Xinmou Column: Looking at the investment in China's semiconductor industry from the sales data of equipment companies

source: The content comes from "Central Analysis", which is the world's leading semiconductor industry research organization. It issues authoritative research reports and comprehensive analytical research on companies, funds and governments. It is a widely recognized semiconductor industry research company in the industry.

In recent semiconductor news, there have been numerous reports that "China has dozens of semiconductor production lines with an investment of hundreds of billions of yuan." But behind the news, have we ever analyzed how much investment China's semiconductor industry actually has? In 2018, after comprehensive research and careful analysis, Strategy Analytics published an article titled "Is China's investment in semiconductor production lines really high? -- From the regional sales data of semiconductor equipment companies to see the exaggeration and insufficiency of China's industrial investment." The article, which used data to speak and facts to speak, has caused a major response in the industry! It was presented to relevant leaders, and the data and opinions in it were cited in an international occasion to counter the false claims of international organizations that China's semiconductor investment is too much and has brought about overcapacity.

As of today, the 2018 annual reports of international equipment manufacturers have been published. Strategy Analytics has specially compiled and analyzed the data for two consecutive years for comparison and to inspire thinking.

In view of the above figure, the following five points are supplemented:

1. The above data are all from the public data in the annual reports of the five major companies.

2. The definition of fiscal year varies from company to company, but it can be used as a representative study.

3. The data for mainland China includes the purchases made by international companies and companies in Taiwan in their branches/subsidiaries in mainland China.

4. A few companies' data include non-semiconductor areas such as LEDs, solar and panels, especially Applied Materials.

5. The way each company recognizes revenue is not consistent, and there are slight differences in timing, but this does not affect the sample for analysis.

Among these five semiconductor equipment companies, KLA is mainly engaged in measurement, and considering the product overlaps of Applied Materials, Lam and TEL, as well as sales in non-semiconductor fields, it is more direct and representative to analyze ASML's sales alone, especially because it is irreplaceable. (Although there are Japanese suppliers in the field of lithography machines, most of their customers are Japanese companies, and mainland China and other international manufacturers purchase more lithography machines from ASML)

Based on ASML's 2018 revenue of 10.944 billion euros, the revenue from mainland China was about 1.842 billion euros, or 2.063 billion U.S. dollars. Of the 16.8% contributed by mainland China, after multiple investigations, excluding overseas companies such as Intel, Hynix, and TSMC, mainland China's local companies accounted for about 58%, or 9.8% of ASML's global sales. This means that in 2018, the procurement volume of lithography machines by mainland China's local companies was only 1/4 of that of South Korea and less than 1/2 of that of Taiwan, China.

By analogy, after our in-depth research on the five global leading companies mentioned above, we segmented their sales data in "Mainland China" and found that the sales of pure mainland Chinese companies in each company basically accounted for 50% to 55% of their sales in "Mainland China". In other words, the semiconductor equipment procurement in Mainland China only accounts for about 9% of the world!

Although purchases from China increased from 7% in 2017 to 9% in 2018, there is a significant increase. However, the river surface is as smooth as a mirror, but the bottom of the water is deep. Behind the figures are grim and cruel facts.

1. Don’t judge things by appearances. 9% is the sales ratio. Considering business rules and other factors, the real situation may be even worse. The price of a single device sold to a company in mainland China is often higher than that of a first-tier international manufacturer. This is a well-known “unspoken rule” in the industry. If we calculate it by the number of devices, the ratio of the number of devices we purchase will be much lower than 9% (because the prices of advanced equipment and low-end equipment are different, so we cannot simply compare them, and can only make a rough estimate).

2. It is terrifying to think about it. South Korea's equipment purchases mainly come from Samsung and Hynix, while Taiwan's equipment purchases mostly come from TSMC. Purchases are concentrated, and the purchase amount of each company is much higher than the total purchase amount of the entire Chinese mainland. Our buyers are "a hundred flowers blooming": there are dozens of companies that claim to buy, but there are actually more than a dozen companies that buy. When the purchase power and competitiveness of each company are diluted, it is self-evident.

3. It doesn’t stop there. Just in terms of the amount of money spent on equipment purchases, we are already lagging far behind, and there is too much water. If we consider our investment conversion rate, if we consider the whole process from equipment to operation, from technology to products, from R&D to industry! How much more discounts will we have to pay later?

There is much more to think about behind this embarrassing reality.

