Chip Equipment – Domestic Substitution and Self-Control in Core Areas [Beneficial Targets]

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On August 21, DeepSeek’s official WeChat account stated that UE8M0 FP8 is designed for the upcoming next-generation domestic chip.

On August 22, DeepSeek-V3.1 was officially released, adding support for FP8 precision and domestic chips. CITIC Construction Investment Research Report believes that the support of leading domestic open-source models for domestic chips is expected to accelerate the implementation of the domestic computing power ecosystem, thereby driving demand for semiconductor equipment.

Huawei Cloud has adjusted its organizational structure to focus on the “3+2+1” business model, where “3” includes general computing, intelligent computing, and storage; “2” includes AI PaaS and databases; and “1” mainly focuses on security business.

Under the wave of AI, the demand for domestic equipment is expected to achieve a triple resonance due to the chip inventory cycle, the expansion cycle of domestic wafer fabs, and the tightening of overseas controls, driving the semiconductor equipment sector’s performance beyond expectations.

This article will outline the semiconductor (chip) equipment industry from the perspectives of market demand, core equipment, and the industrial chain:

1. Overview of Semiconductor (Chip) Equipment

Semiconductor (chip) equipment mainly refers to various devices used in the chip manufacturing process. These devices are the core support for chip production, covering the entire chip manufacturing process, including key stages such as wafer manufacturing, packaging, and testing.

Chip manufacturing involves numerous complex steps, corresponding to many core devices, such as:

Wafer manufacturing equipment: including photolithography machines (used to transfer circuit patterns onto wafers), etching machines (to etch circuit grooves), thin film deposition equipment (to form films on the wafer surface), ion implanters (to inject impurities into the wafer to change conductivity), and cleaning equipment (to remove contaminants from the wafer surface).

Packaging and testing equipment: includes bonding machines used in the packaging process, as well as probe stations and sorting machines used in the testing phase.

As the chip industry is the core of information technology, and chip equipment is the foundation for the development of the chip industry, the technical barriers are high, and the demand for domestic substitution is urgent. When the industry encounters catalytic factors such as policy support, technological breakthroughs, and increased market demand, the attention and activity in related concept sectors often increase.

2. Market Demand for Semiconductor (Chip) Equipment

2.1 Global Market Demand

According to SEMI data, global semiconductor equipment sales are expected to grow by 10% year-on-year to $117.14 billion in 2024, setting a new historical high.

Among them, wafer processing equipment sales are expected to grow by 9%, assembly and packaging equipment sales by 25%, and testing equipment sales by 20%.

China, South Korea, and Taiwan remain the top three markets for semiconductor equipment spending, accounting for a combined 74% of the global market share. Sales in mainland China surged by 35% year-on-year, reaching $49.6 billion, solidifying its position as the largest semiconductor equipment market.

South Korea’s equipment spending increased slightly by 3% to $20.5 billion; Taiwan’s equipment sales fell by 16% to $16.6 billion. Additionally, North America saw a 14% year-on-year increase in sales, reaching $13.7 billion; Europe experienced a significant decline of 25%, dropping to $4.9 billion; Japan also saw a slight decline of 1%, with sales of $7.8 billion.

2.2 Urgent Demand for Domestic Substitution

With the government’s emphasis on the integrated circuit industry and the requirement for domestic substitution and self-control, Chinese semiconductor equipment companies are facing development opportunities. Although domestic equipment still lags behind foreign equipment in technology, it has performed well in areas such as degluing, cleaning, and etching equipment, and has made breakthroughs in CMP, thermal processing, and thin film deposition equipment, indicating a vast space for domestic substitution.

2.3 Driving Factors Analysis

The growing demand for DRAM and HBM used in artificial intelligence has driven increased investment in chip manufacturing equipment.

For example, Huawei’s Ascend chips have recently participated in bidding for products in government, finance, and telecommunications sectors, and Tencent’s earnings report also indicated that the supply channels for inference chips have multiple options, all of which have driven the growth of semiconductor equipment demand.

Governments around the world are introducing policies to support the development of the semiconductor industry, such as the U.S. CHIPS Act, and the Chinese government is also providing strong support for the integrated circuit industry, which helps to boost demand for semiconductor equipment.

The rapid development of emerging technologies such as 6G and the Internet of Things has increased the demand for chips, thereby driving the market demand for semiconductor equipment.

2.4 Challenge Factors Analysis

Chip equipment technology is complex, with long R&D cycles and high investment costs. Core equipment such as photolithography machines is still monopolized by foreign companies, and domestic companies face significant challenges in catching up technologically.

