In the current international environment, the chip manufacturing industry has become the focus of competition among countries. Recently, Chinese companies are busy hoarding parts for chip manufacturing equipment, which has brought huge profits to Western and Japanese companies, but also indicates that the future development is worrying.
Tokyo Electron, a Japanese maker of chip equipment, is the latest company to benefit from China's buying spree. Capex by global semiconductor companies, especially memory chip makers, slowed last year, while strong demand from China helped offset weakness elsewhere. China's semiconductor equipment imports in 2023 increased by 14% from the previous year to nearly $40 billion, according to Chinese customs data.
There are several reasons for China's consumption boom in this regard. First, Chinese chipmakers have been scrambling to stock up on equipment in anticipation of stricter export restrictions imposed by the West. This is especially true for lithography machines, which use light to print tiny circuits on silicon wafers. Japan and the Netherlands, the leading countries for lithography machines, have joined the United States in imposing export restrictions on China.
China's imports of lithography machines from the Netherlands almost tripled year-on-year in 2023, according to data from Chinese customs. ASML of the Netherlands, a market leader in lithography equipment, tripled its net sales of systems to China last year. Last year, China accounted for 29% of ASML Systems' total net sales, compared to just 14% in 2022.
While China's aggressive stockpiling last year may affect sales growth in 2024, China's heavy investment in semiconductor capacity remains a long-term trend. China's plans to produce chips with state-of-the-art processes have been hampered by sanctions, but Chinese companies are working on technologies with more mature processes. SMIC, China's largest chip foundry producer, said its capital expenditure this year will be roughly the same as last year, at about $7.5 billion.
Another long-term risk for manufacturers of chip-making equipment is that China is trying to wean itself off its dependence on the West. Although it will take a long time for China to catch up in some key technologies such as lithography, in some subdivisions, Chinese companies can already replace their Western counterparts. Bernstein expects the share of domestic OEMs in China's wafer fabrication equipment market to rise to 29% by 2026.
For Western and Japanese chip equipment manufacturers, export restrictions to China are a "blessing and a curse". As it stands, these manufacturers get huge sales. But long-term risks are multiplying, especially in the low-end technology sector. China's hoarding of chip manufacturing equipment is not only a response to the current international situation, but also a preparation for the next stage of the chip war.