1. The investment in publicity is often not real data, and most of the publicity is not achieved

If you only look at our media reports, you will see that they are full of exaggerations. If you only look at the headlines, you will find that we have become the savior of equipment manufacturers around the world and the largest buyer of semiconductor equipment. If you count our declared investment, the total may be more than one trillion dollars - although it is not high compared with the actual international investment. In fact, when the United States wants to count the threats posed by Chinese industries, they either blindly follow or deliberately use the data we publicize to "attack their shields with their own spears."

From news to reality. Apart from the actual implementation of the National Big Fund and the 50 billion fund of Shanghai, most of them are more talk than action, more promises than implementation. Such "investment" and "news" not only did not help us, but also gave others a handle and became a pretext for some people in the world to attack us. The wind of exaggeration should stop!

2. China still needs to continue to increase investment in the industry, and the construction and support of the second phase of the Big Fund is imperative

Even if some investments have been implemented and some plans have been put in place, we can still see the problem between the "expected purchase ratio" and the "actual purchase ratio after squeezing out the water". We can see that there is a big gap between the investment promoted, the investment in place, and the investment that is ultimately successful. The development of China's semiconductor industry has been like sailing against the current. If you don't move forward, you will fall behind! Therefore, China's semiconductor industry should continue to increase investment. But it must be real investment!

After ten years of hard work, the semiconductor industry needs continuous strong support and consistent policies. Buying equipment is just the beginning. There are many more stages to go, such as "equipment to technology", "technology to product", "product to commodity", "commodity to profit", "profit to competitiveness". In fact, building a factory and buying equipment are the simplest!

Don’t stop until you are halfway up the mountain. In the face of greater difficulties in the future, we need more consistency in policies, capital, and investment. Therefore, the second phase of the National Integrated Circuit Industry Fund is imperative and urgent.

3. Enterprises should be low-key and pragmatic, and the government should strengthen supervision

Recently, there have been many news reports about the launch of 12-inch and large silicon wafer production lines, and local governments have released many publicity reports. At present, we should be more cautious about "paper plans" and "verbal projects", and be vigilant against those projects that are "only promoted but not started" or "only started but not operated". It is recommended that the government should also strictly supervise the implementation of the projects. Let the "planned production line" become the "real production line" and let the "paper production capacity" become the "effective production capacity".

Conclusion

From news to reality, from feeling to reality. Data tells us to get out of the impression flow and return to reality. Similarly, we also hope to inform the domestic and foreign industries of the real data and real situation, which will not only help us recognize the reality and face the gap, but also help the international industry to give an objective and true evaluation of the Chinese industry, rather than emotional and biased conclusions based on wrong data. We hope that China's manufacturing industry can buy enough good equipment and produce enough good chips, and its real share in the top five overseas equipment companies can rise to a level of global competitiveness. We also hope that China's equipment industry can be independent and self-reliant, have the opportunity to shine on the international stage, and realize domestic substitution in the future, and reduce the increased "mainland China procurement" figure. But today we first hope to achieve the "small goals in front of us", the industry abandons exaggeration, refuses impetuousness, does more and says less, and moves forward pragmatically. In the end, small goals converge into big visions, quantitative changes lead to qualitative changes, and qualitative changes usher in brilliance!

About Strategy Analytics:

ICwise is a leading high-tech research company in China. ICwise takes "Intelligent China, Strategies for the World" as its mission and "Strategies for the World" as its mission, and is committed to becoming a world-class authoritative research institution in the semiconductor and electronics industry rooted in China. The company has three major businesses, including industry research, investment consulting, and strategic planning. It closely tracks the development of the international and domestic semiconductor and electronics industries, and provides customers with objective, independent and accurate industry data and professional and authoritative analysis reports. At the same time, relying on a deep understanding and insight into the industrial laws of China's semiconductor industry, relying on objective and accurate industry data accumulation, as well as extensive connections and resources, it provides comprehensive and objective consulting services for semiconductor industry investment and financing, mergers and acquisitions, and provides scientific, forward-looking and operational strategic planning for enterprises and governments.

Since its establishment in early 2015, Strategy Analytics has been working hard in the semiconductor industry and has flourished. At present, Strategy Analytics has a research team of ten analysts, including one chief analyst, three research directors, three senior analysts, two analysts, and one assistant analyst. The team has accumulated more than 100 years of experience in internationally renowned semiconductor industry analysis institutions and is the world's leading semiconductor research institution focusing on China!

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