Export restrictions imposed by countries like the U.S. on China may affect the import of semiconductor equipment and technical exchanges, and may also trigger adjustments in the global semiconductor industry supply chain, creating uncertainty in market demand.

3. Introduction to Core Semiconductor (Chip) Equipment

3.1 Photolithography Machines

Photolithography machines are core equipment in chip manufacturing, used to transfer circuit patterns onto wafers, and their precision determines the minimum feature size and density of the chip.

The global photolithography machine market is dominated by ASML from the Netherlands, which is the only supplier capable of providing advanced EUV photolithography machines for processes at 7nm and below, with extremely high technical barriers.

On the domestic front, Shanghai Micro Electronics is the only complete machine manufacturer in China, with its 90nm photolithography machine already in mass production, and the 28nm immersion type is accelerating development, with plans to deliver more than 10 units by 2025.

3.2 Etching Machines

Etching machines are used to etch circuit grooves and are one of the key devices in chip manufacturing.

SMIC is a leading manufacturer of etching equipment in China, with its etching technology holding a significant market share globally. Its products are widely used in the manufacturing processes of integrated circuits, light-emitting diodes (LEDs), and power devices, covering advanced etching application needs. Additionally, North Huachuang also has an etching machine business, with a product line covering etching equipment, thin film deposition equipment, thermal processing equipment, and more.

3.3 Thin Film Deposition Equipment

Thin film deposition equipment is used to form films on the wafer surface, and its value in the front-end process of integrated circuits is second only to photolithography machines. Companies like Applied Materials from the U.S., Lam Research, and Tokyo Electron from Japan are leading in this field. Domestic players like North Huachuang and Tuo Jing Technology are major participants, with North Huachuang’s deposition equipment already entering 14nm process fabs, and Tuo Jing Technology focusing on the R&D and industrialization of semiconductor thin film deposition equipment and hybrid bonding equipment, with its PECVD, SACVD, and HDPCVD equipment processes fully covered, and it has also launched the first domestically produced hybrid bonding equipment for mass production.

3.4 Chemical Mechanical Polishing (CMP) Equipment

CMP equipment is used to flatten the wafer surface and is one of the key devices in chip manufacturing.

Huahai Qingke is a leading domestic CMP equipment company, having launched the first 12-inch CMP equipment in China, and is also expanding into thinning equipment, cutting equipment, wet processing equipment, wafer regeneration, key consumables, and maintenance services, initially realizing a platform strategy layout of “equipment + services”.

3.5 Testing Equipment

Testing equipment is used to detect the performance and functionality of chips, ensuring their quality and reliability.

Advantest from Japan is a globally recognized supplier of semiconductor testing equipment, specializing in semiconductor testing and mechatronic system testing systems and related equipment, with its semiconductor products including back-end testing machines and sorting machines.

Domestic company Huafeng Measurement and Control is also an important player in the testing equipment field, holding a significant market share in the analog and mixed-signal testing machine sector.

4. Analysis of the Semiconductor (Chip) Equipment Industry Chain

4.1 Upstream Industry Chain

This mainly involves the production of basic materials and key components, forming the foundation of the industry.

Components include bearings, sensors, quartz, edge rings, reaction chamber spray heads, pumps, ceramic parts, RF generators, robotic arms, etc. Core subsystems include gas and liquid flow control systems, vacuum systems, and process diagnostic systems.

In terms of materials, there are silicon wafers, photoresists, sputtering targets, electronic special gases, etc. The quality and performance of these components and materials directly restrict the reliability and advancement of midstream equipment, such as the lenses and light sources of photolithography machines, which have extremely high technical barriers, and the global photolithography machine component market is basically controlled by a few foreign companies.

4.2 Midstream Industry Chain

This is the core of the semiconductor equipment industry chain, covering the R&D, production, and sales of various equipment, including photolithography machines, etching equipment, thin film deposition equipment, vacuum coating equipment, cleaning equipment, ion implantation equipment, coating and developing equipment, CMP equipment, thermal processing equipment, etc.

These devices are the key tools for semiconductor manufacturing, and their technical level and market share directly determine the competitiveness of enterprises.

For example, ASML from the Netherlands dominates the photolithography equipment field, especially in high-end EUV photolithography machines, while domestic company SMIC has achieved significant results in the etching equipment field, with products that have a certain competitive edge in the global market.

