Overview of the Domestic Substitution Semiconductor Industry Chain

The domestic substitution semiconductor industry chain covers the entire process from upstream materials and equipment to midstream design, manufacturing, and packaging/testing. Leading companies in various segments are gradually breaking the international monopoly through technological breakthroughs. The following analysis combines the latest industry dynamics:

1. Core Segments and Leading Enterprises

1. Semiconductor Equipment: The Main Battlefield for Domestic Substitution

• Etching Equipment: Northern Huachuang (002371) is the only platform enterprise in China covering all categories of equipment including etching, thin film deposition, and cleaning. The 14nm etching machine has entered mass production, and the 28nm CVD equipment has entered mainstream production lines. Zhongwei Company (688012) has received certification from TSMC for its 5nm etching machine, directly competing with international giants in the etching equipment field.
• Thin Film Deposition Equipment: TuoJing Technology (688072) is the only company in China to achieve mass production of high-end PECVD, ALD, and SACVD equipment. PECVD equipment is used in the manufacturing of 14nm logic chips and 128-layer 3D NAND, with a domestic market share exceeding 30%.
• CMP Equipment: Huahai Qingke (688120) monopolizes 80% of the domestic 12-inch CMP market, with the new generation of equipment supporting 5nm processes and a gross margin exceeding 45%.
• Cleaning Equipment: Shengmei Shanghai (688082) has broken through the bottleneck of megasonic cleaning with SAPS/TEBO technology, serving clients such as SK Hynix and Yangtze Memory Technologies, with the revenue share of plating equipment increasing to 20%.
• Testing Equipment: Changchuan Technology (300604) has a domestic market share exceeding 20% for testing machines, with digital testing machines supporting 14nm processes, and a year-on-year revenue increase of 105% expected in 2024.

2. Semiconductor Materials: Accelerating Breakthroughs in High-End Fields

• Silicon Wafers: Shanghai Silicon Industry (688126) is the only company in China to achieve mass production of 12-inch silicon wafers, with clients including TSMC and SMIC, and a domestic substitution rate exceeding 50%. Shengu Co., Ltd. (688233) has its 12-inch semiconductor-grade single crystal silicon material certified by Samsung, with a year-on-year revenue growth of 124% expected in 2024.
• Photoresists: Nanda Optoelectronics (300346) has its ArF photoresist validated by SMIC, becoming the first domestic photoresist to enter the 14nm production line; Tongcheng New Materials (603650) has achieved mass production of ARF photoresists, covering leading companies such as Yangtze Memory Technologies.
• Electronic Specialty Gases: Huate Gas (688268) is the only gas company in China certified by ASML, with a market share exceeding 60% in photoresist gases.
• Packaging Materials: Yake Technology (002409) is one of only three companies globally that can provide low-α ball silicon fillers for HBM packaging, with HBM material revenue expected to exceed 2 billion yuan by 2025. Huahai Chengke (688535) is the only company in China to mass-produce the core material GMC for HBM packaging, compatible with 12-layer HBM3E stacking technology.

3. Memory Chip Manufacturing: A Benchmark Field for Domestic Substitution

• 3D NAND: Yangtze Memory Technologies (not listed) has achieved mass production of 232-layer chips with the Xtacking 4.0 architecture, maintaining a yield rate of 85%, with global market share increasing from 1% to 8%.
• DRAM: Changxin Memory (not listed) has its 19nm DDR5 certified by Huawei and Inspur, with a monthly production capacity of 120,000 wafers at its Hefei base, and the first 100% domestically produced trial production line has been launched.
• HBM: Domestic companies are expected to achieve mass production of HBM2e by 2025, with Changdian Technology (600584) achieving a yield rate of 98.5% for 8-layer stacking, surpassing Samsung’s 96%, and exclusively undertaking SK Hynix’s HBM3E packaging orders.

4. Chip Design: Multiple Points of Blooming in Niche Markets

• Storage Control Chips: Lanke Technology (688008) has a global market share of 36.8% for DDR5 interface chips, supporting the production of second-generation chipsets at 12800 MT/s, with a gross margin of 68%.
• Automotive-grade Chips: Zhaoyi Innovation (603986) has a global market share of 18.5% for NOR Flash, with automotive-grade products entering the supply chains of Tesla and BYD, and automotive storage orders expected to account for 45% by 2025. Beijing Junzheng (300223) has a global market share of 19% for automotive DRAM, compatible with Tesla’s FSD and NVIDIA’s Orin platform.

