Chinese producers of chip-making tools are profiting from the United States’ tightening restrictions on China’s semiconductor industry; orders from the nation’s foundries have increased recently.

As chipmakers scramble to replace foreign-produced equipment with domestically built alternatives, domestic equipment manufacturers, such toolmaker Naura and etching equipment maker AMEC, are earning a substantially higher proportion of tenders from Chinese foundries than in past years, according to research.

Local manufacturers won nearly half (47.25%) of all machinery equipment tenders issued by Chinese foundries between January and August 2023, according to a Huatai Securities analysis of 182 tenders published last month.

According to the brokerage’s analysts, Chinese suppliers secured 62% of the contracts from July to August 2023, up from just 36.3% from March to April.

It represents an acknowledgment that self-reliance, as pushed by Chinese President Xi Jinping, is the way forward and that U.S. limitations on technology imports are unlikely to lessen and may even get worse, and it represents a turning moment for the industry.

On Tuesday, the Biden administration tightened its sanctions against China’s semiconductor industry in an effort to prevent Beijing from obtaining state-of-the-art American technologies that would bolster its armed forces. It is anticipated that the metrics would be revised each year.

The latest chip limitations have drawn harsh criticism from China’s foreign ministry, which stated on Wednesday that they go against the foundations of a free market economy and fair competition.

“Before the sanctions, top Chinese foundries would use a small amount of machines from Chinese suppliers, but they would really only experiment with new equipment when they would add new capacity,” one source briefed by the companies said.

“Now, foundries are testing out Chinese-made equipment for every foreign machine they own and if they find that it meets their needs, they replace all of them,” he said. “They want as few foreign machines as feasible.”

He also mentioned that AMEC and Naura in particular were getting more orders from SMIC and Hua Hong Semiconductor, two of China’s biggest foundries.

Requests for comments from AMEC, Naura, SMIC, and Hua Hong were not immediately answered.

According to a CINNO Research research, the top 10 domestic equipment manufacturers in China had a 39% year-over-year increase in equipment-related revenue in the first half of 2023, or $2.2 billion in sales.

Chinese businesses have been hoarding foreign-made semiconductor equipment from the Netherlands and Japan, but those markets are also about to collapse as both nations are anticipated to follow the United States in imposing restrictions in the coming months.

According to analysts, Chinese producers are becoming more proficient in making equipment for applications like etching and cleaning, where they compete on a worldwide scale against American companies like Lam Research Corp. and Applied Materials Inc.

According to AMEC’s earnings reports, some of its equipment have made their way onto manufacturing lines for chips as sophisticated as those utilising 5 nanometer technology. Silicon wafers’ surface is cleaned of extra material using its etching apparatus.

The quality of chip equipment built in China is improving quicker than expected, according to a semiconductor analyst who is based in China and chose not to be identified because he was not permitted to speak to the media. He estimated that the improvements were two years ahead of his initial projections.

“There is definitely huge progress happening in the Chinese semiconductor equipment space, as reflected in the strong revenue growth metrics,” he said.

There are still certain issues, especially with lithography, which needs very precise processing and highly complicated optics. The United States has now prohibited even some less sophisticated deep ultraviolet (DUV) lithography systems from entering China. China has been unable to obtain the extreme ultraviolet (EUV) lithography equipment required to produce the most sophisticated chips.

According to a Huatai Securities study, out of several bids received for lithography equipment during the first eight months of 2023, only one tender was given to a Chinese company.

Based on statistics from China’s customs, Reuters calculated that China’s imports of lithography machines and parts from the Netherlands increased by 81.2% year over year to $3.3 billion between January and August.

The largest technological business in Europe, ASML, based in the Netherlands and producer of cutting-edge technology, said on Wednesday that sales to China accounted for almost 50% of its revenue during the third quarter of 2023.

However, despite the difficulty with lithography, Chinese companies have made some significant advances. Analysts speculate that by modifying DUV machines they could still get from ASML, Huawei Technologies and SMIC were able to create an advanced chip for the Mate 60 Pro phone.

“Local players still lack capability to supply a full set of equipment, such as EUV,” said Nori Chiou, investment director at White Oak Capital, saying Chinese manufacturers are focused on covering mature node equipment.

“It’s a long way to go to see advanced semiconductor equipment made in China.”

(Adapted from ThePrint.in)

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