4.3 Downstream Industry Chain

This mainly involves chip manufacturing and packaging testing, which are direct users of semiconductor equipment, and changes in their demand directly affect the market demand for equipment.

Driven by emerging technologies such as 5G, artificial intelligence, and the Internet of Things, the demand for chips in the market has exploded, with domestic chip manufacturing companies like SMIC continuously increasing R&D investment and the procurement volume of various semiconductor equipment.

At the same time, packaging testing companies like Changdian Technology occupy an important position in the global market, and with the trend of chip miniaturization and multi-functional integration, the demand for advanced packaging equipment and high-precision testing instruments has also surged.

5. Investment Targets in Semiconductor (Chip) Equipment

1. Shanghai Semei

Mainland China has been the largest semiconductor equipment market in the world for several consecutive years, with sales reaching $36.6 billion in 2023, accounting for 34.45% of the global market share. As global wafer capacity shifts to mainland China, it is expected that by 2026, mainland China’s share of global IC wafer capacity will reach 22.3%, becoming the largest source of IC wafer capacity in the world, which will continue to drive demand for chip equipment.

Shanghai Semei has unique SAPS/TEBO megasonic cleaning technology in the cleaning equipment field, covering over 95% of cleaning scenarios, with a global market share of 8% and a domestic market share exceeding 50%.

Its electroplating equipment is also highly competitive, with a global market share of 8.2%, making it the only domestic company to enter the top ten, filling the gap in 3D NAND copper interconnect deposition.

The company adheres to a platform strategy, evolving from a “cleaning expert” to a “semiconductor equipment platform,” gradually expanding into high-value-added sectors such as electroplating, vertical furnace tubes, and Track. By 2024, the revenue share of electroplating, vertical furnace tubes, and stress-free copper plating equipment has reached 20.91%, and the platform layout helps reduce reliance on a single device and enhance customer stickiness.

The company values R&D innovation, with R&D expenses of 187 million yuan in Q1 2025, a year-on-year increase of 11.65%, accounting for 14.35% of revenue. The company also plans to raise funds through a targeted stock issuance to invest in R&D and process testing platform construction, as well as the iterative R&D of high-end semiconductor equipment, to maintain its technological advantage.

In the first half of 2025, Shanghai Semei achieved revenue of 3.265 billion yuan, a year-on-year increase of 35.83%, with a net profit of 696 million yuan, a year-on-year increase of 56.99%. The company’s gross margin reached 49%, and both inventory and contract liabilities have increased, indicating a full order book and a good financial condition, demonstrating strong risk resistance capability.

2. North Huachuang

As a leader in the domestic semiconductor equipment field, North Huachuang is actively laying out capacity expansion and technological R&D to meet the strong demand for high-end equipment in advanced chip manufacturing.

In terms of capacity layout, North Huachuang continues to make efforts. Its six major R&D and production bases are continuously increasing investment to further enhance capacity. In 2025, the company is actively promoting project construction at each base.

In terms of technological R&D, North Huachuang has also achieved remarkable results. The company places a high emphasis on R&D investment, with a compound annual growth rate of 47.35% in R&D expenses from 2019 to 2023. As of the first half of 2024, it has applied for over 8,300 patents, with over 4,900 patents granted.

In the etching equipment sector, it continues to optimize technology and has launched several advanced etching machine products, such as the 12-inch capacitively coupled plasma etching machine AccuraL X, continuously improving etching precision and efficiency to meet the stringent requirements for fine line etching in chip manufacturing.

In the thin film deposition equipment field, it has also achieved outstanding results. By the end of 2023, it has launched over 40 PVD (Physical Vapor Deposition) devices, with cumulative shipments exceeding 3,500 chambers; it has launched over 30 CVD (Chemical Vapor Deposition) products, with cumulative shipments exceeding 1,000 chambers.

In 2025, the company announced its entry into the ion implantation equipment market and released its first ion implanter, Sirius MC313, further enriching its product line in the semiconductor equipment field and improving its technological layout.

At the same time, two self-developed MOCVD epitaxy devices, Saturn 800 and Saturn V700, successfully passed acceptance by industry-leading customers, demonstrating the company’s strong capabilities and technological leadership in related fields.

In the mainland China market, local wafer foundry leaders and memory chip manufacturers are its important customers.

The company’s products have “availability” in mature and some advanced process fields, meeting the vast majority of customer capacity needs. Additionally, it has local advantages in equipment pricing, spare parts supply, and after-sales service, making it highly favored by customers.

