Chip equipment manufacturers’ carnival and hidden worries

Latest update time：2024-03-01

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Source : Content from The Wall Street Journal , thank you.

Before a real conflict occurs, countries stockpile ammunition and fuel. Now Chinese companies are busy hoarding parts for chip manufacturing equipment.

This brings huge profits to Western and Japanese suppliers, but also bodes worrisomely for the future.

Japanese chip equipment maker Tokyo Electron is the latest company to benefit from China's buying spree. The company's shares are up 20% since it raised its profit forecast two weeks ago. In the last quarter, nearly half of Tokyo Electronics' net sales came from China, and sales in China doubled year-on-year in the quarter.

Capital spending by global semiconductor companies, especially memory chip makers, slowed last year, while strong demand in China helped offset weakness elsewhere. Chinese customs data shows that China’s semiconductor equipment imports increased by 14% in 2023 compared with the previous year, reaching nearly 40 billion US dollars. Industry association SEMI estimates that global semiconductor equipment sales will fall 6.1% in 2023 from the previous year to $101 billion: a significant improvement from the 18.6% decline originally forecast in July last year.

There are several reasons for this consumer boom in China. First, Chinese chipmakers have been scrambling to stockpile equipment in anticipation of tighter export restrictions in the West. This is especially true of photolithography machines, which use light to print tiny circuits on silicon wafers. Japan and the Netherlands, major suppliers of lithography machines, have joined the United States in imposing export restrictions on China.

Data from China Customs show that China's imports of lithography machines from the Netherlands will almost triple year-on-year in 2023. ASML, the leader in the lithography equipment market, tripled its net system sales to China last year. Last year, China accounted for 29% of total net sales of ASML systems, compared with only 14% in 2022.

For a long time, ASML has been unable to sell its most advanced extreme ultraviolet lithography equipment (EUV) to China. But new restrictions recently mean the company will also be unable to export some less advanced equipment to China. The company said last month that the Dutch government had revoked a license to export certain lithography machines to China. ASML said that about 10% to 15% of its sales to China may be affected this year.

The bad news for companies is that China's massive stockpiling last year may affect sales growth in 2024. Even so, China's heavy investment in semiconductor production capacity is still a long-term trend.

China's plans to produce the most advanced chips have been hampered by sanctions, but Chinese companies are developing more mature process technologies. At the same time, China is trying to wean itself off dependence on Western supplies. It will take a long time for China to catch up in some key technologies such as lithography, but in some segments, Chinese suppliers have developed well, but the gap is still obvious.

For Western and Japanese chip equipment manufacturers, export restrictions to China are a blessing and a curse. For now, these manufacturers are getting huge sales. But long-term risks are multiplying, especially in low-end technology.

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