Tech war: China chip tool makers see windfall from semiconductor investment boom amid US trade restrictions

[Nan Yang]

Tech war: China chip tool makers see windfall from semiconductor investment boom amid US trade restrictions​

• Suppliers including Naura Technology Group, Advanced Micro-Fabrication Equipment and National Silicon Industry Group see robust demand in China
• US sanctions against China’s semiconductor industry have allowed domestic suppliers to become more closely aligned with local foundries’ requirements

Che Pan in Beijing
Published: 9:00am, 2 May, 2023

Major Chinese semiconductor equipment manufacturers have reported significantly high revenue and profit, according to their latest financial disclosures, as they filled the void left by American suppliers who suspended local operations to comply with US trade restrictions on the mainland.

ACM Research (Shanghai) – a cleaning, electroplating and packaging equipment maker that is the Chinese subsidiary of US firm ACM Research – made 2.9 billion yuan (US$419 million) in total revenue last year, a significant rise from 1.6 billion yuan in 2021, on the back of increased domestic demand. Net profit reached 689 million yuan, up 254 per cent from a year ago, according to its annual report published in February.

State-backed National Silicon Industry Group, which sells silicon wafers to chip foundries, saw its revenue climb 46 per cent to 3.6 billion yuan in 2022, on robust demand from China’s integrated circuit manufacturers using mature semiconductor process nodes of 28-nanometre and above, according to its annual report.

“The US sanctions have advanced China’s ambitions in semiconductor technology and helped boost revenue growth for Chinese equipment makers,” said Sravan Kundojjala, senior semiconductor industry analyst at TechInsights.

Naura Technology Group also credited high local demand for its 14.7 billion yuan revenue in 2022, up 51.7 per cent from the previous year. Another chip tool maker, Advanced Micro-Fabrication Equipment, reported 4.7 billion yuan in revenue last year, a 52.5 per cent jump from 2021, as net profit rose 15.6 per cent to 1.2 billion yuan, according to its annual report published in March.

These chip-making equipment makers are supplying some of the biggest Chinese foundries as well as domestic semiconductor testing and packaging companies.

Yangtze Memory Technologies Corp, for example, has doubled down on efforts to work with Chinese suppliers to help manufacture memory chips based on its innovative NAND Flash architecture, Xtacking 3.0, according to a recent South China Morning Post report.

NAND Flash is a type of non-volatile storage technology that retains data even without power, which has made it ideal for many electronics devices such as smartphones, tablets, laptop computers and solid-state drives.

Those developments underscore the resolve of China’s sanctions-hit semiconductor industry to continue growing and innovating, despite their struggles with US trade restrictions.

In October last year, US firms Lam Research Corp and KLA Corp scrambled to comply with a new round of trade restrictions issued by Washington, which prompted them to cease supplying equipment and services to various Chinese chip projects. That allowed local suppliers to plug the gap in the market.

The American suppliers suspended their business on the mainland after the US Department of Commerce released updated policies intended to halt shipments of advanced chips and semiconductor-manufacturing technology of potential use to China’s military build-up and bid to dominate key industries.

Although disruptive, US sanctions against China’s semiconductor industry have brought a rare opportunity for domestic suppliers to become more closely aligned with the requirements of local foundries and Beijing’s chip ambitions. China has a tacit goal of procuring up to 70 per cent in value terms from domestic suppliers, according to industry professionals.

The increased investment in new chip projects – southern Guangdong province alone is developing up to 40 new semiconductor projects worth more than 500 billion yuan – is expected to keep demand strong for locally sourced manufacturing equipment and tools.

Peter Wennink, chief executive at Dutch lithography systems maker ASML Holding, recently said it was “logical” for China to develop its semiconductor-manufacturing equipment sector in light of US trade sanctions that block mainland firms’ access to advanced gear from overseas.

“So it is absolutely essential that we keep market access to China,” Wennink said.

He indicated that one carmaker in mainland China, which is ASML’s third-biggest market behind Taiwan and South Korea, plans to make so many electric vehicles in the next three years that it would require products from “six or seven full-fledged logic semiconductor factories” .

Yet even chip-making equipment vendors rely on foreign technologies, from materials and key components to specific semiconductors, to make their products, according to Kundojjala from TechInsights.

“It remains to be seen how they will overcome that dependency themselves,” he said.

More than 600 Chinese companies, including some of its national tech champions, have been put on the US trade blacklist, known as the Entity List, which restricts their access to US technology, equipment and services without Washington’s approval.

Certain major choke points are also holding back the progress of China’s chip manufacturing supply chain. For example, there are no viable domestic alternatives for the metrology tools supplied by US firm KLA, or the advanced lithography systems from ASML and Japanese vendors such as Nikon and Canon.