China will likely reduce purchase of chipmaking tools this year as homegrown toolmakers ramp up

SMIC
(Image credit: SMIC)

Chinese entities have led the purchase of chipmaking tools for several years now. Still, this year's wafer fabrication equipment (WFE) sales to Chinese chipmakers will drop because of sanctions and overcapacity, according to a Reuters report citing a TechInsights webinar.

According to TechInsights, China's investment in semiconductor manufacturing tools is set to drop from $41 billion in 2024 to $38 billion, a 6% reduction. In recent years, much of China's investments were driven by stockpiling, as companies sought to secure tools before additional U.S. restrictions took effect. The upcoming downturn is attributed to tighter U.S. export restrictions and an oversupply of chips.

While a $3 billion drop is significant, a $38 billion spending means that China will remain the world's largest market for wafer fabrication equipment, followed by Taiwan, South Korea, and the U.S. In 2023, Chinese companies purchased $36.6 billion worth of WFE, billings to South Korean companies totaled $16.94 billion, and Taiwanese entities procured semiconductor production tools worth $19.62 billion. In contrast, according to SEMI, American chipmakers trailed with $12.05 billion.

Although U.S. sanctions have limited China's access to advanced semiconductor production technologies (particularly those used for AI and supercomputers), China has made significant strides in mature-node chips, ramping production and gaining ground on American and Taiwanese competitors. This segment includes older but widely used process technologies, such as 28nm, 45nm, 90nm, and 130nm.

While this expansion has strengthened China's position on the market, SMIC recently warned of potential oversupply risks, which could impact profitability as demand for consumer electronics — where many of the chips produced on mature nodes are used — is weak these days.

It should be noted that analysts and market observers from outside of China primarily track sales of Western tools to the People's Republic. Meanwhile, foreigners have relatively limited visibility on what is happening with domestic wafer fabrication equipment suppliers. The latter have grown their sales and market share in 2024 to record levels. Companies like AMEC and Naura, which specialize in etching and chemical vapor deposition (CVD) tools, produce world-class equipment and are on track to push aside such giants as Applied Materials, KLA, and Lam Research in China.

However, China still struggles with key weaknesses in semiconductor production as domestic chipmakers remain heavily dependent on foreign suppliers for lithography machines. Currently, they purchase tools from companies like ASML, Canon, and Nikon as Shanghai Micro Electronics Equipment (SMEE) can only make litho tools good enough for process technologies of 90nm and thicker (even though it planned to deliver its first 28nm-capable scanner in 2023). China also lags in testing and assembly equipment. In 2023, domestic companies supplied only 17% of testing tools and 10% of assembly machines used in the country, according to TechInsights.

While China will reduce its purchases of chipmaking tools in 2025, it will still be the biggest buyer of such equipment. This is because it is rapidly building fabs specializing in mature process technologies. Once these fabs are equipped, they will have formidable production capacity and likely flood the market with simplistic chips like display driver ICs (DDICs) and power management ICs (PMICs), which will hit companies from other regions hard.

Anton Shilov
Contributing Writer

Anton Shilov is a contributing writer at Tom’s Hardware. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.

  • endocine
    "home grown" is that slang for "we bought some machines and tech from ASML or had employees there steal the IP to make our own"
    Reply
  • The Historical Fidelity
    It’ll be interesting to see the hiccups introduced by using tools with no track record behind them. I foresee a lot of headaches involved.
    Reply
  • DalaiLamar
    endocine said:
    "home grown" is that slang for "we bought some machines and tech from ASML or had employees there steal the IP to make our own"

    And you forgot made in china quality. So don't worry
    Reply
  • Lakitu_Runner
    DalaiLamar said:
    And you forgot made in china quality. So don't worry
    That is a very selective way of looking at things. There are many high tech industries that China is on par or better than anyone else, especially in high tech. Smart phones, network equipment,tablets and PCs (Lenovo is chinese don't forget) and way ahead of western companies in EVs and associated tech. BYD, Great Wall Motors and others make Tesla look like a flinstone scooter that those cars are...I own a model X and it is a great example of a car that is made to be disposable before it comes off the lot
    Reply
  • _Shatta_AD_
    endocine said:
    "home grown" is that slang for "we bought some machines and tech from ASML or had employees there steal the IP to make our own"
    Another one of those XXXX thinking 1.4 billion ppl in China are brain dead incapable of innovating. I've travelled to and seen inside several universities in Nanjing and Beijing, the quality of their equipment and the research they do rivaled and in some cases surpasses their peers in AMERICA (MIT, Princeton, CalTech, etc.). So you're telling me all the research they do is a waste that doesn't come to fruition? If there's anyone who knows best not to waste $$$, it's the Chinese. They want result in their investment. Simple logic will tell you, all these research won't get funded if they hadn't produced some promising results.
    Stealing IP lol, that's just some fantasy excuses certain class of people have used when others surpasses them in the arena. Some people like you believes China took a time machine and stole IPs that doesn't even exists yet in the US.
    Reply
  • phead128
    endocine said:
    "home grown" is that slang for "we bought some machines and tech from ASML or had employees there steal the IP to make our own"

    ASML is forbidden from selling their tech to China, and China has the engineering talent to make domestic lithography given time. See how they dominate EV, batteries, solar, and now even AI, they have better performing AI models that's even cheaper training compute cost than 4o/o1, plus open sourced.
    Reply
  • The Historical Fidelity
    phead128 said:
    ASML is forbidden from selling their tech to China, and China has the engineering talent to make domestic lithography given time. See how they dominate EV, batteries, solar, and now even AI, they have better performing AI models that's even cheaper training compute cost than 4o/o1, plus open sourced.
    Do not mistake volume manufacturing of low cost versions of items invented outside of China for “dominance”. BYD, NIO, etc. are having a lot of trouble selling their cars in Europe and North America because there are higher quality EV manufacturers already in those markets. Batteries wise, Korea and Japan hold the crown for quality lithium battery cells…I have Samsung 18650 cells that are still usable today after 500+ charges, whereas all the different Chinese cells I’ve procured hold about half the advertised charge and become unusable after at most 200 charges. Although Chinese solar panels are cheaper, their lifespan has been verified to be 2-4x shorter and 50-60% of the efficiency of quality US or German panels. Deepseek AI has actually been shown to be inferior to US AI’s, and I’ll remind you that Deepseek was built using American technology. I’m not saying this to downplay Chinese contributions to the world, but to claim dominance when China only has 2 of the 3 requirements (IE: Price and Volume, But not quality) is premature.
    Reply
  • Murissokah
    DalaiLamar said:
    And you forgot made in china quality. So don't worry
    This thing about China only producing low quality stuff got old some time ago. People need to wake up to the fact that the Chinese internal market has grown tremendously. There's a large market with money to buy expensive stuff and Chinese products have been competing on quality with western ones for some time now.
    Reply
  • The Historical Fidelity
    thekingofALLmonkz said:
    No track record? What do you know? Are you a CCP official?
    Okay, what advanced Chinese lithography tools existed before the embargo’s that were actually used by semiconductor manufacturing companies…I’ll wait
    Reply
  • COLGeek
    Civility is required by all. Just a friendly reminder.

    Thank you.
    Reply