3. Fulede

The company has a strong technical accumulation in the field of general semiconductor cleaning services, having developed and mass-produced semiconductor cleaning processes for 14nm processes, with the reserved cleaning processes for semiconductor 7nm components being relatively mature, and the self-developed precision cleaning technology for semiconductor processes at 10nm and below successfully mass-produced and applied to globally renowned semiconductor companies.

The company follows the development trend of the downstream wafer foundry industry, investing in a wholly-owned subsidiary in Kumamoto Prefecture, Japan, to improve its business regional layout and achieve strategic development needs for global business layout. The Japanese government is heavily subsidizing the semiconductor industry, and companies like TSMC are building new wafer fabs in Japan, which will bring new business opportunities for Fulede.

Fulede is enhancing its industrial upgrade layout through acquisitions of companies like Fulehua and Hangzhou Zhixin, accelerating its transition from semiconductor cleaning and value-added services to the production and manufacturing of key semiconductor components.

The company has established long-term stable partnerships with many well-known domestic and foreign enterprises, including SMIC, Intel, BOE, and Huaxing Optoelectronics, and has collaborated with major global semiconductor equipment manufacturers such as Lam Research, Applied Materials, and Tokyo Electron, enriching its customer resources and enhancing its market influence and brand recognition.

4. Changchuan Technology

Changchuan Technology possesses core technologies such as high-speed digital testing and high-voltage large current testing, achieving testing precision at an internationally advanced level, and has successfully developed China’s first fully automatic ultra-precision probe station.

The company continues to increase R&D investment, with R&D expenses growing from 187 million yuan in 2020 to 715 million yuan in 2023, and the R&D expense ratio soaring from 23.3% to 40.31%, far exceeding that of peer companies.

The company’s testing machines, sorting machines, and other products have been recognized by leading packaging and testing companies such as Huatiankeji, Changdian Technology, and Tongfu Microelectronics, and through the acquisition of STI, it has established connections with several overseas giants such as Texas Instruments, Anke, and Samsung, providing high-quality and extensive customer resources that contribute to stable growth in its performance.

Through organic growth and external mergers and acquisitions, the company has formed a product matrix of “testing machines + sorting machines + probe stations + AOI equipment,” covering both front-end wafer testing and back-end packaging testing, enabling it to provide customers with one-stop solutions, reducing procurement complexity for customers and enhancing customer stickiness.

In the first half of 2025, Changchuan Technology achieved revenue of 2.167 billion yuan, a year-on-year increase of 41.8%, with a net profit attributable to the parent company of 427 million yuan, a year-on-year increase of 98.73%. As orders increase, the company’s management expense ratio decreases, further opening up profit margins, and scale effects gradually become apparent.

5. Kema Technology

The company has mastered advanced ceramic full-process technology from material formulation to component manufacturing, and as of July 26, 2024, has obtained 78 domestic authorized patents, including 12 invention patents.

Its ceramic heaters, electrostatic chucks, and other products have reached domestic leading and international mainstream levels, breaking the foreign technology monopoly.

The company’s main products and services include advanced ceramic material components, surface treatment, and metal structure components, covering semiconductor manufacturing front-end process equipment such as etching, thin film deposition, and ion implantation, and actively expanding into back-end process equipment, providing customers with diversified products and services.

Its customers include well-known domestic and foreign semiconductor equipment manufacturers such as Company A, North Huachuang, SMIC, and Tuo Jing Technology, establishing stable cooperative relationships with these companies, helping the company stay updated on market demand and expand business channels.

In the first three quarters of 2024, the company achieved revenue of 616 million yuan, a year-on-year increase of 74.65%, with a net profit attributable to the parent company of 226 million yuan, a year-on-year increase of 295.42%, showing significant performance growth and a high gross margin, indicating strong profitability and development potential.

Summary

1. The upgrade of core equipment is the most critical link in semiconductor (chip) manufacturing and the cornerstone of the entire industry’s development. Recently, the resonance of AI, computing power, and the entire semiconductor industry chain has brought about policy and domestic substitution, indicating a demand for recovery from low levels, and opportunities can be found among leading companies in various core equipment sectors.

2. Semiconductor equipment, as the upstream of integrated circuits (chips) and consumer electronics, has always been the industry with the most severe “bottleneck” issues, and it is also an unavoidable demand direction for many cutting-edge technology industries such as AI, robotics, etc. From the perspective of self-control and domestic substitution, increasing capital injection to improve the domestic substitution rate is imperative.

Note: The views expressed in this article are solely those of the author, and the mentioned targets are not recommendations. Trading based on this information is at your own risk.

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