China has made significant strides in its semiconductor sector development, with over 40% of its manufacturing equipment now being locally produced, according to a DigiTimes report that cites data compiled by Bloomberg. This growth, fueled by significant R&D investments and governmental support, has doubled in just two years. However, there's still a reliance on foreign lithography tools, as Chinese companies can barely produce competitive scanners.
Recent reports from Korean media 'Ddaily' highlight that China's push for self-reliance in the semiconductor equipment sector has seen its localization rate surge to over 40%, a significant uplift from 21% in prior years. This rate has extended to over 50% in specific areas like physical vapor deposition (PVD) and oxidation.
The growth in China's semiconductor industry is not just about numbers. To achieve them, massive investments have been made. Among the various segments of China's semiconductor manufacturing chain, equipment manufacturers stand out with the highest investment in R&D. Over the past two and a half years, these manufacturers have consistently invested more than 10% of their revenues in R&D.
Two companies, in particular, Advanced Micro-Fabrication Equipment Inc China (AMEC) and Naura Technology, have been at the forefront of this R&D push. AMEC has maintained an average R&D ratio of over 13% in the past two and a half years, while Naura Technology has allocated 11% of its revenue towards R&D activities. Both AMEC and Naura specialize in tools for etching and deposition. By contrast, contract chipmaker SMIC and outsourced semiconductor assembly and test (OSAT) tend to limit their R&D spending to 10% of revenue.
While China's semiconductor sector has seen impressive growth, the key challenge to replace lithography scanners from Dutch and Japanese companies has not been resolved. Shanghai Micro Electronics Equipment Group (SMEE), a state-backed firm, earlier this year promised to introduce its first scanner capable of producing chips on a 28nm process technology by the end of 2023, but it remains to be seen when the company can make these scanners in volume and when they replace those made by ASML, Canon, and Nikon. For now, the localization rate for lithography equipment in China is in the single-digit percentage range, the source report claims.
Several factors have been instrumental in China's semiconductor advancements. A vast domestic market, combined with strong governmental backing, has provided the necessary impetus. Additionally, the country's robust R&D capabilities and financial support from the capital market have further propelled its journey towards semiconductor self-reliance.
