share in the dominant market

According to the latest statistics from SEMI (Semiconductor Equipment and Materials International), lithography machines account for 23% of the global semiconductor equipment market, with a market size of up to US$23.23 billion.

In the field of lithography machines, ASML, Canon and Nikon have market shares of 82%, 10% and 8% respectively, showing a significant market position.

Among them, Nikon not only has an outstanding performance in lithography machines, but also occupies a leading position in the global market in other semiconductor manufacturing equipment fields such as lithography inspection and measurement.

In addition, Japanese companies have also demonstrated strong capabilities in other semiconductor equipment fields.

For example, in coating and developing equipment, heat treatment equipment, single-wafer cleaning equipment and batch cleaning equipment, Japanese companies have a market share of 92%, 93%, 63% and 86% respectively.

In the field of length measurement SEM, Japanese companies also occupy 80% of the market share, demonstrating their comprehensive advantages in the field of semiconductor equipment.

At the same time, the performance of Japanese material manufacturers in the global semiconductor materials market is also eye-catching.

In the field of key raw materials for DRAM, Japanese companies account for more than 70% of the global market share, demonstrating their strong competitiveness in the field of semiconductor materials.

In the silicon wafer market, Japanese companies Shin-Etsu and Shengko have almost monopolized the large-size silicon wafer market, with a global market share of about 60%, further consolidating their leading position in the semiconductor materials field.

It is worth noting that the core foundation of semiconductor materials is basic chemicals, which have high requirements for purity.

Due to the wide variety of categories in the relevant fields and the limited market size of the sub-sectors, it is unlikely that a multi-oligopoly situation will emerge.

Japan has a clear leading advantage in the global semiconductor materials market, thanks to its deep accumulation and continuous innovation in the basic chemical industry.

In the field of new materials, Japan has demonstrated strong R&D capabilities and market competitiveness.

Japan maintains a leading position in three most advanced material technologies, such as high-strength carbon fiber materials, wide-bandgap semiconductor transceiver component materials, and high-performance single-crystal blades.

In addition, in areas where the world's new materials goals are clear and where Japan has maintained a leading edge, Japan also has fine ceramics, carbon fiber, engineering plastics, amorphous alloys, super steel materials, organic EL materials, and magnesium alloy materials.

Advantages in these areas provide strong support for Japan's leadership in the global new materials market.

In addition to the fields of semiconductor equipment and materials, Japanese companies also have a strong presence in areas such as semiconductor factory handling equipment, wafer inspection equipment, and probe stations.

For example, companies such as Murata Machinery, Daifuku, and Rotze occupy an important position in the field of handling equipment for semiconductor factories;

Companies such as Hitachi High-Tech and Lasertec are major suppliers of wafer inspection equipment;

Tokyo Electron and Tokyo Precision have performed well in the field of probe stations.

These companies' expertise and market position in their respective fields have further consolidated Japan's leading position in the global semiconductor industry.

The strong demand for this type of equipment in the Chinese market

From the perspective of inventory and shipped goods, equipment manufacturers such as North Huachuang, China Micro Semiconductor, and Tuojing Technology all achieved significant month-on-month growth in inventory during 24Q1.

At the same time, from the perspective of production volume, companies such as Tuojing Technology and AMEC have also stated that their equipment market sales have increased significantly during 24Q1.

It is expected that the growth in newly signed orders this year will strongly drive the equipment company's performance to achieve certain growth in 2024 and 2025.

Against this backdrop, some large companies with mature processes are expected to restart capital expenditures, while large foundry companies are maintaining high capital expenditures. In addition, large domestic storage manufacturers are expected to bid for expansion this year. It is expected that domestic semiconductor equipment manufacturers will usher in a big year for orders in 2024.

SEMI predicts that mainland Chinese chipmakers will start operating 18 new projects in 2024, by which time WPM (wafers per month) production capacity will increase again by 13% to 8.6 million pieces.

This means that domestic chip production capacity will continue to maintain a high growth trend in 2024, and the expansion of production capacity will also bring new order opportunities to more domestic equipment manufacturers, thereby accelerating the development of technological iteration process.

However, it should be pointed out that the current domestic production rate of semiconductors is still at a relatively low level, and there is still dependence on overseas suppliers in the short term.

At the same time, overseas semiconductor equipment giants also have high expectations for revenue growth this year.

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Whether Japan can further gain more influence in the semiconductor industry in the future will depend on the R&D strength of its entire semiconductor industry chain, especially whether it can maintain continuous R&D and expansion in its areas of strength.

Some references: Crossroads of Technology: "Japanese chip equipment is entering China in large quantities, Chinese companies should pay attention", Cailianshe: "Japanese equipment is pouring into China, and domestic manufacturers are ready [waiting for the wind to come]", Xinbang: "Besides equipment and materials, what else is left in the Japanese electronics industry", Electronics Enthusiasts Network: "Japanese semiconductor equipment exports surged by 82%! Half of the buyers are from China", Caijing Eleven: "The success and failure of Japan's semiconductor industry"

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