China's chip equipment procurement: more than South Korea, the United States and Taiwan combined

China’s spending on chipmaking equipment in the first half of this year exceeded that of South Korea, Taiwan and the United States combined, according to global chip industry association SEMI, as it pushes to localize chip supply and reduce the risk of further export restrictions from the West.

SEMI data shows that China, the world's largest semiconductor equipment market, spent a record $25 billion on chip tools in the first six months of 2024. China maintained strong spending in July and is expected to set another full-year record.

Semiconductor equipment investment is an important indicator of future market demand and a barometer of the industry's prospects.

Mainland China is also expected to be the largest investor in building new chip factories, including purchasing equipment, with total spending expected to reach $50 billion for the year.

Due to the localization trend of semiconductor production, SEMI expects annual spending in Southeast Asia, the United States, Europe and Japan to grow significantly by 2027.

“We are seeing China continue to buy all the equipment for their new mature node chip manufacturing facilities,” said Clark Tseng, senior director of market intelligence at SEMI. “Concerns about the potential for further [export control] restrictions are also driving them to front-load and secure more equipment that can be purchased.”

Clark Tseng made the remarks at a press conference ahead of the opening of the SEMICON Taiwan Industrial Expo, which runs from Wednesday to Friday.

Analysts said China's record investment in chip production equipment was driven not only by top chipmakers such as SMIC, but also by small and medium-sized chipmakers.

"At least a dozen second-tier chipmakers are also actively buying new tools, which together are driving overall spending in China," he said.

Against the backdrop of a global economic slowdown, China was the only country to continue to increase its spending on chipmaking equipment in the first half of this year compared with the same period last year. Taiwan, South Korea and North America all saw a decrease in spending on chipmaking equipment compared with the same period last year.

The semiconductor industry's growth of about 20% this year is mainly due to the recovery of memory chip demand and the surge in demand for artificial intelligence-related chips. As the automotive and industrial chip markets are adjusting, other industries have only experienced a modest growth of 3% to 5%.

“We expect another 20% growth in 2025, which will be another big year for equipment spending,” Clark Tseng said.

China is the largest source of revenue for the world's top chip equipment suppliers. The latest quarterly financial reports released by Applied Materials, Lam Research and KLA-Tencor show that the Chinese market contributed 44% of the revenue of Applied Materials, Lam Research and KLA-Tencor.

Information disclosed by the companies shows that the Chinese market is larger for Tokyo Electron, Japan's largest chip tool maker, and ASML of the Netherlands. Tokyo Electron got 49.9% of its revenue from China in the June quarter, while ASML of the Netherlands got 49% of its revenue from China.

China's ongoing acquisition spree has pushed the chip industry's capital intensity to above 15% for four consecutive years starting in 2021. Capital intensity, like global semiconductor sales, is an important indicator of the chip industry's supply and demand balance.

“For the past 30 years, capital intensity has been below 15%, and now it looks like above 15% will become the new normal,” said Clark Tseng, adding that too high a ratio would raise concerns about oversupply.

However, Clark Tseng said SEMI expects total spending on new factory construction in China to "normalize" over the next two years.

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