China’s chipmaking equipment market to shrink next year

China’s chipmaking equipment market is on track for a contraction next year, a result of an earlier rush of ahead-of-schedule purchases amid heightened tensions with the U.S.

Spending on chip manufacturing equipment in China will top $40 billion for the first time this year, according to international chip industry group SEMI.

But spending will fail to reach $40 billion next year, SEMI said at a China conference in September, falling back to the 2023 level.

“In 2025, the mainland Chinese market is expected to decline 5-10% from the previous year,” said an executive at the Chinese arm of an international chipmaking equipment supplier.

“The utilization rate of equipment delivered to mainland China semiconductor factories is declining, and the rush purchases made previously will lead to a shrinking market in 2025,” the executive added.

At ASML Holding, a major Dutch supplier of chipmaking devices, China accounted for roughly 50% sales by value during the July-September quarter.

However, ASML expects China’s share to drop to about 20% in 2025, with the company lowering the revenue forecast for that year.

The shrinking market is not isolated to next year. According to SEMI, spending on chipmaking equipment in mainland China will decline 4% on average between 2023 and 2027 in terms of compound annual growth rate.

In contrast, spending in the Americas will grow 22% annually during those years while increasing 19% in Europe and the Middle East, and 18% in Japan.

However, mainland China remains the world’s biggest market for chipmaking devices. It is expected to spend $144.4 billion on equipment for semiconductor plants between 2024 and 2027.

The outlay is larger than the $108 billion to be spent in South Korea, $103.2 billion in Taiwan, $77.5 billion in the Americas and Japan’s $45.1 billion.

Factoring into China’s outsized spending is the government’s goal of increasing self-sufficiency in the semiconductor industry. China’s self-sufficiency ratio forecast in 2023 was only 23%, according to SEMI, based on data from Canadian research firm TechInsights.

China’s government seeks to continue supporting the semiconductor industry to boost self-supply. Major foreign suppliers looking to capitalize on the huge market face stiff competition from local players.

State-owned Naura Technology Group is China’s largest chipmaking equipment supplier. Advanced Micro-Fabrication Equipment (AMEC) is the second largest. Both have improved technological capabilities with government support.

China’s leading chipmaker, Semiconductor Manufacturing International (SMIC), received state guidance to procure domestically produced equipment together with other chipmakers. This contingent is rushing to expand purchases of domestically produced equipment.

In January, the U.S. added AMEC to a list of Chinese companies linked to the military. Two executives with U.S. citizenship resigned from AMEC as of September, according to Chinese media. Nikkei Asia