Key Points
- Due to U.S. sanctions and overcapacity, China’s wafer fabrication equipment purchases are projected to drop from $41 billion in 2024 to $38 billion in 2025.
- Despite the reduction, China will remain the world’s largest market for semiconductor manufacturing tools, ahead of Taiwan, South Korea, and the U.S.
- China has advanced in mature-node chip production but faces potential oversupply risks as demand for consumer electronics weakens.
- Domestic equipment makers like AMEC and Naura are gaining market share and competing in select semiconductor processes with global giants.
China, the world’s largest buyer of semiconductor manufacturing equipment, is set to reduce its spending on wafer fabrication tools in 2025 due to U.S. sanctions and an oversupply of chips, according to a TechInsights webinar reported by Reuters.
China’s investment in wafer fabrication equipment (WFE) is expected to drop from $41 billion in 2024 to $38 billion in 2025, marking a 6% decline. This decrease follows years of aggressive stockpiling by Chinese companies attempting to secure tools before tighter U.S. restrictions took effect. Despite the reduction, China will remain the world’s largest market for chipmaking equipment, ahead of Taiwan, South Korea, and the United States.
In 2023, Chinese semiconductor firms purchased $36.6 billion worth of WFE, while South Korean companies spent $16.94 billion, and Taiwanese firms acquired $19.62 billion in equipment. In contrast, U.S. semiconductor companies trailed with $12.05 billion in spending.
U.S. export restrictions have significantly limited China’s access to cutting-edge semiconductor production technology, especially in areas critical for AI and supercomputing. However, Chinese chipmakers have made substantial progress in mature-node chip production, focusing on widely used but older technologies like 28nm, 45nm, 90nm, and 130nm.
Despite this progress, SMIC, China’s largest chip foundry, has warned of potential oversupply risks. Weak demand for consumer electronics, where many of these mature-node chips are used, could negatively impact profitability.
Western analysts primarily track the sales of foreign-made semiconductor tools to China. However, domestic Chinese equipment manufacturers have rapidly grown, reaching record sales in 2024. Companies like AMEC and Naura, specializing in etching and chemical vapor deposition (CVD) tools, are gaining ground against industry leaders like Applied Materials, KLA, and Lam Research.
Despite these advancements, China relies heavily on foreign suppliers for lithography machines, a critical component of chip production. Domestic company Shanghai Micro Electronics Equipment (SMEE) currently produces lithography tools only suitable for 90nm technology, falling far behind industry leaders ASML, Canon, and Nikon. Additionally, China lags in testing and assembly equipment, with domestic companies supplying only 17% of testing tools and 10% of assembly machines in 2023.
While China’s purchases of chipmaking tools will decline in 2025, it is still aggressively constructing semiconductor fabs focused on mature process technologies. Once these fabs become operational, they are expected to flood the market with simpler chips, such as display driver ICs (DDICs) and power management ICs (PMICs). This could pressure semiconductor firms in other regions that depend on these segments for profitability.