5. Advanced Packaging Testing: Technology Surpassing International Giants

• HBM Packaging: Changdian Technology (600584) has its XDFOI® technology benchmarked against TSMC’s CoWoS, with a dedicated HBM production line at its Hefei base achieving a monthly capacity of 20,000 pieces, and packaging revenue expected to exceed 5 billion yuan by 2025. Tongfu Microelectronics (002156) FCBGA packaging supports 16-layer NAND stacking, with a yield rate of 98%, entering NVIDIA’s HBM supply chain.
• System-Level Packaging: Taiji Industry (600667) subsidiary Haitai Semiconductor has mastered 16-layer DRAM stacking technology, providing HBM packaging services for SK Hynix, with packaging revenue expected to grow by 42% year-on-year in 2024.

2. The Segment with the Highest Value: Semiconductor Equipment

1. Highest Capital Expenditure Proportion

Semiconductor equipment is the core of wafer factory investments, accounting for 70%-80% of capital expenditures. In 2024, the semiconductor equipment market in mainland China is expected to reach $49.55 billion (approximately 360 billion yuan), accounting for 42% of the global market, maintaining the top position for five consecutive years. Among these, front-end wafer manufacturing equipment accounts for over 90%, with thin film deposition, etching, and photolithography equipment being the top three categories by value.

2. Broad Space for Domestic Substitution

Although the domestic substitution rate for equipment is about 25% in 2024, the substitution rate for high-end equipment (such as EUV lithography machines and etching machines below 14nm) is less than 10%. For example, in 2023, the domestic market size for thin film deposition equipment was 47.9 billion yuan, with a substitution rate below 25%. Companies like TuoJing Technology and Northern Huachuang are accelerating to fill this gap. As SMIC, Yangtze Memory Technologies, and other wafer factories expand, the demand for equipment procurement continues to be released, with Northern Huachuang’s revenue expected to reach 29.838 billion yuan in 2024 (up 35% year-on-year), and orders already scheduled until 2026.

3. Technical Barriers and Strategic Value

Equipment is the “industrial mother machine” of semiconductor manufacturing, directly determining chip process capabilities. For example, Huahai Qingke’s CMP equipment has solved the problem of controlling uniformity in nano-level polishing, completely replacing imports; Shengmei Shanghai’s cleaning equipment has broken the monopoly of Screen and Tokyo Electron through differentiated technology, entering the supply chains of international giants. These breakthroughs not only reduce dependence on imported equipment but also provide foundational support for domestic advanced process research and development.

3. Future Growth Engines

1. Memory Chip Manufacturing: The mass production of 232-layer NAND by Yangtze Memory Technologies and the expansion of DDR5 by Changxin Memory are expected to increase the domestic substitution rate of memory chips from 15% to 35% by 2030, with a market size expected to reach 800 billion yuan.
2. Advanced Packaging: The explosive demand for HBM (expected to grow 300% globally by 2025) will drive rapid revenue growth for companies like Changdian Technology and Tongfu Microelectronics, with the penetration rate of advanced packaging in memory chips expected to exceed 40%.
3. Third-Generation Semiconductors: Tianyue Advanced (688234) has achieved a yield rate of over 80% for 8-inch silicon carbide substrates, entering the supply chains of BYD and Sungrow, with the global SiC market expected to exceed $10 billion by 2025.

4. Risks and Challenges

1. Pressure from Technological Iteration: Samsung’s 12-layer HBM3E and SK Hynix’s 16-layer HBM have already been mass-produced, and domestic companies need to accelerate their technological catch-up.
2. Import Restrictions on Equipment: U.S. export controls on equipment for processes below 14nm may affect the capacity ramp-up of domestic wafer factories.
3. Price Volatility Risks: The expansion of international memory chip giants may lead to price declines, squeezing the profit margins of domestic companies.

Conclusion

The domestic substitution of semiconductors is a tough battle across the entire industry chain, with the equipment sector being the most valuable due to high capital expenditures and strong technical barriers. Leading companies like Northern Huachuang and TuoJing Technology have made strategic breakthroughs in key equipment such as etching and thin film deposition. At the same time, domestic substitution in fields like memory chip manufacturing and advanced packaging is also accelerating, with companies like Yangtze Memory Technologies and Changdian Technology gradually rewriting the global competitive landscape through technological advancements. In the future, with increased policy support and deepening technological iterations, domestic substitution will upgrade from “usable” to “better usable,” driving the Chinese semiconductor industry into the high end of the global value chain.

This is a personal opinion and is for reference only.