• Financial Directions
• January 9, 2025

Semiconductor Equipment Growth: Can it Last?

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The semiconductor industry is undergoing a transformative surge, particularly in China, which has emerged as a powerhouse within the global semiconductor equipment marketRecent revelations by SEMI, the global industry association representing the semiconductor supply chain, highlight that China has secured its position as the largest market for semiconductor equipment worldwideIn the first half of this year alone, China's expenditure on chip manufacturing tools reached a staggering $25 billion, setting a new recordThis significant investment is not only a reflection of current market demand but also serves as an indicator of future industry prospectsAnalysts forecast that China is poised to become the leading investor in new chip factories, along with requisite equipment, with total spending projected to hit $50 billion by year-end.

In the midst of this procurement boom, Chinese enterprises are reaping the benefits

Many domestic chip equipment manufacturers have reported impressive results for the first half of the year, revealing an income growth rate of over 30%. Companies such as Northern Huachuang, Zhongwei Company, and Tuojing Technology are standouts in this landscape, showcasing remarkable revenue growth rates of 42.2%, 41.4%, and 32.2% respectivelyThese figures point to a robust recovery and assert the strong market recognition that long-established firms like Northern Huachuang enjoy.

However, it is noteworthy that Zhongwei's revenue growth was impacted by a substantial 49% downturn in MOCVD equipment salesNevertheless, its primary product line, plasma etching equipment, still surged by 56.7%, demonstrating the company's resilience and competitiveness in its core technology domain despite last year’s high basesThis persistence is vital for a company navigating the complexities of the semiconductor market.

Investments in research and development are crucial for sustaining growth within the semiconductor equipment sector

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Northern Huachuang, Zhongwei, and Tuojing have reported R&D spending rates of 10.5%, 16.5%, and 24.8% respectively, with Zhongwei's R&D expenditures increasing an astounding 110.8% year-on-yearSuch investments signal a commitment to innovation and technological advancement, essential for any company looking to maintain its competitive edge, especially during periods of product expansion and development activities.

These investments have yielded significant R&D outcomesIn the domain of integrated circuit core equipment, Northern Huachuang has successfully developed high-density plasma chemical vapor deposition (HDPCVD) machines, dual-Damascan CCP etchers, vertical furnace atomic layer deposition (ALD) systems, and high-k ALD equipment—all featuring independent intellectual property rightsTheir successful integration into client productions underscores the practical applications of their innovations.

Conversely, Zhongwei Company is intensifying its focus on advanced chip manufacturing technologies, particularly in key etching processes

Several new machines have recently entered client validation phases, confirming their product's reliability in various chip manufacturing scenariosAn example includes the Primo UD-RIE, which supports ultra-high aspect ratio etching and has displayed capabilities to achieve structures with etching ratios of 60:1 under production evaluationsMeanwhile, numerous other pieces of equipment, such as those for ICP, have been validated in advanced logic, DRAM, and 3D NAND production lines, securing significant orders from customers.

Moreover, Tuojing Technology has made impressive strides with its PECVD, ALD, SACVD, and HDPCVD product lines, which are now widely adopted at client sitesTheir capabilities are notable, with performance levels reaching international standardsTheir notable innovations also include a sophisticated smart machine system that enhances device setup efficiency and performance, contributing to their expanding market share.

In an interesting development, Northern Huachuang has surged to become the seventh-largest global manufacturer of semiconductor equipment, according to their Q2 2024 financial report

This exemplifies their growing influence in the global market, which is characterized by high barriers to entry and significant investment requirements.

Moreover, domestic equipment manufacturers are broadening their scope, continuously innovating across the supply chain—from ion implantation to etching, inspection, core components, and consumablesAn important milestone was achieved by the State Power Investment Corporation’s subsidiary, which recently delivered its first batch of hydrogen ion injection performance-optimized chip productsThis marks a significant step toward fully domesticating the technology and equipment necessary for semiconductor ion implantation in China, especially as reliance on foreign imports has historically constrained the nation’s capacity to produce high-voltage power chips above 600V.

Within a short span, the Nuclear Power Technology Center has overcome numerous technical barriers to accomplish a completely domestically produced platform for nuclear technology applications and semiconductor cross-disciplinary research, earning high praise from users in the process.

Additionally, Tianzhun Technology's investment in Suzhou Xihang Semiconductor Technology has resulted in successful testing of the TB1500, a wafer defect inspection device aimed at the 40nm technology node

This equipment reportedly utilizes advanced signal processing algorithms to enhance detection capabilities, fulfilling the stringent quality requirements of modern semiconductor manufacturing.

The corporate landscape is shifting as Zhongwei Company’s chairman revealed that over 90% of their critical components are now under their own control and autonomous production, with expectations to achieve complete self-sufficiency by Q3 2024. Zhongwei is strategically positioning itself in three primary domains: integrated circuits, general semiconductor devices, and optical inspection equipment, all aimed at harnessing advances in technology.

Furthermore, a recent announcement underlines Zhongwei's launch of cutting-edge 12-inch devices designed for high-aspect-ratio metal tungsten deposition, signifying their expanding technology applications within the semiconductor landscape.

Looking ahead, the Chinese semiconductor market presents immense potential

The resurgence within the global semiconductor equipment sector signals better days aheadFollowing a report conducted by SEMI, which outlined a notable resurgence in the semiconductor manufacturing industry as of Q2 2024, significant growth in integrated circuit sales was reported, alongside an uptick in capital expenditure and wafer fab capacityThis growth is part of a larger trend that predicts third-quarter sales could increase by as much as 29% year-on-year, exceeding previous records set in 2021.

As the world's largest semiconductor market, China's domestic sales have gradually rebounded amid external pressures, catalyzing a broader movement towards domestic production and self-relianceThe momentum gained from this period is compounded by renewed demand driven by artificial intelligence innovations, resulting in a recovery phase anticipated to invigorate the entire semiconductor ecosystem.

The prognosis for the semiconductor equipment industry appears robust